Quote of the Day

Those were the days in which it was demonstrated that in this world morality depends on the stability of the currency. An ancient truth, which had merely come to be forgotten over the long years in which money, incontestably, had had value.

Joseph Roth, Right and Left (referring to the post-World War I hyper-inflation in Austria and Germany.)

22 thoughts on “Quote of the Day”

  1. Inflation is such a frightening thing. The stability of institutions, of money, absolutely relates to morality in many ways. Brilliant quote.

    – Madhu

  2. In the German novel Little Man, What Now?, the young couple who are the protagonists have a landlady who has really lost her grip, as well as her assets, during the great inflation:

    “Young people, before the war, we had a comfortable fifty thousand marks. And now that money’s all gone. How can it all be gone?…I sit here reckoning it up. I’ve written it all down. I sit here, reckoning. Here it says: a pound of butter, three thousand marks…can a pound of butter cost three thousand marks?…I now know that my money’s been stolen. Someone who rented here stole it…he falsified my housekeeping book so I wouldn’t notice. He turned three into three thousand without me realizing…how can fifty thousand have all gone?”

  3. As a student of the Weimar era (does that make me a Weimaraner?), I also feel called upon to again quote Sebastian Haffner’s first-hand observations on the great inflation:

    “By the end of 1922, prices had already risen to somewhere between 10 and 100X the pre-war peacetime level, and a dollar could purchase 500 marks. It was inconvenient to work with the large numbers, but life went on much as before.

    But the mark now went on the rampage…the dollar shot to 20,000 marks, rested there for a short time, jumped to 40,000, paused again, and then, with small periodic fluctuations, coursed through the ten thousands and then the hundred thousands…Then suddenly, looking around we discovered that this phenomenon had devastated the fabric of our daily lives.

    Anyone who had savings in a bank, bonds, or gilts, saw their value disappear overnight. Soon it did not matter whether it ws a penny put away for a rainy day or a vast fortune. everything was obliterated…the cost of living had begun to spiral out of control. ..A pound of potatoes which yesterday had cost fifty thousand marks now cost a hundred thousand. The salary of sixty-five thousand marks brought home the previous Friday was no longer sufficient to buy a packet of cigarettes on Tuesday.”

    The only people who were able to survive financially were those that bought stocks. (And, of course, were shrewd or lucky enough to buy the right stocks and to sell them at the right times.)

    “Every minor official, every employee, every shift-worker became a shareholder. Day-to-day purchases were paid for by selling shares. On wage days there was a general stampede to the banks, and share prices shot up like rockets…Sometimes some shares collapsed and thousands of people hurtled towards the abyss. In every shop, every factory, every school, share tips were whispered in one’s ear.

    The old and unworldy had the worst of it. Many were driven to begging, many to suicide. The young and quick-witted did well. Overnight they became free, rich, and independent. It was a situation in which mental inertia and reliance on past experience was punished by starvation and death, but rapid appraisal of new situations and speed of reaction was rewarded with sudden, vast riches. The twenty-one-year-old bank director appeared on the scene, and also the sixth-former who earned his living from the stock-market tips of his slighty older friends. He wore Oscar Wilde ties, organized champagne parties, and supported his embarrassed father.”

    Haffner believes that the great inflation–particularly by the way it destroyed the balance between generations and empowered the inexperienced young–helped pave the way for Naziism.

    “In August 1923 the dollar-to-mark ratio reached a million, and soon thereafter the number was much higher. Trade was shutting down, and complete social chaos threatened. Various self-appointed saviors appeared: Hausser, in Berlin…Hitler, in Munich, who at the time was just one among many rabble-rousers…Lamberty, in Thuringia, who emphasized folk-dancing, singing, and frolicking.”

    I’m afraid such times are more likely to bring the Hitlers than the Lambertys into power.

  4. Erich Maria Remarque “The Black Obelisk” describes life during the German hyper-inflation in the 1920s. Prices and wages rose so quickly that people were paid twice a day so that they could afford lunch and dinner.

    The ‘hero’ is a war vet who sells grave markers and monuments. He refuses to sell his best monument because he knows that in a few minutes it will be worth even more.

    Eventually a man with big ears who is really good a making speeches gets elected to run Germany. This new leader blames the greedy rich and takes all their money. However, his closest supporters get very rich (in gold, not money).

  5. Franklin always describes paying your bills in terms of integrity. Some criticize him as bourgeois and petty – but that’s true only if you think integrity is beneath you or good intentions are who you rather than a self defined by acts. I’m afraid for the last decades we’ve thought just that. Or at least some have and those some have speculated with all of our good name, since it is our country’s word that won’t be backed up. We’ve let that happen. This has been decades coming, but few as empty as those suits walking the halls of power today. But in that theater, three men selflessly gave up their lives.

    I hope Robert Schwartz is right – we are different & won’t let the next step happen. Self-consciousness has been deadened (that seems especially true of the people Haidt sees on the left) and it is necessary. Still, we haven’t easily turned on the Kulaks in the past. That the rich aren’t like us – that they are in a different category – is a belief some would foster. And, of course, we know the “rich” becomes the non-ideologically pure; these categories are elastic: conservative women are categorized as uterus-free despite multiple children and an African-American from the fifties Birmingham is not seen as, well, black. As usual, it is our sense of internalized values and universalized identity that can save us. But it is precisely those that have been mucked up by modern thinking.

  6. About 25 years ago, during the great inflation in Argentina, people would fly to Miami, buy small appliances like toasters and TVs,and fly back to sell at home. That was one way to deal with hyperinflation.

    In the 1970s, when a bunch of us bought gold, some friends of mine also bought bags of silver dimes and quarters, reasoning that, in a hyperinflation, gold would be too expensive to use for ordinary purchases. Silver coins would be more useful. That was the era when silver coins vanished from the US daily currency.

  7. “As a student of the Weimar era (does that make me a Weimaraner?)…”

    In a world with the proper sense of puckishness, yes. (I’d put a happy face emoticon here, but that’s more cutesy than puckish…)

    Serious question – the U.S. Treasury has been selling TIPs (inflation-protected notes) for some time. How do you think the government is going to screw TIPs holders – manipulate CPI? Switch to a different inflation measure?

  8. A lot of people think CPI isn’t a very good measurement of true inflation…that it understates it significantly…but truthfully, inflation is very hard to measure. There are also aspects of CPI that seem to *overstate* inflation….for example, I understand that if a Wal-Mart opens in town and sells groceries 20% cheaper than the existing stores, there is no downward effect on the local CPI, based on some theory about a negative hedonic effect (uglier stores, further away) or some such.

    The calculation of the CPI is subject to zillions of detailed decisions, and has has huge financial implications…not only TIPs but lots of other things are tied to it…and it would be interesting to know what political pressures are subtly or un-subtly applied to those doing the work.

  9. Re weimaraners, I confess I googled the word to get the spelling right, and was intrigued to learn that the name is due to the popularity of these dogs with Grand Duke Karl August of Saxe-Weimar-Eisenach, who was Goethe’s employer and good buddy.

  10. I thinnk after the Weimar Republic the Germans have a few of inflation in their DNA. A great book on that era – and the rise of Hitler – is in Wm Manchester’s Winston Churchill biography, The Last Lion

  11. I do not think we’re in serious danger of Weimar-level hyperinflation…our Fed chairmen may not be as smart as they think they are, but they’re also not as misinformed about monetary concepts as was Rudolf Havenstein (“the geldmarschall”) and his colleagues.

    However, even a 7-10% sustained inflation rate would be socially destructive, and coupled with a higher capital gains tax (and no indexing of capital gains) would be especially destructive to capital creation and investment.

    I think our greatest danger is probably sustained long-term unemployment and underemployment as now being seen in some European countries.

  12. David, thanks, correct, fixed.

    An odd lapse … blogging tired …

    This quote was meant to be a sequel to the passages you reprise here, thanks for doing so.

  13. Absolute yes on monetary velocity, which is stagnant now.

    “The calculation of the CPI is subject to zillions of detailed decisions, and has has huge financial implications…”

    Another reason why I can’t work up the appropriate amount of high dudgeon over the LIBOR fixing scandal (other than “How can you guys be so damn stupid?!?); LIBOR is pretty much a made up figure, anyway.

  14. “monetary velocity counts, not just quantity.”

    I reckon, then, that that one of the requirements has been met….making the possibility of hyper inflation possible (whereas without excess MO it was not).

  15. The Treaty of Versailles that ended WWI required Germany to pay reparations for damages they had done – 132 BILLION MARKS – in 2012 terms 1/2 trillion dollars – to be paid by an economy smaller than 2012 California and, like 2012 California, an economy already bankrupt.

    So the 1921 Germans printed 132 billion in marks and paid the debt. This caused the hyper-inflation in Germany. The allies converted the paper marks into German gold (where possible) and this sudden infusion in cash kicked off the roaring 20s in the allied countries.

    When the reparations money was spent in the allied countries, the stimulus ended, and the economies of the allies went south. “Just a depression in the road to prosperty”, said the wise men, “not a crash”.

    The wise men blamed the ‘depression’ on the rich and allies’ politicians passed taxes on the rich, claiming taxing the rich would bring back the good times.

  16. Grey Eagle….my understanding of the dynamics of the inflation is a little different. I don’t think the Allies were dumb enough to have denominated the reparations in paper currency value..rather, the reparations specified included gold equivalents and in commodities–coal, timber, even ships and dirigibles.

    Inflation in Germany was already significant by the end of the Great War, but what really seems to have gotten it going was the sequence of events involved in the French occupation of the Ruhr in 1923. It was specifically German delays in timber and coal shipments owed as reparations that led to the French decision to carry out this occupation. There was a large-scale campaign of passive resistance among Ruhr workers (and a few outright acts of sabotage)…the Weimar government spent a lot of money of unemployment/welfare payments to Ruhr residents, and much of this seems to have been funded by outright money-printing.

  17. I have worked on the CPI for 23 years. I can honestly say I don’t ever remember being influenced to go some way or other for political reasons. The Boskin Commission was composed of economists basically nominated by both parties. It’s safe to say the politicians would like a low CPI to reduce, for example, social security payments. However, I think all changes that have been made would be endorsed by virtually all economists (not to argue from authority but there it is).


    This article by John Greenlees and Rob McClelland answers most of the common complaints that people have if you are interested.

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