Progress pill
What is hyperinflation?

Weimar vs Zimbabwe: Differences and Contemporary Parallels

Hyperinflation Case Studies

Weimar vs Zimbabwe: Differences and Contemporary Parallels

  • Differences between the Weimar Republic and Zimbabwe
  • Contemporary Parallels
In this chapter, we will explore the differences and contemporary parallels between past and present hyperinflation periods, with anecdotes and relevant comparisons for today.

Differences between the Weimar Republic and Zimbabwe

1. It's the dollar's fault!

In Germany, it was common for the population to attribute inflation to the rise of the dollar rather than the intrinsic devaluation of their own currency. Many believed that the observed phenomenon was due to an appreciation of the dollar. This perception dismissed any recognition of the link between their economic difficulty and monetary devaluation, mainly induced by excessive money creation. The book "When Money Dies" clearly illustrates this lack of understanding among the German population. In contrast, in Zimbabwe, the situation was different: citizens were fully aware of the underlying cause of the hyperinflation they were experiencing.

2. Emergency money (Notgeld)

Facing the monetary and economic crisis, Germany resorted to "Notgeld" (emergency money). These notes, printed by cities or certain companies, were designed to address a shortage of common currency. Interestingly, France also resorted to Notgeld, particularly in the 1920s. This initiative was not only a direct consequence of hyperinflation but also had roots in the disruptions caused by World War I. The war not only destabilized the economy but also increased the cost of metals. As a result, the intrinsic value of metal coins often exceeded their face value, prompting people to hoard them. In the absence of coins, some institutions, such as the Lyon Chamber of Commerce, printed their own Notgeld.
"What has to be done, has to be done." - a local saying
Among the Notgeld, one particular banknote stands out. It features a poignant illustration: in the center, an individual is depicted defecating a Mark. On the reverse side, a price table from 1913 to 1921 illustrates the rise of inflation during this period.
The artist behind this Notgeld seems to be making an ironic critique of the authorities responsible for the hyperinflation crisis. The banknote bears the inscription "Necessity knows no law". Another expression specific to the locality of origin of the Notgeld is: "What has to be done, has to be done."
"necessity knows no law"
The first Shitcoin: Anecdotally, looking at the central illustration of the banknote, where the currency is literally devalued by the individual's action, it could be called the first "shitcoin."

3. Debentures and mortgages

In Weimar, some debts were revalued to compensate for the impact of inflation. This measure was not adopted in Zimbabwe.
Weimar: "A decision to revalue government-owned loans became law in 1925, resulting in shareholders receiving 2.5 percent of their initial investment provided that all reparations had been paid."
Zimbabwe: "In July 2007 (three years later), I could take out a devalued ZDW 500,000 (bt "000") note from my pocket, now worth $1.67 at the parallel market rate, and repay the mortgage loan, which was supposed to be repaid over twenty years. Furthermore, this note represented only 0.49 percent of my monthly salary for the same month."
To learn more about managing the German crisis, this book is also essential.

Contemporary Parallels

1. Manipulation of monetary policy to control the economy.

In the history of the Weimar Republic, it is evident that industrialists were reluctant to see the value of the Mark appreciated. Their ability to borrow and repay their debts with a heavily depreciated currency gave them a considerable advantage. This mechanism facilitated the construction of huge industrial complexes at almost no cost. These industrialists feared an appreciation of the Mark as it hindered their activities. Some even viewed rampant inflation as a positive development, believing it would guarantee employment for the population. However, they did not realize the detrimental impact of this inflation on savings and the economy as a whole. For these economic actors, monetary printing was a blessing.
Weimar: "This is why an appreciation of the mark was greatly feared, and even the few weeks of 'stability' after Genoa caused a stagnation of business."
Weimar: "Industrial circles faced the danger that cash would become more valuable than goods, and a collapse would occur when everyone tried to convert their assets into cash."
A contemporary parallel can be drawn with Christine Lagarde's statements, suggesting that citizens should prioritize the prospect of employment over the protection of their savings. Just like the industrialists of Weimar, she seems to advocate for monetary printing as a tool to stimulate employment, at the expense of the value of savings.
Christine Lagarde: "We should be happier to have a job than to see our savings protected."

2. Private property in times of conflict

The history of the Weimar Republic reveals that during this period, assets and capital held abroad were confiscated. This measure recalls more recent events in Russia, especially at the beginning of a conflict. These situations highlight a concerning reality: in times of crisis, respect for private property can be compromised. This is a historical and contemporary parallel that underscores the potential repercussions of crises on individual rights.
Weimar: "All German capital held abroad had been confiscated."
20minutes.fr: "Approximately $300 billion of Russian reserves held abroad have indeed been frozen as part of Western sanctions, out of the $640 billion in reserves held by the Russian Central Bank."

3. The Notion of Market Price

During the Weimar Republic, farmers expressed their dissatisfaction with the "Umlage," which forced them to deliver the first two million tons of wheat produced each year. This regulation resulted in half of the total bread supply being placed on the market at subsidized prices. From August onward, these farmers were supposed to be paid the world market price, because although they were forced to surrender their wheat at reduced prices, they still had to purchase fertilizers at world market rates.
This situation raises a central issue related to the notion of market price during hyperinflation. In the German context of the time, farmers were compelled to sell their wheat at a price below its value, while having to procure fertilizers at world market prices. Such an economic discrepancy highlights the challenges posed by food prices today. Agricultural producers, faced with rising input costs due to inflation, pass these costs on to final products. Criticizing them for this increase amounts to ignoring the dynamics of market pricing and the economic pressures they face. Selling at artificially low prices while incurring high costs is unsustainable for any business.
Weimar: "Agricultural interests were dissatisfied with the 'Umlage,' the forced delivery of the first two million tons of wheat produced each year, which allowed half of the total bread supply to be sold at low prices. From August, farmers were to be paid the world market price because, while they were obliged to sell wheat at low prices, they always had to pay the world market price for fertilizers."

4. Denial of the Link Between Money Supply and Inflation

Weimar: "He remained firmly attached to his view that the money supply was related neither to price levels nor to exchange rates;"
In modern times, this trend persists, as seen in the previous chapter's example of a list of explanations put forward by various economists and economic institutes to justify inflation. These reasons vary, ranging from cultural events and celebrities such as Taylor Swift, Zelda, or Beyoncé, to global factors like war and the pandemic. All these reasons, although potentially contributing to short-term economic fluctuations, divert attention from the real underlying cause: the expansion of the money supply.

5. Zombie Companies

Weimar: "Stabilization had ended the period when entrepreneurs could borrow as much as they wanted at the expense of everyone else. A very large number of companies, created or expanded during monetary abundance, quickly became unproductive once capital became scarce."
A zombie company is a business that, under normal market conditions, would be insolvent or near bankruptcy, but continues to operate mainly thanks to low-cost borrowing. These firms earn just enough to cover their debts but are unable to grow significantly.
The notion of zombie companies is not new. In fact, it existed during the Weimar Republic. At that time, many companies appeared to be flourishing, largely benefiting from access to free credit. They borrowed substantial sums with the expectation of repaying later with a depreciated currency due to rampant inflation. However, when inflation ceased and the German mark regained value, these companies, which were not truly viable operationally or financially, became unprofitable and had to shut down.
The phenomenon of zombie companies is not limited to postwar Germany. Even today, many large corporations continue to thrive due to their privileged access to credit at extremely low interest rates. If they had to borrow at more conventional rates, many of them would cease to be profitable. This is particularly relevant in 2023, following a prolonged period of near-zero interest rates, as rates have now begun to rise. This recent shift in the financial landscape will undoubtedly be a decisive test for these companies, once labeled "zombies."

6. Get Rich Quick!

History reveals instances where individuals sought to accumulate wealth rapidly, as was the case in Weimar and Zimbabwe through arbitrage. Today, a similar trend can be observed with the rise of certain cryptocurrencies. People are tempted by quick gains, taking risks in hopes of an exponential increase in their investment. This approach recalls that seen during periods of hyperinflation, where arbitrage was used to obtain quick profits, often at the expense of others.

7. Savings, the Remedy Against Uncertainty

The pervasive and destructive influence of the constant erosion of the value of capital and income, as well as uncertainty about the future.
It is worth highlighting a quotation that underscores the destructive effect of the erosion of capital value on social cohesion, as well as the uncertainty it generates. It states: "the pervasive and destructive influence of the constant erosion of the value of capital and income, as well as uncertainty about the future."
Imagine a scenario where you have a family or loved ones you wish to protect. You work hard and save to anticipate future uncertainties. If everything were predictable, saving would be useless. However, in the face of unforeseen circumstances, such as a broken-down car, savings become a lifeline. They reduce the uncertainty of the world. However, during hyperinflation, saving becomes a challenge. Money quickly loses its value, making long-term planning difficult. This financial instability can generate stress and anxiety.
Today, with declining savings power, investment has taken its place. However, this approach carries its own risks. Saving has always been a remedy against uncertainty. Having financial reserves to handle unforeseen situations contributes to peace of mind and strengthens social cohesion. In conclusion, protecting our savings power is essential to maintaining both social and individual stability.
Quiz
Quiz1/5
What is the role of savings in times of uncertainty?