Hyperinflation: Sumner vs. Yglesias

     Sumner is again defending the QTM theory that the money supply is what controls the price level and therefore the inflation rate. 

      "Here’s Paul Krugman:

But in this more complex world, where even the definition of the money supply becomes highly dubious, why even talk about an LM curve? Well, before 2008 most macroeconomists didn’t! They talked instead about interest rate targets, Taylor rules, and all that. Mike Woodford, who is probably our leading macroeconomist’s macroeconomist, has even made one of his signature modeling tricks the building of models in which there is (almost) no outside money. Sensible macroeconomists have known for a long time that quantity-theory type models, if they were ever useful, aren’t much use in the modern economy.

In normal times central bank monetary policy is conducted in terms of, and best thought of in terms of, the target interest rate.

     "This is certainly the conventional view, but I think it’s wrong.  Let’s start with the fact that just as there are no atheists in a foxhole there are no non-monetarists during a hyperinflation.  When prices rise 8700% (almost) no one tries to explain the path of prices by referring to the path of interest rates. Even Wicksell and Keynes became quasi-monetarists during the early 1920s hyperinflations.  The reason is simple.  Interest rates tell us nothing about the level of prices and NGDP, whereas the base does.  Thus huge changes in the price level and NGDP can only be explained by looking at changes in the base."

   "[Matt Yglesias denies that money causes hyperinflation.  But all he's really saying is that the monetary deluge that causes hyperinflation has a REASON.  I.e. Latin American countries would choose to spend more than they received in taxes, and printed money to cover the deficit. "

    "Countries with identical deficits, but good access to credit markets, would not print money and would not have hyperinflation.  It's not the deficit, it's the money printing.  As an analogy, Matt's claim would be like asserting that fiscal stimulus did not boost employment in 1942, WWII did.]"

     http://www.themoneyillusion.com/?p=23186

     Actually, Yglesias makes the point that Unlearning Econ made recently-hyperinflation is actually one very significant effect of political instability. He argues that there may be some truth in Friedman's claim that normal run of the mill is always a monetary phenomenon but that this is not the case of hyperinflation. This is caused by real problems-an unstable political system as we are now seeing due to Syria's civil war. 

  http://www.slate.com/blogs/moneybox/2013/08/29/syria_inflation_hyperinflation_s_not_about_money.html

  Sumner tries to draw a distinction between a 'reason' for hyperinflation and a cause. However, the cause of hyperinflation is always the same-political instability destroys the real economy. What this is about is trying to establish QTM-by drawing the reductio absurdem argument that of course  extremely loose monetary policy causes hyperinflation and therefore surely it also drives lesser inflation. However, Yglesias argues the opposite-that it may drive lesser inflations but not hyperinflation. 

   P.S. I'll give kudos to Sumner however, for his post that served as a collage of Krugman posts he actually likes. His arguments with Krugman are at least a lot less shrill and petty than someone like Bob Murphy. Yes Scott, we have to say touche here:

     "So stop whining that I’m always picking on Krugman."

     http://www.themoneyillusion.com/?p=23177&cpage=1#comment-271710