How do central banks control inflation? A guide for the perplexed

It is extremely important to note Bernholz’s conclusion. Hyperinflations are not caused by aggressive central banks. They are caused by irresponsible and profligate legislatures that spend far beyond their means and by accommodative central banks that lend a helping hand to governments.

Modern economics has formulated “The Impossible Trinity” to express the plight of modern central bankers, which states: No government can successfully achieve all three goals of having a fixed foreign exchange rate, free capital flows, and an independent monetary policy.

We do not mean that physical coins or notes depreciate, which would ironically have the opposite effect. We mean that the utility of the institution depletes with inflation.

Big Idea Nine: Inflation Is Caused by Increases in the Supply of Money