Hyperinflation

Pathology 2. Hyperinflation, and its purely fiscal-monetary mechanism. At the opposite extreme is hyperinflation, where money loses value not by a few percent a year but by the hour. Philip Cagan's classic (1956) definition draws the line at inflation exceeding 50% per month, which compounds to over 12,000% a year. The essential thing to understand is that every hyperinflation is fundamentally the same phenomenon, and it is not a cost-push or demand-pull story: it is the monetary engine (see causes of inflation) run to destruction by a fiscal cause. The mechanism:

1. A government faces a fiscal gap it cannot close by taxing or borrowing (often after a war, a regime collapse, or the loss of access to credit markets), and so it finances its spending by printing money (having the central bank create money to buy its debt, i.e. monetizing the deficit, the extreme of the fiscal dominance M7.04 formalizes).
2. The money supply explodes, and prices rise to absorb it (quantity theory, see causes of inflation).
3. Here is the accelerant that makes it a spiral: as people realize money is losing value fast, they spend it faster and velocity spikes, because holding cash is a guaranteed loss; they rush to convert wages into goods, hard currency, or real assets the instant they are paid. Rising velocity itself pushes prices up further, independent of new printing.
4. Faster inflation shrinks the real value of the money the government prints (the inflation-tax base collapses, since a given amount of printing buys the government less and less), so to fund the same real spending it must print even faster, which raises inflation further, which shrinks the base further. The currency dies in a self-reinforcing collapse.

What are examples of hyperinflation?

The historical cases all fit this template exactly. Weimar Germany (1922–23): reparations and deficits monetized until prices doubled every few days by late 1923 and workers were paid twice daily and rushed to spend before the notes lost value; ended only by a brutal new-currency reform (the Rentenmark). Hungary (1945–46): the worst ever recorded, with prices doubling roughly every 15 hours. Zimbabwe (2007–09): deficit monetization after the collapse of agricultural output drove inflation to an almost unmeasurable peak in November 2008; the government abandoned its own currency and dollarized. Venezuela (2016–19): collapsing oil revenue plus money-printing produced years of hyperinflation and mass emigration. The cure is always the same because the disease is always the same: stop the deficit monetization (fix the fiscal hole) and install a credible new monetary anchor, whether a new currency, a currency board, or outright dollarization. Hyperinflation is the ultimate proof of Friedman's dictum and the ultimate demonstration of why central-bank independence exists (M7.02, see central bank independence): it is what happens when the printing press is captured by the treasury.