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There’s More to Money than Hyperinflation

  • German Hyperinflation

Tags Booms and BustsMoney and BanksBusiness Cycles

Critics of Austrian macroeconomics often resort to strawmen when trying to challenge arguments against central banking, fiat money, and expansionary monetary policy. For example, it’s common to paint Austrians as doom-and-gloom prophets of economic collapse, with little to offer besides paranoid predictions of hyperinflations and monetary collapses lurking around every corner.

Unfortunately, even readers of Austrian economics fall into the trap of believing that the central problem with government money monopolies is that they’re always on the slippery slope to immediate catastrophe. This kind of thinking can be harmful because it encourages us to think only about obvious and extreme consequences of public policy, while ignoring more urgent, underlying issues.

The fear of hyperinflation is a good example. Hyperinflations do occur, and when they do, they give us a good look at the ultimate consequences of monetary central planning. However, hyperinflation is only one possible outcome of bad macroeconomic policy, and a rare one at that. Poor monetary institutions produce many other subtler and more pressing problems worthy of our attention.

For instance, the destruction wrought by monetary expansion is great even when inflation is slow, consistent, or numerically small. We should therefore be careful to see the damage caused by expansion for what it is: an ongoing and systemic problem that consistently produces distortions in the economy. However, as bad as it might be, it won’t necessarily result in complete economic collapse tomorrow.

As always, it’s vital to focus on the unseen effects of monetary policy, and that means considering how monetary expansion influences the price system and the behavior of entrepreneurs. The thing is, we don’t need Weimar-style money printing to redistribute wealth and encourage bubbles: even small credit expansions produce inequalities and malinvestments, whether hyperinflation eventually happens or not. Mises and other Austrians have been arguing this point for decades.

The problems run deeper than the threat of total disaster. In fact, that’s the whole point: if bad monetary policies always produced immediate catastrophe, people would long ago have seen the failings of central banks and done something to replace them. But because the distortions caused by monetary expansion seep slowly and discontinuously through the economy, their true origins remain unseen, even when the bubbles they create become obvious to the world.

Austrians are not in the business of predicting inflation, and constant warnings of impending disaster run contrary to both good theory and effective strategy. That is, economics teaches us to be humble when making predictions, if we make any at all. And strategically, we undermine the reputations of economists like Mises when we invoke them to predict disasters that never materialize. We’re better off carefully studying their ideas and using them to think about the very real problems that already lie beneath the surface of our economy and its institutions. The end of the world can wait.


Matthew McCaffrey

Matt McCaffrey, former Mises Research Fellow, is assistant professor of enterprise at the University of Manchester.

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