Inflation – what’s new?

Inflation has existed for as long as people have used using money. The oldest known case of high inflation dates back to around 2000 BCE in ancient Sumer, in present-day Iraq. Clay tablets were found there recording large price increases that caused money to lose part of its value. The Sumerians believed that wars, crop failures and political and social unrest were the causes.  

After Alexander the Great's death: the Babylonian shekel

When a lot of money is created, its value can fall. This is exactly what happened in the period following the death Alexander the Great in 323 BCE. This flamboyant conqueror captured huge amounts of gold and silver when conquering the Persian Empire. Some sources mention millions of kilograms of precious metal. Most of it was minted, The rapid increase in money caused high inflation: the value of the Babylonian shekel (about 8.5 grams of silver) halved and prices soared. 

Inflation can also have other causes. For example, some Roman emperors reduced the amount of precious metal in silver coins, so that more coins could be minted from a single Roman pound of pure silver. Especially in the third century CE, large numbers of coins were minted that contained less and less silver. It is therefore likely that the Romans suffered from inflation in the third century CE. For example, the price of grain increased sixteenfold between 218 and 293 CE, and the prices of other goods and services also rose. 

Due to a lack of data, we do not know the state of inflation in Europe in the thousand years following the fall of the Roman Empire in 476 CE. From the Middle Ages onwards, inflation was mostly modest, but from around 1450 onwards, Europe faced rising prices. During this price revolution, they increased sixfold. This was probably caused by the influx of large quantities of gold and silver from areas in Central and South America taken by Spain. These precious metals were mined there in appalling conditions by the Indigenous peoples of South America and then shipped to Europe in huge quantities. 

The price revolution was followed by several centuries with more stable wages and prices and occasional inflationary episodes. For instance, France experienced a fiscal crisis towards the end of the 18th century when the country was attacked from all sides. To finance the war, more and more French paper money known as assignats, was printed from 1790 onwards. The result was skyrocketing inflation, causing the value of the notes to plummet. Prices were up to five hundred times higher in 1795 than five years earlier. 

Political instability, economic crisis and war debts led to hyperinflation in Germany in the 1920s. Banknotes were printed in denominations of many billions of marks. During this period, 30 paper mills and more than 100 printing works worked overtime to meet the daily demand for paper money. At one point, even toilet paper was worth more than paper money. Savings, wages and pensions simply evaporated. By November 1923, the price of a kilo of bread had risen to 201,000,000,000 marks.

Inflation as a weapon of the Nazis 

One of the biggest counterfeiting operations in history took place during the Second World War. By putting counterfeit British pounds into circulation, the Nazis hoped to undermine confidence in the pound’s value, cause spiralling inflation and disrupt the British economy. In the Sachsenhausen concentration camp, they forced a group of Jewish printers and etchers to make counterfeit banknotes with the aim of dropping them from airplanes over the United Kingdom. When this proved impossible, it was decided in 1942 that the millions of counterfeit pounds would be used to buy gold, war materials and food rations for the German army. The Jewish prisoners who made the counterfeit pounds were liberated in 1945. 

The most recent case of hyperinflation was in Zimbabwe. This country has been issuing banknotes since 1980, but they quickly lost their value. At the end of 2008 notes with the astronomical value of one hundred trillion (100,000,000,000,000,000) Zimbabwe dollars were put into circulation. Attempts were made to counter hyperinflation by simply deleting 10 zeros, but to no avail. Today, the main currencies used by people and businesses in Zimbabwe are the euro, the US dollar and the South African rand.  

Disruptive impact

The items in the National Numismatic Collection show that inflation can have a hugely disruptive impact on confidence in money and the economy. By studying them, we can learn more about how inflation has affected people's lives.