$1.77 Every Year For Life: What Inflation Can Do To Your Finances: Lessons from Germany and its neighbors during the post-World War I inflation. This series of articles is not intended to imply that the U.S. is likely to encounter a hyperinflationary crisis. However, America has experienced bouts of serious inflation in the past and could easily do so again. The extreme conditions that occurred in Germany help to illustrate the mechanisms of inflation better than a more benign course of currency devaluation could do.

It seems strange, but during the early phase of Germany’s post-war inflation, a visitor could easily believe that the country was experiencing a business boom. There was full employment in manufacturing companies, particularly in factories producing goods for export. New factories were being built all across the nation. Germany planned to pay its war debts and support its welfare system by exporting merchandise to foreign countries. Inflation was a way to keep German wages low and the prices of German goods low on world markets. That is to say, to undersell producers from other countries, German industries depended on paying their workers less money than the competition. To make a small paycheck look bigger than it was, inflation allowed handsome pay increases while the workers were actually able to buy just the same amount of goods, housing and services as they had before.

Comments are closed.