Morning Must-Read: Free Exchange: Germany’s Hyperinflation-Phobia

Free Exchange: Germany’s Hyperinflation-Phobia: “John Maynard Keynes, as early as 1919…

…recognised the threat inflation posed to modern capitalist societies:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency… [he] was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

The German public, it seems, is particularly fearful of letting inflation getting out of control. This is, in part, due to the legacy of the German hyperinflation of 1922-3…. Present discomfort within Germany with policies designed to reflate the euro-zone economy has been stoked by the assertion of a linkage between hyperinflation and the rise to power of the Nazis…. Yet academics paint a very different picture… than the story… in the German press. The Nazi party did not become a popular political force until long after the hyperinflation period ended. The Nazis only won 32 Reichstag seats in the election of May 1924, and just 12 in 1928. As Paul Krugman has pointed out, ‘the 1923 hyperinflation didn’t bring Hitler to power; it was the Brüning deflation’ of the early-1930s….

The hyperinflation of 1923 created winners and losers among the middle classes…. Middle-class votes subsequently splintered between several different parties…. Yet virtually all classes lost out when Brüning’s government reacted to a projected fiscal deficit and gold outflows in 1930 with deflationary policies…. The experience of deflation made Hitler’s promises to conquer unemployment and stabilise prices by any means necessary attractive to a wide range of groups…. Deflation is now a greater risk than inflation in Europe…. A selective memory of the past may prove worse than no memory at all….

[See:] T. Balderston (2002): Economics and Politics in the Weimar Republic… A. Fergusson (1975): When Money Dies: The Nightmare of the Weimar Hyper-Inflation… J. M. Keynes (1919): The Economic Consequences of the Peace… A. Tooze (2006): *The Wages of Destruction: The Making and Breaking of the Nazi Economy… F. Taylor, (2013): The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class“