Transcript `From `War Profiteer` to `Inflation Underdog`

From “War Profiteer” to “Inflation Underdog”:
the German Chemical
Industryhyperinflation,
during Inflation Crises of 1914-23
During
banknotes had lost so
much value that they
were used as
wallpaper, being much
cheaper than actual
wallpaper.
From ‘War Profiteer’ to ‘Inflation Underdog’:
the German Chemical Industry during the Inflation Crises of 1914-23
Heinrich E. R. K. KAHLERT
Email: [email protected]
© 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 Inflation Crises of 1914-23
Overview:
• Motivation
• Introduction
• Methodological Discussion:
Can we obtain real data?
• Results:
a.) General Economic Trend
b.) German Chemistry
c.) From War Profiteer to Underdog
• Summarisation
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Motivation:
• “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
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Introduction
20 Billion Bill
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Introduction
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Sergey Potashov (2012)
German Inflation „Third Kind Crisis“
 Energy Crises „Second Kind“
Depresson „First Kind“
© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Introduction
Gutenberg and the Billions-Press, “I never intended this!” From the
German satirical magazine Simplicissimus, 1923.
© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
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From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Introduction
Holtfrerich (1984);
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Introduction
Widdig (2001)
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Methodological Discussion: Purchasing Power Parity (PPP)
WWI First Level Crisis
 Depression Second Rate
1.2 $
0.6 $
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Methodological Discussion: Comparison of Data
• Check historical data on Consistency (here US with German data)
 Surprising good, although inflation years were “Data Deserts”
(Feldman)
Kahlert, 2001
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Methodological Discussion:
• Still today PPP is used as suitable indicator
Advantage: Historic data can be obtained
Disadvantage: 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”)
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Methodological Discussion:
• 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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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Methodological Discussion: Precision versus Historian Approach
Pearson CF > 0.92 !!
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
Equilibrium Condition by Introduction of “Rentenmark”
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Kahlert, 2001
© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Methodological Discussion: Suitability of WPI
• 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)
Kahlert, 2001
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Methodological Discussion:
• Can we obtain real data?
Yes, we can… (Kahlert not Obama)
to some extend
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Results : General Economic Trend
• 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
Bernholz 2006
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Results : WPI (all Prod.) US, GB, in comparison with inflat. WPI Germany
Kahlert, 2001
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Results : Revenue & Earnings “IG-Group” during WWI
Kahlert, 2001
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Results : Comparison WPI (Indust. & Chem. ) US with DR
Kahlert, 2001
WWI was for Chem. Ind. Ideal caused by
military actions: “Geld verpulvern” (=“to
shoot one’s wad”) by artillery
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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
© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Results : “Deflated” WPI 1916-24 for German Chemical Products
Kahlert, 2001
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Results : From War Profiteer to Underdog to Profiteer
 Pearson CF (> 0.75)
“Ruhrkampf”
“World “ US- (=French Occup.)
Recession
Kahlert,
2001
Loosing War
(Economic)
Violating
“Shannon
Theorem”
Introduction
Rentenmark
Hindenburg
Program
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HungerBlockade
finished
London Ultimatum 226,
132 Bill. GM (=real Mark)
20 Bill. GM=
7000 t Gold
© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Results : From War Profiteer to Underdog to Profiteer (IG-Group)
Kahlert, 2001
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Summarisation
• 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
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Summarisation :
• 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)
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© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013
From “War Profiteer” to “Inflation Underdog”:
the German Chemical Industry during Inflation Crises of 1914-23
Discussion
Sponsor:
GOC+Partner Ltd. CH-2502 Biel
Hans-Peter Gutknecht, Architect; CH 2540 Grenchen;
[email protected]
© Dr. Heinrich Kahlert GOC+Partner, Crisis Conf., Durham UK, 28. 7. 2013