I think hyperinflation is the issue that got me interested in economics when I was in high school.
And it's something that's remained interesting simply because it brings into high relief all of the problems that inflation produces.
Not that moderate inflation doesn't create problems, mild inflation, it's just that they're smaller.
You can see all of the problems of inflation much more easily when we look at these episodes of hyperinflation.
And so I wanted to start by saying that there really are just three basic ways that governments can raise funds.
One, of course, is taxes, and the second is to borrow, which implies that there has to be some sort of taxation in the future
or an inflation to effectively devalue the debt or a default.
Or third, the government can inflate and thereby earn some revenue off of the seniorage from printing money.
It's essentially a tax as well, a tax on those who hold money.
So I wanted to go through some examples of hyperinflations in history.
I'm sticking to those that are fairly recent, the last 80 or 90, 100 years or so.
And you can go back and look at earlier examples of monetary fraud committed by governments.
In fact, I saw out on the bookstore table one of Doug French's books.
One of the more famous examples of hyperinflation is that of Germany in the early 1920s. When
I was in Eastern Europe earlier this year, I picked up some examples of German banknotes
from the 1920s and I have them up in my office and students sometimes come in and say, well,
what is all this money on the wall?
And in fact, I had someone from the, I believe, the education department come over and ask
me about this framed display of German banknotes.
In one upper left-hand corner, I have a one-mark note and in the lower right-hand corner, I
I have a Renton mark which replaced the failed currency of 1923.
The highest denomination note I have in that frame is five billion marks.
The largest note printed, I don't have a copy of, was a hundred billion marks.
And students or other faculty will come in and they'll say, well, what is all this money?
Did it cost you a lot to get this, to put all this together?
And they see all this money, especially when I point out the five billion mark note, they
say, wow, they think I must be made of money or something to have all of this, to be able
to afford this.
And I said, no, I mean, most I spent on any of these was maybe $15 or $20.
And earlier, I think it was early in 2009, I bought two copies of, not copies, but two
Original banknotes from Zimbabwe cost me about $18 or $20 to get them shipped from Britain.
They were two $100 trillion Zimbabwe notes and I pass these around in classes sometimes to make a
point and students look at this $100 trillion and they say, wow, this is a whole lot of money and I
say, well, you could probably buy a cup of coffee with it in Zimbabwe at the time. We'll talk about
I'll talk about that a little bit later. Here's an example. This is the price of a newspaper in Germany from 1921 to 1923. January of 1921, about a third of a mark. By November 17th of 1923, 70 million marks to buy a newspaper.
Most of that, as you can see from looking at the dates in this table, occurred late in 1923, from about September through November of that year.
This, I don't know if you can see very well on the display up here, but the picture on the left is that of a woman in Germany in the early 1920s who's starting her wood stove with bank notes that she had accumulated that had lost so much value.
50 Million Mark Note
This graph here, you can see the money supply rising very rapidly there late in 1923 and the price level as well.
Notice this is a logarithmic scale, so it's even worse than you might expect.
This was a moderate hyperinflation compared to a couple of those that I'll talk about today.
The highest nomination, as I said, was 100, well, I think I said 100 billion marks. It was 100 trillion marks. I'm sorry, off by three zeroes there.
But that was the highest nomination note that they printed. They did engage in a fiscal reform in 1923, ending the inflation.
They cut the number of government employees by third. Sounds like a good idea.
and a new central bank was created which demonstrated a commitment to ending this massive printing.
Here's a graph of Austria, 1921 to 1923 also, Mises mentioned this when he was talking to
an audience in Argentina in the mid-50s, I was recently reading, re-reading his book
Bureaucracy, which is an excellent, not bureaucracy, I'm sorry, economic policy, thoughts for today
and tomorrow, which is an excellent little book if you have a, there's a chapter there
on inflation which is concise and beautifully stated, very good, and Argentina we'll see
later has had repeated problems maintaining a stable currency.
Same sort of story in Hungary.
This is the price level and the money supply in Hungary from 1921 to 1924.
Hungary is an interesting case because it resulted in the largest denomination bank
note ever printed to this day.
This is a 100 million Bill Pingo, which was, I don't even know what that number is, it's
so many zeros, it's essentially a million, million, million.
So you mathematicians can tell me what that number is, it's extremely large.
The 1946 inflation was the one that generated this banknote.
They had an earlier inflation in the 20s, of course, like Germany and Austria and several
other Eastern European countries, but this is the one that was still to this day the
largest denomination ever in history.
Prices were doubling about every 13 to 15 hours.
I believe that is still a record today in spite of Zimbabwe's efforts to break the record.
That is 41.9 quadrillion percent a month.
You'd be in a situation where you walk into the grocery store, you load your cart, and
by the time you walk out and check out, the prices have changed significantly in terms
of the number of pingos.
They replaced this with a forint in August of 1946, and at that point 400 octillion pingos
would buy you one forint.
I did see one estimate, I didn't see, it wasn't a real high quality source on this,
I wasn't sure how much stock to put into this figure, but one estimate was that the entire
money supply of Hungary had lost so much value by the end of this hyperinflation that the
entire money stock was worth less than the U.S. sent.
I'll have to check on that to make sure, but it's these kind of crazy things that happen
Inflation in Argentina Argentina has run through several bouts of inflation, in fact they
seem to be going through one now, although it would not qualify as hyperinflation.
In the late 1980s they had one of their worst inflationary episodes, about 200% a month.
To qualify as hyperinflation it has to be at least 50% a month.
So they're well within the bounds of a hyperinflative economy.
In December of 89, they peaked at about 4,900% annualized inflation, certainly not a record
breaker by any means, but far, far worse than anything that we're accustomed to in recent
history in the U.S.
This is one of the banknotes printed in Zimbabwe about 1983.
This is a one million peso note.
Joseph Salerno has written an excellent article that you can find on the Mises website on
Argentina's monetary history, and he was writing this about 2002 or 2003.
So it covers the 80s inflation as well as what was appearing in 2001, 2002 as a very
serious repeat episode of inflation.
But they had moved toward privatization and markets in 1990.
It looked like for the next several years things were improving.
In April of 91, Argentina had pegged their currency to the dollar.
So they were linking their currency to the U.S. Fed, which we understand from Professor Selgin's talk is not exactly ideal in our economy, but it certainly was better than what the Argentinians had struggled with up to that point.
It didn't work, because even with a currency board, you have to maintain sufficient dollar reserves, just like under a gold standard, you have to maintain sufficient gold reserves to make the whole thing work.
And it failed, partly because from 91 to 94, even though their economy was growing at a fantastic rate, 7-8% a year, it was a false growth, it was really a re-inflation.
Now, one good thing that did come out of this is that the share of GDP accounted for by their government shrank.
So at the beginning of this period, in 1989, government expenditures had been about 35 to 36 percent of their GDP.
And by 95, they were down to about 27 percent of GDP.
Not because government was shrinking so much, but their official GDP numbers were rising.
So the government was becoming relatively smaller compared to their economy.
But again, this was generated by a repeat of the inflation.
Argentina's money supply during this time was growing about 60% a year.
Their prices were not rising that fast because they had managed to suppress that price increase
for some time and finally it all popped out in the late 90s as a massive correction.
Their economy went into a recession in the late 90s because they, instead of inflating
Looking at 60% a year, they suddenly reverse this, and not that they should have kept increasing
their money supply at 60% a year, but eventually a central bank runs into a choice.
They can continue to increase the money supply at a rapid rate and generate hyperinflation.
Argentinians had just been through that.
Or they can reverse their policy and suffer the corrective recession.
It's a very painful process either way.
And in Argentina's case, they went through several years of this kind of painful deflation
from their previous price levels.
And again, if you take note of Professor Salerno's work on this, it's quite instructive.
He calls it a confiscatory deflation because people were told you cannot get your money
Money out of the bank by law, you're limited in your withdrawals, severely limited.
And so meanwhile, the currency is really losing value, but it's trapped inside the banks.
It was effectively a transfer of money from depositors to the bankers.
And it was maintained in this way by the government for some years.
So I mentioned this, that there was a contraction in the money supply from 1999 to 2001, banking
confidence dropped, there was eventually this run on Argentinian banks, and when Argentinians
run on banks, they don't do so by quietly standing in line like Americans might.
When Argentinians get angry about their monetary system, which happens periodically, they go
out on the streets with pots and pans and they beat them together, make a really loud
and a former mob and I don't know whether, apparently it doesn't work in the long run
because they keep having this problem, but it's, you know, it'd be something interesting
to try here sometime instead of people kind of quietly sitting at home on their computers
trying to transfer their money out of their bank, you know, bank runs today happen rather
quietly.
Wachovia had a bank run and people didn't really know much about it because there weren't
Lines outside the banks and certainly nobody banging on pots and pans, simply people shifting
their deposits around electronically or what not, and maybe it would do some good to try
that sometimes.
So if your bank goes under sometime, clean out your kitchen cabinets and go in the street
and see if anything different happens, it might not hurt.
Prices eventually rose significantly in 2002.
I've got a graph here to show you. This wasn't exactly hyperinflation, but it's still an interesting chart.
This is the red line. There's the producer price index in Argentina, and you probably can't see the small numbers at the bottom of the chart.
But the beginning of that sharp peak is about 2002, and the decline on the other side of the peak is about 2003 to 2004.
and the blue line that doesn't spike quite as much is consumer prices.
So it was a repressed inflation enforced by the regime in Argentina at the time,
which eventually just burst into this rapid and fairly short-lived inflation.
Estimates today are, well not today, but this year, are that Argentina is still struggling with inflation.
The official inflation rate is not very high, certainly by their standards, 11, 12 percent maybe.
The unofficial estimates are that Argentina right now is suffering about a 20 to 30 percent annual rate of inflation.
This is the third, makes it the third highest in the world this year, sorry, last year after the Congo and Venezuela, not exactly a very good place to be in rankings.
Actual inflation, as I said, might be 20 or 30 percent, even this year, and I was looking at estimates yesterday, and this has not changed much in the last year or so.
This is a Brazilian note, the Réol.
Brazilian hyperinflation reached a level of 2,075 percent in 1994.
A colleague of mine is from Brazil. I asked him a little bit about this and unfortunately he's young enough that he really doesn't remember a lot about this hyperinflation.
I did have a conversation with him about it and he remembers that there was some money being sent to him or his family from outside of Brazil to help them through this process or this inflation.
A Cruzeiro from 1967 would have been worth about a trillionth of a US cent by 1994.
At that point, they adopted this new currency, the Réal, and one Réal would have been worth
about, I don't know what that number is either, let's see, billion, trillion, quadrillion,
from Septillion, I don't know what that is, old rails, so obviously it lost a lot of value.
They had a kind of a repressed inflation in Brazil as well, it seems to be a typical reaction
of governments whenever they have inflation, they will try to prevent it, even in the U.S.
under Nixon and wage and price controls, they'll try to press the inflation down through price
controls, all this does is create shortages, massive shortages.
There were cases when in Argentina the shortages had become very severe under their inflation
in the late 80s, and people were rioting and raiding grocery stores and looting.
And it was a sad story of a man who had run a grocery store for 25 years and he saw his
entire inventory looted, shot himself later that day because of the loss of his entire
livelihood.
So inflation has a number of effects, especially when governments try to prevent that inflation
through these draconian kinds of wage and price controls, and this happened in Brazil
as well.
Shortages are the inevitable result.
Angola hyperinflation from 91 to 95, I won't go through that on that episode too much here.
Yugoslavia, a very long history of inflation, 71 to 91, they had an average annual rate
of 76%, not hyperinflation, but certainly in the top tier worldwide, and in December
of 1990, the Serbian Parliament ordered the Serbian National Bank, which was their regional
central bank, to issue large amounts of credits to friends of Mr. Milosevic, and at that point
The entire scheduled money supply increase for all of Yugoslavia was not much greater than what they had just issued.
Croatia and Slovenia said we've had enough, they seceded, and in January of 92 they had a long, the beginning of a long hyperinflation.
The official monthly inflation rate in January of 1994 reached 313 million percent. You have to get used to working with very large numbers when you're talking about this kind of thing.
This is the second highest monthly rate after Hungary in 1946, which I had already mentioned,
and it was the second longest after the Soviet hyperinflation of the early 1920s.
I had a student early this decade, 01 or 02, that was in one of my classes and he had grown
up in Yugoslavia, remembers his relatives from other parts of Europe sending marks to
his family to allow them to survive during this time.
This is one of their bank notes. They were producing 900,000 of these a month in denominations
of up to 500 billion dinars. And by 1994, the rate of exchange between the new dinars
and the old dinars was whatever that number happens to be. They finally just gave up, kind
of like Yugoslavia, sorry, Zimbabwe did recently. They just said, well, everybody's trading
This is the $100 trillion note from Zimbabwe that I mentioned earlier.
This is a fellow who's stacking up bundles of cash that had devalued.
He probably is going to buy lunch with that.
The government, Mr. Mugabe's government, just printed trillions and obviously $100 trillion
Those on one note, I mean, they're more than trillions. Again, we're in astronomical numbers.
And they're basically trying to pay off their supporters. November 2008, the estimates were
that their annual inflation rate was 89.7 sextillion percent annually. That was price
highest doubling every 24.7 hours, second highest rate after Hungary.
If you look at a chart, which I think I have here, on Zimbabwe's inflation, you can see
the logarithmic increase here, and the numbers are, I couldn't get the numbers to be large
enough for you to see there, but the official exchange rates, the green line at the very
top, sorry, not the official exchange rate, the unofficial exchange rates, the green line
The red line at the bottom is the official exchange rate, which is lagging, they typically will do this, trying to maintain an artificial price superiority of their currency.
In December of 2008, the inflation rate had reached 6.5 quindecillion, novendecillion percent.
That's 65 followed by 107 zeros. That's their monthly inflation rate at that point.
I have no idea how to even begin to think of numbers that size.
In late January of 2009, the government gave up. They said, well, you can just use other currencies, that's what you're doing anyway, and you can keep using your dollars or your whatever.
We're not going to fuss at you too much about it. Everybody's breaking the law at that point.
Well, to wrap up here, there are some other hyperinflations I won't spend any time on.
Bolivia in the early, sorry, mid-80s, 20,000% peak inflation.
Chile, which right now seems to be doing very, very well.
Higher rank on economic freedom scales than the United States, but in the early 70s they had very serious inflation.
Greece, what do you say about Greece?
This is one of many problems they've had.
And Russia, of course, after they went out of business, had a lot of inflation.
Ukraine also is a breakaway Soviet Republic.
Let me just close here with a couple of thoughts from Mises.
Mises says, when people talk of a price level, they have in mind the image of a level of liquid,
which goes up or down according to the increase or decrease in its quantity,
But which, like a liquid in a tank, always rises evenly.
But he says, with prices, there is no such thing as a level.
Prices do not change to the same extent at the same time.
There are always prices that are changing more rapidly,
rising or falling more rapidly than other prices.
And this is called a Cantillon effect.
And that effect is what triggers a lot of the problems
from Inflation. And you can get this even with mild rates of inflation. It's a very,
very serious problem that can create business cycles. I won't go into that theory today,
but there's a lot more that could be said. And the Austrian School, I think, has contributed
enormously to our understanding of how inflation can create recessions and depressions. I'm
out of time, but thank you very much, and I'll be happy to answer questions after lunch.
Thanks, Tim. Well, nothing works up an appetite like inflation or hearing about inflation.
But before we unleash the stampede, which these doors will be flung open and there's
a buffet line. It's a little different protocol than what we normally have. But we have a
We have a very, very, very special guest here, and it's very much a surprise.
This is a lady that attended Ludwig von Mises' seminar for two decades.
She is probably the world's foremost authority on Ludwig von Mises.
The Ludwig von Mises Institute awards its most prestigious prize.
It's called the Schlarbohm Award. She won it in 2002, and I would like to introduce her now and have her stand, Bettina Graves.