Germany Hyperinflation Quotes

(Arbeitsunlust).

It was not the Great Depression that brought the Nazis to power in Germany but rather hyperinflation, which destroyed the middle class by making its savings worthless.

Inflation did not conjure up Hitler, any more than he, as it happened, conjured it. But it made Hitler possible. It is daring to say that without it Hitler would have achieved nothing: but so is it daring to assert that, had enormous post-war unemployment not been held at bay for years by financing the government’s deficits and by an ungoverned credit policy, bloody revolution would have occurred, leading presumably to an equally bloody civil war whose outcome can only be guessed at. In all these matters, it was anyway touch and go.

In Germany, the Depression was the final nail in the coffin of the Weimar Republic. Germany needed loans to pay its reparations, but once the Depression hit, its funding dried up and hyperinflation ensued as the government printed more money in a desperate effort to come up with the funds to repay what it owed. The collapse of the Weimar Republic was a textbook case of what happens when democracy and capitalism fail; angry, desperate people became willing to go along with a suspension of the most basic civil liberties in the hope that order and prosperity would be restored. Parties and politicians embracing fascism—a philosophy animated by extreme nationalism that called for government control of virtually all aspects of political and economic life—gained ground in Germany, Italy, Austria, and Japan. By 1932, the Nazi Party had become the largest party in the German parliament; a year later, Adolf Hitler became chancellor. He quickly consolidated power, dismantled democratic protections, formalized harsh discrimination against Jews and others, and began rearming Germany. Hitler broke through the military constraints set by the Versailles Treaty. The absence of a French or British response taught Hitler the dangerous lesson that he could assert German rights as he saw them with little to fear.

The leveling effects of fairness concerns were significantly mediated by regime type. In World War I, the democracies of the United Kingdom, the United States, and Canada were prepared to “soak the rich,” whereas more autocratic systems such as Germany, Austria-Hungary, and Russia preferred to borrow or print money to sustain their war effort. The latter, however, later paid a high price through hyperinflation and revolution, shocks that likewise compressed inequality. Especially during World War I, before a common template for funding mass mobilization warfare had been established, the mechanisms of leveling therefore varied considerably between countries.

Throughout history, high inflation has often led to social upheaval. Hyperinflation, when prices rise by 50 percent or more per month, helped bring the Nazis to power in Germany and the communists in Russia and China, and topple both civilian and military governments in Argentina.

Table 9.1 shows the soaring number of Reichsmarks needed to buy one US dollar, which indicates the trend in consumer inflation in Weimar Germany preceding and during its hyperinflation. Note

When emerging markets cannot pay foreign debts, options vanish. Unavoidable defaults shut off access to global capital markets. Without access to capital, economies contract. Local currency becomes worthless. Printing more money invites inflation and hyperinflation. Poverty proliferates. Governments that cannot provide for their populations do not last long. Chaos opens the door to empty promises by authoritarians armed with populist slogans and freelance militias. Advanced economies are not invulnerable, as history has shown repeatedly. It’s worth noting that in 1899 cautious investors sought safety in one-hundred-year bonds issued by the Habsburg Empire that ruled Austria-Hungary. When the anarchist Gavrilo Princip assassinated Austria’s archduke Ferdinand in June 1914, an act that ignited World War I, sovereign Habsburg bonds were still holding their value relative to other European bonds. In other words, no experts saw the end coming. Within four years, the Habsburg Empire was history. Two decades later, the postwar debt and reparations bills that nearly smothered Germany helped usher in World War II.

Sachs had been heavily influenced by Keynes’s writings on the connection between hyperinflation and the spread of fascism in Germany after the First World War. The peace agreement imposed on Germany had sent it into severe economic crisis—including a hyperinflation rate of 3.25 million percent in 1923—which was then compounded by the Great Depression a few years later. With an unemployment rate of 30 percent and generalized rage at what seemed a global conspiracy, the country was fertile ground for Nazism.

Any investor unwise or patriotic enough to hang on to gilt-edged securities (consols or the new UK War Loans) would have suffered inflation-adjusted losses of -46 per cent by 1920. Even the real returns on British equities were negative (-27 per cent).51 Inflation in France and hyperinflation in Germany inflicted even more severe punishment on anyone rash enough to maintain large franc or Reichsmark balances. By 1923 holders of all kinds of German securities had lost everything,