Owlseyes ’s Reviews > The Economics of Inflation - A Study of Currency Depreciation in Post War Germany > Status Update

This had some important psychological consequences. They are less obvious but they probably had great influence on production. The continued depreciation of the currency and the uncertainty of the future, which it caused, produced a depression of working-class spirit and the will to work declined.

The "dollar rate" was the theme of all the discussions among employees or workers.

Thus on the whole the banks were weakened by the inflation. They lost a considerable part of their capital and reserves, as was shown after the compilation of the "gold balance sheet".

From many facts observed during the inflation it is apparent thatone of the motives which induced firms to unite themselves in "vertical"groups was the desire to exploit systematically the monetary depreciation.

Even many foreigners, who regarded the "prosperity" of Germany with envy, exaggerated the influence exercised by the depreciation of the mark on German production.

The results of Wagner's research are summarized in this proposition: "Paper-money is capital from the point of the private trader, but it is
not so for the national economy.

The classical theory, according to which the increase of the issues of paper money cannot provoke an increase of the total production of the country, was expounded, in a form which may be called final, by Wagner in his work on "Russian Paper Money."

To the theory, according to which the increase of the quantity of money stimulates production—a theory supported, as is well known, by Hume—the classical school is opposed.

THE OPINIONS OF THE CLASSICAL ECONOMISTS ABOUT THE EFFECTS OF THE MONETARY INFLATION ON PRODUCTION

Most varied and contradictory opinions were expressed in Germany and elsewhere regarding the effects which the depreciation of the mark exercised on German economy.

But, according to the graph, in 1920 the psychological crisis provoked by the imposition of the Treaty of Versailles was weakened and little by little confidence in the German currency was re-established; in fact, the velocity of circulation of the mark fell.

VARIATIONS IN THE VELOCITY OF CIRCULATION OF THE
GERMAN MARK—1914-22

For some time after the outbreak of the war it was observed in
Germany that not all the paper money issued remained effectively
in circulation. During the war and also after the Armistice paper
money was extensively hoarded, especially in the country.