Monetary Regimes and Inflation
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Monetary Regimes and Inflation

History, Economic and Political Relationships, Second Edition

Peter Bernholz

Exploring the characteristics of inflations and comparing historical cases from Roman times up to the modern day, this book provides an in depth discussion of the subject. It analyses the high and moderate inflations caused by the inflationary bias of political systems and economic relationships, as well as the importance of different monetary regimes in containing them. The differences for the possible size of inflations among monetary regimes like metallic currencies, the gold standard and fiat paper money are discussed. It is shown that huge budget deficits of government have been responsible for all hyperinflations. This revised second edition debates whether a growth of the money supply exceeding that of real Gross Domestic Production is a necessary or sufficient reason for inflation and also includes a new concluding chapter, which explores the long-term tendencies to create, maintain and abolish inflation-stable monetary regimes. Moreover, the conditions for long-term inflation-stable monetary regimes in history are explored.
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Chapter 9: Forces establishing, maintaining and eroding stable monetary regimes

Peter Bernholz


In this chapter the long-term tendencies to create, to maintain and to abolish inflation-stable monetary regimes will be analysed. We have shown that the presence and absence of long-term inflation as well as its magnitude are determined by the prevailing monetary regime, and also by the technical characteristics of the money used as means of payment. The more the bias of rulers and politicians for inflation could be restricted by a monetary constitution the less inflation resulted. No inflationary bias existed under the gold standard, and even without this regime independent central banks were instrumental in securing lower rates of inflation (Chapter 2). Purely metallic money could not lose its value as much or as quickly as paper money (Chapters 2, 3 and 4). We also answered the question under which conditions inflation-stable monetary regimes could be re-established after mild or moderate inflations (Section 3.3 for metallic currencies, Sections 7.1 to 7.3) or after high inflations (Sections 8.2 to 8.3). These results provided valuable insights. But they did not allow us to answer two remaining questions: 1. Why did inflation-stable monetary regimes like the gold standard arise without the need to get rid of preceding inflations? 2. Under which conditions could they be maintained for long periods, or by which forces were such regimes eroded or abolished? It is a challenging task for the final chapter to analyse these problems.

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