The most influential person in history you’ve never heard of, Dennis Mangan says, is Rudolf von Havenstein, the German central banker who brought about the Weimar hyperinflation of the early 1920s:
I believe that there are a couple of important lessons from the story of von Havenstein. One comes from the fact that the man was a patriot and an aristocrat, i.e. he always thought that he had his country’s best interest at heart. Despite that, he created one of the biggest economic firestorms ever to hit a civilized country. Admittedly, he faced some very tough choices, with Communists and Rightists battling in the streets, unemployment at record highs, industrial production plummeting, and Germany owing a huge war debt to the victors of WW1.The second lesson from his story is the difficulty in ceasing to print money once it has already begun. It’s frying pan or fire, take your pick.
Any resemblance to our current situation is purely coincidental.
If you glance at a graph of German price levels in the early 1920s, you immediately notice that they form an exponential curve — on a log graph, where constant inflation is a straight upward-sloping line. For inflation to “work” it has to be unexpected inflation — hence the ever-increasing slope. Of course, after a while, everyone expects not only inflation, but ever-increasing inflation, and the whole things becomes futile — but no one wants to make the tough call:
When hyper-inflation gets going, everyone pretty much knows what needs to be done to cure it; but things have to get worse before they can get better. The cure will, initially, make things worse. But, the longer the cure is delayed, the worse will be its effect.In democratic politics there will be people who claim (from ignorance, or dishonest power seeking) to cure the problem without pain, without having to go through the period where things are worse. So the political incentive is to delay the cure, and let somebody else take the flak.
Even if you do the right thing and succeed, then the judgment of popular culture may go against you. e.g. There is no real doubt that Margaret Thatcher saved the UK economy. The evidence is that her administration reversed decades of relentless relative economic decline. But the cure was very painful, because so long delayed — and Thatcher is (by many on the left and centre) remembered for the pain she inflicted — the economic recovery and a couple of decades of propserity are simply taken for granted.