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Chapter 28: Money and Inflation
28 Money and inﬂation Matías Vernengo John Maynard Keynes once said that according to Lenin there is no surer way of overturning a society than to degrade its currency. Inﬂationary processes, it is clear, can be very disruptive in the short run, even if they do not cause revolutions. But they also have longlasting eﬀects. Fernand Braudel believed that price revolutions represented the strongest secular pattern in modern history. In fact, over the past eight centuries, the world economy has experienced four major price revolutions whose inﬂationary forces ultimately transformed economic and social structures. These four price revolutions took place approximately in the late-medieval period, from 1180 to 1350, after the age of great discoveries in the sixteenth century, from 1470 to 1650, during the Industrial Revolution era, from 1730 to 1815, and during the twentieth century, from the 1890s to the 1980s (Hackett Fischer, 1996). Not only inﬂationary processes come in long waves of steady and low inﬂation, but also every so often bouts of high inﬂation and hyperinﬂation occur. In other words, there are several types of inﬂationary processes. However, high inﬂation and hyperinﬂation are relatively rare events associated with severe crises, wars and situations when the state apparatus collapses. Two analytical distinctions are useful to understand diﬀerent explanations of inﬂationary processes of all types. First, and more importantly, theories can be seen as cost-push or demand-pull theories of inﬂation. The former theories...
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