Abstract
Completing the theoretical analysis of deflation, I will now be able to apply the theoretical knowledge in interpreting historical cases of deflation. With knowledge of the possible causes and consequences of deflation, the interpretation of these historical facts should shed new light on the historical examples. Therefore, these examples will serve to illustrate the theoretical points made in the above analysis. Two cases will be discussed: the price deflation in the United States from 1865 to 1896 and the price deflation in Germany during the Great Depression. These cases have been selected for mainly two main reasons. First, they serve as a practical demonstration of the majority of the above analyzed types of deflation. Second, these examples are particularly illustrative. The American deflation is one of the longest in history. The German deflation is one of the sharpest during the Great Depression, which is itself of great interest for the economic historians and source of important misinterpretations.
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Notes
- 1.
A very popular argument against a 100 % gold standard is that such a system would hamper economic growth. When the supply of gold could not keep up with economic growth, prices would fall and lead to a recession. It is one of the most widespread myths among economists that the money supply must rise as fast as productivity to prevent price deflation. The American growth deflation illustrates that this argument is simply a myth.
- 2.
- 3.
See Rothbard (2002, p. 123).
- 4.
See Studenski and Kroos (1963, p. 143).
- 5.
The name “greenback” resulted from its printing, which was black on the front and green on the back. The name also refers to the backing of these notes by essentially green paper, in contrast to previous notes that were backed by gold.
- 6.
See Mitchell (1903. p. 143).
- 7.
See Shields (1977, p. 115).
- 8.
See Studenski and Kroos (1963, p. 147)
- 9.
See Studenski and Kroos (1963, p. 148)
- 10.
See Studenski and Kroos (1963, pp. 154–155).
- 11.
State banks were only allowed to do business in the borders of the state that chartered them.
- 12.
Vera Smith calls this system a “bond deposit system,” because in order to issue notes government bonds had to be issued (1990, p. 52).
- 13.
See Smith (1990, p. 149).
- 14.
See on this Rothbard (2002, pp. 151–152).
- 15.
See Rothbard (2002, p. 154).
- 16.
See on the Resumption Act, Dewey (1907, pp. 372–274).
- 17.
See Barrett (1931, p. 186).
- 18.
See Rothbard (2002, p. 157).
- 19.
See Rothbard (2002, p. 160).
- 20.
See Smith (1990, p. 151).
- 21.
Source: U.S. Department of Commerce, 1975, Series E 52–63, p. 201.
- 22.
See U.S. Department of Commerce, 1975, Series E 87–89, p. 203.
- 23.
See U.S. Department of Commerce, 1975, Series E 174–182, p. 212.
- 24.
See Friedman and Schwartz (1971, p. 33).
- 25.
See U.S. Department of Commerce (1875, p. 212).
- 26.
See U.S. Department of Commerce (1875), Series F 1–5, p. 224.
- 27.
Currency includes gold coins, gold and silver certificates, U.S. notes, currency notes, treasury notes of 1890, standard silver dollars, subsidiary silver, fractional currency, other U.S. currency, state bank notes, national banknotes, minor coin, federal reserve notes and federal reserve bank notes.
- 28.
These figures are in million dollar. Source: Friedman and Schwartz (1971, pp. 704–705), Table A-1.
- 29.
It must be noted that these numbers cannot be taken at face value. 17 % presents an accuracy that is unrealistic. However, it is safe to state that there was an increase in the money supply over this period between 10 and 30 %.
- 30.
See Friedman and Schwartz (1971, pp. 77–78).
- 31.
See Friedman and Schwartz (1971, pp. 106–107).
- 32.
See Friedman and Schwartz (1971, pp. 108–111).
- 33.
Austria would follow in 1892 and Russia and Japan in 1897.
- 34.
See Palyi (1972, p. 22), fn 19.
- 35.
See on the quality of money Anderson ([1917] 2000) and Bagus (2009).
- 36.
See U.S. Department of Commerce (1975), Series F 1–5, p. 224.
- 37.
The purchasing power of wages increased from 32 (1910–1914 = 100) in 1865 to 104 in 1896. See Warren and Pearson (1933, p.197).
- 38.
See Warren and Pearson (1933, p. 44), Table 5.
- 39.
See U.S. Department of Commerce (1875, pp. 231–300, 689–697).
- 40.
See US Department of Commerce, 1975, W 96–106, pp. 957–959.
- 41.
See Faulkner (1924, pp. 426–428).
- 42.
See Shields (1977, pp. 241–242)
- 43.
See Laughlin (1887, pp. 336–338).
- 44.
- 45.
Source: US Department of Commerce, 1975, Series A 6–8, p. 8.
- 46.
See US Department of Commerce, 1975, Series C 89–119, pp. 105–106. Of course by counting every immigrant these data are pretending an accuracy which is absurd.
- 47.
- 48.
See US Department of Commerce, 1975, Series U 1–25, pp. 864–865.
- 49.
See Kuznets (1961, p. 64).
- 50.
See Kuznets (1961, p. 65).
- 51.
See Kuznets (1961, p. 92).
- 52.
See US Department of Commerce, 1975, Series Q 321–328, p. 731.
- 53.
See US Department of Commerce, 1975, Series Q 329, p. 732.
- 54.
Thus, the Austrian economist Patrick Newman (2012) argues that there was no depression between 1873 and 1879. He maintains that falling prices were the reason for the misinterpretation of the period. Also new institutionalists seem to come to a largely positive assessment of the period similar to the Austrians. Douglass C. North states: “In the era between the Civil War and World War I, we emerged as the greatest industrial nation in the world, without at the same time forfeiting our preeminence as a world supplier of raw materials and foodstuffs… [the] United States industrial development was spectacular during this period…” (1961, p. 195) Even though North speaks of a longer period than we are considering he makes a very positive statement on it. Thus, it would seem strange to argue that he thinks that in this period a “Great Depression” occurred. Moreover, North mentions the falling prices and does not make them responsible for disruptions but on the contrary sees them as the result of economic growth: “Up until 1896 the international price level fell, reflecting the fact that output was increasing at a more rapid rate than the money supply, but after that date the reverse was true.” (1961, p. 201)
- 55.
See also as positive accounts of the period in the works of Dickey (1977) and Shields (1977) that belong to this first group. Those authors that are not Austrian economists but more in the monetarist tradition. Another case is Coppock (1961). His paper has the title “The Causes of the Great Depression, 1873–1896,” however, he argues that only the trend rate of growth was reduced in this period (p. 216). Interesting is also that Friedman and Schwartz themselves note that the price fall might have misled economists about the severity and length of the recession of the 1870s: “But the sharp decline in financial magnitude, so much more obvious and so much better documented than the behavior of a host of poorly measured physical magnitude, may well have led contemporary observers and later students to overestimate the severity of the contraction and perhaps even its lengths.” (1971, pp. 87–88)
- 56.
See also Fels (1951, p. 325).
- 57.
Achinstein (1961, p. 166, 170)
- 58.
- 59.
In Britain the people living at the time and later academics regarded conditions as bad despite the fact that the “average consumer appears to have been considerably better off at the end of the ‘depression’ than before” (Selgin 1997, p. 50). Selgin (1997, pp. 51–52) declares it, thus, as a myth that there was a depression in Britain between 1873 and 1896. He makes out four causes for the myth that can also be found for the case of the U.S. First, some sectors of the economy were depressed indeed, like in the U.S. agriculture. Second, there were cyclical upturns and downturns. Third, there existed wrong theories, namely that falling prices would disturb production. Those theories existed also in the U.S. Fourth, sympathy for negatively affected groups. In the U.S. such a group would be farmers. See on this myth also Musson (1959).
- 60.
See Davis (2006, p. 106). Davis criticizes the NBER chronology. He uses his own data set, consisting of 43 annual components in the manufacturing and mining industries. He reduces the number of recessionary years in the period from 1865 to 1896 to seven eliminating three recessions completely. Davis argues convincingly that the persistent price deflation in the period made Willard Thorp (1926) in his Business Annals (on which NBER data, for example Wesley Mitchell’s work (1927) is based) overestimate the duration and number of recessions (Davis 2006, p. 113). I regard Davis’ data stemming from enterprises located in higher stages of production more adequate than GDP numbers to identify historical economic cycles because cycle movements are more pronounced in the higher stages of production.
- 61.
- 62.
See Siegel (1998, p. 8).
- 63.
Olson, (1971, p. 132) explains that the free rider problem can be overcome in large groups if they offer as a “by-product” services from which non-members can be excluded.
- 64.
Friedman and Schwartz state that there is the “now [!] widely held view that secular price deflation and rapid economic growth are incompatible” (1971, p. 15). With the “now” it is suggested that this belief was not always so widespread.
- 65.
See Friedman and Schwartz (1971, p. 45).
- 66.
Taussig 1892, p. 90 states that farmers and railroads were mostly hurt by an increase in their long-term debt burden.
- 67.
- 68.
See Unger (1964, pp. 220–221).
- 69.
See Unger (1964, p. 49).
- 70.
Cincinnati Enquirer, Aug. 17, 1867, quoted in Unger (1964, p. 46).
- 71.
See Unger (1964, pp. 46–47).
- 72.
See Unger (1964, p. 47).
- 73.
See Unger (1964, p. 45).
- 74.
- 75.
- 76.
Often mortgages would not be renewed in the wake of the Panic of 1873. See Shannon (1957, p. 55).
- 77.
See for the support of farmers for the greenback movement in the 1870s, Shannon (1957, p. 57).
- 78.
See Shannon (1957, p. 59).
- 79.
Hugh Rockoff (1990) argues that the children’s book “The Wizard of Oz” is a monetary allegory about the free silver movement.
- 80.
For the reasons for the fall in the price of silver see Laughlin (1968, pp. 109–206). The ratio of production of silver to production of gold increased from 6.0 in 1861–1865 to 12.5 in 1871–1875, the period of demonetization of silver. The ratio kept increase to its peak in 1890 of 23.4. See Warren and Pearson (1933, p. 145), Table 26.
- 81.
See Friedman (1990, pp. 1174–1175) for an hypothetical estimation of prices under free silver coinage.
- 82.
See Weinstein (1970, p. 6). Shannon states: “Indebted farmers were quick to pick up the chorus of the mine owners” (1957, p. 59). For an overview on the different argument reflecting the different interests also offered for free coinage of silver see Robert F. Hoxie: “(1) A lack of confidence and business enterprise. (2) A low range of prices. (3) Increasing indebtedness. (4) The depression of our great silver mining industry.” (1893, p. 546)
- 83.
- 84.
See on this alliance Dewey (1907, p. 406).
- 85.
(Weinstein 1970, p. 293). Weinstein adds that the south was only giving passive support.
- 86.
See Unger (1964, p. 335).
- 87.
See Weinstein (1970, p. 125).
- 88.
See Weinstein (1970, p. 128).
- 89.
See Cong. Record, 45th Cong. 2D see., vol. 7, pt. 2, p. 1,061, Feb. 15, 1878, quoted in Weinstein (1970, p. 302).
- 90.
See Unger (1964, p. 330).
- 91.
For John Percival Jones, see Weinstein (1970, pp. 53–81).
- 92.
See Jones, Resumption and the Double Standard, pp. 92–93, quoted in Weinstein (1970, p. 99).
- 93.
See Friedman and Schwartz (1971, p. 115), fn. 40.
- 94.
Concerning this point, see Hülsmann (2004, p. 40).
- 95.
Fekete argues that gold coins won out in a free market setting and pushed silver out of the market. Advances in metallurgy made it possible to mint small gold coins also (1996, p. 12–13). In fact, the two reasons together, the demonetization of silver and the new technologies might be responsible for the triumph of gold.
- 96.
See Hülsmann (2004, p. 38–39).
- 97.
See Dewey (1907, p. 460).
- 98.
See Goodwyn (1978, p. 239).
- 99.
A silver dollar containing 371.25 grains of fine silver. See Friedman and Schwartz (1971, p. 113).
- 100.
See Friedman and Schwartz (1971, p. 116). Faulkner states about the farmer: “He felt strongly that eastern capital was benefiting from his misfortune” (1924, p. 424). Also Shannons states that Eastern investors kept providing for the mortgages (1945, p. 306). See also Goodwyn who states that the bondholders and the Eastern financial community were almost identical (1978, p. 11).
- 101.
The Populists in addition demanded the end of the national banking system. See Nugent (1968, p. 106).
- 102.
See Shields (1977, p. 201).
- 103.
See Folsom (2003, p. 18).
- 104.
See Faulkner (1924, p. 456).
- 105.
See Shannon (1945, p. 173).
- 106.
See Shannon (1957, p. 48).
- 107.
- 108.
See Shannon (1945, p. 189).
- 109.
See Elliot (1890, pp. 36–52).
- 110.
See Faulkner (1924, p. 424).
- 111.
See Stock (1996, p. 65). According to Mancur Olson’s group theory it is easier to organize a group when services like the educational services can be withheld from non-members. Thus, even large groups can organize and as a additional service start lobbying for the interests of the group as a “by product”. See Olson (1971, p. 132).
- 112.
- 113.
See Unger (1964, pp. 201–202).
- 114.
- 115.
See US Department of Commerce, 1975, Series F 250-261, p. 240.
- 116.
Shannon (1957, p. 50); Shannon’s statement has to be qualified in one point. Namely, the necessities of farmers fell also in price. Actually, as U.S. Department of Commerce (1975), Series E 52–63, p. 201, indicates that farm prices did not fall faster than other commodity prices. See on this point also Bemis (1893, p. 208).
- 117.
US Department of Commerce, 1975, Series F 125–129, p. 232.
- 118.
- 119.
US Department of Commerce, 1975, Series F 250–261, p. 240.
- 120.
- 121.
See Rothbard (2002, p. 166). Also Shields states “that income in agriculture in real terms increased at a relatively rapid rate during these years of falling prices, and farm unrest, although not as rapidly as economy-wide income” (1977, p. 219). See also on the absolute increase in farmers’ wealth Emerick (1897, p. 109).
- 122.
However, these theories are not completely new. Rather old theories were used to make the argument that seemed to fit one’s course. The old idea that the amount of money could be insufficient was vindicated by making the quantity theory of money popular. The declining prices thereby indirectly helped the quantity theory to its popularity. As McClean Hardy indicates: “The Quantitäts-Theorie is not a new one, but several circumstances have combined recently to give to it exceptional prominence. In the first place, it forms the basis of the demand for the free coinage of silver: There is not enough silver in the country to supply the needs of business and trade; it is impossible for one metal alone to fulfill all the demands made upon it; and since prosperity can neither be restored nor maintained while there is a scarcity of the circulating medium, silver must be remonetized, if low prices and consequent hard times are not to continue” [Italics in the original] (1895, pp. 145–146). It is also interesting to see the undifferentiated reasoning that equates low prices with hard times as it happens in this quote, not taking into account that price differentials are the relevant factor for the entrepreneur.
- 123.
- 124.
It happens that the co-founder of the University and agriculture enthusiast Ezra Cornell entered the railroad business, getting into trouble during the Panic (and credit contraction) of 1873. The anti-deflation stand of Cornell University personell would last longer. Later in the 1930s George F. Warren and Frank A. Pearson from Cornell University would attack deflation, complaining about the injustice it allegedly does to the traditionally long-term indebted farmers (1983, p. 274, 431). Palyi named them “agricultural economists.” (1972, p. 281)
In the midst of the controversy about his monetary stand in the summer of 1897, Andrews had also accepted the offer received from John Brisben Walker, editor of Cosmopolitan Magazine to take part in his proposed “Cosmopolitan University.” This project was never realized. Walker, who was an automobile and railroad entrepreneur and owner of 1,600 acres in North Denver, was apparently more sympathetic with the monetary views of Andrews. All this is not to say that Andrews became corrupted in his monetary opinion. But it indicates that there were naturally forming alliances between interest groups gaining from a reversal in the price fall and economists that provided theories that seemed to support those interests.
- 125.
One of the most widespread monetary fallacies is that economic growth is only possible if accompanied by a growth of the money supply.
- 126.
See Born (1967, p. 34).
- 127.
- 128.
Borchardt (1979, p. 121), fn. 43 points out that many people regarded the reparations as the cause of the depression. Thus, the real causes were not seen.
- 129.
See Anderson (1979, pp. 61–69).
- 130.
See Rallo (2006, p. 11).
- 131.
See Rallo (2006, p. 12).
- 132.
See Anderson (1979, pp. 144–150) for the extent of U.S. credit expansion 1922–1928.
- 133.
- 134.
- 135.
The U.S. wanted the Mark 100 % backed by gold but the British, French and Italian did not want Germany to have a 100 % gold standard while their own redemption was still suspended. Furthermore, Great Britain wanted a sterling-based gold exchange standard. See Rallo (2006, p. 14).
- 136.
See Rallo (2006, p. 28).
- 137.
See Palyi (1972, p. 177).
- 138.
See Schumpeter (1929, p. 849).
- 139.
- 140.
See Palyi (1972, p. 162).
- 141.
See Palyi (1972, pp. 46–47).
- 142.
It does not matter whether they were government loans or commercial bank loans. Also the government loans were financed in the end via the expansionary banking system.
- 143.
See also Stucken (1953, p. 70).
- 144.
See Keiser and Benning (1931, p. 154).
- 145.
See Born (1967, p. 19).
- 146.
See Palyi (1972, pp. 206–207).
- 147.
See Palyi (1972, p. 229).
- 148.
Source: Deutsche Bundesbank (1976, p. 4).
- 149.
Source: Deutsche Bundesbank (1976, p. 4).
- 150.
See Palyi (1972, p. 200).
- 151.
See Stucken (1953, p. 76).
- 152.
See Aldcroft (1978, p. 240).
- 153.
See Nussbaum (1978, pp. 270–271).
- 154.
See Anderson (1979, p. 205).
- 155.
See Bartsch and Eismann (2005, p. 14).
- 156.
See Palyi (1972, p. 166).
- 157.
See Palyi (1972, p. 167).
- 158.
See Deutsche Bundesbank (1976, p. 7).
- 159.
See Palyi (1972, p. 219).
- 160.
See Palyi (1972, p. 223).
- 161.
See Palyi (1972, pp. 220–228).
- 162.
See Stucken (1953, p. 79).
- 163.
See Palyi (1972, p. 254, 259).
- 164.
See Born (1967, p. 14, 20).
- 165.
See Stucken (1953, p. 82).
- 166.
See Borchardt (1979, p. 91).
- 167.
See Born (1967, p. 65); It is often maintained, that the Credit-Anstalt became insolvent due to another problem. In the spring of 1931 the plan of a German-Austrian customs union aroused the suspicion of the French that Germany tried to circumvent the prohibition of an “Anschluss” by the Versailles Treaty. The French government threatened consequences were the plan to be put through. Then, it is often stated, French banks withdrew short-term capital from Germany and Austria, with other foreign banks following suit. Karl E. Born, however, shows that until April 1931, Austria enjoyed an influx of foreign exchanges. Thus, the collapse of the Credit-Anstalt was not politically caused but rather caused by the economic losses the bank suffered. Charles Kindleberger shares Born’s assessment (1987, p. 146).
- 168.
See Palyi (1972, p. 252).
- 169.
See Born (1967, p. 65).
- 170.
See Born (1967, p. 71).
- 171.
- 172.
See League of Nations (1935, p. 41). In 1932, the net loss would fall to 3 billion Reichsmarks.
- 173.
See Stucken (1953, p. 85).
- 174.
Concerning “hoarding,” see Born (1967, p. 108, 114–115).
- 175.
See Borchardt (1979, p. 92).
- 176.
- 177.
- 178.
1936 = 100. Source: Deutsche Bundesbank (1976, p. 7).
- 179.
Chart 10: 1913 = 100 and Chart 11: 1913/14 = 100. Source: Deutsche Bundesbank (1976, p. 7).
- 180.
- 181.
See Patch (1998, p. 176).
- 182.
See Palyi (1972, pp. 254–256).
- 183.
- 184.
See Palyi (1972, p. 168).
- 185.
See Borchardt (1979, p. 99).
- 186.
See Patch (1998, p. 182).
- 187.
See Nussbaum (1978, p. 295).
- 188.
- 189.
(Stolper 1966, p. 136). The original text is as follows: “Ziel der Deflationspolitik war es, die politischen Preise auf den Stand herabzudrücken, den sie in einem anpassungsfähigen System von selbst eingenommen hätten”.
- 190.
- 191.
Gross social product is an insufficient measure of economic activity. It would be better to have a gross measure of production including all stages of production. Nevertheless, the gross social product can indicate the trend of a depression.
- 192.
1925 = 100. Source: Statistisches Bundesamt (1972, p. 260).
- 193.
See Hülsmann (2013, p. 104).
- 194.
1928 = 100. Source: Deutsche Bundesbank (1976, p. 7).
- 195.
See Borchardt (1979, p. 107).
- 196.
- 197.
See Mises (1931, p. 21).
- 198.
See Borchardt (1979, p. 104).
- 199.
See Wagemann (1935, p. 16).
- 200.
Mises (1978, p. 185); The original text is as follows: “Es ist nicht zu verkennen, daß die Unrentabilität vieler Produktionszweige und die Arbeitslosigkeit eines nicht unbeträchtlichen Teiles der Arbeitnehmer nicht nur Folge des Abstieges der Konjunktur ist. Unrentabilität und Arbeitslosigkeit werden im Augenblick durch die allgemeine Depression verstärkt, sie sind aber in der Nachkriegszeit zu dauernden Erscheinungen geworden, die auch im Aufschwung nicht ganz verschwunden sind.” (1931, pp. 14–15)
- 201.
See DWI-Forschungshefte, Nr. 3/1968, p. 10 quoted in Nussbaum (1978, p. 166).
- 202.
See Mises (1931, p. 27).
- 203.
See Mises (1931, p. 18).
- 204.
Schacht (1931, p. 181, 184); The original text is as follows: “Der größte Fehler dieses ganzen Systems liegt auf der Hand, es ersetzt die Verantwortung des einzelnen Individuums durch eine angebliche Kollektivverantwortung …. Das Gefühl der Arbeitspflicht und der Antrieb zur Selbsthilfe aus eigener Kraft, kurz das, was ein Volk groß macht und was in jedem gesunden Menschen drin steckt, wird durch die Überspannung und den Mißbrauch der Sozialversicherung getötet: der Wille zum Sparen wird geschwächt, die Neigung zum verschwenderischen Konsum gesteigert.”
- 205.
See Palyi (1972, p. 166).
- 206.
See Borchardt (1979, p. 106).
- 207.
The decade of the 1920s was already a very protectionist phase. Christoph Buchheim sees the “lack of a liberal trade system” as the root for the problems (2002, p. 113).
- 208.
See League of Nations (1935, p. 92).
- 209.
See Stucken (1953, p. 93).
- 210.
See Stucken (1953, p. 94).
- 211.
Another possibility would be to use accumulated gold balances to pay for imports. But this possibility is limited by gold balances and cannot go on forever.
- 212.
- 213.
See Stucken (1953, p. 89).
- 214.
See Mises (1931, p. 21).
- 215.
See Anderson (1979, p. 230).
- 216.
In billion RM. Source: Deutsche Bundesbank (1976, p. 7).
- 217.
See Borchardt (1979, p. 88) for a critique of traditional interpretations and Korsch (1981) for a traditional interpretation of the German depression. Friedman and Schwartz (1971) criticise the failure of central banks and especially the Federal Reserve to inflate the money supply. Aldcroft (1978, pp. 229–331) agrees stating that the restrictive monetary policies of the Federal Reserve were responsible for the severity of the crisis.
- 218.
See, for instance, the Keynesian interpretation by Korsch (1981, p. 16).
- 219.
In fact, Keynes himself recommended both monetary expansion and expansionary fiscal policy to get out of the depression. See Skidelsky (2002, p. 99).
- 220.
Keynesian economist Andreas Korsch, in his discussion of the economic policies during the German depression, argues that it would be the task of the government to engage in expansionary monetary policies when credits are restricted (1981, p. 35). Also Kindleberger states that the Reichsbank should have acted as lender of last resort and bailed out the Danatbank (1987, pp. 294–295).
- 221.
See Bombach (1976); Gottfried Bombach writes: “Man ist sich einig in Brünings Versagen.” (1976, p. 6) [Translation: There is unanimity about Brüning’s failure.] Korsch writes that it would be known that the economic policies of Brüning made the depression more severe (1981, p. 13). Werner Jochmann claims that the effects of the deflationary policies were ravaging (1978, p. 111). Kindleberger writes: “The deflationary policy was followed for two fateful years, though its inadequacy should have been immediately clear” (1987, pp. 131–132), adding that “the verdict is unanimous that Brüning failed” (p. 174).
- 222.
- 223.
See Borchardt (1979).
- 224.
See Borchardt (1979, p. 99). There were two chancelor’s in between Brüning and Hitler. Franz von Papen and Kurt von Schleicher did not change economic policies drastically. Franz von Papen, though, after July 1932, introduced some measure for credit expansion. See Nussbaum (1978, p. 375). He introduced a small public works program and a Steuergutschein program. The Steuergutscheine were tax deductibles for future tax payments and were given when taxes were paid. They were anticipating a reduction of future tax revenues. Kurt von Schleicher introduced another small public work program.
- 225.
See Mises (1931), for this interpretation.
- 226.
See Rothbard (2000, pp. 23–29) for appropriate government policies in a depression.
- 227.
See Mises (1931, p. 20).
- 228.
- 229.
Palyi (1972, p. 293); In relation with the recovery and the next artificial boom in Germany, Palyi comments on Brüning’s deflationary policy: “Actually behind foreign exchange restrictions and a host of petty regulations, Germany, well prepared for an upturn by Brüning’s policy of cost deflation, was the one and only country that managed to establish full employment in the late 1930s—by ‘contra-cyclical’ policies, i.e., resource mobilization for war” (1972, p. 34). Palyi later states: “Brüning’s heroic efforts to save the mark were largely futile, since he was unable to carry the deflation to its logical conclusion” (p. 339). At least, Brüning’s deflationary policies, paved the way for the recovery as Palyi indicated. Also Nussbaum states that when the Brüning government dismissed on May 30th 1932, the end of the crisis was near (1978, p. 373).
- 230.
Hülsmann (2013, p. 105) argues that due to Brüning’s deflationary policies and a lack of similar policies in France, France fell far behind Germany economically in the 1930s. Hitler used the German economic advantage gained thanks to Brüning’s policies to overrun France in 6 weeks in 1940.
- 231.
Later, the government bailed out companies and thus the public sector of the economy increased. See Nussbaum (1978, p. 329).
- 232.
See Patch (1998, p. 176).
- 233.
- 234.
- 235.
See Borchardt (1979, p. 109). Also Palyi writes: “The ‘deflation’ carried out until late July 1931 by Brüning and Luther [President of the Reichsbank] has been blamed for Hitler’s rise to power. This is one of the most pernicious myths which has grown out of the interwar monetary and political confusion” (1972, p. 262). Palyi argues that there was no alternative to Brüning’s policy. The political circumstances and German public opinion did not allow him to agree upon the French conditions for help. He also argues that it was General Schleicher’s mistake to turn to the left, thereby irritating Hindenburg who replaced Schleicher on January 30, 1933 with an anti-labor coalition led by Hitler, whose party was almost bankrupt and falling apart. (p. 264). For a similar assessment see Hülsmann (2013, p. 105).
- 236.
Thus, the capital goods industry was still overextended in 1932. See Zumpe (1980).
- 237.
See Palyi (1972, p. 263).
- 238.
See Born (1967, p. 44).
- 239.
See Aldcroft (1978, p. 167).
- 240.
- 241.
See Patch (1998, p. 179).
- 242.
See Korsch (1981, p. 31). Dräger was also engaged in the founding of the “Studiengesellschaft für Geld- und Kreditwirtschaft” [Research society for the economics of money and credit] in which politicians, state employees, scientists, entrepreneurs and members of labor unions gathered.
- 243.
See Jochmann (1978, p. 103).
- 244.
See Borchardt (1991, p. 37).
- 245.
See Patch (1998, p. 177).
- 246.
See Nussbaum (1978, pp. 333–335). The marxist author Lotte Zumpe argues that the majority of the financial sector, the coal and steel industries, the over-sea trade and the Junkers wanted Hitler to take power (1978, p. 11). She sees the rearmament as a reason for Hitler’s support by for example the Keppler-Kreis, a circle of bankers, heavy industrialists and Junkers who supported Hitler (p. 35). However, it is also possible that the support for Hitler was partially motivated by Hitler’s support of inflationary measures. Those measures would have benefited the economic establishment of bankers, heavy industrialists and Junkers who were threatened by price deflation.
- 247.
As quoted in Borchardt (1979, p. 123), fn. 51; The original text is as follows: “… Der Faschismus bedeutet Inflation! Sein Ziel ist es, den Arbeitern Inflationslöhne zu zahlen, für die sie kaum Brot kaufen können, damit die bankrotten Schwerindustriellen und Großagrarier auf Kosten der Arbeiterschaft gesund gemacht werden können. Der Faschismus ist das Mittel zur politischen Knechtung der Arbeiterschaft, die Inflation ist seine wirtschaftliche Waffe gegen die Arbeiterschaft.”
- 248.
See Nussbaum (1978, p. 224).
- 249.
See Palyi (1972, p. 260).
- 250.
The aim of the Osthilfe was to maintain the structure of ownership in times of price deflation and farm debts. The agricultural establishment did not want to lose its property and opposed the looming redistribution. See Nussbaum (1978, p. 365).
- 251.
- 252.
See Stolper (1966, p. 172).
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Bagus, P. (2015). Two Historical Examples of Deflation. In: In Defense of Deflation. Financial and Monetary Policy Studies, vol 41. Springer, Cham. https://doi.org/10.1007/978-3-319-13428-4_5
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