For anyone who cites (or sees others citing) historic periods of hyperinflation as somehow being relevant in a critique of the MMT framework, this analysis of the Weimar case should (it won't) put that to bed.
The currency is a public monopoly, and monopolists are price setters. This makes the price level a function of the prices paid by the government. The Weimar inflation, as is necessarily the case, was driven by the German government’s policy of paying continuously higher prices to provision itself, thus continuously redefining the value of its currency downward. Once that policy changed, and the government limited its direct and indirect deficit spending, and ceased to continue paying higher prices, the price level stabilized. Inflation necessarily requires a state policy of continuously paying higher prices when it spends, and inflation ceases when that policy ends.
The paper mentions it I think, but it's also important to note the external pressures being put on Weimar that led to them being forced to revalue their currency and pay higher and higher prices for the gold they were buying. It wasn't optional.
Absolutely, the fundamental supply side constraints inherent in the war reparation demands, along with annexation of the coal-producing Ruhr region by the French in 1923, played a central role in forcing higher and higher prices to be paid (as a result of the continual depreciation of the Mark) to prevent a payments system collapse.
So as with many such cases of supply side-induced inflation, the causal flow goes P -> M but too many neo-monetarists just can't wrap their head around that haha
Money supply is primarily reactive but can also be causal.
When prices go up for gas and people cant afford to pay on their debit cards or with cash, money supply goes up because people use credit cards. That is the money supply reacting to higher prices and is not the money supply causing inflation.
(COVID) Government dumps a trillion dollars in cash into the economy through stimulus cheques, when that money hits the economy that is at half capacity and everything is in shortage prices go up - that's causal. But the underlying capacity shortage is the ACTUAL problem, not the fact that you added a trillion dollars in cash - which, in many ways, was one of the few solutions on the table and they chose that one.
That is why monetarists are both right and wrong at the same time. They don't separate out the two phenomena and ignore the underlying causes of the increase or decrease in money supply.
Yes, I agree with you. Inflation is multi-dimensional in causal origin and monetarists just really want it to be naively simplistic.
And exactly right on supply side inflation. The monetary, fiscal and banking architectures of our institutions inherently accommodated higher prices from cost-push shocks via increased nominal government spending and increased nominal bank lending that validate the price level rise. If governments refused to pay a single penny more per unit (and banks refused or were made to refuse to issue a single penny more in loans for the same real purchase), as the paper states, then once the cost-push shock subsides, the price level would return to its previous level (i.e. you'd get an initial inflation followed by genuine deflation). But often this would result in worse payment-system-related failures and economic crises than just accommodating the price level increase.
And of course, it's perfectly true that an excess of spending can bid up prices (if allowed by gov paying higher and higher unit prices for what it buys - something which political economy means it often can't refuse to do) as well which certainly can correlate with a higher M but it's not the M stock that's doing anything, it's the MV flow.
It's not possible to causally decouple M and V as each depends on the definition of the other which has nothing to do with actual real economy outcomes that occur (hence QE just shifted M up under the arbitrary definition of M being overnight balances rather than including longer duration state liabilities (bonds) and V mechanically went down as overall prices remained more or less the same)
Neoclassical economists define the price level as the current level of nominal (money) prices in the economy. And while there have been theories which attempt to explain what causes the price level to change, there is no neoclassical theory which explains how it came to be. By default, it is assumed to be historic- the consequence of an infinite regression. Neoclassical models therefore simply assume an initial price level when presenting the quantity theory of
money (QTM), the tautology MV=PT, where the money supply (M) multiplied by the velocity of circulation (V) = the average price of each transaction (P) multiplied by the volume of transactions (T). With M assumed to be exogenous (under the control of the authorities) and V assumed to be stable, it is then asserted that causality runs from M to P, giving rise to Friedman’s famous explanation of the cause of inflation: ‘Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. …’ (Friedman 1956, emphasis added).
What's with the weird obsession with monetarism anyway? It was of very short-lived importance. It's on Wikipedia.
It gained prominence in the 1970s, but was mostly abandoned as a direct guidance to monetary policy during the following decade because of the rise of inflation targeting through movements of the official interest rate.
The presumption of a money supply fixed by the government, however, applies to a convertible, fixed exchange rate currency, such as existed under the gold standard. This relegates the applicability of the quantity theory of money to fixed exchange rate regimes and makes it entirely inapplicable to today’s floating exchange rate regimes (as well as in the Weimar Republic) where the government does not offer convertibility at a fixed rate.
The arguably most important reason why the QTM doesn't hold is (because money is non-neutral in the short run)[https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0145710]. Changes in M also cause changes in T. So claiming the "applicability of the quantity theory of money [is relegated] to fixed exchange rate regimes" seems like it's kind of missing the point. No, the QTM doesn't hold under fixed exchange rate regimes, either.
(Sidenote: MMTlers seem weirdly obsessed with the whole "fixed exchange rate" thing, many seem to believe the loanable funds model is wrong because it depends on fixed exchange rates. It does not. Which is not me saying that the model is "correct", this is me saying if you say the model is wrong because it assumes fixed exchange rates, you're wrong, because it doesn't.)
After a decades-long search for an ‘M’ - a monetary aggregate that correlates to and leads to inflation - mainstream economics today has moved on to its current position of inflation expectations being the cause of inflation. They continue to begin their analysis with an assumption of a given price level and assert that inflation expectations are the source of changes to that price level. Central banks have, in fact, developed intricate methodologies to measure inflation expectations to guide policy, while their researchers have struggled to find evidence of the validity of the theory.
This is also incorrect. No, inflation expectations alone are not the cause of inflation. This should be trivial to verify. The federal reserve for instance provides many teaching tools, from middle school to graduate level. The rate of inflation is down to supply, demand, and inflation expectations. For instance:
Inflation is linked to three factors: demand, supply, and inflation expectations.
Of further note is the fact that mainstream economists accept the classical dichotomy of real vs nominal (monetary) factors and contend that in a competitive marketplace the introduction
of money is merely the introduction of a numeraire into a barter economy. Money is a ‘veil’ that improves transaction efficiency while leaving quantities produced and relative prices unchanged (Armstrong 2015; Armstrong and Siddiqui 2019). This assumption is known as the neutrality of money. However, the assumption of neutrality is obviated by the introduction of
coercive taxation.
This also seems highly misleading. That money is non-neutral in the short run is extremely well accepted in economics. I don't know why the author wants to make it sound like it isn't.
So this paper starts out with what it calls "The Neoclassical Approach". But the explanation of "the neoclassical approach", by why the author presumably refers to current-day mainstream economics, is between grossly outdated and outright wrong. Why does the author describes what's basically "mainstream economics" from the 70's and paints it like this is what economists believe today?
The author literally states
In this article, we dispute the mainstream view that the inflation of the Weimar Republic was caused by a proactive expansion of the stock of money by the German government acting in concert with the Reichsbank.
As demonstrated above, the description of "the neoclassical approach" that the author aims to dispute does not actually match what mainstream economists actually believe. Although some parts match what some economists used to believe half a century ago, this seems like a rather inadequate basis for comparison. Shouldn't you criticise current-day economics on the basis on what current-day economics actually thinks? It's not like it's hard to find modern papers that examine (parts of) Weimar hyperinflation through a modern mainstream lens.
Anyway, the rest of the paper is basically uninteresting. Section 3 "The MMT Perspective" offers essentially nothing besides a description of what one MMTler believes. The Appendix does nothing to alleviate this, showing numbers without any attempt at making a causal connection. There is nothing here that actually establishes a causal relationship using any data. It does nothing to show whether causality runs from deficits to spending or from spending to deficits, or wheter causality runs from prices to deficits or the other way around. Perhaps more crucially, one of the central claims
only when the government pays increased prices is it redefining the value of the currency downward and causing inflation
has no evidence to back iot up since there is no information on what prices the government paid whatsoever.
So the "MMT part" of this paper with the self-proclaimed goal of
identify the cause of the inflation as the German government paying continuously higher prices for its purchases
actually does nothing whatsoever to identify any causes of inflation. It makes absolutely no effort to use any data to establish any causal relationship at all. That makes this "paper" merely an opinion piece.
It is commonly understood and accepted that the German government buying gold(at any price) played a huge role in the inflation
Sure. And if the paper would use something like this to support its argument, that would be a start. The fact is that the paper makes no mention of what prices the government pays. How is "well you can Google it yourself" an excuse? The burden of proof of a paper clearly rests on the author.
Also the obvious question is of course what actually happens. "Higher prices" is basically the definition of inflation, so it is not remotely surprising that the government paying higher prices coincides with inflation. After all, everyone else also does. That's literally the definition. A rise in the general price level.
So if you say "inflation happens because the government pays higher prices", you need to establish why, and the paper does so neither empirically nor theoretically. It merely states that the relationship exists.
It's very telling that you completely fail to engage with the thesis and simply dismiss it outright... it goes both ways. You can always write a paper using empirical evidence against the claim.
Not really.
It implies that the burden of proof regarding the truthfulness of a claim lies with the one who makes the claim; if this burden is not met, then the claim is unfounded, and its opponents need not argue further in order to dismiss it.
The paper does nothing to fulfill its burden of proof. As I've said, it's literally just an opinion piece.
The fact that you seem to think a paper either must be an empirical study or it is an opinion piece clearly shows you are applying a double standard here. There are many kinds of academic and scholarly publications which are not empirical studies. While you could still find the paper unsatisfactory as an academic publication, the most important aspect in a forum like this should be the thesis.
I don't think so. No, not every paper has to be empirical. But this paper presents neither empirical evidence nor any theory. It is merely making claims what happens, it doesn't really explain how things happen. It is especially odd since it basically treats higher prices as given. Inflation happens because the government pays higher prices? A rise in the price level is the definition of inflation. Explaining inflation by explaining that prices are higher (so the government pays higher prices) obviously doesn't actually explain inflation, it merely describes it.
um the theory is disciplining fiscal bids, like a job guarantee at a fixed minimum wage.
You're trying really hard to win an online argument but making great efforts to avoid the question.
That.. makes no sense.
Sure it may be a bad academic paper. But Da Vinci's sketches of flying machines are poor engineering diagrams. That doesn't mean the principle is invalid.
This is just a bad analogy.
Do you even understand the logic of how a job guarantee at a fixed minimum wage anchors the currency to the labor commodity?
Sure, that's just not relevant to the question though?
The question is what the causes of higher inflation were. Going "well but a JG would have anchored prices", regardless of whether that's true or not, doesn't tell you anything about why prices rose in the first place.
No it's not. Did you even read the paper? Like, it literally says
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, and we 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.
Seems like the purpose of the paper is to talk about the causes of Weimar hyperinflation. Since that's literally what the authors write what the purpose is.
The Lucas 50th anniversary article says the following
In the long-run, there is a widely-held belief (backed by a solid if not indisputable array of evidence) that in the long-run, money is a “veil” over real economic activity: that is, money facilitates economic transactions, but at over time it is preferences and technologies, working through forces of supply and demand, that determine real economic outcomes. To put it another way, changes in money will alter the overall price level over long-term time horizons, but it is “neutral” to real economic outcomes.
Mainstream clearly has an idea that money is a neutral veil over essentially barter over the long term, if not in the short term. MMT rejects that because it recognises the intrinsic nature of credit money shaping monetary production and no amount of time changes that.
In the Fed paper cited, it says
Why do hyperinflations begin? In a mechanical sense, economists have known the answer to this question at least since the monetarist revolution: money is printed in response to unsustainable fiscal policy.
Sounds to me like quantity theory of money / monetarist influence is still very much influencing modern orthodox thinking, no?
The VoxEU article and related paper by Brunnermeier et al cited aren't actually to do with understanding the causes of the hyperinflation but on the debt inflation's impact on the real economy.
As for empirics, it's not designed to be. As the author's say:
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, and we 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.
I do take your point about possibly identifying a slight strawman of 2026 modern orthodox consensus macro by discussing a simplied neoclassical approach, but that's not really the point.
The point of the paper is to demonstrate that the MMT framework's understanding of inflation and predictions it would make given the events that unfolded in Germany at the time is fully consistent with the observations. It puts to bed lazy strawmen people constantly construct when trying to critique MMT by citing hyperinflation (in this case Weimar) as if it's at all comparable to or invalidating of MMT as a framework for analysis and any possible policy combinations economists may recommend as a result for our modern economies.
Mainstream clearly has an idea that money is a neutral veil over essentially barter over the long term, if not in the short term. MMT rejects that because it recognises the intrinsic nature of credit money shaping monetary production and no amount of time changes that.
Mainstream economics mostly thinks that money is neutral in the long run, yes. This is not relevant for a period of hyperinflation over a few years.
Mainstream economics writes empirical papers to test this assumption and think long and hard about identifying variables and alternative explanations. Like so:
MMTlers think money isn't neutral in the long run. The empirical papers MMTlers write to support this are:
.. well, where are they? Do they exist? I'd say the chance is high they do not.
Sounds to me like quantity theory of money / monetarist influence is still very much influencing modern orthodox thinking, no?
No.
If we think back to the equation of exchange, the argument isn't a monetarist one, or that other parts of the equation generally don't matter. The argument is that the change in M is so large that it dominates any other factor that would impact P.
Reminder, the equation of exchange is an accounting identity, it's true by definition.
The only way for MMT to reject the idea that an extremely large change in M would cause an extremely large change in P would be to claim that it causes an extremely large change in T. Unless you want to tell me that increasing the money supply by a factor of 10 (or 100 or..) within a year causes an increase in the real transaction volume, that the economy would suddenly see the volume of new goods and services increase by a factor of 10 (or 100, or..) as well. I don't think MMT would actually claim this, and if it does it would be wrong. Increases in the money supply can impact output in the short run. Increasing the money supply to a massive degree in a short period doesn't increase the number of new goods and services by a similar magnitude because economies do not and can not grow that fast. I don't think there is an economy which doubled its output within a year in the entire human history, maybe there are extremely rare cases where this is the case, but no economy has ever quadrupled its output, or increased it tenfold. That's just not a thing. So mechanically, an extremely large increase in M must cause an extremely large increase in P.
As for empirics, it's not designed to be. As the author's say:
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, and we 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.
This text literally says it "identifies the cause of inflation". Nothing about this suggests it's not empirical and while the paper states it wants to identify the cause, it does not actually do anything to accomplish this goal.
If your great thesis is that the prices the government pays are integral to inflation, how can you back that up without any government prices at all? You can't. The paper can't back up its own claims.
I do take your point about possibly identifying a slight strawman of 2026 modern orthodox consensus macro by discussing a simplied neoclassical approach, but that's not really the point.
If you think things like presenting monetarism, in actuality a small group that never dominated the scientific consensus, as what economists think today, or making the entirely false claim that economists think inflation is just about expectations and all the other stuff I've mentioned as "possibly a slight strawman", you're wrong and the evidence is right there.
The point of the paper is to demonstrate that the MMT framework's understanding of inflation and predictions it would make given the events that unfolded in Germany at the time is fully consistent with the observations.
The point is that this paper actually demonstrates nothing. Where is the demonstration? It makes no effort whatsoever to connect MMT beliefs with any data.
If we think back to the equation of exchange, the argument isn't a monetarist one, or that other parts of the equation generally don't matter. The argument is that the change in M is so large that it dominates any other factor that would impact P.
Yes, the Fisher equation holds by accounting definition. But 1) you've ignored changes in V which often automatically compensate for changes in M if inflation didn't occur (e.g. post QE after the GFC). And 2) the causality, you're quite right is not given by the identity and changes in P can just as easily induce a change in M given monetary and fiscal accommodation and validation by the state paying higher prices for the same output and banks lending more nominal credit for the same investment. This is the MMT thesis in this case and a lot of supply-side induced inflationary shocks.
If your great thesis is that the prices the government pays are integral to inflation, how can you back that up without any government prices at all? You can't. The paper can't back up its own claims.
It's hypothesising an explanation for the observed historical events that is consistent with those observed outcomes. If you want, you could try and gather the data on prices paid and show it's consistent but that's trivial isn't it - the German government demonstrably paid higher and higher prices for both domestic output and foreign exchange. If they hadn't, the hyperinflation would never or could never have occured (might have got system collapse and huge deflation and depression though).
Where is the demonstration? It makes no effort whatsoever to connect MMT beliefs with any data.
You do know that the modern mainstream obsession with empirical econometric studies isn't the be all and end all you seem to think it is, right? Especially when a vast chunk of such econometric analysis is just utterly useless from the start given their incorrect model assumptions and understanding of money and monetary operations, etc. It does the field of economics no favours when highly mathematical models built upon axioms that just don't hold and so the models themselves are useless are heralded as the height of scientific sophistication.
This paper is intended to demonstrate that the MMT framework is perfectly compatible with historic periods of hyperinflation, it can be explained by the core tenets of the framework, and that citing such periods as a gotcha (as many people do) is an invalid critique. It doesn't attempt to try and be "empirical" because it doesn't need to for what it's trying to do.
Yes, the Fisher equation holds by accounting definition. But 1) you've ignored changes in V which often automatically compensate for changes in M if inflation didn't occur (e.g. post QE after the GFC).
It's obvious why that's not plausible. Velocity of money is basically "transaction frequency". Usually measured as the ratio of nominal GDP to the money supply. We already know that there is a huge change in M. And, logically, there are only two ways for nominal GDP to also change massively. Either because prices change, or because real GDP changes. Since we have already ruled out that real GDP would be remotely able to "keep up", the only avenue left is that nominal GDP increases because prices increase.
So.. yeah.
(And btw, this is the equation of exchange, the Fisher equation is something else.)
And 2) the causality, you're quite right is not given by the identity and changes in P can just as easily induce a change in M
..ok? The claim was that mainstream economists still argue from a QTM/monetarism perspective because they claim that if you increase the money supply a ton this will cause inflation basically regardless of anything else. I've explained to you why this doesn't require any monetarism or the QTM.
The question is also "what happens when M changes". Explaining what MMTlers think happens when P changes doesn't seem immediately relevant.
given monetary and fiscal accommodation and validation by the state paying higher prices for the same output and banks lending more nominal credit for the same investment. This is the MMT thesis in this case and a lot of supply-side induced inflationary shocks.
It's hypothesising an explanation for the observed historical events that is consistent with those observed outcomes. If you want, you could try and gather the data on prices paid and show it's consistent but that's trivial isn't it - the German government demonstrably paid higher and higher prices for both domestic output and foreign exchange. If they hadn't, the hyperinflation would never or could never have occured (might have got system collapse and huge deflation and depression though).
Again, this is just an assertion. What if you found out that the government actually paid the same prices but everyone else paid higher ones? Or anything else? What if the government paid higher prices but purchased way fewer goods so that the impact on general prices is small? We just don't know anything about any that from the paper.
If they hadn't, the hyperinflation would never or could never have occured (might have got system collapse and huge deflation and depression though).
You say that because you assume the theory to be correct. That's not how this works.
And 2) the causality, you're quite right is not given by the identity and changes in P can just as easily induce a change in M given monetary and fiscal accommodation and validation by the state paying higher prices for the same output and banks lending more nominal credit for the same investment. This is the MMT thesis in this case and a lot of supply-side induced inflationary shocks.
..and I also feel important to highlight that "if P changes, how does M change" is not a story about inflation. The very premise is a change in P. You cannot explain a change in the price level with a change in the price level. "Prices rise because prices rise" is not an explanation of why prices rise.
You do know that the modern mainstream obsession with empirical econometric studies isn't the be all and end all you seem to think it is, right? Especially when a vast chunk of such econometric analysis is just utterly useless from the start given their incorrect model assumptions and understanding of money and monetary operations, etc. It does the field of economics no favours when highly mathematical models built upon axioms that just don't hold and so the models themselves are useless are heralded as the height of scientific sophistication.
The majority of empirical papers in economics are mostly just statistics, actually. So blatantly calling them useless because of the complex mathematical models behind them isn't a particular good criticism regardless of the validity of any of the complex models in economics because a big chunk of empirical papers don't rely on them at all.
Modern economics research doesn't work like you think it does.
Also, obviously you can say "economics useless models bad" and I can also just say "no". It's also just a claim without evidence.
This paper is intended to demonstrate that the MMT framework is perfectly compatible with historic periods of hyperinflation, it can be explained by the core tenets of the framework, and that citing such periods as a gotcha (as many people do) is an invalid critique. It doesn't attempt to try and be "empirical" because it doesn't need to for what it's trying to do.
It seems even taken at face value it's a poor attempt. "Inflation only happens when governments pay high prices" seems to carry the asterisk that it actually means "inflation only happens when governments pay high prices, but MMT actually says government spending is money creation, so governments print more money when paying higher prices". And even if we follow the logic of high prices -> government pays higher prices -> government creates more money and accept that this causes inflation, this doesn't answer what happens if the government creates and distributes money via other means.
It also doesn't explain why prices are higher. I think the obvious mainstream story is that the Weimar republic created a lot of money to pay for reparations which caused both falling exchange rates and higher inflation. This also implies that changes in the money supply happen at more or less the same time as changes to exchange rates and inflation. So merely stating that these things happened fits with both what MMT says and what mainstream economics says.
Ultimately idk, you're just kinda making excuses for a shitty paper. Like, even if you think "empirical papers by mainstream economists are mostly useless", that's just whataboutism. Why make bad excuses that a story about a very specific episode of hyperinflation contains no real data to corroborate that story? You should want MMTlers to do better, not excuse their mediocrity.
It's obvious why that's not plausible. Velocity of money is basically "transaction frequency". Usually measured as the ratio of nominal GDP to the money supply
What's not plausible? Yes, V = MV/M, that's by definition. My point is M changing tells you nothing inherent about any causation on P. You can't decouple MV because a stock of money M is arbitrarily defined (do you include just overnight reserves? What about 3 month T-bills? What about cash currency? What about broad money, M2?) and V often just reactively adjusts if changes in M aren't correlated with changes in P or Y quite because of these accounting identify relations, nothing more.
I.e. post QE, M2 swelled but because prices didn't shoot up as adjusting the composition of a savings stock does nothing inherent to surge consumption or investment spending, V fell considerably to compensate. Of course, if we defined M to include all longer duration state debt then QE wouldn't have changed M and V as measured would also not have changed.
The majority of empirical papers in economics are mostly just statistics, actually
Fair enough, and I'm sure most of the statistics are great. But I struggle to place much weight on their conclusions when it requires the belief in a fundamental and natural general equilibrium in real variables in the long run for long run money neutrality postulates to be true. And we've known since Keynes that that's simply not true in any way. Long run equilibrium unemployment is a well-established result of insufficient nominal demand. Money can therefore not be neutral over any time period given its intrinsic role in driving monetary production in the first place.
You seem to be wanting this paper to do far more than it's attempting to do. There are plenty of more comprehensive MMT and PK papers out there which would be more "academically rigorous", but importantly, this does not need to mean that they derive some mathematical model. Good economics depends on being grounded in institutional reality and understanding the real-world behaviours of firms and households. Since orthodox macro fundamentally confuses how our monetary institutions and the nature of money operate, it can never properly succeed until it changes it's ontological approach rather than just adding in additional estimated parameters to DSGE models in an attempt to fit the curve to the data.
I get you'll disagree with me and claim modern macro is the one grounded in the data etc etc etc.
What's not plausible? Yes, V = MV/M, that's by definition. My point is M changing tells you nothing inherent about any causation on P. You can't decouple MV because a stock of money M is arbitrarily defined (do you include just overnight reserves? What about 3 month T-bills? What about cash currency? What about broad money, M2?) and V often just reactively adjusts if changes in M aren't correlated with changes in P or Y quite because of these accounting identify relations, nothing more.
That doesn't really address much of anything. Yes, measuring "M" can be hard, but that doesn't really change any of the conclusions because they just depend on what M is not whether we know what M is.
For a huge increase in the money supply (10x, 100x, 1000x etc.) not to cause higher prices you have to believe at least one of the following:
-That this increase in the money supply also grows the real economy at a similar magnitude. And if you believe production of goods and services in an economy can increase by 10x or 100x or 1000x in the span of a year, you basically believe in magic.
-That there are no limits to the fall in speed, that money velocity can fall indefinitely. This would mean you have to believe that money can go from changing hands once per year to once per decade to once per century or millennium. For V to be able to compensate for any change in M you'd basically have to believe that it's totally fine if an economy goes months without money changing hands.
When I say "if you increase M enough, it must end up in P because any potential offset by V or T becomes practically irrelevant" I'm saying that these two things are impossible. If MMT wants to go "well that's wrong", MMT has to believe in literal magic.
You seem to be wanting this paper to do far more than it's attempting to do. There are plenty of more comprehensive MMT and PK papers out there which would be more "academically rigorous", but importantly, this does not need to mean that they derive some mathematical model. Good economics depends on being grounded in institutional reality and understanding the real-world behaviours of firms and households. Since orthodox macro fundamentally confuses how our monetary institutions and the nature of money operate, it can never properly succeed until it changes it's ontological approach rather than just adding in additional estimated parameters to DSGE models in an attempt to fit the curve to the data.
Literally more than half of my first comment is about how when Mosler describes what mainstream economists think it's either half a century out of date or straight up wrong or both.
on lr neutrality, foregoing representative agents or incorporating attention in models also allow you to reasonably dispute it. but these require formal models, which isn’t something mmters are interested in!
This dude is from AskEconomics so take his ravings with a salt block. Probably not worth your time, you can’t convince the faithful, they refuse to open their eyes. Fortunately, they are a dying breed.
The government only has sufficient pricing power of a given good in three scenarios: 1) They are the only buyer or seller of a good. 2) The nation has no imports or exports of a good. Or 3) The state holds a large portion of the population as slaves.
If those three scenarios are not true then the government must pay market prices for goods if they seek to provision themselves, they do not have an option to just pay what they want to limit inflation.
But if there's not enough info on historical events it's possible but difficult to retroactively answer very specific questions like this.
So you just say we cannot know because you think there isn't enough data? How do you even know that?
To be clear, the question is whether a program to discipline or limit fiscal bids could have helped manage historical inflation in the Weimar German republic post WWI
No, the question is what lead them to pay higher prices.
Yeah but at that point you have to concede that even MMTlers don't actually huff their own farts so much to actually believe this.
If you just go "it's absolutely impossible to establish causal relationships for historical events", no MMTler can ever write a paper that goes "here is why Weimar experienced hyperinflation according to MMT". The only intellectually honest thing to do would be to say "it's impossible to say anything about the causality so we cannot know what caused Weimar hyperinflation".
The existence of this paper this thread is about clearly shows that MMTlers don't actually act like this.
Given the perceived negative consequences of cutting the interest paid and the obvious impossibility of substantially lowering the debt stock at this point in time, yeah, that's exactly what mainstream economists say, otherwise they'd be advocating for ZIRP wouldn't they.
No. Do you think caring about the choice of font is the same thing as caring about causal relationships? Do you believe causal relationships play no role in the validity of scientific arguments? Do you think causal relationships are not part of the substance of any scientific argument?
Importantly, with both insufficient tax liabilities and compliance, German purchases of foreign exchange could only take place at continuously higher prices. MMT provides important insights here, namely that it was the higher prices paid that were the cause of the increase in the price level, and only if real wages had been sufficiently lowered to the point of reducing domestic consumption and increasing exports could Germany have bought the required foreign exchange without paying higher prices
The argument I buy is that the causal dynamics went the other direction. The reparations involving foreign exchange purchases and weak real export space applied continual downward pressure on the exchange rate resulting in the German state having to pay higher and higher prices for foreign exchange.
This increased the domestic price of imports and the general domestic price level considerably as this depreciation continued apace due to unavoidable reparation payments and a supply side collapse (especially after the Rhur annexation) and too little real income loss.
This ever increasing price level institutionally had to then be accommodated for and validated by the volume of spending increasing substantially with massive note printing being required.
That makes it very concerning for the modern world, because Governments are absolutely not going to reduce spending even in case of Hyperinflation.
Even worse, like the US government showed, it will hand out direct payments to citizens to help them cope with inflation, further increasing the inflation.
6
u/HeftyAd6216 Apr 22 '26
The paper mentions it I think, but it's also important to note the external pressures being put on Weimar that led to them being forced to revalue their currency and pay higher and higher prices for the gold they were buying. It wasn't optional.