When Money Dies
Comparisons of human nature between 1920s Weimar Germany and today.
“Those who cannot remember the past are condemned to repeat it.”
This quote by American Philosopher George Santayana is one of my favorites. As an avid history buff, I enjoy looking back at history to learn how people have acted during certain time periods and throughout different events, and this curiosity led me to read When Money Dies by Adam Fergusson.
While reading this dramatic book, it has become evident to me just how many parallels there are between then and now. I believe it is important to draw the comparisons for whoever might want to listen as a warning of what might come should we forget what has happened in history.
In both periods, we see mirrored societal patterns and it is due somewhat in part to inflationary stressors on our economy from a growing debt bubble and central bank money printing. I understand that human nature may have changed between that time period and today, however it makes sense to me that when basic necessities of life, such as food, shelter and security become harder to come by that people would act and behave with the same human motivations.¹
Broad comparisons of the 1920s and today draw similar circumstances. Germany needed help funding WW1 and stopped the “gold standard” in August of 1914, or the process in which the currency could be exchanged of a fixed amount of gold.² President Richard Nixon and the United States did the exact same to the U.S. dollar in 1971 to help fund the Vietnam War, even though the U.S. had been waning off the gold standard in prior years.³ Both conflicts took much longer than expected, The Germans in WWI expected to win and be done in a couple of months rather than years. Conflicts during the Vietnam War dragged on almost 20 years⁴. The US has been in and out of conflicts since Vietnam and have continued to print money while adding to the growing debt of about 30 trillion dollars and unfunded liabilities of just under 160 trillion⁵.
Three ways in which we are handling inflation the same as 1920s Germany is through the act of taking excessive risk in the stock market and investments. The public is buying up assets or goods rather than holding onto cash and assuming our possessions, like a house or a car, are appreciating in value when actually the money is losing value, and lastly, the increasing ideological divides and political extremism that is present in our society today.
News headlines read as follows, “stocks extend gains, S&P 500 and Nasdaq rise to all time highs⁶.” The market is pumping and has closed at new all time highs over 40 times this year. Fresh liquidity injections by the Federal Reserve and historically low interests rates have led to a rapid growth in the stocks and a 40% increase in the broad market index over the last year. Anecdotally, many people that I know used their $1200 Covid-19 stimulus package, distributed in March of 2020 to buy stocks, and that was a true for a majority of Americans, per CNBC⁷.
Trading apps on cell phones like Robinhood, and cryptocurrency exchanges, like Coinbase or Binance, make it quick and easy for young people to risk their money on things like $AMC stock or Dogecoin. The stock market has become a playground for investors, some who have made large sums of money by being on the correct side of the frenzy of buyers. This stock market situation reminds me of a quote from the book about the market conditions,
“Dealing in shares {stocks}, all classes of the population have for months been speculating with a fine disregard to common sense.”
This statement is a chilling comparison to today and, if written in modern day vernacular, could easily describe what our financial markets are experiencing throughout 2021.
People today are gambling money more than ever on a casino-esque market because it is one of their only means to get ahead. Around 50% or over 125 million American live paycheck to paycheck (70 % of those are millennials) with less than a couple months of expenses in savings⁸. This number will continue to grow as inflation inches higher and fewer people are able to save money or be incentivized to save. This sad fact compares to the middle class in 1920’s Germany. The book states on page 236,
“As the old virtues of thrift, hard work and honesty lost their appeal, everybody was out to get rich quickly, especially as speculation in currency or shares could palpably yield greater returns than labour.”
In additions to these strange times in the stock market, Americans are buying up all kinds of different assets to avoid holding onto cash. Houses in my area of are up in value 13.7% since last year according to our local news and depreciating assets like cars are selling more after a year of use then they were sold for originally⁹. Low interest rates and easy credit are making it more beneficial for people to buy whatever they want, whenever they want, and not have to worry about paying the bill. Most would rather pay off the loan with tomorrow’s dollars at today’s value.
I recently had a friend sell a one year old used truck for 5000$ over its value, only to buy a new, nicer version because “I can’t lose money on it.” This is an absolutely toxic mindset. Cash is losing value like never before and while we are still far, far away from an epic hyperinflation like Weimar Germany experienced, the human psyche is following the same thought process. Average consumers think their assets are going up in value when in reality their money is buying less and less goods than before.
The last big comparison I see between now and1920s Germany is the rise in extremism. This was sped up by the financial crisis of 2008, when monetary pressures really started to take their toll on average consumers, and folks looked for someone or something to blame. People to live paycheck to paycheck, go into debt and often retire later than ever.¹⁰
I don’t blame anyone for experiencing these issues and thinking there must be someone that attributed to the problem. Americans are looking to pinpoint a reason for their economic problems, and they are influenced by far right or far left political leaders or news outlets who provide them with a narrative that they can accept as truth. We are divided by these groups and become radicalized that our way to fix it is the only way.
“Inflation is the ally of political extremism, the antithesis of order” ¹¹
This same thing happened to Germany. Inflation led to average Germans feeling the pressures associated with their money losing its value, and they wanted a scapegoat. In Germany’s case it led to large socialist and fascist revolutions throughout the country. Eventually Hitler’s anti-Semitic rhetoric became a wide spread reason for the pain that the countries middle class was feeling and we all know how the story continues from there. In the epilogue Adam Fergusson writes,
“Inflation did not conjure up Hitler, anymore than he, as it happened, conjured it. But it made Hitler possible. It is daring to say that without it Hitler would have achieved nothing.”
In the present day, civilization is in a much better place, but political extremism and revolutions are taking place worldwide with France and Australia from Covid-19 lockdowns, or Turkey and Venezuela because of inflation and poverty. Many people are trying to fix the problems of today’s world; extreme wealth inequality, college loan debt, minimum wage not keeping up with cost of living … but you can’t solve these issues without getting to the root of the problem: our money is broken.
Bitcoin is a solution to this problem. It has a fixed monetary supply of 21 million bitcoin that cannot be altered, meaning your savings will never be artificially inflated by central bankers funding a war or funding an arbitrary “infrastructure bill.” Bitcoin has a ledger which is constantly audited by thousands of independent users that have voluntarily joined the network, to ensure that the rules are being followed. A technology has finally been invented that is offering a way to opt out of a monetary system which is inherently rigged against those who can’t print money. For years, the ones closest to the money printer have benefited from the Cantillon effect, while the average citizen loses over 90% purchasing power of their life savings.¹²
No one can change the past, or change what inflation has already done to create inequality with our money, but we can change the system. Let’s start moving towards a world where everyone has equal opportunity to save money and build actual wealth. Bitcoin may not be perfect, but it’s a step in the right direction.
In 1920 it was industrialist who dined in restaurants while the poor could barely afford bread. In 2008, it was Wall Street who sat in their lush offices, fresh off a new government bailout, looking down at the Occupy Wall Street protesters while millions of Americans were losing their homes. Satoshi watched the same protests and knew that a new system was needed, and built it. I am hopeful for the future and I believe history will not repeat the events of the past.
1. Maslow, A. H. (2000, August). A Theory of Human Motivation. https://2wz7603jj73w2s7jpn27zxpe-wpengine.netdna-ssl.com/wp-content/uploads/2015/10/Maslows-Theory-of-Human-Motivation.pdf.
2. “Gold standard.” Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriam-webster.com/dictionary/gold%20standard. Accessed 1 Sep. 2021.
3. Kumar, R. (2014). Strategies of Banks and Other Financial Institutions. Academic Press.
4.Spector, Ronald H.. "Vietnam War". Encyclopedia Britannica, 6 Jul. 2021, https://www.britannica.com/event/Vietnam-War. Accessed 2 Sep 2021.
5. America’s National Debt: A Rendezvous with Reality? - American Legislative Exchange Council (alec.org)
6. Yahoo! (n.d.). Stock market News live updates: Stocks Extend GAINS, S&P 500 and NASDAQ set record highs. Yahoo! Finance. https://finance.yahoo.com/news/stock-market-news-live-updates-august-24-2021-221636132.html.
7. Mkmfitzgerald. (2020, May 22). Many Americans used part of THEIR coronavirus stimulus check to trade stocks. CNBC. https://www.cnbc.com/2020/05/21/many-americans-used-part-of-their-coronavirus-stimulus-check-to-trade-stocks.html.
8. PYMNTS.com. (2021, June 15). U.S. consumers living paycheck-to-paycheck. PYMNTS.com. https://www.pymnts.com/consumer-finance/2021/new-report-upper-income-americans-live-paycheck-to-paycheck/.
9. Levin, T. (2021, July 12). Why used cars are so expensive now - and when prices may drop. Business Insider. https://www.businessinsider.com/why-are-used-cars-so-expensive-now-shortages-pandemic-rentals-2021-7.
10. Katedore. (2021, July 4). 'Inflation is the silent killer,' as many retirees are feeling the sting. CNBC. https://www.cnbc.com/2021/07/04/inflation-is-the-silent-killer-as-many-retirees-are-feeling-the-sting.html.
11. Ferguson, A. (1975). When money dies: The nightmare of the weimar collapse. W. Kimber.
12. Stoller, M. (2020, April 28). The Cantillon Effect: Why Wall street gets a bailout and you don't. ProMarket. https://promarket.org/2020/04/13/the-cantillon-effect-why-wall-street-gets-a-bailout-and-you-dont/.
