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Historical Error #28: Germany's Hyperinflation of 1921-23 Took Place Only After the Central Bank Was Privatized.

Gary North
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Ellen Brown always blames hyperinflation on foreign currency speculators. She also blames it on central banks that are privately owned. Whenever she finds a case of hyperinflation in which a government-owned central bank operates, she blames foreign speculators for the decline in value of the national currency unit. Here is what she says about the hyperinflation of Germany from 1921 to 1923.

Like the U.S. Federal Reserve, the Reichsbank was overseen by appointed government officials but was operated for private gain. The mark's dramatic devaluation began soon after the Reichsbank was privatized, or delivered to private investors. What drove the wartime inflation into hyperinflation, said Schacht, was speculation by foreign investors, who would sell the mark short, betting on its decreasing value.

According to Schacht, not only was the government not the cause of the Weimar hyperinflation, but it was the government that got the disaster under control. The Reichsbank was put under strict regulation, and prompt corrective measures were taken to eliminate foreign speculation by eliminating easy access to loans of the bank-created money. Hitler then got the country back on its feet with his me MEFO [Treasury fiat money] bills issued by the government. [Web of Debt, pp. 237-238.

Ellen Brown is completely ignorant of the history of Germany's central bank, the Reichsbank. If she knew anything about its history, she would know that private investors established the original bank in 1876. These investors included the largest private banks in Germany. You can find the history of this on Wikipedia. You can also find the history of this in a report issued by the National Monetary Commission in 1910, printed by the Government Printing Office: The Reichsbank, 1876-1900. This was the academic front organization for the private banking interests that were promoting the creation of the Federal Reserve system. The report went into detail about the fact that the Reichsbank had been created as a private organization, though staffed by appointees by the government. This is standard operating procedure for central banks.

The great German inflation 1921 to 1923 took place under the direction of the Reichsbank. It came to an end in late 1923. There was a complete currency reform in November 1923. Only in 1924, after the inflation had ended, and after there was a complete currency revaluation, was the central bank placed directly under the government. For the next nine years, there was no price inflation in the Weimar Republic. The Germans were terrified of another round of inflation. The central bank did not inflate.

Who was Schacht? He was appointed the head of the Reichsbank from November 1923, after the death of his predecessor. He resigned in 1930. This is from Wikipedia.

After Hitler took power in January 1933, Schacht was re-appointed Reichsbank President on 17 March.

In August 1934 Hitler appointed Schacht as his Minister of Economics. Schacht supported public works programs, most notably the construction of autobahnen (highways) to attempt to alleviate unemployment -- policies which had been instituted in Germany by von Schleicher's government in late 1932. . . .

Göring was appointed "Plenipotentiary for the Four Year Plan" in 1936, with broad powers that conflicted with Schacht's authority. Schacht objected to continued high military spending, which he believed would cause inflation, thus coming into conflict with Hitler and Göring. In November 1937 he resigned as Minister of Economics and General Plenipotentiary at Göring's request. He remained President of the Reichsbank until Hitler dismissed him in January 1939.

Ellen Brown makes it sound as though the great German inflation came as a result of a change of administration in the central bank. It did not. It was simply an extension of central bank policy. This was begun during World War I, when the government suspended convertibility into gold. The central bank inflated massively after the war, 1921-23, and prices rose astronomically. This is been well known by all economic historians, and has been since 1923. The best book on this disaster was written in 1931. You can download it for free here. But Ellen Brown is either unaware of this, or else she simply is deceiving her readers.

She blames currency speculators for the decline. But currency speculators lose everything if they guess wrong. They cannot force markets down for long if central bank monetary policy moves in the opposite direction.

Let's see a fiat money bill issued by the Reichsbank in November 1923, the final month of the hyperinflation. Note: the German word "milliard" is the same as the American word, "billion."


This image is posted on Google Images.

This is domestic hyperinflation. Rising prices were not caused by foreign currency speculators.

For my reply to her response, click here:


For a detailed critique of Ellen Brown's economics, go here:

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