Germany fact of the day

From 1973 to 1985 German inflation was most of the time over two percent a year, sometimes much over two percent.  In 1973 it hit eight percent and in the early eighties it exceeded six percent a year.  Source here (pdf), see p.6.

From 1951-1973, the Germans seemed happy with roughly the same inflation rate as what Americans had.  Source here (pdf), see p.9, and also p.13, passim.  In the early 1970s, the rate averaged almost seven percent a year for a few years (p.15).  It is fine to note the role of oil shocks here, and in the earlier period Bretton Woods, but still Germans tolerated the higher inflation rates.  They expected the alternatives would be worse and probably they were right.

The claim that the current German dislike of inflation dates back to unique memories of Weimar hyperinflation is dubious.  Rightly or wrongly, today’s Germans associate high rates of inflation with wealth transfers away from Germany and toward other nations.  More broadly, Germany is a more flexible country than outsiders often think, not always to the better of course.


Germany's age distribution and employment-to-population ratio is also a lot different than it was in the 70's and 80's. And there was a different trend in that ratio and the civilian labor force size with baby boomers coming into their prime and women entering the workforce in larger numbers (something Interfluidity has pointed out). The pie was growing.

Things are different now, and a bit more gloomy, on a whole lot of metrics. If you want some more pie it might just come at the expense of my own slice. There is a substantial and growing fraction of the population composed of pensioners who perceive they are exposed to - and that their quality of life will suffer from - more rapid changing of the price level, since they believe they are without the personal ability to hedge or adjust to such changes late in their lives.

Maybe the genuine social memory of price trauma is not some transmitted consciousness of the Weimar hyperinflation, but that in the post-WWI era and amongst the senior set there are always plenty of people who are paranoid about inflation for normal reasons, but the original group that came to define the attitude actually did go through the agonies of watching their savings evaporate in that special episode.

TC's claim about history is interesting. How much institutional memory does a country have? Perhaps even if present people don't remember stuff that happened in the past, can a society function the way it does, due to history that nobody can remember? Sounds metaphysical, but here's a real-life example. Some sociologists from France or Belgium went to the Congo a while ago, interviewed people, and found nearly none of them remember King Leopold of Belgium and the colonization of the Congo for rubber, at the end of the 19th century, as outlined in the best-seller "King Leopold's Ghost (1998)" by Adam Hochschild . So a major traumatizing experience in a nation's history is almost completely forgotten by the people there (most of them ignorant to be sure). Thus how big an impact can this searing event have had on modern inhabitants? Very little some might say, but, like slavery in the USA, perhaps not.

A little tangential but thanks for mentioning that book, it sounds interesting.,

@Axa- thanks for the comment. It was actually a response to this: "The claim that the current German dislike of inflation dates back to unique memories of Weimar hyperinflation is dubious."

My experience is with Americans, so its distorted, but my impression is that most people either are completely ignorant of history, or they don't absorb the history that they have been told. Its like a bad TV show, blah blah blah. Its actually quite hard, as Orwell observed, to get people to think of even events that happened decades ago in their own lifetimes as something that "really" happened.

How history affects the present is that institutions in countries are constructed to handle current problems and current situations. The problems and situations change, but the institutions continue to exist. That is very much the case with slavery and the US, where a good chunk of the 1787 Constitution was constructed around the fact that the states in the federation would have different percentages of slaves in their population (slavery was legal in just about all states at the time). WIth the case of Germany, unless someone can demonstrate some agency in the federal government put in place in 1949 with a specific mandate to ever keep hyperinflation from happening, I think the talk about "memories" of the 1920s hyperinflation having some effect is just babble.

I remember hearing one proposed explanation for Kondratieff waves was memory. People who lived through high inflation or a severe recession would be especially guarded about repeating the experience, as would their children. But their grandchildren will have forgotten all about it and repeat the mistakes of their grandparents, leading to a cycle about two generations long.

Wikipedia doesn't mention this hypothesis in their description. They do say the existence of Kondratieff waves is not accepted by mainstream economists.

One can't remember what one didn't experience. Nobody alive today has a memory of US slavery, it remains a topic of conversation for political purposes. Currently there's controversy over the location of a proposed slavery museum in the Richmond, VA area. What is the goal of this institution? Is it to demonstrate what the slavery experience was like? Is it meant to prevent the rebirth of the practice? Or is it meant to maintain a guilty conscience in whites whose ancestors never owned slaves and, in fact, may have been slaves themselves? As usual, history, such as it is, is constructed to serve purposes. The same is true of German history.

I assume the day will come when you will also object to Holocaust museums since the day is not so far off when it too will pass out of living memory. And what about all those museums to ancient and medieval history?

Equating industrial murder with slavery is an error in several ways. It's noteworthy that there's a daily dose of slavery guilt administered to all Americans as part of a political regimen. It's conveniently ignored that while slaves were valuable property, similar to domestic livestock, the native Americans were considered vermin, on the order of roaches and rats, the most appropriate approach to them being eradication.

It's also very unlikely that the institution of chattel slavery will ever return to the American scene, although the Selective Service System is in hibernation should large numbers of bodies be required. Anti-semitism, based on an entirely different premise, exists even today.

One can’t remember what one didn’t experience.

So what? That doesn't mean that historical events don't influence our thinking. It doesn't mean we shouldn't have museums or other institutions whose purpose is historical education.

Apparently the slavery museum makes you uncomfortable. I'd say that''s a feature.

Is it the event or its interpretation that's meant to influence our thinking?

The post-war German constitution was almost single-handedly written by Konrad Adenauer, who remember the throes of hyperinflation very well. The current Federal Republic of Germany is still largely a product of his mind. The contemporary Germans do not remember the 20s anymore, but they still work within Framework set up by someone who did.

Your assertion that because your average (uneducated) Congolese person doesn't "remember" King Leopold and colonization, the economic system of the Congo must not be impacted by it today is illogical. Surely, anyone who read that book and has some degree of familiarity with the Congolese economic and political structure will acknowledge the negative (to put it lightly) impact that period had on the country's economic outcome.

'The claim that the current German dislike of inflation dates back to unique memories of Weimar hyperinflation is dubious.'

Well, that is plausible - what happened when the currency was worthless at the end of WWII isn't normally described as inflation, though the effect was the same. Germans are concerned about a worthless currency, and not inflation per se.

'Rightly or wrongly, today’s Germans associate high rates of inflation with wealth transfers away from Germany and toward other nations.'

Not a single German I have talked to about this broad subject has made this association in any way, shape, or form, nor have I read it in the media as a concern in the broad. Of course, wealth transfers in the sense of assuming the obligation to pay someone else's debts are a political issue. The idea that euro inflation would be such a wealth transfer is not exactly mainstream - while the idea that the euro will become worthless is increasingly common. There is even a growing German survivalist movement/industry predicated on exactly this point.

Well, I am one of those Germans who DO see wealth transfer as the major problem of higher inflation.

But even if the majority of Germans don't see this economic problem explicitly, it still lingers implicitly under the surface:
"Negative real interest rates hurt our savings" is currently a very common argument in Germany.
And this argument carries weight in Germany precisely because Germany i such a heavy net creditor within the Eurozone. This means that the average German stands to lose more from higher inflation than, say, the average Spaniard.
German fear of higher inflation is therefore perfectly rational and needn't (and isn't) be based on some irrational fear stemming from the nightmare inflation of the 1920ies. (Which by the way was a nightmare indeed. Can you imagine the sheer practical problems of dealing with a 500% inflation PER DAY?)

'Well, I am one of those Germans who DO see wealth transfer as the major problem of higher inflation.'

And where has there been any significant inflation in Germany or the eurozone for the last five years?

Especially in light of how this web site has recently been concerned with eurozone deflation - not that consistency is ever a hobgoblin here.

'This means that the average German stands to lose more from higher inflation than, say, the average Spaniard.'

Except, currently, there is no inflation to be seen, neither in Germany nor Spain.

To avoid a longer post, I left out the entire issue of inflation in terms of store of value - that is very much a German concern, and one that a typical American, with no experience of owning a valueless currency, is unlikely to grasp the same way a (stereo)typical German does. Such as the fact that D marks are still redeemable in euros - French francs aren't. The French had no problem 'penalizing' (or profiting from) holders of francs by taking away the previous value of francs. Any German politician that suggested the euro would make D marks worthless would have had little future in the late 1990s.

(And yes, we still make the occasional trip to the Landesbank to exchange discovered D marks - )

Prior approval, you don't seem to understand florian argument. His argument is that in case inflation goes up IN THE FUTURE, germans will lose MUCH MORE than spaniards.

10y bund right now are under 1%, you see what he means i am sure.

'His argument is that in case inflation goes up IN THE FUTURE, germans will lose MUCH MORE than spaniards.'

Sure - in the future, inflation will be higher than it is right now. Which is an easy thing to say, as current interest rates really cannot go any lower.

But the question is, how likely is inflation in the next year/5 year/10 year time frame.

And if you think anyone in Germany that bought a house with a 2% interest rate in the last couple of years feels that they have more to lose than someone in Spain, well, this web site isn't really concerned about reality anyways.

The only people that truly and deeply hate deflation are those who can no longer make money from having money. Many Germans are in this position, of course. Along with the insurance companies that promised them an endless 7% rate of return on their Kapitallebensversicherung.

The idea that euro inflation would be such a wealth transfer is not exactly mainstream – while the idea that the euro will become worthless is increasingly common"

The euro becoming worthless is a wealth transfer.

"I left out the entire issue of inflation in terms of store of value – that is very much a German concern"

If that value that a euro `stores' diminishes, were does it 'go'? To peripheral recipients of Germany's exports, who have made an intertemporal trade of German goods today for euro-denominated claims on peripheral goods tomorrow.

Sorry Florian, but prior_approval is our "go to" expert here on all things German. Note how he completely ignores your observation on negative real rates (a US issue over the past six years too) and just keeps on rolling, like a mighty river.

'your observation on negative real rates'

Which is an observation concerning deflation - but perhaps you have more insight about how negative real interest rates are a sign of inflation? After all, Prof. Cowen was writing about 'the current German dislike of inflation' - Florian is referring to the current noticeable effects of deflation. Which is a topic of major concern here, by the way (note the point above about insurance company promised rates of return on contracts that span decades).

negative real interest rates have nothing to do with deflation and everything to do with inflation.

So, let's cite Forbes, that hellhole of socialist thinking - 'Interest rates have been pushed down to historic lows by the Federal Reserve. Nominal interest rates are economic jargon for the actual interest rates people face. For short term deposits and bonds, they are already approximately equal to zero. Real interest rates are economist-speak for interest rates minus the inflation rate. Most savers have been stuck with negative real interest rates on their CDs, savings, money market, and checking accounts for five years now and even many short and medium-term bonds are paying negative real interest rates.'

Currently, eurozone inflation is running at .3% - the EZB headline interest rate is 0.05%.

Yep, sounds like another bout of 1970s era inflation to me. Well, no, it doesn't actually. Though admittedly, people who saved money in 1971 at 2% interest for 20 years were certainly hurting when facing 10% inflation in 1981.

Of course, the people being paid over 15% interest in 1981 for 20 years were richly rewarded.

Things change. Right now, the problem is not inflation - it is the reverse. See above about .3% inflation - and to be honest, I have no problems finding German bank offers where savings are paid at least 1%.

The irony that investors in Spanish or Italian short term bonds have cleaned up should be obvious. In major part due to that lack of inflation.

There are more explanations why Germans are inflation averse:
The open economy and the negative impact higher inflation has on competitivness
The nominal claims on the public pension system
The high share of fixed income assets in houshold portfolios
The business model of public savings banks (very sensitive to interest rate shocks)
There is even some evidence that the average German scores differntly on conscientouness (higher) and openess (lower)two of the big five determining your character.
All in all, Germans seem to deal better with the time inconsistence problem as seen by (somewhat) better fiscal situation, usually non-inflationary wage settlements, or even lower individual indebtedness.
Yes, you might have gussed it, I am one of these Germans, so my view might be somewhat biased.

Only a flexible country would choose to fight a war on many fronts.

Are you referring to the U.S. in ww2?

Of course he is - after all, when the British attempted to fight on multiple fronts, they lost - in France, Crete, Singapore, Malaysia, etc.

Ah but the point is to win in the end, as happened in W Europe, North Africa, Italy, and Burma.

The point about winning in the end was familiar in the US too, back then.

Certainly the British attempted. Whether they chose is another matter.

I was working with "many" meaning more than two. If you count the US's landings in North Africa and Italy, and I would, she counts.

Come to think of it, maybe the key word is "choose". The US didn't choose to fight in the Pacific, she was attacked and so had little choice. She had war declared on her by Hitler, so you could say that fighting Germany wasn't a choice, but it was certainly a choice to land in N Africa, and in Italy, and to open two fronts in France. Similarly many of Britain's fronts weren't a matter of choice. But all of Germany's were: France and the Low Countries; Denmark and Norway; the Eastern Front; Greece; North Africa. Maybe Italy too. What is the point of having much the best soldiers if your strategy is so bad? Twice in a century, too.

As far as I can tell, they in WWI they only really chose to fight Russia. Though I suppose the resulting fight with Britain and France was predictable from that.

Britain declared war on Germany after she invaded Belgium and Luxembourg as as her route for attacking France.

In case of Britain - predictable, yes, inevitable - no. The British cabinet voted in 1914 to enter the war, and the Yes and No sides differed by one vote only.

If any single hawk changed his vote back then, the continent might look very differently now.

Fear is often inflated because the memory lies. Hitler's rise to power in 1931, although often attributed to hyperinflation, came long after hyperinflation had ended, and was characterized by massive deflation created in large part by government austerity. Not a few charged Germany with intentionally creating hyperinflation in the early 1920s and destroying Germany's economy for the purpose of avoiding reparations. Indeed, reparations accounted for a third of Germany's deficit and was a main cause of the hyperinflation: reparations caused hyperinflation and hyperinflation, in turn, avoided reparations. Today matters are far different: Germany has even replaced China as the largest surplus economy in the world. Of course, Germany's massive trade surplus comes at a very high cost to the world economy. And it comes with a bias in Germany against inflation, creating more of a drag on the world economy. Attributing today's aversion to inflation to the early 1920s hyperinflation may be a convenient narrative but it ignores the reality of today.

@rayward: "And it comes with a bias in Germany against inflation, creating more of a drag on the world economy." - isn't this Keynesian thesis, aka the "Philips Curve", discredited?

BTW, wouldn't it be cool to see Tyler Cowen's name in the blanks of the following passage? But that's not his style; maybe Brad DeLong or Paul Kruman? But they are too logical: "Harpham calls ___ style "a stream of nonconsecutive units arranged in arbitrary sequences that solicit a sporadic and discontinuous attention." O'Neill concurs: "a dizzying array of wildly entertaining and often quite maddening rhetorical strategies are deployed in order to beguile, browbeat, dumbfound, dazzle, confuse, mislead, overwhelm, and generally subdue the reader into acceptance." The British Royal Opera House announced on January 2013 that four new operas inspired by ___ writings have been commissioned. "

Germany monetized its debt (reparations) with hyperinflation, and now that the shoe is on the other foot (today Germany is a large creditor), Germany demands (almost) zero inflation so other nations fully repay their debts. Germans. Not much changes in this world.

"Germans tolerated the higher inflation rates"

Like they had an alternative?

When the Euro was rolled out, I thought the Germans were concerned that the new currency would be less stable than the Deutsch Mark, cuz feckless Southern Europeans.

Also, there was a feeling that the new currency needed to earn its credibility chops as an alternative to the USD. Therefore, the ECB pursued a comparatively tight policy in the early years of the currency. That was a while ago now, but much more recent than the 1920s.

The Germans would be right to see inflation in the Euro as a transfer. That is why the other countries are wanting inflation in the first place. I stand by my prediction made over 2 years ago- the Germans will be the first country to leave the Euro because I don't think they will be able forestall the ECB from becoming like the Federal Reserve in the end.

but you will be wrong

In the 1970's and 1980's, Germany was demographically younger and thus less sensitive to inflation, because wage growth mattered more than real savings depreciation. Inflation was a nuisance, but if your income grows even faster, it was not considered as a big deal.

As to hyperinflation, yes, the trauma of the early 1920's is still there and does matter in politics as well as in the ECB monetary policy.

Interestingly, the tragic experience with the early 1930's deflation—more scary than the hyperinflation episode—has been largely forgotten. Not even in the 1930's deflation was a major topic, as can be seen here:

Does anyone here remember what Volcker did to beat inflation? When I hear confidant people saying that we need to get some inflation to get us out of the current stagnation, and don't worry, it is easy to control, I hear ignorance.

Sure it is easy to control. Inflation is due to a large number of individuals deciding that their money is worth a little less today than last month, and adjusting prices. To establish that mindset requires a concerted effort to devalue money, and one that mindset is established, it would take an even more concerted effort to convince all these individuals that the value is stable. The central banks managed to do that, and inflation is essentially the central banks telling everyone that they are incompetent stewards of a store of value.

Another thing that inflation represents is price instability. A manufacturing and export nation with production and distribution worldwide will be acutely aware of the challenges brought by changing prices. The swings in currency exchange has forced Canadian manufacturers to become one part of a chain of value added where the inputs are imported and the outputs exported to the same destination to avoid exchange risk. It is something to fear.

In other words, Germany is perfectly happy to f*ck the rest of Europe in the ass (without any lube at all, I might add).

And then they wonder why the rest of continent dislikes them so much.

What a load of crap. This sort of reckless antiteutonism from you and rayward helps make sure we never move past 1914. Germany's been f*cked pretty hard itself a few times, but I guess that doesn't count.

Hey bub, I'm just calling it like it is. Germany is actively sabotaging the rest of the Eurozone. Though I gotta admit, they've smartened up and realized than ruining Europe via deflation is much cheaper than war.

But hey, good to know the Germans are perfectly a-ok with what they're doing to the rest of Europe.


The only long term solution to all these problems is to get rid of the Euro. Like much of liberalism it was based on the illusion that everyone is interchangeable, but as this crisis continues to show, Mediterraneans and Germanics are different, and they each want to run their own countries in a very different way.

Germans should "throw out the steering wheel" by renominating its debt in bitcoin. Let everyone else whine and bitch and then get over it.

Couldn't resist - here's a graph of German inflation post 1949. Surprising (to me, too): there might have been a recent (East-) German inflation trauma after all...

jews flocking to Berlin because of low prices

Not just any Jews, these are Israelis. Israel has changed a lot over the last two or three decades, in many ways for the worse. Here's how the emigrants feel:,7340,L-4580500,00.html

"I am 25 years old. I don't know anything about economics, I don't know anything about regulation."

Though he says so himself.

I suspect the inflation fear has more to do with two things:

1. Fear of the effects on inflation on household savings (as mentioned above). It's worth mentioning that for your average German, household savings are a much larger part of overall wealth than they are for Americans, mostly because of much lower homeownership rates.

2. The policy of mass wage restraint/reduced growth versus productivity since 2000. Inflation would undermine this policy, generating strong pressure to end it and raise wages (which would hurt export competitiveness and cause unemployment to go up again). A form of this backlash is already happening with the implementation of a German minimum wage for the first time.

You can go to a Samstagsmarkt in pretty much every major city in Germany and buy coins and bills from

1) pre-WWI
2) Weimar Republic
3) Nazi era
4) West mark
5) Ost mark

Currencies 1, 2, 3, and 5 collapsed in value and hurt an awful lot of people in the process. This in a country that will allow a building to stand vacant for decades rather than tear it down.

Is there any surprise that Germans don't trust fiat money?

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