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The Economics of Inflation: A Study of Currency Depreciation in Post-War Germany PDF

466 Pages·2007·20.145 MB·English
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A Sir Halley Stewart Publication THE ECONOMICS OF INFLATION The Italian original LE VICENDE DEL MARCO TEDESCO First published by Universita Bocconi in i 9 31 FIRST PUBLISHED IN ENGLISH I 937 SECOND IMPRESSION 19^3 THIRD IMPRESSION 1968 The English edition has been substantially revised by the author This book is copyright under the Berne Convention. Apart from any fair dealing for the purpose of private study, research, criticism or review, as per- mitted under the Copyright Act, 1956, no portion may be reproduced by any process without written permission. Enquiries should be addressed to the Publishers. SBN 04 332005 8 PRINTED IN GREAT BRITAIN by Photolithography BY JOHN DICKENS & CO LTD NORTHAMPTON FOREWORD THE depreciation of the mark of 1914-23, which is the subject of this work, is one of the outstanding episodes in the history of the twentieth century. Not only by reason of its magnitude but also by reason of its effects, it looms large on our horizon. It was the most colossal thing of its kind in history: and, next probably to the Great War itself, it must bear responsibility for many of the political and economic difficulties of our generation. It destroyed the wealth of the more solid elements in German society: and it left behind a moral and economic dis- equilibrium, apt breeding ground for the disasters which have followed. Hitler is the foster-child of the inflation. The financial convulsions of the Great Depression were, in part at least, the product of the distor- tions of the system of international borrowing and lending to which its ravages had given rise. If we are to understand correctly the present position of Europe, we must not neglect the study of the great German inflation. If we are to plan for greater stability in the future, we must learn to avoid the mistakes from which it sprang. There is another reason why the history of this episode is peculiarly significant to students of the social sciences. Accidents to the body politic, like accidents to the physical body, often permit observations of a kind which would not be possible under normal conditions. In peaceful times we may speculate concerning the consequences of violent change. But we are naturally precluded from verifying our conclusions: we cannot upset the smooth current of things for the advancement of abstract knowledge. But when disturbance takes place, it is sometimes possible to snatch good from evil and to obtain insight into the working of processes which are normally concealed. No doubt there are dangers here. We must not ignore the possibility that the processes thus revealed are themselves abnormal: we must not infer, for instance, that propositions which apply to large inflations neces- sarily apply, without modification, to small inflations. But the dangers are clear: it is not difficult to keep them in mind and to guard against them. And the opportunities of fruitful research are enormous. In this matter of the depreciation of the mark, there is hardly any branch of the theory of economic dynamics which is not illuminated by examination of its grim events. For both these reasons, therefore, I hope that this book will obtain 6 THE ECONOMICS OF INFLATION a wide circulation among the English-speaking public. Its distinguished author, Professor Bresciani-Turroni, had very special opportunities for writing it; for he was working in Berlin during the years in which the events he describes took place: first as a member of the Reparations Commission, then as head of the Export Control, and finally as economic advisor to the Agent-General for reparations. As they peruse the chapters in which he develops his beautifully lucid and essentially catholic explanations, many readers, I think, will feel that these appointments were among the few fortunate events of those troubled times. I hope they will feel, too, a debt of gratitude to the trustees of the Sir Halley Stewart foundation for the generous grant which made it possible to make available in the English tongue the results of such valuable researches and to Mr. and Mrs. Sayers for the pains they have taken with the exacting and time-consuming task of translation. LIONEL ROBBINS THE LONDON SCHOOL OF ECONOMICS September 1937 CONTENTS CHAPTER PAGE Foreword 5 List of Tables 15 Appendix of Tables 18 List of Diagrams 19 Preface to the English Edition 21 I Foreign Exchanges and Internal Price Movements in Germany, 1914 to 1923 23 An Outline of Events, p. 23 1914 to the Armistice, p. 25 From the Armistice till the Signing of the Treaty of Versailles, p. 28 From July 1919 to February 1920, p. 29 From February 1920 to the Acceptance of the Ultimatum of London, p. 30 From May 1921 to July 1922, p. 32 July 1922 to June 1923, p. 33 June 1923 to the Introduction of the Rentenmark, p. 35 Summary of Exchange Rates and Prices from 1914 to 11 The National Finances, the Inflation and the Depreciation of the Mark 42 PART ONE The Helfferich Explanation of the Depreciation of the Mark, p. 42 The Conditions of the National Finances during the War, />-47 Income and Expenditure of the Reich from 1919 to 1923, The Causes of the Depreciation of the Mark in 1919,-p. 53 The Depreciation of the Mark during the Financial Year 1920-21,/). 55 The Discussions concerning the Financial Reform and the Financial Compromise of March 1922, p. 57 The Conditions of the National Finances in 1921 and 1922. p. 60 8 THE ECONOMICS OF INFLATION CHAPTER PAGE II The National Finances, the Inflation and the Depreciation of the Mark—continued The Conditions of the Reich Budget after the Occupation of the Ruhr, />. 62 The Influences of the Depreciation of the Mark on the Receipts of the Reich, />. 64 Influences of the Depreciation of the Mark on the Expendi- ture of the Reich, p. 68 The Errors and Weaknesses of German Financial Policy, p. 70 PART TWO The Policy of the Reichsbank, p. 75 The Apparent Scarcity of the Circulating Medium, p. 79 The Increase in the Issues of Paper Money, p. 82 PART THREE The Depreciation of the Mark and the Disequilibrium of the Balance of Trade, p. 83 The Balance of Payments after the End of the War, p. 86 Abnormal Conditions of the Foreign Exchange Market, />. 87 PART FOUR Payments under the Treaty of Versailles, p. 93 The Influence of Reparation Payments on the Value of the Mark, p. 95 PART FIVE The Influence of Speculation on the Value of the Mark, p. 100 The Influence of Certain Classes of German Industrialists on the Depreciation of the Mark, p. 103 APPENDIX TO CHAPTER II The Foreign Exchanges under Conditions of Incon- vertible Paper Money 107 The Determination of Exchange Rates, p. 107 Influence of Non-Merchandise Transactions on Exchange Rates,/). 112 The Influence of Transport Costs, p. 114 Exchange Rates in the Case of Very Elastic Schedules of International Demand for Commodities, p. 115 Relations between Exchange Rates and Prices of Domestic Commodities,/). 118 CONTENTS 9 HAPTER PAGE in The Divergences between the Internal Value and the External Value of the Mark 120 Some Historical Examples,/). 120 The Various Measures of the Depreciation of a Paper Currency, />. 121 Some Opinions on the Relations between the Internal and External Values of the Mark, p. 124 Difficulties in ascertaining Exchange Rates and Internal Prices in Germany, p. 125 The War Period, p. 128 Relations between the External and Internal Values of the Mark after 1918, p. 131 The Sensitiveness of the Various Classes of Prices, p. 133 The Rapid Adaptation of Internal Prices to the Variations of the Exchange in the Last Phases of the Depreciation of the Mark, />. 136 Monetary Phenomena observed during the Last Phase of the Depreciation of the Mark, p. 142 A P P E N D IX TO C H A P T ER I II On Certain Methodological Questions regarding the Calculation of the Depreciation of the Mark 146 Arithmetic and Harmonic Averages of the Value of the Gold Mark expressed in Paper Marks, p. 146 The Geometric Mean of the Daily Exchange Rates of the Gold Mark, p. 151 rv Relations between the Total Value and the Quantity of Paper Money in Circulation 155 An Economic Sophism,/). 155 The Fall of the Total Value of the Paper Money in Circula- tion in an Advanced Phase of Inflation. Explanation given by Keynes and Marshall,/). 158 Relations between the Quantity of Paper Money, Prices, and the Foreign Exchange Rates in an Advanced Phase of Monetary Depreciation, p. 160 Variations in the Velocity of Circulation of the German 'Mark, 1914-22, p. 166 The Total Real Value of Marks in Circulation in 1922 and 1923, p. 173 Bortkiewicz's Views on the Causes of the Increase of the Velocity of the Circulation of the Paper Mark, p. 175 Objections to the Bortkiewicz Theory,/). 176

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