Weimar Memories

Evan recently was asking me about the source of German austerity and I gave him the standard line - hyperinflation in the 1920s. That's not wrong - that is what's on their minds - but Matt Yglesias does a good job at outlining why even that is pretty bad history.

Hyperinflation has a very well understood cause, and an equally easy to understand solution - it is caused by resorting to the printing press for revenue, and it is solved be refraining from resorting to the printing press for revenue. That's exactly what happened in Germany. Now, whether the Weimar Republic was as rosy after the printing press was reeled in as Yglesias says it was, I'm not personally qualified to say.

His point is that the real German disaster came with the Great Depression, and that this obsession with the hyperinflation isn't just a question of German experiences vs. Anglo-American experiences - it's actually a misreading of the German experience itself. We discussed the austerity program of Heinrich Brüning (pictured, right) in an earlier post (contra some claims about him by Jonathan Catalan), which worsened the Depression in Germany. And perhaps Brüning's actions were understandable, since he had the hyperinflation fresh on his mind. But nobody after him had that excuse. It was Brüning's disastrous austerity program that in part lead to the rise of the National Socialists.

So we need to be careful when we talk about the Germans. A lot of us say "well, they had some tough inflation that we've never had to deal with so ultimately it's just a cultural thing - that's just part of being German". An honest reading of the history suggests that that's probably not valid. Granted, their reasons for reading the history that way are still understandable. I'm not surprised that they remember the disaster of the early 1930s as something other than the onset of the Great Depression. It's understandable, but still a shame - because it was a demand-deficient economy that brought Hitler to power, not a hyperinflationary one.