Uploaded August 2017 | Updated September 2026, 1 week ago
Professor Bill Mitchell discussing the MMT take on hyperinflation.
MMT has an extremely coherent and much more sensible way of explaining hyperinflation than "mainstream" economics. In the mainstream narrative, hyperinflation is caused by the government simply "printing too much money," sometimes in an effort to pay back its debts. MMT shows how this could not be further from the truth.
Each case of hyperinflation is unique. You can't explain it without knowing something more about the political, economic, or ecologic catastrophes that caused. That is, in the mainstream conception the hyperinflation is caused by the money printing, and the rising prices and any political turmoil it causes are consequences. In the MMT explanation, it is the political or economic turmoil that comes first, and the rising prices and expanding money supply are the consequence.
In Zimbabwe, poor land policies resulted in a massive reduction of farm output. Guess what happens if there's no food, but people still need to eat? Prices rise, and they don't stop rising. (If people need more money to pay these higher prices, then that money is created for them, automatically by our modern elastic currency systems.)
In Weimar Germany, there was a similar case of reduced output due to land confiscations and worker strikes, but there was also an added element of the foreign-denominated war reparations that were imposed on Germany. This meant that Germany had to aggressively buy foreign currency, driving down their exchange rate, which pumps up the price of imports, which brings along everything else in the economy. It also didn't help that they had strong unions that had negotiated contracts that indexed cost of living to inflation: as prices rose, so did wages, which put upward pressure on prices, which made wages rise, which put upward pressure on prices..
An indeed some of the common themes of hyperinflation are as follows: loss of a war, destruction of factories or supply capacity, foreign-denominated debt, fixed exchange rate currencies, and extreme political corruption.
So we see that hyperinflation is not merely a "monetary phenomenon" caused by idiot central bankers. All inflation, including hyperinflation, is better thought of as indicating competing claims for control over real resources. Although poor government policy can cause hyperinflation in the extreme, it takes unbelievably poor policy, and is usually a symptom of already dysfunctional or unsustainable circumstances, which is why hyperinflation has only happened a small number of times throughout history. And it has never happened in a functioning democracy that has a sovereign currency with a floating exchange rate and no foreign-denominated debt.
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Professor Bill Mitchell discussing the MMT take on hyperinflation.
MMT has an extremely coherent and much more sensible way of explaining hyperinflation than "mainstream" economics. In the mainstream narrative, hyperinflation is caused by the government simply "printing too much money," sometimes in an effort to pay back its debts. MMT shows how this could not be further from the truth.
Each case of hyperinflation is unique. You can't explain it without knowing something more about the political, economic, or ecologic catastrophes that caused. That is, in the mainstream conception the hyperinflation is caused by the money printing, and the rising prices and any political turmoil it causes are consequences. In the MMT explanation, it is the political or economic turmoil that comes first, and the rising prices and expanding money supply are the consequence.
In Zimbabwe, poor land policies resulted in a massive reduction of farm output. Guess what happens if there's no food, but people still need to eat? Prices rise, and they don't stop rising. (If people need more money to pay these higher prices, then that money is created for them, automatically by our modern elastic currency systems.)
In Weimar Germany, there was a similar case of reduced output due to land confiscations and worker strikes, but there was also an added element of the foreign-denominated war reparations that were imposed on Germany. This meant that Germany had to aggressively buy foreign currency, driving down their exchange rate, which pumps up the price of imports, which brings along everything else in the economy. It also didn't help that they had strong unions that had negotiated contracts that indexed cost of living to inflation: as prices rose, so did wages, which put upward pressure on prices, which made wages rise, which put upward pressure on prices..
An indeed some of the common themes of hyperinflation are as follows: loss of a war, destruction of factories or supply capacity, foreign-denominated debt, fixed exchange rate currencies, and extreme political corruption.
So we see that hyperinflation is not merely a "monetary phenomenon" caused by idiot central bankers. All inflation, including hyperinflation, is better thought of as indicating competing claims for control over real resources. Although poor government policy can cause hyperinflation in the extreme, it takes unbelievably poor policy, and is usually a symptom of already dysfunctional or unsustainable circumstances, which is why hyperinflation has only happened a small number of times throughout history. And it has never happened in a functioning democracy that has a sovereign currency with a floating exchange rate and no foreign-denominated debt.
Watch the whole video here: youtu.be/MLKrBsTQntA
Follow Deficit Owls on Facebook and Twitter:
facebook.com/DeficitOwls
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And follow our sister page, Modern Money Memes:
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