Sunday, July 6, 2008

A Good Hyperinflation?

I see Bryan Caplan is questioning again the necessity of the American Revolution. His views on the American Revolution reminded me of an experience I had in grad school with one of my monetary economics professors.

Somehow, I had picked up J.K. Galbraith's Money: Whence It Came, Where It Went and read his account of how fiat money was used by the Continental Congress to finance the Revolutionary War. The excessive creation and uncertainty surrounding the Continentals, as the fiat currency was known, created an hyperinflation-like environment. Galbraith, unlike Caplan, valued the American Revolution and concluded that "the U.S. rode the wave of hyperinflation into existence." The implication was clear: hyperinflation was needed to win U.S. independence. Feeling all smug about having in hand what seemed to be a hard-to-refute example of high inflation actually being a good thing, I visited my monetary economics professor. Now I am not an advocate for hyperinflation--far from it--but I could not resist the chance to throw a monetary curve ball at my professor. So I did and expected him to strike out. Instead, he hit took my pitch and hit a home run off of it with these sharp words:"David, history is written by the victors!" I left his office humbled once again.

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