People today tend to think there was something inherently
wrong in the German people that they allowed Hitler to come into power. From a purely economic and financial
standpoint, it’s not all that hard to understand.
The financial Apocalypse of the hyperinflation in Germany
and Austria-Hungary came hard on the heels of that of the war itself. The German Reichsmark, the Austrian
Schilling, and the Hungarian Forint ceased to have any meaning at all. For example, by the time the financial
firestorm was stopped, the official exchange rate for the Reichsmark was 4.2
trillion to the U.S. dollar, while the black market rate was anywhere from 16
trillion on up.
The point here, however, is that society was in a state of
complete meltdown. People were desperate
for anything to restore order. As Germania, a large Berlin newspaper,
reported on July 27, 1923, “It is a situation for a dictator. The conditions call for a Mussolini in
bullet-proof armor with a revolver in either hand.”
Thanks solely to the efforts of Hjalmar Horace Greeley
Schacht, “the Old Wizard,” the hyperinflation was brought under control. He accomplished this miracle by simultaneously
instituting his “Rentenmark” system and demonetizing the old Reichsmark,
although for a brief period people could exchange their old inflated
Reichsmarks for new ones at the rate of a trillion to one.
Briefly, what Schacht did was establish an asset-backed,
non-legal tender reserve currency, the Rentenmark, into which the new legal
tender asset- and debt-backed official currency, the Reichsmark, could be
converted on demand. The Rentenmark was
backed by State-owned land and railroads, and was absolutely fixed in value and
quantity. The system remained stable
until demonetized by the Allies following World War II.
Unfortunately, the stable currency enabled Germany to
finance its war effort with ease when the Nazis came into power. Ironically, Hitler became Chancellor of
Germany when people in the early 1930s were afraid that the effects of the
Great Depression would spread to Germany and trigger hyperinflation again. To ensure that order would be maintained,
they elected the man who promised order at all cost — and who delivered on his
promises.
What made Hitler’s ascent to power a virtual certainty,
financially speaking, was that he promised economic and financial stability, at
the same time the United States was listening to Keynes and destabilizing the
economy and the currency in pursuit of the chimera of full employment. The German people knew what could happen to a
nation when the currency was debauched, and they would pay any price to avoid
it — and they did.
In another ironic twist, the United States only attained the
full employment Keynes promised in the 1930s in 1943 and 1944 . . . to supply
the war effort against Hitler. To
oversimplify, Keynesian economics never delivered full employment. Adolf Hitler did, for both Germany and the
United States.
On Monday, we’ll look at how to restore a stable currency
and even achieve full employment, but without having to wait for a Hitler to
try and conquer the world to do so.
