History Underexplains German Obsession With Hard Money

Caitlin Kenney and Zoe Chace did a piece for All Things Considered tracing the German obsession with hard money policies back to the hyperinflation of the early 1920s. This is the conventional explanation, and surely it deserves some weight, but it’s worth noting that this bit of potted history substantially under-explains the actual results.

For example, note that hyperinflation was actually tamed by the mid-1920s, and by 1928, Weimar elections were dominated by mainstream democratic parties. Then came the Great Depression. At this point, it’s clear that memory of the hyperinflation in the recent past does a lot to explain why the Weimar monetary authorities were so leery of engaging in unorthodox policy to combat mass unemployment. But it’s clearly mass unemployment rather than inflation (which was non-existent at the time) which explains the parallel growing vote shares of the Nazi and Communist parties and the collapse of German liberalism and social democracy. Then when the Nazis took over, they undertook a successful program of monetary expansion. Then, obviously, came a war and German defeat.

So while Germany has experience with unduly inflationary monetary policy they also have experience with the harm of unduly tight money and experience with the ability of monetary stimulus. The question is why is this one particular episode so influential in German political consciousness rather than some other ones.