Economy

Virus and Economic Crisis: The Great Comparison between 1920 and 2020

Photo: Western Neighborhoods Project

The mixed situation in ’20 is, on the whole, deeply unpleasant. Germany had become the victim of collective hysteria – and as a result it crashed economically. A mysterious, deadly viral disease, a pandemic, has plagued humanity. The State? In debt, even hopeless aboveowed, as bright minds suspect. Europe? Quarreled, in the painful process of reinvention. Society? Polarized. And the globalization that had shaped the past decades and made the world more prosperous was counted down from one day to the next, apparently a thing of the past. A fiasco.

Of course, we’re not talking about us today, 2020. It’s about 1920, a turbulent, enlightening year in the history books.

A few years earlier, in the summer of 1914, the Germans staggered for joy, danced into the world war. Those who exercised restraint back then, that collective cheering looked skeptical, in the eyes of the majority it simply lacked patriotism – and that was not far from “betrayal” of the national cause. The war was financed on credit from the start. At that time everyone – the political class, the people – found that plausible and in the interests of the state, because the alternatives could have been inconvenient and painful. The logic: the war opponent would lose anyway and then get the bill, take over the debt. Very easily.

The so-called Spanish flu, a devastating pandemic, infected around half a billion people from 1918, which at the time was roughly a third of the world’s population. Overall, the estimates of epidemiology fluctuate considerably to this day, between 15 and 100 million people lost their lives. The mortality was (far) over three percent of all infected people. Extra-treacherous: The Spanish flu tore young, previously perfectly healthy adults from life, who had just managed the feat of surviving a world war. The mothers and fathers. The breadwinners.

The globalizationwhich had made a triumphal procession since the 19th century and – in the true sense of the word – created a “world economy” was de facto switched off when the war broke out in the summer of 1914. Production chains interrupted; Trade affects; Borders tight. The financial markets had gone into free fall and / or closed.

When the war was lost for Germany and its allies in 1918, they stayed Debt. During the months of the Versailles Conference (near Paris) in 1919, the Germans learned that they had to pay not only their own war costs, but those of their opponents as well. Very easily.

In the political sphere, Germany experienced one polarization. The extreme fringes of the spectrum recorded an influx, both on the left (communists, anarchists) and on the right (fascists). In Russia, the revolutions of 1917 signaled that ideas of the communist-socialist school of thought could make the leap from the theoretical to the practical. In Germany, the November Revolution of 1918 was fresh in the minds of the people who were to herald the break from the Empire to the Weimar Republic. Then in March 1920 the Kapp Putsch against Weimar; 1923 the Hitler puts

The Spanish flu was much worse than Corona

And what about us today, in our own, so far rather unpleasant year ‘20? Of course, the historical comparison, the century perspective, lags in many places. And yet, individual leitmotifs show overlaps that at least make you think.

There is the virus, the devastating pandemic. The Spanish flu was a real killer, while the mortality rate was Covid-19-Infected people, who have been analyzed and controversially discussed by experts all over the world for months, may be below one percent or even below 0.3 percent. The young and healthy have relatively little to fear in view of the new coronavirus. Infection is particularly fatal in the elderly and in patients with serious previous illnesses (including obesity, cardiovascular disease, diabetes, cancer).

Maybe we had it with Covid-19 collective madnessto do with a hysterical overreaction – especially in the wake of the “lockdowns” and contact restrictions on all continents that simply turned the world economy off? An answer would be premature, we should be able to guess in about a year whether all of this was justified or a serious overreaction. In any case, during the much more deadly flu of 1918/19, no one had the idea of ​​stopping public life and the economy par ordre du mufti by prohibiting contact. He would presumably have been declared insane.

The globalizationthat had shaped the past decades and made the world more prosperous is also counted in 2020, a model that is being phased out for some. Production chains and world trade are massively disrupted for the time being. Travel, which for us in Europe until February this year was a comfortable, cheap and safe matter of course, has become a complex, arduous adventure with an uncertain outcome and recreational value.

The world economy will be different after Corona

Even with the Covid-19 pandemic finally subsiding, the global economy will look different than before. As a result of the now solidified antagonism between the USA and the People’s Republic of China, now de facto a Cold War, the geopolitical pattern of the world is no longer global, but increasingly bipolar. It is true that no new, impermeable Iron Curtain can be made out – a term that was first used almost exactly a hundred years ago. But the new axis of conflict between two superpowers, two blocs, could last for decades and divide the world rather than one.

The vast majority of German society at least seems far removed from a kind of mood of subversion with revolutionaries, putschists and extremists. A polarization on the other hand? And not too close. If this was in doubt, it was apparently never been on Twitter or other “social” media. The black-red government coalition in Berlin has been pursuing a policy of tax-financed benevolence for years – a gift policy regardless of the long-term consequences, which was expanded many times over in the wake of the Covid 19 pandemic (“need knows no command”) . According to surveys, the dimensions of this state interventionism, which now justifies the label of “neo-socialism”, appear to be suitable for the majority. A shift to the left has been made. The Merkel CDU is more social democratic today than the Schröder SPD, which was once scolded as “neoliberal” within the party, ever was.

A critical minority can be found in the right half of the political spectrum. As far as the political center is concerned, the steady decline of the Liberals, for many antipaths par excellence, is revealing in current opinion polls. Of course, polarization has long been a phenomenon that can be observed worldwide – just think of the recent Brexit debate in Great Britain or controversial heads of state such as Jair Messias Bolsonaro in Brazil or Donald Trump, for example MAGA-Messiah. Against anarchic tendencies? Can we help – see the recent street battles and looting in the USA or the modern political iconoclasm.

In 1920 there was no internet, no television, no radio – and of course no social media

An important difference, however, that does not bode well: The world is today more quickly than a hundred years ago. Much more quickly. In 1920 there was no social media, no internet, no smartphones, no television, no radio. Today news – as well as “news”, crude views, the most absurd nonsense – spread within minutes to the last outposts of civilization. This acceleration towards a now quasi “viral” news flow in real time is certainly one of the reasons why there was high social pressure on politics in 2020 and a little later the panic-draconian shutdown of the economy. Corona was invisible, abstract. Bergamo was visible, shocking.

So the world today is by no means the world of yesterday. However, it is questionable how things continued at that time. Because when the messed up calendar year 1920 was ticked off, one legacy was still not over: the Mountain of debt. The Briton John Maynard Keynes, one of the greatest economists in economic history, had already written a kind of fire letter in 1919 (The Economic Consequences of the Peace) argues just as convincingly as prophetically that Germany would never ever be able to meet its payment obligations – the war debts and the reparations stipulated in the Treaty of Versailles.

As early as 1920, inflation in Germany was extremely unsavory. In 1922/23 it became permanent hyperinflationary, So it was more than 50 percent month after month and a little later in the tens of percent, which was equivalent to a hurricane in purses and heads. At first nobody took it that seriously. Prices would soon fall again, according to the prevailing opinion in the newspapers, in politics and among the people. The incumbent central bankers were ultimately considered to be extremely conservative experts, the best economists of their time and profession who knew what they were doing. The “monetary watchdogs”, especially Rudolf Havenstein, President of the Reichsbank, thought it was wise to print fresh money. When that wasn’t enough, they printed more. And then more.

Hyperinflation: At the beginning of 1923 the mark was practically worthless

In November 1923 the mark was practically worthless, a dollar costing a good four trillion. There was a general impoverishment which – with very few exceptions, the crisis profiteers, the “Raffkes” – hit everyone. The poorest, the richest, everyone in between. (In the early 1920s, however, hyperinflation raged not only in the Weimar Republic, but also in Austria, Hungary, the Soviet Union, and Poland.) The old, worn-out, completely devalued mark was at its end in November 1923. The life savings of millions had fizzled out.

A few years later, from 1929 on, the next great economic crisis followed, in English-speaking countries as the “Great Depression” (Great Depression) known to us as Great Depression. In 1932 the Weimar Republic had six million unemployed. And a little later the Germans went to vote again.

“History does not repeat itself, but it rhymes”

What does all of this tell us – us, who are living in 2020 and who will hopefully have the worst phase of the corona pandemic behind us? “History does not repeat itself, but it rhymes,” is a well-known phrase that is often ascribed to the American writer Mark Twain (1835-1910). The aphorism probably didn’t come from him, but it’s smart nonetheless. There could be parallels between ’20 and ’20. Keynes wrote in 1919: “While we [zuvor][…] Spending millions, we have now learned that we can spend hundreds of millions – and that apparently without painful consequences. ”The sentence is still true today, provided that we turn“ millions ”into“ billions ”.

When 2020 is ticked off, the main thing that remains is: a gigantic mountain of debt. It does not bode well for Germany and many other countries, for the stability of the euro zone (and thus the EU). The intrinsic value of many of our currencies today could be at risk. All the money in the world is today fiat, Paper money, i.e. not anchored in gold or other tangible items (for example land). The stability of the euro, dollar, pound and yen depends solely on the credibility and trustworthiness of the central banks. That trust is good. However, it is also ephemeral.

“The lights are going out across Europe,” said Sir Edward Gray, the British Foreign Secretary, in the summer of 1914 when the world fire broke out. Is it a mistake, in view of the events in the first half of 2020, to feel a hint of malaise? Keynes described a hundred years ago “The sense of nightmare”, a “premonition of nightmare”: “Great hardship and great social risks have become inevitable. The only thing we can do now is to redirect the fundamental economic trends that are shaping the current situation as much as possible in order to enable the restoration of prosperity and order – instead of delving deeper into disaster. ”

That is good advice for today too.

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