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The Penniless Billionaires: A Tour of Inflationary Eras Past and Present

By Alec Nevalainen, Coinflation.com
Orig. Published: December 3, 2010

Updated: December 5, 2010

I just finished reading The Penniless Billionaires for a third time in ten years and it occurred to me that I've never really recommended the book to anyone. It was written by Max Shapiro in 1981. He explains the history/evolution of money followed by four well-known hyperinflationary episodes. The final three chapters focus on his present-day situation in the U.S. and similarities to past hyperinflations.

These final chapters in the book are entertaining because we know how the episode ends. Then Federal Reserve chairman Paul Volcker steps in and raises the fed funds rate to 20%, the rate eventually required to kill inflation, and causing the early 80's recession. But this book was published at the peak of inflation in 1981, that's the most interesting part. It really captures the mood of the era before the interest rate spike.

One of the common themes mentioned by Shapiro's book, from all episodes of high inflation, is the existence of a class of people who benefit immensely from the process. These may be government officials, bankers, or entrepreneurs (e.g. today's equivalent are Internet hucksters predicting infinitely higher gold prices to help sell their product). These entities amass fortunes because they recognize the compounding phenomenon of inflation and use this knowledge in all their financial dealings.

But my favorite chapter in the book is about the German "Weimar Republic" Hyperinflation from 1922-1923. I know this period is referenced often, but most writers never delve into the details that led to the hyperinflation.

One of the better anecdotes from the book is below, and it introduces the chapter on the Weimar hyperinflation (from page 170):

The German Hyperinflation, 1922-1923

In the autumn of 1923, Lott Hendlich, a German widow in her fifties, returned to her native Frankfurt after an absence of more than four years in Switzerland. In 1919 she had gone to spend a few pleasant weeks in a Swiss village where her relatives lived. But almost immediately, Frau Hendlich broke her hip in a fall. During her long convalescence her chronic cough became worse, and the doctor attending her advised her that she was suffering from advanced tuberculosis. The months and years of her illness dragged on interminably even though her relatives were genuinely solicitous (they insisted on defraying all her expenses, including the fees of her doctor). At last, in September 1923, she was "cured" and considered well enough to return home. Her much longed-for homecoming soon became a nightmare.

In the stack of accumulated mail she found three letters from her bank; they delineated her ruin. The first–written in mid-1920 by a minor bank officer who had befriended her–advised her "to invest most of the funds in your rather substantial bank account" (amounting to over 600,000 marks, or the equivalent of more than $70,000 at the exchange rate prevailing in 1919). "It is my judgment," the writer continued, "that the purchasing power of the mark will decline, and I suggest you try to guard against this through some suitable investment which we can discuss when you come into the bank."

The next letter, dated in September 1922, and signed by another officer said, "It is no longer profitable for us to service such a small account as yours. Will you kindly withdraw your funds at the earliest opportunity?"

The third letter, dated several weeks before her return from Switzerland, announced, "Not having heard from you since our last communication, we have closed out your account. Since we no longer have on hand any small-denomination bank notes, we herein enclose a note for one million marks."

With gathering panic Frau Hendlich looked at the envelope that had contained the letter and the million-mark note. She noticed that affixed to it there was a canceled postage stamp of one million marks. Her bank account–which four years before seemed large enough to provide her with a serene existence to the end of her days–had been utterly consumed by inflation and could no longer pay for an ordinary postage stamp.

The book is out-of-print, but there are several used copies available at Amazon.com and they come up on eBay often (see below for current auctions). I would also call around to your local used book stores.

If you can find a copy at a reasonable price, I think you'll enjoy it as much as I have. Shapiro's book illustrates that the events that are happening around us right now are not unique. They have happened before and there's no reason to get hysterical about it. Protect yourself with tangible assets and you'll likely sleep peacefully through the noise.

Update #1: If the flash auction widget (above) doesn't appear in your browser, you can view all current Penniless Billionaire auctions here on eBay. But I recommend calling your local used book store, they may know how to locate a copy at a much cheaper price.

Update #2: It appears there are no more listings on eBay at the moment. BookFinder.com is another resource to find used books.

About The Author: Alec Nevalainen publishes several websites to help investors price coins and bullion products including Coinflation.com, GoldGramBars.com, and SilverGramBars.com. He can be contacted at [email protected]. You can also follow Coinflation.com on Twitter at https://twitter.com/coinflation.

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