Warren Mosler & Phil Armstrong, Weimar Republic Hyperinflation Through An MMT Lens (1)
Sarrera:
Phil Armstrong eta Warren Mosler
2020
Weimar Republic Hyperinflation through a Modern Monetary Theory Lens
Phil Armstrong and Warren Mosler 2020
Abstract
The hyperinflation in Weimar Germany in 1922-23 has become the poster child of mainstream economists -and especially the monetarists-when presenting the benefits of constraining governments by the rules of ‘sound finance’. Their narrative presumes that governments are naturally inclined to spend beyond their means and that, if left to their profligate ways, inflation ‘gets out of hand’ and leads to hyperinflation in a continuous, accelerating, unstoppable catastrophic collapse of the value of the money.
In contrast to this ubiquitous mainstream analysis,we recognize a fundamentally different origin of inflation, and argue that inflation requires sustained, proactive policy support. And, in the absence of such policies, inflation will rapidly subside. Wereplace the erroneous mainstream theory with the knowledge of Modern Monetary Theory (MMT) identifying both the source of the price level and what makes it change. We are not Weimar scholars, and our aim is not to present a comprehensive historical analysis. We examine the traditionally reported causal forces behind the Weimar hyperinflation, along with the factors that contributed to the hyperinflation and to its abrupt end.
The purpose of this paper is to present our view of the reported information from an MMT perspective.In that regard,we identify the cause of the inflation as the German government paying continuously higher prices for its purchases, particularly those of the foreign currencies the Allies demanded for the payment of reparations, andwe identify the rise in the quantity of money and the printing of increasing quantities of banknotes as a consequence of the hyperinflation, rather than its cause
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#88 Warren Mosler & Phil Armstrong: Weimar Republic Hyperinflation Through An MMT Lens (part 1)
Feb 17, 2021
Part 1: Patricia and Christian talk to MMT founder Warren Mosler and MMT scholar Dr Phil Armstrong about their recent paper: “Weimar Republic Hyperinflation through a Modern Monetary Theory Lens”.
Transcript for opening monologue: https://www.patreon.com/posts/47638641
Opening monologue for episode 88 – Warren Mosler & Phil Armstrong: Weimar Republic Hyperinflation Through An MMT Lens (part 1)
At the beginning there, you heard MMT founder Warren Mosler, and scholar and author Dr Phil Armstrong – and in moment we’re going to be talking to them about their recent paper on the Weimar Republic hyperinflation.
If this is your first time hearing about MMT, you might want to listen to our first three episodes where me and Patricia talk through the basics, but if you want to dive in here, a good starting point is to ask: why does any fiat currency have any value to start with? And a relatively uncontroversial answer to that question is that the government is the only issuer of the thing that it demands for payment of taxes. That thing is called the British pound here in the UK, but this generalises to most, if not all, governments that issue their own fiat currency.
In modern money systems like these, the government imposes a tax in a token that it alone is allowed to create, which causes people to need to do things, sell their time, or their labour, or the things they make with that time and labour to get these tokens to pay the tax, and so a lot of the magic and mystery surrounding modern money can be broken down by thinking of the currency as a tax credit.
A five pound note, whatever it can buy in the private market, is a five pound tax credit – a promise to cancel out five pounds’ worth of your tax obligation to the state – the entity that issued the liability, and then the credits needed to settle that liability, in the first place.
One implication that follows from this is that the currency issuer, the government, can’t run out of its own money, and we’ve done many episodes on what that means for the politics of austerity, but this episode is designed to help you cope with that person who pops up from time-to-time to warn you that if the government understood it had an infinite capacity to spend, maybe to solve social problems, or god forbid, prevent human extinction, this will inevitably turn your nation into… [DRAMATIC MUSIC] The Weimar Republic!
Although it’s tempting to respond to this by saying: “Why thank you! I was just about to take control of the government and start attempting to pay a trillion pounds worth of gold, timber, coal and foreign currency to France, and invite them to send an army over to occupy all of our factories, but your tweet has shown me the error of my ways!” — while it’s valid to say that, for the legitimately curious, in this episode, we’re going to be talking about how the MMT theory of price level plays into this particular historical case.
The MMT view is that modern money derives its value from what the issuer of currency says you have to do to earn it, so as Warren explains in his MMT white paper, the price level is necessarily a function of prices paid by the government when it spends, or collateral demanded when it lends, and so when the government pays more for the same thing today than it did yesterday, it’s revising the value of its currency downward.
If that sounds a bit complicated, don’t worry, we’re going to unpack this a little bit more with Warren and Phil in a moment, and in the show notes I’ve linked to their paper and also to some of our other episodes and resources on the topic, and also I’ve linked to a list of (mostly online) events and courses where you can learn from leading MMT economists and – maybe just as importantly – connect with people on a similar journey.
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So thanks as ever for the time you put into understanding MMT – this is part one of a two-part conversation and part two will be out next week. Let’s dive in!
