Question for 'bookish' economists

Warman17

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Taking a page out of Mugabe's economic strategy (or the opposite of it), could you fight inflation by simply stopping the printing of money? Less money means the value of each piece of currency goes up. So whats the point of printing more money in the face of inflation? Whats so bad about deflating a currency to a previous value?
 
Taking a page out of Mugabe's economic strategy (or the opposite of it), could you fight inflation by simply stopping the printing of money? Less money means the value of each piece of currency goes up. So whats the point of printing more money in the face of inflation? Whats so bad about deflating a currency to a previous value?
The problem is if you stop printing money, you still need to pay government expenses (after all, those money were printed to cover lack of income), so if you stop to print it, you will have nothing to pay officials, army etc. Also, when inflation is getting this bad as in Zimbabwe, you no more can fight it just by stopping of money printing.
 
The way I see it, there are 2 very different set of circumstances that cause inflation. One is what people commonly think of, and the old pat answer that it's the printing of money. As I see it, that only happens in pretty extreme circumstances, or economies in which the currency is actually the largest part of the money which is available to be spent. Which is to say, more primative cash economies. People who are one step up from subsistence food production don't have a lot of bank accounts, checking accounts, and credit cards.

The other, in a modern economy with a well developed financial system, cash doesn't matter that much, and it would even be possible to get rid of it altogether. Actual cash shrinks to a tiny percentage of the money supply. By the broad definition of money, cash is less than 5% of the actual money supply, and to print money to cause inflation would be the tail trying to wag the dog. money, at least as far as inflation is concerned, ceases to matter. And what matters is that the supplies and the demands for goods services change over time, but typically go up. When you have a fixed amount of something, and more people want it, then the price of it is bid up. And this is a rolling process through the economy, as the rising price of one thing encourages price increases in other things to compensate for that.

I don't know if Zimbabwe flirted with having a modern economy before Mugabe ruined it, I don't know that much about that nation's history. But it clearly doesn't now. So I think this is a classical situation of inflation is a "monetary phenomena".

As to why it is being done, that's a classic story as well. The economy is in shambles, and the government is paying all it's bills by printing money instead of taxing or borrowing.

The way to stop it is to get a new, revalued, currency and then practice sound fiscal and monetary policies.
 
You print the money to pay the army and police. Yes this keeps inflation going but as long as you print enough to keep their pay just ahead of inflation you stay in power.
 
No, this would absolutely not work.

If you do not understand why deflation is bad, go back to your history books and look at what occurs during deflationary periods. In the US you have one in 1836, one right after the Civil War, and the third during the great depression.

PS: I've got a great "Ask an economist thread!"
 
Inflation is much more than just printing money, that's a pretty narrow view of it. A lot of it comes from the fact that prices, wages and interest rates change at different speeds.
 
Inflation is much more than just printing money, that's a pretty narrow view of it. A lot of it comes from the fact that prices, wages and interest rates change at different speeds.

That's true in an ordinary inflation. But not the type of hyperinflation Zimbabwe is experiencing.
 
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