The fiscal theory states that inflation adjusts so that the real value ofgovernment debt equals the present value of real primary surpluses. Monetarypolicy remains important. The central bank can set an interest rate target,which determines the path of expected inflation, while news about the presentvalue of surpluses drives unexpected inflation. I use fiscal theory tointerpret historical episodes, including the rise and fall of inflation inthe 1970s and 1980s, the long quiet zero bound of the 2010s, and thereemergence of inflation in 2021, as well as to analyze the gold standard,currency pegs, the ends of hyperinflations, currency crashes, and the successof inflation targets. Going forward, fiscal theory warns that inflation willhave to be tamed by coordinated monetary and fiscal policy.
