In 1919, John Maynard Keynes wrote:
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.
This process was seen almost immediately in Germany.
Germany paid for the First World War by printing and borrowing money. The inflation unleashed by the former wiped out the capital of those creditors created by the latter. Theo Balderston writes that:
The war’s end brought no end to their suffering.
The Weimar Republic faced existential political threats from left and right and bought social peace with printed money. Initially, this helped Germany avoid the high postwar unemployment seen in Britain, for example, whose government implemented austerity measures and tamed inflation. As the mark tumbled against other currencies, German exports boomed. While, in 1921, industrial production fell by 31% in Britain, 22% in the United States, and 12% in France, in Germany it grew by 45%.
But whatever the average German gained from lower unemployment they paid for in higher prices. “German Trade Boom and the Sinking mark,” read a Guardian headline in October 1921. Listing “The results of the depreciation,” the article noted:
“The cost of living in Germany has risen by about 40 per cent during the last three months,” it went on:
The price of wheat has risen about 300 marks per ton and of rye about 250 marks per ton during the last fortnight…Potatoes cost 1 mark a kilo on February 5, 9 marks on June 4, and 10 marks now.
German children are again showing symptoms of under-feeding and malnutrition. People with fixed salaries are feeling the pinch more and more severely…
Exporters could either keep the foreign currency they received abroad to avoid depreciation and taxes at home, or repatriate it at an exchange rate more favorable than when they made their initial sale. “[W]e are all actually no longer manufacturers,” said the industrialist Emil Guggenheimer, “but have become speculators.”
Not all Germans were so placed. Ernest Troeltsch, a civil servant, wrote:
Eventually, inflation’s palliative effects wore off. Between January and October 1923, unemployment rose from 3% to 27% in Prussia; 8% to 61% in Saxony; 1% to 37% in Hessen.
Discontent boiled over. “Believe me, our misery will increase,” a young veteran claimed:
On November 9, 1923, this veteran led an uprising in Munich to establish this dictatorship. It failed and he was imprisoned. As Germany’s economy recovered, he faded into the background. But the country’s economic calamities were not over and when they reemerged, so, too, would Adolf Hitler.
READER COMMENTS
Henry
Nov 14 2023 at 1:25pm
The history of that initial quote from Keynes is quite interesting.
Niall Ferguson wrote in 2008 “No record survives of Lenin saying any such thing, but his fellow Bolshevik Yevgeni Preobrazhensky did describe the banknote-printing press as ‘that machine-gun of the Commissariat of Finance which poured fire into the rear of the bourgeois system’.” (The Ascent of Money, p. 108)
Then in 2009 this article in the Journal of Economic Perspectives argued that Keynes likely heard of the quote in contemporary anti-Bolshevik newspaper reports (hence Keynes’ qualification that Lenin “is said to have declared”).
While Keynes’ passage has been widely quoted there remains no reputable source of Lenin stating anything to that effect. But the view was present in contemporary Bolshevik economics. Does that justify using it despite its dubious sources? Something tells me the quote would not be as powerful coming from Preobrazhensky.
Thomas L Hutcheson
Nov 14 2023 at 5:22pm
Whatever he said, Lenin showed that taking over the government and killing and imprisoning your enemies is a much surer way of overturning the existing basis of society.
Matthias
Nov 14 2023 at 11:57pm
This is a curious post. You mostly talk about the relatively high but tame inflation that came about during and after the Great War. But the title of the post talks about hyperinflation, which came a bit later, as an indirect consequence of the occupation of the Ruhr region by France and Belgium.
John Phelan
Nov 15 2023 at 8:18am
I think most of the post actually covers the period from 1921 onwards which is the period of the “hyperinflation,” but, in any event, if you’re trying to look at the social consequences of government debt and monetary debasement, I don’t think you can ignore what happened during the war.
Anders
Nov 16 2023 at 11:46am
It is fascinating how Keynes in his eminently readably Economic consequences of piece got almost everything right. But despite of his strength, the world lambasted or ignored him. Sort of like how we ignore overwhelming evidence that wind and solar could never be more than part of the solution today….
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