Hyperinflations and the Mickey Mouse Peso

In a transcript from a lecture, the illustrious Austrian economist Percy L. Greaves Jr. explains the stages of inflation.

Sales to these buyers cannot be continued forever. As the quantity of money is increased and prices rise, injections of larger and larger quantities of money are required to produce the same effects. If the quantity of money increases in ever larger quantities, prices will rise faster and faster as the value of each monetary unit falls. Sooner or later, the increases must be stopped. If they are not stopped before the value of the monetary unit falls to zero, people will eventually run away from the money and spend it on anything they can get, because, in their minds, anything will soon be worth more than a constantly depreciating money.

When governments increase the quantity of money, the effects tend to follow a certain pattern. Of course, the inflation can be stopped at any point. The first stage of inflation is when housewives say: "Prices are going up. I think I had better put off buying whatever I can. I need a new vacuum cleaner, but with prices going up, I'll wait until they come down." During this stage, prices do not rise as fast as the quantity of money is being increased. This period in the great German inflation lasted nine years, from the outbreak of war in 1914 until the summer of 1923.

During the second period of inflation, housewives say: "I shall need a vacuum cleaner next year. Prices are going up. I had better get it now before prices go any higher." During this stage, prices rise at a faster rate than the quantity of money is being increased. In Germany this period lasted a couple of months.

If the inflation is not stopped, the third stage follows. In this third stage, housewives say: "I don't like flowers. They bother me. They are a nuisance. But I would rather have even this pot of flowers than hold on to this money a moment longer." People then exchange their money for anything they can get. This period may last from 24 hours to 48 hours.

56 countries including the Philippines experienced the nasty consequences of inflation run amuck, caused by government’s sustained tampering of money

Below is the table which lists the accounts of world hyperinflations.

Unknown to most, the Philippines had a short episode of hyperinflation during World War II.

Cato’s Steve H. Hanke and Nicholas Krus in their paper World Hyperinflations narrates,

Another largely unreported hyperinflation episode occurred in the Philippines, during World War II. In 1942, during its occupation of what was then the Commonwealth of the Philippines, Japan replaced the Philippine peso with Japanese war notes. These notes were dubbed “Mickey Mouse money”, and their over-issuance eventually resulted in a hyperinflation that peaked in January 1944. It should be noted that the U.S. Army, under orders from General Douglas MacArthur, did add a relatively small amount of fuel to the Philippine hyperinflation fire by surreptitiously distributing counterfeit Japanese war notes to Philippine guerilla troops (Hartendorp 1958). (Mickey Mouse Peso image from Wikipedia.org)

History gives us lessons of what may happen if governments continue to abuse money.

As the great Ludwig von Mises wrote,

History looks backward into the past, but the lesson it teaches concerns things to come. It does not teach indolent quietism; it rouses man to emulate the deeds of earlier generations.

Unfortunately, in the world of politics, such lessons never sink in, and this is why history rhymes.