Monetary Regimes and Inflation

Peter Bernholz, a Swiss economist, examines inflation across recorded history and asks what monetary and political conditions produce it. His evidence base is unusually wide: metallic currencies and debasements from antiquity through the early modern period, paper money episodes, and the twentieth and twenty-first century inflations and hyperinflations.

His central empirical finding concerns the fiscal threshold. Bernholz identifies roughly thirty hyperinflations in recorded history and shows that in every case the government was financing a large share of its expenditure by creating money. He puts the threshold at around forty per cent of government expenditure covered by money creation, with hyperinflation becoming likely once deficits reach roughly twenty per cent of expenditure sustained over time. He also documents the behavioural regularities: real money balances collapse before the price level peaks, currency substitution accelerates, and the exchange rate leads domestic prices rather than following them.

The second theme is institutional. Bernholz argues that monetary regimes differ in how much inflation they permit, that metallic standards constrained governments more effectively than discretionary paper regimes, and that central bank independence works only when it is supported by a political consensus against inflation. He is explicit that independence written into statute fails when the government's fiscal position becomes untenable. The book is scholarly and data-dense. Its cross-historical comparison is its distinctive contribution and it is regularly cited in current debates about fiscal dominance.