from “war profiteer” to “inflation underdog”: the german chemical industry during inflation...

From “War Profiteer” to “Inflation Underdog”: the German Chemical Industry during Inflation Crises of 1914-23

© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013© Dr. Heinrich Kahlert, GOC+Partner, Crisis Conf., Durham UK, 25. 7. 2013

From ‘War Profiteer’ to ‘Inflation Underdog’: the German Chemical Industry during the Inflation Crises of 1914-23

Heinrich E. R. K. KAHLERTEmail: [email protected]

During hyperinflation, banknotes had lost so much value that they

were used as wallpaper, being much

cheaper than actual wallpaper.

http://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic


© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013

• Motivation• Introduction• Methodological Discussion:

Can we obtain real data?• Results:

a.) General Economic Trendb.) German Chemistryc.) From War Profiteer to Underdog

• Summarisation

Overview:

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• “Reviving” my PhD-Thesis caused this part was not (yet) quoted• Searching new Partners for Multi-Discipline Project (EU)

(Historical) Consequences of Earthquake, Flood, Fire, Tornado• Our (GOC+Partner) Competence:

Modelling Risk on NPP with so called PSA-Methodology• Concrete:

We are experts on Time-Series Analysis, Risk Hazard Modelling,Geochemical Modelling etc.

• The lectures of Bruce Campbell & Mark Casson were good examples to give examples for collaboration

Motivation:

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Introduction

20 Billion Bill

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Introduction

Sergey Potashov (2012)German Inflation „Third Kind Crisis“ Energy Crises „Second Kind“Depresson „First Kind“

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Introduction

Gutenberg and the Billions-Press, “I never intended this!” From the German satirical magazine Simplicissimus, 1923.

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Introduction

Holtfrerich (1984);

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Introduction

Widdig (2001)

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Methodological Discussion: Purchasing Power Parity (PPP)

1.2 $

0.6 $

WWI First Level Crisis Depression Second Rate

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• Check historical data on Consistency (here US with German data) Surprising good, although inflation years were “Data Deserts” (Feldman)

Methodological Discussion: Comparison of Data

Kahlert, 2001

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• Still today PPP is used as suitable indicator Advantage: Historic data can be obtainedDisadvantage: Equilibrium method

• However:Hyper-Inflation results Non-Equilibrium Condition, e.g. Currency velocity change rapidly (t) (see lecture of Mark Casson his chapter “quantity theory”)

Methodological Discussion:

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• The consequence of pressing money can historical be investigated in the present time with various sources (quantity theory)

• The velocity of money, however, hardly• Appropriate Method only the relation between Wholesale Price

Index (WPI) as most time sensitive indicator and exchange rate (here: $/ Mark unweighted PPP)


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Methodological Discussion: Precision versus Historian Approach

Pearson CF > 0.92 !!

Equilibrium Condition by Introduction of “Rentenmark”

Kahlert, 2001

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Unweighted (only $/Mark , 20% external trade) and weighted PPP (Holtfrerich 70% external trade; Bundesbank Method, all Currency/Mark) Method are nearly identical (PCF=0.92)

Unweighted=Historical (Decision making); Weighted more correct Difference neglectable



• Using the right basket of commodities (goods) (here US-results)

• Index reference preferable near your historical problem

• But keep in mind: Still comparing apples with oranges (but not eggs)

Methodological Discussion: Suitability of WPI

Kahlert, 2001

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• Can we obtain real data?Yes, we can… (Kahlert not Obama) to some extend


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• Third highest inflation rate in modern history But the most important economic power of all these Using the most stable currency (Gold, $) in comparison with inflated currency to obtain real data

Results : General Economic Trend

Bernholz 2006

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Results : WPI (all Prod.) US, GB, in comparison with inflat. WPI Germany

Kahlert, 2001

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Results : Revenue & Earnings “IG-Group” during WWI

Kahlert, 2001

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• Real Price Maximum Germany 1918 (Indicator for loosing the economic war) regardless basket of goods,

• US Maximum 1920, but WPI Chemistry high since beginning WWI! war profiteer (DuPont etc.)

• Decoupling German economic history with rest of world

Results : Comparison WPI (Indust. & Chem. ) US with DR

WWI was for Chem. Ind. Ideal caused by military actions: “Geld verpulvern” (=“to shoot one’s wad”) by artillery

Kahlert, 2001

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Results : “Deflated” WPI 1916-24 for German Chemical Products

Kahlert, 2001

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Results : From War Profiteer to Underdog to Profiteer

Hindenburg Program

Loosing War (Economic)

Hunger-Blockadefinished

London Ultimatum 226,132 Bill. GM (=real Mark)

“Ruhrkampf”(=French Occup.)

IntroductionRentenmark

Violating “Shannon Theorem”

Pearson CF (> 0.75)

“World “ US-Recession

20 Bill. GM=7000 t Gold

Kahlert, 2001

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Results : From War Profiteer to Underdog to Profiteer (IG-Group)

Kahlert, 2001

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• WWI produces War Profiteer until 1916• Then loosing real money, but thinking (chemical industry), that they

earning money until 1918 (=Underdog)• 1919 lost year (no war material, limited export possible caused by

British blockade), the money reserve were sucked by inflation, but the non-current assets (plants, human capital) is match decisive in long term ( Haber-Bosch, Methanol etc.)

• 1920-23 Export very profitable caused by low PPP in comparison foreign PPP War profiteer

Summarisation

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• WWI ending in terms of economic history at end 1923 for GERMANY (and Austria, Serbia)

• The increase of German Chemical Industry after WWI was heavily influenced by inflation effects, hence through PPP, and technological revolutions (not discussed here)

Summarisation :

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Discussion

Sponsor: GOC+Partner Ltd. CH-2502 BielHans-Peter Gutknecht, Architect; CH 2540 Grenchen; [email protected]

mailto:[email protected]

from “war profiteer” to “inflation underdog”: the german chemical industry during inflation...

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