Author Niall Ferguson continues to disappoint. His book on the Rothschilds is wonderful, but his recent work (High Financier, The Ascent of Money) is pure muddle. Nowhere does he mention what was the primary cause of the hyperinflation– the linking of pay for everyone in the economy who worked as an employee, whether of the state or private enterprises, to the official measure of inflation. The farmers and independent business people– the future voters for the Nazis– were the only people not so protected. Ferguson follows Keynes in blaming the reparations (even though at their highest point they represented less than 1/4th of Germany's exports), the "right-wing" civil unrest (even though the rate of assassination of public figures was less after the war than it had been before, Hitler's attempt at revolt was put down by the "conservative" Bavarian government, and the greatest violence came from the Left, not the Right) and the Army (who, in fact, mostly stayed in their barracks).

To be fair, Ferguson does quote Addison: "The daily creation of fresh paper money which the government requires in order to meet its obligations both at home and abroad (services and goods which it is 'obliged both to render and deliver') inevitably decreases the purchasing value of the mark and leads to fresh demands, which in turn bring about a further decline, and so on ad infinitum." But Ferguson seems determined to look to every cause except the obvious one: in a country that had lost its wealth, people could not restore their former "standard of living" by having the government print money and pretend that the war had never happened. Lord Curzon's observation at the time was "There has been no real determination to stop the printing press, there is little efficiency in the tax-collecting system, and there is very great timidity in putting a stop to doles and subventions."

The doles and subventions were the moving force - both for printing money and for tax evasion - just as they always are in any country. What was different in Germany was that everyone, except the future Nazi supporters, already worked for the DMV and had automatic escalators in their wage contracts.

Kevin DePew writes:

Speaking of Weimar, here is a free ebook available from Google that I found very interesting. "Cool conduct: the culture of distance in Weimar Germany," by Helmut Lethen.

The Google summary: "Cool Conduct is an elegant interpretation of attitudes and mentalities that informed the Weimar Republic by a scholar well known for his profound knowledge of this period. Helmut Lethen writes of "cool conduct" as a cultivated antidote to the heated atmosphere of post-World War I Germany, as a way of burying shame and animosity that might otherwise make social contact impossible."

Apart from the irony that Ferguson's book about the Weimar hyperinflation (Paper and Iron) is available for free (a year or so ago library copies were selling for more than $1,000), the Lethen book I found more informative about cultural conditions in the wake of economic distress/collapse. Everyone knows the mechanics of hyperinflation, which is what Ferguson's book largely deals with– only a small portion is devoted to the sociological aspects. Less known, and more instructive, are the methods societies use to cope with extreme economic disturbances.

Stefan Jovanovich responds: 

I wish I could share Kevin's appreciation for Lethen's book. I tried reading it over the weekend and did not succeed. Lethen's assumption that the culture of Weimar was "cool" seems to me too much of a stretch to be even comic in its absurdity. George Grosz was anything but "cool".  I wish I could agree that "everyone knows the mechanics of hyperinflation". You can read Fergusson's book and Keynes's diatribe about the economic consequences of not listening to him and not find a single mention of wage indexing in either tome. It is not enough to point to "money printing"; you have to answer the question of how it becomes politically acceptable to debase the currency. At the end of his life Hayek wrote this: "I do not want to leave this recollection of the Great Inflation without adding that I have probably learnt at least as much if not more than I learnt from personally observing it by being taught to see - then largely by my teacher, the late Ludwig von Mises - the utter stupidity of the argument then propounded, especially in Germany, to explain and justify the increases in the quantity of money…None of those apologists of the inflationary policy was able to propose or apply measures to terminate the inflation, which was finally ended by a man, Hjalmar Schacht, who firmly believed in a crude and primitive version of the quantity theory. - From Occasional Paper 45, Institute of Economic Affairs, July 1975. Hayek recalled that his salary went from 5,000 krona a month in October 1921, to 15,000 krona in November, and to 1 million krona by July 1922.

Zimbabwean economics was introduced to the former German-speaking empires after WW I because it was politically impossible for anyone to tell the public employees of the war economy that the Great War had destroyed their wealth and reduced the market value of their labor. We have the same situation developing now in the People's Republic of California. Our various wars on behalf of the causes of "social justice" and "the environment" and "education" have produced an economy where the activities of the people who work for the state and those whose only customer is the state are easily more than half the state's GDP. The immediate crisis here is much the same as the one that started the presses printing in Vienna and Berlin - retiree pensions.

The one significant difference is our latter-day paradise of Bismarckian socialism does not have the ability to create its own legal tender. We Californians can and do issue vouchers; but even our own state Treasurer will not accept those same vouchers in payment of California taxes. (Yet another example of the inescapable postulate that, in a society with a sovereign monopoly, money = legal tender.)

I would welcome the speculations of the readers of this site as to whether or not our golden state will be "saved" by a re-enactment of the Dawes plan (the "strong" country drains its legal tender reserves to pay back the preferred creditors who bet wrong on the great leap forward - i.e. the war to end all wars. You may have a rooting interest since since the People's Republics of Illinois/New York/New Jersey would be part of the same "rescue package". If one comes, it seems only appropriate that we name this "societal method for coping with extreme economic disturbance" as Lusitania II.

Ken Drees comments:

Cally will be bailed in version .3 of QE– Jerry Brown will receive a huge check a la Monty Hall– let's make a deal!

A bundle of lesser tier bailouts ala a fruit basket of rotten munis, bruised and blemished states will happen in conjunction– version .31 QE because the people can gulp down only one massive bailout per year so make it a big horse pill and wash it down with a big gulp.

2011 March/April for this to go down?

Mr. Krisrock shares: 

Here is a great speech Ferguson gives on"empires on the edge of chaos".

Pitt T. Maner III comments:

The paintings by Thomas Cole ("The Course of Empire") referred to by Professor Ferguson at the beginning of his lecture can be found at the New York Historical Society, 170 Central Park West at 77th St and are available as prints . I imagine they make fine postcards too.





Speak your mind

3 Comments so far

  1. jeff watson on December 26, 2010 11:26 pm

    Adam Fergusson, perhaps instead of Niall Fergusson??

  2. Alaric Investments on December 27, 2010 12:07 am

    It is terrific to see some debate here on inflation. Indeed,with the Fed actively engaged in monetary debasement as a path to prosperity I ultimately expect your local cab driver to at some point in the future to be offerring advice on how to beat inflation, although I do hope that it will never come to that.

    I believe the seminal text on inflation is “The Economics of Inflaiton” by Costantino Bresciani-Turroni:

    It is not a cheap read but is well worth it, as it is a detailed study with quite a bit of economic and monetary statistics rather than just a narrative. I found the chapter on the social effects a very good summary for the effects of the inflaiton on various social groups.

    One point I would take issue with Mr. Jovanovich on: one social group wich, per Bresciani-Turroni, actually benefitted from the inflation were farmers whose mortgage debt was wiped out by the inflation and whose produce retained value. Of course the farmers referred to are not ’small-holders’ who were not able to afford machinery or other input purchases…

    Of course there was a group of ’speculators — generally forward-looking and opportunistic people who were able to move out of local monetary assets quickly enough at various points….although they were roundly criticized and some were overly ostentatious, they were able to avoid the fate of the ‘rentiers’, retirees, and long-only bondholders who were wiped out and had to sell furniture and other personal belongings on the street.

    Again, I hope this does not happen in the U.S., however, many thought it could not happen in Germany either…


  3. Jack Demming on December 29, 2010 6:03 am

    Speaking more of Weimar,

    I think that book- in its reference to cool… is referring to cultural despair. Cool, in the sense of being distant and dark. Weimar, in all its debauchery, creativity and excess– was a culture stretching over vast cliffs of “normalcy” because it was seeking meaning in a time of decay. That leaves one to think, is dis-“integration” a possible precursor to creativity?

    I became interested in Weimar, WW1, WW2 and the Nazi’s when I wanted to learn more about the United States and its current (debatable?) descent.

    A couple other books I found interesting:


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