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How to Protect Your Life Savings from Hyperinflation & DepressionCopyright 2012 by John T. Reed

A Swiss reader of mine, Peter Frech, recommended this book for gaining insights into Austrian/German hyperinflation along with two others: The Economics of Inflation and The Black Obelisk.

Excellent writer

Each of the books I have read about hyperinflation provides a different perspective. This one is autobiographical like Anna Eisenmeger’s diary. But Zweig is a top writer. Anna was just a nice intelligent lady. Top writers capture far more information per paragraph in their observations and analysis.

You need only read one chapter of The World of Yesterday: the one about coming home to Austria and its hyperinflation after World War I, which Austria and Germany lost.

Because of copyright, I cannot quote much of Zweig’s. So I recommend that you read it perhaps via interlibrary loan.

But here is the general idea of what he said.

…starving and freezing millions [of people]…no flour, bread, or oil…

…[a nation] lead[ing] the humiliated life of a beggar…

Zweig had been abroad during World War I. He returned to Austria knowing it was a disaster. Going to Austria in the early 1920s was like making an Arctic expedition. You had to take lots of warm clothes because of lack of coal for heat. You had to take shoes because they were unavailable in Austria. You had to take food to last you until you got your ration card. And even then you had to use the black market to get enough to eat. You insured your baggage to the max because it was often stolen and you could not replace what was lost within Austria.

…it was different Austria, a different world, to which I was returning.

The meaning of that for Americans is if and when we get hyperinflation, your country will change dramatically. The main impetus for denial today is “This is America. That stuff cannot, does not, and will not happen here.”

That’s what the Austrians thought. Their country and capital city Vienna was one of the leading countries in the world in 1913 before World War I—culture, music, finance.

Totally ruined country

The first visual evidence was when Zweig crossed the border and changed to an Austrian train.

The guards who showed us to our seats were haggard, starved, and tattered…they crawled about with torn and shabby uniforms hanging loosely over their stooped shoulders.

The train cars, which previously had leather seats and metal ashtrays had been stripped of all leather and metal by thieves who hoped to turn the leather into shoes or barter it and the metal ash trays.

The poorly-maintained and unlubricated train wheels and engines made horrific noises. They had to go much slower than before the war traveling at only one-quarter or one fifth of pre-war speeds. The train light bulbs were all burned out or stolen. Everyone held onto their luggage every second. On his return home, Zweig’s locomotive could not climb a hill normally within acceptable steepness. They had to be pushed over the hill by a rescue locomotive. The horse hitched to the horse-drawn cab he took for the final leg of his return home was so malnourished it looked like the harness was holding him upright.

The house to which he retuned had a leaky roof which could not be repaired because lack of the timber and metal to do so. Tar paper patches were used instead. Snow on the roof had to be promptly removed else the roof would collapse from the weight. Phones no longer worked because of having to use iron that rusted instead of copper for the wires (war-time rationing).

The government ordered owners of homes to let other families move in because of the lack of building and maintenance having caused a shortage. Zweig’s family was pleased with the small blessing that their home’s location high on a hill and condition were so bad that assigned families refused to live with them.

…my first sight of the yellow and dangerous eyes of famine. …well-nourished dogs and cats returned only seldom from lengthy prowls.

Most men wore Army uniforms, including those of the enemy, long after the war had ended, because they had no other serviceable clothes.

No problem on the farms

Farmers, however, including peasants, were well-fed and clothed throughout the hyperinflation—at least after they learned not to accept paper German marks for it. Barter only. Illiterate peasant farm houses filled with unlikely treasures like pianos, art, leather bound books, fine china and silverware, wedding rings taken off the fingers of the spouses.

Smugglers would sell food at four or five times what they had paid for it. Illegal because of the prices and no respect for ration cards. The government reacted with more guards and checkpoints, which produced more starvation and freezing. Corruption became near universal.

Coins became valued; paper currency, not. When Austrians received a coin, they hoarded rather than spent it. [Reed note: I have recommended gathering U.S. pennies and nickels since 2009.]

Soon nobody knew what any article was worth.

The most grotesque discrepancy developed with respect to rents, the government having forbidden any rise; thus tenants, the great majority, were protected but property owners were not.

A man who had been saving for forty years and who, furthermore, had patriotically invested his all in war bonds, became a beggar. A man who had debts became free of them.

This is generally referred to as all the rules being turned upside down by survivors of both inflation and deflation.

Foreigners with foreign currency were kings

A horde of foreign tourists with their stable currencies descended on Austria buying up everything because it was so much cheaper than in their own country.

Incredible as it may seem, I can vouch for it as an eyewitness that Salzburg’s first-rate Hotel de l’Europe was occupied for a period by English unemployed, who, because of Britain’s generous dole were able to live more cheaply at that distinguished hostelry than in their slums at home.

Customs post were strengthened so German could not take purchases out of Austria. So then they used Austria as a place to get drunk on cheap alcohol (when paid for with their more valuable German currency, which was itself hyperinflated). Their stomach contents could not be confiscated by customs. Later, when the Austrians ended their hyperinflation before the Germans did, the flow of bargain shoppers and drunks reversed at the same border crossing.

Speak of hyperinflation the way combat veterans speak of combat

In a lengthy passage, Zweig describes the experience the way combat veterans describe their ordeal. It is surprising how quickly one gets used to the most extraordinary hardships. Surviving is exhilarating. The best things in life are free. Entertainment venues were crowded albeit with shabbily-dressed former aristocrats and shabbily-costumed performers. Treasuring every slightly pleasant experience because it might be the last chance to ever do that.

The cost of one egg in German marks was equal to the prior value of all the real estate in Greater Berlin.

Zweig said the Communists or Socialists could have easily taken over the government but amazingly did not. He figures the people were just too tired and cold and hungry to fight for anything. More amazingly, the left and right parties decided to compromise to save the country.

Where are those guys in our country when we need them now?

The war and hyperinflation ended the public’s belief in the infallibility of the government. Oh, really, Stefan? Then how do you explain Adolf Hitler ten years later?


Zweig said the world knew Austria had been cheated.

Cheated the mothers who had sacrificed their children, cheated the soldiers who came home as beggars, cheated those who had subscribed patriotically to war loans, cheated all who had placed any faith in the any promise of the state, cheated those of us who had dreamed of a new and better ordered world and who perceived that the same old gamblers were turning the same old trick in which our existence, our happiness, our time, our fortunes were at stake.

This epitaph on public trust in the government will be written on the political tomb stones of the Democrats and Republicans as well I expect.

The young turned on the old

Similarly, the younger generation turned against their elders who did this or allowed it to happen. Today we hear about not putting an impossible burden on our children and grandchildren, but we are doing just that, exactly that, and the recent bipartisan agreement to extend the Bush tax cuts and change nothing else either is another nail in the financial coffins of those children and grandchildren.

In Austria in 1924, according to Zweig, the children and grandchildren of the generation that presided over the war and hyperinflation finally woke up in a rage. They revolted against the grown-ups and every tradition of their culture assuming none were any better than the declaration of war in 1914 or the legal tender laws of the great hyperinflation.

You can perhaps get a flavor of this rejection of all that was traditional in the musical and movie Cabaret which was set in the final days of Weimar Republic Germany.

Adult intellectuals, fearful of being considered behind the times and irrelevant, rushed to change their views so they could be again allowed to lead the parade of public opinion. Whatever was old, including old people, was rejected as the cause of the 1914-1924 ordeal. Moderation and past definitions of normal were verboten intellectually.

Attempts were made to unite Europe under one government, but as often has been the case, the Communists tried to take over the movement and turn it to their own ends. The movement petered out—or perhaps was delayed until 1993 when the EU was formed.

Policywise, it is clear that neither the Democrats nor the Republicans nor the Tea Party are going to lower the national debt—the cause of hyperinflation. The former won’t even mention it. The latter has not yet adopted any position other than reducing deficits, a.k.a. raising the national debt at a slower rate. Only Ron and Rand Paul are in favor of actual spending cuts as defined in plain English as opposed to Washingtonese “cuts” meaning in the rate of growth of spending.

Repeat if you forget

It appears we are going to have to do what Santayana said:

Repeat the past because we have forgotten it.

At least those of you who are reading my articles on this have a chance to see the shape of things to come and prepare for them. A chance, that is. If you do not take advantage of your foreknowledge, you will relive the above, not avoid it.

John T. Reed