Friday, May 31, 2019

"'Kipper und wipper': rogue traders, rogue princes, rogue nuns and the German financial meltdown of 1621-23"

From A Blast From The Past:

The great German hyperinflation of 1923 is passing out of living memory now, but that doesn’t mean that it has been forgotten. Indeed, you don’t have to go too far to hear it cited as a terrible example of what can happen when a government lets the economy spin out of control, and the episode still remains a minor feature of the British history curriculum, studied – briefly – by 15 and 16 year olds taking their GCSE. In consequence, a surprisingly large number of Brits can recall at least some of the details of that period. They may remember, for instance, that at its peak German inflation hit 325,000,000 percent, while the exchange rate plummeted from 9 marks to 4.2 billion marks to the dollar. They may recall that it became cheaper to decorate a room with high-denomination banknotes than with wallpaper; or that when thieves robbed a worker who had used a wheelbarrow to cart off the billions of reichsmarks that were his week’s wages, it was reported that they stole the wheelbarrow but left the useless wads of cash piled on the kerb. Others have had one or other of the famous photos taken in this period burned into their memories, such as one that shows a German housewife firing her boiler with an imposing pile of worthless notes [below left].

It’s easy, in these circumstances, to suppose that 1923 was a uniquely strange and terrible episode, but the truth is that it was not. Indeed, the German hyperinflation was not even the worst of the twentieth century; its Hungarian equivalent, dating to 1945-46, was so much more severe that prices in Budapest began to double every 15 hours. (At the peak of this crisis, the Hungarian government was forced to announce the latest inflation rate via radio each morning, so workers could negotiate a new pay scale with their bosses, and issue the largest denomination banknote ever to be legal tender: the 100 quintillion (1020) pengo note. When the debased currency was finally withdrawn, the total value of all the cash then in circulation in the country was reckoned at 1/10th of a cent. [Bomberger & Makinen pp.801-24; Judt p.87])   Nor was 1923 even the first time that Germany had experienced an uncontrollable rise in prices. It had also happened long before, back in the early years of the 17th century. And that hyperinflation (which is generally known by its evocative German name, the kipper- und wipperzeit) was a whole lot stranger and more colourful than what happened in 1923.

In fact the kipper- und wipperzeit was – at least in my opinion – quite possibly the most bizarre episode in the whole of economic history– and that’s a judgement, incidentally, that I reached having written an entire book on the unquestionably strange Dutch tulip mania of 1636-37.

What made the kipper- und wipperzeit so incredible, and so unlike other instances of hyperinflation, was that it was the product not only of slipshod handling of the economy, but also of quite deliberate attempts made by a large number of German states to systematically defraud their neighbours. This international monetary terrorism – as it may be helpful to think of it – had its roots in the economic problems of the late sixteenth century, and lasted long enough to merge into the general crisis of the 1620s caused by the outbreak of the hideously bloody Thirty Years’ War, which killed roughly 20 percent of the population of Germany. While it lasted, the madness infected large swathes of German-speaking Europe, from the Swiss Alps to the Baltic coast, and resulted in some surreal scenes: bishops took over nunneries and turned them into makeshift mints, the better to pump out debased coinage; princes indulged in the tit-for-tat unleashing of hordes of crooked money-changers, who crossed into neighbouring territories equipped with mobile bureaux de change, bags full of dodgy money and a roving commission to seek out any gullible peasants who could be persuaded to swap their good money for for the changers’ bad. By the time it stuttered to a halt, sometime partway through the 1620s, the kipper- und wipperzeit had undermined economies as far apart as Britain and Muscovy, and – just as was the case in 1923 – it was possible to tell how badly things were going wrong from the sight of children playing in the streets with piles of worthless currency....