By Chet Yarbrough
By: Frederick Taylor
Narrated by: Mark Ashby
Lessons drawn from history are problematic. It is difficult to convince anyone that circumstances of the past are enough like the present to predict the future. First, there is the difficulty of an author’s selection and interpretation of facts. Second, there is the complexity of historical events. Third, and maybe most problematic, a reader/listener will have their own interpretation of an author’s meaning.
The Downfall of Money reflects on Germany’s rise, fall, and rise again, before, during, and after WWI and WWII. Frederick Taylor, the author, offers a British historian’s eye-view of the role money plays in Germany’s 20th century life. Taylor ascends to the clouds and then drops to the ground to view German’ military and economic events; i.e. from the clouds Taylor views Germany’s WWI and WWII leadership; from the ground, he views the stressed lives of German’ citizens.
Taylor’s view from the clouds is that nationalism and imperialism drive Germany to declare war in 1914; economically, Taylor suggests Germany sought more natural resources to feed its industrial growth. Germany wanted to become economically independent and a stronger competitor in world trade. Germany’s aggressive action in the Balkans and acquisitive clashes with Serbia and Russia triggered WWI with the assassination of Franz Ferdinand and his wife as an excuse for invasion. When Germany chooses unrestricted submarine warfare, the United States joins the war.
The war ends on November 11, 1918 with Germany suffering the consequence of the Treaty of Versailles that crippled economic growth and fragmented German society. Taylor refers to the prescient prediction of John Maynard Keynes that the Treaty of Versailles would cripple the German economy and set the stage for another world conflagration. The punitive terms of the Treaty demanded acknowledgement of German’ guilt and required war reparations to France; reparations that could not be produced by a decimated German economy.
Taylor outlines the rise of hyperinflation in Germany. As the German mark’s value deteriorated against other currencies, goods were substituted for marks as a medium of exchange. The hyperinflation effect on the German middle class decimates life savings, making the idea of retirement impossible.
Hyperinflation drives the German middle class to buy things rather than save for retirement. Those things purchased are eventually traded for food. Once the things purchased are gone, labor is all that is left to the middle class. However, middle class labor is paid with inflated wages that eventually are not enough to buy food. The middle class slips into poverty and/or starvation.
In contrast, the wealthy pay inflated marks for food because they can afford it. If they have industrial debt, it is paid with inflated marks that make them richer with unencumbered assets that are traded for more goods. The wealthy become more prosperous and the middle class falls into poverty.
Taylor moves on to the political situation in Germany after WWI. There is no leader of the entire country. There are four provincial territories with their own leadership. Demagoguery becomes a precious commodity because of public discontent. Nazism is a perfect vehicle for focus of German middle class frustration; Hitler rises to power and the stage is set for WWII.
Drastic action is taken by the new dictatorial German government to stabilize the mark by legislating monetary value and penalizing any citizen that exchanges marks for other currency, at prices less than legislated value. Nationalism fuels a fire for war; driven by blaming others (principally Jews) for Germany’s economic collapse. Taylor also assigns responsibility for WWII to France, Britain, Russia, and the United States for intransigent expectation of war reparation from a bankrupt country.
In Taylor’s last chapter, the risk of quantitative easing is inferred to be a precursor of hyperinflation that will exacerbate the gap between rich and poor by decimating the middle class. Taylor offers that idea as an inference rather than prediction for the 21st century. Taylor’s observations are a tribute to his veracity as a historian. History is not prologue to a future because differences are always evident between past and present. However, there are clues in the past that may help nations deal with the present to improve the future.
Germany’s recovery from WWII is credible evidence of the importance of how monetary policy effects economic recovery. One might argue that a TARP program for Europe eventually stabilized the German economy and assured the resumption of world trade. Rather than a Treaty of Versailles like that at the end of WWI, the allied powers (particularly the United States) adopt monetary policies that focus on rebuilding national economies rather than punishing losers of a war. Today’s leaders will draw their own conclusions about monetary policy for today’s world from Taylor’s history of The Downfall of Money.