Hyperinflation - absurd rates of monetary inflation - is the key objection to any proposal that Government should take back to itself the power of issuing at even a proportion of the money in circulation.
The image of pre-war Germans taking a wheelbarrow of money to buy a loaf of bread is burned into everyone's cortex. Less well known is the fact that the hyperinflation that plagued Germany in 1923 followed "the complete privatization of the German central bank and elimination of governmental influence on it" (Stephen Zarlenga, The Lost Science of Money p. 599).
However, in his book "Hyperinflation: causes, cures", Bernard Mufute writes: 'Hyperinflation has its root cause in money growth, which is not supported by growth in the output of goods and services. Usually the excessive money supply growth is caused by financing of the government budget deficit through the printing of money.' As we see above, this can happen even with the power to issue money in private hands. There are other factors in play. It is strongly associated with civil war, when Government loses control of money flows. It is also associated with irresponsible government, as in Zimbabwe in 2008.
Given a reasonably intelligent Government, with well-written statutes governing the issuing agency, there is no need to believe that hyperinflation is a probable consequence of centrally issued money.
Effective restraints to prevent hyperinflation would include
- statutory fractional reserve requirements
- Interest rate controls
- the power for Government to withdraw money from the economy as appropriate.
The government has been the authority that created the money supply since Roman times and hyperinflation has not been endemic in those 2000 years.
