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When Money Dies, by Adam Fergusson More Images
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When Money Dies, by Adam Fergusson

The prevailing view of the cause of the hyper-inflation which Germany experienced under the Weimar Republic between 1919 and 1924 is that it resulted from the republicans’ attempt to lessen the burden of reparations imposed by the Versailles Treaty by paying the debt with increasingly worthless marks. Fergusson shows in detail that, although there was cognizance among the Weimar administrators that the burden of reparations was being somewhat lessened by the inflation, this was merely a side-effect of the phenomenon. Not only were reparations substantially paid in foreign currency or gold-backed marks, making the collapse of Reichsbank marks incapable of satisfying the Versailles reparations, but the several Republican cabinets were also constitutionally prohibited from regulating such mark issuances, control of new issuances residing exclusively in the hands of the relatively new German “federal reserve” run by Dr. Rudolf Havenstein. Completely committed to the notion that inflation is the result of a physical shortage of currency rather than a depreciation in that currency’s value, Havenstein flooded the German economy with endless issuances of government notes, accentuating a trend that began in the first year of World War I.

By November 1923 these notes became of such little value that, in the social chaos that accompanied its fall, it was common for persons to be robbed—not of the marks in their possession, but of the heavy satchels which were necessary to carry the notes, leaving the victim lying in a pile of worthless paper. Fergusson concludes, and makes a believable case for the reader, that the real culprit in causing the German inflation, and therefore substantially contributing to the collapse of the Weimar government at the close of 1923—and the institution, or more accurately the re-institution, of dictatorial rule, when General Stinnes suspended the new German Constitution, imposed a military regime, and effectively ended the German people’s short flirtation with republican and democratic rule—was uncontrolled deficit spending coupled with a collapse in the ability of the government to collect any meaningful level of taxes, which induced Havenstein to react to the upward pressure on prices by constantly issuing fresh batches of notes, which transformed a problem with mere inflation into a problem of hyper-inflation. By an unfortunate coincidence, Havenstein died at almost the same moment that the military regime seized power, enabling Stinnes’ regime to gather to itself the accolades of having seemingly brought order out of chaos, which order was in fact brought about Dr. Schact who quickly reversed the course set by Havenstein, and was able to re-impose effective taxation.

The relevance of this book is that Fergusson makes a solid case for regarding the modern U.S. Federal Reserve with concern as it issues repeated doses of “quantitative easing” without Congress increasing taxation. This essentially repeats the mistake of the Weimar cabinets in 1919 through 1923, and raises the question as to whether Keynesianism, with its optimistic view of deficit spending, dismissing proponents of balanced budgets with the seemingly innocuous phrase “after all, we only owe it to ourselves,” is merely a one-way ride to a financial cemetery. Bernanke, today’s equivalent of Dr. Havenstein, may be instituting the same policy even if not embracing the same theory of the late Reichsbank director, with the result that the U.S may be destined for a similar bout with a hyper-deflating currency. We can only hope not.

As for criticisms of this book: First, Fergusson fails to explain satisfactorily why Austria and Hungary, having experienced parallel situations to Weimar Germany, also experienced hyper-inflation, although Havenstein had no authority to issue notes in those countries. Those countries’ currencies inflated more quickly and collapsed sooner than the mark. Second, Fergusson repeatedly labels German nationalists and veterans’ organizations as “right-wing.” This resort to common parlance is too simple. Ho Chi Minh, Pol Pot, Mao, and Stalin were nationalists. Stalin’s Soviet Union was decidedly militarist, with an economy permanently organized for war to an extent greater than Hitler’s Germany. Even Lenin was widely accused during his lifetime of harboring Russian nationalist tendencies. In Germany, the Majority Socialists in the Reichstag voted to support the Kaiser’s war effort, certainly a nationalistic move, yet few would label any of those mentioned above “right-wing.” Hitler’s National Socialism, and especially the S.A under Ernst Rohm, had strong anti-capitalist sympathies, especially in 1923 at the height of the inflation phenomenon when Hitler attempted the Beer Hall Putsch. Perhaps nationalist versus internationalist would be more explanatory than the overly used and simplistic left-wing versus right-wing.

Fergusson paints a dramatic picture of Germany’s travails at the height of the greatest inflation in recorded history, and is well worth the read. His picture is also a warning of what may await other nations which fail to take to heart the lesson that unrestricted deficit spending leads inexorably to collapse of a nation’s currency, followed by chaos in its economy, flight of savings and wealth, and inevitably ending in economic depression—the painful withdrawal period as society learns to live once again without the drug of repeated “quantitative easings.” –Glenn Lazar Roberts for SiriusReviews.com.

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When Money Dies, by Adam Fergusson, 5.0 out of 5 based on 1 rating
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