Copyright 2012 by John T. Reed

I wrote a 320-page book titled How to Protect Your Life Savings from Hyperinflation & Depression, 2nd Edition.

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A great many people think that you can learn all you need to protect yourself from hyperinflation in one word: gold.

Oh, really? So then explain to me why the word “gold” does not appear in the index of the top book on the 1920s Austrian/German/Hungarian hyperinflation (When Money Dies) except in the phrases “gold loan” and “gold reserves,” each of which refers to federal sales of government bonds and stores of gold in the central banks of the countries in question.

I also watched the silent film The Joyless Street. It was made in Germany, about Austria, during the 1920s, by Germans. It was depicting what Austria was like for average citizens during hyperinflation in the early 1920s, which was very similar to Germany at the time.

And I read Blockade, the Diary of Anna Eisenmenger, an affluent widow, mother, grandmother, mother-in-law in hyperinflated Vienna.

Food, coal, shoes, yes; gold, no

All three are horrifying accounts of people struggling to find food and coal and shoes and ways to light a room after dark—people starving and dying from malnutrition and inability to heat their homes during subfreezing winter temperatures.

So, what role did the favorite hyperinflation hedge of the guy on the bar stool at your local corner tavern—gold—play in the lives of the of the people struggling daily with actual hyperinflation?

Zilch. I think if you could use a time machine to call Anna Eisenmenger and ask her about gold helping with her travails, the conversation would go like this:

Gold bug: Would gold have saved you from all your troubles?

Anna: On New Year’s Day, 1919, I used my late husband’s gold watch chain to barter for four bags of potatoes.

Gold bug: Why did you not buy other things with it?

Anna: From whom? The shops were closed or selling only faux bread and canned cod to people with ration coupons. The government made it illegal to possess gold back during the Great War. The smugglers would take gold, but we need milk and eggs and potatoes and bread and coal. How does one buy such things with gold? Even a one-ounce gold coin would, in normal times, buy enough food a year. Today, when you are not only not allowed to own gold or foreign currency, you are also not allowed to own more than one day’s worth of meager rationed food, you would have to pay enough gold that would have bought you a carriage in the past for a day or two’s worth of contraband food. And if I start using gold to pay the smugglers, the robbers will start looking for me to meet with the smugglers so they can steal the gold before I can spend it. What do you think, that people who own gold can live in luxury while their neighbors starve unable to buy the most basic necessities? If anyone knew that I had gold, and the smugglers would have to know, everyone would soon know and the government men would ransack the house looking for it.

Gold bug: Well, isn’t gold better than Austrian kronen? [the hyperinflated currency of Austria]?

Anna: Of course, a pile of acorns is better than kronen, but what is really good to have are American dollars or Swiss francs or Dutch guilders or to live on your own farm with cows and chickens and vegetables and pigs. You cannot eat gold. You cannot burn it to keep you warm. You cannot make shoes out of it. The “gold” of Austria today is food or coal or shoes or candles. Knowing what I know now, if I had a million dollars in gold before the war I would have spent it on a farm in the country with livestock and plows and its own water well and its own forest for game and firewood. Gold is of no use except to buy things with it and the more you buy, the sooner your gold will be robbed away from you. If your coat or boots are good, they will be stolen off you in the street as you try to shop.

I do not believe the word “gold” appears anywhere in Anna’s diary of ten years of war and hyperinflation except as the adjective to describe her late husband’s watch chain. No mention of her having or wanting gold or of anyone else having or wanting it. I do not believe the word gold ever appeared in the silent German film The Joyless Street. They spoke of foreign currency and being in businesses, like farming or butcher shops or bakeries where you could get more food than ordinary citizens were allowed to have. Even middle-class foreigners were revered for their passports and catered to as ultra-rich because of their foreign currency, which was not hyperinflated and which now bought far more than it did before the local currency became hyperinflated.

In both Joyless Street and Anna’s diary, they managed to rent a room to a young U.S. Army officer. The officers were helping distribute food to the starving Austrians. It was a great coup to rent a room to an American because he would pay you $2 U.S. for rent per month and that was a bonanza of purchasing power.

Gold is good in theory, but not so much is 1921 Vienna

In theory, gold is a great hedge against hyperinflation. But actual hyperinflation is not some abstraction involving only the number of digits on a price tag. It is non-availability of food and fuel and such a great preference for foreign currency that a foreigner could work one hour to make enough buy a German or Austrian horse while the German or Austrian citizen in hyperinflation would have to work a week to come up with enough to buy the same horse—a horse that cost three days work for all before the hyperinflation.

In another web article at, I listed the reasons why gold is actually a poor inflation hedge. One is that is too valuable for normal purchases and ends up having far less purchasing power for its pre-hyperinflation value than things like silver coins or fishhooks or nails compared to before the hyperinflation hit. Anna bought four bags of potatoes with her husband’s gold watch chain. She probably could have bought the same four bags of potatoes with a box of fine cigars or twenty bars of soap during the hyperinflation—things that would have cost far less than the gold before hyperinflation.

What’s valuable in hyperinflation is foreign currency and necessities and yes, gold, but you will spend a lot more before inflation buying gold than you will be able to get for it in an illegal black market barter economy.

There are police during hyperinflation, but if you get robbed of some gold, you cannot call the cops because they will arrest you for having had it before you were robbed.

If you fear hyperinflation in the U.S. dollar, which you’d damned well better, and you have pinned all your hopes on gold, you’d better do some more homework. Read When Money Dies, Blockade (not for sale, only available from libraries), and maybe watch that old, somewhat hard to follow, silent film The Joyless Street starring Greta Garbo. See how many times you see someone celebrating that he had the foresight to buy a lot of gold before the hyperinflation happened. My count of the number of such mentions was zero.

John T. Reed