By Alexander Jung
"The enemy is among us," wrote the Hildesheimer Allgemeine newspaper, appalled at the occupation of the Ruhr. "He has crept into the heart of the German economy to suck out our life-blood and destroy our very existence as a nation." A 10,000-mark note issued the year before was nicknamed the "vampire bill" because it depicted a man who appeared to have a bite-mark on his neck.
But the vertiginous descent of the mark began in 1922, before the French occupied the Ruhr -- and the drama took its course. Creeping inflation (i.e. currency devaluation of up to 50 percent a year) gave way to galloping inflation (more than 50 percent a year) and eventually became hyperinflation (more than 50 percent a month), and with it the state lost all financial control.
The depreciation of the mark can hardly be explained in terms of quantifiable causes. As so often in economics, expectations played a decisive role. The nerve-wracking wrangling over Germany's reparations had completely undermined faith in the country's economic prospects. Holtfrerich believes the hyperinflation could not have come about without a "collapse in faith in the currency" which in turn prompted a slump in "expectations about the future development of the internal and external value of the mark."
One clear sign of this lack of faith was the almost overnight retreat by foreign creditors from the German money market, selling their government bonds on a massive scale as they went.
By the time German Foreign Minister Walter Rathenau was assassinated by right-wing extremists on June 22, 1922, all hope of a return to economic stability had been lost. And yet the exchange rate didn't go into freefall until the early summer of the following year. The mark had now forfeited all three of the functions that characterized a currency: It served as neither a mathematical unit nor a form of payment -- let alone as a tool for preserving value. "The mark was already dead in the water in October 1922," observed historian Helmut Kerstingjohänner.
In December 1922, the dollar was still worth 2,000 marks. Within four months this had jumped to 20,000 marks, and by August 1923 it stood at more than a million. The Weimar Republic was "teetering on the edge of the abyss," as the then Interior Minister Wilhelm Sollmann put it. "Even the most courageous among us must get dizzy in light of the fragility of the bridge and the distance to the safety of the far shore," he said.
In addition to the state printing office, more than 130 companies were commissioned to print banknotes, and as long as paper was readily available a total of 1,783 presses churned out the nation's bills. Employees brought rucksacks to work on payday to stash their money - and then spent it immediately.
Payment in Bread and Sausages
At the Junkers plant in Dessau the company gave its workers the equivalent of the day's price of three-and-a-half loaves of bread at 9am every morning. Their wives, who were waiting at the factory gates, took the money and dashed off to the shops before the new dollar exchange rate was published at around midday.
Many doctors insisted on being paid not in cash but sausages, eggs, coal, and the like. Because of the constant increase in prices, shops stopped displaying them in their windows. And when the Prussian authorities forced them to do so nonetheless, it drove prices even higher because traders simply took prospective increases into account.
Even cremation became too expense for many because the price was pegged to that of coal. So the dead were buried in the conventional manner again. But here too there were opportunities to cut costs, and a 50 centimeter-high coffin dubbed the "nose-squasher" proved particularly popular.
People lived in a strange kind of tension. On the one hand there was the daily fight for survival, for food, and for heating fuel. "If we more-or-less manage to prevent the city of Cologne from collapsing completely, I shall get down on my knees and thank my Maker," the city's mayor, Konrad Adenauer, said.
Bizarrely enough, goods were no longer in short supply. There was simply no stable currency to buy them with. As the later Chancellor Hans Luther noted in 1923, Germany threatened to "starve with full barns."
'Drinking Away Grandma's House'
On the other hand it was also a time of phenomenal wastefulness. The people were gripped by the urge to panic-buy. They squandered their money, and lived from one day to the next. "We're drinking away Grandma's house" proclaimed one popular tune of the day.
The only objects of real value were tangible assets: diamonds and coins, antiques, pianos and art. The works of contemporary artists like Lyonel Feininger, Paul Klee, Max Pechstein and Karl Schmidt-Rottluff were in especially high demand. And if you had foreign currency, you lived like a king.
One senior mail inspector gained notoriety when it was revealed he had intercepted letters containing foreign banknotes: 1,717 dollars, 1,102 Swiss francs, and 114 French francs - enough to buy two houses for himself and a piano for a friend, with enough left over for an indulgence-like donation to the church.
In fact petty crime in general increased in leaps and bounds. Potato fields were plundered, bakeries raided, shop windows smashed. Prices weren't the only thing that went out of control. All values seemed to have been corrupted. Dance halls and strip bars opened up in the cities, and cocaine sales skyrocketed. People lived as if there were no tomorrow. Economist Joseph Schumpeter noted the "disorganizing effects of the collapsing currency on the national character, on morals, and all branches of cultural life."
Given that the mark had been discredited, many cities and even companies began creating their own currencies and printing emergency money. One firm in southern Germany issued a 50,000-mark bill featuring the clever aphorism "If coal is even more expensive, feel free to use me as fuel."
It was clear a radical monetary change was needed to halt the permanent depreciation and return to a more ordered state of affairs. In mid-November 1923 the government began issuing rentenmarks, claiming the new currency was backed by mortgages on industrial and agricultural land. This was of course fictitious. If push came to shove, no industrialist or farmer would have agreed to exchange his land for money. But after years of nerve-racking inflation the German people were so desperate for stability they were prepared to trust the new currency unquestioningly.
Sticking the Populace with the Tab
History may hail "the miracle of the rentenmark," but in reality it constituted an admission that the German Reich was bankrupt. And as always, it was the populace that picked up the tab.
The stupid ones were those who had nest eggs: the thrifty, holders of government bonds, but primarily the country's pensioners. In other words, those who received money without having to work for it, who lived on their pensions or the interest on their savings. Large sections of the middle classes saw themselves stripped of their assets, losing almost everything they had set aside for years. Banks, savings banks, and insurance companies suffered huge losses and were left with nothing but their paper money. As a result, they had to start the majority of their businesses from scratch in 1924.
By perverse contrast, the winners of the hyperinflation were those with massive debts; first and foremost the state, but also private individuals who had borrowed money to buy houses, construction land or farmland, and whose loans were slashed by the switch to the rentenmark.
Some industrialists made huge gains from the period of hyperinflation. Hugo Stinnes, whom Time magazine crowned "Germany's new Kaiser," built up an immense corporate empire comprising heavy industry, newspapers, ships and hotels -- all based on a mountain of debt. As late as the summer of 1922, Stinnes was recommending that people continue capitalizing on "the weapon of inflation." Indeed manufacturers and craftsmen in general profited from the crisis since they possessed plants and buildings -- that is, tangible assets that outlived the currency switch.
Fiscal Anarchy
Most farmers also did extremely well. "They had money to burn, and spent it willy-nilly," writer Lion Feuchtwanger recalled. Some bought themselves entire stables of racehorses, others expensive cars. "Farmer Greindlberger drove from the grimy village street of Englschalking to Munich in an elegant limousine complete with a liveried chauffeur, while he himself was dressed in a brown velvet jacket and a green chamois-tufted hat," Feuchtwanger wrote of the rural rich.
Never before had Germany witnessed such a fundamental redistribution of wealth, and many of the winners were those who had previously been wealthy.
Much should have been done differently between 1914 and 1924 to avoid this disaster. Firstly, Germany should have had more powerful institutions, namely governments backed by the people that placed greater emphasis on prudent budgeting and could have reached a better deal with the Allies. At the same time foreign countries -- especially France -- should have been more sensitive to deeply indebted Germany's needs and taken greater account of the predicament it was in. Most importantly, however, the Allies should have been clearer about the size of Germany's war reparations much sooner. In the absence of this, the Reich descended into a kind of fiscal anarchy.
Disillusioned, many Germans chose to withdraw from the bitter reality of their lives, and simply left the country. In 1923, the authorities counted three times as many emigrées as the year before. Some sought refuge in sects, others committed suicide. Millions more became radicalized.
It's no coincidence that Adolf Hitler's inexorable rise to power began in November 1923, the highpoint of Germany's inflation, when he organized the abortive Beer Hall Putsch in Munich.
Catalan Germany correspondent Eugeni Xammar witnessed the spectacle at close quarters, having recently conducted an interview with "the future ex-dictator of Germany." In this interview Hitler claimed the high cost of living was Germany's biggest problem, promising "We intend to make life cheaper." To this end he demanded that shops -- many of which were in Jewish hands -- be brought under state control. And he stressed, "We expect all kinds of miracles of these national stores."
The journalist from Barcelona wasn't shy about stating what he thought of his interviewee. Hitler was, Xammar wrote, "the stupidest person I have ever had the pleasure of meeting."
Tragically, most Germans were soon to have a very different opinion of him.
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