A Comparison of Inflation in 1920s Germany to 1970s United States

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Inflation and over-printing of currency in the 1970s eerily resembled Germany's economic woes of the 1920s.

Most adults in this country are at least dimly aware of the catastrophic inflation which swept over Germany in the early 1920’s. (We’ve all seen the old newsreels of people buying a loaf of bread with a wheelbarrow load of nearly worthless paper currency.)

Few, however, know the cause of that inflation. (it was actually created by the German government so that the country could pay off its World War I debts more easily . . . which is to say with “cheaper” marks.)

And fewer still have studied the manner in which that destruction of the mark ran its course. (The inflation–once started–did not constantly accelerate, as we usually suppose. Right up until its final weeks–and despite its generally skyrocketing nature–that inflation was interspersed with short periods of deflation. Of business contractions and layoffs. And this, of course, really scared the hell out of everyone. It’s bad enough to watch the value of your savings and the money in your pocket steadily decrease when you have a job and are still earning a paycheck . . . but it’s absolutely terrifying to see that same erosion take place when you’re unemployed. And so the politicians immediately “solved” the problem by printing even more worthless marks. “People are out of work and business is running well below capacity,” they said, long after Germany was awash with floods of paper currency. “It’s obvious that we have a capital shortage. We must stimulate the economy.”)

And so they ran the printing presses faster . . . until, in late 1923, it took almost 1,000,000,000,000 marks to buy what two marks had bought in early 1919. And thus did the German economy collapse, dragging down the country’s social and political structure behind it. And thus were the German people made desperate to believe and blindly support the first demagogue who promised them stability and prosperity and self confidence once again. And thus was the way paved for Hitler’s rise to power. The rest, as we say, is history.

And the most recent part of that history (the early 1970’s) sometimes seems to bear an uncomfortable resemblance to the Germany of the early 1920’s . . . only on a much larger scale.

Because this time we have the United States devaluing its currency not once, but twice, and “closing the gold window” (have you forgotten?) so that it can pay off its Vietnam War and other debts with “cheaper” dollars. Which, since the U.S. dollar is the planet’s “standard” medium of exchange, immediately throws a kink into economic circles all over the earth. And that wave of turbulence ripples back and forth between nations and trade blocs . . . from industrialized northern Europe to the oil fields of the Middle East to Japan and southeast Asia to the mines and fields of Africa, South America, Australia, and New Zealand. And it’s amplified by some significant crop failures in all parts of the world, and the final death throes of the British Empire, and a power struggle within the Communist bloc, and the rising expectations of most of the earth’s citizens, and mushrooming populations in almost every nation, and the sudden realization by tens of millions of people that the planet’s natural resources really are exhaustible.

And, as you know, the end result–the “bottom line” as it’s now very In to say–of all this was the 1974-75 explosion of world commodity prices. And the rapid rise in the cost of living in almost every country on the face of the planet (except for some of the Communist nations which cleverly kept their internal economies on an even keel by borrowing a total of $27 billion from capitalist nations–including, indeed especially, the United States-which were dumb enough to extend them credit).

And that’s where we are now. With England’s pound currently losing 20% of its value every year. With the Italian lira down 30% in the first quarter of 1976. With France dropping out of Europe’s famous currency stabilizing “snake” on March 15 and devaluing its franc after vainly spending $2 billion in a single week to make such action unnecessary. With the Belgium franc down one day and zooming up the next. With, in short, almost everyone moaning about inflation, and an incredible number of dollars and pounds and francs and lira and other paper currencies sloshing back and forth from one country to another . . . while jobs remain scarce and business generally has trouble keeping busy.

Sounds a lot like Germany back in the early 20’s, doesn’t it? Especially now that we have more and more politicians popping up all over the world–including Senators Humphrey and Jackson here in the U.S.–and saying things like: “People are out of work and business is running well below its full capacity. It’s obvious that we have a capital shortage. We must stimulate the economy.” (Such “stimulation” pencils out costing-on top of the already budgeted $40 to $50 billion deficit for 1977–approximately $25 billion a year here in just the United States alone. And where will that “government” money come from? From the printing presses.)

In the meantime–despite the fact that our own dollar has been inflated so much in just the last nine years that it now takes $1.70 to buy what $1.00 would purchase in 1967, despite the fact that close to 200 billion paper dollars have been pumped into our economy during the past decade–unemployment remains high and five of the ten largest bankruptcies in the history of U.S. business have taken place since 1973.

And banks keep failing (Hamilton National of Chattanooga, Tennessee with assets of $450 million just went down the tubes). And investment trusts must be bailed out (the nation’s largest real estate investment trust, Chase Manhattan Mortgage & Realty, recently “swapped away” $85.1 million in obligations that it couldn’t meet). And Arthur Burns, chairman of the Federal Reserve Board, tells the Senate Budget Committee (in a testimony delivered March 22) that, despite the rosy figures released by the Ford administration, the inflation underlying our economy is currently accelerating. “Strip away food and energy, the erratic items,” said Mr. Burns, “and consumer prices rose at seasonally adjusted annual rates of 5.1% in the second quarter of 1975, 5.8% in the third quarter, 7.1% in the fourth quarter, and 11% during January of 1976. 1 find the trend disconcerting.”

It sort of makes you long for the good old days, doesn’t it . . . such as the period between 1661 and 1913 when-during a span of 252 years–the gold-backed English pound changed only 10% in value (and that was a change for the better).

Wouldn’t it be nice to enjoy such stability again? Well, maybe you can . . . even in a world gone increasingly mad. MOTHER has been telling you how for years, and even a few economists are beginning to tout her ideas as their own.

“One way to ensure some security for yourself,” said Dr. Robert H. Adler in the December 12, 1975 edition of Costa Rica’s Tico Times, “is by the purchase of a small, working farm. If you own the roof over your head and can totally feed yourself, you really have built a bulwark against many of the problems of our rapidly changing world.”

Problems, for instance, such as politicians who think they can pay off a nation’s debts, increase business activity, and create jobs . . . simply by cranking up a printing press!