Money Falls from the Sky | Mail

The International Monetary Fund (IMF), which has been pursuing austerity for years, is now worried about deflation. This new view, expressed ad nauseam by its director, Christine Lagarde, confirms a cliché among economists: when prices are rising, they want stable prices, and when they are stable, they prescribe inflation. To justify these changes in views, they alternately rely on two historical experiences: the hyperinflation in Germany in the 1920s and the subsequent deflation in North America. The ECB once called on the former to defend austerity, but now it emphasizes the latter to increase the circulation of money, just as the Federal Reserve and Japan do.

Newspapers arrogantly called the second strategy “quantitative easing.” This is an old idea, though, as Chinese emperors had thought of it about a thousand years ago when they invented paper money. The new payment method created so many problems, such as high prices and social chaos, that emperors from time to time grew disgusted with it and returned to coins, even though coins had serious drawbacks. However, the lure of paper was strong, and the Chinese authorities did not give in. For more than two centuries, between the 14th and 15th centuries, they banned coins so that paper money could be accepted, creating a ridiculous situation.

In the West, paper emissions financed the American and French revolutions. As today, they reflected debts that sooner or later had to be repaid or rejected; usually, the second thing happened. Economist John Kenneth Galbraith recalled that societies had advanced, leaving behind large unpaid debts that had helped modernize their economies (such as the railroads in the United States in the 19th century). Would people still travel by ox cart if the world depended on the opinions of conservative, timid savers? Would living standards remain stagnant?

Galbraith wrote sarcastically that the main cause of poverty was lack of money. However, his colleague and intellectual rival Milton Friedman challenged this argument and warned that simply injecting money would not necessarily increase wealth. He gave the example of helicopters bombarding the population with bags of banknotes. People could spend them, but they could also accumulate them, in which case the real benefit would be minimal.

The debate between Galbraith and Friedman occupied the best minds in Europe for centuries. Scientist Isaac Newton, who was appointed mayor at the end of the 17th century and later became patron of the British Mint, was closer to Galbraith’s views, which were recently shared by Mario Draghi, president of the European Central Bank. . If interest is still insufficient to support business and programs that put the poor to work (…) – Newton wrote – the only effective way to reduce interest is to (by putting into circulation) more paper, until we get more money thanks to which to communicate and do business.

Newton added: The value ascribed to (metallic) money is purely traditional: we value it because it allows us to purchase various commodities, and the same is true of paper securities.

This argument didn’t have many followers in the 17th century, but it offered great possibilities, and the Nazis adopted it again during World War II. Knowing the destructive effects of hyperinflation—it had brought them to power in Germany—they sought to crush Britain with the kind of paper money explosion later popularized by Milton Friedman. Only they would use fake pounds. Of course, there were no helicopters to broadcast them from the air, as the economists fabled, but Berlin had the Luftwaffe. The Luftwaffe, which had devastated England’s cities, could do the same to the British economy, drowning it in a sea of ​​banknotes and causing the same havoc that had driven the Chinese emperor mad a thousand years earlier.

The leader of the operation was SS “Sturmbannführer” Bernhard Krüger. He was an engineer in the textile industry by profession, but during the war, SS leader Heinrich Himmler commissioned him to recruit Jewish prisoners in concentration camps and teach them how to print banknotes. Krüger selected 140 people, sent them to the Sachsenhausen concentration camp in Brandenburg, and trained them in counterfeiting and papermaking.

Starting in 1942, Kruger prisoners produced over 8 million £5, 10, 20 and 50 notes. The bundles were designed to deceive shopkeepers, waiters, taxi drivers, bank employees and the head of the Bank of England. It is estimated that the Nazi-issued banknotes were worth £132 million worldwide (other circulation figures are much higher), accounting for 15% of the UK’s banknotes in circulation.

Like all well-laid plans, this one failed. The Luftwaffe was defeated in the skies over Britain, its planes unable to carry out necessary bombing raids. The counterfeit pounds ended up being used in black market operations that were far milder than the financial disaster the Nazi leaders had dreamed of (perhaps they were thinking of a collapse like the one in junk mortgages and derivatives).

However, Bernhard Krueger did not give up. In 1945, he refocused his project on the US dollar. Michael Kerrigan, author of “The Failed Plan of World War II” (Libsa ed.), said that part of the counterfeit money was used by Jewish organizations to pay for the war. Britain established the State of Israel in Palestine.

Kruger’s story is well-known but always surprising. There are also stories about the Chinese emperor, Isaac Newton, and the American and French revolutions. They all hide a tragic moral. Monetarism, as studied in economics departments, can be more than a school of thought. In the right hands, it can be the ultimate weapon.