Germans are known for angst in general, and angst about inflation in particular. After all, hyperinflation during the Weimar Republic led to the rise of Adolf Hitler and the Nazis, right? 

That collective memory has been cited countless times both inside and outside of Germany as the psychological explanation for the country’s hawkish monetary culture, and the long-standing attacks by German conservatives against the European Central Bank for its easy-money policy. Now inflation is rising again, to about 3% this year in the country, well ahead of the euro area’s rate and the 2% target of the ECB. Germans aren’t hysterical yet, but you can expect to hear about the specter of Weimar again before long.

Enter Lukas Haffert, Nils Redeker and Tobias Rommel, researchers at the University of Zurich, the Hertie School of Governance in Berlin and the Technical University of Munich, respectively. They’ve published a study showing that the German narrative linking hyperinflation to the rise of the Third Reich is just plain false. 

There was hyperinflation during the Weimar era, and it did contribute to a general sense of chaos that undermined the fledgling republic. But that peaked in 1923, the year Hitler botched a putsch and went to jail — a full decade before he seized power. By contrast, the monetary and economic event that contributed directly to the Nazi takeover was the crisis of the early 1930s, and in particular the deflation, or general fall in prices, that caused mass unemployment (see chart).

That’s not how Germans “remember” history, however. Haffert, Redeker and Rommel did surveys in which they asked participants to estimate inflation in 1923 and 1932. Most thought that prices were also soaring in 1932. Almost nobody knew that prices fell that year. The biggest surprise as that the more educated respondents were, the more likely they were to be wrong.

The authors conclude that Germans today “conflate Weimar economic history into one big crisis.” And in this modern narrative, the earlier episode of inflation has somehow shunted aside the later and more relevant trauma of deflation. Why?

The answer seems to be that today’s popular version originated long after the fact, in the tumultuous post-war politics of West Germany. In the 1950s, the Western Allies that kept an eye on the country, politicians like Chancellor Konrad Adenauer, bankers and unionists bickered passionately about what a new central bank should look like. 

Adenauer and many others subscribed to conventional wisdom and wanted the bank to take its guidance from politics. But the bankers wanted to be totally autonomous. As Simon Mee, an economist at the ECB, has documented, they kept retelling the traumas of Weimar to suit their own purposes — conveniently glossing over the fact that the central bank was at that time also independent, during both the inflation and deflation.

In 1957 the bankers won, and the Bundesbank was born. It was completely independent and single-mindedly hawkish — and soon commanded awe across Europe and reverence at home. “Not all Germans believe in God,” a French statesman once quipped, “but they all believe in the Bundesbank.”

There are at least two reasons why Germans and non-Germans alike should care about this backstory. The first is that the truth is always better than a myth. The second is that the myth in this case has for many years been a political power tool wielded by German conservatives against the ECB, which is a short taxi ride from the Bundesbank on which it was modelled. 

My point here is not to pooh-pooh the threat of inflation. Runaway price rises are poisonous for an economy, as all modern central banks are well aware. The nuance, however, is that the danger of deflation is just as big or even bigger, and worth fighting just as fiercely. If the — independent — central bankers of the Weimar Republic had understood that, history might have played out quite differently.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andreas Kluth is a columnist for Bloomberg Opinion. He was previously editor in chief of Handelsblatt Global and a writer for the Economist. He’s the author of “Hannibal and Me.”

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