Editing Hyperinflation (section)

===Money supply===
[[Monetarism|Monetarist theories]] hold that hyperinflation occurs when there is a continuing (and often accelerating) rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services.<ref>{{cite journal |last1=Humphrey |first1=Thomas |title=A Monetary Model of the Inflationary Process |journal=Economic Review |date=1975 |volume=25 |issue=November/December 1975 |pages=13–23 |url=https://www.richmondfed.org/~/media/richmondfedorg/publications/research/economic_review/1975/pdf/er610602.pdf |access-date=23 December 2021}}</ref>

The increases in price that can result from rapid [[money creation]] can create a vicious circle, requiring ever growing amounts of new money creation to fund government deficits. Hence both [[monetary inflation]] and price inflation proceed at a rapid pace. Such rapidly increasing prices cause widespread unwillingness of the local population to hold the local currency as it rapidly loses its buying power. Instead, they quickly spend any money they receive, which increases the [[velocity of money]] flow; this in turn causes further acceleration in prices.<ref>{{Cite web|title=Hyperinflation|url=https://www.econlib.org/library/Enc/Hyperinflation.html|access-date=15 May 2021|website=Econlib|language=en-US}}</ref> This means that the increase in the price level is greater than that of the money supply.<ref>{{cite book |last=Parsson |first=Jens |author-link=Jens O. Parsson |title=Dying of Money |chapter=Chapter 17: Velocity |publisher=Wellspring Press |year=1974 |location=Boston, Massachusetts |pages=112–119}}</ref>

This results in an imbalance between the [[supply and demand]] for the money (including currency and bank deposits), causing rapid inflation. Very high inflation rates can result in a loss of confidence in the currency, similar to a [[bank run]]. The excessive money supply growth can result from speculating by private borrowers,<ref>{{cite report |last1=Kumhof |first1=Michael |last2=Benes |first2=Jaromir |title=The Chicago Plan Revisited |date=August 2012 |page=16 |url=https://www.imf.org/-/media/Websites/IMF/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12202.ashx |archive-url=https://web.archive.org/web/20210812183101/https://www.imf.org/-/media/Websites/IMF/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12202.ashx |archive-date=12 August 2021 |url-status=live |series=Working Paper No. 2012/202 |publisher=International Monetary Fund |format=PDF |isbn=9781475505528 |issn=1018-5941}}</ref> or may result from the government being either unable or unwilling to fully finance the government budget through taxation or borrowing. The government may instead finance a government deficit through the creation of money.<ref name="z">Bernard Mufute (2 October 2003). [https://web.archive.org/web/20080408131232/http://www.fingaz.co.zw/fingaz/2003/October/October2/1365.shtml "Hyperinflation: causes, cures"]. "Hyperinflation has its root cause in money growth, which is not supported by growth in the output of goods and services."</ref>

Governments have sometimes resorted to excessively loose monetary policy, as it allows a government to devalue its debts and reduce (or avoid) tax increases. Monetary inflation is effectively a flat tax on creditors that also redistributes proportionally to private debtors. Distributional effects of monetary inflation are complex and vary based on the situation, with some models finding regressive effects<ref name="autogenerated2">{{cite web|url=http://www.ssc.uwo.ca/economics/econref/workingpapers/researchreports/wp2000/wp2000_1.pdf|title=On Inflation as a Regressive Consumption Tax|archive-url=https://web.archive.org/web/20080910064531/http://www.ssc.uwo.ca/economics/econref/workingpapers/researchreports/wp2000/wp2000_1.pdf|archive-date=10 September 2008|url-status=dead|access-date=15 January 2010}}</ref> but other empirical studies progressive effects.<ref>{{Cite journal|last1=Süssmuth|first1=Bernd|last2=Wieschemeyer|first2=Matthias|date=2017|title=Progressive tax-like effects of inflation: Fact or myth? The U.S. post-war experience|journal=IWH Discussion Papers|issue=33/2017|url=https://ideas.repec.org/p/zbw/iwhdps/332017.html|language=en|access-date=26 April 2019|archive-url=https://web.archive.org/web/20190426163115/https://ideas.repec.org/p/zbw/iwhdps/332017.html|archive-date=26 April 2019|url-status=live}}</ref> As a form of tax, it is less overt than levied taxes and is therefore harder to understand by ordinary citizens. Inflation can obscure quantitative assessments of the true cost of living, as published price indices only look at data in retrospect, so may increase only months later. [[Monetary inflation]] can become hyperinflation if monetary authorities fail to fund increasing government expenses from [[tax]]es, [[government debt]], cost cutting, or by other means, because either

* during the time between recording or levying taxable transactions and collecting the taxes due, the value of the taxes collected falls in real value to a small fraction of the original taxes receivable; or
* government debt issues fail to find buyers except at very deep discounts; or
* a combination of the above.

Theories of hyperinflation generally look for a relationship between [[seigniorage]] and the [[inflation tax]]. In both Cagan's model and the neo-classical models, a tipping point occurs when the increase in money supply or the drop in the monetary base makes it impossible for a government to improve its financial position. Thus when [[fiat money]] is printed, government obligations that are not denominated in money increase in cost by more than the value of the money created.

[[File:German Hyperinflation.jpg|right|thumb|The price of gold in Germany, 1 January 1918 – 30 November 1923. (The vertical scale is [[logarithmic scale|logarithmic]].)]]

In neo-classical economic theory, hyperinflation is rooted in a deterioration of the [[monetary base]], that is the confidence that there is a store of value that the currency will be able to command later. In this model, the perceived risk of holding currency rises dramatically, and sellers demand increasingly high premiums to accept the currency. This in turn leads to a greater fear that the currency will collapse, causing even higher premiums. One example of this is during periods of warfare, civil war, or intense internal conflict of other kinds: governments need to do whatever is necessary to continue fighting, since the alternative is defeat. Expenses cannot be cut significantly since the main outlay is armaments. Further, a civil war may make it difficult to raise taxes or to collect existing taxes. While in peacetime the deficit is financed by selling bonds, during a war it is typically difficult and expensive to borrow, especially if the war is going poorly for the government in question. The banking authorities, whether central or not, "monetize" the deficit, printing money to pay for the government's efforts to survive. The hyperinflation under the [[Chinese Nationalists]] from 1939 to 1945 is a classic example of a government printing money to pay civil war costs. By the end, currency was flown in over the Himalayas, and then old currency was flown out to be destroyed.

Hyperinflation is a complex phenomenon and one explanation may not be applicable to all cases. In both of these models, however, whether loss of confidence comes first, or central bank [[seigniorage]], the other phase is ignited. In the case of rapid expansion of the money supply, prices rise rapidly in response to the increased supply of money relative to the supply of goods and services, and in the case of loss of confidence, the monetary authority responds to the risk premiums it has to pay by "running the printing presses".