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Saturday Snippet: One woman's nightmare experience of hyperinflation


The news that natural gas costs in Europe are already ten times higher than a year ago, and likely to go higher this winter, has sparked near-panic in European governments.  Electricity generation is directly affected, so overall energy prices are likely to reflect a similar increase.  The average consumer in Europe simply can't afford that.  Factories and businesses are likely to close at a much higher rate than before, throwing more and more people out of work, and affecting the quantity and quality of food and consumer goods available to residents across the continent.

All those factors have sparked widespread alarm about inflation possibly turning into hyperinflation.  Those fears are not far-fetched;  and they apply as readily to the USA as they do to Europe.  Trouble is, far too many people still reject any such possibility.  They breeze along from day to day, complaining about rising prices, but refusing to accept that the rise may accelerate so fast as to render their very existence a matter of day-to-day survival.  Sadly, there are literally millions of people over the past century who could assure them that the danger is real.  Weimar Germany, Zimbabwe and Venezuela are three well-known examples, but they're not alone.  We could fall off that fiscal cliff too.

On two previous occasions in these Saturday Snippets we've read excerpts from Adam Fergusson's masterly book, "When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany".

I'm going to quote from sections of that book again, to illustrate how one Austrian woman experienced the hyperinflation environment that followed World War I.  Her name was Anna Eisenmenger, and she wrote about the period in a book titled "Blockade:  The Diary of an Austrian Middle-Class Woman", published in English in 1932.  (A 2013 reprint edition is available on Amazon.)

I don't have her book (although I've ordered a copy), but Mr. Fergusson quotes extensively from it.  It's a brutally accurate portrayal of the collapse of an entire society under the burden of hyperinflation.  This is what's staring Europe in the face right now, unless central banks and the European Union can pull some sort of rabbit out of the inflationary hat.  If it happens there, it's likely to directly affect the USA as well, since Europe and its member nations form one of our most important trading partners.

Here's what Ms. Eisenmenger had to say, through Mr. Fergusson.

A ... telling contemporary account of the scourge of inflation in post-war Vienna is given in the diary, greatly overladen with explanatory translation for English-speaking readers, of Anna Eisenmenger. As the ex-Imperial Army drifted homewards, armed and in revolutionary mood, and as the food shortage of the war years turned to famine, this middle-class widow found herself progressively turning to illegal practices to keep her family going - a war-blinded son, a tubercular daughter, a son-in-law with amputated legs, a hungry grandson, and another son who had become a Communist. She began to resort at enormous expense to the Schleichhändler - the smugglers - for the most basic foods which, despite ration cards, the State could no longer supply. ‘Hamstering’ - hoarding - though an indictable offence, became no more than commonsense. Pitifully aware of her family’s lowering standard of living and social status, Frau Eisenmenger was nevertheless lucky in having investments which in 1914 brought her nearly 5,000 kronen a year - equal to about £200.

She recorded that in October 1918 when she resolved to cash 20,000 kronen worth for immediate use, her bank manager advised her earnestly to convert all her money into Swiss francs. However, private dealings in foreign currencies were illegal, and she decided that to break the law against the hoarding of fuel and food was enough.

I must make myself believe [she wrote] that I am really far better off than hundreds of thousands of other women. I am at least immune from material cares and can help my children since I have a small fortune, safely invested in gilt-edged securities. Thank God for that!

She also had a substantial quantity of her husband’s cigars, which could be traded for meat or other food as the opportunity arose: an important enough means of survival even during the early months of the post-war blockade.

But the country was now deprived both of Czech coal and Hungarian food; and within a month of the end of the war Austrian currency began to lose its exchange value at a far greater rate than before. By December 1918, when all businesses were forced to employ an allocation of demobilised soldiers whether or not extra staff were required, bankruptcies were common. That month Frau Eisenmenger’s legless son received 35,000 kronen in ‘caution money’, which he decided to keep safely until the value of the krone increased again; but in the meantime he converted it into War Loan. In December, too, as an anti-inflationary measure, all paper money had to be overprinted ‘Deutschösterreich’. Frau Eisenmenger, who took what remained of her 20,000 kronen to the bank to be stamped, recorded the first evidence she heard that ruin lay in front of her:

In the large banking hall a great deal of business was being done … All around me animated discussions were in progress concerning the stamping of currency, the issue of new notes, the purchase of foreign money and so on. There were always some who knew exactly what was now the best thing to do! I went to see the bank official who always advised me. ‘Well, wasn’t I right?’ he said. ‘If you had bought Swiss francs when I suggested, you would not now have lost three-fourths of your fortune’. ‘Lost!’ I exclaimed in horror. ‘Why, don’t you think the krone will recover again?’ ‘Recover!’ he said with a laugh … ‘Just test the promise made on this ao-kronen note and try to get, say, 20 silver kronen in exchange’. ‘Yes, but mine are government securities: Surely there can’t be anything safer than that?’ ‘My dear lady, where is the State which guaranteed these securities to you? It is dead.”

Discovering that her son’s War Loan had already become unsaleable, Frau Eisenmenger was then induced to exchange her government securities for industrial shares. Her grandson developed scurvy. Two days after Christmas, the first food train arrived in Vienna from Switzerland. The prices of the new food, strictly rationed as it was, were four times as high as the previous official prices. Other food was hardly available for money, and could be obtained principally by barter. ‘Panic bids defiance to all legal decrees’, runs the diary entry for January 1, 1919.

Even the most respectable of Austrian citizens now breaks the law, unless he is prepared to starve for the sake of obeying it … The fact that the future is so uncertain has led to stagnation in industry and public works, and swelling numbers of unemployed supported by the State … yet it is impossible to get domestic servants or indeed any sort of workers …

Heightened class-consciousness is daily being instilled into the manual workers by the Socialist government, and, in heads bewildered by catchwords, leads to an enormously exaggerated estimate of the value of manual labour. Only in this way could it come about that the wages of manual workers are now far higher than the salaries of intellectual workers. Even our otherwise honest old house-porter is demanding such extravagant sums for performing little jobs that I prefer to do the heavier and more unpleasant household work myself …

I survey my remaining 1,000-kronen notes mistrustfully, lying by the side of the pack of unredeemed food cards in the writing table drawer. Will they not perhaps share the fate of the food cards if the State fails to keep the promise made on the inscription on every note? The State still accepts its own money for the scanty provisions it offers us. The private tradesman already refuses to sell his precious wares for money and demands something of real value in exchange. The wife of a doctor whom I know recently exchanged her beautiful piano for a sack of wheat flour. I, too, have exchanged my husband’s gold watch for four sacks of potatoes, which will at all events carry us through the winter … My farmer had hidden the sacks of potatoes under straw on top of which he placed some apples. The apples were duly stolen, but the potatoes reached me safely … I had to give the porter half a sack as hush-money … When the farmer’s eyes rested on the grand piano at which Erni [her blinded son] was seated improvising, he took me aside and said: ‘My wife has been wanting one of those things for a long time. If you’ll give it to me, you shall have all you want for three months.

Although the misery of Austria was more immediately and directly the result of war, the pattern was to be repeated almost exactly in Germany. In both countries rapid inflation caused homegrown produce to be withheld from the urban markets, with hunger and anger the inevitable result. All Austrians, but especially those with savings, watched horrified as the value of their money fell, Frau Eisenmenger among them. She noted early in 1919:

The State has been obliged to put 10,000 kronen notes into circulation - each equivalent to two years’ income from my capital. A suit costs about six times what it was in 1913, but some things like food are a hundred or two hundred times as much … Paper clothes are being sold. Never had I dreamed it possible that one could purchase so little for 10,000 kronen … Jealousy and envy flourish in this atmosphere, and if one has procured some harmless article of food, one is careful to conceal the fact from one’s fellow men. Hunger reigns inexorably and selects its dumb and uncomplaining victims above all from the middle classes.

Spring saw no alleviation of the troubles of those with no political leverage to bargain with. Not only Austrian peasants and profiteers took advantage of their helplessness. Furniture, fittings, pianos and carpets were being bought up wholesale by what were known as the ‘gold-currency’ people - the occupying Italians, the British, the Americans. The last valuables of countless houses flowed on to the market, no one warning their owners not to part with goods whose intrinsic value remained unimpaired.

The Viennese [commented Frau Eisenmenger], handed a large bundle of kronen, still thinks he has grown richer, without taking into account the enormous rise in prices resulting from the Zurich quotations which come as a fresh surprise to him every day.

Where the German looked to the New York and London rates, Vienna’s eyes were on the Swiss franc.

Twice a day we are all forced to await the quotation of the Zurich bourse. Every fresh drop in its value is followed by a wave of rising prices … The confidence of Austrian citizens in the currency administration of the State is shaken to its foundation. The State which is perpetually printing new banknotes deceives us with the face value … A housewife who has had no experience of the horrors of currency depreciation has no idea what a blessing stable money is, and how glorious it is to be able to buy with the note in one’s purse the article one had intended to buy at the price one had intended to pay.

In November [1919], a year after the Armistice, Frau Eisenmenger wrote that her position was alarmingly worse, the financial situation beyond her understanding. The krone, at 25 Swiss centimes the previous Christmas, was now quoted at one-twelfth of a centime. Her shares, however, were going up. Gambling on the stock exchange had become the fashion - the only way to avoid losing all one’s money and perhaps to add to it. Many new bankers were giving people advice, the flight from the krone governing all transactions. ‘Meanwhile,’ Frau Eisenmenger wrote,

the large numbers of unemployed, their passions fermented by the Communists, are seething with discontent … a mob has attempted to set the Parliament building on fire. Mounted policemen were torn from their horses, which were slaughtered in the Ringstrasse and the warm bleeding flesh dragged away by the crowd … the rioters clamoured for bread and work … Side by side with unprecedented want among the bulk of the population, there is a striking display of luxury among those who are benefitting from the inflation. New nightclubs are being opened. These clubs have the further effect of greatly intensifying the class hatred of the proletariate against the bourgeoisie.

On December 15 1919, Frau Eisenmenger recorded that, whereas the downward movement of the krone in Zurich had gone on, ‘the value of my industrial investments is rising to an extent which seems to be incomprehensible and almost makes me uneasy …’ Her daughter was able to make two dollars a day at the American Mission, which could be exchanged for 400 krone, only 100 krone less than the monthly pension of a retired privy councillor.

Former civil servants and officers are undoubtedly the poorest of the poor in Austria today. They are too proud to press their claims, can get no employment. Thus it happens every day, again and again, that elderly, retired officials of high rank collapse on the streets of Vienna from hunger.

Frau Eisenmenger let a room to the gentleman from the American Mission - just as Garbo’s father in The Joyless Street was able to do - and received for it ten times the rent which, in accordance still with the wartime rent restriction Act, she herself paid for the whole flat. On a now slender quantity of negotiable cigars, on her daughter’s earnings, on that rent, and on the diminishing real income from her burgeoning shares, she tackled the first months of 1920.

Speculation on the stock exchange has spread to all ranks of the population and shares rise like air balloons to limitless heights … My banker congratulates me on every new rise, but he does not dispel the secret uneasiness which my growing wealth arouses in me … it already amounts to millions.

What was happening to Austria then was simply a foretaste of what was to come to Germany. The plight of Frau Eisenmenger and her family would be repeated a thousandfold in every town in both countries. The torture of Germany’s middle classes, however, was more lingering, and more intense.

A few years later, at the close of 1923, the full impact of hyperinflation had made itself felt.  Ms. Eisenmenger was left penniless.

The closing entries in Frau Eisenmenger’s diary give some idea of what she had undergone:

Foodstuffs which three years ago were entirely unobtainable in Vienna and the rest of Austria [she wrote in December 1923] can now be bought everywhere. But who can buy them? Whose income has kept pace with the tireless activities of the banknote printing-press? Although my holding in shares is worth at today’s quotation more than 10 million kronen, I am at my wits end to know where to find money to buy food … today the value of our krone is quoted in Zurich as 0.00705 centimes.

On January 2, 1924 the full implications of the Austrian currency reforms dawned upon her:

The kronen and heller have been changed into schillings and groschen. It is a drastic change. For 15,000 kronen we get - one schilling! Thousands of Austrians have been reduced during the last days to beggary. All who were not clever enough to hoard the forbidden stable currencies or gold have, without exception, suffered losses. An old married couple with whom I have been friendly for years had a holding of government stock amounting to 2 million pre-war kronen which brought them in interest 80,000 pre-war kronen a year [more than £3,200]. They were rich people. Today their stock brings them in 8 new schillings a year. Panic has seized the Stock Exchange. My millions have dwindled to about a thousand new schillings. We belong to the new poor. The middle class has been reduced to the proletariate. More fighting - daily, repeated, exasperated, demoralising, offensive and defensive fighting of man against man. I feel that my strength is deserting me. I cannot go on.

. . .

Frau von Eisenmenger’s diary equally contained repeated regrets about the deceits into which life was forcing her. Her stock of good cigars enabled her to obtain a transport permit from the Volkswehr, normally forbidden to the bourgeoisie: but business was done in transport permits as in anything else. She shared philosophic resentment about the behaviour of others:

The growing lack of consideration for one’s fellow men … impresses me very painfully. I can understand, however, that the instinct of self-preservation in people whose very existence is threatened should overcome all moral laws … It has become common for better and more warmly clad people to be robbed of their clothes in the street, and obliged to go home barefoot.

However, she had less sympathy for the President of the Salzburg Provincial Government who was arrested for illicit trading in government property - food, leather and clothes: ‘These are the enemies in our camp, but how few of them are detected!’

I was reminded of Mr. Fergusson's book, and of Frau Eisenmenger, through an article at the Mises Institute that mentions both.  Here's an excerpt from that article, to "flesh out" the picture of Ms. Eisenmenger's tribulations.

I will suggest a story with plenty of pathos to shake people out of their complacency and sound the warning.

That story is When Money Dies, Adam Fergusson’s brilliant cautionary account of hyperinflation in Weimar-era Germany. It is the story Americans desperately need to hear today.

Fergusson’s book should be assigned to central bankers stat (we wonder how many of them know of it). It’s not a book about economic policy per se—it’s a story, an historical account of folly and hubris on the part of German politicians and bureaucrats. It’s the story of a disaster created by humans who imagined they could overcome markets by monetary fiat. It’s a reminder that war and inflation are inextricably linked, that war finance leads nations to economic disaster and sets the stage for authoritarian bellicosity. We think Versailles and reparations created the conditions for Hitler’s rise, but without the Reichbank’s earlier suspension of its one-third gold reserve requirement in 1914, it seems unlikely Germany would have become a dominant European military power. Without inflationism, Hitler might have been a footnote.

Most of all, When Money Dies is a tale of privation and degradation. Not only for Germans, but also Austrians and Hungarians grappling with their own political upheavals and currency crises in the 1910s and ’20s. In a particularly poignant chapter, Fergusson describes the travails of a Viennese widow named Anna Eisenmenger. A friend of mine ... sent me her diary from Amazon.

The story starts with her comfortable life as the wife of a doctor and mother to a wonderful daughter and three sons. They are talented and cultured and musical and upper middle class. They even socialize with Archduke Franz Ferdinand and his wife, the Duchess of Hohenberg.

But in May 1914 their happy life is shattered. Ferdinand is assassinated at Sarajevo, and war breaks out. Wars cost money, and the gold standard wisely adopted by Austria-Hungary in 1892 is almost immediately seen as an impediment. So the government predictably begins to issue war bonds in huge numbers, and the central bank fires up the printing presses. This results in a sixteenfold increase in prices just during the war years.

But the human effects are catastrophic, even apart from the war itself.

Frau Eisenmenger is luckier than most Viennese women. She owns small investments which produce modest income—fixed in kronen. Her banker quietly urges her to immediately exchange any funds for Swiss francs. She demurs, as dealing in foreign currency has been made illegal. But soon she realizes he was right. There is probably a lesson here for all of us!

As the war unfolds, she is forced into black markets and pawning assets to procure food for her war-damaged children. Her currency and Austrian bonds become almost worthless. She exchanges her husband’s gold watch for potatoes and coal. The downward spiral of her life, marked by hunger and hoarding anything with real value, happens so quickly she barely has time to adjust.

But her misery doesn’t stop with the end of the war. On the contrary, the Saint-Germain Treaty in 1919 gives way to a period of hyperinflation: the money supply increases from 12 to 30 billion kronen in 1920, and to about 147 billion kronen at the end of 1921 (does this sound like America 2020, by the way?). By August 1922, consumer prices are fourteen thousand times greater than before the start of the war eight years earlier.

In just a few short years she endures countless tragedies, all made worse by privation, cold, and hunger. Her husband dies. Her daughter contracts tuberculosis and dies, leaving Frau Eisenmenger to take care of her infant daughter and young son. One son goes missing in the war, one son is blinded, and her son in law becomes crippled following the loss of both legs. Food and coal are rationed, so her apartment is a miserable hovel—and she is forced to dodge searches by the “Food Police” looking for illegal hoarding. Ultimately, she is shot in the lung by her own Communist son, Karl, in a fit of rage.

There is a haunting and historically accurate silent film about conditions in Vienna during this era called The Joyless Street, starring a young Greta Garbo.

Her character sees everything deteriorate around her; even her father beats her with his cane for returning home without food. Once friendly neighbors become suspicious of each other’s stores of bread and cheese, while prostitution becomes rampant. Angry people jostle in line, waiting for the butcher to open; when he does, only the most attractive women receive the scraps of meat available that day. Fistfights become common. Starving children beg for food in front of restaurants and cafes like stray dogs. Everything familiar and beautiful in society becomes degraded and cheapened seemingly overnight.

Like a Stephen King horror movie, something very familiar changes into a strange and menacing place. Your neighborhood takes on a different light. People you thought you knew became malevolent strangers. Scapegoating, blame, and snitching become commonplace.

Is this beginning to sound familiar, especially after Biden’s sick speech the other night?

So, next time one of these sociopaths in our political class wants to spend a few trillion more to pay for a green new deal or a war with China or free college, remember Frau Eisenmenger’s story.

I don't know about you, dear readers, but I can see ominous parallels in our society between those who've skimmed off the cream from our "financialization revolution" over the past few decades, and those of us who fall into the vastly larger "wage slave" sector.  Those with cash and assets in hand tend to do moderately to very well in hyperinflationary environments, but the rest of society does very poorly indeed.  (Again, consider Zimbabwe and Venezuela as recent examples.)

Europe is, right now, trembling on the brink of another possible episode of hyperinflation.  The USA is experiencing what's known as stagflation, but that could very easily turn into hyperinflation if the deliberately destructive policies of the Biden administration continue.  It's anything but a remote possibility or a scary story.  Learn from those who've been there before, keep your eye on the signs of the times . . . and make ready to as great an extent as you can, as we've discussed in these pages on all too many occasions in the past.

Finally, if you don't own a copy of When Money Dies, I very strongly recommend that you get one, and read it, and re-read it every few months.  In today's economic environment, parts of it sound uncannily like our own news headlines - and that scares the living daylights out of me.


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