American Consequences - January 2021

ECONOMIC COLLAPSE

When governments devalue, they don’t just shrink their own debts on the backs of businesses and citizens who see the value of their savings shrink. The massive tax that is devaluation also redirects precious capital away from investments in wealth that doesn’t yet exist (think stocks and bonds), and into wealth that already exists . Yes, socialism logically fosters economic stasis as savers and investors seek certainty over the progress that is a consequence of intrepid investing. Writing about post-WWI Germany, Fergusson noted that the citizenry sought to insure themselves against paper currency losses through the purchase of “assets which would maintain their value: houses, real estate, manufactured goods, raw materials and so forth.”

the mark. It began slowly in the war years, only to pick up rapidly after the fighting ended. Facing debt related to war costs, along with reparations owed to victor countries, Germany’s political class chose socialism. A massive devaluation of the mark began as a way of eviscerating all debts. As Adam Fergusson explained it in his classic 1975 book, When Money Dies , the head of Germany’s Reichsbank (Dr. Rudolf Havenstein) held firmly to his view that rampant creation of marks “was unconnected with either price levels or exchange rates.” Germany owed, so it printed away its obligations. By 1923, $1 bought 4,200,000,000,000 units of Germany’s near- worthless currency. Which means German government debt was shifted to the people who suddenly saw their wealth vanish. Germans who owned bonds and stocks that returned marks were wiped out so that the debts incurred by Germany’s political class could be erased via devaluation. As one German remarked about the evaporation of her savings... A housewife who has had no experience of the horrors of currency depreciation has no idea what a blessing stable money is, and how glorious it is to be able to buy with the note in one’s purse the article one had intended to buy at the price one had intended to pay. And the wealth redistribution didn’t just stop there...

Socialism logically fosters economic stasis as savers and investors seek certainty over the progress that is

a consequence of intrepid investing.

Germany’s tragic lurch toward redistributionist policies isn’t just useful as a way of explaining why currency devaluation is a particularly odious form of socialism. The story of post-WWI Germany is also useful as a reminder that devaluations don’t just happen. They’re not a consequence of debt/GDP ratios, sunspots, or anything else thought up by the philosophers who populate the economics profession. They’re a choice . Germany is instructive on the matter.

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January 2021

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