Weimar Republic | wealthymatters

Currencies of Antiquity

April 12, 2011 8 Comments

The Reichsmark was never an international currency.So studying inflation in the Weimar Republic is not enough.This post traces the history of the Drachma,Denarius,Bezant and Dinar–the international currencies of antiquity.I think knowing this history will help us see the parallels and understand our world better.If macro-economics is not really your thing,atleast knowing about the coins should give a rough idea of which ones would be more collectable for their bullion content!

The Drachma

The Greeks minted stunningly beautiful coins.Non-Greeks thousands of miles away treasured these coins and so they became the first “international currency”.Archeologists have found Greek coins as far away as China, India and Northern Europe. In fact, even though Rome soon rose to eclipse Greece, most Asians kept using Greek money for centuries.

The main currency of Greece was the Athenian Drachma (pic on the left). It was a silver coin, and its weight and quality stayed amazingly consistent through the centuries. From Solon, around 600 BC, to Alexander the Great, around 300 years later, it stayed exactly 67 grains of fine silver. This was the money Alexander brought to India, and from there it traded yet further East becoming the monetary standard of all Asia. And even as Greece declined and was finally absorbed into Rome, its value did not fall much. By the end of the Drachma’s life, it had only declined to 65 grains of fine silver. This is an extraordinary achievement. No other civilization has ever had an international currency that stayed the same value —or pretty much so, since a fall from 67 to 65 grains of silver is a loss of less than 3%. And this was not only during the period of its greatest influence, but even as it declined in power over a period of six centuries.Whatever the secret of the Greeks was, no international currency since then has ever been able to keep its value, even as the government issuing it started on its seemingly inevitable decline.Certainly the conquering Romans were astounded at how the Greeks had mastered money. They paid Greece the ultimate monetary compliment by fashioning their own money, the Roman Denarius, as an exact copy of the Drachma right down to the size and weight. Read more of this post

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Using Inflation To Create Wealth

April 7, 2011 6 Comments

Those who learn from history, have the ability to PROFIT from it.So here is some history:

Inflations start out slowly.Governments will not openly admit to debasing the currency. They will cite other reasons for why inflation is going up. In Weimar Germany,for example, government officials and those within the finance community blamed their trade partners and foreigners for the Reichsmark depreciating. German writers and politicians at the time had said that “paper inflation was not the cause or consequence of the external depreciation of the Reichsmark. The depreciation of the Mark was held completely independent of the condition of paper circulation between 1921 and 1923″ – even though money in circulation went up 23 times within 2 years ! Prices of imported goods back then – denominated in US dollars – went up 344 times. The official view from within the government of the Weimar Republic – the chancellor, the head of finance, the head of the Reichsbank – was to blame it on the excessive burdens thrust on the German people with war reparations, the violent policy adopted by France (when France invaded and took over an entire industrial section of Germany), and they also blamed it on increases on the price of imported goods.Conversely, the view held by those outside of Germany was that the depreciation of the Reichsmark was due to the government’s huge budget deficits, which required Germany to continuously print paper money. I guess people around the world will recognize the current day parallels to this scene from history.Quite a few governments are doing something like this today. Read more of this post

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Inflation and the Velocity of Money – Lesson from the Weimar Republic

April 6, 2011 6 Comments

Inflation in the beginning is like a drug, sort of a good feeling in the economy to start with because there are more jobs, more goods, house values are increasing, the stock market rises, etc. It isn’t until the money velocity accelerates that you begin to feel that something is wrong. And that’s when everybody begins running faster and faster just to keep up.

Velocity of money is the turnover of money in the economy. As you start printing more money the depreciation of a currency begins, more money goes into circulation, but not all of it gets turned over very rapidly. Some of it goes into foreign hands, like when Germany had to buy imported goods for war materials. Also, some people may decide to hold onto the excess currency like they did during the war, hoarding cash which also kept the money velocity low (in the beginning stages). So even though the supply of money was increasing in the economy and along with it the cost of goods and services, Germans were savers, saving the marks that they got which kept this increasingly large quantity of money moving slow, therefore building up the inevitable effects of inflation but delaying the impact. Read more of this post

Filed under Theory, Tidbits Tagged with Inflation, postaday2011, RandomBlog2011, savers, velocity of money, Weimar Republic

Lessons From The Weimar Republic

April 6, 2011 5 Comments

Inflation causes a lot of change which can impoverish the majority but at the same time provide incredible opportunity for creating wealth for those who are educated and informed.So why not read the story below and benefit a little?

July 24, 1914 – The depreciation of Germany’s currency, the Reichsmark, began when the Reichsbank (Germany’s central bank) suspended gold convertibility on the Reichsmark, meaning you could no longer trade in your Reichsmarks for actual gold. From that point forward there was no limitation to the amount of money the Reichsbank could then create (money backed by nothing, basically just printed out of thin air and placed into the system thereby reducing the value of the existing currency, ie, inflation). Read more of this post