Weimar: Could it Really Happen Here?
When Money Dies: The Nightmare of the Weimar Collapse
by ADAM FERGUSSON
http://www.wolf1168.us/misc/Articles%20of%...oney%20Dies.pdf
Just finished this [for the second time]. This is a must read for anyone who thinks developed economies could go into a Weimar-like hyper-inflation. There are some parallels; real money could become more scarce, and "dislocation" of the currency, but the parallels of a hyper-inflation of the currency are just not there imo. The reason being is we've already see the "hyper-inflation" in our monetary system. The distinction to the past [which is also the distinction between the monetary systems] is the explosion in debt/ credit we've already "enjoyed".
The inflation of the currency in the years '21 and '22 [before it blew up in hyper-inflation of '23] was due in main to maintain full employment in the face of incipient revolutionary class warfare in a defeated demoralized nation. The currency finally eventually blew up with the occupation of the Ruhr, the industrial heartland, by the French. Money was printed here to maintain passive resistence until it lost all purchasing power. Continual inflation of the currency maintained employment. Unemployment finally came with the destruction of the currency. Not many parallels to the US to be found here, which is facing increasing unemployment now.
imo the two things to watch if concerned about hyper-inflation are:
1] Watch unemployment... if everyone suddenly gets a job then maybe hyper-inflation is around the corner.
2] Watch bond markets.... if the yields reverse and go up radically, the monetary authorities might finally and completely lose the plot.
Neither look likely and until then it's deflation all the way.
Some excerpts:
P 1
The inflation of 1923 was so preposterous, and its end so sudden, that the story has tended to be passed off more as a historical curiosity, which it also undoubtedly was, than as the culmination of a chain of economic, social and political circumstance of permanent significance. It matters little that the causes of the Weimar inflation are in many ways unrepeatable; that political conditions are different, or that it is almost inconceivable that financial chaos would ever again be allowed to develop so far. The question to be asked — the danger to be recognised — is how inflation, however caused, affects a nation: its government, its people, its officials, and its society. The more materialist that society, possibly, the more cruelly it hurts. If what happened to the defeated Central Powers in the early 19203 is anything to go by, then the process of collapse of the recognised, traditional, trusted medium of exchange, the currency by which all values are measured, by which social status is guaranteed, upon which security depends, and in which the fruits of labour are stored, unleashes such greed, violence, unhappiness, and hatred, largely bred from fear, as no society can survive uncrippled and unchanged.
P 5
The first stage of inflation took place under the auspices of one Karl Helfferich, State Secretary for Finance from 1915 to 1917. Before 1914, the credit policy of the Reichsbank had been governed by the Bank Law of 1875, whereby not less than one-third of the note issue had to be covered by gold and the remainder by three-month discounted bills adequately guaranteed. In August 1914 action was taken both to pay for the war and to protect the country's gold reserves. The latter objective was achieved by the simple device of suspending the redemption of Reichsbank notes in gold. The former was contrived by setting up loan banks whose funds were to be provided simply by printing them. The loan banks would give credits to business, to the Federal states, to the municipalities and to the new war corporations; and, moreover, they were to advance money for war bond subscriptions. Loan bank notes, whose denominations ranged from one to 50 marks, were to be regarded as legal tender; and those not taken up by the Reichsbank were put into immediate circulation. However, the most ominous measure for the future was the one which permitted the Reichsbank to include three-month Treasury bills in its note-coverage, so that unlimited amounts could be rediscounted against banknotes.
P 6
and the money in circulation increased in 1917 to five times what it had been in 1913. As essential supplies day by day grew scarcer the money available to buy them grew proportionately more plentiful
P 3
Nevertheless, it was the natural reaction of most Germans, or Austrians, or Hungarians — indeed, as for any victims of inflation — to assume not so much that their money was falling in value as that the goods which it bought were becoming more expensive in absolute terms; not that their currency was depreciating, but -especially in the beginning — that other currencies were unfairly rising, so pushing up the price of every necessity of life. It reflected the point of view of those who believe the sun, the planets and the stars revolve with the moon around the earth.
P 19
The uncertainties to which these postponements gave rise in large measure accounted for the wild fluctuations of the mark during the year. At the outbreak of war the paper marks in circulation in Germany had a total face value of 2,700 million marks (less than half of the value of the coinage which the population were encouraged to trade in in return for paper). After the war's end, in November 1918, the figure had risen to 27,000 million; and by November 1920 to 77,000 million.
Lord D'Abernon, who was to be British Ambassador in Berlin for more than six years, arrived at his post in June 1920. A man more practically versed in money matters than most in office in that city, he dutifully recorded both in his diaries and in. his despatches home the mark's precise course over the brink and far down into the depths. Enjoying the fullest confidences of German ministers wrestling with the twin problems of inflation and reparations, yet unable to influence 20
their monetary policy to any important effect, he watched helplessly as, against every warning he could give, the chickens of unlimited deficit financing swarmed in to roost.
P 23
The mechanism of depreciation had many wheels, however. A close though unnamed confederate of Herr Hugo Stinnes, the industrialist, assessing the situation with great candour a few weeks later said that the real breaking point came immediately after the German government repaid the loan which had been arranged in England by Herr Mannheimer of Mendelssohn's Bank, 'the confidential man' of Dr Rudolf Havenstein, President of the Reichs-bank since 1908. Mannheimer, instructed by his chief, went out in August 1921 and started to buy foreign currency at any price — 'for Germany had any amount of paper marks but no foreign currency.' This was the first signal of
the absolute breakdown in the value of the mark. Since then, foreigners have not speculated to the same extent in marks and have kept their holdings, waiting for some improvement. The banks, on behalf of their clients and the industrialists, went further and not only sold their marks at any price but also started to speculate.
P31
On November 22, Sir Basil Blackett*, (Later a Director of the Bank of England. He joined the Treasury in 1904. Born 1882, died 1935.) Controller of Finance at the British Treasury, presented the Foreign Office with a sobering memorandum on Germany's problems. He had been 32
much struck on his tour of inspection by the contrasting positions of Britain with nearly two million people out of work and Germany with scarcely any unemployed at all.
In spite of his robust common sense, the man in the [German] street is beginning to believe what some interested industrialists are telling him, so that he seems almost readily to subscribe to the false doctrine that it is good for trade that a government, by inflationary finance, should habitually spend more than its income; and that it is necessarily bad for a country to receive a large income from abroad 'by way of an indemnity …
Even the German industrialist knows that the present activity of German industry (destroying the export trade of its neighbours) is a sign of fever and not of prosperity. But, as usual, each class in Germany thinks that the burden of taxation should fall on some other class or classes … Even the best disposed are inclined in a fatalistic way to let things take their course and wait for the world to recover its reason. The big industrialists are attempting to save something from the wreck by turning all the paper marks they can into foreign currencies or, failing that, into real things — land, machinery, and so on, which have an independent value … The incentive to saving is gone just when saving is of vital necessity to the State
The one real temporary advantage is that Germany's workmen are in employ, but even this is mainly due not to successful exporting but to the misdirected consumption of holders of paper marks who want to get rid of them, and therefore to misdirected production, which actually interferes with the proper flow of exports and to some extent increases the amount of luxury imports.
p 27
The daily creation of fresh paper money which the government requires in order to meet its obligations both at home and abroad (services and goods which it is 'obliged both to render and deliver') inevitably decreases the purchasing value of the mark and leads to fresh demands, which in turn bring about a further decline, and so on ad infinitum.
P 32
Even the German industrialist knows that the present activity of German industry (destroying the export trade of its neighbours) is a sign of fever and not of prosperity. But, as usual, each class in Germany thinks that the burden of taxation should fall on some other class or classes … Even the best disposed are inclined in a fatalistic way to let things take their course and wait for the world to recover its reason. The big industrialists are attempting to save something from the wreck by turning all the paper marks they can into foreign currencies or, failing that, into real things — land, machinery, and so on, which have an independent value … The incentive to saving is gone just when saving is of vital necessity to the State.
P 38
It may be that, with others, Dr Wirth at that stage regarded the balancing of the budget as a more academic than practical project while France was calling upon Germany, as he put it, 'to lay milliards of gold by the sack upon the table'. The Berliner Tageblatt faithfully reported him on December 16, saying that he regarded the economic system as something which was artificially swollen by the fall in the rate of exchange, which might lead to a very bitter disillusion in the course of a few months. 'This fictitious prosperity with which we are often reproached by our adversaries,' he said, 'is evident in quite another form in other countries. In England and America it takes the form of unemployment …"
P 41
Dr Rathenau accounted for the absence of unemployed in Germany by pointing out that a million men were working to pay reparations, a million to produce goods to buy food abroad, and another million simply to make up the loss of output since the eight-hour day was introduced. He did his best to explain to the Reichstag what was happening to the mark by alluding lengthily to the vicious circle of an adverse trade balance, the consequent necessity to sell German currency abroad, and its resulting depreciation, followed by the fall in the exchange rate and inevitable rise of home prices, leading to increased costs of materials and labour and so to new rifts in the budget. Dr Rathenau expressly and publicly denied that the printing press had any role to play in that permanently spiralling sequence of events, and by ascribing the country's ills primarily to the unfavourable trade balance caused by reparation payments he totally failed to understand the reality that the country was living far beyond its means, printing money to pay for excesses which included over-employment, the inordinate subsidy of industry, the import and manufacture of luxuries for domestic consumption, and a grossly inefficient tax-collection system.
P 42
(Phillip Cagan defined hyper-inflation as beginning in the month in which price rises first exceed 50 per 43
cent (equivalent to an annual rate of 600 per cent): cf. his essay in Studies in the Quantity Theory of Money, edited by Milton Friedman, University of Chicago Press 1956.)
p43
In view of the rocketing cost of labour, the eagerness of manufacturers to extend their works, renew their plant and embark on large improvement schemes was at first sight somewhat extraordinary. From a social point of view, too, so much commercial building was unfortunate in a country now short of over a million houses — in part the result of the rent restriction Acts which had throttled the private sector of the building industry. But German industrialists had been unable to build up liquid reserves which would keep their value, and such cash as they could not hold illegally abroad in a foreign currency was generally converted — as Sir Basil Blackett had remarked — into real or fixed assets. For that reason an appreciation of the mark was greatly feared, and even the few weeks of post-Genoa 'stability' invited stagnation in business. Industrial circles were faced with the danger that cash would become more valuable than goods, and of a crash when everyone attempted to convert their assets back into money again.
P 47
In the spring of 1922 a growing divergence had been evident between the rate of increase in the floating debt arid that of the volume of money in circulation. Behind this lay, first, the inability of private banks any longer to advance the loans needed to keep industry and commerce going; and, second, the corresponding liberality with which the Reichsbank conceived it its duty to fill the gap. From the summer onwards, commercial bills were dealt with as generously as Treasury bills, and the loans available to business were at far more indulgent rates than the private banks could possibly have offered. The discount rate for these commercial bills remained at 6 per cent throughout August while during the same month the mark fell by 250 per cent against the pound. 48
Within six months commercial bills were approaching three-fifths of the Bank's holding of Treasury bills. The demand for extra credit which the Reichsbank's behaviour stimulated was scarcely less critical in promoting inflation than its profligate bounty towards the government itself.
Demand/ unions
P 53
It has long been realised that the printing of notes is the result and not the cause of depreciation, and that the amount of currency, as it increases in bulk, is really decreasing in value. A point has now been reached where the lack of money has a worse effect than the depreciation itself … Even should the quantity of paper money be three times its present size, it would constitute no real obstacle to stabilisation.
P 42
Those lucky enough to have the monopoly power of an organised trade union to protect them were still in the shelter. They faced their employers, the German manufacturers as well as the central and local governments, with theoretically crippling wage demands. The employers' choice was between granting them or being prepared for wholesale strikes and disorders such as had recently been undergone in Britain. In the nine weeks or so after the Rapallo Treaty was signed, although the exchange rate was comparatively static at around 1,300 to the pound, the cost of food soared upwards. The 50 per cent rise during the second six months of the previous year now became a desirable objective, and in Hamburg the price rises monitored for food alone in April, May and June were respectively 46 per cent, 51 per cent and 56 per cent.* (Phillip Cagan defined hyper-inflation as beginning in the month in which price rises first exceed 50 per 43
cent (equivalent to an annual rate of 600 per cent): cf. his essay in Studies in the Quantity Theory of Money, edited by Milton Friedman, University of Chicago Press 1956.) For a brief time in May when the price of meat doubled in a matter of a month the rise in the cost of living was so abrupt and startling that the unions for a space were unable to decide what demands to put forward.
P 50
At what might otherwise have been the height of the immediate crisis at the end of July 1922, the Reparations Commission decided to take its summer holidays, effectively postponing any settlement of the exchange turmoil until mid-August; and M. Poincare, bent as ever (it was believed) on Germany's destruction, sent a Note to Berlin accusing the government of wilful default on its debts, and threatening 'retortion'. The effect on the financial situation was calamitous. The rise in prices intensified the demand for currency, both by the State and by other employers. Private banks could not meet the demand at all, and had to ration the cashing of cheques, so that uncashed cheques remained frozen while their purchasing power drained away. It became impossible to persuade anyone to accept any description of cheque for that reason, and much business quickly came to a standstill. The panic spread to the working classes when they realised that their wages were simply not available.
P 50
Because of the excessive rise in the cost of living in these weeks, ever more pressing demands for higher wages flowed in from all classes with any leverage on their paymasters. Strikes accompanied those demands. A strike of shop employees in Frankfort on August 8 resulted two days later in a wage increase from 7,200 to 9,600 marks a month backdated to the beginning of 51
July. It was followed at once by a compositors' strike, which closed down the newspapers for two weeks and then produced a settlement which promised a weekly wage increase of 500 marks effective until September 1, after which it would rise to 800 marks until September 16, at which point the results of further negotiations would apply. Government officials were awarded a 38 per cent increase from August 1, and government workers an additional 12 marks an hour — a further burden on the budget of 125 milliard paper marks. There were no plans to meet this burden beyond a 50 per cent increase in rail freight charges from September 1 and another increase in the postal rates (the face values of new postage stamp issues which in 1916 had ranged from the 2-pfennig grey to the 4-mark red and black, in late 1922 started at the 50-mark blue and went up to the 100,000-mark red).
P 51
It was clear to this leading financial daily what was happening: that as the total of paper marks in circulation had risen from 35 milliards in December 1919 to 200 milliards in July 1922, the equivalent sterling value had fallen from £193 million to £83 million. Before the war the currency circulation of 6 milliard marks had been worth about £300 million. The cause, however, was still a matter for firmly asserted conjecture.
P 59
Dr Hegedüs's financial policy had affected Hungarian trade in a textbook manner. As the korona appreciated in the spring of 1921, unemployment, till then negligible, grew markedly because the goods and raw materials purchased when the overseas rate of the korona was at 2,000 to the pound could not be disposed of except at great loss when it improved to 800. As the korona improved, in other words, the position of merchants and manufacturers worsened; and when Hegedus resigned and the korona fell a sigh of relief rose from the commercial world and work was restored to the industrial workless. On the other hand, the temporary rise had been profoundly welcomed by the official classes and others on fixed incomes. By contrast, the peasantry (two-thirds of the population) on the whole viewed it all with indifference as they were always able to sell their produce at something close to the world market price: possibly they were better off than any similar body in Europe.
P 71
Bonar Law, who fully appreciated that the stabilisation of the mark meant, for Germany, unemployment, an industrial crisis and enormous financial strain, whereas failure to stabilise meant catastrophe, was now equally unable to convince the French Prime Minister of the futility of amassing vast quantities of German paper marks by means of retortionary or extortionary measures. Already 1,500 milliards of them had been collected by the German customs on the Allied reparations account, which the Reparations Commission dared not cash because it would hardly get anything for them. Poincare was obstinately sure, wrote Lloyd George, that the exploitation of the German forests could easily be carried out under the supervision of the Allied military authorities, and that it would be practical for them to control the Reichsbank and force up the value of the mark. The invasion of the Ruhr was to prove him tragically wrong. Whether it was intended to wreck Germany for ever or not, it was a policy that in time reduced the French franc to one-fifth of its pre-war value.
P 72
Until the Ruhr invasion the reasons for the German inflation could have been put down, first, to the uncertainty of the aftermath of the war, and secondly, to the inexperience and weak acquiescence of the new men in power. Industry wanted neither heavy taxation nor to be hampered in its expansion at home or abroad: so the government gave way and replaced the missing revenue by printing it. Neither the industrialists nor the general public were prepared to pay the true costs of the railways, or of the post office, or even of bread: so the government understood, and printed the money to pay for them. Did Germany's nationals have claims arising out of the war, or, better, out of the peace treaty? Did one of the federal states, or the meanest district, look to Berlin to meet its financial requirements? The government printed notes to satisfy everyone, telling itself that as the granting of credit through cheques had so greatly 73
decreased the actual currency in circulation had to be so much greater. The rich and the strong came off best.
One of the results of unlimited inflation had been the destruction of State credit abroad. At the end of 1922 other results were beginning to show. In consequence of Germany's strong competitive position, German goods again were available all over the world, although still in only a third of pre-war quantities: owing to everyone's spending most income as quickly as possible, Germany's home market had absorbed incredible amounts of the national product, to the greater short-term benefit of industry.
P 74
In that unhealthy picture the government can have seen only two relatively bright patches. One was that the country's internal debt, to the distress of the stockholders, had dwindled to nothing. The other was the almost total absence of unemployment; but workless-ness, of course, had been the Socialist government's greatest fear ever since the Army had started to disband, and that fear had been in large measure behind the inflationary policy.
P 81
Until the Ruhr invasion the inflationist policy had been mainly governed by the fear of unemployment. Now massive unemployment had come — although the revival of the national spirit' had greatly mitigated its worst disruptive side-effects — and inflation was pursued more vigorously than ever.
P 82
There were stories of shoppers who found that thieves had stolen the baskets and suitcases in which they carried their money, leaving the money itself behind on the ground; and of life supported by selling every day or so a single tiny link from a long gold crucifix chain. There were stories (many of them, as the summer wore on and as exchange rates altered several times a day) of restaurant meals which cost more when the bills came than when they were ordered. A 5,000-mark cup of coffee would cost 8,000 marks by the time it was drunk.
p 125
The overriding issue was the swelling unemployment. The extent to which the act of stabilisation contributed to the number of workless is not easily determinable. Already Germany's finances and economy had deteriorated too far for any measure to have slowed or even arrested the rapid upward trend: and the time when palliatives might again have postponed the evil day of mass idleness had certainly passed. The old currency having been reduced to total unacceptability, there was no way whereby printing money could keep anyone in his job any more. The choice had simply become between unemployment and financial chaos or unemployment and monetary discipline. Either alternative meant misery, but the second at least held the promise of food, and a way out of the cul de sac. It was not that Germany's unemployed noticed the distinction at first. The week of the interregnum between Strese-mann's and Marx's administrations produced a recurrence — largely Communist inspired again — of the endemic disorders in D-iisseldorf, Essen and Gelsenkirchen, with armed fights against the police and much bloodshed. Food was the problem.
The first signal that stabilisation was a fact may have been the exodus of the international parasites to Paris, lured by the depression of the franc; but the subsequent signs 'were far less welcome. Taxation now began to weigh heavily. Interest rates remained high, at 100 per cent. Shortage of capital and credit meant high prices and closing factories. The cost of living crept up and up, now in real terms. Certain real costs rose very suddenly, such as university tuition fees, which caused student enrolment to fall. State and municipal relief was even less adequate than it had been. The trade unions, whose funds had vanished with the paper mark, were in turmoil.
p 130
It was widely remarked that the destitution inflicted by the inflationary process was not general. The very evidence, indeed, of great wealth — ostentatiously flaunted by the new rich who had it -misled many observers, including the French, into supposing that Germany's refusal to pay reparations on the nail was Teutonic knavery. The existence until the Ruhr invasion of full employment, an obviously prosperous working class, a buoyant economy, a booming home market, a strongly competitive position in foreign markets, factories bursting with production — all made possible by the vast scale of Germany's borrowing — could have fooled anybody.
But inflation shed its deadly rain discriminately, so that for some the reality of pauperisation lay hardly below the surface. The rentier classes — the people whose livelihoods depended on their savings, or on annuities or pensions — have already been mentioned. They included the poorly paid professions — judges, army officers, parliamentary deputies and the like — whose positions and dignity had traditionally been supplemented by private means. There were other groups, mainly the professional people, whose services turned out to be expendable in what their clients would have seen as the short-term. Civil litigation, for example, became a luxury. Who would buy books? Who was in a hurry for architectural advice? Art and tuition could wait. There was no rush for any but emergency medical treatment, and even that could not always be paid for as soon or in such amounts as doctors would have wished: private patients were slow to come forward, and health-insurance companies could not pay the full fees because of what inflation had dpne to their funds. No one could tell how many dependants of these professional people went short on account of such a recession in business. The common assessment that it was the middle classes who were left destitute is only part of the story. Certainly they had savings to lose, and they lost them, whether in paper form, or in the form of the jewellery, silver, furniture, pictures or other precious possessions with which they were obliged to part. Certainly the landlords were reduced, if they had no other source of livelihood, to beggary through the restriction of rents to nominal sums or through having to sell
off their property at knock-down prices simply to stay alive. Some householders survived by renting off apartments at realistic rates.
p139
As the old virtues of thrift, honesty and hard work lost their appeal, everybody was out to get rich quickly, especially as speculation in currency or shares could palpably yield far greater rewards than labour. While the anonymous, mindless Republic in the shape of the Reichsbank was prepared to be the dupe of borrowers, no industrialist, businessman or merchant would have wished to let the opportunities for enrichment slip by while others were making hay. For the less astute, it was incentive enough, and arguably morally defensible, to play the markets and take every advantage of the unworkable fiscal system merely to maintain one's financial and social position.
p147
Inflation did not conjure up Hitler, any more than he, as it happened, conjured it. But it made Hitler possible. It is daring to say that without it Hitler would have achieved nothing: but so is it daring to assert that, had enormous post-war unemployment not been held at bay for years by financing the government's deficits and by an ungoverned credit policy, bloody revolution would have occurred, leading presumably to an equally bloody civil war whose outcome can only be guessed at. In all these matters, it was anyway touch and go.
That Germany inflated deliberately in order to avoid the costs of reparations is not a proposition that bears examination. The evidence is wholly against it. First, the rate of inflation was enormous long before reparations were an issue. Secondly, industrial pressure to inflate, largely self-interested, had nothing directly to do with the war debt. Thirdly, it was correctly recognised that, although customs receipts by the Allies were perforce in paper money, reparations had to be paid either in kind or in gold equivalents: British and French war debts to America had themselves to be rendered in gold or gold equivalents, America's high tariffs making payment in goods impracticable.
Fourthly, at no time did Germany's financial authorities so much as hint, privately or publicly, that their policies derived from cynicism (which would have had to be shared by their counterparts in Austria and Hungary) rather than incomprehension and incapacity. That the government and the Reichsbank were dominated by the notion that a huge 'passive' balance of payments made constant devaluation inevitable hardly seems sufficient explanation of their total, blind refusal to connect the mark's depreciation with the money supply — yet, as Lord D'Abernon wrote even in 1922: 'Knowledge of currency laws -- particularly of the quantitative
148
theory — is incredibly absent in all German circles'; or, as Brescioni-Turroni noted, the budgeting deficits of Reich and states alike were considered by writers and politicians 'not the cause, but the consequence of the external depreciation of the mark.'
It is irrelevant to this that the German workers who produced the reparation payments in goods or in bills of exchange were paid for their efforts in depreciating paper, with considerable though transient advantages for German industry and commerce — and frequently to the disadvantage of their foreign competitors. To that extent, reparations encouraged inflation. The 'transfer problem', involving the adverse economic effects of reparations on creditor countries, was only hesitantly being recognised by the Allies in the spring of 1923; and until then it was not suggested by them (or feared by German industrialists) that the excessive sale of subsidised exports for reparation payment purposes might lead to the erection of tariff barriers against Germany, much as other forms of Valutadumping' were castigated.* (Schacht, in My First Seventy-Six Years, Chap 21, reports Reginald McKenna, formerly Asquith's Chancellor of the Exchequer and then, in 1923, Chairman of the Midland Bank, as saying: 'Since Germany can only make payments by means of exports, she would be compelled to export to such an extent that British industry would suffer intolerably.')
p149
however, did such depreciation represent a deliberate, cynical policy; which, no doubt, would also have been claimed by the German bankers and governments of the early 1920, who looked for causes of their monetary difficulties beyond their own printing press and tax system — and found them, without difficulty and to their complete intellectual satisfaction. It remains so that once an inflation is well under way (as Schmb'lders has it) 'it develops a powerful lobby that has no interest in rational arguments.' This was as true for Austria and Hungary as for Germany.
There was no moment in Germany between 1914 and the summer of 1923 when in theory currency stability could not have been secured, if necessary by the establishment of a new bank of issue for which sufficient backing was still available. Until the later date, despite the demands made by the Entente and the necessity to find substitutes for the Ruhr's iron and coal, German gold and foreign currency reserves always constituted a substantial proportion of the exchange value of the circulating paper, no matter how fantastically its volume grew. After the war was over, however, there were always practical difficulties which had little to do with the refusal of Germany's monetary authorities to see the connection between depreciation and money supply.
Long before the Ruhr invasion, and perhaps even before the preliminary meetings of the Reparations Commission, there came a stage when it was politically impossible to hah inflation. In the middle of 1920, after the brief post-Kapp Putsch period of the mark's stability, the competitiveness of German exports declined, with unemployment beginning to build up as a result. The point was presumably not lost on the inflators. Recovery of the mark could not be achieved without immediate repercussions in terms of bankruptcies, redundancies, short-time working, unemployment, strikes, hunger, demonstrations, Communist agitation, violence, the collapse of civil order, and thus (so it was believed) insurrection and revolution itself.
Much as it may have been recognised that stability would have to be arranged some day, and that the greater the delay the harder it would be, there never seemed to be a good time to invite trouble of that order. Day by day through 1920, 1921 and 1922 the reckoning was postponed, the more (not the less) readily as the prospective consequences of inflation became more frightening. The conflicting objectives of avoiding unemployment and avoiding insolvency ceased at last to conflict when Germany had both.
The longer the delay, the more savage the cure. Austria by the end of 1922 was in the hands of the receivers, having regained a stable currency only under the absolute direction of a foreigner. Hungary, too, had passed any chance of self-redemption, and later on was to undergo an equal degree of hardship and suffering, especially for her public servants. Stability returned to Germany under a military dictatorship when much of the constitution had been suspended -- although the State of Emergency was only indirectly necessitated by the destruction of the nation's finances. To all three countries stability and then recovery came. All had to be bailed out by others. Each was obliged to accept a greater degree of economic disruption and unemployment than need ever have been feared at the time when the excessive printing of banknotes might still have been stopped. In all three cases, after inflation reached a certain advanced stage, financial and economic disaster seems to have been a prerequisite of recovery.
The take-off point in the inflationary progress, after which the advent of hyperinflation was but a matter of time, the point indeed when it became self-generating and politically irreducible except for short periods, was not indeed to be found on the graph of the currency depreciation, or of the
150
velocity of its circulation, or of the balance of payments deficit. Nor in Germany's case did it notably coincide with some ultimate crisis of confidence in the mark, at home or abroad — Rathenau's murder, or the occupation of the Rhine ports, or the London Ultimatum, all of which had immediate seismic effects upon it. Rather it lay on the falling curve of political possibility, with which was closely linked the degree of political power and courage that the government, sorely pressed as it was, was able to muster.
What really broke Germany was the constant taking of the soft political option in respect of money. The take-off point therefore was not a financial but a moral one; and the political excuse was despicable, for no imaginable political circumstances could have been more unsuited to the imposition of a new financial order than those pertaining in November 1923, when inflation was no longer an option. The Rentenmark was itself hardly more than an expedient then, and could scarcely have been introduced successfully had not the mark lost its entire meaning. Stability came only when the abyss had been plumbed, when the credible mark could fall no more, when everything that four years of financial cowardice, wrong-headedness and mismanagement had been fashioned to avoid had in fact taken place, when the inconceivable had ineluct-ably arrived.
Money is no more than a medium of exchange. Only when it has a value acknowledged by more than one person can it be so used. The more general the acknowledgement, the more useful it is. Once no one acknowledged it, the Germans learnt, their paper money had no value or use — save for papering walls or making darts. The discovery which shattered their society was that the traditional repository of purchasing power had disappeared, and that there was no means left of measuring the worth of anything. For many, life became an obsessional search for Sachverte, things of 'real', constant value: Stinnes bought his factories, mines, newspapers. The meanest railway worker bought gewgaws. For most, degree of necessity became the sole criterion of value, the basis of everything from barter to behaviour. Man's values became animal values. Contrary to any philosophic assumption, it was not a salutory experience.
What is precious is that which sustains life. When life is secure, society acknowledges the value of luxuries, those objects, materials, services or enjoyments, civilised or merely extravagant, without which life can proceed perfectly well but make it much pleasanter notwithstanding. When life is insecure, or conditions are harsh, values change. Without warmth, without a roof, without adequate clothes, it may be difficult to sustain life for more than a few weeks. Without food, life can be shorter still. At the top of the scale, the most valuable commodities are perhaps water and then, most precious of all, air, in whose absence life will last only a matter of minutes. For the destitute in Germany and Austria whose money had no exchange value left existence came very near these metaphysical conceptions. It had been so in the war. In All Quiet on the Western Front, Müller died 'and bequeathed me his boots — the same that he once inherited from Kemmerick. I wear them, for they fit me quite well. After me Tjaden will get them: I have promised them to him.'
In war, boots; in flight, a place in a boat or a seat on a lorry may be the most vital thing in the world, more desirable than untold millions. In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finer than honour, clothing more essential than democracy, food more needed than freedom.
Primarily property.