INFLATION AND HISTORY

INFLATION AND HISTORY

When you consider America’s economic troubles be happy it is not like the hyperinflation of Zimbabwae today. The so called "bearer cheque" was first introduced there worth 50,000 Zimbabwean dollars but actually worth about fify cents in U.S. money and, at the time, was only enough for a loaf of bread. A roll of toilet paper costs $145,759 Zambwean dollars but about 69 cents in U.S. dollars.  In 2008 the government was printing 100 billion dollar bills and in 2009 a 100 trillion dollar bill.

While we don't have Zimbabwae's inflation there are some are similarities to Germany following World War I. Before the first world war, the German Mark was a gold backed currency and was equal in value German money to the French franc or British shilling all of which exchanged at about four or five to the U.S. dollar. By 1923 the exchange rate between the dollar and Mark was one trillion Marks to the dollar. German marks were actually hauled around in wheelbarrow's because it took so many to buy anything, but even  a wheelbarrow full of money would not buy a newspaper.

The period from 1919 to 1933 is generally referred as Weimar Germany because the constitution following the war was drawn up in the town of Weimar. As the war was ending the country was in chaos. Sailors mutinied rather then continue fighting a lost war. The Kaiser, William II, went in to exile in Holland and a new government formed which signed an armistice with the allies. Germany was a country where some two and half Germans had died in the war, there were rising prices, shortages of everything and unemployment when political leaders signed the treaty of Versailles. The treaty terms shocked and angered all of  Germany. The Protestant churches declared a day of national mourning. Loss of colonies and areas of geography along with limitations of military size and demilitarization of the Rhineland under the treaty horrified German citizens. Most offensive was the "war guilt clause" of the Germany treaty which placed one hundred percent of the blame for the war on Germany. But, worse yet, the reparation payment requirements of the treaty were enormous and economically impossible to fulfill. The French alone presented Germany with a bill for billions of dollars which war ravaged German had no means to pay. Germany quickly defaulted for lack of money  on it's treaty obligation to pay reparations. 

The result of all of this  was that in the early 1920's German had historical record sized inflation. The price of food and everything else went up while the value of German currency (Marks) were going down. Massive inflation took hold rapidly. One report of the hyperinflation of Germany indicates that in 1920 the cost of living in Germany was 39% and by 1922 was 13573%. From 1922 to the middle of 1923 prices increased over 100 times. But, from July to November of 1923 it is reported "prices increased between a million and a billion times their previous level." Unemployment went from 2% to 23% in a short period of time. By October of 1923 it one U.S. dollar was worth 25 million Marks and by December it was worth four trillion marks.

Wages were paid to workers daily or even several times a day due to the minute by minute changing value of the Mark. As soon as the worker was paid, his family would immediately use the money by spending it before it went down in value. It became necessary to get rid of the money paid as soon as possible. Businesses couldn’t raise prices fast enough to keep up with the declining value of the Mark. After Natzi soldier awhile they just left the last price they had placed on goods and simply gave the multiplied increased percentage price now applying to it. Store owners did this only after calling the bank hourly to find out the current value of the Mark. Whole batteries of people were hired at banks to simply announce to business customers  the current value of the mark.

It wasn’t until the end of November 1923 that a new currency commissioner of he Weimar Republic managed to bring inflation under control. A settlement was reached with France and he allies for a moratorium of the reparations and a fixed reduced payment was agreed to as well. For the next several years America made loans to Germany to help it recover.

As Germany was recoverying the U.S. depression resulted in world wide economic depression. On October 24, 1929,"Black Thursday," there was panic selling on Wall Street and on October 29th, forever known as "Black Tuesday," unrestrained panic selling drove the market down to nothing. The depression began. Over sixteen million shares of stock were sold and ten billion dollars in value was lost all on that day. By 1932 roughly one in three workers was unemployed.

Germany was immediately hit with economic disaster again. The economic situation was directly connected to politics and that lead to the rise of Hitler in Germany.  Right wing factions in Germany like the Nazi Party wanted to set up a dictatorship, with severe laws. They wanted to reject the Versailles treaty and stop payments for the last war. The wanted to unite all German speaking people. But Hitler’s party also believed in the superiority of the "Aryan master race" and wanted to remove the Jews from society. They were enemies of the Communist’s and had a wing (the SA) who used violence against political opponents.

As economic times worsened, crime rose and voters turned to either the communist or Nazi parties and away from the liberal democratic parties. Hitler’s brown shirts fought with the communist party members and inflicted violence on Jews as well as political opponents. The German Chancellor Heinrich Bruning cut government spending, increased taxes and cut unemployment benefits which made the situation even worse. In 1931 German banks everywhere failed and closed their doors. Bruning was named the "hunger chancellor" and was hated throughout Germany.

Bruning was replaced by von Papen who was equally unpopular. In the election of 1932 the Nazis received 37% of the votes giving it a power position over the communists. Political violence increased and Von Papen was replaced by von Schleicher. As a result von Papen plotted against his replacement and made a deal with Hitler that he would become chancellor with von Papen supporters having a major role in the new government.

Paul Ludwig Hans Anton von Beneckendorff und von Hindenburg was a German field marshal with long distinguished career in the Prussian Army. In the 1932 election at 84 years of age and in poor health he was elected as President. He disliked Hitler but was responsible for his appointment and for acts which empowered Hitler. He dissolved parliament and appointed Hitler as Chancellor in January of 1933. In February the Reichstag Fire Decree suspended civil liberties and in March the Enabling Act gave Hitler’s government legislative powers. When Hindenbrug died a year later, Hitler declared the position of president vacant and made himself "Fuhrer" as head of state.  The Weimar Republic was officially over and the Third Riche began.

Economic conditions did not greatly improve, but living conditions did improve, at least for some.  Hitler’s policies involved providing work and improved transport. His "strength through joy" program gave workers fee picnics, free theater tickets and even free vacation holidays. His party promoted safety and lack of crime against citizens. Laws gave newly married couples payments for each child they had and a mother who had more then eight children was given a gold medal. The youth were caught up activities which were fun and involved them in the philosophy of the party. By 1935 Jews had lost their citizenship in Germany and were being transported to concentration death camps.

 in that same year conscription for service in the military was introduced. By 1939 Hitler’s propaganda to "free the city of Danzig which he claimed was a German population was an excuse to start military action. When Stalin agreed to sign an non aggression pact with Germany and not oppose an invasion of Poland, Hitler invaded Poland on September 1, 1939. Two days later France and Brittan declared war on Germany which was the starting of World War II.

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