The Anatomy of Inflation

B15　—　Cross-cutting theme

When paper multiplies, why does each note weigh less?

Supervised by: Mitsuru Hayama　／　Reading time (main text): About 8 min (4,238 characters of text at 500 chars/min; exercises and readings not included)　／　Beyond the text: 10 exercises · 11 readings · 2 references

What this course teaches you to do

• You can state, keeping them apart, the two explanations offered for inflation.
• From cases where inflation stopped, you can extract what actually worked.
• You can tell "goods are short" from "money is not believed" by the scene at the shop counter.
• You can decide how far to trust the figures that appear in records of inflation.
• Can explain the Price Revolution using the measured value of "fourfold in 100 years = 1.4% per year".
• Can explain suppressed inflation (unseen inflation under controls) and the pattern of its resolution.

Lessons (8)

1. The argument already existed five hundred years ago"The content shrank" and "the quantity grew" are different explanations. Tell which one is being used.
2. The moment the printing press became a weaponInflation is not always the fruit of drift. The more purposeful the printing, the harder it is to stop.
3. The shelves were empty, but not for want of goodsEmpty shelves are one thing; want of goods and want of credit are two. If it is credit, they refill by morning.
4. There are several ways to stop itThere are three ways to stop it: changeover, interest, and separating the issue. All work; none prevents relapse.
5. A slow revolution — a fourfold increase in a hundred years.The Price Revolution was 1.4 percent per year. A pace unnoticeable in daily life changed the world over a timescale longer than a lifetime.
6. Price Tags Twice a Day — The Sound of Money BreakingA record of life in a world where monthly salaries lost their meaning, wages were paid daily, and the word "to save" disappeared.
7. Freezing and Damming — Invisible InflationFreezing price tags with controls does not eliminate inflation; it builds up behind a dam. The reckoning comes with a freeze and new banknotes.
8. The Volcker Winter — A Demonstration of the Cure, and Its ConditionsCan the value of paper money be protected without gold backing? The answer is, "It can. But it requires pain and independence."

Readings (11)

• The century of silver and the price revolution　France　1566–1568　A study in the Parlement of Paris
  §1. A debate five hundred years old. Read in the original the point at issue: appearance or substance.
• The occupation of the Ruhr　Germany　1923　Berlin, the banknote printing works
  §2. The clearest statement of why they had to print.
• 20 June 1948　Germany　June 1948　A shopping street in the western occupation zones
  §3. Why the shelves were empty. It is explained that goods were not short.
• The great inflation and Volcker's winter　United States　from 1979　Washington, the Board of the Federal Reserve
  A real case of stopping method ②. It is written what happens when you stop it with interest rates.
• The price revolution　Spain　1501–1600　A town of Castile
  Section 5. Contrary to the name "Revolution," an annual 1.4 percent. The power of empirical measurement.
• The autumn of 1923　Germany　the autumn of 1923　At the factory gate, payday
  Section 6. The sound of a currency collapsing. A record from the heights of prosperity.
• The invisible debt　Germany　1933–1945　A town under controls, the frozen price tags
  Section 7. A record of a country that rebuilt the same dike twice.
• The great inflation and Volcker's winter　United States　the 1980s　The institution of the central bank
  Section 8. "It can be protected. However, there are conditions"—the full text of the experiment's answer.
• Only Gold Coins are the Yardstick　Greece　1943–1944　Black market for currency exchange
  The only continuous record that survived in a country with hyperinflation was not official statistics, but the exchange rate of the gold sovereign denominated in drachmas. Please consider the question of what to use as a measure, starting from the quoted prices in the black market for currency exchange.
• Prices Six Times Higher　Korea　1866–1867　The Salary Line
  A coin with a face value of 100 mon would only pass for the value of five or six mon when used. This is a real-world example of a tax, enacted without parliamentary approval or public notice, that identifies who paid the difference.
• When small change vanished　Italy　the 1970s　The table of labour negotiations
  The system of automatically raising wages in line with prices is considered to have been a mechanism for reducing inequality, while at the same time working to entrench inflation. Please observe the two faces of a single design.

Assessment

10 exercises in this course (7 check, 0 compare, 3 written). Progress is recorded by self-assessment.

References

• 광복 후 통화 남발과 물가 폭등 — 국사편찬위원회 우리역사넷　Commentary on historical materials regarding the increased currency issuance (4.843 billion to 8 billion Yen) and soaring prices immediately after the liberation.
• Dangbaekjeon (100-mon coin). — Encyclopedia of Korean Culture, et al.　An example of inflation: 100-fold nominal, 5- to 6-fold real, and approx. 6-fold grain price increase.

Only works and primary sources whose existence has been verified are listed.