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Just finished reading "When Money Dies" by Adam Ferguson, and thought I'd share a tweet summary of it.
TL;DR: "Inflation is a form of expropriation of some classes of society during times of peace".
PS: Expect lots of
Thread
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TL;DR: "Inflation is a form of expropriation of some classes of society during times of peace".
PS: Expect lots of
Thread
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1914-24 Weimar Republic highlights:
Money printing () to finance WW1 → to abate unemployment/ economic stagnation → Prices rise → to abate inflation → Inflation spirals → Speculation & corruption grows → Inequality, discontent, political extremism rises.
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Money printing (
) to finance WW1 → to abate unemployment/ economic stagnation → Prices rise → to abate inflation → Inflation spirals → Speculation & corruption grows → Inequality, discontent, political extremism rises./2
The ugly story of Germany's hyperinflation starts in 1914, when Germany suspended the redemption of the mark to gold (1/3 backed by gold) & set up loan banks that would function by new money to fund war industries & war bond subsidies. (Sounds familiar?)
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new money to fund war industries & war bond subsidies. (Sounds familiar?)/3
Because the Weimar Republic funded WW1 by borrowing and (unlike 
, that funded it largely on taxation), even if Germany had won, it would have suffered.
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(unlike , that funded it largely on taxation), even if Germany had won, it would have suffered./4
There were immediate consequences to the unabated use of the . Factory owners were able to profit from subsidies & from access to cheap credit. Middle classes lost purchasing power. As a result, 2/3 of soldiers deserted the war to support their families.
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. Factory owners were able to profit from subsidies & from access to cheap credit. Middle classes lost purchasing power. As a result, 2/3 of soldiers deserted the war to support their families./5
Having lost WW1, Germany had to pay war reparations, including:
> Giving hold of the Rhine Valley region to France (with 1/10 of Germany's population)
> Reducing army to 1/4
> Paying £100M/year for reparations
> Paying 26% of all exports to the UK & France
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> Giving hold of the Rhine Valley region to France (with 1/10 of Germany's population)
> Reducing army to 1/4
> Paying £100M/year for reparations
> Paying 26% of all exports to the UK & France
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By Sep 1920, the cost of living compared to before the war had increased among nations, but in Germany it grew disproportionally:
>
x12
>
x7
> x4
>
x3
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>
x12>
x7>
x4>
x3/7
With soaring unemployment, economic stagnation, and reparation demands, the German government saw the need to print more 'emergency money' (notgeld) to stimulate its economy.
But not without consequences...
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(notgeld) to stimulate its economy. But not without consequences...
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... There was a steady and constant growth in inequality 
. Those who understood that 'cash is trash' started storing their wealth elsewhere. Even stocks rose rapidly, as a means to escape the depreciating . Germans protested for wage rises to offset rising living prices.
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. Those who understood that 'cash is trash' started storing their wealth elsewhere. Even stocks rose rapidly, as a means to escape the depreciating . Germans protested for wage rises to offset rising living prices./9
Inflation hit the middle classes hardest, who were squeezed between big business & workers.
Middle class wages increased by 2-4 times, and working class wages by 8-10 times, to offset rising prices.
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Middle class wages increased by 2-4 times, and working class wages by 8-10 times, to offset rising prices.
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Then on Jan 1923 came the French occupation of the Ruhr region, which was at the time the most resource-rich area of Germany and a valuable supplier of wealth for the country, with:
- 85% of coal mines
- 70% of iron ore
- 60% of steal
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- 85% of coal mines
- 70% of iron ore
- 60% of steal
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The occupation of Ruhr, alongside the ongoing war reparation payments, were disastrous for Germany. The German government addressed this by printing more money (). Inflation ensued.
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). Inflation ensued./12
The inflation furthered the urban-rural divide. Peasants couldn't keep track of depreciating and stopped delivering food to cities. Many from the cities raided peasants & confiscated food in response.
At this point, a kilo of
was worth more than family silver.
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and stopped delivering food to cities. Many from the cities raided peasants & confiscated food in response.At this point, a kilo of
was worth more than family silver./13
The division was not just urban-rural, but class-based. For both employed and unemployed, rising prices meant the need to protest for higher wages. Protests became commonplace, then food riots. In Austria, where a similar situation ensued, the parliament was put on fire.
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For those whose life became more difficult, a deep resentment rose towards those whose lives appeared to continue as normal (or better, at their expense). Such as:
- "Selfish industrialists"
- Speculators
- Peasants, rarely seen in cities
- Jews
- "Greedy tourists"
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- "Selfish industrialists"
- Speculators
- Peasants, rarely seen in cities
- Jews
- "Greedy tourists"
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Meanwhile, the Chancellor would accept no causal relation between & depreciation. In fact, depreciation called for more , to satisfy the perceived 'lack' of , and abate growing fears of unemployment (and ensuing riots).
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& depreciation. In fact, depreciation called for more , to satisfy the perceived 'lack' of , and abate growing fears of unemployment (and ensuing riots)./16
Moreover, the people became disillusioned in the government & institutions, which led to greater tax avoidance (which led to more ), less voting, and the rise of political extremisms on both sides, as well as terrorist groups (such as nazi group Organization Consul).
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), less voting, and the rise of political extremisms on both sides, as well as terrorist groups (such as nazi group Organization Consul)./17
The fabric of the nation crumbled as ethical values and morals were ravaged by inflation.
"Theft was preferable to starvation. Warmth was finer than honour. Clothing, more essential than democracy. Food, more needed than freedom."
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"Theft was preferable to starvation. Warmth was finer than honour. Clothing, more essential than democracy. Food, more needed than freedom."
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There were those who understood how to play the system: Some German corporations grew thanks to transport and coal subsidies, cheap labour, tax avoidance, and foreign currency holdings. Speculators profiteered from inflation by borrowing and repaying the depreciated loans.
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And there were those who were ravaged by inflation: pensioners, savers, and fixed-wage earners. Mostly the the low and middle classes.
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The emergency money (Notgeld) madness was brought to an end by Finance Minister Schact in 1923. Prices stabilized after only 1 week and food came back to the cities. Eventually, fiscal balance was restored. 
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madness was brought to an end by Finance Minister Schact in 1923. Prices stabilized after only 1 week and food came back to the cities. Eventually, fiscal balance was restored. /21
But the new paradigm of monetary discipline led to 150K gov employees being fired, higher & more disciplined taxation, higher interest rates (30-100%), and higher living prices, resulting in an exorbitant 70% unemployment rate and many bankruptcies.
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This inflationary cycle lasted a decade, with two years of hyperinflation, and many more of painful stabilisation. The policy ravaged the economy and expropriated people's wealth. Also, in Ferguson's words, it "made him [Hitler] possible."
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![This inflationary cycle lasted a decade, with two years of hyperinflation, and many more of painful stabilisation. The policy ravaged the economy and expropriated people's wealth. Also, in Ferguson's words, it "made him [Hitler] possible."/23](https://pbs.twimg.com/media/EjbSGALXkAUkYSE.png "This inflationary cycle lasted a decade, with two years of hyperinflation, and many more of painful stabilisation. The policy ravaged the economy and expropriated people's wealth. Also, in Ferguson's words, it \"made him [Hitler] possible.\"/23")
policy ravaged the economy and expropriated people's wealth. Also, in Ferguson's words, it "made him [Hitler] possible."/23
There are many lessons we can draw from history
. One of them is that inflationary policies go hand in hand with growing political extremism, led by those suffering from the corrosion of their savings as they watch the purchasing powers of their fixed wages decay.
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. One of them is that inflationary policies go hand in hand with growing political extremism, led by those suffering from the corrosion of their savings as they watch the purchasing powers of their fixed wages decay./24
The fact that Central Banks can do something () to abate crises means they will – sometimes, with little consideration on whether they actually should. The unintended consequences of their actions, as Germany's history shows, can be severe.
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) to abate crises means they will – sometimes, with little consideration on whether they actually should. The unintended consequences of their actions, as Germany's history shows, can be severe./25
