Instead of x leading to y, why don't they analyze all ys to determine what preceded them? If all cases of yellow fever are preceded by a mosquito bite, that doesn't mean that all mosquito bites lead to yellow fever.

We have a ton of hyperinflation cases to analyze. At what level of money creation does the panic, the stampede take place?

Also, what role does the taxation of growth play? Taxes implicitly devalue the future relative to the present. The drag they place on growth prevents the value creation necessary to put value into money.

For each hyperinflation, what percentage of growth was going to government?

Not a very thorough analysis.

Cause is always tough to demonstrate, especially when demonstrating the null hypothesis. However, most people who see a temporal link between events that keep repeating consider that causal or one hellova coincidence. If you look at the work of Stephanie Kelton and Randy Wray their MMT work offers more support for the disconnect between printing money and triggering inflation.

One paper by Julia Karp includes a graph showing that every time the US government goes into fiscal austerity mode, where the deficit is brought down and the books begin to balance or even (as with Clinton) the US has a surplus, the event triggered a recession. https://www.egalitarianplanet.org/modern-monetary-theory-by-julia-karp
https://uploads.disquscdn.c...

The study is massively flawed by use of the CPI metric... It's like taking the temperature outside of a house and saying it's barely affected by the thermostat setting inside - How about taking the temperature *inside* the house, guys?! The analogy I'm driving at, obviously, is to measure inflation via house price and stock market indices. THEN you'll see money supply growth strongly correlated with inflation! So either the authors are too dumb to see the obvious, or they're just toeing the usual line that inflation isn't a problem, because CPI looks okay. Meanwhile they pour into property and stock investments to profit...

So, you disagree with the definition of inflation. One can argue that house prices do not reflect inflation and are more indicative of availability of credit and interest rates.

I think he covers that when he talks about credit induced inflation. House prices perfect example of credit expansion. This is not money supply issue - but access to credit, just like with student loans. If banks wouldn't lend the kids the money, Colleges couldn't charge what they do.

Inflation by itself is meangless metric. Purchasing power is the only one that matters. If my salary doubles but everything else goes up by 10%, is it inflation for me? One thing about debt is it has be paid off with interest. Banks want more debt because this how they create money out of thin air. Wishing that they stop it is naive. If banks issue a lot of credit, it's because they make a ton of money. When everything comes crashing down, all of their executives have privatized all the profits their banks made during boom. This is the problem with the current banking system - it is a Ponzi scheme designed to make ridiculous amount of money for those at the top and leave every body else holding the bag.

This is the problem with the current banking system - incompetence?

“As Axel Weber remarked, afterwards:
I asked the typical macro question: who are the twenty biggest suppliers of securitization products, and who are the twenty biggest buyers. I got a paper, and they were both the same set of institutions…. The industry was not aware at the time that while its treasury department was reporting that it bought all these products its credit department was reporting that it had sold off all the risk because they had securitized them . . . “
http://www.lse.ac.uk/lse-pl...

“The root problem of 2008 was a failure to recognize that the highly leveraged money center banks had used derivatives not to distribute subprime mortgage risk to the broad risk bearing capacity of the market as a whole but, rather, to concentrate it in themselves.”
https://equitablegrowth.org...

Do you really believe that banks are INCOMPETENT????? They are very competent to fill a few pockets at the top with billions and millions. What no regular person doe realizes is that Wall Street is a giant scam factory. The latest scam collapsed in 2008. I don't even care to bother with listing all other "investment" banking scams this country went through.

I totaly agree witht he findings --- M2 is not reason for inflation -- credit expansion, cartel pricing and other reasons explain increase in prices. Velocity of money is key - wish you had included that in your study. FED and other Central Banks doing QE, but without velocity of money there is no inflation because all money has gone to top 10% and they can't possibly spend all of it, so they never create demand that drives prices up. Also, Think of Chinese and trillions that has been put into Western Real Estate & Stock Markets - this is driving up prices.

Apparently credit expansion somehow doesn't increase M2, and loans taken out at artificially low interest rates somehow have nothing to do with central banks or governments.

When its half price drinks at happy hour, the pub is packed. Because you have effectively doubled the money supply. To say rapid expansion of the money supply doesnt cause inflation is nothing more than a socialist fantasy, and the people that over complicate this basic principle are not the people you want controlling rapid money supply growth. You cheat and it will bite you on the ass

I guess this idea is dead now after central banks caused high inflation by enlarging their balance sheets in COVID year.
Another example is the Turkey inflation in 2022 which was caused by extremely low interest rates

How is it dead? This data set spanned 60 years, you only added 2 years where COVID also caused supply shocks.

Turkey's inflation preceded the rate cuts and the lira recovered after rates hit single digits. Thats about the time of your comment ironically enough.

Ah, I see the flaw in your analysis. You're looking at prices that should be shrinking considerably and when they instead rise by a little bit, you say that there's "no inflation". That's silly!

You have to look not at the inflation rate compared to a zero change in price. You have to look at the inflation rate compared to *where prices would otherwise be*.

A growing economy is one in which productivity is increasing. Productivity increases lead to *lower* real costs, not higher costs.

Only by printing up money are governments and protected financial institutions able to offset the downward trajectory in real prices, and keep nominal prices static or increasing while the underlying *real* prices go down, keeping the spread for themselves.

A growing economy with growing productivity leads to lower real prices, not higher real prices. The nominal price is just a ruse. Instead, one should look at *real costs*. You simply can't do that with a state-issued fiat currency. It is a ruler painted on a rubber band.

If only fiat currencies were "state issued"
Nearly all of them are issued by central banks and loaned into existence.

What a great article, mind-opening to a third year econ student. Rigorous application of the scientific method to find important empirical evidence. If rapid M2 growth doesn't cause inflation what really does then? I'd love to learn more about supply shock's and the political factors. We've seen countries like argentina experiencing huge amounts of inflation, and other similar historic cases... Maybe a similar study can be done considering levels higher than 5% and see if the money supply growth argument holds more value.

You can say this is mind-opening if you want. These conclusions are familiar to non-economists, however. It bothers me that economists are so behind and they then speak with pretended authority. Economists are like little children right now compared to where they will be once they've overthrown their old ideologies. The MV=PQ thing has been bunk for decades and decades - but hell, I guess it is good that economists are slowly catching on...

It isn't correct because it doesn't describe properly the endogeneity of money. It is the mathematized form of Hume's fairy tale story. Besides, everyone knows that Marshall's version is superior, if we have to pick one.

Marc, can you cite some non-economists who came to similar conclusions long ago? I assume you may be talking about political scientists in the area of neocolonialism and development but I'd like to make sure.

The "underperformance" of inflation is due largely to the shortage of the"animal spirits" that ppropel inflation under the conditions of the abundant money supply.

Try reading some Kindleberger. He is most definitely a non-economist by today's standards.

Thanks! I have been reading Prof. Kindleberger since about 30 years ago! But I have to revisit him, I admit.

I agree with the conclusions but would like to offer a rationale for them. And I get there by asking a simple question; what drives the amount of money you keep in very liquid assets? The simple answer is the amount you plan to spend, which is effectively demand. The amount you (and I mean collectively everyone in the economy) spend is not determined -- caused -- by money supply, or the magnitude of all liquid assets; the causality flows in the other direction. Milton got it wrong and the monetarists have been robotically repeating the flawed analysis every since.

Frank

Isnt this just inference from merely descriptive statistics??

From the mid 70s until the early 21st century I organized or helped organize 4 unions and helped negotiate 4 first collective agreements and several subsequent ones. In each of those situations, we were trying to help our members keep up with inflation. It is also my impression that this was the case with other unions. The prevailing beliefs were that labour was driving up prices but that is not my impression.

But it seemed do be justified by a stupid economic model called the NAIRU — Non-Accelerating Inflation Rate of Unemployment — based on the Phillips curve — another dumb idea of economists — that attributed inflation to growing labour costs while ignoring shareholder dividends and huge pay packets for CEOs and their coterie not to mention many other variables depending on what was taking place in the various sectors of the economy.

The costs of housing was also a driver of wage increases and of course we know that was caused by banksters issuing new mortgages driving up the prices of housing. In other words an inflated housing market plus other drivers in the FIRE sector.

Here: https://mv-pt.org/our-resea...
is someone who presents evidence that the QTM 'works'?

The results are quite suggestive, but there is a clear endogeneity problem when assessing causal links: central banks might be increasing money supply in response to weak economic performance or deflation risks (as seems to be the case in our recent experience).
Is there a way to address these endogeneity concerns?