THREAD
Dying of Money.
Lessons on inflation.

The beginning was in the summer of 1914, a day or two before World War I opened, when Germany abandoned its gold standard.

(the most important thing to notice here is that hyperinflation is a process. The road to 1923 started in 1914 & not a day later)

Whatever the reason, Germany's bad war financing did not immediately demand its price. Inflation in the sense of rising prices was moderate.

Domestic prices only a bit more than doubled to the end of the war in 1918, while the government's money supply had increased by more than nine times. The government's debt increased still more.

After the war, 1919 was a year of economic dislocation & inflation in every country, including the United States & Germany.

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.

Me: Notice that the biggest outlier for Germany was govt deficit finance.

(thread to be continued)

Germany alone continued to spend and to store up not only the price of the war but also the price of a new boom which it then commenced enjoying. Germany's remarkable prosperity was the envy of the other leading countries.

The more sinister and more 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.

Germany's remarkable prosperity was the envy of the other leading countries, including the victors, who were in serious economic difficulties at the time.

Prices in Germany temporarily stabilized and remained rock-steady during fifteen months in 1920 and 1921, and there was therefore no surface inflation at all.

Germany's money supply doubled again during this period of stable prices. It was this time, when Germany was sublimely unconscious of the fiscal monsters in its closet, which was undoubtedly the turning of the tide toward the inflationary smash.

The Finance Ministry explained that the latest banknote increases should not cause any depreciation because they merely reflected the increase in the country's assets.

Me: This is the same backward MMT logic we see today.

With the gathering of the harvest; and that the currency newly issued would itself be gathered in as soon as the annual crop was distributed.

(^ MMT verbatim)

Hungary's Devisenzentrale was working smoothly enough, and speculators were reported to be disgusted with it since the opportunity had gone of rigging the korona's price abroad.

Exchange speculation had immediately given way to Stock Exchange speculation and a wild stampede to buy industrial shares.

The public went on spending; & it was remarked that even conservative investors had no idea of retaining their new holdings (whose dividends were ridiculously small) but rather of making a profit and selling out at the expense of their less astute compatriots.

The stimulation of the government's easy money spread through virtually all levels of the German economy. 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.

( Jeff Bezos is an inflation profiteer today)

Many great fortunes sprang up overnight. Berlin was one of the brightest capitals in the world in those days. Great mansions of the new rich grew like mushrooms in the suburbs.

(I think since 1971 ,all economies of the world are built on this model. Inflation economics)

The cities, particularly in the eyes of the austere country folk, had an aimless and wanton youth and a cabaret life of an unprecedented splendor, dissolution, and unreality.

When money was so easy to come by, one took less care to obtain real value for it, and frugality came to seem inconsequential. For this reason, Germans did not obtain so much real wealth as the growth of money alone would have indicated.

(this is so obvious everywhere now)

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. The crime rate soared.

Although unemployment became virtually nonexistent and many of the workers were able to keep up with the inflation through their unions, their bargaining, and their cost-of-living escalator clauses, other workers fell behind the rising cost of living into real poverty.

Even while total production rose, each individual's own efforts faltered and showed a measurable decline, and the quality of production deteriorated.

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.

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, which did certainly exist, and real prosperity which appeared, but only appeared, to be the same thing

There was no unemployment, but 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, and heavy restraints against layoffs and discharges kept multitudes of redundant employees ostensibly employed.

Whole industries of fringe activities, chains of middlemen, and an undergrowth of general economic hangers-on sprang up. Almost any kind of business could make money. Business failures and bankruptcies became few.

The boom suspended the normal processes of natural selection by which the nonessential and ineffective otherwise would have been culled out. Practically all of this vanished after the inflation blew itself out.

Me: heads up Wall st, Silicon Valley

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.

Everyone from the elevator operator up was playing the market. The volumes of turnover in securities on the Berlin Bourse became so high that the financial industry could not keep up with the paperwork, even with greatly swollen staffs of back-office employees,

and the Bourse was obliged to close several days a week to work off the backlog.

Me: That sounds like the last 8 years in the world economy.

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.

Me: Again. All of this is just like the world economy since 71. It's been one big exercise in slow motion hyperinflation.

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.

The most fabulous of the conglomerates was the empire of Hugo Stinnes, which comprised hundreds of companies at its peak in coal, iron, steel, shipping, transport, paper, chemicals, newspapers, oil, films, banks, hotels, and more.

Me: Bezos , Koch bros, name your oligarch.

Stinnes was Mr. Everything who had also begun to colonize abroad and is supposed to have contemplated organizing all German industry into a single super-conglomerate.

After the inflation ended, Stinnes' empire and many lesser ones were found to be functionally and financially unsound, and they disintegrated more or less messily. Stinnes died.

Me: At least for , this hell ended. But for the world economy w/ no gold standard , it doesn't end

It was typically true that the Germans who grew the richest in the inflation were precisely those who, like the speculators, the operators, and the builders of paper empires, were least essential to German industry operating on any basis of stability or real value.

With the end of the inflation they disappeared like apparitions in the dawn, and scarcely a one of the "kings of inflation" continued to be important in German industry afterward.

Inexorably the inflation began to stalk the boom. From having been steady during the fifteen months preceding July 1921, prices doubled in the next four months and increased by ten times in the year through the summer of 1922.

Consumers put on pathetic buyers' strikes against the rising prices.

Interest rates soared as lenders tried to anticipate the loss of value of their principal. Businessmen quoted prices to one another with gold or constant-value clauses, or they did business in foreign currency.

The government was unable to refinance its existing debts except by printing new money. The government's creation of paper wealth steadily fell behind the rising prices, and the inflation entered its catastrophic decaying stage.

The final convulsion when it began was at first bizarre and at last became sheer nightmare. Beginning in July 1922, prices rose tenfold in four months, two hundredfold in eleven months. Near the end in 1923, prices were at least quadrupling each week.

The seas of marks which had been stored up by Germans and especially by trusting foreigners flooded forth and fought to buy into other investments, foreign currencies, tangible goods, almost anything but marks.

The boom was long since over. Farmers, who were comfortable enough, would not sell their food to the townsmen for their worthless money. Starvation and abject poverty reigned.

The middle class virtually disappeared as professors, doctors, lawyers, scientists and artists pawned their earthly goods and turned to field or factory to try to earn a little food.

As factories closed, the workers too became unemployed and joined the starving. The whole system ground to a halt. Food riots and Marxist terror broke out throughout Germany. Eighty-five persons died in a riot in Hamburg.

Once the old Reichsmark had been thoroughly obliterated, the return to a stable currency was so absurdly simple as to become known as the "miracle of the Rentenmark." The Rentenmark, or "investment mark," was the new interim currency.