In the early 1930s most of the industrialized world was reeling from the effects of the American stock market crash and the subsequent depression. On top of this, many countries in Europe such as Germany suffered from hyperinflation- their currency becoming virtually worthless. Yet in classic economic theory, depressions are caused by (or occur simultaneously with) deflation- a shortage of money. Pumping currency into the economy should in theory help relieve a depression. So how did Germany and other such European countries get the worst of both worlds?
The German hyperinflation was in 1923 and ended by the end of the year. The stock market crash was in 1929. So the inflation was long over with when the Depression hit.
It was Germany, Austria and the Free City of Danzig. The economies/montary policies of the latter two were very closely tied to Germany.
Ummmmm… Having the value of your earnings halve in the time between collecting it at the factory gate in the eventing and getting up to go shopping the next day isn’t exactly the best thing in the world for the economy. Hyperinflation tends to lead to economic collapse pretty quickly since everyone reverts to barter. I think Brazil is the only country to have kept the economy going during a prolonged period of very high inflation, due to some very cunning indexing. But it still held their economy back significantly.
Incorrect. Pumping wealth into an economy will relieve a depression. Pumping currency into an economy without adding wealth at the same time leads to an increased amount of bills chasing the same goods, which leads to inflation - hyperinflation if the currency pump is as primed as it was in Germany. Keynesian economics calls for an increase in spending and borrowing by the government to produce extra wealth; it has nothing to do with currency.
It should also be pointed out that Germany’s hyperinflation was not government mismanagement or simply the way things worked out; it was a deliberate action by the Weimar government. France and England refused to make any steps to lessen the burden of reparations following World War One, and when England and France pushed Germany hard for their payments, the government decided to cut off everyone’s nose to spite their faces - they ran the mint to produce the currency required, and continued to produce currency to make the money passed to the former Allies essentially worthless.