Hemingway on Inflation and War: Why His 1935 Statement Resonates Today
October 26, 2026
In 1935, Ernest Hemingway wrote a sentence that is once again being shared thousands of times on social networks today.
In essence:
Inflation is the first supposed panacea of a poorly managed country.
War is the second.
Both can simulate prosperity in the short term – but prove ruinous in the long term.
The first question regarding such quotes should always be:
This time, the answer is:
The sentence comes from Hemingway's essay „Notes on the Next War: A Serious Topical Letter,“ published in September 1935 in Esquire.
And with that, the story becomes significantly more interesting.
The First World War was only 17 years in the past.
Europe had experienced inflation, hyperinflation, economic crisis, and political radicalization.
Germany was already National Socialist.
Italy was fascist.
Hemingway had experienced the First World War himself and wrote his text as an urgent warning against a new European war.
Four years later, the Second World War began.
His statement was therefore not an abstract economic theory.
It was:
Surprisingly interesting.
Because inflation does not just change prices.
It also changes:
Take a state that has borrowed 100 billion euros.
The debt remains nominal:
100 billion.
However, if the general price level rises significantly, the real value of these 100 billion decreases.
The state pays back the same euros.
But these euros possess less purchasing power.
This is the central mechanism.
The state holds:
debt.
An investor holds:
the claim to it.
Unexpected inflation shifts real wealth from the creditor to the debtor.
The IMF has investigated this effect.
Inflation shocks can initially reduce the public debt ratio.
Nominal state revenues rise.
Expenditures react with a partial delay.
And already existing nominal debts lose real value.
However, this only works to a limited extent.
If creditors permanently expect five percent inflation, they will not continue to lend money to a state at two percent.
They demand:
higher interest rates.
Financing costs rise as a result.
Expenditures adjust.
Wages are renegotiated.
Contracts change.
The initial advantage disappears.
This is exactly why inflation is not a cost-free way to get rid of national debt.
This is what makes his use of the word „temporary“ so interesting.
In the short term, an economy can appear nominally larger.
Revenues rise.
Tax revenues rise.
Wages eventually rise as well.
Asset prices can rise.
But the decisive factor is not:
Rather:
This is the difference between nominal and real wealth.
The German inflation rate in September 2026 was:
In the Eurozone:
Energy prices in particular drove the increase.
Of course, it does not follow that:
inflation was deliberately created.
Such a claim would be dubious.
Wars, energy prices, supply chains, monetary policy, fiscal policy, wage developments, and expectations can all influence inflationary trends.
But for the private household, the result initially remains the same:
But inflation has a cumulative effect.
Suppose the price level rises by an average of three percent every year for ten years.
Then something that costs 100 euros today will cost approximately:
after ten years. This does not mean that you have automatically become 34 percent poorer.
Income and assets can also rise.
But cash that simply remains unchanged loses real purchasing power.
And that is exactly why inflation is relevant for savers.
One must be even more cautious here.
Wars can increase measured economic output in the short term.
The state orders:
tanks.
ammunition.
vehicles.
aircraft.
equipment.
People are employed.
Factories produce.
This flows into the Gross Domestic Product.
But to conclude from this that war creates prosperity would be a fundamental error.
A tank that is produced and subsequently destroyed initially increases measured economic output.
However, society does not automatically possess more wealth as a result.
On the contrary.
War destroys:
human lives.
buildings.
infrastructure.
companies.
production capacity.
human capital.
trust.
And often:
currencies.
This is exactly why Hemingway's juxtaposition is so powerful.
Inflation and war can generate nominal economic activity.
But activity is not automatically:
How does a society protect reserves from uncertainty?
Interestingly, central banks answer this question differently today than they did a few decades ago.
They are buying:
In the past four years, approximately:
That is roughly twice as much as the average of the previous decade.
And 89 percent of central banks currently surveyed expect global gold holdings to continue rising.
45 percent intend to increase their own reserves.
Not because central banks believe:
„War is coming, so buy gold.“
Reserve management is not that simple.
Rather, gold possesses several characteristics that distinguish it from traditional financial assets.
A government bond is:
a claim against a state.
A bank balance is:
a claim against a bank.
A corporate bond is:
a claim against a company.
Physical gold, on the other hand:
This is not a value judgment.
It is a description of its structure.
It pays no interest.
It incurs storage costs.
The price fluctuates significantly.
And it can underperform compared to stocks or bonds for years.
Therefore, the serious conclusion is not:
Rather:
That is exactly why it is called:
diversification.
A typical household might possess:
bank balances.
life insurance.
pension entitlements.
bonds.
cash.
All these positions are measured in money.
Many of them are payment promises.
This can be perfectly sensible.
But at the same time, the question arises:
This is precisely where a physical asset can fulfill a different function.
That, too, would be a myth.
In the short term, gold reacts to:
real interest rates.
the dollar.
liquidity.
investor positioning.
central bank policy.
risk aversion.
And many other factors.
It can therefore certainly happen that inflation is high and gold still falls.
Anyone viewing gold as a short-term inflation trade may be disappointed.
How much of my wealth do I want to hold in:
payment promises?
equity stakes?
real estate?
liquidity?
And:
physical assets?
There is no universal answer to this.
But it is the right question.
Not because a writer from 1935 is explaining the right investment strategy to us today.
He is not doing that.
But because it reminds us of something that is easily lost in nominal figures:
More government spending is not automatically more prosperity.
More production for a war is not automatically more prosperity.
And higher asset prices are not automatically more purchasing power.
What can we produce?
What can we consume?
What do we own?
How productive are we?
And what purchasing power of our wealth is preserved?
Perhaps that is why Hemingway's warning is still relevant after 91 years.
Not as an investment recommendation.
But as a reminder of a fundamental difference:
And anyone wishing to preserve wealth in the long term should understand exactly this difference.
Stay farsighted.
Yours,
Helge Peter Ippensen
Note: This post is for informational purposes only and does not constitute investment, tax, or legal advice, nor a solicitation to buy or sell precious metals or financial instruments.
