Sunday, August 25, 2013

An Important History Lesson: Hyperinflation in the Weimar Republic

By Justice Litle

The Weimar Republic is perhaps the quintessential example of hyperinflation. But the buildup took longer than one might think.
Walter Levy is a German-born oil consultant. His father, a German lawyer, took out a life insurance policy in 1903.
Every month he had made the payments faithfully,” recounts Levy. “It was a twenty-year policy, and when it came due, he cashed it in and bought a single loaf of bread.
Such was life in the German Weimar Republic.
Things got so bad there for a while, dentists and doctors stopped asking for currency, seeking payment in butter or eggs instead. But the farmers weren’t keen on trading their produce for paper money either.
Prices rose not just by the day, but by the hour — or even the minute. If you had your morning coffee in a cafĂ©, and you preferred drinking two cups rather than one, it was cheaper to order both cups at the same time.
Here is how a Weimar factory worker described payday (which was every day):
At eleven o’clock in the morning a siren sounded and everybody gathered in the factory forecourt where a five-ton lorry [truck] was drawn up loaded brimful with paper money. The chief cashier and his assistants climbed up on top. They read out names and just threw out bundles of notes. As soon as you had caught one you made a dash for the nearest shop and bought just anything that was going.
Crime was rampant then too:
The flight from currency that had begun with the buying of diamonds, gold, country houses, and antiques now extended to minor and almost useless items — bric-a-brac, soap, hairpins. The law-abiding country crumbled into petty thievery. Copper pipes and brass armatures weren’t safe. Gasoline was siphoned from cars. People bought things they didn’t need and used them to barter — a pair of shoes for a shirt, some crockery for coffee. Berlin had a “witches’ Sabbath” atmosphere. Prostitutes of both sexes roamed the streets. Cocaine was the fashionable drug..
The above anecdotes come from Paper Money by Adam Smith, aka George Goodman[...]

The Weimar Republic — a name bestowed by historians — was established in 1919. (“Weimar” was the name of the city where the constitutional assembly that formed the republic was held.)
But here is the thing. Inflation had been running rampant in Germany well before Weimar came about.
Largely due to the war, prices had already doubled between 1914 and 1919. Not only did the ramp-up to hyperinflation take a while, but the German government remained complacent long afterinflation strains went from moderate to severe. 
As George Goodman explains,
Why did the German government not act to halt the inflation? It was a shaky, fragile government…More than inflation, the Germans feared unemployment. In 1919 the Communists had tried to take over, and severe unemployment might give the Communists another chance. The great German industrial combines — Krupp, Thysen, Farben, Stinnes — condoned the inflation and survived it well. A cheaper mark, they reasoned, would make German goods cheap and easy to export, and they needed the export earnings to buy raw materials abroad. Inflation kept everyone working. 
So the printing presses ran, and once they began to run, they were hard to stop…
 In order to recreate the Weimar experience, we would need to see the following:

  • A multiyear period of sustained inflation in goods and services
  • A relaxed attitude toward inflation on the part of government
  • A deliberate strategy of tolerating inflation for the sake of employment
The above was originally published at