Inflation can reshape a nation, searing a memory into its collective consciousness that can take generations to fade. Once embedded in an economy, the government’s efforts to root out inflation can cause a severe recession. Inflation swept across the world in the 1970’s, contained only with great effort. Now it again appears, with results impossible to foresee. This series looks at inflation, its causes, and geopolitical effects.
Rampant, accelerating inflation warps society in thousands of impossible to predict ways, things seldom discussed in economics texts. Here are excerpts from two of the essential histories of the 20th century, descriptions of the classic examples of extreme inflation in an industrial society: Germany and Austria after WWI (1919 – 1924). This is what governments fear, and take severe steps to prevent.
From Otto Freidrich’s Before the Deluge: Berlin in the Twenties tells about the effects of hyperinflation in the Wiemar Republic:
The fundamental quality of the disaster was a complete loss of faith in the functioning of society. Money is important not just a medium of economic exchange, after all, but as a standard by which society judges our work, and thus our selves.
… “The collapse of the currency meant not only the end of trade, bankrupt businesses, food shortages in the big cities and unemployment” according to one historian, Allan Bullock. “It had the effect, which is the unique quality of economic catastrophe, of reaching down and touching every single member of the community in a way which no political event can. The savings of the middle classes and the working classes were wiped out at a single blow with a ruthlessness which no revolution could ever equal. … The result of the inflation was to undermine the foundations of German society in a way which neither the war, nor the revolution of November 1918, nor the Treaty of Versailles had ever done. The real revolution in German was the inflation.
“Yes, the inflation was by far the most important event of the period” says a 75 year old journalist. … It wiped out the savings of the whole middle class, but those are just words. You have to understand what that meant. There was not a single girl in the entire middle class who could get married without her father paying a dowry. Even the maids — they never spent a penny of their wages. They saved and saved so that they could get married. When the money became worthless it destroyed the whole system for getting married, and so it destroyed the whole idea of remaining chaste until marriage.
“The rich had never lived up to their own standards of course, and the poor had different standards anyway. But the middle class, by and large, obeyed the rules. … But what happened from the inflation was that the girls learned that virginity didn’t matter anymore. The women were liberated.”
In the World of Yesterday Stefan Zweig describes some of the result of this inflation on society:
In the collapse of all values a kind of madness gained hold particularly in the bourgeois circles which until then had been unshakable in their probity.
… How wild, anarchic and unreal were those years, years in which, with the dwindling value of money all other values in values in Austria and Germany began to slip! It was an epoch of high ecstasy and ugly scheming, a singular mixture of unrest and fanaticism. Every extravagant idea that was not subject to regulation reaped a golden harvest: theosophy, occultism, yoga … Anything that gave hope of newer and greater thrills, anything in the way of narcotics, morphine, cocaine, heroin found a tremendous market; on the stage, incest and parricide; in politics communism and fascism constituted the most favored themes; unconditionally proscribed, however, was any representation of normality and moderation.
… Nothing ever embittered the German people so much — it is important to remember this — nothing made them so furious with hate and so ripe for Hitler as the inflation.
Austria’s experience with hyper-inflation is not so well-known as Germany’s. Here is a two-page history: “The Great Austrian Inflation“, Richard M. Ebeling, The Freeman, April 2006, (published by Foundation for Economic Education).
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For more information about this subject
- Is the US Government deliberately underestimating inflation? (8 November 2007)
- What you probably do not know about China’s food crisis (21 April 2008)
- Higher food prices, riots, shortages – what is going on? (29 April 2008)
- The geopolitics of inflation, an introduction (17 June 2008)