Posted On: Monday - November 27th 2023 8:05PM MST
In Topics:   History  Economics  Inflation  World Political Stupidity
It was a century ago this week,
when inflation hit the very peak.
Had my Reichmarks in a big old pile.
'bout enough to buy a toenail file.
So let me introduce to you
a monetary tale o'er some beers.
It's Woodie Wilson's reparations plaa-a-a-aan.
The hyperinflation that crushed the economy of Wiemar Republic Germany in the early 1920s is not something you could put an exact date on. However, the reason Peak Stupidity picked this week, it's importance for the usual Beatles take-off lyrics notwithstanding, is that it WAS right around this week - the article we'll introduce says "by December '23" - that the Reichmark hit its low of 4.2 TRILLION of them to a US dollar. Well, the regular German people would not have been able to deal in dollars, but that'd have been about the amount of currency it took to buy food for the day*)
We can split the difference between that "by December" and November 16, 1923, when (per per wiki, the new Rentenmark was introduced to replace the worthless paper Reichsmarks. The new Rentenmark was set equal to one 1 Trillion Reichmarks (12 decimal places were lopped off), so Voila!, now you could get a days food for a 4 Marks... I mean for that day, anyway, as that wasn't near the end of it all. However, ~this week in century-ago Germany was Peak Stupidity of the Monetary Policy variety.
I am very glad my recent copy of the John Birch Society's The New American arrived last month with a very good retrospective, Germany’s Hyperinflation of 1923. A helpful commenter on The Unz Review going by MEH 0910 gave me that archive link, as otherwise, it's been paywalled. For those with the extra $99 political account funding available - because one can read current issues of their magazine on-line for free anyway - JBS is a great org to support. They are Conservative with Christian aspects and also Libertarian, Constitutionalist, and anti-Globalist.
The article a nice medium-length history of this terrible period in German history, with lessons for the future, perfect for my kid's first written paper. I don't have much to write that's not in there. However, economics is a big topic key for us here, and inflation is a more special niche interest - in German that's (due to) nichts interest... groan if you must...
Let me at least point to the causes of this calamity. I noted Woodrow Wilson's WWI Versailles Treaty screwage of Germany, but that was for the song meter and only one of the causes. The reparations were onerous, but much debt existed from borrowing during the war. Per the article, Germany expected to win and pay back the debt via reparations on the French! A little big of old-fashioned Karmflation was coming down.
No matter all the debt accumulated, with Germany having not been on the gold standard, the Wiemar Gov't printed as much money as needed to INCREASE the Welfare State and keep taxes low. In those times, Germany was really close to becoming Communist, so perhaps that was the impetus to (try to) keep Germans satisfied, with the usual wanting to stay in business as a government too. This was actual printing, of course, long before computers,in the actual "money printer go brrrrr" fashion (more like bang-bang in huge machines back then). The article discusses that the money printing was limited by facilities and even fatigue of the workers in them. (Couldn't they have paid them more? Wait ...)
Well, you can't get away with fake money - tens, thousands, millions of times as much in circulation chasing the same amount of goods - for long without inflation. The more fake money in relative terms, the higher the inflation. Here are some numbers:
The cost of living in 1920 was 12 times what it had been in 1914.So 1923 was the big year. Because standard bills became worthless quickly, larger and larger denominations were being printed. (Here in America, denominations have been going in the other direction, for, IMO, even more nefarious reasons.)
By January 1923, an American dollar (which itself had lost purchasing power as a result of the U.S. government’s own inflationary practices) could buy someone 17,000 marks (the German currency). But it would get worse — much worse. By July, that same dollar would reward the buyer with 353,000 marks, and then, just one month later, in August, it would take 4.6 million marks to obtain one American dollar.
In September, the value of the mark had sunk even lower, and it now took nearly 99 million marks to obtain a dollar. Just a month later, in October, a person would need 25.3 billion marks to equal one dollar, followed by an astounding 2.2 trillion marks in November. Finally, by December of 1923, a person with one American dollar could have purchased 4.2 trillion marks.
One thing the New American article doesn't mention is an important difference between "hyper-" and standard sucky-as-normal inflation. Of course the prefix "hyper" is Greek for "extra high", as in hypertension. However, I've read that a fundamental difference with hyperinflation it happens when the population has lost all faith in the currency. Maybe there is not clear divide there, and there are steady gradations, I dunno.
I'll make a few more points regarding the suffering of the population due to this financial evil. There are the stories everyone has heard about one needing a wheelbarrow full of Marks in whatever denomination that week to buy a loaf of bread. Well, then there were the increased denominations. If the printers could keep up, that solved that problem for a short while at a time. Better have kept that wheelbarrow though, just for the fact that it was a hard asset if nothing else.
Next, the devaluation of the money was so rapid that one had to spend it quickly after being paid, or one would lose significant buying power. This one is really something if true:
The rapid increase in prices led to some stories that were probably apocryphal, such as the story that if one did not eat his meal fast enough at a restaurant, the bill would be higher when he finished the meal than when he ordered it.I have been said to inhale my meals, to this would not be a problem for me. Bring it!
OK, seriously again, the biggest evil of hyperinflation is that saving any of one's money in this currency in the usual conservative fashion, in a bank or home, was, using the adjective in the article, nonsensical. How could anyone who did not already own significant REAL assets get anywhere financially? This is a Middle Class killer. The poor don't make enough to save much, and the rich have those big real assets. I don't see how any of the normal people could stand to live like this - by definition, everyone but the rich was forced to live literally paycheck-to-paycheck.
Wait, maybe they could have borrowed for a house or something. That's the last point here on the effects of currency devaluation (one good definition of inflation). Ben Franklin said "Neither a borrower or lender be." In normal times, sure thing - I like that. Thanks, Ben. In highly inflation times, it goes like this, though: "Be a borrower, but you're an idiot if you're a lender!" Were an idiot lender to "front you 100,000 Marks for 2 weeks, I promise, man, I'll pay you 20,000 more!", it could have been worth half, one tenth, hell, 1 thousandth of the value when you got it back. Anyone holding debt, as in mortgages, would be in great shape. "Hell, tell you what, Fourth Eighth Bank** of Germany mortgage officer, I feel rich today. Let me bring in my wheelbarrow to the bank and pay off my whole 200,000 Mark home loan. Or, I can come next month and bring it all in my front pocket."
Would any bank lend out mortgages though? I'd say not without equivalently-valued physical collateral. Therefore, only the big entities with lots of debt per their formerly non-conservative business models, came out ahead in the hyperinflation. Soon enough, they had title to everything. This had the effect of pissing off a lot of people, as financially conservative folks had been thoroughly ruined. There was more than that as far as suffering:
Mass starvation was a looming reality by the last months of 1923, and malnutrition was a major cause of an increase in cases of tuberculosis. By the summer of 1923, nearly two-thirds of East Prussian schoolchildren were under observation for the disease.Whaddya know, but it was in this month that Adolph Hitler attempted a coup to create a National Socialist dictatorship, his truly presiding. This Beer Hall Putsch didn't take, Hitler went to prison for a while, he wrote a book, and he was most definitely heard from again.
I highly recommend the New American article written at the century mark from this financial stupidity in the otherwise highly functional country of Germany. It's 2023 now, so that stuff is all over, right? I mean, we can use computers and fancy FED schemes to create "assets" now, right? OK, sure, there's been steady inflation of Peak Stupidity-estimated 4-5% annually for a couple of decades, and lately that 8%, per the government. We can stop printing money at any time. It can't go hyper because the Almighty Dollar is the Reserve Currency. That status lasts forever, right?
I don't know. History may yet rhyme on this score. I have one nice wheelbarrow - with a solid tire (compressed air may become dear) - so if I have to, I can head over to the grocery with the wheelbarrow full of iPhones with barcodes showing. Welcome to Weimar America!
* Per this official US CPI page, lacking Peak Stupidity's caveats that there've been greater increases than official over the last couple of decades, that's $17 in today's currency. Yeah, that could buy food for the day - but did they have Mac & Cheese back then...?
** Well, there's an entity called the Fifth Third Bank with over 1,000 branches. What's up with THAT name?