City bankers buying up rare book on Weimer era inflation

[Cain]

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7909432/The-Death-of-Paper-Money.html

Ambrose Evans-Pritchard seems well respected by various financial commentators, so this likely has some validity to it:

As they prepare for holiday reading in Tuscany, City bankers are buying up rare copies of an obscure book on the mechanics of Weimar inflation published in 1974.

Ebay is offering a well-thumbed volume of "Dying of Money: Lessons of the Great German and American Inflations" at a starting bid of $699 (shipping free.. thanks a lot).

The crucial passage comes in Chapter 17 entitled "Velocity". Each big inflation — whether the early 1920s in Germany, or the Korean and Vietnam wars in the US — starts with a passive expansion of the quantity money. This sits inert for a surprisingly long time. Asset prices may go up, but latent price inflation is disguised. The effect is much like lighter fuel on a camp fire before the match is struck.

People's willingness to hold money can change suddenly for a "psychological and spontaneous reason" , causing a spike in the velocity of money. It can occur at lightning speed, over a few weeks. The shift invariably catches economists by surprise. They wait too long to drain the excess money.

"Velocity took an almost right-angle turn upward in the summer of 1922," said Mr O Parsson. Reichsbank officials were baffled. They could not fathom why the German people had started to behave differently almost two years after the bank had already boosted the money supply. He contends that public patience snapped abruptly once people lost trust and began to "smell a government rat".

You can download the book here http://esocap.com/uploads/files/Dying%20of%20Money.pdf

[LMNO]

The last two paragraphs you quoted seems to imply that some outside factor or force is responsible, but doesn't call one out.  That's fertile ground for conspiracy theories.

Got any good ones?

[Cain]

Not a clue.  I have a couple of books on Weimar-era economics, but I haven't really had the time or inclination to read them.

The only thing that really comes to mind is that modern advertising was invented in this era, mostly by Edward Bernays, and corporations in the US used his techniques to deal with the problem of overproduction once the war was over, through the creation of branding and status symbols to move more products (before this, people on lower incomes had mostly bought what they needed and little more, prefering to save).  If someone in Germany was replicating his methods, which is entirely possible since they were based on the work of Sigmund Freud, which had been studied far longer in the Germaphone world, then this could've been a Black Swan traditional economists of the era could not have forseen.

Also at the back of my mind, something about the Ruhr Occupation by France and Belgium is trying to get my attention, but I'm not sure why.