Inflation

http://www.ketknbc.com/news/deficit-reduction-by-the-numbers

A 10 pfennig stamp paid the the first class domestic letter rate in Germany from 1902 to 1916 (equivalent to 2.4 cents US). July 31, 1914, he day before war was declared against Russia, Germany went off the gold standard. Of the 164 billion marks Germany spent in that war, some 93 was borrowed, 29 paid through short term borrowing (repaid by taxation), and 42 billion was printed. In 1916 the first class postal rate increased to 15 pf and to 20 pf in 1919. Six months later it went to 40, then to 60 in 1921. This was when Germany started to see the effects of inflation.

Germany not only had war debts but also billions in war reparations under the treaty of Versailles, which ended the war. They kept printing money. At the start of 1922, a letter cost 2 marks (100 pfennig to the mark). By the end of the year it was 50 marks. This was hyperinflation kicking in. On August 1, 1923, it was 1,000 m. Three weeks later it was 20,000, which only lasted nine days. Then it was 75,000. The printing presses were busy printing money, so the post office had to start surcharging, i.e. printing new values on existing stamps. The postage rate continued to rise sharply and in early October it was 250,000. This continued through the middle of November when the postage rate topped 100 billion marks (the German word for billion is milliarde).

Of course all of the other horrors of inflation were occurring at this time. The price of everything rose on a daily basis. Savings vanished. It did not end until measures were taken by the German government. They stopped the printing presses and made severe cutbacks in government spending. They laid off or cut the wages of thousands of government employees. Disability and veterans' benefits were ended. A moratorium was declared on payment of government debt and taxes were drastically increased. A new currency was issued, supposedly based upon the total resources of land and industrial production of the country. This was of course a fiction, since the new currency could not actually be redeemed for anything at all, just as before. The measures worked only because the people saw no other option, they needed it to work.

The postage rates of the United States have climbed in a way similar to the earlier days of the German inflation. Today, the Deficit Reduction Committee referred to in the above link proposed some austerity measures that are mild compared to Germany's. These will probably not be adopted for political reasons. Any action taken will probably be too watered down to make much difference. Even the proposed measures only result in long term deficit reduction of 4 trillion dollars when the debt is 14 trillion. Social security and Medicare benefits will be paid with borrowed or printed money. The proposed measures would at least be a good start. (Unfortunately, they raise taxes excessively and to not sufficiently reduce government employment or wages.)

The above photo of the German stamps illustrate what happened. To a great extent, the last stamp was the culmination of the story. (By the way, after I scanned the stamps, I see that (at least) one of the stamps, other than the Hitler one, does not really belong because it came after the war. Can you identify it?)

The source for this post is, "Scott's Monthly Stamp Journal." June 1982, Vol. 63, No. 6, by Richard MacFarlane. (This article lists 18 sources, including Michel's Specialized German Stamp Catalog, where he got the postal rates).

Another source of information about the German inflation is "The Bubble that Broke the World." -- that book explains a lot of how it happened, what countries tried to do, and what the results were.