Hugo Stinnes: the “King of Inflation” who got rich in Weimar. An economic lesson
The name of Hugo Stinner says little today, but for a short time he was the richest man in Germany. This qualification ceased not due to his mistakes, but because death overtook him prematurely, at just 54 years old, due to complications after a cholecystectomy operation, in 1923. Death prevented him from making any more money.
Stinner came from a family of international traders. In 1893 he fell out with his cousins and founded his own business, aged just 23, which he transformed into a listed company in the early 1900s. Even before the war he owned a shipping line, coal mines in Germany and Luxembourg, and other businesses.
Understanding the effects of the Great War on Germany
The Great War damaged him, because his shipping company was almost destroyed and he lost mines in foreign countries or in territories lost to Germany, but he was quick to recover. In 1920 he was already rich, but he understood what the Reichsbank and the Weimar Republic were about to do, and this made him immensely rich, and made him the “King of Inflation”.
Stinnes was a keen economic observer and had experience in international trade. Seeing Reichsbank President Rudolf von Havenstein's money-printing excesses already making their way into the economy after World War I, he stocked up on steel, shipping companies, railroads and shipping lines, all real businesses and profitable. To pay for all this, he took out a very large loan in marks, or rather in marks notes.
He was able to do this at low interest because the Papermark did not appreciate in value immediately, but slowly devalued until 1921. It did not begin to lose value until 1921. After that, the loss in value was exponentially exponential. . Stinner, with his huge financial debts used to buy real assets, was in the perfect position.
Lessons from the past
Overall, Stinnes' manual for hyperinflation was generally simple. He used debt to accumulate durable goods before hyperinflation. Then, after hyperinflation, its durable goods held their value, in real terms, while their price skyrocketed in nominal terms (relative to the currency).
This means that the debts he had in terms of the Papermarks he had borrowed have shrunk to insignificance. As a result, he was able to pay off his debts for practically nothing, retaining his durable assets and becoming very wealthy.
When hyperinflation hit, the value of the Papermark money he had borrowed was worth less and less and the durable goods he owned increased in value, compared to the declining German currency. The important lesson is that durable goods do not lose their value during hyperinflation in the same way that currency does.
On the one hand, Stinnes' hard assets were rising in value relative to the Papermark, producing real income, while debts were getting smaller and smaller.
By 1924, Stinnes was able to pay off his debt with worthless Papermarks. At the same time, his assets had increased in value compared to the Papermark. In this way, Stinnes became the richest man in Germany.
A very important economic lesson, which few subsequently understood. However, as we have said, he was unable to enjoy his wealth: he died in 1924. His children continued the business for a while with great profit, but they did not understand that inflation was destined to end, and they did not adapt to the new monetary environment. It all ended with World War II, which destroyed what remained of the Stinnes' wealth, although the shipping line still exists today. Another lesson not understood.
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The article Hugo Stinnes: the “King of Inflation” who got rich with Weimar. An economic lesson comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/hugo-stinnes-il-re-dellinflazione-che-si-arricchi-con-weimar-una-lezione-economica/ on Sat, 14 Sep 2024 20:02:06 +0000.