The Horrors of Hyperinflations

Abstract

Paper money refers to a monetary system where currency and credit are based on government-issued inconvertible paper money. It is the money system that evicted the gold standard, where money and credit were anchored in gold. As paper is costless and nonconvertible into gold, practically, most governments faced no limit on inflating paper issues. Moreover, governments increasingly intervened in free markets, leading to the increased rigidity of wage and price structures in the economy (especially in the downward direction). As a result, a number of countries experienced disastrous hyperinflations that dislocated their economies for many years.