The use of hyperinflation in economic debates

Anyone who has ever tangled with a well-educated German knows how formidable an opponent he or she can be.  But there IS one area where German intellectuals are notoriously weak—their own 20th century history.  They're not goofy-clueless like the typical Yank who doesn't know that the USSR had a significant role in defeating Hitler's armies.  But they do believe some really crazy things and foremost among them is that the hyperinflation of the Weimar Republic from 1921 to 1924 led to the rise of Hitler.

There are significant problems with this belief.  Most importantly, Hitler came to power in 1933 and the most pressing economic problem facing Germany of that day was not INflation but a nasty encounter with DEflation.  So in order to believe that hyperinflation produced Hitler, one must ignore the workings of the calendar and refuse to acknowledge the difference between up and down.

Finally, A German Economist Who's Getting History Right

Joe Weisenthal | Sep. 30, 2012

The overwhelming German view of economics basically goes like this: The primary evil in the world is inflation, and the central bank must do everything to right it.

We've never heard of a German economist at the Bundesbank or the ECB say otherwise.

That popular fear of inflation is frequently ascribed to the German experience with Weimar hyperinflation, which in popular mythology lead to the rise of the Nazis, and the darkest spot in German history.

But of course this isn't the real story of the economics that lead to the Nazis, and it seems that not every German economist remembers things this way.

There's A German economist who remembers that the pre-war economic crisis that bought the Nazis to rise was not the hyperinflation of Weimar Germany, but rather the austerity pursued by Chancellor Brüning.

Die Welt profiles economist Peter Bofinger, who is the only economist among Germany's elites that is forcefully coming out against austerity.

The economist Peter Bofinger has compared the current austerity policies of the euro countries with the devastating crisis policy of the Weimar Republic.

"The policy, which is currently operating in Spain, Portugal and Greece, is the policy of the Chancellor Brüning," Bofinger said the "Weser-Kurier". Whose Cabinet had intensified in 1931 and 1932 with massive cuts in social spending, unemployment and hyperinflation enormous.

Such savings makes no sense for countries that were in a recession, said Bofinger. "The situation in Greece is partly due to the economic shock therapy."

It's hard not to sympathize with this argument, in light of the literal rise of Neo-Nazis in Greece, which has been crushed the hardest by austerity.

Ray Dalio has also made similar points recently in regards to deleveraging and the rise of someone Hitler-like.

So anyway, we're glad that not all German economists see history and the current economy the same way. more