Pressure
The eyes of all were turned to the Reichsbank. The pressure exercised on it became more and more insistent and the increase of issues, from the central bank, appeared as a remedy....
The authorities therefore had not the courage to resist the pressure of those who demanded ever greater quantities of paper money, and to face boldly the crisis which...would be, undeniably, the result of a stoppage of the issue of notes. They preferred to continue the convenient method of continually increasing the issues of notes, thus making the continuation of business possible, but at the same time prolonging the pathological state of the German economy....
It is certain that the rise in home prices, which was the immediate consequence of the depreciation of the exchange, had given a definite thrust to the increase of note issues and of the floating debt.
But it is important not to forget that that last stage of the depreciation of the mark was, in a great part, the direct consequence of an erroneous financial policy in the preceding years. Besides, the increase of the note-issues, following the increase of home prices, was not at all a necessary action, as some writers seem to believe. An energetic financial and monetary policy and a more circumspect banking policy would have broken the vicious circle....
Costantino Bresciani-Turroni, The Economics of Inflation, 1937
The authorities therefore had not the courage to resist the pressure of those who demanded ever greater quantities of paper money, and to face boldly the crisis which...would be, undeniably, the result of a stoppage of the issue of notes. They preferred to continue the convenient method of continually increasing the issues of notes, thus making the continuation of business possible, but at the same time prolonging the pathological state of the German economy....
It is certain that the rise in home prices, which was the immediate consequence of the depreciation of the exchange, had given a definite thrust to the increase of note issues and of the floating debt.
But it is important not to forget that that last stage of the depreciation of the mark was, in a great part, the direct consequence of an erroneous financial policy in the preceding years. Besides, the increase of the note-issues, following the increase of home prices, was not at all a necessary action, as some writers seem to believe. An energetic financial and monetary policy and a more circumspect banking policy would have broken the vicious circle....
Costantino Bresciani-Turroni, The Economics of Inflation, 1937
posted by The Cunning Realist at Thursday, December 13, 2007
11 Comments:
TCR, and others, do you see any of the current candidates, on either side, that has the energetic financial and monetary policy and a more circumspect banking policy that can the vicious circle?
Is there anyone out, doesn't have to be a candidate, advocating for a change like this?
Great find here and apropos of the current financial implosion. I am sure you have many liberal, progressive types who appreciate your work on the blog. I can tell you that as some one who works in the real estate and financial industry that their is very little recognition of the depth of the problem and the risks moving forward. We are much better off then other areas due to a regional history of more affortable housing relative to the general income levels and to the regions aversion to risk and "new fangeled" financial products. Saying hello from rainy, sleety, Philly.
TCR:
When you quote a book like this, is there any chance you can link to it at Amazon or something similiar? Some of us might like to know more. ;-)
Keep up the great work.
It's $160 at Amazon. If your local library doesn't have a copy, ask to do an interlibrary loan and tell them the OCLC number is 1842902.
I just finished reading The Weimar Republic, by Eric Weitz. The book is arranged topically, rather than chronologically, which I found odd in a book of history. It has a decent explanation of the hyperinflation of '23. The similarities are rattling through my mind.
A friend just closed on a house here in RI. He thinks he got a deal because he got at 15% off the peak asking price. I bought my house in '94, and it was about 40% off the asking price in '89 (it was a rental, and so there was no pressure to finally sell.)
Cheryl:
Thanks!!
the energetic financial and monetary policy and a more circumspect banking policy
hee hee hee....
This has happened before. See Paul Volcker. Things are worse today than they were back then. Back then it was just the US. Today it is the "global economy"
There is no way to fix this today without a great deal of pain. If Volcker's prescripions were attempted today we would see an immediate and prolonged recession. During this recession we could go back on the gold standard and return some sanity to banking and lending standards...and a "real" economy would emerge again rather than an artificial economy based on debt and government spending. The candidate calling for such a thing is of course Ron Paul. But the time is not ripe for such things. The "people" always want the easy way out. Rather than a 5 year recession and an overhaul of our financial institutions we will opt for 30 years of stagflation and watch horrified as the Indians and Chinese take over the "global economy". As they rightfully should. Because they are better people than us.
Your comments are incredibly insightful, but one thing I think you are missing in the inflation debate is that our (the U.S.) inflation has been built on credit/debt. Weimer Germany and today in Zimbabwe are inflation driven by the actual paper currency. There is a big difference. I think the closer analogy for the U.S. is Japan over the last 20 years, which was also an inflation driven by credit expansion before the inevitable deflationary bust. The Great Depression was also a credit-induced deflationary bust. I think you will see the dollar higher if this is the scenario that plays out (and it's been higher recently).
No, cbazz, Weimar Germany's economy was, if not built on debt, at the very least overburdened by debt.
Germany after 1914 chose not to raise property or income taxes to pay for World War I. Instead, the government raised its war funding by issuing debt instruments and hoping that they'd win the war and force the Belgians and French to pay off the debt. That didn't happen, so the German government after 1919 inherited the huge sums required to: 1) pay off the war debt, mostly owed to good upstanding German patriots; 2) pay off the war costs of veterans, orphans, and invalids, and 3) pay off Allied reparations for having invaded France and Belgium and wrecked the place.
The Weimar government faced some unpleasant choices, and whether they meant to or not, after 1924 the balance of (1) above was written off because the hyperinflation wiped it out.
Derive from this whatever lesson you will.
stickler
there a incredible legal hole between these two terms, politic and economy, why? simple, politicians are people so greedy and the economy of the country need people who think first in their countryman and not in themself needs.
like it said, this problem was for a bad administration of the money.
and nowadays we need to look back and make sure that we don't do those same mistakes
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