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The Greek Hyperinflation and Stabilization of 1943–1946

  • Gail E. Makinen (a1)

The Greek hyperinflation started during the Axis occupation and was the result of an excessive reliance by the puppet government on the inflation tax. The inflation reached a peak in November 1944 after liberation. The Greek government undertook three stabilization efforts spread over eighteen months before price level stability was achieved. The final effort involved fiscal reform and the creation of an independent supracentral bank. Controversy surrounds the origin and nature of the transition costs involved in stabilizing an economy. The Greek stabilization cannot resolve all the issues raised.

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1 The definition of a hyperinfiation belongs to Cagan, Phillip. See his “The Monetary Dynamics of Hyperinflation” in Studies in the Quantity Theory of Money, edited by Friedman, Milton (Chicago, 1956). According to his definition, Austria, Germany, Poland, Russia, Greece, China, and Hungary (after both World Wars) had hyperinflation. China's experience is analyzed in Babcock, Jarvis and Makinen, Gail, “The Chinese Hyperrnflation Revisited,” Journal of Political Economy, 83 (12 1975), pp. 1259–68.

2 For the role played by limitations on the ability to tax and specific taxes in the German hyperinflation see Win, Peter-Christian, “Tax Policies, Tax Assessment and Inflation: Toward a Sociology of Public Finance in the German Inflation, 1914–1923,” in Schmukler, Nathan and Marcus, Edward, eds., Inflation Through the Ages: Economic, Social, Psychological and Historical Aspects (New York, 1983).

3 No continuous price series exists for the whole of the inflation period except for quotations of the gold sovereign.

4 See Sargent, Thomas, “The Ends of Four Big Inflations,” in Hall, Robert, ed., Inflation: Causes and Effects (Chicago, 1982);Gaibraith, John Kenneth, Money: Whence It Ca, ne, Where It Went (Boston, 1974); and Teichova, Alice, “A Comparative View of the Inflation of the 1920s in Austria and Czechoslovakia” in Inflation Through the Ages.

5 See Schuker, Stephen A., “Finance and Foreign Policy in the Era of the German Inflation: British, French, and German Strategies for Economic Reconstruction after the First World War,” in Busch, Otto and Feldman, Gerald D., eds., Historische Prozesse Der Deutschen Inflation, 1914–1924 (Berlin, 1978).

6 The German economic exploitation of Greece was systematic and many Greeks starved. Large quantities of wheat, other foodstuffs, and drugs to ease the deprivation began to arrive in September 1942. They were furnished by the United States and Canada and distributed by the Red Cross.

7 Sargent's data show that in Germany, Austria, Poland, and Hungary I a substantial portion of the notes were issued on discount or private commercial paper at negative real interest rates. For the Hungary 11 experience see Bomberger, William and Makinen, Gail, “The Hungarian Hyperinflation and Stabilization of 1945–1946,” Journal of Political Economy, 91 (10 1983), pp. 801–24.

8 See Nichols, Donald, “Some Principles of Inflationary Finance,” Journal of Political Economy, 82 (03 1974), pp. 423–30.

9 An explanation of the role of unemployment and other social costs in the German and Austrian hyperinflations is given in Holtfrerich, Carl L., “Political Factors of the German Inflation, 1914–1923,” in Inflation Through the Ages; and in Alice Teichova, “A Comparative View.”.

10 This limit was part of a secret treaty concluded between Britain and Greece on November 10, 1944. See Patterson, Gardner, “The Financial Experiences of Greece from Liberation to Truman Doctrine (October 1944–March 1947)” (Ph.D. diss., Harvard, 1948).

11 The British furnished substantial military and economic aid from the time of liberation. On April 1, 1945, the United Nations took over civilian relief aid. The purpose of the aid was also to raise significantly the daily caloric intake of the population.

12 See Gordon, Robert J., “Why Stopping Inflation May Be Costly: Evidence from Fourteen Historical Episodes” in Inflation: Causes and Effects; and Okun, Arthur, “Efficient Disinflationary Policies,” American Economic Review, 68 (05 1978), pp. 348–52.

13 See Sargent, Thomas and Robert Lucas, “After Keynesian Macroeconomics” in After the Phillips Curve: Persistence of High Inflation and High Unemployment, Federal Reserve Bank of Boston, Conference Series No. 19 (June 1978), pp. 4973.

14 Sargent's conclusion for Germany comes from p. 287 of Graham, Frank, Exchange, Prices, and Production in Hyperinflation Germany. 1920–1923 (New York, 1930). Graham also shows (p. 317) that the wholly unemployed among trade union members rose from 3.5 percent in August 1923 to 28.2 percent in December while the partially unemployed rose from 26 percent to 42 percent. For the Hungarian experience, see Bomberger and Makinen, “The Hungarian Hyperinflation.”

15 The index of industrial production (1939 = 100) rose from 38.3 in January 1946 to 59.7 in March 1947. Unemployment data were not gathered systematically. The observations for 1946 and 1947 were taken, respectively, from a survey made by the Allied Mission for Observing the Greek Election and the Annual Report of the Bank of Greece for 1948 (Athens, 1948), p. 72.

16 Garber, Peter M., “Transition from Inflation to Price Stability,” Carnegie-Rochester Conference Series on Public Policy (Monetary Regimes and Protectionism), 16 (Spring 1982), pp. 1142.

17 For a qualitative discussion of the change in production technique and resource reallocations during the Austrian hyperinflation, see de Bordes, J.van Walras, The Austrian Crown (London, 1924).

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