Zach Carter on the Real Story of Weimar Hyperinflation

see how much opinions kind of change in retrospect. So I remember, for instance, after the two thous financial crisis, people would get upset if you suggested that quantitative easing could have an impact on stocks, Like if you actually said there was an asset substitution effect, people would think that you were crazy. I remember writing an alphabel post on this at the time and getting a bunch of

comments saying it was complete, letely wrong. And now, of course, the idea that QUI pushes up stocks, you know, most people sort of accept that, even if it may or may not be true. But yeah, you're right, you're really ahead of the curve back then. I thank you. I'm

just humble bragging like talking about asset substitution effects. But I also think like the dominant narrative like out there just in the sphere of the broad things, is all this idea of like QUEI would inevitably lead to inflation, maybe even hyper inflation all this government spending and obviously we saw a lot of talk around that, and we see a lot of talk about it now, just this idea that government policies, particularly US government policy, is reckless

and we're going to destroy the value of the dollar. Yeah, And to offset what I just said about that Alphabel post, I'm pretty sure I also wrote things on Alphabel about the coming hyper inflation, or at least I summarized a bunch of notes about that, you know, back in two thousand eight, two thousand nine. But you're right, that was sort of well, it was the big concern after two thousand eight, and we saw it kind of come back in with the announcement of all this additional government spending.

They're always concerns that it's going to lead to inflation, even though we've now had you know, over a decade of central banks missing their inflation targets. Right, So if you ever point out it's like, actually inflation isn't mild or whatever, you know, Quey, it's probably you know, doesn't have much of an inflationary impact or misunderstanding the deficit.

What happens is if you say that that gold bugs like yourself or silver bugs like your dad respond with like memes of people pushing wheelbarrows of the deutsch Mark during the Weimarer hyper inflation and tell you why you're wrong. Let me tell you, Joe, if the inflation ever comes, I'm going to be stacking my my silver and gold in your face and you're going to be very very jealous. Yeah, look,

I'm joking. You will definitely have the last level. But if we're going to talk about, okay, the prospect of what happened with the Weimar hyperinflation seems like, Okay, it's probably not gonna happen. I don't think our existing policies are on that route. But maybe we should actually learn about what really happened beyond just the memes of people

pushing wheelbarrows wheelbarrows of cash. No, I totally agree, And I also think you know, the Ymar Republic is sort of this scary story that everyone brings up when they're talking about inflation, and people sort of throw the term or the name around, but actually not that many people know exactly what happened, what drove it, and how bad inflation actually got during that period. So I think it's a great idea to dig into the details. Great, well,

I am very excited about today's episode. We are going to have a repeat guest. We talked to him back in the spring or summer. We're gonna be speaking with Zach Carter. He is the author of the New York Times best selling book The Price of Peace, Money, Democracy, and the Life of John Maynard Canes paperback coming out April twenty and there is a section in his book where he talks about the Wymar hyperinflation, so we thought

we would dive into that and find out what really happened. So, Zach, thank you so much for coming back on Odd Lots. Thanks so much for having me before we start. Have you heard of this? I saw this on Wikipedia last night when I was doing my research zero stroke. Have you heard of that? This is the thing? It's this is the thing. It's on Wikipedia, so it must be real. There was a mental disorder diagnosed by physicians in Germany

during the hyper inflation. I'm just reading the page, and the disorder was primarily characterized by the desire of patients to write endless roads of zeros, which are referred to as ciphers. And this is actually even John Kenneth Galbraith in his book about Money, talks about this and there seems to be a few references. I guess it's real. It's kind of hard to believe, but the currently there really was a mental affliction where people have just wrote

zeros on pages hyperinflation. I've read the gall Braith book on Money, it's very good. I don't remember that particular episode, though. You know, this was a totally formative event for a lot of a lot of economic thinkers who would go on to have an extraordinary degree of influence to Friedrich Hyak witnessed this from Vienna and was just totally horrified and I think embarrassed by by by what happened after

the war in Germany. And I think it shaped a lot of a lot of you know, sort of what we now call neoliberal views about how the world works and what the great threats to the economy and democracy are. And obviously we still talk about it today, even when I think it's you know, as you mentioned, I think it's totally inappropriate to be to be invoking you know, the Biber experience is something that we might have it, you know, in the near future here, but it obviously

animates our understanding of the economy even today. Well, shall we dive into it then and maybe start at the beginning? Um, can you lay the scene for us of what exactly Germany and I guess the developed world order looked like going into this episode of hyper inflation. Yeah, I think you know, when we talked about this today, there's obviously a kind of political lens that we see this through.

You have goldbugs and you know, inflation hawks tend to be more conservative invoking this this this episode, and you have you know, soft hearted liberals and their soft money ways saying don't worry about it. Uh, that wasn't really the way the politics of the time we're playing out.

There was a consensus after World War One that the reparations duties that had been assigned to Germany, which lost World War One, were too stringent, too severe, that they were unpaid, unpayable, and they would result in economic turmoil

for Europe and the world. And the person who issued this critique most famously was John Maynard Kane's which is why I write it, wrote it out in my book Kine's in the early nineteen twenties is not this sort of you know, hero of people like Paul Krugman and the and the kind of center left in further political sphere. He's He's a very conventional establishment figure in the British government and his critique is heralded by none other than

free Ridge High. So this, this idea is not something that is is being harbored only by know, like left wing socialists trying to you know, bring about some sort of egalitarian millennium. This is a very standard conventional view within Germany and across Europe. And the size of these duties is so large. By the Reparations Commission that's established after World War One says Germany is getting to pay about thirty three billion dollars. German pre war GDP is

about twelve and a half billion dollars. So this is like triple the German and about butt of the economy would be like somebody saying today, uh, you know, by the way, the United States, you've got to run your economy, you know, solve whatever problems you want, but you owe seventy trillion dollars somewhere else and it's and it's got to be paid over the next you know, several years.

So these are huge, huge reparations figures that are looming over every decision that the German government is trying to make. And the German government from the end of the war really through into the nineteen thirties is in a kind of perpetual state of revolution um. The revolutions just just tend to fail. Communists like Rosa Luxembourg are murdered in

the streets in nineteen nineteen. Walter Ratha, now, who is the foreign minister, sort of the most important diplomat in the German government, he is murdered by by far right terrorists. In nineteen nineteen twenty two, there is a communist uprising in Hamburg. In Hamburger, I think is the pronunciation in October three, which is just a few weeks ahead of Hitler's famous beer hall Pusch in November of three. So there's just an enormous amount of political turmoil happening right now.

You have hundreds of political assassinations happening every year. They do not have conditions of political stability in Germany, and so the political coalition that is trying to trying to govern, is making choices with its budget to try and basically fend off some sort of violent takeover of the government, and it's and it's spending a lot of money in order to do that, and this is creating a very

large budget deficit. So, Zach, before we go further into the German budget, I just wanna sort of get the background a little bit more about how the size of the German war debt or the German reparations were established. And you mentioned thirty three billion dollars multiple times the size of German GDP. What where did this come from? What were this sort of like talk a little bit

about how this number was established. What was the dead sort of DENI dominated in at that time, because I think obviously that's an important thing, and so like, you know, where did this you know, the end of the war happens, and then they have this number that they owe who do they who do they owe it to? And so forth? Right,

So the the answer is it's extremely complicated. Kane's issues his critique in a book called The Economic Consequences of the Piece that comes out in nineteen nine, and an interesting aspect of this critique is that it's enormously persuasive, but there actually hasn't been a formal reparations figure fixed by the conference. They they've decided that they were going to be enormous economic duties on on Germany, but the peace conference at the end of the war doesn't arrive

at a final figure. It arrives at a set of principles that are going to guarantee a very very high figure. But the actual formal number is kicked to a reparations commission, which is going to be sort of overseen by the League of Nations, and they're going to spend the next year or two figuring out what this number will be. And and that number comes down from what some of the calls are. I mean that there are calls for, you know, a hundred and twenty billion dollar reparations duties

at the Paris Peace Conference. And these numbers are just they're just totally ludicrous. They're not arrived at by making any kind of serious attempt to calculate what Germany can afford to pay. You just have the victors of the war sitting down and deciding, Okay, how can we come up with the largest number possible. Germany is responsible for this terrible war that has killed all these people. Now

we have to make them pay. We'll come up with the biggest figure we can and then negotiate down as it becomes clear that this is, you know, not economically feasible. The result of this is that you have a series of efforts to renegotiate the actual German reparations duty over the course of the nineteen twenties. Every year or two, all of the major diplomats in Europe meet to try and move this figure down a little bit from wherever it was set the year before. And in fact this

happens right right before the hyper inflation. The British interviewed and said, look, is thirty three billion dollar figures crazy, Let's let's set it's at something about equal to the pre war GDP level of twelve and a half billion. But even this is a very large number for a country that is in the thrives of revolution to be trying to trying to meet um in terms of how how it's paid. This is the sort of you know,

loose era of the gold standard. The gold standard comes apart during World War One, but there is an understanding that the world is going to get back on gold. So you know, what is it denominated in. It's it's denominated in currencies that are expected to be fixed to gold at fixed exchange rates, but are not quite there yet. And so the understanding the true value of these numbers becomes a little bit of a you know, a metaphysically

uncertain endeavor. But there is a consensus, and not just on the left here, that that the figure is is too high, and that that consent has a sort of political significance that impacts the way currency traders who you have these sophisticated, uh speculative currency markets that develop after

the war. Because the gold standard has been broken and these currencies are not fixed to a certain amount of gold, traders and and and markets are are relying on these kinds of political judgments and and opinions as as they make their you make their investments. Before the war, the mark trade was was fixed at about four to one to the dollar. By the end of the war it's about sixty five to one. So Germany has relied on a policy of deliberate inflation to finance it's war machine.

All of the governments did to some extent, but Germany was was the most extreme um, so you know that the dollar has has inflated quite a bit over the course of the war two. So sixty five to one against the dollar is sixty five to one against an inflated dollar. But by really, for whatever reason, the international community has has come to a consense is that that Germany is stabilized, and so the the the sort of wartime and post war inflation that keeps going up and

up and up plateaus. And you you have for a few months, in about six months in n it looks like it looks like things are going to be okay. There's about two billion dollars in international investment that comes into into Germany through you know what we would today called markets, and and this is it looks like things

are going to be okay. But then over the course of nineteen one you have a series of political developments which caused all of that foreign investment to evaporate and you start seeing, um, the the inflation take off again. The point I want to emphasize is that there are a lot of decisions that are made by the German government that you can criticize. If you end up in a situation of hyper inflation. It's not because your your finance ministers have done everything wonderfully, but they are in

a very difficult predicament. And most of the problems that I think we associate with, the most of the problems that are that are most directly responsible for this hyper inflation are political problems that are reflected then in market confidence, not uh not problems with say, you know, the quantity of currency in circulation or the velocity of money or

things like that. So I'm really glad you brought up the political charmoil point because I think, um, a lot of people tend to forget that Germany was absolutely terrified of communism in you know, the late well in the nineteen twenties. A lot of people think they just kind of went straight to Nazism or you know, fascism, But actually there was this huge, huge ideological debate um that went on for years in a real tug of war in power. So how do you think that played out

in terms of the government spending. So they're running up a big deficit. A big chunk of that is going on reparations, which you just outlined very well. What else were they spending on? So it's what we would today call social social welfare spending in the In nineteen twenty nine one Germany moves to an eight hour work day, so people are working less than than they had been. Um, they start paying unemployment benefits to people who don't have jobs.

And during the sort of heavy inflation era right after the war nineteen y where all the countries of the world are having heavy inflation, not hyper inflation, uh, the unemployment rate is very high. So there's a lot of people who you know, are having trouble paying their bills and making ends meet. And they're offering healthcare and food relief to the sick and the poor. And there are a lot of sick and poor people in Germany. The Allied blockade at the end of the war probably killed

four thousand people through star vation. And in the cities, in particular in Germany and Austria, you have a lot of hunger and just very very serious destitution, uh, in a way that I think people living in European cities today have trouble imagining. So the material conditions are really quite severe, and they are spending quite a bit of money on these things. But the the government, which is sort of a center left government, feels like it doesn't

have a choice. It it feels like it's political coalition will fall fall apart if it doesn't find some way to materially support all of these citizens. The threat, for most people is perceived as being from the left more so than than from the right. I think in the in the ruling elite. At first at Paris, people forget Canes before he became this this you know, sort of hero for American liberalism. His his chief ally at the

Paris Peace Conference was the man named Herbert Hoover. Uh and Herbert Hoover, of course, would become sort of this Bettan noir in the Great Depression. But in nineteen nineteen they agreed that there was this terrible threat from both the left and the right of authoritarian violence if there wasn't some way to feed and clothe the people of of the of Germany, that this this sort of Soviet Hoover was particularly worried about the Soviet tide um sweeping

across Germany. Cames was a little more worried about a right wing tide, but there was a consensus that authoritarianism was coming if the sort of moderate liberal democracy couldn't couldn't prove that it worked with with with citizens in the streets. So they're paying a lot on these social welfare things, and and they may they may be paying too much. I mean, the the inflation that takes over before things get really out of control. By ninety two,

I think prices increase about forty times. I mean, this is this is not you know, a slight amount of inflation that that we're talking about. But you know, the the coalition in Germany, you have very conservative members of of the Reichstag, people like Hugos stins Stein's I get my German pronunciation mixed up, but this is like a coal baron who's saying, your lives are worth more than money. If we don't, if we the only the only choice we have for for keeping this government together is to

inflate the currency. We just we can't, you know, we we don't have the productive power right now after this war to to to make this happen with ordinary wealth. So you know, we joked in the beginning about how every time there is a stimulus here KUEI whatever, people invoke comparisons to why my hyper inflation. But one difference it sounds like is you know we might get inflation here. I mean, there are many differences, but we might get inflation here as a potential cost of doing stimulus or

whatever it sounds like. Then it was not seen as a potential cost, but that was the deliberate strategy that that was. Inflation was seen as the path out, as opposed to perhaps an acceptable cost of something else we want to achieve, which is how people would probably characterize current US macro policy. Yeah. I think in the current context, people who declare with absolute certainty what they think the consequences of running these multi trillion dollar seems programs are

going to be. I think that certainty is difficult to take seriously. But the the idea that there is, you know, a risk that's worth taking seems to be the the assessment from from people who are supportive of these these packages. They're not saying, you know, we're certain to get double digit inflation if we do this, so let's do it because double digit inflation is good and that's the best

outcome we can hope for. Um. You know, I think Ratha now, shortly before he was murdered, just a matter of hours, he's in this this big meeting, they're talking about the budget, and he says, our economy is is like a city that's surrounded by an army and the only way out is to is to break through the lines somehow, And it's going to be really costly, and we're gonna lose a lot of soldiers if we break through this line, but it's the only chance we we have.

So that's how he feels about the hyper inflation. This this is not great, but it's what we've got and if we don't do it, we're going to be destroyed. Uh. And you know, maybe he was wrong, but the political judgment at the time, Uh, they don't have a whole lot of good options. And of course brath Now is literally assassinated by right wing death squads hours after making

that comment. So the the parallels, there just aren't a lot of parallels politically between what's happening in Weimar, Germany and any of the crises that we've seen, certainly in the United States and in the decades since. But the the devastation that results from the hyper inflation is so severe that I think people thinkers from this time are are are scarred by it in ways that are are are hard to understand, and for for people who didn't

live through it. Can you talk a little bit about how um class played into inflation, because I'm sure people, you know, different segments of society and the political sphere had different opinions, um about this policy and inflation. You mentioned Hugostons just then as someone who was, you know, sort of fighting for full employment. But you know, it's also true he was a huge industrialist, and I think

conglomerates did pretty well during an inflationary era. So some people have argued that he was basically just talking out of self interest because if he got inflation, it would benefit him. So I'm just curious, like, how did the different segments of society feel about this policy, Like if you were going to look at the middle class, the upper class, and the lower class, can you segment it out.

I don't know if if class in Germany at this period of time translates as obviously to us in our own momentum as I think we might intuitively want it to. I think your your point there, though, that that someone like Dennis is talking his own book is almost almost

certainly true. Um, it certainly is true. But I also think a lot of these people, you know, people have a tennessee to believe things that benefit right, um, and and Cennis is otherwise the conservative, So you you do have these these kind of conservative thinkers thinking this, this could be smart policy even you know, and and and good for me if you look at the unemployment rate though during this kind of fortyfold increase in prices that happens in nineteen twenty two, and and here we are

not talking about the hyper inflation, but with forty fold increases in prices, I mean, this is an enormous, enormous inflationary period, but this is not anywhere near what's going to happen in nine. But over this period, wages are basically keeping pace with price increases, so people don't feel materially poor. The people who are really getting screwed are people who have large holdings of assets that are demarcated

in in the mark um. And even then, if you can dump your marks for something else, and you know, if you can trade them for gold or other currencies, um,

you can live pretty well. There's there's a remarkable phenomenon of foreigners living in Berlin at this period of time where because the prices in marks are just going totally crazy, if you have a lot of foreign currency, you can live like a total king if you're hanging out in in in the Winmar world, which was just you know, despite all the violence, a really culturally vibrant, vibrant place.

But the unemployment rate is is for the first time in several years since the war has has basically come down to a reasonable level. You don't have the high joblessness in Germany during this period that you have, say in in Britain, and Britain's basically having suffering from double digit unemployment from the end of the war to the

outbreak of World War two. Same thing in France. So so you have an inflationary problem that is that is hurting German investors, but for ordinary people trying to go to work, it's it's kind of annoying to have to keep track of prices, but but wages really are keeping a pace and and people are working, so it doesn't

feel like a material disaster in the moment. And I think that that alleviates a lot of the political pressure to adopt, you know, what we would consider a more sound or fiscally responsible budgetary position, because economically it's it seems to be working for most people. So this gets to h and you talk about this in your book, like this early stages of it. There is a lot of um extreme inflation, but wages are roughly keeping track

and also unemployment is low. So when does it become this sort of hyper inflation of legends cash and wheelbarrows, words like numbers like quadrillion being thrown about, like when does that start to again and why. There's a very clear break that happens when the French government decides to occupy the rural valley. And this is territory you know, in the border between France and Germany. It is the industrial core of the German economy. That's where all of

the mining and industrial wealth of Germany is. And under the Treaty of Versailles that ended World War One, if Germany fails to make its reparations payments on time, on schedule, then France will get the right to take over this territory. And Germany misses its reparations payments even under the lower

negotiated figures of the of the Reparations Commission. In these further efforts from the British government to lower even the reparations commissions amount, that the German government misses the payment and France essentially invades, and when that happens, you have a total loss of international confidence in the mark. It happens very quickly, uh. You start seeing the mark uh instead of big sixty five or or a thousand to one,

It starts being measured in millions against the dollar. And this continues in part because of the political situation, in part because of the German government's choice to finance the campaign of what they call passive resistance to the occupation, which basically means paying a lot of money to people who don't want to leave the real value because you know once the French troops will arrive. So Germany had been running about a seven fifty million a year budget deficit.

That doubles to one point five billion dollars a year um. Again a large deficit, but you know, about ten percent of of pre war h G d P a little more than ten percent, so so not something completely ludicrous, but they are they are going deeper into into the deficit territory than they already were, and of course they're having forty fold price increases beforehand. So I don't think when I say, I don't think it's completely ludicrous, it's it's a very large deficit um. But it's not like

you can dollar for dollar ce. Okay, this currency issuece led to this amount of inflation. There is a huge loss of confidence in the political project of of Waimar Germany. And then there's no reason that the the the government is giving to have any confidence in their willingness to abate from inflationary policies as as that that collapse is happening. So the German government invades the mark just immediately spirals out of control and it and it just goes into

complete crazy crazy land. After this, it's I think it they stop measuring when it gets to about a trillion to one sometime in n marks two dollars. So it's it's a political collapse, is what happens. And you have, of course the Beer Hall pushed from from Hitler and Ludendorff, which is more famous than the the uprising in Hamburg. But but politically the government is just is just wiped

out and and they have to essentially start over. I think one important factor here, uh is it's not just one important factor, but an important factor here is is the way that this is viewed internationally. The hyper inflation is not in the moment viewed as just merely an extreme act of recklessness by the German government. There is an immediate effort to renegotiate the Treaty of Versailles and

lower the reparations obligations to Germany. When this happens, and the French invasion is viewed as as politically illegitimate um not just within Germany, but by the Americans and by the British government. And that's that's really quite something, because of course, the Americans and the French and the British were allies during the war. They crafted the peace treaty, and France was really just abiding by the terms of

the treaty. Germany didn't make good on its reparations, and France said, okay, well we're gonna We're gonna go in, and all of France's allies abandoned it and and basically say Germany is in the right here. We've we've got

to to renegotiate this. And the renegotiations become known as as the Young Plan, and it's it's it's officially performed by a couple of JP Morgan bankers, but they're really acting as sort of deputies for the U S. Born policy establishment, and this this changes the way that the Germany is governed, and so the politics change and and the currency can be can be stabilized, but first you you basically have to have a completely new international political

regime and consensus um that replaces the old one and and and that until that happens, Germany cannot be stabilized financially. So I have what might be a dumb question just before we get into you know what actually resolved this inflationary episode. But during the worst of the price increases,

how were people actually keeping track of prices? Because you know, nowadays, if you think about inflation, we've got a bunch of indicase, obviously, but also if the cost of your cup of coffee like increased tenfold while you were drinking it, I think everyone would you know, probably photographed their receipt and put it on social media and talk about it, and we'd

have almost instantaneous knowledge that inflation was happening. But I can't really imagine what it was like back then, Like how did people actually monitor, you know, how quickly prices for things were changing. They couldn't, is the answer. I think. Over the course of you could you could you could go into the grocery store one day and say, okay, well this is how much you know, a bag of

flower costs, and the next day it's even higher. Um It, just the money became became worthless, and so you had you had people. You had huge theft and looting problems where people just steal from stores and then go into um i would are sometimes referred to as flea markets. But you basically had barter in the streets where ordinary people trying to make ends meet, We're having to trade goods for goods instead of paying with with wheelbarrows full

of cash. I mean, workers were still being paid in these giant stacks of money, but you couldn't really do anything with them. I mean you're talking about millions of marks to you know, to pay for a sandwich or something at a diner. I mean, how how do you get that stuff across the counter? But you just can't. So so you do have this this this kind of funny wheelbarrow thing, but that's mostly workers taking their cash home from work that they then can't do anything with

the actual terms of commerce. The commerce becomes a barter system and and you have you have a total breakdown. You know, I asked at the beginning, um, if you had heard of a zero stroke, and you said, no, I don't even know. I'm like, I'm not totally convinced this is real. Like, even though apparently it was written about, it still seems kind of crazy. You could get why this was like such a i mean obviously such a scarring thing that it still dominates discourse till this day.

And of course we know the Germans to this day remain sort of like famous for their commitment to more like a hard money approach. I mean it was just you know, complete societal devastation, yes, and it was humiliating to people in Germany. I mean, the national pride was was completely They just lost a war, which was you know, people don't like to lose wars, and and now they were sort of an international laughing stock. They they couldn't

even they couldn't even run a monetary economy. And Germany had been prior to the war, you know, the if not the industrial powerhouse of Europe, one of the two alongside Britain. It was it was, you know, a major rising superpower in world affairs, and and suddenly it's it's just a complete, a complete mess and and you know, you have people on the streets, you know, talking about exchange rates and and concerned with these things that have nothing to do with the course of ordinary life and

a prosperous society. Uh so, yeah, it's it's a it's something that I mean Freacher Hide never forgets it. He carries this with him for for the rest of his life. And and it's it's not just you know, the blow to national pride is not just on the right. It's it's not just people like Hitler. People like Hitler are able to to to rise to power because there is a widespread feeling of of of resentment and and humiliation

across German society. It makes it very difficult for social democracy in in its sort of more moderate modes, to to sustain itself. So before we get to the legacy of ymar hyper inflation, can can we go through what exactly ended it? Or like how did it all come to a halt, Because it's not like the government just

sat by waiting for this to pass. They did actively try to do things to mitigate it, and so did the international community, as you already mentioned by you know, looking at reparations and lowering them, So what worked and what didn't, it's an international fix. And then and then there's there's essentially a wipeout of the currency and a starting from scratch. So the German government never stops its

campaign of passive resistance. So it's it's one point five billion dollar or deficit is continuing, and the idea that the French occupation is illegitimate um is held across the political spectrum in Germany. Nobody wants, No politician wants from any any party wants to be caught saying, you know, they don't support resistance to this unlawful thing that the French government has not even though of course it's it's

perfectly legal under international law. What what happens is a new currency, but a new currency with a new political milieu, which is the Young Plan UM. And the Young Plan is essentially a program of of issuing large loans to France and Germany, uh so that both France and Germany

stopped complaining about the terms of the treaty. The reason German reparations are so high during the war is partly just you know, Victor's sort of excess, but also because there's really serious damage that's been done, particularly in France, and so there's there's a very expensive project of of rebuilding that needs to take place, and the French economy has been damaged in such way that's hard to do

with domestic capital. So getting money from Germany helping it's rebuild, having France then pay its war debts to Britain, the United States, the United States ends up with all this money. At the end, the obvious player to support Europe through this period is the United States. And so with the Young Plan, I think there's a two hundred million dollar loan to Germany and a one billion dollar loan to France.

And this matters not only financially because Germany can then afford to start, you know, actually meeting obligations with money that isn't printed out of thin air. Um, it matters symbolically because the United States has come in and said, okay, we get it. We need to support Europe here and if we don't, everything will fall apart. And so this

buys several years of relative economic stability in Europe. Um and you you have this this system where essentially the United States lends a lot of money to Germany through different channels, Germany pays you know, some form of reparations duties to France and to Britain, and then Britain pays the war debts that it's accumulated over the course of nine to nineteen nineteen to the United States, which then has all this money which it lends back to Germany.

So this cycle of funds keeps going and basically until you have financial crises that that unwind it and uh, and then you have the Great Depression. You have twenty years of economic dysfunction, but a relative period of stability here once the United States steps in and says we're

going to pay to keep your up afloat. So in the in the folk history of Weimar Germany that gets told on the Internet through memes, it's like Germany printed a bunch of money and then that was really terrible, and uh, then the Nazis came to power because that was so terrible And doesn't sound like there's actually the

correct sequence of things. When do in this sort of like the sequence of things, what are the conditions prior to you know, sort of between the massive hyper inflation and then what you described, and then the conditions that did in fact sort of precede the rise of the Nazis. It's a long period of time. Uh So, it's it's hard to it's hard to classify it as one particular thing. But i'm our Germany has its ups and downs like

the rest of um of Europe over this period. But the second half of the nineteen twenties is much more prosperous and much more stable than the first half. It is the financial turmoil of the early nineteen thirties that really unwinds things and and brings the Nazis to power. In nineteen thirty you have a huge run on a bank called Credit on Stalt in Vienna. And Credit on Stalled is a very large, politically connected bank. It's it's got people from all of the big European banking families

on the board. It's not so much the size that matters, by the sort of prestige of the institution. If this bank could fail, think about what this means for the Austrian economy. And on the gold standard, of course, if government spend too much, they can run out of gold

and their currency can be destroyed. And there's a few year that is sparked among investors when Credit on st Stealth fails in nineteen thirty that the Austrian government is going to spend so much money supporting its banking system that they will no longer be able to support gold convertibility, and so people start dumping Austrian bonds and an Austrian currency. You have a run on the shilling that quickly spreads to a run on the German mark. Because, of course

the economies of Germany and Austria are closely intertwined. So the idea that Austria won't be able to meet its obligations creates fears that Germany will will support it and not be able to meet its obligations, and this eventually spreads to a run on the British pound for similar reasons, so the idea of being a British foreign investment in Germany will will make the British untenable. So you very quickly, over the course of nineteen thirty have a total collapse

of the entire international financial system. In this sort of latter stage of the gold standard. This by the nineteen thirties, everybody's back on gold. It's not working super well, but it hasn't been a disaster. But suddenly, with this financial crisis, everybody's wrecked and the gold standard is gone, and you have a period of absolutely crushing deflation that takes over

across all of Europe. That there has been deflation for much of the nineteen twenties, but it accelerates dramatically in nineteen thirty and nineteen thirty one with the collapse of the European financial system. This is also happening in the United States after the big precipitous event in the United States is the crash of the stock market in ninety nine, which most financial historians now I think except is connected

to the financial crisis thirty one in Europe. But these these events are are basically doing away with the banking system's ability to meet that the industrial demands of society, and so you have terrible deflation that takes hold and massive, massive unemployment, and the period that we now know we not think of as the Great Depression sets in. And

and that's that's where that's where Hitler comes from. Economically, you know, there's all sorts of other cultural things happening in Germany, and the anti Semitism is obviously very well known, but but the economic grounds there there is widespread misery in Germany at this period of time, but it's a different kind of the misery is similar, but it's a different cause than than in Um in nineteen three. You've

gone from hyper inflation to very severe deflation Ino. So you've mentioned this a couple of times already, But this idea that the whole Um episode had a really big impact on a lot of economists at the time, and these economists, of course went on to have a really big impact on economics itself for you know, decades to come. But can you walk us through the legacy of ymar inflation, like how did it actually end up shaping and impacting

economic thought and policy afterwards? I think it's a really complicated question because economics is always kind of moving by fits and starts in different directions. At the same time, I think it causes a kind of a kind of crisis within the sort of liberal broad enlightenment liberal tradition that had not been anticipated ahead of the war. So people like Hyak and Canes were very much simpatico in nineteen twelve nineteen thirteen. I think they had very similar

views of the world. Hyak was enamored with the glories of the sort of pre war Austrian Empire. Canes Is is very taken with the glories of the British Empire UM. But they have very divergent reactions to what happens. From three onward, they even agree on, you know, with what is that, they even agree with the problems with the Treaty of Versailles. But but from the hyper inflation moment on they take totally different interpretations of of what has

gone wrong and what needs to be fixed. Kines comes to believe that governments need to support their economies in order to prevent the kind of pullical chaos that has unfolded in Germany, and how it comes to believe that it's this irresponsible spending of the German government on the social welfare programs which invited the catastrophe to begin with. So they have totally opposite views of what the source

of the the hyper inflation was. And of course, you know, data and things like this are nowhere near as precise um as they are today. And even today, you know, the exact same set of data can spark wildly divergent interpretations from people in economics UM. But both both Highkan Kines have have I think pretty um compelling stories to tell about about what went wrong. I mean, the German government did spend an enormous amount of money. It was

on social welfare programs. And Uh. If you are inclined to believe that, you know, we we live in a hard world and um inequalities is kind of a fact of nature, not a not a political choice, then it looks like the German government was was reckless and doing

things that that were irresponsible. If you believe that the economic possibilities for our grandchildren, as Kine's once said, are quasi utopian, uh, and that in fact the world is richer than it's ever been before and it has the capacity to improve life for everyone in it, UM, then I think it's easier to believe that this was a you know, a political disaster rather than an act of excessive kind heartedness. UM. Within the the sort of debates of the of the nineteen thirties, Hiak has a lot

of allies in in the British sort of economic establishment. Um. He's not really a famous guy in in the nineteen thirties. He becomes famous in the nineteen forties with a political book called The Road to Servedom. But the real economic leader of this school of thought that we've come to associate um with high is a guy named Lionel Robbins,

and he's the the London School of Economics. And Robbins is someone who espouses views that I think we would today associate with with Milton Friedman or um Or Or

or Friedrich Hyake. And he's constantly fighting with Kaine's over over public work spending and whether it's it's possible to create economic growth through public works or through budget deficits, and within Britain, by the end of the nineteen thirties, Robbins is basically recanted and said, you know, Caines was right, and this view that that we come we come to call neoliberalism is really consigned to a tiny kind of quirky, oddball um intellectual minority. And it's not until the nineteen

seventies that this school of thought becomes dominant again. And that's largely due to a lot of really impressive sort of social work that that Hyak does, organizing people who see the world the way he does, and and help having them, you know, write papers and write books and and tell stories about how the economy works that are similar to his own worldview. So one last thing. But I know we've talked a lot about whether or not this period of history has any relevance to the financial

and economic system right now. But and you've been quite clear that you don't really think it does. But is there anything that you think we have in common now with um? This is a really dark question with the Weimar Republic, And it's a good question. I'm glad you asked. Yeah you financially no, but politically yeah, I do worry. UM. It's one of the reasons why I wrote UM the

Biography of Canes. When I did, I felt like after the financial crisis, there's a difference between an economic crisis that's brought on by the quick collapse of a banking system and one that's brought on by, you know, a world war. UM. So they're clearly differences. But I do think we we live in a moment where we have authoritarian violence rising not only the United States but around the world, which makes it uh, and we're we're kind of reluctant to see the international dimension to that, to

that crisis. It plays out in the United States through the the the patterns of of history that have that have been here. So UM, the American version of it is different than the British version, or the or the

German version. But there's obviously a rising tide of authoritarian um thought and authoritarian violence around the world right now, and the the outbursts of violence in the United States are the sort of outbursts that looking backwards, if something terrible happens, you would say, ah, that was clearly a precursor.

I think the Capitol Hill riot on January six is an extremely extremely dangerous event um that most of us don't want to think about because it's the implications of it as as a sort of twenty one century which event are, are really terrifying. But we do have a lot of right wing resentment in the United States right now, and and and we are not unique to that. That was true in the nineteen twenties and thirties to UM the rise of fascism in Germany um was not an

isolated event. It played out according to a set of historically contingent German proclivities in Germany. But you also saw it in Italy, you also saw it in France, in France, in Spain, and you saw less successful versions of it in in France and the United states. I mean, when when FDR came to power in two uh, there was an enormous amount of violence in in American society, UM, and it wasn't obvious that the political project was going

to hold together. I hope that that's not where we're going, but I think it would be silly to pretend that, um, there there aren't some overtones of that of that era in our own time. Now. I'm glad you asked that, Tracy. Could I think that was a very important, very important answer, Zach Carter, Thank you so much for coming back on odd Luck. Thanks so much for having me, and good luck with the release of the paperback. Thank you so much. Thanks.

That was great, Tracy. I I actually thought your question at the end was the best there because I do think, like setting aside um this sort of y mar question for a second, like whenever I think about, like, you know, what to worry um or what could cause hyperinflation, I do think it's exactly sort of that and what what Zach pointed out, which is like it's probably not going to come because oh we're like you know, spent some

x amount of billions more than we should have. It seems much more likely to come because, like something political, it just causes people to lose faith in the existing system. Yeah, I guess inflation is always and everywhere a political problem, right, Yeah, I actually think I think, I know I'm being serious. I know that sounds flippant, but I think there's a

lot of truth to that. And yeah, and I think also this idea that Zach was talking about that you know, Germany didn't just go out and decide to run a massive deficit for the sake of it and to screw

over all the people. It owed money too, in the form of reparations, although that was of course part of it, but a big part of the government spending also came from these social programs which were targeted at, you know, achieving full employment, helping people live a better life, and also trying to make people happy to try to dampen down that political turmoil, right that. Yeah, Like it's really the entire combination. So the hard currency debt, uh, the

the collapse. I mean, one of the things that people talk about is like to get true like inflation or hyperinflation, you need some sort of like supply side disruption. And so of course you had the war itself, and then the French invasion after the debts weren't paid, so that further diminished the German industrial capacity. You have the domestic political turmoil, and Zach laid out all of the various assassinations and uprisings and things that were happening uh during

this period. So it really was like a it was a unique stew of very bad things that happened that that caused this episode. Yeah, but again, like the thing that comes through from that conversation is that inflation is

a political choice sometimes, although you can spin out of control. Yeah, right, Like the one thing it's not is just a function of all we want to run expansionary physical policy, Like there could be like the political situation that forced Germany to have to choose but been paying its external dads and domestic dad's, Like there were there were aspects of that, but it's clearly not just a sort of like you know, it's not a simple it's not a policy. It's not

a simple policy thing. Um on that note, shall we leave it there, Yeah, let's leave it there on that happy Now, this has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wi Isn't Thought. You can follow me on Twitter at The Stalwart. Follow our guest Zach Carter. He's at Zach de Carter and check out his book The Price of Peace, Money Democracy in the Life of John Maynard Keynes, paperback out April.

Follow our producer Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levi at Francesco Today, and check out all of our podcast at Bloomberg under the handle at podcasts. Thanks for listening to