Paper and Iron : Hamburg Business and German Politics in the Era of Inflation, 1897-1927
Author: Niall Ferguson
List Price: $95.00
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ISBN: 0521470161
Publisher: Cambridge University Press (27 April, 1995)
Sales Rank: 601,238
Average Customer Rating: 4 out of 5
Customer Reviews
Rating: 4 out of 5
Flamboyant first book
Neil Ferguson's first book is a provocative, erudite treatise that challenges much of the more recent writing on Germany's great inflation. Following Carl-Ludwig Holtferich's pathbreaking work, a consensus had begun to emerge that sees the mark's fall as part of a successful strategy that maintained employment and helped in the recovery of the German economy from WWI, thus giving a crucial boost to the stabilization of the young republic. The rewards of moderate inflation during the immediate post-war period were, according to this view, not confined to the Reich alone - German demand for American manufactures, for example, provided a significant countercyclical stimulus to the U.S. economy during the downturn of the early 1920s. Ferguson's strongest point is that this sideeffect of Germany's inflation undermined one of the main policy aims after 1919 - the revision of the Versailles treaty. According to the architects of 'fulfillment', the inflation would lead to an export boom as the mark's value on the foreign exchanges collapsed faster than in Germany itself. Hence, the Allies would realize that they would ultimately have to pay for German reparations through unemployment at home. Instead, because loose monetary policy caused a boom in the Reich at the very time when other industrialized countries went into recession, the trade balance degenerated as imports surged and exports languished in depressed foreign markets. Ferguson thus exposes an important inconsistency in the inflationary strategy - but it is one that only the benefit of hindsight reveals. The historical accident of the postwar boom in the UK and America turning to bust at exactly the time when the Germans attempted to 'export the cost of reparations' undermined a strategy that was based on accurate economic analysis. And even if the export surge never materialized, the monetary chaos within the Reich arguably did help in reducing inflated demands for reparations - from the 28 billion gold marks demanded by Cunliffe in 1919 to the approximately 4 billion of the London Ultimatum. Ferguson also presents a fresh argument that the 1920/21 easing of inflationary pressures could have been used for a more permanent stabilization - at perhaps 50-60 marks/ $. Three factors contributed to this change in fortunes: the fall in import prices due to postwar depression, foreign speculators expecting a recovery of the mark, and the recovery of output. Yet here, as in other parts of the book, Ferguson pays little attention to the considerable time-lag that operated between individual economic variables. The rise in output during 1920/21 was partly caused by the policies of easy money in the years before. The strength of the mark on the foreign exchanges, underpinned by 'hot money', could only last if Germany embarked on a deflation on the Anglo-Saxon model - something that not even Ferguson thinks was politically or economically possible. The argument is also not helped by simple arithmetic errors that lead Ferguson to overstate the size of the Reich's deficit in 1920 and 1922 (p. 278, p. 477) - revenue of 3.2 billion gold marks in 1920 minus expenditure of 7.1 billion simply does not yield a deficit of 6.1 billion. This book's main contribution therefore lies in the wider questions it raises, and not in the ones it answers. That is no mean achievement in a work that combines a monograph on the inflation in Hamburg with more wide-ranging chapters on the Reich's economic fortunes. For this is a study so rich in its observations about the inflation's effects on Hamburg's shipbuilding, banking, and overseas trade, and about the role of Hanseatic politicians in the policymaking in Berlin, that it could easily be mistaken for a regional study. Nothing could be further from the truth: Paper and Iron will at least partly define the research agenda for future scholars of Germany's great inflation.
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