Letter #229: Fiat Failures - The German Papiermark
Read now to learn how hyperinflation devastated the German people and economy in the immediate aftermath of World War I.
Fiat currencies and the inflation that they allow politicians to inflict upon the world have a number of devastating impacts on their users. For example, the prices of goods and services soar, so much so that entire societies are rapidly impoverished and brought to the brink of total despair and destruction. Truly, there are few more pernicious evils in history than those exacerbated by the existence of fiat currencies.
One of the most pernicious of those evils is war. Yes, war existed before fiat was invented, and it will likely exist after fiat is eradicated from society. However, without a doubt wars can be launched more frequently and fought a lot longer thanks to fiat currencies. In practice, that works out as follows:
Wars launched by countries that use hard (i.e., inflation-resistant) currencies like gold have to be actively and directly financed by the country as a whole, such as via levying war taxes or selling war bonds. Under such circumstances, citizens are painfully aware up front of the costs of funding the war effort, and unpopular and/or expensive wars will more quickly lead to a loss of confidence in the war effort and perhaps even outright revolution.
Wars launched by countries using fiat currencies don’t have to be financed via war taxes or bonds. Instead, governments can simply print the money they need to fund the war effort, and citizens will be none the wiser until inflation eventually hits their pocket books and tanks their standard of living, perhaps years later. In such a situation, citizens may still lose confidence in the war effort and even launch a revolution, but the financial damage they experience can be exponentially greater by the time the true costs of the war are discovered.
History has given us a number of painful examples of inflation resulting from wars, but perhaps no example is more powerful or well-known than that of Weimar Germany after World War I.
A World Of War, A War On Money
While the hyperinflation of Germany’s money was observed primarily between 1921 and 1923, it found its beginning years earlier, at the start of World War I. Germany’s leadership of that era decided to take the country off the gold standard in order to fund the war effort via debt issuances and money printing – without any real limit to the currency’s supply, the government severely devalued the currency’s value in order to purchase war machines, pay soldiers, and so on. However, that initial inflation paled in comparison to what came next…
At the end of the war, Germany was saddled with billions in debts and the government endeavored to pay off those bills via rampant money printing. German citizens eventually realized that they were being robbed by their government in real time, and began abandoning the currency in droves. However, not everyone was in a position to flee the Papiermark as it crashed, and widespread poverty was experienced both over the subsequent two years it took for the currency to implode and in the aftermath.
Bitcoin: A Knight In Inflation-Proof Armor
War-induced hyperinflation is simply not possible on a Bitcoin system, because Bitcoin cannot be printed by anyone, not even by the most powerful governments in the world. On a related note, Bitcoin is also highly resistant to confiscation, granting greater ability to citizens to resist complying with unjust war taxes or ill-advised war bonds.
As a result, while war can and likely will still exist after Bitcoin replaces fiat currencies, there’s logical reasons to expect that wars will be fewer and further in between and that economies will be less financially devastated in the aftermath of those wars.
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