During the five years of inflation, price stability, and hyperinflation in Germany
after World War I, three factors determined the growth of the money supply.
First, the Reichsbank freely issued money in exchange for whatever government
or corporate debt the private sector did not wish to hold at the official discount
rate. Second, the government persistently ran large deficits. Political instability
and the inflation itself prevented taxation adequate to pay for social programs,
subsidies to the railroad and businesses, and reparations to the Allies. The third
factor was expectations of inflation, which, as they became more pessimistic, led
people to hold less and monetize more of the outstanding stock of debt. Thus, the
money supply was partly endogenous and partly dependent on government fiscal
policy. The monetary policy of the Reichsbank, although essential to the inflation
process, was a constant and passive one until stabilization at the end of 1923.
Part three is simply people realising what the buggery’s going on. Part two, yes, there really is a limit to how much of the UK economy you can collect in tax. Not sure that anyone’s ever managed to get it consistently above 40% of GDP or so. And part one does look amazingly like the BoE printing cash to buy those National Investment Bank bonds, doesn’t it?