1.Should have been clearer. Guy who started the War is the Germans. The war is WW1.
- Looking around a bit, I saw that the German reparations had to be in gold or real goods. They could not have been paid off in paper money.
This changes the whole picture, really. Inflation has two meanings. The original meaning, certainly before WW2, meant an increase in the money supply. What in the treaty would lead to an increase in the money supply? My guess: nothing.
3. Mises writes that the German economists truly believed, like Krugman today, that printing money has no downside.
"In passing under review the German monetary and banking policy from the outbreak of the war to the catastrophe of 1923, the most startling thing is the absolute ignorance even of the most elementary principles of monetary science on the part of literally all German statesmen, politicians, bankers, journalists, and would-be economists. It is impossible for any foreigner even to realize how boundless this ignorance was. For this reason, in the last three years of the German inflation, some foreigners came to believe that the Germans ruined their own currency of set purpose in order to involve other countries in their own ruin, and to evade the payment of reparations. Such imputation of secret satanism to German policy does it wrong. The only secret of German policy was Germany’s total lack of any acquaintance with economic theory.
"Thus Herr Havenstein, the governor of the Reichsbank, honestly believed that the continuous issue of new notes had nothing to do with the rise of commodity prices, wages, and foreign exchanges. This rise he attributed to the machinations of speculators and profiteers and to intrigues on the part of external and internal foes. Such indeed was the general belief. Nobody durst venture to oppose it without incurring the risk of being denounced both as a traitor to his country and as an abettor of profiteering. In the eyes both of the public and of the rulers the only reason why monetary conditions were not healthy was the lamentable indulgence of the government in regard to profiteering. For the restoration of sound currency nothing else seemed to be necessary than a powerful suppression of the egotistic aims of unpatriotic people."
This leads me to think that anyone who predicted inflation as a consequence of the treaty didn’t know what he was talking about. The inflation was from the money printing, which had nothing to do with the treaty.
- Another more recent definition of inflation is higher prices. In that sense, you don’t have to be a Norman Einstein to realize that if the treaty called for real goods to be moved from Germany to France and England in exchange for nothing, that would make those goods more expensive in Germany.
(On the other hand, if the Germans paid off in gold, did not print new money, and if gold was legal tender in those days in Germany [which I don’t know if yes or no] then less money around means lower prices, including lower wages. Of course there would be less gold to buy imported goods.)
