B.-Pengő!

Back in the 70's as a freshman in college, I signed up for a course in macroeconomics.  It must have been a mandatory class.  There are few things in life that I find more boring than economics, so a course in macroeconomics could only be one thing: macro-boring.  And it was.  Deadly boring. 

Flash forward 40 years.  As a retiree with time on my hands, I often find myself "going down a rat hole" on the Internet and spending an inordinate amount of time on a random topic that has struck my fancy.  Imagine my surprise last week when that random topic was inflation!  I can't even recall what prompted this particular descent. The last thing I remember was reading an article containing a reference to hyperinflation in Hungary during World War II.  Mildly interested, I clicked on that link and the rest of my day vanished.   

Dissolution of the
Austro-Hungarian Empire

A Little History

Prior to World War I, the Austro-Hungarian Empire (a multi-national state) was the second largest country in Europe and one of the world's great powers.  Unfortunately it was allied with Germany and found itself on the wrong side of the Great War. At the war's conclusion, the Empire was dissolved into a number of independent sovereign states.  Hungary lost two-thirds of its population, over two-thirds of its territory, and was turned into a landlocked country.  The currency of the Empire, the Austro-Hungarian krone, was replaced in Hungary with the korona.  Due to the consequences of the war, the korona suffered a high rate of inflation until, with the assistance of the League of Nations, it was replaced in 1927 with the pengő.   In 1941, the pengő was worth about $0.20 USD.  Remember that exchange rate.  It will change a bit in the five years that follow.

World War I was disastrous to Hungary but World War II was even worse.  Once again, Hungary found itself allied with Germany.  For a few years, though, it managed to avoid the worst of the war's destruction.  This good fortune would not last. 

July 1941:  Pressured by Germany, the Hungarian army participates in the invasion of the Soviet Union, advancing deep into the Soviet Ukraine.

February, 1943:  The Soviet Union retaliates, crushing the Hungarian army in the Battle of Stalingrad.  The Hungarian army suffers more than 100,000 casualties and is effectively eliminated as a fighting force.

March, 1944: Suspecting that the Hungarian Prime Minister is negotiating an independent armistice with the Allies, Hitler orders the occupation of Hungary.

September, 1944:  The Soviet Union invades Hungary and the entire country becomes a battlefield until the end of the war. 

December, 1944:  The remnants of the Hungarian army are destroyed by Soviet troops in the Siege of Budapest.

February, 1946:  The Kingdom of Hungary is abolished and becomes the Second Republic of Hungary, a communist satellite state under the control of the Soviet Union. 

At war's end, Hungary was left in tatters. Almost half of it's national wealth was gone, a quarter of its industrial capacity had been lost, and most of its transportation infrastructure (roads, bridges, railways) had been destroyed.  Reconstruction was also hampered by the fact that Hungary had to pay reparations to the Soviet Union for its participation in the war.  

Hyperinflation Strikes

If I actually understood economics, I might be tempted to explain the concept of inflation at this point.  But I don't so I won't.  Suffice it to say that inflation refers to the decreased purchasing power of a nation's currency over time.  A certain degree of inflation is not necessarily a bad thing.  In the case of the United States, the goods and services that could have been purchased for $100 in 1920 would cost a little over $1,200 today.  That works out to an average annual inflation rate of 2.69% which isn't bad, especially since the average per capita income in the United States in 1920 was about $750 (it's now about $30,000).

Let's compare this to what happened in Hungary.  In 1941, its currency (the pengő) was worth approximately $0.19 USD.  By June of 1944 it was worth about $0.03 USD.  That means that it took over 6 times as many pengős in 1944 to purchase the same amount of goods that could be purchased in 1941.  That's not good but, as shown in the chart below, it got infinitely worse: 

Yep.  You're reading the chart correctly.  On July 31, 1946, $1 USD was equivalent to approximately 460,000,000,000,000,000,000,000,000,000 pengős!  The Hungarian currency was experiencing hyperinflation the likes of which the world had never seen before and has not seen since.  In response, the Hungarian government started printing out banknotes of higher and higher denominations. 

One Thousand Pengő Note:  Issued July of 1945

One Million Pengő Note: Issued February of 1946

One Billion Pengő Note: Issued May of 1946

As inflation continued to skyrocket, the Hungarian government created a new term -- the milpengő, equal to 1 million pengős -- and issued the following banknotes in quick succession:

Ten Thousand Milpengő Note: Issued May of 1946

Ten Million Milpengő Note: Issued June of 1946

One Billion Milpengő Note: Issued June of 1946

Let's take a moment to examine that last banknote.  One billion milpengős is equal to one billion million pengős or 1 x 10¹⁵ pengős.  At the time it was issued, $1 USD was trading for 4.2 x 10¹⁶ pengős, meaning that it still required 42 of these notes to equal $1 USD!  

Sadly for the Hungarian people, the devaluation of the pengő continued at an even faster pace, resulting in another new term: the b.-pengő (pronounced bilpengo).  Now, you might think that a b.-pengő was equal to a billion pengős, but you'd be wrong.  It's actually equal to a trillion (1 x 10¹²) pengős!  And so it was that in July of 1946 -- within the span of a single week -- the Hungarian Treasury responded to this crushing inflation rate by cranking out its final pengő banknotes:

One Million B.-Pengő Note

One Hundred Million B.-Pengő Note

One Billion B.-Pengő Note

That last banknote is the highest denomination note that mankind has ever printed, equal to a billion trillion (1 x 10²¹) pengős.  Since $1 USD was trading for approximately 4.6 x 10²⁹ pengős at that time, it required 4.6 x 10⁸ or 460 million of these notes to equal $1 USD!  

There is an ironic footnote to this story.  The one billion b.-pengő banknote was printed but never issued to the public.  As a result, it has become a collector's item of sorts for numismatists.  It was worth only $0.000000002 when it was printed, but it's now auctioned on eBay for over $500!

 Now that would make a fascinating Economics class!

Sweeping up worthless pengő banknotes

Postscript

In August of 1946, a new regime was installed in Hungary. A new currency, the forint, was introduced and backed by the return of Hungary's gold supply which had been taken by the Nazis during the war.  Hungary's infrastructure -- in particular, its railroads -- were restored and its economy returned quickly to its pre-war level. 

"Give me your huddled masses ..."

If the citizens of the United States were asked to vote on two symbols that best defined the nation, here's what would happen:

1. Voter turnout would be about 40%.  That's America.  That's how we roll.
2. The American Flag would get the most votes.
3. The Statue of Liberty would get the second most votes.

I think it's safe to say that most Americans consider the Statue of Liberty a defining national symbol.  We are "Lady Liberty" with torch uplifted, welcoming immigrants to a new life and proclaiming, "Give me your tired, your poor, your huddled masses yearning to breathe free".   

But how can you reconcile this with the current national rhetoric surrounding Mexican immigration?  Rather than finding ways to help these huddled masses breathe free, many politicians (pandering to their constituents) are calling for higher walls, the repeal of the 14th amendment, more secure borders, deportation, drone surveillance, and no path to citizenship.  Rather than welcoming immigrants, they're actively denouncing them, wildly proclaiming that "they’re bringing drugs, they’re bringing crime, they’re rapists."  

What has happened to America?  What caused us to change?  Where are those ideals that our Founding Fathers and The Greatest Generation held so dear?

I'm kidding, of course.  Nothing has happened to America.  We're the same as we've always been.  Since the arrival of the Pilgrims on the Mayflower in 1620, virtually every nationality or ethnic group arriving in America has had to endure years of racism and discrimination before being grudgingly assimilated into American society.  Although the U.S. is often referred to as "The Melting Pot" the melting point is often very high and difficult to attain.  While virtually any nationality can be used as an example of this difficulty, let's take a look at what we did to the Chinese. 

Why the Chinese Emigrated to the U.S. 

The first Chinese began trickling into the U.S. around 1820.  Their immigration rate was so low, though, that only about 450 Chinese were living in the entire country in 1850.  Over the next 30 years that number would increase rapidly, driven in large part by the following events:

French political cartoon

The Opium Wars:  The two Opium Wars were conflicts between China and Great Britain over the Qing dynasty's attempt to suppress the opium trade.  Because of the ease in which the British defeated a much larger Chinese army, the end of the First Opium War (1839-1842) is referred to by Chinese historians as the beginning of the "Century of Humiliation".  The Second Opium War (1856-1860) was an even more devastating defeat for the Qing dynasty.  The resulting treaty legalized the opium trade, allowed foreign vessels to navigate freely on the Yangtze River, and allowed foreigners to travel to the internal regions of China.  Even more significant, it allowed British ships to carry indentured Chinese to the Americas.

The Taiping Rebellion:  The humiliation of the Qing dynasty gave rise in 1851 to a highly nationalistic opposition force in China known as the "Taiping Heavenly Kingdom".  It was led by a charismatic visionary named Hong Xiuquan who believed that he was the younger brother of Jesus and had a duty to spread Christianity and overthrow the Qing dynasty.  This rebellion eventually expanded into a full-scale civil war which, by the time it ended in 1864, resulted in the death of between 20-30 million Chinese.  Thousands more fled the country to escape the intense poverty, sickness and social upheaval. 

Crop Failure of 1852:   A series of floods and crop failures ravaged southern China in 1852, leading to poverty and famine among peasant farmers.  As a result, over 20,000 Chinese emigrated from China to San Francisco in that year alone. 

The California Gold Rush:  To a Chinese peasant of the 1850's, life in China was simply abysmal.  Poverty and sickness were rampant.  Flood and crop failure were causing famine.  The Taiping Rebellion was bringing death and destruction.  The Qing dynasty was unraveling.  Imagine, then, hearing about a "Mountain of Gold" in the west coast of the United States, a destination that (while far away and expensive) was within their reach.  The period known as the California Gold Rush lasted from 1848 to 1855 and would entice many Chinese to make this trip.  By 1870, Chinese immigrants would account for over a quarter of all U.S. miners. 

The First Transcontinental Railroad:  As the Gold Rush subsided, a new source of labor continued to attract Chinese immigrants to California. Between 1863 and 1869 a 1,907-mile railroad line was constructed to connect the west coast at San Francisco with an existing eastern rail network in Iowa.  It is estimated that between 12,000 and 14,000 Chinese immigrants (about two-thirds of the entire work force) were used to provide the cheap manual labor that was needed.

As a result of these and other factors, the number of Chinese immigrants in the U.S. increased to approximately 25,000 in 1852 and to 300,000 by 1880.

Arrival, Acceptance and Discrimination

NY to California was
not easy in 1848!

By all accounts, the first Chinese to arrive in California in response to the Gold Rush were welcomed with open arms.  The reason?  California's non-native population in 1848 was about 1,000 and workers of any kind were in very short supply.  Moreover, until the Panama Canal was built 66 years later, it was actually quicker to get to California from China than it was to get to California from the eastern United States.  As such, Chinese immigrants were among the first workers to arrive. They were regarded as extremely industrious laborers who were happy to do menial tasks that others would avoid.  In the words of historian Henry Kittredge Norton:

"The result was that the Chinaman was welcomed; he was considered quite indispensable. He was in demand as a laborer, as a carpenter, as a cook; the restaurants which he established were well patronized; his agricultural endeavors in draining and tilling the rich tule lands were praised. Governor McDougal referred to him as “one of the most worthy of our newly adopted citizens.” In public functions he was given a place of honor, for the Californians of those days appreciated the touch of color which he gave to the life of the country. The Chinese took a prominent part in the parades in celebration of the admission of the state to the Union. The Alta California, a San Francisco newspaper, went so far as to say, “The China Boys will yet vote at the same polls, study at the same schools, and bow at the same altar as our countrymen.” Their cleanliness, unobtrusiveness and industry were everywhere praised."

By 1850, though, approximately 300,000 gold seekers had descended upon California.  Competition for work became intense and the Chinese began to be viewed differently.  Again, per Henry Kittredge Norton:

"The Chinaman was welcomed as long as the surface gold was plentiful enough to make rich all who came. But that happy situation was not long to continue. Thousands of Americans came flocking in to the mines. Rich surface claims soon became exhausted. These newcomers did not find it so easy as their predecessors had done to amass large fortunes in a few days. California did not fulfil the promise of the golden tales that had been told of her. These gold-seekers were disappointed. In the bitterness of their disappointment they turned upon the men of other races who were working side by side with them and accused them of stealing their wealth. They boldly asserted that California’s gold belonged to them. The cry of “California for the Americans” was raised and taken up on all sides."

Since the Chinese were not allowed to vote, the California legislature -- and Governor John Bigler in particular -- sided with the anti-Chinese movement. Bigler believed that the Chinese could never assimilate into American society and urged the legislature to "check this tide of Asiatic immigration."  Some of the legislation enacted during this period include:

The Foreign Miners Tax:  When initially enacted in 1850, this legislation levied a tax of $20/month on all foreigners engaged in mining.  After a revolt, it was lowered to $3/month, which was still over half of what a Chinese worker earned.  This tax would steadily increase over the years until it was finally ruled unconstitutional in 1870.

People v. Hall:  In 1854, the California Supreme Court ruled that Chinese Americans and Chinese immigrants could not testify against a white citizen. This freed a white man who had been convicted and sentenced to death for the murder of a Chinese miner even though three Chinese witnesses had testified to the killing.  In essence, the ruling extended a provision in California's criminal code ("No black or mulatto person, or Indian, shall be allowed to give evidence in favor of, or against a white man.") to include anyone of the Mongoloid race. 

Anti-Coolie Act of 1862:  Also referred to as the Chinese Police Tax, this law levied a fee of $2.50 "on each person, male and female, of the Mongolian race, of the age of eighteen years and upwards" that was engaged in a non-agricultural profession.  To make sure that there was no mistake, the law was subtitled, "An Act to Protect Free White Labor Against Competition with Chinese Coolie Labor, and to Discourage The Immigration of the Chinese into the State of California".  

Cubic Air Ordinance:  This ordinance, enacted in San Francisco in 1870, was aimed directly at the lifestyle of Chinese immigrants.  It required "every house, room, or apartment used for lodging within the limits of San Francisco, except public prisons and hospitals, to contain 500 cubic feet for each person residing in the lodging". Violations were punishable by a fine up to $500 and 3 months in prison.

Page Act of 1875:  While supposedly written to prevent anyone from “China, Japan, or any Oriental country” from entering the country "for lewd and immoral purposes" it had the effect of preventing almost all Chinese women from entering the country. The law classified as "undesirable" any individual from Asia who was coming to America to be a forced laborer, any Asian woman who would engage in prostitution, and all people considered to be convicts in their own country.

Other California laws prevented the Chinese from owning real estate, marrying a white person, or attending public school. 

Chinese Exclusion Act

Intense pressure from anti-Chinese groups in California and elsewhere culminated in the enactment of the Chinese Exclusion Act, signed into federal law by President Chester A. Arthur on May 6, 1882.  To this day, it represents one of the most draconian restrictions on immigration in U.S. history and was focused entirely on a single ethnic group.  The major components of this law: 

Halted Chinese immigration for 10 years:  "Be it enacted, that from and after the expiration of ninety days next after the passage of this act, and until the expiration of ten years next after the passage of this act, the coming of Chinese laborers to the Untied States be, . . . suspended; and during such suspension it shall not be lawful for any Chinese laborer to come, or, having so come after the expiration of said ninety days, to remain within the United States."

Prevented Chinese currently in the U.S. from becoming citizens:  "No State court or court of the United States shall admit Chinese to citizenship; and all laws in conflict with this act are hereby repealed."

Deported Chinese found to have entered the U.S. illegally : "Any Chinese person found unlawfully within the United States shall be caused to be removed therefrom to the country from whence he came, by direction of the President of the United States."

Enacting this law in 1882 was a black mark on the nation, to be sure.  It would have been relegated to an historical footnote had it been quickly repealed or declared unconstitutional, but such was not the case.  On October 1, 1888, President Grover Cleveland exacerbated matters by signing the Scott Act into law.  It expanded on the Chinese Exclusion Act by prohibiting Chinese laborers who had temporarily left the U.S. from returning.  While the enactment of this law was wildly celebrated in California, it stranded an estimated 20,000 to 30,000 Chinese who had left the United States planning to return.  In 1889, the U.S. Supreme Court upheld the legality of the Scott Act (Chae Chan Ping v. United States).

In 1892, the Chinese Exclusion Act was renewed for another 10 years.  As this extension approached expiration, American labor organizations lobbied for yet another extension.  The San Francisco Building Trades Council  argued that the very presence of Chinese workers in the marketplace dragged down the living standards of white workers.  In 1902, the American Federation of Labor (AFL) under Samuel Gompers published a pamphlet with perhaps the longest title in the history of pamphlets: "Some Reasons for Chinese Exclusion -- Meat vs. Rice -- American Manhood against Asiatic Cooliesm -- Which Shall Survive?"  Here's an excerpt from it which pretty much establishes the tone:

Beginning with the most menial avocations they gradually invaded one industry after another until they not merely took the places of our girls as domestics and cooks, the laundry from the poorer of our white women, but the places of the men and boys, as boot and shoemakers, cigarmakers, bagmakers, miners, farm laborers, brickmakers, tailors, slippermakers, etc. In the ladies' furnishing line they have absolute control, displacing hundreds of our girls, who would otherwise find profitable employment. Whatever business or trade they enter is doomed for the white laborer, as competition is simply impossible. Not that the Chinese would not rather work for high wages than low, but in order to gain control he will work so cheaply as to bar all efforts of his competitor. But not only has the workingman gained this bitter experience, but the manufacturers and merchants have been equally the sufferers. The Chinese laborer will work cheaper for a Chinese employer than he will for a white man, as has been invariably proven, and, as a rule, he boards with his Chinese employer. The Chinese merchant or manufacturer will undersell his white confrere, and if uninterrupted will finally gain possession of the entire field. Such is the history of the race wherever they have come in contact with other peoples. None can withstand their silent and irresistible flow, and their millions already populate and command the labor and the trade of the islands and nations of the Pacific.

As a result of this national propaganda campaign, the Chinese Exclusion Act was not only renewed again in 1902, it was made permanent!  In fact, this blot on our national conscious remained in force until it was repealed by the Magnuson Act in 1943, two years after China became our ally in World War II.  But the Magnuson Act was only a small step forward.  It allowed only 105 Chinese immigrants per year and continued to deny property rights to Chinese Americans.  It was only until the passing of the Immigration and Nationality Act in 1965 that a reasonable amount of Chinese immigration was granted. 

Illustration within the 1902 AFL pamphlet

In Closing ...

It may be hard to tell, but the point of this post was to actually cheer you up a bit.  As bad as the anti-Mexican immigration rhetoric is now, it pales in comparison to what was said and done to the Chinese 150 years ago.  It may also be heartening to know that back then -- like now -- there were people of reason and influence who saw through the hate and fear and tried to combat Chinese discrimination.  One such person was Mark Twain.  You might have heard of him.  Click here and read his thoughts on "the Chinaman" from his 1872 book called "Roughing It".