life savings, it also caused prices to rise dramatically on life’s most basic necessities, like food and clothing. Mass hunger in the nation led to starvation in the poorest communities. Soon, poverty spread to the more affluent communities as the prices of goods and services skyrocketed, with no end in sight. As the German currency became completely worthless, many families found that it made more economic sense to burn the stacks of their marks than to use them to purchase firewood. Others used the marks as decorative wallpaper. And while Germany’s bout with hyperinflation was extreme, it provides us with the startling possibilities that can occur when a nation ignores fundamental economic and monetary laws.
In 1924, after their spectacular monetary failure, Germany replaced the mark with a new and improved currency, the “Rentenmark.” In addition, France learned that if it sought to regain Germany as a viable economic partner, it must become more reasonable in its debt repayment schedule. These new arrangements provided some much-needed relief to the German government and its people. The good times would not last for long, however. Later, in the wake of the U.S. stock market collapse of 1929, Germany fell into another deep economic depression. This financial meltdown led to another round of social chaos which would ultimately provide the perfect breeding ground for the rise of another one of history’s maniacal dictators: Adolf Hitler.
Recent Fiat Failures
It has been demonstrated that history is replete with examples of the failure of fiat currency systems. However, let us now turn to the currency collapses that have occurred in more recent years.
Austria, 1922: Poor monetary policies from 1914 to 1923 led to massive inflation in the post-World War I era of Austria. The Austrian government kept the printing presses running day and night to deal with their growing fiscal crisis. Between January 1921 and August 1922, Austria’s currency, known as the crown, suffered a 10,000 percent inflation rate. Eventually, the public’s faith in the crown was shattered. By 1924, the Austrian government introduced a new currency to replace the crown, called the shilling. Austria’s citizens received one new shilling for every 10,000 crowns that it turned in to the monetary authorities.10
Greece, 1944: In 1944, Greece suffered its worst inflation ever. The inflation reached 8.5 billion percent per month! During this period of inflation, prices doubled every 28 hours.
Hungary, 1946: In 1946, Hungary’s fiat currency suffered from 4.19 quintillion (4.19 x 1018) percent inflation. (Prices doubled every 15 hours.) Each morning, millions of Hungarians listened to a radio broadcast just to keep up with how much their money was worth that day. This is one of the worst cases of hyperinflation in history.
Israel, 1984: In 1984, after battling inflation for a decade, Israel suffered an inflation rate of 445 percent, which was later tamed by price controls.
Argentina, 1989: The 20th century was economically unkind to the Argentinian people. Despite their immense wealth of natural resources, the country consistently faced massive budget deficits throughout much of the 1980s. Faced with insurmountable debt to foreigners and to Argentina’s citizens, the political solution was clear: inflate the currency to pay off the debts. The inflation rate reached levels of over 5,000 percent and soon the country adopted a new currency to replace the old worthless one.
Peru, 1990: In 1990, Peru faced a monthly inflation rate of 397 percent, due to its poor monetary policies.
Norway, 1992: In 1992, Norway, Italy, and Finland experienced major currency problems with their fiat currencies.
Yugoslavia, 1994: From 1993 to 1994, Yugoslavia experienced one of the worst bouts of hyperinflation in history. Mathematical equations are required to measure the height of inflation that struck Yugoslavia during this time. The inflation rate during this period: 5 × 1015 percent!
Ukraine, 1995: From 1993 to 1995, the country of Ukraine suffered from hyperinflationary pressures. At one point, their inflation rate reached 1,400 percent per month!
Mexico, 1994: In 1994, the Mexican peso collapsed in what was known as “the Tequila Hangover.”
Asian Crisis, 1997: In 1997, the Asian Currency Crisis began as Thailand’s fiat currency, the baht, collapsed. The effects of the collapse spread to other Far East nations.
Russia, 1998: In 1998, the Russian ruble collapsed. Like Germany’s Weimar Republic, Russian workers were paid in wheelbarrows full of rubles. While the situation was far from comical, some in the working class joked about the worthless currency: “We pretend to work and they pretend to pay us.”
Turkey, 2001: Beginning in 2001, Turkey experienced major bouts with hyperinflation as its currency, the lira, became increasingly worthless. Currency reform came in 2005, when Turkey issued a new Turkish lira (1 was exchanged for 1,000,000 old lira).
Zimbabwe, 2007: In 2007, after several years of increasing inflation rates, the African nation of Zimbabwe was gripped by massive hyperinflation. By the summer of 2007, the inflation rate was 11,000 percent. One year later, the official monthly inflation figures were over 11,250,000 percent! At this rate of inflation, Zimbabwe residents had to spend their paychecks as soon as they received them just to keep the money from losing its worth.
The Failures of Fiat Money Ignored
While the landscape of world history is littered with failed fiat currencies, history is also replete with vigilant warnings from our ancestors regarding the inherent dangers of fiat currencies. Below I have compiled a list of warnings issued by some of the brightest men in world history regarding the failures of fiat-based money. You will notice some references to gold and silver as a wise backing to a nation’s currency. I will explain those references momentarily.
Paper money eventually returns to its intrinsic value — zero. — Voltaire11
You have to choose [as a voter] between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold. — George Bernard Shaw12
Sound money still means today what it meant in the nineteenth century: the gold standard. — Ludwig von Mises13
Paper money is like dram-drinking, it relieves for a moment by deceitful sensation, but gradually diminishes the natural heat, and leaves the body worse than it found it. Were not this the case, and could money be made of paper at pleasure, every sovereign in Europe would be as rich as he pleased. But the truth is, that it is a bubble, and the attempt vanity. Nature has provided the proper materials for money: gold and silver, and any attempt of ours to rival her is ridiculous. — Thomas Paine14
If you increase the quantity of money, you bring about the lowering of the purchasing power of the monetary unit. — Ludwig von Mises15
We are in danger of being overwhelmed with irredeemable paper, mere paper, representing not gold nor silver; no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors, and a ruined people. — Daniel Webster16
The governments alone are responsible for the spread of the superstitious awe with which the common man looks upon every bit of paper upon which the treasury or agencies which it controls have printed the magical words legal tender. — Ludwig von Mises17
Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money. — Daniel Webster18