Table Of ContentA 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
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mitted under the Copyright Act, 1956, no portion
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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
