Edited by Michael J. Oliver and Derek H. Aldcroft
Chapter 5: Inflation in the Twentieth Century
5. Inﬂation in the twentieth century Forrest H. Capie In August 1993 inﬂation in Serbia was running at an annual rate of 363 000 000 000 000 000 per cent. It is diﬃcult to grasp quite what life would be like under these conditions. And yet there were several experiences in the twentieth century of a similar kind. Inﬂation of this kind is almost exclusively a twentieth-century phenomenon. Almost all the severe inﬂationary experience belongs in the twentieth century. There were some isolated instances before 1914, but not many. The obvious explanation is that when the world was tied to metallic currency there was much less scope for expanding the money supply – the fundamental cause of inﬂation. Paper money, more obviously a technological possibility in the twentieth century, and the appeal it had for weak governments, combined to produce the inﬂation that characterized the world after 1914. The fundamental reason for the extreme cases is serious social unrest and weak governments. Grave social unrest or actual disorder provokes large-scale spending by the established authority in an attempt either to suppress or placate the rebellious element. And this is readily possible with a printing press. Social unrest is also likely to produce a sharp fall in tax revenues. The government then prints money. As Keynes (1923, 41) put it, inﬂation ‘is the form of taxation which the public ﬁnd hardest to evade and even the weakest government can enforce when it can enforce...
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