Germany’s Bad Folk History


You’ve doubtless heard this before: “Germans often say that whereas the Great Depression dominates U.S. economic thinking, Germany’s experience with hyperinflation in the 1920s is its defining economic period of the 20th century, and one that must be avoided at all costs, even if it means slower economic growth.”

I understand that this is an accurate recounting of German folk history, but I wish people recounting it would note that Germans sort of misremember what happened. The hyperinflation of 1919-1923 was bad, but there’s a reason charts of it end in 1923, namely that the democratic government of Germany managed to tame the problem and in 1924 a new and perfectly stable currency, the Reichsmark was introduced. The Weimar Republic had its problems, but from 1924 on it was one of the very best places in the world to live in terms of economic prosperity and political freedom. Then came The Great Depression and a certain political party’s rise to power:


As you can see, in the mid-twenties the Weimar Republic’s success in taming inflation fostered an environment in which the Nazis were a marginal and declining political force. It was only the persistence of the Great Depression and sky-high unemployment that gave Adolf Hitler the opportunity to obtain large shares of the vote and the leverage needed to rise to power. That in turn led to the deaths of tens of millions of people, and eventually the physical destruction of most German cities. In other words, a much greater disaster than the American Depression. And as Brad DeLong reminds us, as soon as Hitler abandoned “hard money” orthodoxy, the economy began to recover.

It’s bad enough that excessive German fear of inflation helped pave the way for Hitler’s rise, but the German policymakers of the early 1930s at least have the excuse that for all they knew nothing could be worse than 1919-23. Today we know perfectly well that things can get much, much, much worse. Fortunately today’s policy errors aren’t going to lead to consequences nearly that bad, but it still strikes me as tragic that what amounts to a pretty simple confusion about the historical timeline has left one of the world’s top economies down a policy dead end.