For episode five of At The Rotterdam, Jeff and Rasheed recount how the weak Weimar Republic in Germany caused hyperinflation of the early 1920s, and why it is an extremely important event in history, but not for the reasons generally given.
The German hyperinflation that has been so often invoked as a warning against monetary overexpansion should in fact be a warning that paying too much attention to one rather unique incident in Western economic history risks not doing enough to bail out economies in crisis.
As terrible as it was, the hyperinflation did not directly contribute much to the rise of the Nazis.
But it did have a tremendous negative effect on the global economy and polity of the 1930s and 40s: It specifically served to dissuade Germans and Americans from expanding the money supply at the start of the Great Depression. As the Austrian economist von Mises wrote,
A nation which has experienced inflation till its final breakdown will not submit to a second experiment of this type until the memory of the previous one has faded. No German government could succeed in the attempt to inflate the currency … as long as the men and women are still alive who have been the witnesses and victims of the 1923 inflation.
The proper response, of reversing deflationary influences, was not considered because the last time money was freely available, hyperinflation resulted. Too little money too late was the major cause of the Great Depression and the economic and political turmoil in which the National Socialist rose to power in Germany in the 1930s.
Ben Bernanke knew this (he is one of the key scholars on the economics of the Great Depression) and did not hold back in the face of a potential second Great Depression in 2008. He said to monetarist Milton Friedman years earlier,
I would like to say to Milton and Anna [Schwartz]: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.
Taking the wrong lesson from the German hyperinflation would have been deadly for our global economy.
As an antidote to When Money Dies (Kimber, 1975) and Jens Parsson’s Dying of Money (Wellspring Press, 1974), I highly recommend Tobias Straumann’s 1931: Debt, Crisis, and the Rise of Hitler (Oxford, 2019).
Straumann’s link between austerity and Nazism is further detailed, and argued convincingly, in a fresh-off-the-press Galofre-Vila et al “Austerity and the rise of the Nazi party” (JEH, 2021). See also Haffert et al “Misremembering Weimar” (E&P, 2019).
The prolific and popular economic historian Niall Ferguson has written on this exact topic in “Constraints and room for manoeuvre in the German inflation of the early 1920s” (EHR, 1996).