The most important monetary lesson that central banks refuse to learn...

When Money Dies: 

Germany and Paper Money After 1910

by Marcia Christoff-Kurapovna

The story of the destruction of the German mark during the hyper-inflation of Weimar Germany from 1919 to its horrific peak in November 1923 is usually dismissed as a bizarre anomaly in the economic history of the twentieth century. But no episode better illustrates the dire consequences of unsound money or makes a more devastating, real-life case against fiat-currency: where there is no restraint, monetary death will follow.

"It matters little that the causes of the Weimar inflation are in many ways unrepeatable; that political conditions are different, or that it is almost inconceivable that financial chaos would ever again be allowed to develop so far," wrote British historian and MP Adam Fergusson in his 1975 classic, When Money Dies. "The question to be asked — the danger to be recognized — is how inflation, however caused, affects a nation."

The US Federal Reserve of 2014 is not the Reichsbank of 1914. Yet today's policy mindset is dangerously reminiscent of the attitudes that helped to excacerbate the economic downfall of inter-war Germany. These include: the unrestrained financing of budget deficits under war and post-war conditions; the unaccountable creation of the money supply by a central bank; the creation of undisciplined credit linked to this expansion of the money supply; the aggressive inflating of asset values; the discounting of short-term treasury bills and notes in practically unlimited amounts; rapid currency depreciation, and a ratio of federal debt to GDP over 100 percent.

Prior to World War I, the German mark, the British shilling, the French franc, and the Italian lira were all valued around the same — about four each to the dollar. By the end of 1923, the rate for the mark was one trillion to a dollar — one million-millionth of its former self. In mid-1922, a loaf of bread cost 428 million marks, while the entire equity capitalization of Daimler Corporation bought the equivalent of 327 of their cars. In November 1923, that which before the war could have purchased, in theory, 500 billion eggs could, that infamous month, procure but one egg.

Former Prime Minister Henry Lloyd George, writing in 1932, remarked that words like "catastrophe," "ruin," and "devastation" were not enough to describe the situation, given the common usage into which such words had fallen. Looting, vandalism, theft, the rise in prostitution, famine, disease, the consumption of dogs; people robbed of their clothes on the street — all were routine events of the "bourgeois" social quotidien. The constant threat of civil war loomed, as did neighboring Bolshevism. Bavaria had to declare martial law.

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Read more: mises.org