The Downfall of Money: Germanys Hyperinflation and the Destruction of the Middle Class
Page 5
The war had been a disaster for most of the population in Germany, as it had in every country involved except America. The polarisation within the Reich reflected the different situations of different sections of society. Those industrialists involved in supplying arms and equipment for the war effort had done well – in some cases spectacularly so, with some large firms achieving dramatic growth. Others, especially in consumer goods and services, had suffered disastrous declines in production and profits. By 1918, for instance, the number of males employed in the textile industry was only a quarter of what it had been in 1913, with even the female workforce only three-fifths of its pre-war strength. Numbers in the building industry had more than halved.13
Overall, taken throughout the war years, industrial production in Germany had declined by between a quarter and a third, more than that of any of the Entente powers.
Indices of industrial production (1914 = 100)14
Germany
Britain
Russia
Italy
1914
100
100
100
100
1915
81
102
115
131
1916
77
97
117
131
1917
75
90
83
117
1918
69
87
83
117
Increases in the production of weapons and other materiel of war contrasted with a related decline in consumer manufacturing and non-war-related services. This became especially pronounced after the ‘Hindenburg Programme’ was inaugurated in late 1916, a greatly, in fact almost grotesquely, accelerated armaments production programme that threw all consideration of Germany’s actual material and human resources to the wind. It resulted in an even more distorted economy by war’s end.15
The wine and tobacco harvests proved bumper ones, but other food products suffered badly. Production of beer in Germany, for instance, was reduced by two-thirds in the course of the war. Agriculture in general was hit by severe manpower shortages (the army took no account of the crucial nature of food production when scouring the countryside for recruits) and shortages of imported fertilisers due to the British blockade. Production of wheat was halved.16 The shipping industry, hit by the slump in trade and the Entente blockade, with many of its vessels either marooned in neutral ports or seized by the enemy, virtually collapsed. Forty-four per cent of the pre-war merchant fleet had been either sunk or confiscated.17
Like the owners of defence-related companies, many workers in the war industries had done relatively well, and a few splendidly. Between 1914 and 1918, the daily wages of male workers in war-related industries increased by 152 per cent, and those of females – with millions of men at the front, a group whose participation in the labour market increased dramatically during the war years – by 186 per cent, while the figures for the non-war sector were 82 and 102 per cent respectively. Skilled workers in high demand within certain sectors of war production experienced even higher increases. There was discontent among less well-paid workers at the ability of these privileged labour groups – especially if the husband and wife were both employed – to buy scarce goods on the black and grey markets, to invest in war bonds and maintain bank accounts and live a life resembling in some ways that of the pre-war middle class.18 This type of worker, certain to attract snobbish disapproval, was not, however, typical, any more than was the blatant war-profiteering capitalist. The problem was that both groups existed in sufficient numbers to cause a generalised resentment among their fellow Germans.
Most industrial workers – especially those in the non-essential service and consumer sectors – saw their real earnings eroded by price inflation during the war. Calculations of price inflation are complicated, but, all in all, the cost of living seems to have roughly trebled during the course of the war.19 So, while the external exchange rate of the German mark might have recovered quite a lot in 1918, its actual internal purchasing power – reflecting the real inflation of prices, on the ground, for ordinary people – had declined much more drastically. In Hanover in the summer of 1918, a woman’s weekly wage bought two kilos of butter.20 By the end of that year, the mark had lost around three-quarters of its 1913 value. ‘In other words,’ as one historian of the First World War put it, ‘most of the deterioration of pre-war money savings had already occurred by the Armistice, well before billions of marks were needed to post a letter or buy an egg.’21
All the same, those producing in factories and workshops for the war effort were on the whole better placed to minimise the damage to their living standards. Labour shortages and the essential nature of their work meant that the authorities, eager to maximise war production at all costs, were prepared to indulge their demands for better wages.
The old middle classes found themselves in a very different situation. Widely seen as the pillars of society before 1914, these were the Germans who suffered most from the war and its economic pressures. The differences in earnings between working- and middle-class Germans were reduced during the war, not so much because the industrial workers became dramatically richer – a common myth based on a few exceptional cases – but because their ‘betters’ became, with few exceptions, altogether poorer.
The lower ranks of officialdom, previously used to relatively modest rates of pay, with their real compensation taking the form of social status and job security, also felt themselves under wartime conditions to be – and they were – underpaid and overworked. There were cost-of-living adjustments in their salaries from time to time, but these never covered the constant, unpredictable real price increases. Their standard of living fell sharply during the war years and their resentment became palpable. In 1914, a civil servant’s income in real terms had been on average five times that of a manual worker. By 1918, it was only three times greater, a drastic, not to say traumatic, drop in comparative living standards in a very short time.
The Deputy Commander of the Frankfurt military district painted a gloomy picture of these white-collar workers’ plight in a report filed in October 1917:
. . . all those living on fixed salaries are facing a change of social position; they are slipping from the level upon which they have stood and are approaching the level of those who find it necessary to live from hand to mouth. This social decline of the officialdom contains a not-to-be-underestimated danger to the state and society. Previously the officials could be counted among those who stood for the regulation of working conditions without great economic conflicts. The state and the communities must guard against letting the officials feel that they are being given up to the storms of economic developments without protection.
The same went for white-collar staff in industry, who, unlike their manual co-workers, were unwilling to compromise their hard-won and precious social standing by going on strike for higher wages. As for small businessmen and craftsmen, the backbone of the much-admired German Mittelstand, many found their businesses shut down as inessential to the war effort, starved of raw materials diverted to more vital sectors or simply bereft of customers.22 They represented millions more Germans subjected to dramatically reduced incomes and loss of status – and accordingly ripe to blame those seen as profiteering.
Again, the one thing that could be seen by such victims of the war economy as providing possible recompense for their suffering – and even enabling restoration of their previous way of life – was the promise of victory. For the first half of 1918, with Russia knocked out of the war and the army advancing in France, this seemed to many Germans to have become inevitable. Annexations or no annexations, with France and Britain defeated, Germany would perforce dominate Europe economically and politically as well as militarily. She would be even more prosperous than before. There would be enough to eat, and the necessities of life would be once
more plentiful and affordable. Normal economic conditions would return, bringing with them a strong German mark based once more on the gold standard. Stable prices would nurture the rebirth of a stable society.
Nurtured by endless, triumphant daily press reports, these happy hopes lasted, for most ordinary Germans, until July 1918, when reality bit with a vengeance. In August, another report from a military commandant admitted the negative effect the renewed German reverses were having on morale at home:
The joyous – partially exaggerated – hopes which were attached to the renewal of our offensive . . . have been strongly shaken by the enemy counterattack and the withdrawal on our front. While the great mass of the people, because of the successes during the spring, have become accustomed to counting on the ending of the war this year, the prospect of another war winter has created a certain dullness and indifference in many people, and the economic cares and privations have come to the forefront again more than before.23
Following the British counter-attack near Amiens on 8 August, spearheaded by tanks, 70 per cent of German losses were in the form of men taken prisoner, rather than wounded or killed, a sure sign that morale among the front-line soldiers was starting to collapse.24 By late October, the German front line had been pushed back more than fifty miles. A liberating British Army had been welcomed by delirious crowds in Lille on 28 October, and many other major towns were also taken back into French control.
The military fate of Germany was all but decided. Though her armies had still not been put to flight, a sense of hopelessness was spreading both at the front and at home. Clearly, there would be no more advances, and certainly no victory of the all-conquering kind so many had imagined just a month or two previously.
In the final weeks of the war, the prospect of defeat also drastically changed the shape of Germany’s political life. Attempts by the Reich’s elite, above all the High Command, to stem the swelling tide of discontent led to a drastic change of policy. On his generals’ advice, the Kaiser reluctantly assented to a brief, quasi-democratic interlude. A new cabinet was formed under the relatively liberal Prince Max of Baden, and at the end of October the right to name a chancellor was transferred from the monarch to the Reichstag. No one seemed to grasp the irony of offering the German people democracy under yet another prince. It couldn’t last. The angry masses began to take to the streets and demand far more radical changes than the Berlin establishment could, or wanted to, concede. Sporadic rioting and fighting began.
Bizarrely, the life of the city, and that of its elite, went on. On 8 November 1918, there was a press reception in Berlin for the director Ernst Lubitsch’s new film Carmen, featuring the twenty-one-year-old Polish actress Pola Negri, who would later become a huge Hollywood star of the silent era. Everyone was dressed up. There was champagne. An orchestra played selections from Bizet’s famous opera. The producers began to show the film, but, as it ran, Negri heard the sound of what, after a while, she recognised as gunfire. It grew louder as the performance went on. Finally, she turned to Lubitsch and quietly asked if he could hear it, too. Yes, he said, then shushed her. ‘There’s nothing anybody can do. Watch the picture.’ Afterwards, Miss Negri scuttled through empty streets to the nearest underground railway station in fear of her life.25
Sebastian Haffner remembered those final wartime days in the capital, and also their sudden end:
On November 9 and 10, there were still Army Reports in the old style: ‘Enemy breakthrough attempts repulsed’, ‘. . . after a brave defensive battle, our troops fell back to prepared positions . . .’ On November 11, when I arrived at the usual time, there was no Army Report fixed to the blackboard outside our local police station.26
It was, in fact, the day of the armistice on the Western Front. By the time the guns fell silent, at eleven on the morning of Monday, 11 November 1918, a revolution had taken place. The elegant expanse of Unter den Linden was thronged, not with the well-dressed ladies and gentlemen of 1910, but with noisy, excited crowds – among them workers and also soldiers of the German army, many wearing red revolutionary armbands and paying no heed to their officers.
Germany was now a republic. Her kings and princes and dukes were no more. Monarchs whose dynasties, in some cases, had lasted a thousand glittering years, disappeared from the scene with astonishingly little fuss. The previous Saturday, the Kaiser had found himself standing on a railway platform at his Grand Headquarters at Spa in Belgium, waiting with a handful of loyal officers for the imperial train to shunt its way to him. Once his transport was ready, he scuttled over the border into neutral Holland, seeking the protection of the Dutch government. It was said that his final comment, before beginning his journey into exile, had been: ‘Yes, who would have thought it would come to this. The German people are a swinish bunch [eine Schweinebande].’27
Contrary to the pronouncements of the politicians in Berlin, the Kaiser had not, at this time, formally abdicated in favour of a regency – he would wait for three weeks in his Dutch hideaway before reluctantly giving up his dual crowns as King of Prussia and Emperor of Germany.28 All the same, one thing was certain: whatever his technical status, after 9 November 1918 Wilhelm of Hohenzollern was no longer a proud monarch but a refugee from revolution – and from the victors’ vengeance.
Now was the time for thinking about what all this horror had cost – not just in lives, but in marks and pfennigs for Germany, and pounds, francs and dollars for the Allies.
Since August 1914, Germany had spent something like 160 billion gold marks on what was now, undeniably, a lost war. Of this, around 60 per cent (98 billion) had been financed by the sale of war bonds (usually bearing 5 per cent interest). These bonds, representing a huge loan by the nation to its own government, had been sold to the German public and business community in nine remarkably successful war bond drives, beginning in November 1914 and ending in October 1918, just weeks before the armistice.29
Each war bond drive had been accompanied by massive patriotic campaigns, including early cinema advertising, and of course by government assurances that, not only would the money raised contribute to a German victory, but the bonds themselves would provide a decent investment income for their holders. The interest to the bond holders was supposedly still due, of course, win or lose. Not only that, but it was clear that the nation would also have to find the money to pay an as yet unspecified but predictably huge sum to the victors as reparations. The Reich’s financial situation, as the Kaiser fled and the democrats took over, was disastrous.
The fighting on the battlefield was over. However, the economic and financial struggle that had begun in August 1914 would carry through not just to the period of armistice, but to the peace treaty and far beyond.
In fact, there were those who saw everything that happened to the German economy and currency by government action over the next five years as simply the continuation of war by other means. And to some extent, there is reason to believe they might have been right.
Footnotes
* Fruit stones (especially cherry and plum) were collected in an organised way by schools as part of a government campaign. : e kernels were pressed for the nutritious oils they contained, to help make up for the shortage of imported oils.
4
‘I Hate the Social Revolution Like Sin’
On the morning of 9 November 1918, with a general strike called, Berlin full of excited crowds and rumours of an armistice coursing the streets, Prince Max of Baden, last hope of the old regime, decided to lay down the chancellorship he had accepted from the Kaiser barely a month earlier.
The Kaiser, of course, had departed Berlin some days earlier for Spa, whence his next stop would, it turned out, be refuge in neutral Holland. But what now? Prince Max had hoped to save the monarchy by skipping two unpopular royal generations and holding the crown in regency for the Kaiser’s infant grandson. Even though the Kaiser had not yet formally abdicated, Max had announced his dethronement two days earlier. In this he was supported by the l
eader of the party that for so many years had been excluded by the old Prussian-dominated hierarchy but since August 1914 had become part of the war establishment: the Social Democrats.
Since the new Chancellor had taken power, two top-ranking Social Democrats had even been awarded posts in the government. Not yet a minister, but of prime importance to Prince Max’s project, was the chairman of the Social Democratic Party, forty-seven-year-old Friedrich Ebert.
A stocky, not especially articulate party bureaucrat, the Heidelberg-born Ebert grew up in modest but reasonably secure circumstances as the seventh of nine children of a master tailor and his wife. He himself learned the trade of a saddler but spent little time plying it before devoting himself to politics. Sebastian Haffner, no enthusiast for a man he saw as one of the prime betrayers of the German revolution, painted an unflattering and somewhat patronising portrait of a bloodless political bureaucrat who presented ‘an unprepossessing figure’:
He was a small, fat man with short legs and a short neck, with a pear-shaped head on a pear-shaped body. He wasn’t a riveting speaker either. He spoke in a guttural voice, and he read his speeches from a prepared text. He was not an intellectual, or for that matter a real proletarian . . . Ebert was the type of the German master craftsman: solid, conscientious, limited in his horizons but a master precisely within those limitations; modest and respectful in his dealings with genteel clients, taciturn and commanding in his own workshop. Social Democratic officials were a bit afraid of him, in the way that journeymen and apprentices are afraid of a strict master . . .1
Becoming a convinced socialist and trade unionist, Ebert first worked as manager of a tavern in the northern port of Bremen (one that functioned as a social centre for political leftists), all the while working his way up the Social Democratic Party apparatus. He showed a strong talent for organisation, a taste for hard work and a firm attachment to the political centre. By the time he was in his thirties, ‘Fritz’ Ebert was a nationally known figure on the moderate German left, and at the age of thirty-four he became its national organising secretary and a member of the party’s central committee.