Everyone should read this book. It teaches that:
1) inflation, used purposefully or via incompetence, is an easy way to divide and destroy a society,
2) civilization hangs by a thread, a much thinner thread than we realize, and
3) history, while it never repeats exactly, certainly rhymes.
The book is not an easy read: it is densely written and it will repeatedly send you down Wikipedia rabbit holes as it refers to political figures and historical events unknown to modern readers (an extra bonus for history geeks). But it will teach you what a worst-case inflation scenario could look like--if you are ever unfortunate enough to find yourself in one--and what you can do to protect you and your loved ones from it.
Notes:
* Inflation becomes an easy way to "raise the mob against the state, set class against class" etc.
* "...it is the purpose in the pages which follow not to predict by analogy a similar destiny for any industrialized, democratic nation in the grip of severe inflation; rather, by recounting an extraordinary story, to present some of the evidence of what inflation may do to people, and what in consequence they may do to one another."
* Early on, most Germans, Austrians and Hungarians believed not that their currency was depreciating, but that other currencies were unfairly rising. At least in the beginning. People simply didn't get it, they clung to their currency. It was money they believed in.
* The Weimar government teamed up with the military at the end of WWI to cooperate in the suppression of Bolshevism/communism. The Weimar assembly was meeting under military protection, and this helped the German army to maintain a more privileged position than it would otherwise have had after losing the war. This became a sort of a "Prussian seed" that grew into the Nazi army much later.
* The first toxic step in the wrong direction: Germany's suspension of gold convertibility in August 1914 when it suspended redemption of Reichmarks for gold. Basically funding the war not by taxation but by borrowing and money-printing.
* German war loans were a mechanism that "transformed the greater part of German private fortunes into paper claims on the State." All classes felt that it was a patriotic duty to invest in war loans.
* Austria was even more fucked than Germany with inflation... and earlier on.
* The Joyless Street, the 1925 film with Greta Garbo, "a faithful reflection of the times" in Vienna in those days.
* From Austrian housewife Anna Eisenmenger's diary, where she relates a conversation with her banker: "If you had bought Swiss francs when I suggested, you would not have lost three-fourths of your fortune." "Lost!" I exclaimed in horror. "Why, don't you think the krona will recover again?" "Recover!" he said with a laugh... "Just test the promise made on this 20 kronen note and try to get, say, 20 silver kronen in exchange." "Yes, but mine are government securities: surely there can't be anything safer than that?" "My dear lady, where is the state which guaranteed the securities to you? It is dead."
* Another diary entry: "Even the most respectable of Austrian citizens now breaks the law, unless he is prepared to starve for the sake of obeying it."
* The Austrian stock market starts to skyrocket; former civil servants and officers were the least lucky: unemployable, with the purchasing power of their pensions evaporating by the minute. Austria foreshadowed what was to come in Germany, it had its hyperinflation and recovery cycle earlier.
* The people hardest hit are all the middle class, people with any fixed income from investments or pensions, government officials, anyone who can't ramp up their income commensurate with inflation, or who don't own hard assets. There are clear solutions for what to do now if we have any kind of long-term inflationary circumstances.
* Ironically in Germany in 1920 when inflation started to really become a problem, industry was doing quite well. It made German industry more competitive in foreign markets by weakening the German mark.
* Another intriguing insight is to see how various classes of German society were slow to recognize the tectonic shifts going on in their own culture. For example the academic class continued to celebrate military leaders and the government of the former administration (for example, academics offered an honorary doctorate to Ludendorf at the very time he was fleeing Germany in disguise). This book helps illustrate how some people, some segments of society, simply cannot see these shifts coming (or in today's crypto parlance, who's NGMI and who's WAGMI). Who will gullibly trust their governments' bonds and currency right up until we go flying off the cliff, who will see the writing on the wall and adjust? Etc.
* Escalating partisan violence including assassinations. Assassination of German finance minister Matthias Erzberger, assassination of German foreign minister/politician (and elite wealthy industrialist) Walter Rathenau, etc.
* Another aspect of inflationary monetary policy, one might call it a scam foisted on us by our government, is the "bracket creep" that happens when inflation gives us more dollars with less real value, while we "creep" into higher and higher tax brackets while earning increasingly worthless currency. Germany had this happen in a matter of months. Imagine a wage/price spiral where you blast through 10% tax rate to a 60% tax rate while earning inflated dollars worth a fraction of what you earned before. But congratulations! You're "rich" in worthless Weimar marks!!
* Inflation is good for some and bad for others. Make sure you put yourselves in a situation where it's good for you, not bad. In other words, own assets, own stores of value, etc.
* Also predictable, both then and now, is the call for taxing the rich, taxing "greedy corporations," taxing "profiteers" (read: anyone doing well), taxing unearned capital gains, and blaming anyone but the real culprits: the government itself, which is spending more than it takes in and busily printing more and more of its own currency to make up the difference.
* Inflation wipes out the middle class by vaporizing their savings, it wipes out the lower classes by a mismatch of the price of necessities and their wages. The wealthy tend to benefit from inflation, if they know to be positioned properly.
* Foreigners, who get wealthier comparatively by the minute as the German currency weakens, can buy German assets for ridiculously cheap prices. See various Weimar-era instances of foreigners buying German and Austrian middle-class families' pianos and furniture at ridiculously cheap prices because those families are desperate for hard currency that will hold value so they can buy food and necessities.
* The more inflation, the more social unrest; the more social unrest, the more the Austrian and German governments would do things to appear to deal with profiteering: in Bavaria there was a bill presented making gluttony a penal offense. Austria made a move to tax anyone who gave a luncheon or a tea party, although it was never enacted. (!) These are examples of the absurd lengths to which virtue-signaling politicians would go to appear to do something about the problem.
* "It was natural that a people in the grip of raging inflation should look about for someone to blame. They picked upon other classes, other races, other political parties, other nations. In blaming the greed of tourists, or the peasants, or the wage demands of labor, or the selfishness of the industrialists and profiteers, or the sharpness of the Jews, or the speculators making fortunes, they were in large measures still blaming not the disease but the symptoms."
* Inflation also as a study of power structures: some people are completely disempowered by the phenomenon of inflation, others are protected from it, others actually benefit from it. And it's not always clear or obvious who is who, and peoples' loyalties can be conflicted. (We can make the same set of analogies for mass immigration too probably: some people benefit from it, some get to virtue-signal about it, others are hurt by it and don't know it, etc.). If your wage is indexed to inflation or if there's some sort of link between the money you earn and the price level you can be sheltered to some extent from inflation (to a certain level). People with fixed wages quickly face ruin and starvation when prices explode higher all around them.
* Also the price level never goes back. The currency never returns to its prior pre-inflation levels. There's too much "fear of deflation."
* The thing I think people struggle with when it comes to extreme inflation situations: we simply don't have context for this in the United States (or in any country with a "responsible" currency: GBP, CAD, etc). Under extreme inflation, nothing works right. People instantly buy anything they can to get away from owning paper marks... but then there's shortages of things because people instantly buy things (!). Money becomes a hot potato: it has a tremendous velocity through the economy since nobody wants to hold it. Worse, everything becomes unmoored: morality and ethics disappear, people see enemies everywhere, the pie is shrinking by the minute, everyone is against everyone, and as a result everyone starts to live for today. What's the point of saving? What's the point of building for tomorrow when tomorrow your money is going to be worth a fraction of what it is today? Society becomes decadent and short-term in thinking. Governments at every level can't even collect taxes, much less manage spending or paying bills. Pretty soon nothing means anything.
* Also your age during the era of a hyperinflation seems to drive everything: Inflation destroys the old, the pensioner class, totally destroys them. But it also seemed that many young people in that era looked back on this time with a sense of adventure.
* Even the printers went on strike, interrupting the printing of new mark notes. The government brought in strike breakers to get the presses going again.
* Trepanning: perforating the skull to do a medical procedure or remove the brain. A reference describing how central bank authorities in Germany pretty much needed to have their brains removed to stop them from insane money-printing policies.
* Also note the increasing dangers of showing your hand in terms of your political allegiances at times like these. If you indicate you're a communist with a little bit too much overconfidence at the wrong time you can find yourself kicked out of a career, attacked, etc. Interesting how this "rhymes" today with cancel culture.
* In a three- to four-month period in 1922 the Austrian krone fell 90%, to 1/10 of its value. Interestingly, Austria's currency situation stabilized in September of 1922.
* Also in October of that same year, 1922, Mussolini pulled off his coup and rose to power in Italy. Note how the League of Nations was concerned about Austria "catching" fascism.
* Intriguingly, rural peasantry tended to do fine during periods of inflation because they're always able to sell their produce at market prices. Since they grew food and sold it they had the ultimate commodity. See for example the peasant class in Hungary during this time.
* Orthodox financial thinkers in those days didn't seem to know that printing money was what drove currency depreciation: in Germany and Hungary they thought it was WWI reparations and "lack of confidence." In Hungary, for example, the currency depreciation rate was so much greater than the increase in the issue of banknotes and paper currency, and depreciation abroad always preceded fresh currency printings, thus people assumed that printing more money was just one contributing factor to inflation, not the central cause. Hungary's finance ministers had the arrow of causality pointing in the wrong direction: they simply had no idea that what was driving FX declines was the fact that people knew that the country had to print in order to meet its obligations and cover budget deficits. Outsiders already could see the second-order consequences and were reacting to the necessary future dilution of the currency.
* Another warning for the investor class: this book spends a lot of time talking about the travails of the "rentier" class, basically the investor class, but mainly meaning citizens who lived off of government bond interest (which was fixed and of course evaporated in purchasing power during an inflation). Obviously bondholders, annuity holders, anyone on a fixed salary or fixed income was fucked.
* Ironically, the academic class and the professional class suffered the most, in general their salaries were fixed and didn't adjust to inflation at all, they didn't have land or property assets or equities to the extent that agricultural people or industrialists would have, and they were mortified that they might actually have to do manual labor to earn their bread, (or worse, their children would have to, which would represent a downward move in social class). This is yet another way in which fierce inflation subverts and inverts the social hierarchy. And it teaches us what self-sovereignty really is: it is not "having a good job" in the sense of being a college professor, an intellectual, a doctor or lawyer, etc.
* I couldn't help wondering as I was reading this book: If I were living through this situation, would I be able to see it? Would I be able to react and adjust? Would I recognize what was coming? And if this happened to me during my life now, will I be able to handle it? How should I be positioned in order to best handle it? These questions traumatize me.
* 1923 was "the year of the wheelbarrow" in Germany.
* Austria: the exorcism of inflation was even worse than inflation itself. "The victims of the recovery would be hardly less unfairly selected then those of the inflation." When the inflation is finally squelched there are yet more distortions in the economy that you have to get through, and the winners and the losers are once again different people, and the social hierarchy gets upended yet again.
* "Rent restriction is habitually one of the first and cheapest of government devices to restrain the cost of living under inflation." In other words: your rental properties, your REITs, etc., they are not going to save you: they will be taxed more, they will be subject to rent controls, etc. You cannot take an apartment building and move it to another jurisdiction!
* The importance of direct access to agricultural commodities in times when no one will accept money for anything. During the worst of the German hyperinflation ag products never made it to town, peasants and farmers wouldn't accept worthless currency, etc.
* "Inflation is the ally of political extremism, the antithesis of order. At other times--in post revolutionary Russia, in Kadar's Hungary [the communist dictator who took over Hungary in the 1950s]--it may have been deliberately engendered in order to destroy the social order, for chaos is the very stuff of revolution. In Germany at this time, however, the inflationary policy was the consequence of financial ignorance, of industrial greed and, to some extent, of political cowardice. It therefore produced hothouse conditions for the greater and faster growth of reactionary or revolutionary crusades."
* In November of 1923 the Rentenmark was issued, with a fixed supply, deemed equal to the gold mark and equal to 1 million million Reichmarks, basically 12 zeros lopped off the mark. It was a confidence trick, yet it worked.
* "With inflation alone can a government extinguish debt without repayment, or wage war and engage in other non-productive activities at a large scale: it is still not recognized as a tax by the taxpayer."
--Gunter Schmolders, essay in "Inflation"
* "Most economists accept that mild inflation has certain therapeutic advantages for a nation which must deal with the social and economic problems to which industrial democracies are usually subject." In other words: we fool you all the time with it, giving you the illusion of prosperity, the illusion of social mobility, the illusion of increasing wealth.
* "...life became an obsessional search for Sachverte [real assets], things of 'real', constant value."
To Read:
The Diary of an Ambassador (3 vols.) by Edgar Vincent D'Abernon
The Economics of Inflation by Constantino Bresciani-Turroni (see pp 253-285)
Curzon: The Last Phase, 1919-1925: A Study in Post-War Diplomacy by Harold Nicolson
Nemesis of Power: The German Army in Politics 1918-1945 by John Wheeler-Bennett
Hitler: A Study in Tyranny by Alan Bullock
My First 76 Years by Hjalmar Schacht
The End of Reparations by Hjalmar Schacht
The Truth About Reparations and War Debts by David Lloyd George
How it Happens: Talk About the German People 1914-1933 with Erna von Pustau by Pearl S. Buck
Walter Rathenau and the Weimar Republic by David Felix
Studies In the Quantity Theory of Money, edited by Milton Friedman (see specifically Phillip Cagan's essay The Monetary Dynamics of Hyperinflation)