Sowing Fear: World War I and the Seeds of Hyperinflation

[unhappycamper]

http://www.spiegel.de/international/europe/world-war-i-sowed-seeds-of-german-hyperinflation-in-1923-a-952143.html



Inflation in action: This photo shows a German mark note from 1923 with a printed value of 20 million. During hyperinflation, it was stamped to become 2 billion marks.

Sowing Fear: World War I and the Seeds of Hyperinflation
By Alexander Jung
February 07, 2014 – 04:54 PM

There's a number that illustrates the brutal dynamics of the hyperinflation of 1923 better than anything else. It's the number four. In the fall of 1923, prices were doubling in Germany approximately every four days.

Grotesque price increases have occurred in other countries and at other times, such as in Greece in 1944, China in 1949 and Zimbabwe in 2008. But hyperinflation has left behind deeper scars in Germany than anywhere else. Three generations after the collapse of the German mark, the fear of hyperinflation is more alive today than ever before.

The global glut of money as a result of the financial crisis has evoked painful memories of the great inflation that began with the beginning of World War I in 1914 and ended in chaos in 1923. Each new report on the need for billions in Europe's crisis-ridden countries reignites concerns over the stability of money. According to a poll by the Allensbach opinion research firm, Germans fear inflation even more than life-threatening diseases like cancer.

'A Repeat Is Unthinkable'

Worried citizens are fleeing into tangible assets, buying gold and silver bars, houses and apartments -- or at least books with grim titles like "National Bankruptcy is Coming!" The paradoxical aspect of the inflation debate is that so far only the warnings have been inflationary. The euro has proven to be more stable than the deutsche mark ever was. Economists are more concerned that prices will decline on a broad scale, crippling the economy. It makes no sense to invoke terrible visions of 1923 today, says economic historian Hans-Joachim Voth. "A repeat is unthinkable," he notes. The Germans suffer from a sort of "collective psychosis," concludes Voth, who teaches in Barcelona.

[dipsydoodle]

1. In the instance quoted

their citizens lost all faith in money. Problem was finally overcome when the the Rentenmark was introduced to replace the old Mark.
http://en.wikipedia.org/wiki/German_Rentenmark

Similar problems occurred in Hungary after WW2 when it was stripped of its capital goods as war reparations. The Pengo was then replaced by the Florint. http://www.3833.com/node/1125 Faith in money was replaced largely by barter. I recall reading early '70s of a case where workers in a brick factory were paid in bricks which they drove out into the countryside and exchanged for fruit and vegetables.