Try, Try Again

I finally finished The Economics of Inflation A Study of Currency Depreciation in Postwar Germany by Constantino Bresciani-Turroni (first published in 1931). After putting it down for a bit to read something else, I found it much more interesting in my second attempt. As the title gives away, it examines the post-war period in Germany and the hyperinflation that ensued. Bresciani-Turroni identifies the increase of money in circulation as the main culprit (prompted by huge deficits from the war, the armistice, the unemployed, etc.), undercutting the then widely held position that it was a balance of payments issue. Like today, the increased money printing did not immediately cause a huge surge in inflation, nor were the effects felt uniformly. In fact, there was initially a divergence between the internal and external values of the German mark which delayed the inevitable. But, eventually, the large amounts of money began to slosh around and (1) precipitated huge speculations in foreign exchange and equities; (2) caused certain industries to thrive at the expense of others (particularly producer goods over consumer goods); (3) temporarily caused unemployment to go down as the industries that "thrived" needed lots of additional labor (although it proved unsustainable and the average wage was not increasing - when it finally did, unemployment started to shoot up); (4) increased the concentration of wealth into fewer hands, and in great measure that wealth was derived from less productive activities; and (5) simply punished anyone living off a fixed income and savers. Essentially, the ideas from economics and investing that live on the fringe today manifested themselves about 90 years ago across the pond. One last point that interested me as an investor -- interest rates actually rose throughout the period, but they did not dampen the impact of the hyperinflation because that rate was even higher (only after the currency stabilization did things normalize).