Interview: “Inflation fans the flames of protest”

Martin H. Geyer is Professor of Modern History at LMU’s Department of History. In an interview, he talked to us about the differences between current price increases and historical experiences with inflation.

Please have a look at this banknote, issued by the German Reichsbank in 1923: 100 billion marks. Is it conceivable that the European Central Bank might one day print 100 billion euro notes? Or at least 10 million euro notes?

Martin H. Geyer: No. That is very, very unlikely.

What makes you so sure?

The situation back then was completely different. In 1923, hyperinflation at times drove prices up by several thousand percent. What we might theoretically expect today is inflation in the ten, 15 or perhaps 20 percent range.

Yet the media often speak of “galopping inflation”. Is that an appropriate choice of words in light of past events?

Not really. Historians, economic historians and some economists tend to speak of galoppinginflation when prices rise by 50 or more percent per year, i.e. during the transition to hyperinflation. To stay with the same terminology, today’s inflation has been creeping and is now on the verge of breaking into what is also called a trotting inflation.

Extremely complicated constellations in 1923

The German hyperinflation that peaked in 1923: How did it come about?

A number of factors came together. After the First World War, every country that had been involved in the war had problems with rising prices. One reason was the transition to a peacetime economy following a total war. That was a difficult transformation process against the backdrop of huge sovereign debt and scarce resources.

In Germany, new expectations placed on the state added to the revolutionary changes in progress. And reparations – sizable transfers of money abroad – were obviously an issue for this country.

At the same time, post-war society had to shoulder vast expenses for wartime care and compensation for war damages, i.e. benefits for the domestic population. It is important to also remember conflicts such as the occupation of the Ruhr region by French and Belgian troops, and German resistance to this occupation when Germany financed the so-called passive resistance. So there were a lot of complementary factors at work. In 1923, there were some extremely complicated constellations.

Stacks of worthless war bonds stashed away in the attic

We repeatedly hear talk of Germany still having a collective memory of the hyperinflation in 1923. Is that really true nearly a hundred years on?

Maybe not anymore among young people. But anyone born in the 1950s or 1960s will still have had contact – via their grandparents or perhaps even their parents – with generations that experienced hyperinflation at first hand. They may have had stacks of worthless war bonds stashed away in the attic at home, or postage stamps denominated with astronomical sums from the inflationary era. Personal narratives were often bound up in such things. Here, we would speak of a communicative memory, rather than the more abstract collective memory. Incidentally, I have brought something along on this subject.

What is it?

An imitation banknote of the kind in circulation during the general election in 1980: Political opponents of Helmut Schmidt had inserted a photographic portrait of him into original 100,000-mark notes from the hyperinflationary period. It was supposed to illustrate the accusation that the Social Democratic SPD used budget deficits to operate inflationary policies with disastrous consequences. In this way, memories of hyperinflation were refreshed around 40 years ago and once again engraved in our collective memory.

Proteste following the First World War

Hyperinflation in 1923 was a special case for a very limited period of time, but many European countries – such as Italy – repeatedly experienced years of double-digit inflation rates in the 20th century. How has that affected society?

One thing we can say for sure: There is no question that distribution conflicts escalate rapidly in times of double-digit inflation. In Italy and France, wage disputes in the 1970s were fought very differently to Germany’s disciplined collective bargaining. There were sit-ins at factories and direct confrontations. Inflation definitely fans the flames of protest.

What kind of protests?

The protests following the First World War were clearly fairly populist in nature and were linked to widely differing political arguments. Protests in times of inflation can be associated with anti-capitalist sentiment, with antisemitism, but also with sociopolitical demands – as with pensioners’ protests, for example.

Are there parallels to today’s inflation?

I do think that protests by individual groups will increase. But the inflation we saw a hundred years ago was of a completely different dimension.

How was the hyperinflation in 1923 actually ended?

It is always extremely hard to get a handle on hyperinflation. One way is to effect a radical currency reform: essentially, to issue a new currency. In Germany, the rentenmark was issued initially as a transitional solution and was later replaced by the reichsmark. Another step was a radical reduction in government spending. And that, by the way, is something that was instrumental in traumatizing large swathes of the population in the 1920s: Everyone who was receiving state benefits suffered drastic cutbacks. Many civil servants lost their jobs. Taxes were raised on a massive scale.

Looking at our current inflation and the economic situation in general and comparing that with history, are you afraid?

No, I wouldn’t say I’m afraid. We have recently seen a lot of things happening that we would not have anticipated a couple of years ago. But I trust that there are solutions to the problems we face right now. Obviously, a lot can still happen that we are not expecting today. Bearing all these things in mind, it is normal to no longer sleep so well at night.

Shouldn’t we draft worst-case scenarios in order to be prepared for eventualities that have already occurred in history?

You could say that the point of warnings is to prepare the population for cutbacks. But warnings can also degenerate into damaging alarmism and panic-mongering. Getting back to inflation: Even if it were to rise to twelve or 15 percent – which would certainly be dramatic enough, especially over a longer period of time – I still believe we could rein it in again, at worst with a severe recession. In other words, I believe things won’t get out of control the way Germany once saw.