~ Jens Parsson. [edited/comments ~R]
The Gains and Losses
When the inflation was over everyone who owed Marks, suddenly and magically owed nothing.
This came about because every contract or debt that called for payment in a fixed number of Marks was paid off with that many Marks, but they were worth next to nothing compared with what they had been worth when they had been borrowed or earned. So some-ones hard work went up in smoke (sort of – re below)
Germany’s total prewar mortgage indebtedness alone, for example, equal to 40 billion Marks, or one-sixth of the total German wealth, was worth less than one American cent after the inflation.
On the other side of course, everyone who had owned Marks such as bank deposit accounts, savings, insurance, bonds, notes, or any sort of contractual right to money suddenly and magically owned nothing. Ta-dah… Magic
The largest gainer by far, because it was the largest debtor, was the Reich government. The inflation relieved it of its entire crushing debt from its deficit-financed boom. How convenient – what an amazing co-incidence.
Others who were debtors, emerged like the government with large winnings.
Until the last moment of the inflation, borrowers continued to make huge profits simply by borrowing money and buying assets – because lenders never stopped underestimating the inflation. The good fortune of the debtors demonstrated the prudence of following the government’s lead: one must beware of being a creditor whenever the government is a huge debtor.
Farmers in particular were the classic case of invulnerability to inflation, because they always had food, their farms were constant values, and the many who had mortgages on their farms were forgiven their debts outright.
The debtors’ gain was the creditors’ loss – foreign holders of Marks were huge losers.
The wealthy in Germany suffered heavily but unevenly – those who were not nimble lost everything.
Trustees were forbidden by law until the very end to invest in anything but fixed obligations and consequently lost all the value of their trusts. The endowments of great charitable institutions, similarly invested, were wiped out. Mmmm… so, having your savings locked into institutional investments is a death sentence. (501k)
Financial institutions such as banks and insurance companies, which were both debtors and creditors in Marks, were generally weakened though not destroyed in the inflation.
Speculators tended to believe in their own game, until too late and emerged as net losers. Interesting, so the Smart money wasn’t so smart afterall…?
Sound business escaped weaker but intact; their debts were relieved but their boom business was gone. Inflation-born businesses disappeared. What sort of business model does the company you work for operate under?
Industrial stocks, the darling of the inflationary speculation, had a peculiar history. Investors were extremely slow to grasp that stocks were poles apart from fixed obligations like bonds, quite wrongly thinking that if bonds were worthless stocks must be too. Hard to change a mindset huh?
When it was all over, stocks of sound businesses turned out to have kept all but their peak boom values notably well. Ahh… but, prior to… how do you tell which of them is a sound business?
The mass of the workers who lived mostly on their current wages, and who had no savings to lose, suffered only temporarily with privation and unemployment in the very last throes of the inflation. Good thing it was over quickly then (wouldn’t want it to drag on for a decade or more).
At bottom, it was the unsuspecting middle class; those who were Germany’s savers, pensioners, or purchasers of life insurance who not only suffered the worst of the agony while the inflation lasted, but also after it was over were left with the most staggering permanent loss to their whole substance. This class paid the piper for all of Germany. Who do you imagine would pay for it all this time around?
Great numbers of pensioners were left totally impoverished and forced back into the work gang to end their days there. Doesn’t that sound like fun…
The encouragement to thrift, an old German weakness, turned out to have been a complete swindle. I’m shocked…
Instead of a levy on all the Germans to pay for Germany’s indulgences, a levy which might have been heavy but could have been fair, Germany left the levy to fall on those who were too innocent to evade it, and from them it took everything they owned. The effect was a confiscatory tax on these victims. What, you mean it was like a deliberate thing…?
John Maynard Keynes (who later rightly or wrongly was adopted as patron saint by inflationary governments) excoriated them on this occasion: “… the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” Is that the same as stealing?
Adolf Hitler, whose economics were far more astute than those of the government’s economists, shared roughly the same view of the inflationary government confiscators with Lord Keynes: ” once the printing presses stopped – and that is the prerequisite for the stabilization of the Mark – the swindle would be at once brought to light … the State itself has become the biggest swindler and crook.” Hmmm… the State as a player – that is not your friend… Could it be???
Despite the obliteration of the wealth of millions of individual Germans, the inflation was merely a transfer of their wealth, like any. For every German’s total loss, there was an equivalent gain to some other German debtor or to Germany as a whole, through the discharge of their debts. Like a shell game – a con.
Continued: The Roots.