A history note by Maynard.
In the aftermath of World War I, the fiscal irresponsibility of the short-lived Weimar Republic plunged the German nation into the hyperinflation of the early 1920’s. The German Mark was devalued on an hourly basis, and yesterday’s fortune rapidly became today’s wastepaper. I mean that literally; pictured here are worthless bills in the street (see this page for more photos).
German hyperinflation was a much-remembered event as the 1960’s rolled along and American inflation heated up. But we pushed our own stagflation aside, at least for a while, and today this bit of history is largely forgotten. Hyperinflation happens in Zimbabwe, not rich places like Europe and America.
Let me pause here to mention that I (Maynard) mostly steer clear of books about current events, since these are written from a modern vantage and with a modern agenda. I’m more interested in the historical observations of people that are not struggling to make a point about today’s politicians. (Yes, I’m trying to make that point, but that can’t be helped.)
Anyway, I picked up Erich Maria Remarque’s The Black Obelisk, just because it looked like an interesting book. And I’m fascinated by it, not for political reasons but for human reasons (which is why I read novels). Remarque is a German author best known for All Quiet on the Western Front; this book; written in the late 1950’s, is set during the time of German hyperinflation. Here’s a bit of the description of the era, taken from the book. The narrator is a small businessman learning the nasty tricks needed to survive in the new, evil day.
The shipment of granite we want to extract from Riesenfeld [a profiteer who sells raw materials] is something we cannot, of course, pay for in advance. We never have that much money at one time and it would be madness to try to accumulate it in the bank — it would melt away like snow in June. Therefore we want to give Riesenfeld a promissory note payable in three months. That means we want to pay practically nothing.
Naturally, Riesenfeld must not lose on the transaction. That shark in the ocean of human tears needs to make a profit like every honest businessman. And so on the day he receives the note from us he must take it to his bank or ours and have it discounted. The bank ascertains that both Riesenfeld and we are good for its face value, deducts a few percent for discounting the note, and pays out the money. We pay back to Riesenfeld the amount of the bank’s commission. Thus, he receives full payment for the shipment just as though we had paid in advance. Nor does the bank lose. It immediately sends the note to the Reichsbank, which in turn pays just as the bank paid Riesenfeld. And there in the Reichsbank it remains until, on the expiration date, it is presented for payment. What it will be worth then is easy to imagine.
We have only known about all this since 1922. Before then we tried to transact business in the same way as Heinrich Kroll [i.e., with old-school straightforwardness] and almost went broke doing it. We had sold out almost our entire inventory and, to our amazement, had nothing to show for it except a worthless bank account and a few suitcases full of currency not even good enough to paper our walls with. We tried at first to sell and then buy again as quickly as possible — but the inflation easily overtook us. The lag before we got paid was too long; while we waited, the value of money fell so fast that even our most profitable sale turned into a loss. Only after we began to pay with promissory notes could we maintain our position. Even so, we are making no real profit now, but at least we can live. Since every enterprise in Germany is financed in this fashion, the Reichsbank naturally has to keep on printing unsecured currency and so the mark falls faster and faster. The government apparently doesn’t care; all it loses in this way is the national debt. Those who are ruined are the people who cannot pay with notes, the people who have property they are forced to sell, small shopkeepers, day laborers, people with small incomes who see their private savings and their banks accounts melting away, and government officials and employees who have to survive on salaries that no longer allow them to buy so much as a new pair of shoes. The ones who profit are the exchange kings, the profiteers, the foreigners who buy what they like with a few dollars, kronen, or zlotys, and the big entrepreneurs, the manufacturers, and the speculators on the exchange whose property and stocks increase without limit. For them practically everything is free. It is the great sellout of thrift, honest effort, and respectability. The vultures flock from all sides, and the only ones who come out on top are those who accumulate debts. The debts disappear of themselves.
That’s the end result — or perhaps I should say it’s the beginning of the end result — of fiscal madness. Governments start playing these monetary games as a means of transferring wealth from the naive thrifty to the calculating cronies. The process, once started, is very hard to stop. Fiscal corruption induces the citizens to likewise become corrupt, or they will not survive (and plenty of good people, having lost everything, see no pathway forward and simply commit suicide). The man in the street knows there’s a problem, but he doesn’t understand where it’s coming from. He thinks it’s a cancer, an act of God, not a matter of policy. And so he looks for a political solution. Later in the book we get a whiff of the true end result…
“Did you hear him?” Watzek asks.
“Man alive, him! The Führer! Adolf Hitler! He was on the radio. We heard him at the stockyard. He will change everything! Marvelous speech! That man knows what’s wrong. Everything must be changed.”
“That’s obvious,” I say. There, in one sentence, lies the whole stock in trade of the world’s demagogues. “Everything must be changed!”
If I were to put this in a book today, I would be accused of writing with an agenda. But this is a lament, from 50 years ago, about the genesis of the previous cataclysm. You’d think we’d know better by now.