The tropic of the Week: Who Loses Through Currency Inflation?

Timaru Herald, Volume CXXXVII, Issue 19668, 9 December 1933, Page 12

The tropic of the Week: Who Loses Through Currency Inflation?

Aftermath of Qermany’s "Bale of Paper and Printing Press ” Policy

Never in history was there such an orgy of inflation as that which occurred in Germany after the war. Its beginning was due to natural causes, but why it was suffered to go on unchecked to its crazy end is still something of a mystery. No serious effort seems to have been made to control it. Was it uncontrollable — and if so, why? Or was it deliberately left to run its course —and if so, for what purpose? On these questions opinions still differ. Meeting Shortages of Currency. After the outbreak of w’ar there was an acute shortage of small change in Germany to pay the soldiers at the front and the munition workers in the rear, and meet all other needs. The Reichsbank did its best, but it could not turn out paper money fast enough, and hundreds of towns, districts, Government departments, and even trading companies and other private concerns were authorised to issue Notgeld, or emergency money—to have all the small change they wanted, from 10 pfennigs upwards, churned out for them by job printers throughout Germany. After the Armistice, the necessity of finding employment for the demobilised soldiers and reorganising industry led to extraordinary budgetary difficulties. The war had been financed almost wholly out of internal loans, with little war taxation, and when peace came the weak and inexperienced Social Democrat Government did not venture to balance its Budget by taxation, but resorted to the issue of an incredible amount of paper money. Pouring out Paper Money. In 1921 the Allies fixed the amount of reparation payable by Germany at 136 milliards of gold marks. The obligation to pay the annual instalments on this amount aggravated the situation. By 1923 it Ls said that 1,800 printing machines and 30 paper factories were working full time turning out notes for the Reichsbank, and 2,000 towns and industrial concerns kept reeling off Notgeld at an ever-increas-ing rate. The faster the machines went the lower fell the mark, and the higher soared prices. Shops remarked their price tickets every day, and later every hour; and it is said that the price of a meal at a restaurant would rise between the first and second courses. With money such a depreciating asset, no one wanted to keep it; every one made haste to exchange it for something else—food, furniture, shares, scrap-iron, theatre tickets, anything rather than cash. At last, by the end of 1923, when the new mark was stabilised, it required one billion paper marks to buy one gold mark. It is said that by this time the issue of paper money had attained the incredible figure, astronomical in order of magnitude of 400 trillions of marks —not the French and American trillion, which ls only a thousand thousand millions, but the English trillion, a million million millions..

(By Sir Robert Garran in “The Melbourne Argus.”)

Currency Becomes Waste pa per. In Melbourne can be seen a remarkable collection of more than 500 specimens of Notgeld and other paper money, ranging from 10 pfennigs to 500 milliards of marks, which at the pre-war value of the mark would have paid the German reparation debt to the Allies four times over, was worth just about half a gold mark, or 6d.; and to-day it is worth nothing except to a collector.

The miscellaneous specimens of Notgeld almost seem to have been designed for the express purpose of being a joy to collectors. Their variety is infinite —picture postcards, comic cuts, patriotic propaganda, they give scope for epigram, satire, lampoon, and artistic fancy, serious and humorous. Some merely advertise the scenic beauty or historic interest of the town that issued them; thus Alt Arnsberg shows a city view with the legend, “Here is a lovely patch of earth;” Jena glories in its university and in Goethe and Schiller; Oberammergau expresses pride in its Passion Play. Genthin claims Bismark as an “honorary burgher,” and quotes him: “We have no other armour on our backs than to stand back to back.” Lassnberg-Lichtenstein amuses itself with a set of five notes giving a serial story, with silhouettes, of an encounter between the devil and a weaver—to the discomfiture of the devil, who vows never to have dealings with a weaver again. Geldern has an eight-chapter series, telling in verse and picture a lively tale of a Landgrave's two sons who slew a man-eat-ing dragon—one putting salt on his tail while the other sticks him with a pitchfork. Lemgo puts out its paper money with a doggerel apology or protest: “The Beadle of the old Hanse-town Lemgo cries to-day: ‘Notgeld is issued now—Oyez!' To do as one Is told to do First duty is of Christian and Jew. Trust the Beadle and his bell, Who guards the town wisely and well, With gracious and benignant sway—'Tis well to hold your tongue alway.” Detmold suggests blood and Iron and the grim field of battle by a striking silhouette of a mighty warrior in a wind-swept wood, with a legend that may be rendered: “On the Teutoburger Hill, O but the wind is piping chill. Ravens flap across the sky, And a mouldy taint blows by As of blood and corpses.” And Rathenow points a different moral of the tribulations of war in a picture of an old lady reading her tax assessment with the motto: “If rosy spectacles we wear, The taxes look less hard to bear." As to the notes of huge demoninations, the conspicuous thing about many of them is that they are simple job-printing on one side of a slip of cheap paper, without the slightest precaution against forgery—forgery being not worth while when a hundred milliard marks represent the price of a tram fare. What the Inflation Did. To deal fully with the economic effects of this extraordinary inflation Is a task for an expert economist. But a few aspects of it may be mentioned here. In the first place It practically wiped out every debt and cancelled the value of every security from one end of Germany to the other. A farmer*could pay off the mortgage on liis farm, with a piece of paper of the value, say, of one chicken. A merchant could clear his bank overdraft with the saving made by walking the length of one block instead of taking a tram. Conversely, the value of a credit balance at the bank was practically wiped out. And —a fact which may have helped the German Government to look complacently at the collapse of the mark —the huge debt owed by the Government to the citizens for their subscriptions to the war loans vanished. One group of people who suffered were Germans abroad whose property had been confiscated by the Allies in exchange for a right under the Peace Treaty to compensation by Germany. The German Government was able to fob them off with worthless pajjer marks. Another group that suffered were foreign speculators in marks, who bought cheap and took a chance, never dreaming what a calamitous investment it would prove. If one can imagine a self-contained community with no external relations in which all transactions were for cash, and nobody owed a penny to anyone—in such a community, if the currency were inflated by the Issue of, say, one mark for every existing mark, and the new Issue were distributed mark tor mark to the holders of the old currency, everyone would be Just as well off as lie was before Wages and prices. Income and expenditure, would Just be doubled. It ls exactly as if every elector were given two votes instead of one. But where there are debits and credits, investments and securities, the effect of a violent Inflation Is catastrophic. One effect In Germany was to reduce to pauperism all the large middle-class population of rentiers—persons whose sole Income was interest from Investments or fixed pensions or allowances. Wage-earners, too, suffered, because rises in wages lagged hopelessly behind the rapid de-

valuation of money. And even the business enterprises whose property was largely in goods did not profit as they might have expected, because they lost in the interval between each turnover, and because the collapse of purchasing power brought trade to a standstill. The Shrewdness of the Jews. One certainly unintended consequence of the Inflation and the financial confusion arising therefrom seems to have been that the Jewish part of the community, thanks to their keen money sense, contrived as a whole to come better out of the mess than others—a fact which afforded an opportunity to fan the smouldering fires of anti-Judaism, and was probably largely responsible for the Nazi outbreak against the Jews. The inflation was ended late in 1923 by the establishment and stabilisation of the new mark—the luckless holders of old marks being left to peddle them for pence at street corners to collectors of curios. Is The Douglas System Inflation? Mr. E. E. Spooner, the New South Wales Minister of Local Government, discussing the Douglas credit system, recently declared: The Douglas credit system is a hoax that has been exploded for years in countries where it was first introduced. It was Introduced to Australia just after the Great War and revived two years ago. The reason for its continued existence is that few people have thought of it with sufficient seriousness to explode the most palpable inaccuracies imaginable. Mr. Spooner said the policy of the movement was to obscure the minds of the people who would be interested. Any subject, any doctrine, was brought within the range of its teachings. It had become as versatile as the Lang plan. The main object of its leaders appeared to be an attempt to inflame the minds of the people against the present financial system. None of the recognised leaders of finance, commerce, or economic thought has approved the system, which was so full of obvious pot-holes that the leaders of the movement were obliged to preserve public interest by all manner of dissertations, discarding from time to time those that did not attract attention. They went to great lengths to prove that no Inflationary step was intended, but Major Douglas himself has asserted that the credits issued would be convertible into notes upon demand. “The Douglas system," added the Minister, “is a highly complicated, quaintly-camouflaged paradox, originating from a mechanical brain and calculated to produce chaos. It consists of strange contradictions, opposed to all experience, and all sense of practicability, hopeless Jumbles of meaningless phrases, unintelligible to the average man In the street, and ridiculous to those who can sense Imperfectly the intention that lies behind them."