Monday, May 12, 2014

So You Think Hyperinflation Can't Happen Here?

Richard Ebeling emails:
Dear Bob,

I have a new article on the news and commentary website, “EpicTimes” on “The Lessons from the Great Austrian Inflation,” and the influence of Ludwig von Mises in bringing it to an end.

It is one hundreds years now, since World War I began and all the belligerent countries resorted to paper money inflation to fund their war expenditures. This was no less the case in the Austro-Hungarian Empire.

The wartime inflation became a disastrous hyperinflation between 1921 and 1923 to fund a ballooning welfare state and a growing bloated bureaucracy as the postwar socialist government attempted to regulate industry and hamper the market through price controls and foreign exchange restrictions.

The new Republic of Austria was saved from the same degree of economic catastrophe experienced in neighboring Germany because of the successful influence of the Austrian economist, Ludwig von Mises, who persuaded the Austrian chancellor to halt the inflation, and cut the government bureaucracy by 70,000 “public servants.”

Mises also helped write the new bylaws for the Austrian National Bank that put the bank back on a form of the gold standard.

But the Austrian government could not stay away from more spending, higher taxes, and greater deficit spending in the remainder of the 1920s. In 1931, Mises demonstrated that mismanaged fiscal policy and union wage demands had eaten so much into private enterprise revenues that in the second half of the 1920s, Austrian industry had suffered from capital consumption. Part of the seed corn had been eaten to feed the socialist welfare state.

I suggest that those who think “It can’t happen here,” should recall that one hundred years ago, before the First World War began, few Austrians could of imagined that it could happen there.

Best Wishes,

1 comment:

  1. I have a collection of explanations for hyperinflation. They seem like different ways to describe an elephant. I find it interesting.