July 10, 1946 Ruined

Paper money crashed in the post-Revolutionary Articles of Confederation period, when you could buy a sheep for two silver dollars, or 150 paper “Continental” dollars. Creditors hid from debtors, not wanting to be repaid in worthless paper currency. For generations after our founding, a thing could be described as worthless, as “not worth a Continental”.

You’ve worked all your life.  You’ve supported your family, paid your taxes, and paid your bills. You’ve even managed to put a few bucks aside, in hopes of a long and happy retirement.  “Inflation” is such a bloodless term.  What if you hadn’t touched that “nest egg”, and its purchasing power was suddenly diminished…by 10%…40%…70%.

Throughout Roman antiquity, coinage retained a high silver content as a matter of law.  Precious metal made the coins themselves objects of value and, for 500 years, the Roman economy remained relatively stable. Republic morphed into Empire over the 1st century BC, leading to a conga line of Emperors minting mountains of coins in their own likenesses. Slaves were worked to death in Spanish silver mines, to satisfy an endless need for the metal. Birds fell from the sky over vast smelting fires, yet there was never enough silver.  Silver content was inexorably reduced, until the currency itself became worthless.  Roman currency collapsed in the 3rd century reign of Diocletian. An Empire and its citizens were left to barter as best they could, in a world where money no longer had any value.

German children playing with worthless currency, 1923.

In the waning days of the Civil War, the Confederate dollar wasn’t worth the paper it was printed on. Paper money crashed in the post-Revolutionary Articles of Confederation period as well, when you could buy a sheep for two silver dollars, or 150 paper “Continentals”. Creditors hid from debtors, not wanting to be repaid in worthless paper currency. Generations after our founding, the worthlessness of a thing could be described as “not worth a Continental”.

The assistance of French King Louis XVI was invaluable to Revolutionary era Americans, but French state income was only about 357 million livres at the time, with expenses of over half-billion. France descended into its own Revolution, as the government printed “assignat”, notes purportedly backed by 4 billion livres in property expropriated from the church. 912 million livres in circulation in 1791 rose to almost 46 billion in 1796, of a note whose purchasing power had diminished by 99%.

The money in their pockets was literally, not worth the paper it was printed on.  One historian described the economic policy of the Jacobins, the leftist radicals behind the reign of terror, as:  “[A]n utter exhaustion of the present at the expense of the future”.

In each of these historic cases, nothing defined and established the value a currency, except what a willing buyer and a willing seller agreed it was worth.  There was no “there”, there.  It all sounds depressingly familiar.

The Austro-Hungarian Empire was on the losing side of WW1, and broken up after the war.  Lacking the governmental structures of established states, the newly independent nation of Hungary began to experience inflation.  Before the war, a US Dollar would have bought you 5 Kronen.  In 1924, it was 70,000.

10Hungary replaced the Kronen with the Pengö in 1926, pegged to a rate of 12,500 to one.

Hungary became a battleground in the latter stages of WW2, between the military forces of Nazi Germany and the USSR. 90% of Hungarian industrial capacity was damaged, half of it destroyed altogether.  Transportation became difficult, with most of the nation’s rail capacity damaged or destroyed.  What remained was either carted off to Germany, or seized by the Soviets, as reparations.


The loss of all that productive capacity led to scarcity of goods, and prices began to rise.  The government responded by printing money.  Total currency in circulation in July 1945 stood at 25 billion Pengö.  Money supply rose to 1.65 trillion by January, 65 quadrillion in April and 47 septillion in July.  That’s a Trillion Trillion.  Twenty-four zeroes.

Banks received low rate loans, so that money could be loaned to companies to rebuild. The government hired workers directly, giving out loans to others and in many cases, outright grants.  The country was flooded with money, the stuff virtually grew on trees, but there was nothing to back it up.10000

Inflation took a straight line into the stratosphere.  The item that cost you 379 Pengö in September 1945, cost 1,872,910 by March, 35,790,276 in April, and 862 billion in June.  Inflation neared 150,000% per day, as the currency became all but worthless.  Massive printing of money had accomplished the cube root of zero.  The worst hyperinflation in history peaked on July 10, 1946, when that 379 Pengö item from September, cost you 1,000,000,000,000,000,000,000,000.

The government responded by changing the name, and the color, of the currency.  The Pengö was replaced by the Milpengö (1,000,000 Pengö), which was replaced by the Bilpengö (1,000,000,000,000 Pengö), and finally by the (supposedly) inflation-indexed Adopengö.  This spiral resulted in the largest denomination common currency note ever printed, the Milliard Bilpengö.  A Billion Trillion Pengö.

The thing was worth twelve cents.

100000One more currency replacement and all that Keynesian largesse would finally stabilize the currency, but at what cost?  Real wages were reduced by 80% and creditors wiped out.  The fate of the nation was sealed when communists seized power in 1949.  Hungarians could now share in that old Soviet joke: “They pretend to pay us, and we pretend to work”.

The ten worst hyperinflations in history occurred during the 20th century, including Zimbabwe in 2008, Yugoslavia 1994, Germany 1923, Greece 1944, Poland 1921, Mexico 1982, Brazil 1994, Argentina 1981, and Taiwan 1949.  The common denominator in all ten were massive amounts of government debt, and a currency with no intrinsic worth.

A Billion Trillion Pengö. The largest denomination common currency note ever printed. It was worth about twelve cents.

In 2015, Boston University economist Laurence Kotlikoff testified before the Senate Budget Committee.  “The first point I want to get across” he said, “is that our nation is broke.  Our nation’s broke, and it’s not broke in 75 years or 50 years or 25 years or 10 years. It’s broke today”.

Kotlikoff went on to describe the “fiscal gap”, the difference between US’ projected revenue, and the obligations with which our government has saddled the taxpayer.  “We have a $210 trillion fiscal gap at this point”, Kotlikoff testified.  11.6 times GDP, the total of all goods and services produced in the United States.

On top of that, the United States owes something close to twenty trillion dollars, in fiscal operating debt, and our currency is unmoored from anything of inherent value.   We spend a lot of time, talking about politics.  Perhaps we should be talking about math, instead.

%d bloggers like this: