Over at the Big Picture Blog, a favourite of mine, David Kotok has an article about understanding the extremly negative effects of currency wars on national economy. I could get on board with most of what he wrote, except for this claim at the end of the first paragraph:
First, a simple case study. Suppose there were just two countries and just two currencies. Suppose country A decided to try to weaken its currency so it could sell more stuff at cheaper prices to country B, thus undercutting B’s domestic producers. B could resist by raising a tariff on the incoming stuff that A was trying to sell. Or it could retaliate by cheapening its own currency to counter the price differential. The first form of retaliation is a trade war; the second is a classic currency war. The economic history of the 1930s is replete with examples of each and combinations of both. History shows us that the results were disastrous for the global economy and led to a world war.
When I first read this my first inclination was to say, ‘well, that’s wrong’. And I still think it is true. Yes, the world economy was severely depressed throughout most of the 1930’s, and strong nationalist rhetoric was common on the European continent. But to break down the failure of German civil society, government, order and parliamentary democracy to a currency war between France and Germany (which is what I believe this reference was in mention t0) seems to be spurious to say the least.
The German government devalued the Mark to ‘faster’ repay reparations that had been imposed at the end of Versailles. However despite this hyperinflation of currency devaluation of the 1920’s, industrial production was actually quite high throughout the 1920’s. It was the 1930’s and the global depression that hurt, and it hurt everybody everywhere.