The perils of hyper-deflation

Everyone knows about hyper-inflation under the Weimar Republic.  But few have heard of the crippling case of hyper-deflation that struck Denmark in the 1920s.

After the Great War, Denmark had linked its currency to the German mark, but in an inverse relationship.  So as prices in Germany rose, and rose, and rose, prices in Danish dollars fell, and fell, and fell.  Many philatelists have examples of stamps denominated in micro-cents, and there are celebrated photos of housewives getting wheelbarrows of food for just a penny.  In the real estate market, “diving” became popular, where you would buy a new house with the change you found in the sofas of the old one.  In a famous case, one Josef Christian was ruined when he borrowed a nickel from a friend to ride the bus.  By the end of the ride, that nickel was worth more than his entire city.

Eventually the system collapsed.  With the value of money continually rising, nobody had any incentive to buy anything, and so there was no incentive to produce.  Unemployment soared, crops rotted in the fields, and the League of Nations was forced to intervene and set up a new currency, the krone.  A committee headed by Keynes decided that the whole episode had to be suppressed, so now even most professional economists have not heard of it.

Advertisements

One Response to “The perils of hyper-deflation”

  1. Patricia Apps Says:

    That explains why I haven’t come across this.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: