Lincoln Land Review
Hyperinflation
31
HANNAH HEDINGER
Professor Art Meyer, ECO 132
Inflation can be a serious problem in any economy. It causes prices of goods and services to rise and the purchasing power of money to fall, which can drastically alter the standard of living in countries that are affected by it. But as bad as normal inflation is, the situation can unfortunately get much worse. Hyperinflation – as the name suggests – is escalated inflation, and it has an extremely negative impact on economies that are affected by it. Many countries all over the world have experienced hyperinflation at one time or another, severely weakening their economies. Michael K. Salemi, an economics professor at the University of North Carolina, writes however, that hyperinflation is largely a 20th century phenomenon, first making frequent appearances when governments began switching their currencies from gold and silver to paper. So what exactly is hyperinflation? Salemi describes hyperinflation as being the state of the economy when the monthly inflation rate reaches levels greater than 50 percent. He provides an example of this, saying, “at a monthly rate of 50 percent, an item that costs $1 on January 1 would cost $130 on January 1 of the following year.” As strange as it may sound, hyperinflations are actually caused by governments themselves when they print excess supplies of paper money. More specifically, as Salemi writes, “hyperinflations are caused by extremely rapid growth in the supply of ‘paper’ money.” He goes on to say that governments print such large amounts of money in an attempt to pay for large amounts of government expenditures. So, in essence, governments cause hyperinflation by printing excessive amounts of money to pay for all of their expenditures. As previously stated, many countries have experienced hyperinflation in the 20th and 21st centuries. One of the better known cases, that of Zimbabwe in 2007-2008, is a notable example for several reasons. According to an article by Steve H. Hanke and Alex K. F. Kwok in the Cato Journal, Zimbabwe actually
had the first hyperinflation of the 21st century and the 30th case of hyperinflation in the world’s history. Most of the world’s recorded cases of hyperinflation occurred in the 20th century, especially in Europe after the two World Wars.