by tim » Tue Aug 26, 2025 11:15 am
When war came back, so did inflation. With inflation alone, noted Günter
Schmölders,55 can a government extinguish debt without repayment, or wage
war and engage in other non-productive activities on a large scale: it is still
not recognised as a tax by the tax-payer. Thus did Hitler resume deficit
spending to finance armaments in 1938, and the experience begin again. As
in the first case, the second inflation was a ten-year affair, although huge
price inflation did not start in earnest until the eighth and ninth years, when
cigarettes took over as the medium of exchange.
In terms of public perception, however, the second inflation travelled much
faster. By 1948 the Reichsmark was abandoned, and ten Reichsmarks were
traded in in cash against the new Deutschmark, while bank accounts were
credited with only 6.50 Deutschmarks for every 100 Reichsmarks. Disaster
had struck the holders of money values once again, but the agony was
contained very much more quickly. The pass to which the Reichsmark had
come in 1947-1948, the loss of nine-tenths of its value, had been achieved by
its predecessor, the mark, as early as 1919.
Her new war indemnities apart, Germany was once again an almost debtfree
country; and once again, with stability regained, great foreign loans were
available to haul her out of her economic difficulties. Once again the
repudiation of debt, conscious or unconscious, had been shown to be no more
than a stage on the hyper-inflationary road. In the Toronto Star Weekly in
December 1923, Ernest Hemingway described a street auction of inflation
banknotes - German marks, Austrian kronen, Russian roubles - which the
citizens of Toronto were being urged to buy in the hope, of which Germans,
Austrians and Russians had long since been brutally robbed, that when sanity
returned the banknotes, too, would retrieve their old values:
No one explained to the listening men that the cheap-looking Russian money
had been printed in million-rouble denominations as fast as the presses could
work in order to wipe out the value of the old imperial money and in
consequence the money-holding class. Now the Soviet has issued roubles
backed by gold.
How great does inflation have to be before a government can no longer
control it? Most economists accept that mild inflation has certain therapeutic
advantages for a nation which must deal with the social and economic
problems to which industrial democracies are usually subject. Most
electorates still accept the statements of their politicians’ pious intentions in
regard to controlling ever rising prices: and yet the Deutschmark, the
currency of the country which had most reason to fear inflation, lost twothirds
of its purchasing power between 1948 and 1975. The pound lost almost
half its purchasing power between 1970 and 1975. In neither instance,
however, did such depreciation represent a deliberate, cynical policy; which,
no doubt, would also have been claimed by the German bankers and
governments of the early 1920s, who looked for causes of their monetary
difficulties beyond their own printing press and tax system - and found them,
without difficulty and to their complete intellectual satisfaction. It remains so
that once an inflation is well under way (as Schmölders has it) ‘it develops a
powerful lobby that has no interest in rational arguments’. This was as true
for Austria and Hungary as for Germany.
[quote]When war came back, so did inflation. With inflation alone, noted Günter
Schmölders,55 can a government extinguish debt without repayment, or wage
war and engage in other non-productive activities on a large scale: it is still
not recognised as a tax by the tax-payer. Thus did Hitler resume deficit
spending to finance armaments in 1938, and the experience begin again. As
in the first case, the second inflation was a ten-year affair, although huge
price inflation did not start in earnest until the eighth and ninth years, when
cigarettes took over as the medium of exchange.
In terms of public perception, however, the second inflation travelled much
faster. By 1948 the Reichsmark was abandoned, and ten Reichsmarks were
traded in in cash against the new Deutschmark, while bank accounts were
credited with only 6.50 Deutschmarks for every 100 Reichsmarks. Disaster
had struck the holders of money values once again, but the agony was
contained very much more quickly. The pass to which the Reichsmark had
come in 1947-1948, the loss of nine-tenths of its value, had been achieved by
its predecessor, the mark, as early as 1919.
Her new war indemnities apart, Germany was once again an almost debtfree
country; and once again, with stability regained, great foreign loans were
available to haul her out of her economic difficulties. Once again the
repudiation of debt, conscious or unconscious, had been shown to be no more
than a stage on the hyper-inflationary road. In the Toronto Star Weekly in
December 1923, Ernest Hemingway described a street auction of inflation
banknotes - German marks, Austrian kronen, Russian roubles - which the
citizens of Toronto were being urged to buy in the hope, of which Germans,
Austrians and Russians had long since been brutally robbed, that when sanity
returned the banknotes, too, would retrieve their old values:
No one explained to the listening men that the cheap-looking Russian money
had been printed in million-rouble denominations as fast as the presses could
work in order to wipe out the value of the old imperial money and in
consequence the money-holding class. Now the Soviet has issued roubles
backed by gold.[/quote]
[quote]How great does inflation have to be before a government can no longer
control it? Most economists accept that mild inflation has certain therapeutic
advantages for a nation which must deal with the social and economic
problems to which industrial democracies are usually subject. Most
electorates still accept the statements of their politicians’ pious intentions in
regard to controlling ever rising prices: and yet the Deutschmark, the
currency of the country which had most reason to fear inflation, lost twothirds
of its purchasing power between 1948 and 1975. The pound lost almost
half its purchasing power between 1970 and 1975. In neither instance,
however, did such depreciation represent a deliberate, cynical policy; which,
no doubt, would also have been claimed by the German bankers and
governments of the early 1920s, who looked for causes of their monetary
difficulties beyond their own printing press and tax system - and found them,
without difficulty and to their complete intellectual satisfaction. It remains so
that once an inflation is well under way (as Schmölders has it) ‘it develops a
powerful lobby that has no interest in rational arguments’. This was as true
for Austria and Hungary as for Germany.[/quote]