Having been robbed, the Germans became a nation of robbers.

Inflation: The Witches Sabbath, a Thomas Mann lecture from 1942.

“Inflation is the way out.”

Podcast: The Sovereign Debt Bubble with Luke Gromen

“…four to five years of, call it 12 to 18% annual inflation” - to get debt to GDP back to a less insane level.

Gromen’s being theoretical here, but I have heard similar comments from finance people seriously advocating this (the people calling for it generally seem to own leveraged assets.)

The finance people don’t say 12% or 18%, though - they say 6%, meaning 6% CPI, which likely means 12% to 18% annual bumps in the real world cost of living. This level of inflation would destroy what’s left of the middle-class, and be an existential threat to the bottom 50% with no real assets.

Even more concerning is Gromen’s conclusion is that the powers that be may want to “solve” their problem much quicker, via hyperinflation. Hyperinflation is not very high inflation - it’s a currency collapse, a Great Reset, to borrow from Klaus Schwab.

I’ve written quite a bit about why hyperinflation is exceedingly bad for most people and for society. For example, in “A Very Ordinary Life” and “The Raven of Zurich.” All the contemporary accounts agree - while a very few thrive on hyperinflation, society itself is torn apart.

I personally don’t see hyperinflation in the United States as a threat in the foreseeable future, but then again my main investment mistake since 2008 has been underestimating how insane our central bankers and politicians will get in order to save the top 0.1%. I put nothing past these people.

One of the most concise descriptions of the German hyperinflation I’ve seen is Inflation: The Witches Sabbath by Thomas Mann.

This was published in Encounter magazine in February 1975. The full text is reproduced below. This was a Princeton lecture he gave in 1942, and the translation is by Ralph Manheim.

THE GERMAN Inflation had its roots in the First World War which was ruinously costly, not only in terms of human lives, but of labour and raw materials as well. Day after day, year in, year out, fortunes were spent. At the same time numerous commodities that Germany had imported before the War vanished from the market. More currency was in circulation because more men—and women—than usual were working. The Germans became poorer in tangible goods and richer in banknotes…

What was the popular reaction to this state of affairs? Since no one knew what the future would bring, since most people had no one to save for because their sons, husbands, and brothers were at the Front and might never return, and since the rising cost of living made saving next to impossible in any case, they bought whatever they could lay hands on regardless of the price. A pound of rancid butter brought 20 marks on the black market, which began to play a critical role in almost every German household. It came to be regarded as normal and even honourable to break the law by exceeding one's rations and spending unconscionable sums on illegal purchases.

IN MY OWN HOME we were relatively law-abiding. I say relatively, because it was becoming almost impossible to live on what the law allowed, for one thing because unscrupulous and insatiable black marketeers diverted so much goods from the already understocked legal market. The black marketeers—sinister, repellent figures —would come in the evening and talk in whispers to my wife in the vestibule. "For heaven's sake, Herr Hirsch", my wife would say, "forty pfennings for an egg! Why, last week it was only thirty. What are we coming to?"

The black marketeer, a shady young man of nineteen or twenty, too sickly no doubt to serve at the front, but vigorous enough to intimidate my wife who in a way was dependent on him, laughed. "Don't be a fool", he said, "I could ask 50 pfennings if I wanted, or 60 or 70. You need the stuff. You have four children. They have to eat, don't they?"

And so my wife bought four of his expensive eggs. She should have taken eight, for at his next visit, a week later, Herr Hirsch had raised his prices considerably. As a matter of fact he had stopped calling himself Hirsch; now he was Herr Rabenstein—actually von Rabenstein, if I remember right.

HIRSCH VON RABENSTEIN and company on the one hand, and their customers, the German people, on the other helped to bring German inflation into the world, though it also had other midwives who are well known to us. During the War, to be sure, we didn't call it "inflation." We merely complained of the "rising prices" on the legal and illegal markets. We didn't know yet that the disproportion between demand and supply, between the amount of currency in circulation and the amount of commodities available would increase according to a malignant inherent law.

THE BLOCKADE ENDED with the War. Rationing and other wartime restrictions were lifted. But Germany had lost its immense foreign holdings, its industry was at a standstill, and the demands of the victor powers made deep inroads on the country's remaining wealth; Germany had lost the confidence of the world and its self confidence as well. These conditions gave rise to what was then know as the "rush for material goods."

The buying spree that had begun during the War surpassed all bounds afterwards. For fear of currency devaluation, people bought everything in sight—it never occurred to them that in so doing they were helping to devalue the already devalued currency still further. All Germany became one enormous black market....

Once the mechanism of Inflation has been set in motion it is hard to stop. Any attempt on the part of individuals to oppose it is like trying to stop Niagara Falls with an umbrella. The war against Inflation, if it is to succeed, must be a preventive war. On the other hand, economic factors alone would not have sufficed to reduce the German mark, not to a tenth or a hundredth but to a billionth of its former value; political and psychological factors were also at work.

The German penchant for immoderation, for catastrophic irrationality, which since then has brought such unspeakable suffering on the world, was evident even then. Equally evident was the willingness of the German people to put up with whatever their ruling class saw fit. For at least a section of this ruling class, the big industrialists, the inflation was profitable; they were in no hurry to stop it. During those years the Krupps, Stinneses, Thyssens, etc., got rid of their indebtedness, which ran into real millions, by paying their creditors in inflation millions, and thanks to these same inflation millions they acquired real millions-worth of property.

Though Germany was very poor at that time, it possessed great wealth in mineral resources and industrial plant. During the Inflation a radical change occurred; this wealth became concentrated in fewer and fewer hands. The small and medium property-owners lost their holdings, and the biggest snapped them up. They acquired property and paid with paper. Years later one could hear it said that such and such a factory or mine was unproductive and would not be profitable if it had not been acquired for next-to nothing during the Inflation...

NEVER HAVE THOSE who wanted to make money without working found such favourable conditions as in Germany from 1922 to 1924. All that was needed was a certain degree of ingenuity and unscrupulousness. Honest work, however skilled, brought nothing. Consequently, even ordinarily honest people were infected with the fever of speculation. Peasants filled their houses with sewing machines, pianos, and Persian rugs, and refused to part with their eggs and milk except in exchange for articles of permanent value. Medical students became stock-jobbers. Teachers discussed such topics with their classes as how to convert a little money into a lot of money. The answer: by buying foreign currency, holding it for a while and then reselling it. In that way a million could be turned into five millions and ultimately into a billion.

BUT HADN'T PRICES RISEN correspondingly in the meantime? For the most part, yes, but not necessarily; not if you took your money as fast as your legs would carry you to some innocent grocer or wine dealer or artist. If you were lucky, he had the mark quotation for 9 a.m., but not for 12 noon; the difference—to his disadvantage— could be enormous. On the other hand, if he was a little less innocent he might ring up his bank, sigh, wipe the perspiration from his forehead, and rectify his prices. Yes, the purchaser could also be the loser. For instance, you might drop in at the tobacconist's for a cigar. Alarmed at the price, you'd rush to a competitor, find that his price was still higher, and race back to the first shop, which may have doubled or tripled its price in the meantime. There was no help for it, you had to dig into your pocketbook and take out a huge bundle of millions, or even billions, depending on the date.

On Friday evenings you could see workers coming out of the factories with baskets, sacks, and suitcases full of money. It didn't do them much good, for the frightened and greedy shopkeepers often raised their prices faster than the value of the currency fell. It became necessary to pay wages daily, and in the end the firm of Krupp among others began to print its own bank-notes. The cities, even the smallest of them, also took to printing money; it was up to some high official to decide how much. It goes without saying that for the time being forgery ceased to exist as a trade.

Large profits could be made by borrowing money. Anyone who had borrowed money in 1920 and bought something substantial—a house, a farm, or a factory—was well off in 1923. The lender was not so fortunate. Shrewd and farsighted individuals leapt at the opportunity to victimise old-fashioned people who failed to understand the spirit of the times. Of these there were only too many. How could a man who in his youth had reckoned in thalers, gulden, kurant marks, and later on in Bismarck's gilt-edged reichsmarks, be expected to think in terms of billions and trillions in his old age?

I can still remember the look of pride on our old governess's face when she told us one day that she was planning to retire soon and live on her savings. At the time the few thousand marks she had in the bank were worth less than a penny. People who had once been wealthy and were still living in their dilapidated old mansions sold their art treasures and furniture to sharpers. A Rembrandt might bring them enough to live on for a few weeks. In the end they were turned out into the streets with their pockets full of worthless multi-coloured paper.

IN THOSE DAYS you had to keep abreast of the times to survive. Sometimes you were cheated without malice aforethought. During the War I had invested ten thousand marks in a friend's country house, where I was a frequent guest. In a sense I was part-owner of the house. For practical purposes, my loan of ten thousand marks was guaranteed by a lien on the house. In the spring of 1923 my friend informed me that circumstances had obliged him to sell his house, so he was returning my money. As a matter of fact, he added with a smile, it was the same ten thousand, the same banknotes, I had given him in 1917; they had been lying untouched in his safe all the while. There I stood, incredulous, baffled and embarrassed, holding the clean, almost new, handsomely engraved museum pieces.

THOSE WHO JOINED IN the "rush for material goods" didn't necessarily fare any better. I can think of no one in my circle of acquaintances who succeeded in weathering the inflation with all his possessions intact. And most of the new fortunes amassed by adventurers vanished as quickly as they had come into being. That is the main reason why I have always regarded the German Inflation as a kind of mirage, a witches' sabbath, that vanished, leaving nothing behind it but headaches and regrets. In the summer of 1923 the Inflation, like the legendary witches' dance, became wilder and wilder, the figures rose faster and faster. Then suddenly the cock crowed, the night was over, and the witch, exhausted and disillusioned, found herself back in her old kitchen. The cock in this case was Dr. Hjalmar Schacht, President of the Reichsbank, who with his enormous stand-up collar did indeed rather resemble a rooster.

LITERATURE is an international undertaking, and I personally had little to complain of during the Inflation. My family of eight was able to live tolerably well on the $25 I received each month from the American literary magazine The Dial for a letter from Germany. One of my sons was at a boarding school in the country. Every term I gave him $5 for his fees, which the headmaster received with satisfaction and gratitude. Other pupils brought silver plates, editions of the classics, live geese, or nothing at all. It was best to have one's children in the country at that time, for life in the cities was mad.

My youngest daughter sat on her rocking-horse and called out: "The Dollar is up!" when the horse's head rose. The same words were sung to the first notes of Beethoven's Fifth Symphony, which have now become a symbol of victory. People spoke of nothing but marks, dollars, and pounds, and the streets of the big cities resembled nothing so much as a stock exchange gone wild. The bars and night-clubs were full to bursting with profiteers spending their ill-gotten gains by the handful.

A SEVERE INFLATION is the worst kind of revolution. The stern measures— currency restrictions, curtailed production, draconic taxes —that a government can and sometimes must take systematically are nothing by comparison. For there is neither system nor justice in the expropriation and redistribution of property resulting from inflation. A cynical "each man for himself" becomes the rule of life. But only the most powerful, the most resourceful and unscrupulous, the hyenas of economic life, can come through unscathed. The great mass of those who put their trust in the traditional order, the innocent and unworldly, all those who do productive and useful work, but don't know how to manipulate money, the elderly who hoped to live on what they earned in the past—all these are doomed to suffer. An experience of this kind poisons the morale of a nation.

A straight line runs from the madness of the German Inflation to the madness of the Third Reich. Just as the Germans saw their marks inflated into millions and billions and in the end bursting, so they were later to see their state inflated into "the Reich of all the Germans", "the German Living Space" "the New Europe", and "the New World Order", and so too they will see it burst. In those days the market woman who without batting an eyelash demanded a hundred million for an egg, lost the capacity for surprise. And nothing that has happened since has been insane or cruel enough to surprise her. It was during the Inflation that the Germans forgot how to rely on themselves as individuals and learned to expect everything from "politics", from the "state", from "destiny." They learned to look on life as a wild adventure, the outcome of which depended not on their own effort but on sinister, mysterious forces. The millions who were then robbed of their wages and savings became the "masses" with whom Dr Goebbels was to operate.

Inflation is a tragedy that makes a whole people cynical, hardhearted and indifferent. Having been robbed, the Germans became a nation of robbers.

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I sometimes get pushback on this topic similar to the letter from Prof. J.P. Stern below, but I’ve studied the contemporary history enough to firmly conclude that Thomas Mann - and Professor Willi Frischauer on the right, below - have the correct conclusion.