Economics / History / Warfare

Aggregate Demand Dominance: The Full History of Hyperinflation and the “Debased Currency” Fallacy

This morning, I began with reading Paul Krugman’s exasperation with Bitcoin fanaticism:

One thing that happens when you try to have a rational discussion of Bitcoin, gold, and/or other libertarian causes is that you get a lot of cynical remarks about government (which is one of the clues that this is, to an important extent, about politics.) You say that there’s nothing putting a floor under Bitcoin’s value? Well, how do you know that the government won’t debase the dollar to nothing? Huh? Huh?

How do I veer toward historical hyperinflation from here?  The following:

Yes, Weimar. Also Zimbabwe. And, in recent decades, who else? Actually, nobody. The real track record of fiat currencies is that most of them are run responsibly except in the aftermath of political chaos.

I am coming to the conclusion that the entire economics field is unaware that warfare has massive effects on inflation.  Both 1914-1923 Germany and 1998-2009 Zimbabwe are less case histories on how monetary printing presses ran their respective economies off the rails than how destroying productive capacity during a military crackdown after a war devastates a nation’s economy or losing capacity as a substitute for postwar reparations is a recipe for burning a nation’s currency to the ground.

Delayed Effects—the Excuse for Not Locating the Proximate Cause

Perhaps my favorite description of Zimbabwe’s dysfunction was from Bill Mitchell:

Zimbabwe is the new Weimar Republic. Not! Zimbabwe is the front-line evidence that shows that government deficits will generate hyper-inflation. Not! Zimbabwe is the demonstration of the folly of a fiat monetary system. Not! Zimbabwe is an African country with a dysfunctional government. Yes!

Mitchell traces the history that sets up the hyperinflation that lasted until the Zimbabwean dollar was terminated in 2009:

The hyperventilators out there in debt-deficit hysteria land have been increasing using Zimbabwe as their modern equivalent of the Weimar Republic and as the front-line attack dog in their squawking campaign to get rid of deficits again. The problem is that they clearly have not read much history nor analysed Zimbabwe very well at all.

It is obvious that the nice coloured Zw currency has steadily been debased and replaced by notes with more and more noughts on the end of the 1.

So what went on? The Zimbabwean Government is sovereign in the Zw dollar, although recent decisions to allow US dollars to freely trade within the economy is likely to undermine that sovereignty if tax collections in Zw become difficult to achieve.

In the same way that the Treaty of Versailles was directly responsible for the plight that Germany found itself in during the 1920s, the white racist regime that ruled prior to 1980 and which had broken away from the colonial arrangements with Britain, set up the conditions that are now destroying Zimbabwe. White minority rule in Colonial Africa created such an unfair sharing of land between the whites and blacks that a backlash was always going to occur. The same sort of breakdown will threaten South Africa which is trying to reinvent itself (peacefully) in the post Apartheid era (not very successfully may I add).

Whites who constituted 1 per cent of the population owned 70 per cent or more of the productive land. After the civil war of the 1970s and the recognition of independence in 1980s, Mugabe’s government more or less oversaw relatively improved growth with stable enough inflation outcomes.

In this World Bank Report 1995 you see the data shows that the economic performance was variable but reasonable. The economy underwent a severe drought in 1992-93 which pushed the inflation rate up but it soon came back to usual levels.

Well, almost.  Inflation began to rise precipitously from 1998-2003:

Historical Data Chart

Mitchell appears to believe land reform is solely responsible for these inflationary effects:

The problems came after 2000 when Mugabe introduced land reforms to speed up the process of equality. It is a vexed issue really – the reaction to the stark inequality was understandable but not very sensible in terms of maintaining an economy that could continue to grow and produce at reasonably high levels of output and employment.

The revolutionary fighters that gained Zimbabwe’s freedom from the colonial masters were allowed to just take over productive, white-owned commercial farms which had hitherto fed the population and was the largest employer. So the land reforms were in my view not well implemented but correctly motivated.

Like the allies after Versailles, you sometimes do not get what you wish for. The whites in Zimbabwe had always been reluctant to share with the majority blacks and ultimately reaped the nasty harvest they sowed.

From an economic perspective though the farm take over and collapse of food production was catastrophic.

Unemployment rose to 80 per cent or more and many of those employed scratch around for a part-time living.

To be certain, Robert Mugabe’s actions sent Zimbabwe spinning into the ground.  Additionally, the iniquities that had triggered the Bush War that ended Ian Smith’s minority government in 1980 still hung over Zimbabwe two decades later.  But a much larger, more recent conflict loomed over Zimbabwe and its neighboring countries in 2000:

Between 1998 and 2003, an extremely complex and chaotic civil war engulfed the Democratic Republic of Congo (DR Congo) — a vast, thickly-jungled nation in Central Africa the size of Western Europe — and spilled over into neighboring countries, including Rwanda, Angola, Burundi, Zimbabwe and Uganda.

While the estimated 5-million death toll from this war pales in comparison to the 15-million lives lost during World War I, and the 60-million who perished in the Second World War — the DR Congo inferno was nonetheless was one of the ten deadliest wars in recorded history.

Moreover, given that the DR Congo war erupted in such incredible violence during the turn of the 21st-century (amidst the global internet communication phenomenon), its relative obscurity is puzzling, to say the least.

This war put a massive strain on the Zimbabwean economy:

Initially, the government claimed that Kinshasa was footing all Zimbabwe’s expenses in the Congo. Later, it was said that concessions in the mineral- and timber-rich DRC would be used to offset the cost of the deployment. At the time, it was estimated that a million U.S. dollars a day were being spent on the mission.

Economist John Robertson says it is possible that some money was made through the exploitation of timber, diamonds and the like: “But the question is whether the money came back to the country or is lying in Swiss bank accounts.”

Robertson puts the cost of the DRC operation at about one billion U.S. dollars, but adds that this estimate could prove conservative if the loss of several fighter aircraft was taken into consideration.

An economist with the Zimbabwe Congress of Trade Unions, Tendai Makwavava, claims that the country’s economy has been critically affected by the unbudgeted spending used to deploy troops.

“We are failing to import electricity, fuel and pay our debts because of a shortage of foreign currency, because the government siphoned off the forex in financing the war,” she notes.

Siphoning off Forex.  I’ll hold off on commenting on this for a minute.  First, austerity meaures–essentially, Zimbabwe had instituted severe austerity that managed to set off a strong disinflationary wind for about a year:

Historical Data Chart

So, did letting up on the brakes set off the next spike in inflation?  Notice that inflation began to rise again in May 2005:

In May 2005, the Zimbabwean government launched Operation Murambatsvina or Drive out the Filth. Officially it was designed to eliminate crime, clean up the streets and regularize the informal sector, the backbone of the country’s collapsing economy. In actual fact, though, the operation destroyed the livelihoods of nearly 2.5 million Zimbabweans. It also left 700,000 people homeless. Over a year and a half later, the evictions are continuing despite international condemnation. The Zimbabwean government has pledged to build new dwellings and to allow informal markets and traders, but it has done nothing.

Mugabe had declared war on his own people.  His reasoning for doing so is probably quite petty:

Operation Murambatsvina began with the demolition of not only people’s homes, but of thousands of informal vending sites and backyard industries that were their means of survival. It is this black market economy that Mugabe blames for the country’s economic meltdown. Mostly executed by the police, the demolitions were carried out by bulldozers and simple manpower in settlements around the capital; some particularly unfortunate souls were forced at gunpoint to destroy their own homes. After defending this operation which devastated huge urban areas, Mugabe then announced his plans to carry out similar demolitions in the rural farming areas.

At the time, Mugabe claimed he was ridding our cities and towns of illegal housing structures that had turned the country into a “shanty town” and that he was thereby also preventing the spread of infectious diseases. However, we all knew that he was punishing the urbanites, who comprise the majority of his opposition, for not voting for his ZANU PF party in the March 2005 elections.

But there was a definite economic angle as well—the cropping up of a FOREX black market:

Just as price controls on sugar, say, drive the sale of sugar underground or to the informal sector, so price controls on forex have driven it to the streets – the parallel market and the black market. The regime, in the guise of the Reserve Bank of Zimbabwe (RBZ), has put price controls on forex, saying that 1 US Dollar will only cost Z$9 200, or whatever. People can’t buy enough forex through the official channels to satisfy their needs, so they resort to buying from those who will sell, at whatever price they demand. This is how the parallel and black markets have occurred.

The distinction between the parallel and the black markets is drawn along several related lines: how much is being sold, who is buying and who is selling, and where the transaction is taking place. So the parallel market usually deals in large sums – many millions of dollars; it is often between businessmen and companies and, in the past, had bankers as its middlemen; and it takes place in offices and sometimes homes. Black market transactions happen on the streets, in the flea markets, and in back-rooms; sometimes for small sums of money like 20 US Dollars; and the deals often take place between individuals.

In other words, Zimbabwe’s siphoning of Forex due to the Second Congo War led to the creation of a black market for Forex.  These parallel and black markets were unacceptable to the Mugabe regime:

In an effort to curb the trade in forex, the RBZ cracked down at the beginning of 2004, threatening bankers, businessmen and others. Many fled in order to preserve their freedom. This crackdown was totally inequitable as probably 90% (a very conservative estimate) or more of all businesses and businessmen were trading on the parallel market out of necessity; this was the only way to keep their businesses going and their staff employed.

Subsequent to this, the auction system was introduced. In theory, this was to function as any auction: those bringing money into the country would sell it to the RBZ (they got the bad end of the stick, as the proceeds they would get were always going to be controlled!) and those wanting to buy would bid for it, and the highest bidder would win.

In practice, not so! The political manipulation and scheming became evident as the months went on, when the rate stuck at Z$5 200 for months. Those with forex to sell soon saw what was happening and, after their initial compliance – which was probably determined by fear of the consequences – they soon decided to channel their money where they could get better returns, namely the parallel market. Another point to note is that there was never enough money being sold at the auctions, so people resorted to other outlets where they could buy the forex they needed.

Operation Murambatsvina may have been Mugabe resorting to force (pretty much the only card the man knows how to play) to contain RBZ’s failure to control the foreign exchange market…

What about Homelink? This was another scheme of the regime to get its hands on the forex it so desperately needs to keep the country running (and to line a few pockets, it would seem). Many Zimbabweans receive small amounts of money from their relatives working outside the country. They bring it in through Homelink (so expensively advertised at taxpayers’ expense), and get the auction rate, or the closely linked diaspora rate – a fraction of its real value. But at least this enables the regime to buy fuel, pay for the electricity it buys from Mozambique and South Africa, pay its embassy staff overseas and, if there is any left over, service some of its debt. On the other hand if these recipients bring their money in and change it at the flea markets, or the so-called World Bank (the white-robed women!), the regime sees none of it, but they get more Zimbabwe Dollars and are able to buy more mealie-meal and other food with the proceeds.

This is why the RBZ’s efforts to stamp out the parallel market just haven’t worked. People want to get what they are due; they want to make their money go that bit further, to pay school fees, to feed their families…..

And now, enter the recent Operation Clean-Up or Operation Restore Order! Who and what is this devious regime targeting ? Answer – the small traders and the flea markets. Suddenly there are fewer places to buy and sell this valuable commodity, and the forex rate (for the US Dollar) on the parallel market drops from around Z$25 000 right down to somewhere between Z$ 10,000 and Z$ 20,000 – at least for a short period.

…or simply Mugabe angered at the fact that Zimbabweans were managing to circumvent yet another excuse his regime used (and continues to use) to plunder his people.

The Crash of SRAS

Proximate causes.  The Second Congo War strain on the Zimbabwean economy led to the trigger for the hyperinflation when Robert Mugabe turned his security forces onto his own people in urban areas (remember, the percentage of white Zimbabweans at the time was under 1% of the population and they were clustered on farms—the few that remained five years after Mugabe began the reallocation of arable land).  Returning to Bill Mitchell, the collapse was swift and devastating:

So the land reforms represented the first big contraction in potential output. A rapid demand contraction was required but impossible to implement politically given that 45 per cent of the food output capacity was destroyed.

I disagree with the demand contraction point, but the food output number is important.

The situation then compounded as other infrastructure was trashed and the constraints flowed through the supply-chain. For example, the National Railways of Zimbabwe (NRZ) has decayed to the point the capacity to transport its mining export output has fallen substantially. In 2007, there was a 57 percent decline in export mineral shipments (see Financial Gazette for various reports etc).

Manufacturing was also roped into the malaise. The Confederation of Zimbabwe Industries (CZI) publishes various statistics which report on manufacturing capacity and performance. Manufacturing output fell by 29 per cent in 2005, 18 per cent in 2006 and 28 per cent in 2007. In 2007, only 18.9 per cent of Zimbabwe’s industrial capacity was being used. This reflected a range of things including raw material shortages. But overall, the manufacturers blamed the central bank for stalling their access to foreign exchange which is needed to buy imported raw materials etc.

The Reserve Bank of Zimbabwe is using foreign reserves to import food. So you see the causality chain – trash your domestic food supply and then have to rely on imported food, which in turn, squeezes importers of raw materials who cannot get access to foreign exchange. So not only has the agricultural capacity been destroyed, what manufacturing capacity the economy had is being barely utilised.

Further, goods and services have also been prevented from flowing in via imports because many importers abandon goods at the border when they are hit by exhorbitant import duties.

Taken together, the collapse of production has seen the unemployment rate rise to 80 per cent or more. The rising unemployment has further choked any household income growth and aggregate demand has fallen even further.

So, AD has fallen, negating the earlier logic that inducing a depression-level contraction would head off the Zimbabwean hyperinflation.  Additionally, the FOREX causality seems to run the other way, but otherwise Mitchell’s logic appears sound.

As a consequence, GDP growth has been contracting at around 7 or 8 per cent per year and the economy’s potential capacity level has been falling dramatically as investment dries up.

Further, the response of the government to buy political favours by increasing its net spending without adding to productive capacity was always going to generate inflation and then hyperinflation.

But while the hyperinflation was almost inevitable it provides no intrinsic case against a government that is sovereign in its own currency and who runs permanent deficits to pursue full employment – under the guidelines specified above – responsible fiscal management.

When you so comprehensively mismanage the supply side of your economy as the Zimbabweans did the only way to avoid inflation is to severely contract real spending to match the new lower capacity. More people would have starved and died than already have if the Government had have cut back that severely.

At least Mitchell acknowledges inducing a depression-level contraction would result in depression-level misery.  His issue is his model:


It shows needing a large reduction in aggregate demand.  But Zimbabwean unemployment

Unemployment rate (%)

Country 1999 2000 2001 2002 2005 2009
Zimbabwe 50 50 60 70 80 95

…had already increased 30% from the early days of the Second Congo War until Operation Murambatsvina commenced.  Unemployment would rise 15% to 95% during the hyperinflation.  Maybe economic modeling breaks down in the face of skyrocketing inflation?

Or perhaps Bill Mitchell’s model is inaccurate.  Zimbabwean inflation dropped almost 80% on a contraction of 10% in GDP during the 2004 calendar year.  This appears to be evidence that the short-run relationship between output and the price level isn’t linear, as Mitchell plots SRAS.  Rather, SRAS looks more like this model:

One important caveat: LRAS does not appear.  Aggregate supply rising almost vertically is short-run capacity constraints.

Again, I borrowed this model because this software won’t display any image I create, but a massive supply contraction with inflation running at 124% (where Zimbabwean inflation stood before the onset of Operation Murambatsvina) would logically send inflation sailing:

Historical Data Chart

…on the heels of a years-long contraction:

Historical Data Chart

…because the leftward shift of SRAS produces a far greater increase in inflation than the reduction in AD can offset.  Also worth mentioning is that Zimbabwean NAIRU had risen from 50% to far in excess of 80% during the war years.  This indicates to me that Zimbabwe’s economy was shattered in pretty much every sense of the word before the hyperinflation commenced.

The path of the Zimbabwe dollar’s trajectory until its demise even looks like it is following the plot for SRAS:

Imagine that.  I think the lesson to take away is that a contraction in aggregate demand like Zimbabwe suffered throughout 2004 will kill both real GDP and inflation, while a contraction in aggregate supply like Zimbabwe suffered from 2005-2009 will kill real GDP and set off hyperinflation if the crushing blows don’t cease; especially if the entire period is in the wake of a ruinous war.

Question: does this hold true for Weimar Germany in 1923?

War and Inflation: Who Would Have Thought

Yep.  Bill Mitchell again:

If we think about the Weimar Republic for a moment, the problems for them began long before the hyperinflation, which really went off in 1923. Following World War I the reparations payments required under the Versailles Treaty squeezed the German government so badly that they eventually defaulted. The Treaty was just a bloody-minded pay-back by the victors of the war and brought so much subsequent grief to the World in the 1939-1945 War that you wonder what was going on in their heads.

Anyway, for historians, you will recall that the French and Belgian armies then retaliated after the German default and took over the industrial area of the Ruhr – Germany’s mining and manufacturing heartland. The Germans, in turn, stopped work and production ground to a halt. The Germans kept paying the workers in local currency despite limited production being possible and you can imagine that nominal demand quickly started to rise relative to real output which was grinding to a halt. The crunch came when the export trade stalled and the only way the German Government could keep paying their treaty obligations etc was to keep spending. The inflation followed.

Well, the hyperinflation did:


But inflation was already present.  The ratio of papiermarks to goldmarks had already risen to 100-to-1 before the invasion of the industrial Ruhr valley in January 1923.  This is really in relation to the rentenmark, which replaced the papiermark on 15 October 1923 at the same 2,790 goldmarks per kilogram of gold prewar ratio {the papiermark had replaced the goldmark on 4 August 1914 (here’s the war angle)}. 

The proximate event for the German hyperinflation was the invasion of the Ruhr.  German inflation turned skyward and the papiermark became valueless only when Weimar was cut off from its most productive industrial area–a huge contraction in SRAS.  Of course, the supply contraction could have been rectified if the supposedly reluctant-to-invade French reversed course.  Naturally, the Ruhr occupation lasted until the Belgian and French forces withdrew as part of the Dawes Plan in 1925.

But this isn’t the only historical parallel.  Yugoslavia experienced an annualized inflation rate of 76% during the twenty-year period preceding the collapse of the Soviet Union in 1991.  The Yugoslav hyperinflation of 1992-1994, worse than that experienced by 1923 Weimar, accompanied the breakup of Yugoslavia itself (here’s the SRAS crash)—the constituent republics descending into horrible warfare.

An astute reader at this point might notice I have not at all accounted for Weimar Germany’s, Milosevic’s Yugoslavia/Serbia or Mugabe’s Zimbabwe’s monetary policy and/or increased spending.  There’s a reason for that–the contraction in aggregate supply in all three cases is opposite the currency debasement story:

Ah, some of the comments on my post about cynical lack of realism happen to illustrate a favorite observation of mine: the extent to which people who demand that we learn the lessons of history tend to rely on historical episodes in which we have very little idea of what really happened.

Thus, they’ll tell us to ignore the extensive evidence from the past century that fiat currencies needn’t lead to runaway inflation — instead, look at how currency debasement led to the fall of Rome!

Or, maybe, how the fall of Rome led to currency debasement?

The thing is, we have no data and not even that much informal evidence on the economy of ancient Rome. We do have informed speculation: Peter Temin had a lovely paper in the JEP (and a book I haven’t read yet) on the prosperity of the Augustan empire, which he estimates was comparable to late 17th-century Europe. All of that fell apart in the third century:

Around the start of the third century CE, the early Roman Empire came to an end under the pressure of a number of problems: several emperors who were exceptionally autocratic and excessive and a series of revolts by the army which in turn led to Rome being ruled by a series of short-term emperors.14 The disruption manifested itself in many ways, including increased inflation in the third century CE that is visible to us through debased coinage and occasional price quotations.Inflation was less than 1 percent in the first and second centuries CE, but prices doubled after the Antonine plague of the late second century and doubled again soon thereafter. The denarius began to be progressively debased at this same time.

I’m somewhat surprised Krugman doesn’t ridicule the above quotation for its mathematical buffoonery–inflation in Ancient Rome runs less than 1%, jumps to 2%, and doubles…to 4%?  (I’m assuming these rates are annual; if inflation was a total of 1% for more than a century, the rates would be 0.01%, 0.02%, and 0.04%).  I think these commentators need to review the threshold for hyperinflation {50% a month (compounding to 12,875% a year) according to the CATO Institute}.  4% annual inflation is…the U.S. in the late 1980s.

Krugman instead retorts “so currency debasement can ruin your whole day — as long as it’s accompanied by civil war and plague.”  He gives the inflationistas far too much credit.  Their argument that goosing aggregate demand leads to hyperinflation doesn’t account for how production is supposed to be ground into the floor (and I’m not accepting John Galt as an answer–Ayn Rand’s fantasies don’t make for good fiction let alone comport with reality).  Warfare, however, has the well-demonstrated ability to destroy economic infrastructure and production facilities.  The worst war of them all holds numerous case studies where warfare alone caused hyperinflations.

(Hyper) Inflation is Always and Everywhere a Phenomenon of Warfare

I’ve turned Milton Friedman’s famous 1970 statement on its head–but in the process made the statement more accurate.  While not every significant rise in a nation’s inflation rate can be directly attributed to the ravages of battle, combat stands out as a (if not the) primary contributor.  Even CNBC was unable to deny that warfare has been the prevailing cause for a bout of Second World War hyperinflation:

The main cause of Greece’s hyperinflation was World War II, which loaded the country with debt, dissolved its trade and resulted in four years of Axis occupation.

Though the fact that the Greek hyperinflation occurred amidst a military occupation makes the source difficult to discount.  Nevertheless, the inflationista obsession with debt is on full display, even though warfare was exclusively responsible for the Greek wartime debt:

At the outset of World War II, Greece saw a budget surplus for fiscal 1939 of 271 million drachma, but this slipped to a deficit of 790 million drachma in 1940, due mostly to trade, reduced industrial production as a result of scarce raw materials and unexpected military expenditures.

CNBC conveniently omits the fact that the War of ’40 (Mussolini’s invasion of Greece also known as the Greco-Italian War) put enormous strain the Greek state.  Instead, CNBC delivers its standard thrashing of the central bank printing press:

The country was occupied by Axis forces by May 1941, and Greece’s military costs were replaced by expenditures from the support of 400,000 troops, which varied between one-third and three-fifths of the country’s outlays during the occupation, which were all funded by the printing of money by the Bank of Greece. The Greek puppet government – established by the occupying forces – did not tax to cover its costs and revenues represented less than 6 percent of expenditures during the final year of occupation. This was combined with national income dropping from 67.4 billion drachma in 1939 to 20 billion in 1942, a level that was maintained until 1944.

Hyperinflation began in 1943, when expectations of future inflation caused Greeks to refuse to accept the currency and the government began paying in gold franc coins, which further encouraged the public to hold wealth in non-currency forms and decreased confidence in the drachma, reducing the elasticity of and the demand for domestic currency. When the government in exile returned to Athens, they had a limited ability to collect taxes outside of the capital and ran into substantial unemployment and refugee costs. By the time the new government’s stabilization effort went into effect, revenues comprised 0.4 percent of expenditures, with the Bank of Greece covering the rest.

May 1941?  No, April 1941: the Greek army had the Italians on the run, eliciting a massive German invasion to protect Hitler’s Italian ally {Mussolini managed to get a half a million Italian soldiers tied down in Albania by the Greek counterattack (the Italians having invaded Albania in April 1939)}.  National income dropping by two-thirds in three years (here’s the SRAS crash) has only one logical source–Hitler’s anger at having to divert forces for an unnecessary invasion and the subsequent actions of his occupation forces.  Moreover, the Wehrmacht wasn’t going to pay for their occupation of Greece regardless what the puppet government intended to do (though the term “puppet government” indicates the Greek collaborators would do the bidding of their Nazi overlords).  The key to the entire episode is warfare, not the actions of the Bank of Greece.

This one historical episode should humble Germany–the Greeks had nothing to do with 1923 and in restitution for the 1940s the German government would be advised to avoid foisting their preferred policies on smaller, weaker states.  This decidedly is not the case currently:

Greece Unemployment Rate

Versus Angela Merkeland:

Germany Unemployment Rate

At least the Germans don’t have access to the Greek central bank to set monetary policy for the Hellenic Republic…oh wait.

However, Germany’s transgressions pale against the worst effects wrought by another totalitarian dictator’s armed forces.  Perhaps the best case (or worst, depending on point of view) for determining the sources of hyperinflation was the Pengo Crisis of 1945-1946.  Eventually replaced by the Hungarian forint, the pengo hyperinflation was 12 orders of magnitude worse than Weimar.  The reasons for the Hungarian hyperinflation are argued to be many and variable, but one fact stands out:

Hungary isn’t necessarily a country famed for its defenses. After losing 1.5 million people in World War I, a third of its population deserted the country. Then, during World War II, over 60 percent of its economy was destroyed, leaving the Soviets to take control until 1989.

60% of the Hungarian economy was destroyed during the war–here’s the SRAS crash.  The postwar actions of the Red Army didn’t help:

During the Soviet occupation of Budapest at the end of the Second World War, it is estimated that around fifty thousand women in Budapest were raped by soldiers from the Red Army.1 After Berlin, the women of Budapest suffered in greater numbers than those of any other Central or Eastern European capital. This was partly because it was defended, was subjected to a drawn-out siege, and the civilian population was not evacuated. Moreover, Hungary’s alliance with the Axis powers meant that the besieging Soviet army saw Budapest as enemy territory and its women as more legitimate targets than those in regions perceived to be sympathetic to the Allied cause.2 During these months, for the majority of the inhabitants of the city, rape was a common occurrence that might be suffered by family, friends, acquaintances or neighbours.

Not to mention the 40,000 civilians killed in the Siege of Budapest.  Let’s just call a spade a spade—the Soviet military raped Hungary, and in the process shattered the victim’s economy and triggered the worst hyperinflation in world history.


7 thoughts on “Aggregate Demand Dominance: The Full History of Hyperinflation and the “Debased Currency” Fallacy

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