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The World’s Most Famous Case of Hyperinflation (Pt. 2)

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The World's Most Famous Case of Hyperinflation (Part 2 of 2)

The World’s Most Famous Case of Hyperinflation (Part 2)

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

For the first infographic in this series, which summarizes the circumstances leading up to hyperinflation in Germany in 1921-1924, it can be found here: Hyperinflation (Part 1 of 2)

Slippery Slope

“Inflation took the basic law-and-order principles of loyalty and trust to the extreme.” Martin Geyer, Historian.

“As things stand, the only way to finance the cost of fighting the war is to shift the burden into the future through loans.” Karl Helfferich, an economist in 1915.

“There is a point at which printing money affects purchasing power by causing inflation.” Eduard Bernstein, socialist in 1918.

In the two years past World War I, the German government added to the monetary base of the Papiermark by printing money. Economic historian Carl-Ludwig Holtfrerich said that the “lubricant of inflation” helped breathe new life into the private sector.

The mark was trading for a low value against the dollar, sterling and the French franc and this helped to boost exports. Industrial output increased by 20% a year, unemployment fell to below 1 percent in 1922, and real wages rose significantly.

Then, suddenly this “lubricant” turned into a slippery slope: at its most severe, the monthly rate of inflation reached 3.25 billion percent, equivalent to prices doubling every 49 hours.

When did the “lubricant” of inflation turn into a toxic hyperinflationary spiral?

The ultimate trigger for German hyperinflation was the loss of trust in the government’s policy and debt. Foreign markets refused to buy German debt or Papiermarks, the exchange rate depreciated, and the rate of inflation accelerated.

The Effects

Hyperinflation in Germany left millions of hard-working savers with nothing left.

Over the course of months, what was enough money to start a stable retirement fund was no longer enough to buy even a loaf of bread.

Who was affected?

  • The middle class – or Mittelstand – saw the value of their cash savings wiped out before their eyes.
  • Wealth was transferred from general public to the government, which issued the money.
  • Borrowers gained at the expense of lenders.
  • Renters gained at the expense of property owners (In Germany’s case, rent ceilings did not keep pace with general price levels)
  • The efficiency of the economy suffered, as people preferred to barter.
  • People preferred to hold onto hard assets (commodities, gold, land) rather than paper money, which continually lost value.

Stories of Hyperinflation

During the peak of hyperinflation, workers were often paid twice a day. Workers would shop at midday to make sure their money didn’t lose more value. People burned paper bills in the stove, as they were cheaper than wood or other fuel.

Here some of the stories of ordinary Germans during the world’s most famous case of hyperinflation.

  • “The price of tram rides and beef, theater tickets and school, newspapers and haircuts, sugar and bacon, is going up every week,” Eugeni Xammar, a journalist, wrote in February 1923. “As a result no one knows how long their money will last, and people are living in constant fear, thinking of nothing but eating and drinking, buying and selling.”
  • A man who drank two cups of coffee at 5,000 marks each was presented with a bill for 14,000 marks. When he asked about the large bill, he was told he should have ordered the coffees at the same time because the price had gone up in between cups.
  • A young couple took a few hundred million marks to the theater box office hoping to see a show, but discovered it wasn’t nearly enough. Tickets were now a billion marks each.
  • Historian Golo Mann wrote: “The effect of the devaluation of the German currency was like that of a second revolution, the first being the war and its immediate aftermath,” he concluded. Mann said deep-seated faith was being destroyed and replaced by fear and cynicism. “What was there to trust, who could you rely on if such were even possible?” he asked.

Even Worse Cases of Hyperinflation

While the German hyperinflation from 1921-1924 is the most known – it was not the worst episode in history.

In mid-1946, prices in Hungary doubled every fifteen hours, giving an inflation rate of 41.9 quintillion percent. By July 1946, the 1931 gold pengõ was worth 130 trillion paper pengõs.

Peak Inflation Rates:
Germany (1923): 3.5 billion percent
Zimbabwe (2008): 79.6 billion percent
Hungary (1946): 41.9 quintillion percent

Hyperinflation has been surprisingly common in the 20th century, happening many dozens of times throughout the world. It continues to happen even today in countries such as Venezuela.

What would become of Germany after its bout of hyperinflation?

A young man named Adolf Hitler began to grow angry that innocent Germans were starving…

“We are opposed to swarms of Americans and other foreigners raising prices throughout Germany while millions of Germans are starving because of the increased prices. We are equally opposed to German profiteers and we are demanding that all be imprisoned.” – Adolf Hitler, 1923, Chicago Tribune

About the Money Project

The Money Project aims to use intuitive visualizations to explore ideas around the very concept of money itself. Founded in 2015 by Visual Capitalist and Texas Precious Metals, the Money Project will look at the evolving nature of money, and will try to answer the difficult questions that prevent us from truly understanding the role that money plays in finance, investments, and accumulating wealth.

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Politics

Basic Income Experiments Around the World

Amid the pandemic, the idea of Universal Basic Income has been gaining steam with policymakers. Where has it been tried, and has it worked?

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Basic Income Experiments Around the World

What if everyone received monthly payments to make life easier and encourage greater economic activity? That’s the exact premise behind Universal Basic Income (UBI).

The idea of UBI as a means to both combat poverty and improve economic prospects has been around for decades. With the COVID-19 pandemic wreaking havoc on economies worldwide, momentum behind the idea has seen a resurgence among certain groups.

Of course, the money to fund basic income programs has to come from somewhere. UBI relies heavily on government budgets or direct funding to cover the regular payments.

As policymakers examine this trade-off between government spending and the potential benefits, there is a growing pool of data to draw inferences from. In fact, basic income has been piloted and experimented on all around the world—but with a mixed bag of results.

What Makes Basic Income Universal?

UBI operates by giving people the means to meet basic necessities with a regular stipend. In theory, this leaves them free to spend their money and resources on economic goods, or searching for better employment options.

Before examining the programs, it’s important to make a distinction between basic income and universal basic income.

attributes of ubi programs

With these parameters in mind, and thanks to data from the Stanford Basic Income Lab, we’ve mapped 48 basic income programs that demonstrate multiple features of UBI and are regularly cited in basic income policy.

Some mapped programs are past experiments used to evaluate basic income. Others are ongoing or new pilots, including recently launched programs in Germany and Spain.

Recently, Canada joined the list as countries considering UBI as a top policy priority in a post-COVID world. But as past experiments show, ideas around basic income can be implemented in many different ways.

Basic Income Programs Took Many Forms

Basic income pilots have seen many iterations across the globe. Many paid out in U.S. dollars, while others chose to stick with local currencies (marked by an asterisk for estimated USD value).

ProgramLocationRecipientsPayment FrequencyAmount ($US/yr)Dates
Abundant Birth ProjectSan Francisco, U.S.100Monthly$12,000-$18,000TBD
Alaska Permanent Fund DividendAlaska, U.S.667,047Annually$1,000-$2,0001982-Present
B-MINCOMEBarcelona, Spain1,000Monthly$1,392-$23,324*2017-2019
Baby's First YearsNew York, U.S.1,000Monthly$240-$3,9962017-2022
Baby's First YearsNew Orleans, U.S.1,000Monthly$240-$3,9962017-2022
Baby's First YearsOmaha, U.S.1,000Monthly$240-$3,9962017-2022
Baby's First YearsTwin Cities, U.S.1,000Monthly$240-$3,9962017-2022
Basic Income for FarmersGyeonggi Province, South Korea430,000Annually$509*TBD
Basic Income Grant (BIG) PilotOmitara, Namibia930Monthly$163*2008-2009
Basic Income ProjectNot Disclosed3,000Monthly$600-$12,0002019-Present
Eastern Band of Cherokee Indians Casino Revenue FundJackson County and area, NC, U.S.15,414Biannually$7,000-$12,0001996-Present
Eight Pilot ProjectBusibi, Uganda150Monthly$110-$219*2017-2019
Evaluation of the Citizens' Basic Income ProgramMaricá, Brazil42,000Monthly$360*2019-Present
Finland Basic Income ExperimentFinland2,000Monthly$7,793*2017-2018
Gary Income Maintenance ExperimentsGary, U.S.1,782Monthly$3,300-$4,3001971-1974
Give DirectlyWestern Kenya20,847Monthly or Lump Sum$2742017-2030
Give DirectlySaiya County, Kenya10,500Lump Sum$3332014-2017
Give DirectlyRarieda District, Kenya503Monthly or Lump Sum$405-$1,5252011-2013
Human Development FundMongolia2,700,000Monthly$1872010-2012
Ingreso Mí­nimo VitalSpain850,000Monthly$6,535-$14,358*2020-Present
Iran Cash Transfer ProgrammeIran75,000,000Monthly$482010-Present
Madhya Pradesh Unconditional Cash Transfers ProjectMadhya Pradesh, India5,547Monthly$26-$77*2011-2012
Magnolia Mother's TrustJackson, MS, U.S.80Monthly$12,0002019-Present
Manitoba Basic Annual Income ExperimentWinnipeg, Canada1,677Monthly$3,842-$5,864*1975-1978
Manitoba Basic Annual Income ExperimentDauphin, Canada586Monthly$3,842-$5,864*1975-1978
My Basic IncomeGermany120Monthly$17,160*2020-2023
New Jersey Income Maintenance ExperimentJersey City, U.S.1,357BiweeklyVaried1968-1972
New Jersey Income Maintenance ExperimentPaterson, NJ, U.S.1,357BiweeklyVaried1968-1972
New Jersey Income Maintenance ExperimentPassaic, NJ, U.S.1,357BiweeklyVaried1968-1972
New Jersey Income Maintenance ExperimentTrenton, NJ, U.S.1,357BiweeklyVaried1968-1972
New Jersey Income Maintenance ExperimentScranton, PA, U.S.1,357BiweeklyVaried1968-1972
Ontario Basic Income PilotHamilton and area, Canada2,748Monthly$13,112-$18,930* (-50% income)2017-2018
Ontario Basic Income PilotThunder Bay and area, Canada1,908Monthly$13,112-$18,930* (-50% income)2017-2018
Ontario Basic Income PilotLindsay, Canada1,844Monthly$13,112-$18,930* (-50% income)2017-2018
Preserving Our DiversitySanta Monica, U.S.250Monthly$7,836-$8,9642017-Present
Quatinga VelhoQuatinga, Mogi das Cruces, Brazil67Monthly$197*2008-2014
Rural Income Maintenance ExperimentDuplin County, NC, U.S.810MonthlyVaried (NIT)1970-1972
Rural Income Maintenance ExperimentIowa, U.S.810MonthlyVaried (NIT)1970-1972
Scheme $6,000Hong Kong, China4,000,000Annually$771*2011-2012
Seattle-Denver Income Maintenance ExperimentSeattle, U.S.2,042Monthly$3,800-$5,6001971-1982
Seattle-Denver Income Maintenance ExperimentDenver, U.S.2,758Monthly$3,800-$5,6001971-1982
Stockton Economic Empowerment DemonstrationStockton, U.S.125Monthly$6,0002019-Present
TBDNewark, U.S.TBDMonthlyTBDTBD
Transition-Age Youth Basic Income Pilot ProgramSanta Clara, CA, U.S.72Monthly$12,0002020-2021
Wealth Partaking SchemeMacau, China700,600Annually$750-$1,1502008-Present
Youth Basic Income ProgramGyeonggi Province, South Korea125,000Quarterly$848*2018-Present
Citizen's Basic Income PilotScotlandTBDMonthlyTBDTBD
People's Prosperity Guaranteed Income Demonstration PilotSt. Paul, U.S.150Monthly$6,0002020-2022

Many of the programs meet the classical requirements of UBI. Of the 48 basic income programs tallied above, 75% paid out monthly, and 60% were paid out to individuals.

However, for various reasons, not all of these programs follow UBI requirements. For example, 38% of the basic income programs were paid out to households instead of individuals, and many programs have paid out in lump sums or over varying time frames.

Interestingly, the need for better understanding of basic income has resulted in many divergences between programs. Some programs were only targeted at specific groups like South Korea’s Basic Income for Farmers program, while others like the Baby’s First Years program in the U.S. have been experimenting with different dollar amounts in order to evaluate efficiency.

Other experiments based payments made off of the total income of recipients. For example, in the U.S., the Rural Income and New Jersey Income Maintenance Experiments paid out using a negative income tax (return) on earnings, while recipients of Canada’s Ontario Basic Income Pilot received fixed amounts minus 50% of their earned income.

Varying Programs with Varied Results

So is basic income the real deal or a pipe dream? The results are still unclear.

Some, like the initial pilots for Uganda’s Eight program, were found to result in significant multipliers on economic activity and well-being. Other programs, however, returned mixed results that made further experimentation difficult. Finland’s highly-touted pilot program decreased stress levels of recipients across the board, but didn’t positively impact work activity.

The biggest difficulty has been in keeping programs going and securing funding. Ontario’s three-year projects were prematurely cancelled in 2018 before they could be completed and assessed, and the next stages of Finland’s program are in limbo.

Likewise in the U.S., start-up incubator Y Combinator has been planning a $60M basic income study program, but can’t proceed until funding is secured.

A Post-COVID Future for UBI?

In light of COVID-19, basic income has once again taken center stage.

Many countries have already implemented payment schemes or boosted unemployment benefits in reaction to the pandemic. Others like Spain have used that momentum to launch fully-fledged basic income pilots.

It’s still too early to tell if UBI will live up to expectations or if the idea will fizzle out, but as new experiments and policy programs take shape, a growing amount of data will become available for policymakers to evaluate.

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Markets

The $88 Trillion World Economy in One Chart

The world’s total GDP crested $88 trillion in 2019—but how are the current COVID-19 economic contractions affecting its future outlook?

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The $88 Trillion World Economy in One Chart

The global economy can seem like an abstract concept, yet it influences our everyday lives in both obvious and subtle ways. Nowhere is this clearer than in the current economic state amid the throes of the pandemic.

This voronoi-style visualization from HowMuch relies on gross domestic product (GDP) data from the World Bank to paint a picture of the global economy—which crested $87.8 trillion in 2019.

Editor’s note: Annual data on economic output is a lagging indicator, and is released the following year by organizations such as the World Bank. The figures in this diagram provide a snapshot of the global economy in 2019, but do not necessarily represent the impact of recent developments such as COVID-19.

Top 10 Countries by GDP (2019)

In the one-year period since the last release of official data in 2018, the global economy grew approximately $2 trillion in size—or about 2.3%.

The United States continues to have the top GDP, accounting for nearly one-quarter of the world economy. China also continued to grow its share of global GDP, going from 15.9% to 16.3%.

RankCountryGDP% of Global GDP
#1🇺🇸 U.S.$21.4T24.4%
#2🇨🇳 China$14.3T16.3%
#3🇯🇵 Japan$5.1T5.8%
#4🇩🇪 Germany$3.9T4.4%
#5🇮🇳 India$2.9T3.3%
#6🇬🇧 UK$2.8T3.2%
#7🇫🇷 France$2.7T3.1%
#8🇮🇹 Italy$2.0T2.3%
#9🇧🇷 Brazil$1.8T2.1%
#10🇨🇦 Canada$1.7T2.0%
Top 10 Countries$58.7 trillion66.9%

In recent years, the Indian economy has continued to have an upward trajectory—now pulling ahead of both the UK and France—to become one of the world’s top five economies.

In aggregate, these top 10 countries combine for over two-thirds of total global GDP.

2020 Economic Contractions

So far this year, multiple countries have experienced temporary economic contractions, including many of the top 10 countries listed above.

The following interactive chart from Our World in Data helps to give us some perspective on this turbulence, comparing Q2 economic figures against those from the same quarter last year.

One of the hardest hit economies has been Peru. The Latin American country, which is about the 50th largest in terms of GDP globally, saw its economy contract by 30.2% in Q2 despite efforts to curb the virus early.

Spain and the UK are also feeling the impact, posting quarterly GDP numbers that are 22.1% and 21.7% smaller respectively.

Meanwhile, Taiwan and South Korea are two countries that may have done the best at weathering the COVID-19 storm. Both saw minuscule contractions in a quarter where the global economy seemed to grind to a halt.

Projections Going Forward

According to the World Bank, the global economy could ultimately shrink 5.2% in 2020—the deepest cut since WWII.

See below for World Bank projections on GDP in 2020 for when the dust settles, as well as the subsequent potential for recovery in 2021.

Country/ Region / Economy Type2020 Growth Projection2021E Rebound Forecast
United States-6.1%4.0%
Euro Area-9.1%4.5%
Advanced economies-7.0%3.9%
Emerging economies-2.5%4.6%
East Asia and Pacific-0.5%6.6%
Europe and Central Asia-4.7%3.6%
Latin America and the Caribbean-7.2%2.8%
Middle East and North Africa-4.2%2.3%
South Asia-2.7%2.8%
Sub-Saharan Africa-2.8%3.1%
Global Growth-5.2%4.2%

Source: World Bank Global Economic Prospects, released June 2020

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