The “Hierarchy of Institutions” reconsidered: Monetary policy and its effect on the rule of law in interwar Poland
研究了1918-1939年波兰的货币不稳定是否对法治产生长期负面影响，发现货币超发与法治水平下降显著相关，表明货币不稳定本身会侵蚀政治制度。
Traditional wisdom in economics holds that institutional change runs from political institutions to economic ones, with the distribution of political power affecting the creation of property rights and rule of law. This hierarchy of institutions has been observed in macroeconomic policy, where it has long been understood that there are political incentives for economic mismanagement, namely the creation of inflation. But are there longer-term effects of currency manipulation on the rule of law in a country? That is, does the hierarchy not always hold? This paper answers this question by focusing on a specific case of monetary instability, the newly-independent Second Polish Republic of 1918 to 1939. Using appropriate econometric techniques on a new database of historical data, I find that monetary profligacy correlates strongly with significantly lower levels of the rule of law. This result is robust to several tests and most specifications, including the use of a new variable for measuring access to the political system. The results suggest that monetary instability is a threat to political institutions in its own right, eroding the rule of law in addition to creating macroeconomic difficulties.