11. The True Crisis of Capitalism Is Not Depression but Hyperinflation
What is the true crisis of capitalism?
The answer given by a majority of social thinkers and policy makers on both the left and the right has been the same since the time of the Communist Manifesto : depression. To be sure, from the standpoint of our everyday experience in markets, it is much harder to sell a commodity than to buy it. A commodity in the hands of a seller is of value only to a limited number of people with specific desires or needs for it. Cash in the pocket or deposits in the bank, however, is by its very nature as the general medium of exchange of value to everybody in the economy. An act of a sale is a “ salto mortale of the commodity. If it falls short, then, although the commodity itself is not harmed, its owner decidedly is.”  The view that capitalism’s true crisis is depression comes about naturally as a straightforward deduction from our daily experiences in markets. It is after all one of the real paradoxes of a capitalist economy that people may come to have a greater desire for money, originally merely a means of obtaining useful commodities, than for the commodities themselves.
Yet, once we shift our standpoint from that of a daily user of money in markets to that of a social scientist contemplating the ontological structure of money, the answer turns completely upside down. While money as money is of value to everybody in the economy, money as a thing is a non-entity with no intrinsic utility to support its value. The value of money as money is supported, as I have emphasized several times, only by a bootstrapping process according to which everybody believes that everybody else believes it of value. A depression, no matter how profound, will never jeopardize this elusive process. On the contrary, the fact that in the midst of a depression everybody desires money more than real commodities (in other words, valuing the means over the end), implies that everybody has more faith in the intangible power of money than in the concrete materiality of individual commodities. This can be regarded as a manifestation of their confidence in the continuity of the capitalist economy, a belief on the part of its participants that will perpetuate the bootstrapping process by continuing to accept in the future the money in current use. In this sense, a depression can never be a true crisis of capitalism, no matter how undesirable its consequences to the people in the street. Indeed, history tells us that capitalism has become stronger every time it has undergone a succession of challenges posed by economic depressions.
What, then, is the true crisis of capitalism?
Keynes was certainly right (as always). “Hyperinflation” is the true crisis of capitalism
As we saw in Chapter 8, hyperinflation is, a vicious cycle in which people’s fear of accelerating inflation drives them to reduce their money-holding by spending more on commodities, thereby accelerating inflation and confirming their original fears.  Such a flight from money to commodities starts to unravel the bootstrapping process that supports money as money and ends up in reducing money to nothing more than an insignificant sheet of paper or a useless disc of metal, or (in the case of bank money) an unpaid account in a bank. Deprived of the general medium of exchange, the economy now falls back to a premonetary barter system that leaves everybody with unsalable products on one hand and unfulfilled desires on the other. The simultaneous flight from money to commodities thus defeats its purpose, turning commodities sought out into something unobtainable. The end point of hyperinflation is the breakdown of the whole edifice of economic activity.
But what is the use of discussing such an esoteric event as hyperinflation? Granted, it is theoretically possible, and has indeed actually happened many times in history—in Russia after the socialist revolution, in Germany, Austria, Hungary, Poland after WWI, in Greece and Hungary after WWII, in China in the leadup to the communist takeover, Latin American countries in the turbulent 1980s, and in Russia and other former socialist countries in the course of a transition to capitalism.  But these events all occurred during abnormal times. In today’s advanced capitalist economies, fully equipped with a variety of macroeconomic policy instruments, hyperinflation is surely nothing than more than a mere curiosity of the armchair theorist, except perhaps for some developing countries with totally bankrupt governments?
But there remains one place in which this hyperinflation still represents something more than a theoretical possibility—and that is global capitalism itself.
 Karl Marx, Capital, Volume One , Chapter 3: “Money, Or the Circulation of Commodities.”
 Phillip Cagan defined hyperinflation mechanically as any inflation exceeding 50 percent per month (or 12,875 percent per year) in his well-cited paper on hyperinflation. (Phillip Cagan, "The monetary dynamics of hyperinflation," Chap. 2 of Milton Friedman ed., Studies in the Quantity Theory of Money, Chicago: Chicago University Press, 1956.) My characterization of hyperinflation given here and in Section 7 is a functional one. Indeed, the purpose of Cagan’s research, which was conducted under Milton Friedman’s supervision, was to show that even hyperinflation can be explained by the quantity theory of money.
 As for German hyperinflation after WW II, see Frank D. Graham, Exchange, Prices and Production in Hyperinflation: Germany 1920-1923, (Princeton: Princeton University Press, 1930) and C. Bresciani-Turroni, The Economics of Inflation: A Study of Currency Depreciation in Post-war Germany, 1914-1923, (London: Allen & Unwin, 1937). The more recent study is, for instance, Steven Webb, Hyperinflation and Stabilization in Weimar Germany, (Oxford: Oxford University Press, 1989).