Thom Incorrect about Weimar Inflation

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Thom Incorrect about Weimar Inflation, a couple of points. First, the reparations were denominated in Gold Marks, that is a set amount of physical gold, as well as other commodities- lumber, for one. Inflating the mark after the agreement did not change the required, physical quantities of materials set out in the treaty. Second, the Weimar had a Privately Owned Central Bank (Like the US FED) controlling the currency, which was inflating it in defense of shorting in the markets. The "Weimar Inflation" is one of the mainstays of Private Banking Myth that Government cannot be trusted to control the currency, thus a private institution is required. The amazing thing to me is that while everyone "knows" about the Weimar Inflation, who thinks about "How did Germany go from being bankrupt to becoming an economic powerhouse capable of challenging the world in less than a decade?" Hitler took over the Reichsbank, and financed the rebuilding of Germany with Labor Treasury Certificates issued by the government, the same way Lincoln won the Civil war with Greenbacks. No debt, no interest, and it circulates indefinitely, not like unsustainable debt based money which leaves the economy when the debt is paid or defaults. If Government can issue the Treasury Certificates for which Federal Reserve Notes are traded, why not just issue the notes directly? If you understand Fractional Reserve Banking, then you understand that much of the money in the system is based largely on the reserves of the Federal Debt deposited in Private Banks. Pay down that debt and you reduce the banks reserves and the amount of credit they can issue. To educate yourself see Stephen Zarlenga's book "The Lost Science of Money"; Ellen Brown's book "Web of Debt", and online videos "Money as Debt" and "The Money Masters". Real change will be difficult without monetary reform restoring the issuing of currency to the People, in their representative the Government.

PRGK1's picture
Jul. 31, 2007 3:01 pm


PRKG1, I agree with you in regards to the Weimar Inflation, and I think that public banking would be better than the Fed and save ourselves the interest. However, what I am struggling to understand is the following, would public banking operate on a fractional reserve basis and would it require legal tender laws? To me fractional reserve banking is much more of an issue than the small amount of interest being generated.

tmoney13's picture
May. 1, 2010 1:20 pm

"We were not foolish enough to try to make a currency [backed by] gold of which we had none, but for every mark that was issued we required the equivalent of a mark's worth of work done or goods produced. . . .we laugh at the time our national financiers held the view that the value of a currency is regulated by the gold and securities lying in the vaults of a state bank." - Adolph Hitler, quoted in "Hitler's Monetary System

The German Gold Mark ran out of gold backing. Trade/reparations transfers were made in gold...not in currency as we do today. Marks were redeemed for gold. Germany ran out.

German goods were shipped out of the country in an attempt to maintain reparations payments...earning gold. That caused prices to rise within Germany. The solution was to increase the money suppy so people could afford the basics. which of course fed the problem. It became an inflationary spiral, More money chasing fewer goods.

The money supply has to equal the production of goods/services. Not more. Not less.

Fractional reserve banking, when limited to increasing or utilizing current goods /production is fine. It's the interest extractions that upset the apple-car. Essentially, Germany created money out of nothing just as fractional reserve banking does.

In our system, money is injected into the money supply to cover principal, not interest. There is a shortfall. Interest has to be re-spent back into the economy to maintain the balance rather than being thrown into financial paper or the money supply shrinks without continual new injections of money..

Hitler had it right when it comes to money. Ultimately, money is backed by production rather than gold. Germany became a powerhouse.. The rest of the world, mired in the gold standard remained in the throes of depression.

"This government-issued money wasn't backed by gold, but it was backed by something of real value. It was essentially a receipt for labor and materials delivered to the government. Hitler said, "for every mark that was issued we required the equivalent of a mark's worth of work done or goods produced." The workers then spent the Certificates on other goods and services, creating more jobs for more people.

Within two years, the unemployment problem had been solved and the country was back on its feet. It had a solid, stable currency, no debt, and no inflation, at a time when millions of people in the United States and other Western countries were still out of work and living on welfare."

In the meantime, let's throw more money at financial markets...the sure way to get out of our current mess. If the top tiers have just a little more to invest in financial paper, things will be fine. LOL

That isn't what history says. History also debunks metal as the standard for money issuance. Money's real value is based on the production of goods/services. Hitler had that right, if not much else.

Retired Monk - "Ideology is a disease"

Jul. 31, 2007 3:01 pm

When we compare ourselves with the Reich, is it not interesting that our fascists do not have a successful economic model to present. I think Hitler's success had a lot to do with an improving economy and that his elevation to cult hero and Leader ran on tracks of economic success, not just racial hatred.

What would happen if our fascists got smart about the economy. Could they build a successful merger of State and Commerce where the production of goods and services ran with the religious and cultural coherence Mussolini imagined? Hitler was exploiting a serious trauma in Germany due to the loss of WWI and the impact of the reparations. Turning things around in two years would create an ocean of political capital and cause a lot of myopia about the crazy talk and fanatics.

We might be glad that our authoritarians believe in an economic ideology that fails its claims spectacularly instead of having expert tyrants using the economy smartly to manipulate people to believe in them about the rest of their agenda.

DRC's picture
Jul. 31, 2007 3:01 pm

"Wages of Destruction - the Making and Breaking of the Nazi Economy" by the economic historian Adam Tooze would be an interesting read on the topic.

It shows pretty clearly how an economy can be managed to serve any special interest group...and they are. Every society is "managed". When they go to extremes servicing group interests, they collapse.

The German economy plowed everything into armaments and kept the money supply in the consumer economy at a minimum. Enough to get by, and not enough to compete for a shortage of consumer goods. .Prices remained stable. The currency remained stable.

Eventually, the economic base of the country couldn't support armaments. The need outstripped the country's productive capacity. At wars end, Germans were still farming with horses rather than with tractors, etc..

Retired Monk - "Ideology is a disease"...

Jul. 31, 2007 3:01 pm

Part 1 - Is Economic Disaster About to Hit & Are You Prepared?

Thom plus logo Right now the United States and the world are facing four massive trends that, in combination, we haven't faced since the 1920s. We are seeing the rise of a new and brutal form of governance with extraordinary industrial capacity and power in China, much as Nazi Germany rose in Europe.
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