Abstract
In this chapter we will examine the MMT view of inflation and hyperinflation. The usual belief is that budget deficits and full employment are prone to cause inflation if not hyperinflation. Many critics even argue that following MMT is necessarily inflationary—the path to ruin. Let us first see how inflation is defined. We then turn to hyperinflation and to fears that quantitative easing might spark inflation. We will examine the claim that MMT policy was adopted during COVID and that the relief packages fueled inflation beginning in 2021. Finally we turn to MMT’s views on policy to promote price stability.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
See Steve Hanke and Nicholas Krus, “World Hyperinflations” CATO Working Paper, August 15, 2012, available at https://www.cato.org/sites/cato.org/files/pubs/pdf/workingpaper-8.pdf for a listing of all 56 episodes of hyperinflation identified using the Cagan definition. Accessed August 8, 2023. While the authors do not attempt to explain the causes for each of these, most followed a world war, the break-up of the USSR, or some other severe economic and political crises.
- 2.
See Yeva Nersisyan and L. Randall Wray ONE-PAGER NO. 62 | March 2020, “The Economic Response to the Coronavirus Pandemic” (accessed August 8, 2023)—that advocated an MMT-style response at the very beginning of the pandemic and long before inflation pressures appeared. We argued at the time: “On the fiscal side, the President pushes for a payroll tax holiday, while some economists are recommending cash giveaways to quickly put money in people’s pockets (Jason Furman has proposed a one-time payment for all citizens or taxpaying residents and every child: ‘A week ago, I thought $1000 per adult, $500 per child. Now I’d double or triple that’). Both proposals would make sense if we were dealing with the usual problem of insufficient aggregate demand, but it is hard to justify them as a solution to a problem of supply.” Policymakers followed Furman’s advice—not our MMT proposal.
- 3.
To be sure, President Biden’s “Build Back Better” was a step in that direction, but he and others insisted on tax “pay-fors” that ultimately played a big role in preventing the adoption of the proposal. Only a much scaled-back version could win support—and while beneficial, it could not rise to the challenges faced.
bibliography
Wray, L. R. (1998). Understanding Modern Money: The Key to Full Employment and Price Stability. Edward Elgar.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2024 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Wray, L.R. (2024). Inflation and Sovereign Currencies. In: Modern Money Theory. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-47884-0_9
Download citation
DOI: https://doi.org/10.1007/978-3-031-47884-0_9
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-031-47886-4
Online ISBN: 978-3-031-47884-0
eBook Packages: Economics and FinanceEconomics and Finance (R0)