Economic history usually refers to the Great Depression in the United States in 1929. Because the boom in the United States is over, and virtually the whole world is plunged into the Great Depression.
But when it comes to how to overcome the Great Depression, the focus is often on the United States. And the nature of the panic unleashed in the United States and the panic unleashed in Germany is also different.
And there was a different way to get through the Great Depression, and we're going to take a look.
■ American-style Great Depression
The United States experienced the end of the First World War in 1918, and the stock market boom of the 1920s led to a sharp rise in the economy. It was also the time when the so-called Golden Universalism expanded. The novel "The Great Gatsby" is also said to be a novel intended to satirize the frantic era of the 1920s.
Because the economy was booming, people consumed large quantities of cars, clothes, etc., and that consumption led to the growth of companies, and companies again produced mass production, creating a virtuous cycle in which consumers consumed large quantities.
The reason why people were able to consume in large quantities is that "installment purchases" became possible from this time. With the magic phrase "If you pay it off for a few months, you can own this product", people start to consume it in large quantities. Even nowadays, many people buy these phrases because they are fascinated, but there would have been more back then.
In the stock market, as stock prices continue to rise, more people are investing in debt. As more people go into debt and invest their money, stock prices soar higher.
But there is no eternal ascension. One day, in October 1929, the stock market bull market finally ended. The Great Depression began.
■ American-style resolution of the Great Depression
In fact, it was said at the time that the United States could have ended the Depression quickly. Ben Bernanke, former head of the Federal Reserve, said: "The Great Depression in the United States in the 1930s was caused by a shortage of money in circulation." I said.
In other words, the Great Depression in the United States was caused by a deflationary panic caused by money not circulating. Back in the 1930s, the Fed couldn't issue dollars if it couldn't get gold. However, since deflation is the problem, as Bernanke argues, the question remains whether the solution to inflation, which prints money in large quantities, is the real way.
Because unlike deflation, inflation allows governments and central banks to legitimately rob people of their property and make people's lives harder.
In any case, the United States begins forcibly confiscating gold in order to issue more currency. And with the New Deal, we start to give jobs to the people and increase the volume of money, and we start to emerge from the Great Depression.
But towards the late 1930s, the New Deal began to work poorly. I thought the economy was going into panic again, but then it reversed.
September 1, 1939, marked the beginning of World War II. Thanks to the war, the United States began hiring massively to produce military supplies, which helped it escape the Great Depression by selling mass-produced goods to Europe.
The real solution, of course, is World War II, but I don't think the New Deal will work at all. Psychologically, it works in the sense that it gives people hope.
■ German-style Great Depression
I used the term German Great Depression because Germany was already experiencing a depression at the same time, unlike the United States that experienced a boom in the 1920s.
Germany's defeat in World War I forced it to pay a staggering 132 billion marks. In order to pay for this reparation, Germany was unable to sell all kinds of goods, so it began to print currency in large quantities.
This is because, unlike the United States, Germany was able to issue money in large quantities by the central bank. The result is hyperinflation, which is worse than inflation.
In a hyperinflationary situation, money becomes a truce. Simply put, you can buy three eggs for a trillion dollars.
Germany's economy was in ruins, and in the book "The World of Yesterday" by author Stephan Zweig, there was an anecdote that showed the situation in Austria, where the situation was similar to that in Germany.
There was an Englishman living in Austria while receiving unemployment benefits in England. They were able to live a luxurious life in a luxurious hotel suite in Austria with a comfort that they could not do in England.
The hyperinflation is so severe that more can be purchased in Germany and Austria with foreign currency.
Germany's hyperinflation could only end with the issuance of a new currency, the Rentenmark.
But in 1929, the Great Depression in the United States brought another crisis to Germany.
■ The rise of Hitler and the German panic
Hitler had already appeared since the early 1920s, but with the advent of the 'Rentenmark', Hitler's momentum also diminished. As Germany's economy gradually recovers, Hitler, who makes extreme claims, becomes difficult to support.
However, in the 1930s, the economic depression began again, and Hitler finally seized power in 1933. And we are trying to overcome the unemployment rate of over 30% at that time.
It's called Hitler's New Deal, which first nationalizes the central bank. The governor and board of directors of the Reichsbank, Germany's central bank at the time, were all changed to be appointed by the head of state.
In addition, the Imperial Bank actively purchased "Mepo Notes" issued by the government-affiliated paper company "Mepo" and created a system to help create employment.
The Nazi regime was somewhat limited in obtaining credit from the central bank due to the Treaty of Versailles at the time. But Mepora was able to circumvent this through its affiliated paper company. By supplying 'mepo notes' to businesses, companies could take the mepo notes and discount them at banks and convert them into marks.
At the time, the Nazi regime believed that Germany's economic problems were not due to a lack of production systems, but rather to the inability to fully utilize existing production systems. In order to do this, it is necessary to issue the right amount of money so that the idle production system can be put to good use.
As a result, Germany was able to get out of the panic. It was also able to get out of the depression faster than the United States. However, some of the money on the Mepo bills issued by Germany was used for military expansion, which eventually led to war. This resulted in the loss of innocent lives.
I think it's really ironic about Hitler's Nazi regime.
The American Depression and the German Depression differ in the nature of deflation and inflation, and each period is somewhat different.
The solutions are very different and similar.
But the sad thing is that the Great Depression seems to have impoverished the people.
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