One on inflation, and four on Germany’s reunification

As a student of economics, I think I’ve read one article too many on Germany’s inflation. In fact, one of the many joys of writing this blog has been discovering how bad inflation was in other parts of the world: the version of economic history that I have studied has underplayed this.

(Name four countries that experienced hyperinflation: Germany! Zimbabwe! Venezuela! Uhhhhhh…..)

But that being said, learning more about Germany this month wouldn’t be complete without at least one article about it’s hyperinflation. And the reason I enjoyed the one I excerpt from below is because while it is full of interesting anecdotes about the period of hyperinflation, it also speaks about how it all ended – and with what consequences. And a fun fact which you may have not known earlier: the root of the word credit means to believe. That’s modern finance, in a nutshell.

Obviously, though the currency was worthless, Germany was still a rich country — with mines, farms, factories, forests. The backing for the Rentenmark was mortgages on the land and bonds on the factories, but that backing was a fiction; the factories and land couldn’t be turned into cash or used abroad. Nine zeros were struck from the currency; that is, one Rentenmark was equal to one billion old Marks. The Germans wanted desperately to believe in the Rentenmark, and so they did. “I remember,” said one Frau Barten of East Prussia, “the feeling of having just one Rentenmark to spend. I bought a small tin bread bin. Just to buy something that had a price tag for one Mark was so exciting.”

All money is a matter of belief. Credit derives from Latin, credere, “to believe.” Belief was there, the factories functioned, the farmers delivered their produce. The Central Bank kept the belief alive when it would not let even the government borrow further.

The political “give” that was needed to get the political, economic, cultural and civilizational “take”, in an interesting article from DW. The set of links at the bottom of this article are also worth a read. (Note that I have added the WIkipedia link to the 2 Plus 4 Agreement, it is not there in the original).

The 2 plus 4 Agreement, also called the Treaty on the Final Settlement with Respect to Germany, recognized all European borders established after World War II, resolving this outstanding dispute once and for all. Bonn and Berlin’s signatures to the treaty meant that a newly reunited Germany would recognize national borders as they stood, not as they once were. Coupled with the reduction in military concentrations, the acceptance of current borders was a significant step toward an enduring peace in Europe at large.

An unusually short excerpt by my own standards, but this is the last sentence in the Wikipedia article about German reunification. It deserves to be read in the full, the entire article, especially if you were under the impression that reunification in Germany was relatively quick, painless and that there was much happiness all round.

The absorption of eastern Germany, and the methods by which it had been accomplished, had exacted a high price throughout all of Germany.

But there is an argument to be made that it was worth it, because one way of thinking about it is this: West Germany purchased access to culture by sharing economic prosperity, while East Germany purchased access to economic propserity by sharing culture. Costs matter, but maybe, just maybe, culture trumps economics?

“On average, people in the East are less successful, less productive and not as wealthy. Materially speaking, they’re less happy,” Seemann said. “But that’s exactly why cultural diversity in the eastern states plays a more important role than in the West. People in eastern Germany are aware that there are things which are more important than making money and paying taxes. They see the arts as a creative process of ‘togetherness.’ We need to strengthen this consciousness, because that’s the only way to ensure culture and society continues to thrive — regardless of where we stand economically in the years to come.”

Note that there are links at the bottom of this article about whether lessons from German reunification can apply to Korea. Alas, the article says no. I am an Indian, so double the alas for me, please.

And finally, a reminder that these things take time! This article is about the reunification of not Germany, but of the German language. Note that the East Germans had to adapt, and not the other way around. Maybe, just maybe, economics trumps culture?

The former East and West Germany have grown closer together in many areas over the past 26 years. At the same time, some differences are still marked precisely by the former border between East and West, such as economic strength, family structure and wealth. Furthermore, stereotypes about Wessis and Ossis have still not been consigned to history. According to a study carried out by the Berlin Institute for Population and Development, it will take another generation before German unity is firmly anchored in people’s minds. It has, however, long been reflected in the way they speak.

India: Links for 16th September, 2019

  1. India’s fourth party system.
    Here’s the context:
    “There is broad consensus that India’s electoral history—from the inaugural postindependence general election in 1952 until the sixteenth Lok Sabha elections in 2014—can be roughly divided into three electoral orders. Yogendra Yadav, one of India’s leading political scientists, was among the first to provide this organizational rubric. Yadav has also argued that a new electoral system commences whenever an observer can “detect a destabilisation of [an old system] and its replacement by a new pattern of electoral outcomes as well as its determinants.””
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  2. “Between ‘comb’, ‘kanghi’ and ‘kakahi’; ‘plate’, ‘thaali’ and ‘tharia,’ and ‘here’, ‘yehaan’ and ‘hene’ my mother introduced us to the grammar and syntax of all three languages in everyday conversation. I think her own regret of not knowing English drove her to this inventiveness.”
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    On the delights of knowing multiple, interrelated languages.
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  3. On the history of the rupee.
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  4. Indian airport police have been asked to smile less.
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  5. Have you heard of Israil Ansari? I hadn’t. Would you pay 400 rupees to meet him?

Etc: Links for 19th July, 2019

  1. “Almost half of all U.S. rice comes from Arkansas. When a rice farmer who was also a state legislator bought some and tasted it, he decided the label had to be banned. So, during March, Arkansas legislators prohibited the cauliflower rice name from all food labels in the state. Saying that the word rice has to refer to actual rice, the law included a $1000 fine for a “mislabeled” product.”
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    What’s in a name? A rice by any other name, it turns out (forgive the pun), ain’t quite the same thing, legally speaking.
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  2. ““By lowering the barrier to initiate communication, the hidden side effect is that Slack has the quiet capacity to exponentially increase communication overhead. Resulting in much more voluminous, lower quality communication.”In other words, talk is cheap and we’re spending like crazy.”
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    The problem with all these awesome tools that help us communicate better is that they help us communicate better. Folks with GIPE id’s… tried out Hangout Chat on your phone just yet?
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  3. “I kind of have a perfectionist type of mentality. Things kind of irritate me and get more and more irritating over time and it was just really confirmed to me that I couldn’t make it better. So I threw out this problem to the group: “Wouldn’t it be great if customers just gave us a chunk of change at the beginning of the year and we calculated zero for their shipping charges the rest of that year?””
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    The most popular form of the sunk cost fallacy in the world: it’s origins explained. If you’re confused about how this is about the sunk cost fallacy, ask yourself this: how often have you checked the Flipkart app after you became a Prime member?
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  4. “Influencers won’t receive a cut of the sales their posts generate. They will, however, have access to a shared analytics dashboard with robust metrics that the tagged brand can also see. Previously, influencers relied on screenshots and other imperfect methods to communicate engagement numbers with brands, so tying their influence directly to sales was nearly impossible. Having a more streamlined framework and detailed analytics will be incredibly valuable for influencers. “It gives you more leverage when you’re negotiating rates,” says Aimee Song, a fashion influencer.”
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    The evolving economics of Instagram influencers. What do you think will happen next?
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  5. “In his time around Italy, especially in Venice, Ghosh was struck by the fact that the language he heard the most after Italian, is Bengali. He explains, “The people who literally keep Venice going are Bengalis. They are the ones making the pizzas, the hotel beds. They play the accordion even. Bengalis have absolutely become the working class. It is such a striking thing that people don’t seem to notice. The tourists don’t notice. Even the Indians who go there, don’t seem to notice. Venice is like a gigantic stage set. So people only notice the setting. They don’t notice who keeps it going; it is literally the Bengalis.””
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    Just in case you have not read any of Amitav Ghosh’s works, this might get you interested in them. If you are looking for a good place to start, I’d suggest The Hungry Tide.

RoW: Links for 3rd July, 2019

 

Five articles to help you understand China today a little bit better (well, one is on North Korea, axshually)

  1. “There is truth in this linguistic yarn; Chinese does deserve its reputation for heartbreaking difficulty. Those who undertake to study the language for any other reason than the sheer joy of it will always be frustrated by the abysmal ratio of effort to effect. Those who are actually attracted to the language precisely because of its daunting complexity and difficulty will never be disappointed. Whatever the reason they started, every single person who has undertaken to study Chinese sooner or later asks themselves “Why in the world am I doing this?” Those who can still remember their original goals will wisely abandon the attempt then and there, since nothing could be worth all that tedious struggle. Those who merely say “I’ve come this far — I can’t stop now” will have some chance of succeeding, since they have the kind of mindless doggedness and lack of sensible overall perspective that it takes.”
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    A long, but fun read on how and why Chinese (both kinds) is so difficult to learn – and do think about what this might tell us about China.
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  2. “But that is the wrong way to approach the challenge. In the near term (1-4 years), the US certainly could inflict a lot of damage on China through tariffs, bans on technology purchases, and other trade-war policies. But it would also inflict a lot of damage on itself; and in the end, the Chinese would suffer less. Whereas the Chinese government can buy up Chinese-made products that previously would have been sold to the US, thereby preventing mass unemployment and social turmoil, the US government could scarcely do the same for American workers displaced by the loss of the Chinese market.”
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    Brad DeLong argues against the anti-China line that almost everyone in America seems to toe to these days (Biden almost excepted)
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  3. “Total food production figures, however, are not the end of the story. The important question is who gets access to food, rather than just how much is harvested. Theoretically, North Korea could produce 10 million tons of food, but if all of it ends up in Pyongyang, there would still be massive shortages in the countryside. Here is where markets matter. The WFP assessments are based on the assumption that most food consumed in North Korea is still handed out by the government through the public distribution system (PDS); they do not take account of the role of markets in the food distribution system.”
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    38North on how bad the food situation is in North Korea. Markets matter!
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  4. “This is a useful reminder that decentralization is not an immutable feature of the Chinese system, or something that happened automatically just because China is a very large country. Clearly Gu saw that in the 1970s the Chinese system was too centralized to be efficient, and that it needed to be more decentralized. (Jae-Ho Chung’s book Centrifugal Empire: Central-Local Relations in China also argues that the Maoist emphasis on local autonomy in the 1970s was largely rhetorical, with most localities compelled to follow the same political campaigns and economic priorities.)”
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    For a variety of reasons, decentralization really matters – here’s how China learnt this lesson.
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  5. “At the heart of China’s Going Out policy is a media offensive launched in March 2018, an initiative coordinated by the broadcast group Voice of China and carefully monitored by Communist Party censors. In addition, the state-run news agency Xinhua was expanded and now claims to be the largest news wire in the world.”
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    A fascinating read on how China is reshaping the media narrative in Africa.

Links for 29th March, 2019

  1. “”Because it’s so difficult for people with edge-to-edge bites to produce sounds like f and v, the study’s authors figured they would be unlikely to say them by accident, or to incorporate them into their languages. They checked to see whether they could find this pattern playing out in the real world by comparing the sound systems of languages across the world with the subsistence style of the people who speak those languages. About half of the world’s languages use labiodental sounds, but on average, languages spoken by hunter-gatherer societies turned out to use fewer than one-third the number of labiodental sounds as their agricultural counterparts.”
    An area I know nothing about, but I found this fascinating. How agriculture might have influenced speech, and how therefore we got around to using “F” and “V” sounds in language. It begs the question: how might current society be impacting the evolution of language?
  2. “Something interesting emerges from those figures. As the atmosphere is full of small eddies, so humanity experiences many small deadly quarrels, which result in a few fatalities. But now and again come huge storms, which kill millions. These are just the sort of outbreaks, like the world war Richardson had seen for himself, that people think of as surprising. Yet when Richardson plotted the frequency of wars against the number of deaths caused by each one, he found a constant and predictable relationship. On his graphs, the violence obeyed a “power law”—a constant relationship between the size and frequency of measurements. In his turbulence work, Richardson had found that such a power law governed the relationship between the rate of diffusion of objects in a turbulent stream and their distance from one another. Now he had found evidence of an underlying law in the supposedly unpredictable realm of politics.”
    Well worth the price of admission – the article begins somewhat slowly, but picks up pace and complexity, taking us on a journey through war, weather forecasting, religious background, and much else besides. People who don’t like math, especially, should really read this post.
  3. “Foreign investors believe they can navigate around India’s governance fault lines. Still, South Korea’s chaebol discount could also become a millstone for India if the grip of a handful of private interests on state institutions and economic opportunities tightens. The new boxwallahs will be much harder to shake off than the old cronies.”
    The always excellent Andy Mukherjee on the urgently needed corporate reforms in India. Well worth a read for its own sake, of course, but more importantly, a great read to help you understand what you should read more of when it comes to India’s business history.
  4. “There are undergraduate courses, and then there are great undergraduate courses. Today we have the 49 item course bibliography for Thomas C. Schelling’s “Conflict, Coalition and Strategy” along with its ten-page final examination”
    This is, I’m still gobsmacked to think about it, an undergraduate  course. We at the Gokhale Institute are starting an undergraduate course this year – it’ll be interesting to see if any of these references could be included in that course. I found this fascinating, especially because of the wide variety of subjects from which the list has been drawn up. A lot of bookmarks to be added via this link!
  5. “For, in both Ricardo and Marx, a conflict of interest is visible between social classes. In order to promote the ‘idea’ of a just and harmonius system, the theories (especially the labour theory of value) of Ricardo and Marx were criticised as being limited, and an alternative was proposed. This new theory completely did away with social classes. Individuals were chosen as the primary unit of analysis. Social classes, actually was modified into ‘factors of production’. A very interesting and important methodological shift, with powerful political implications! All the factors of production were assigned equal importance, and it was also shown how both labour and capital recieved incomes according to their contribution to the production process. That is, a capitalist system, with free mobility of labour and capital and with clear property rights (contracts), is essentially a just and stable system.”
    Why should one study economics? Most, if not all, colleges today leave students with the answer to this question being completely backward. We learn, and teach, theories of economics and then ask students to apply them to the world outside. Arguably, even the latter doesn’t happen nearly often enough. But this post helps you understand where theories come from in the first place! They came up in response to the world that was around those theorists – at that time, and at that place. This time, and this place is different – and we, as students of economics, would do well to remember that. Excellent article, and about an economist who isn’t studied enough.