.
~ Jens Parsson. [edits/comments ~R]
The Roots
The expansion of Germany’s Reichsmark circulation, its money supply, always led the way in the inflation. When it abated temporarily, the inflation abated temporarily. When it stopped permanently, the inflation stopped permanently.
Nevertheless, the inflation was officially blamed on everything under the sun but the government’s spending, its deficits, and its money issues. No shit
These, in turn were generally attributed to external factors such as war reparations, balance of payments deficits, the constantly declining foreign-exchange value of the mark, the profiteers who were raising prices, foreign and domestic speculators who were supposedly attacking the mark, and the upward spiral of wages and prices. Some of those sound very familiar
As for speculators, the most extraordinary feature of the Reichsmark’s joyride was not any attack against it but quite the opposite, an incredible (“pathological,” it was later called) willingness on the part of investors at home and abroad to take and hold the torrents of Marks and give real value for them. You mean – inspite of all the evidence to the contrary. None so blind as those who will not see.
Until 1922 and the very brink of the collapse, Germans and especially foreign investors were absorbing Marks in huge quantities. Only the international reputation of the Reichsmark, the faith that an economic giant like Germany could not fail, made this possible. Does that remind anybody of anything currently?
The precise moment when the inflation turned upward toward the vertical climb was timed by the dawning psychological awareness of investors that Germany was not going to back its money. With that, the rush to get out of the mark was on. Like a dam bursting, the seas of Marks flooded into the markets and drove prices beyond all bounds. It couldn’t happen like that now though could it…?
In the collapsing stages, Germany ran a huge payments surplus as all her worthless Marks came home from abroad in search of something to buy. This reversal of the balance of payments toward surplus was therefore not an occasion for hope, but for deepest fear.
The government, confidently convinced of its claim that the inflation was being forced on it by external forces beyond its control, tried the usual array of palliatives to stanch the hemorrhages, such as import and export controls, exchange controls, and price controls. As always, these measures found no success, although they did achieve some rather strange distortions within the economy.
Rent control was a conspicuous example, the property of landlords was de facto confiscated for the benefit of tenants, and the housing shortage predictably became extreme. We have a bit of a housing shortage here too don’t we? That couldn’t be caused by government interference could it?
The government characterized as practically traitorous those little citizens who (long after the smart money and far too late to save much) finally repented of their faith in the government and joined the stampede to get out of the Mark. They didn’t want to take one for the team…?
The government also tried one or two measures which did work but could not be continued. One was to stop the money and credit. This was done in late 1921, and the mark began to harden instantly. But the resulting credit squeeze began to strangle the boom equally fast, and business screamed. Ohh, that team.
The plain fact was that the boom could not live without the inflation, and the fearful pains of withdrawal from the inflation did not then appear necessary or inevitable. Ditto and… ditto
Easy money resumed and accelerated and never stopped again until the bitter end. But we’re different, right? By-the-way, is a Zero-Percent-Interest-Rate-Policy (ZIRP) considered ‘easy money’?
….
The route to Germany’s inflationary destiny may be to Karl Helfferich. He was minister of finance and vice-chancellor during the war, and he also had great personal influence in the later administrations that failed to deal with the inflation.
Helfferich was neither a fool nor a political hack. To the contrary, he was a brilliant monetary theorist, Helfferich also made the principal theoretical contributions to the formation of the miraculous Rentenmark plan which ended the inflation. Helfferich’s abysmal failure in the German inflation, represented more than anything else a tragedy of pure intellect, for he was constantly resorting to the most finely-reasoned theorization for answers – that ignored simple observation of the facts. Bernanke…?
The fatal sin of Helfferich and all the Nationalists was that they would not bow to anything, certainly not to mere reality; if their intransigence spelled the destruction of the Reichsmark and all the little Germans, so be it. It’s good to be King
The first postwar government of Gustav Bauer confronted the German war debt, which was considerably greater than Germany’s annual national product, and he resolved to try to make good on it. From then until early in 1920, his finance minister Erzberger introduced a program of tax reforms and tremendously increased taxes, especially taxes on capital. Opposition from propertied interests was naturally enormous. Taxes are for the little people.
1920, may be taken as Germany’s turning point, for from this day her crusader for financial probity was gone. With Erzberger safely out of the way, taxes were reduced and deficits increased. Reagan, Bush, Clinton, Bush, Obama…. (or closer to home: National, Labour, National, Labour, Nat…)
.
As a postscript, we might record that on August 26, 1921, Erzberger was assassinated. The man who had been intrepid or incautious enough to point a finger in the right direction was thus extinguished.
.
…………………..
.
Continued: Politics.
.
.
