Dear curious612,
Actually, the answer to "was inflation a problem" is negative in both
cases. The 1930s in both countries were not characterised by
inflation, but rather by deflation and rapid sinking of prices
("Inflation is where the aggregate level of prices goes up and
deflation where the aggregate level of prices goes down", [6]). Prices
"fell 25%, 30%, 30%, and 40% in the UK, Germany, the US, and France
respectively from 1929 to 1933. These were the four largest economies
in the world at that time."(1)
In Germany, Minister of Finance Burning tried to prevent inflation by
balancing the budget. It didn't help. The country's "experience under
Brüning (1930-32) was actually severely deflationary"(2). It is not
clear, if Brüning had any other option, as Canadian analyst have
found: "despite the speed and depth of Germany's deflation in the
early 1930s - fear of inflation is evident in the bond, foreign
exchange, and commodity markets at certain critical junctures of the
Great Depression. Therefore, policy options were more limited than
many subsequent critics of Brüning's policies have been prepared to
admit."(7)
From 1933 onwards, one can depict slight price
To understand that, we should understand that long before the 1929
collapse, the German economy was in crisis, caused by the inability to
recuperate from the Post-WWI crisis and to pay reparations to France,
which "devastated the German economy and spiraling inflation
began"(3). Germany was drawn into hyperinflation since 1923, even
before 1929. "As production levels fell, German workers were laid off.
Along with this, banks failed throughout Germany. Savings accounts,
the result of years of hard work, were instantly wiped out. Inflation
soon followed making it hard for families to purchase expensive
necessities with devalued money" (4).
In the United States, the condition cannot also be described as
inflation, but rather as deflation. Friedman & Schwartz (5) present
it:
Year - Unemployment level - Price Level (1929 - 100%)
1930 - 8.0% - 95.5
1931 - - 84.0 Great Depression Deflation
1932 - - 74.3
1933 - 24.9% - 73.3
1934 - - 78.1
1935 - - 77.1 Great Depression, 1929-1940
1936 - - 80.3
1937 - - 81.0
1938 - 19.0% - 80.6
1939 - 17.2% - 80.0
1940 - 14.6% - 80.9
[Source: (5) as quoted in (6)
(1) http://www.shambhala.org/business/goldocean/causdep.html
(2) Parker, David, "Talk: Great Depression"
http://www.wikipedia.com/wiki/Talk:Great_Depression
(3) http://us.history.wisc.edu/hist102/lectures/lecture18.html
(4) <http://www.historyplace.com/worldwar2/riseofhitler/begins.htm>
(5) Milton Friedman and Anna. J. Schwartz, Monetary Trends in the
United States and the United Kingdom, U. of Chicago Press, 1982,
pp.122-137 - http://www.amazon.com/exec/obidos/tg/detail/-/0226264092/ltc-political/002-8658478-2156038
(6) The Friesian Society, "Money, Value, and Monetary History" (after
Milton Friedman), <http://www.friesian.com/money.htm>
(7) <http://ideas.uqam.ca/ideas/data/Papers/upfupfsbf333.html>
Further information about the Great Depression:
http://mars.acnet.wnec.edu/~grempel/courses/wc2/lectures/depression.html
http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html
My search strategy was 1930s (or 30s, or "great depression"), name of
the country, and the words "deflation" or "inflation"
I think that answered your question. If you need any clarifications,
don't hesitate to ask. I'll be pleased to answer any clarifications
before you rate the answer. Thank you for using Google Answers - I
hope that your curiosity was satisfied and that you'll come back! |
Request for Answer Clarification by
curious612-ga
on
03 Sep 2002 01:23 PDT
Thanks for your informative answer. Just one point. I understand
from your answer that in the cases of both Germany and the USA, during
the 1930s the problem was deflation, ie, falling prices etc, rather
than inflation, rising prices etc. However, I'm still a little
puzzled by the following comments which you provided:
Germany was drawn into hyperinflation since 1923, even
before 1929. "As production levels fell, German workers were laid off.
Along with this, banks failed throughout Germany. Savings accounts,
the result of years of hard work, were instantly wiped out. Inflation
soon followed making it hard for families to purchase expensive
necessities with devalued money"
If inflation 'soon followed', even up to 1929, does this mean that
Germany was still in the grip of inflation rather than deflation into
the 30s? If so, could you tell me when Germany actually went into a
deflationary mode?
Many thanks
Curious612
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