Working Paper: NBER ID: w21221
Authors: Hugh Rockoff
Abstract: The institutional arrangements governing the creation of money in the United States have changed dramatically since the Revolution. Yet beneath the surface the story of wartime money creation has remained much the same. During wars against minor powers, the government was able to fund the war by borrowing and levying taxes. In major wars, however, there came a point when further increases in taxes could not be undertaken for administrative or political reasons, and further increases in borrowing could not be undertaken except at higher interest rates; rates that exceeded what was considered fair based on prewar norms. At those moments governments turned to the printing press. The result was substantial inflation.
Keywords: No keywords provided
JEL Codes: N10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased war expenditures (H56) | Borrowing (G51) |
| Borrowing (G51) | Money creation (E51) |
| Money creation (E51) | Inflation (E31) |
| Increased war expenditures (H56) | Inflation (E31) |
| Rising nominal interest rates (E43) | Money creation (E51) |
| Political opposition to taxes (H26) | Money creation (E51) |