Home > History Books > When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany

When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany

October 31st, 2012

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When Money Dies is the classic history of what happens when a nation’s currency depreciates beyond recovery. In 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to 4,200,000,000,000 marks), the German republic was all but reduced to a barter economy. Expensive cigars, artworks, and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump of coal; and a bottle of paraffin for a silk shirt. People watched helplessly as their life savings disappeared and their loved ones starved. Germany’s finances descended into chaos, with severe social unrest in its wake. Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, “quantitative easing,” that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline. Whatever the reason for a country’s deficit—necessity or profligacy, unwillingness to tax or blindness to expenditure—it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? Germany in 1923 provides a vivid, compelling, sobering moral tale.


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History Books When Money Dies is the classic history of what happens when a nation’s currency depreciates beyond recovery. In 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to 4,200,000,000,000 marks), the German republic was all but reduced to a barter economy. Expensive cigars, artworks, and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump of coal; and a bottle of paraffin for a silk shirt. People watched helplessly as their life savings disappeared and their loved ones starved. Germany’s finances descended into chaos, with severe social unrest in its wake. Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, “quantitative easing,” that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline. Whatever the reason for a country’s deficit—necessity or profligacy, unwillingness to tax or blindness to expenditure—it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? Germany in 1923 provides a vivid, compelling, sobering moral tale.
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  1. Frank Gillespie
    November 1st, 2012 at 10:10 | #1

    Rating

    An excellent history of events and the day of reckoning when a nation depreciates its currency beyond recovery. The results are total chaos and severe social destruction.

  2. jele
    November 10th, 2012 at 01:56 | #2

    Rating

    The author is either more interested in being regarded as a master wordsmith than explaining why the hyperinflation happened, or he just couldnt make sense of it (but couldnt come out and admit that).

    I’ll give you the skinny:

    page 9. “Before 1914, the credit policy of the Reichsbank had been governed by the Bank Law of 1875, whereby not less than one-third of the note issue had to be covered by gold…In August 1914 action was taken both to pay for the war and to PROTECT (emphasis mine) the country’s gold reserves. The latter objective was achieved by the simple device of suspending the redemption of Reichsbank notes in gold.”

    For me, the above excerpt was the only salient section of the book. It is good if you want accounts of the effect hyperinflation has on society. However I was looking for an explanation of WHY it happens, and on that basis the book is poor.

  3. Keith M. Barron
    November 13th, 2012 at 14:00 | #3

    Rating

    This is a frightening account of the German, Austrian and Hungarian hyperinflations of the early 1920′s. It includes blow-by-blow accounts by diplomats, bankers, and ordinary folk who survived the total annihilation of their currencies. Fergusson has done an outstanding job of documentation and must have spent thousands of hours in archives. It is indeed a shame that this book is out-of-print.

  4. Jamal J. Hattab
    November 15th, 2012 at 14:56 | #4

    Rating

    I first read this book some 25 years ago. I was so impressed I immediately bought a dozen copies & gave them to pals. (In 1980 they were 3-4 pounds sterling each–it’s ironic & interesting that the price of this out-of-print book now fetches multiple zeros).

    Here are some parallels with our time:

    The Germany of the ’20s finds it cannot meet the costs of war reparations. The US of the 2000s starts a war intending to pay reparations before it begins, and then finds itself unable to meet the mounting costs of war reparations it originally thought would leap out of the ground and just pay themselves. (Meanwhile, the US’s wounded soldiers [& the families of its dead soldiers] are going to require entire lifetimes of domestic reparations).

    The Germany of the ’20s attempted to buy/finance prosperity with ballooning deficits. The US of the 2000s wants to buy/finance prosperity with ballooning deficits. Neither nation-State can be told it is wrong–and neither admits (or even recognizes) inflation is a hidden and pernicious tax.

    Germany before the ’20s had every confidence in the mark. The US in the 2000s believes the only currency in the world is the dollar, & the only thing money can be made of is paper and ink (never gold or silver). But as one mixes ink with paper, hoping the mixture will have exchange value, one finds that one has given value to neither material.

    As Germany becomes more unhinged in the ’20s, it moves towards a strong man as a moth to a flame. As the US grows more unhinged, it loses faith in its ‘strong man’ (even if he does not lose faith in himself). If the US should subsequently shun whoever wants to be the next ‘strong man’, there may yet be be hope. Since it is possible for the next wannabe ‘strong man’ to be laughed off the stage, it is yet possible the US will not succumb. The jury is still out.

    At times the mark strenghthens (goes against the ultimate trend, for short periods): the Germans of the ’20s (and other investors) think the crisis is over and it is time to buy. At times the dollar strengthens (goes against the ultmate trend [?], for short periods): the world of the 2000s thinks the crisis may end–isn’t it now time to buy cheap US assets?

    The Germans of the ’20s can add more zeros to their paper–but paper production does not keep up with the ‘demand’ for money. The US of the 2000s has but to generate a computer entry and like magic, the ‘demand’ for money is met. The paper of Germany leaves a trail [Fergusson proves this]–computer entries can be a hidden and dirty little State Secret [until prices rise as the money actually depreciates, the state can suppress much of the evidence].

    At many levels, this book about a frightening past speaks to a menacing present. Because of its price, many will not get to read that message. Between the Germany of the ’20s and the US of the 2000s, there are differences too, but not differences that necessarily help. The potential for money supply to soar (the Fed’s ability to create credit by computer without even having to buy ink, paper, and printers) has never been so boundless. We of the 2000s prefer to believe we are more intellegent than the Germans of the 20s. We live with the hope that our enlightened leaders [!] comprehend inflation & understand that deficit spending shall ruin us. Enlighted people that they are, from government top to government bottom, we know and rely upon our leaders’ fiscal responsibility. Just look at how enlightenment runs through the Nation–budgetary constraints are placed upon our brilliant leader, by those guardians of the Public Purse & Trust, a US legislature that checks and balances all his raw power. In truthiness [that is, if one buys their spin], they all do their utmost to preserve & protect the currency, while shouldering their duties to preserve and protect our Constitution. Tonight, can I sleep contentedly, knowing both these National Treasures are safe and sound?

    Read this book: it is still found in libraries. You will be witness to ink on paper that actually has and holds its value.

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