Friday, April 3, 2009

German Hyperinflation Did NOT Occur During Great Depression

Here's an example of bad history informing bad policy preferences.

The historical trauma of hyperinflation certainly seems to have contributed to German wariness about aggressive fiscal policy - but the infamous Weimar hyperinflation occurred during 1923, not during the Great Depression. Furthermore, out of control government spending did not cause the German hyperinflation. Rather, the Weimar government printing money to pay reparations, as well as benefits to workers striking against the French occupation of the Ruhr region, caused the runaway inflation. Since German industry ground to a halt with the general strikes, they had no goods to trade for capital. To make up the difference, they printed money, with disastrous consequences. This does not prove the case against Keynsian deficit spending; merely it proves that you cannot print money and pretend you have a real economy when you in fact do not. It would be helpful if our media - and the Germans themselves - understood this difference when debating the merits of fiscal stimulus.

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