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~ Jens Parsson. [edits/comments ~R]
PROLOGUE: The German Inflation of 1914-1923
1: The Ascent
In 1923 Germany’s money, the Reichsmark, finally was strained beyond the bursting point, and it burst. Persistent inflation which had steadily eroded the mark since the beginning of World War I at last ran away. That was the spectacular part of the collapse, but most of the real loss in money wealth had been suffered much earlier. The first 90 percent of the Reichsmark’s real value had already been lost before the middle of 1922. The tragicomic denouement of Germany’s inflation, the more sinister and permanent scars which the inflation left are less well known.
Still less clearly remembered are the years before the mark blew, with their breakneck boom, spending, profits, speculation, riches, poverty, and all manner of excess. Hmmm… does that sound like anything we know of?
Germany’s inflation cycle ran not for a year but for nine years, representing eight years of gestation and only one year of collapse. The beginning was in the summer of 1914, a day or two before World War I opened, when Germany began to spend more than it had, run up debt, and expanding its money supply. Otherwise known these days as Deficit-Spending and Quantitative-Easing. If you use a new jargon, people might just miss that you are talking the same old shit…
The end came on November 15, 1923, the day Germany shut off its money pump and balanced its budget. So… apparently it can be stopped – if you Really want to…
Germany started by not paying adequately for its war out of the sacrifices of its people – taxes – but covered its deficits with war loans and issues of new paper Reichsmarks. Scarcely an eighth of Germany’s wartime expenses were covered by taxes. This was a failing common to all the combatants. Sounds familiar…
For whatever reasons, Germany’s bad war financing did not immediately demand its price. And so long as the government could spend money it did not have, faster than its value could fall, Germany had both its war and life as usual, which was the same as having the war free of charge. And we all Love free stuff…
After the war, Germany and all the other combatants underwent price inflations. The year 1919 was a year of violent inflation in every country, including the United States. From this point, however, the paths of Germany and the other nations diverged. The others stopped their deficit financing and began to take their accumulated economic medicine. Well that sure as Hell is a difference to nowadays, no-one here interested in that idea…
Germany alone continued to inflate and to store up not only the price of the war but also the price of a new boom which it then commenced enjoying. Party on Dudes… now that’s an idea we do know All about.
Germany was sublimely unconscious of the fiscal monsters in its closet, which was the turning of the tide toward the inflationary smash. The catastrophe of 1923 was begotten not in 1923, but in the relatively good times of 1920 and 1921. Willfully blind perchance…? Ditto there for us too…
The life of the inflation in its ripening stage was a paradox which had its own unmistakable characteristics. One was the great wealth, at least of those favored by the boom. These were the “profiteers” of whom everyone spoke. Industry and business were going at fever pitch. Many great fortunes sprang up overnight. Great mansions of the new rich grew like mushrooms. The cities had an aimless and wanton life of an unprecedented splendor, dissolution, and unreality. Prodigality marked the affairs of both government and the private citizen. Ditto…
When money was so easy to come by, one took less care to obtain real value for it, and frugality came to seem inconsequential. like looking in a mirror isn’t it.
For this reason, Germans did not obtain so much real wealth as the growth of money alone would have indicated. And side by side with the wealth were the pockets of poverty. Greater numbers of people remained on the outside of the easy money, looking in but not able to enter. Check…
Although many workers were able to keep up with the inflation, other workers fell behind the rising cost of living, falling into real poverty. Salaried and white-collar workers lost ground in the same way. Even while total production rose, each individual’s own efforts faltered and showed a measurable decline. Accounts of the time tell of a progressive demoralization which crept over the common people, compounded of their weariness with the breakneck pace, to no visible purpose, and their fears from watching their own precarious positions slip while others grew so conspicuously rich. 1921/2 = 2007/8…???
Along with the paradoxical wealth and poverty, other characteristics were masked by the boom and less easy to see until after it had destroyed itself. One was the difference between mere feverish activity, and real prosperity – which appeared to be the same thing. Doesn’t help when the media hypes up the bullshit either…
There was vast spurious employment – activity in unproductive or useless pursuits. The ratio of office and administrative workers to production workers rose out of all control. Paperwork and paperworkers proliferated. Government workers abounded, multitudes of redundant employees ostensibly employed. So, nothing new under the sun then…
The boom suspended the normal processes of natural selection by which the nonessential and ineffective otherwise would have been culled out. And not just by the Boom either, selective contrivance by the self interested – otherwise known as corruption. When there is money to be made, the rules mysteriously fade away…
Speculation alone, while adding nothing to Germany’s wealth, became one of its largest activities. The fever to join in turning a quick mark infected nearly all classes, and the effort expended in simply buying and selling the paper titles to wealth was enormous. Ditto 1987 – and then the housing boom in the 2000′s – and everyones a real-estate trading genius… $billions poured in and churned.
Another busy though not directly productive sector of activity was in capital goods and industrial construction. Much of this indiscriminate growth in plant capacity made sense only in the bloated inflationary expansion, but not otherwise. Check – multiple high-flying, big name, property developers now bankrupt. (oh dear how sad – never mind)
Concentration of wealth and business was still another characteristic trend. The merger, the tender offer, the takeover bid, and the proxy fight were in vogue. Bank mergers were all the rage, while at the same time new and untried banks sprouted. Great ramshackle conglomerates of all manner of unconnected businesses were collected together by merger and acquisition. Armies of lawyers, brokers, accountants, businessmen, and technicians who spent their time pasting together these paper empires bolstered the lists of the more or less employed. Gosh, doesn’t that just sound so much like Investment Banking, and Merger & Acquisitions – clip that ticket. Ditto again.
It was typically true that the Germans who grew the richest in the inflation were precisely those who were least essential to German industry. With the end of the inflation they disappeared like apparitions in the dawn. Or… thieves in the night…?
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next: The Descent.
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