A man who, like Erzberger, probably bears the main responsibility for our country’s misfortune, must, so long as he remained alive, have presented a constant danger to Germany. It may seem coarse and heartless to write such an epitaph for a dead man, but sentimentality will get us nowhere . . . only through extremes can Germany once more become what she was before the war.15
Ernst Troeltsch, one of an always small and now dwindling band of liberal academics, wrote two weeks later that he expected more political murders:
The current Reich ministers and others are receiving masses of anonymous death threats, and they know that this is no joke. Some months ago one of these gentlemen said to me that being a minister today was an uneasy business; he knew that it was a matter of riding for a fall, but he felt it his duty to persist.16
Erzberger’s long-term legacy would be recognised. He created the modern German tax system and might have done much more for his country had he not been cut down at the age of not quite forty-six, but that was for posterity to realise. At the time it was more the symbolism that mattered, to both right and left, authoritarians and democrats. The government responded with an ordinance forbidding anti-republican propaganda and the glorification of anti-constitutional and disorderly acts. Bavaria, where Organisation Consul and its killers were being sheltered by the authorities, refused to obey, and there was nothing the central government could do about it.
The perilous raising of the billion gold marks for reparations; the murder of one of the republic’s founding fathers; the renewed decline in the value of the mark and the continued rise in the prices of life’s necessities: Germany in the late summer of 1921 seemed economically and politically doomed.
Except that the coming months would seem to witness not doom but boom.
14
Boom
Nearing the third anniversary of the end of the world war, Germany was not the only country in Europe in which violence and political chaos were rife.
If 1920 had been a turbulent year for the world, 1921 was scarcely less so. There were race riots in Tulsa, Oklahoma, in which twenty-one whites and sixty blacks died. There was a coup in Portugal, during which the Prime Minister and several of his cabinet were murdered. The Prime Minister of Japan was assassinated, the Prime Minister of Spain likewise. Russia remained convulsed by civil war and racked by famine. Greek and Turkish forces were engaged in a bloody war in Anatolia. Karl I, deposed King-Emperor of Austria-Hungary, undertook two separate and equally unsuccessful attempts at restoring himself to the throne of Hungary. An upstart demagogic leader by the name of Benito Mussolini was elected to the Italian parliament along with twenty-nine deputies, representatives of a thuggish new political movement known as the Fascisti, which made no bones about its determination to seize power when the opportunity arose. Until a truce was declared in July, Britain continued to be involved in a vicious and costly war against Irish Nationalists demanding independence for the whole island of Ireland; in the course of the struggle, the London government had recruited a force of officially approved irregulars not dissimilar to the Freikorps in Germany, made up of unemployed war veterans and known dismissively by most Irish people, because of colour of their ad hoc uniforms, as the ‘Black and Tans’.
Post-war political disturbances were in almost all Western countries poisonously combined with post-war economic depression. In Britain, after the 1918-19 boom, there had been no growth in 1920, while in 1921 industrial production fell by a massive 31 per cent. In America the figures were 3 per cent growth followed by a shrinkage of 22 per cent, leading to around 12 per cent unemployment in 1921.1 France experienced 8 per cent growth in 1920 followed by a fall of 12 per cent. Unemployment among trade union members in Britain in 1921 was 17 per cent. By comparison, in Germany industrial production during 1920-21 grew by 45 per cent, in the next year by 20 per cent. Unemployment among trade union members in Germany (more than 9 million at that time) was 4.5 per cent in January 1921, and fell to a record low of 0.9 per cent in April 1922.2
Germany was apparently, so far as the figures went, booming. And yet almost all the talk was still of hardship and shortages. The cheap mark – getting cheaper all the time once the fall in its value resumed in the summer of 1921 – was fuelling increased exports even in a generally depressed industrial world, but outside of a minority of industrialists, speculators and black marketeers, it was not actually feeding through into the general standard of living. Already, voices were asking how this could be. It was a situation unknown in a modern industrial country.
‘German Trade Boom and the Sinking mark: How Long Will It Last?’ ran the headline in the Manchester Guardian in October 1921. Sub-headlines referred to ‘Wild Stock Exchange Gambling’ and the ‘Soaring Cost of Living’. The crisis over the 1 billion gold mark reparations payment and the consequent fall in the value of the mark had, the paper’s correspondent in Berlin wrote, led to:
. . . wild gambling on the German stock exchange – gambling wilder than has ever been known before. The public does not seem to care what it buys so long as it can get rid of marks.
The results of the depreciation are threefold. In the first place German industry is flourishing in an unprecedented manner. Profits are enormous, big dividends are being paid, export trade has been stimulated, production has increased, and unemployment has almost vanished. In the second place the cost of living is going up and the standard of living down. In the third place foreign countries are being hit harder than ever by German competition.3
But the paradox was blatantly apparent:
The cost of living in Germany has risen by about 40 per cent during the last three months, and will probably continue to rise at an accelerated pace. The buying power even of full-time wages is steadily decreasing. The price of cereals has reached its highest point since the abolition of Zwangswirtschaft.*
The price of wheat has risen about 300 marks per ton and of rye about 250 marks per ton during the last fortnight. Railway tariffs are to be raised by 30 per cent . . . Potatoes cost 1 mark a kilo on February 5, 9 marks on June 4, and 10 marks now.
German children are again showing symptoms of under-feeding and malnutrition. People with fixed salaries are feeling the pinch more and more severely . . .
Many Germans suffered, and continued to suffer, even three years after the end of the war. So, who benefited from the way that Germany boomed during this ‘take-off’ phase of the inflation, while all around the world seemed in a phase of ‘bust’?
In September 1917, after America’s entry into the war, the German-Jewish shipping magnate and friend of the Kaiser Albert Ballin had expressed what he hoped was a basic truth about Germany’s likely post-war position:
[I regard] our gravely ailing currency as an admirable means of dispelling the hatred felt abroad against Germany, and of overcoming the reluctance to trade with us [likely to be felt by] our enemies. The American who no longer gets for his dollar 4.21 marks’ worth of goods from us, but 6.20 marks’ worth, will rediscover his fondness for Germany.4
By 1920, the currency was seriously ailing, and a great deal more still by 1921-22. Ballin himself was long dead. Seemingly unable to bear the prospect of German defeat, the loss of much of his fleet and the confiscation by the Allies of his remaining ships, the Director of the famous Hamburg-Amerika Line had taken an overdose of sleeping pills on 9 November 1918.
All the same, at least some of what Ballin had said proved true. The advantages of inflation to Germany’s export industries were obvious. As the exchange rate tumbled, German goods became progressively cheaper in foreign markets. The pricing strategies of German manufacturers were further aided by the fact that, although workers, especially union members, were constantly demanding inflation-adjusted wage increases, those same wages were starting from a low real base. The need for inflation-adjusted increases was also mitigated by continuing government support for food prices and by the continuance of wartime rent controls (what that meant for the government’s control of
the deficit – or lack of it – was another matter).
The patriotic British, French or American (or Danish, or Dutch) businessman might prefer to buy from his own countrymen, but German quality was high and German prices, at that time, were hard to resist. In any case, it was common for large German companies and conglomerates to trade through wholly or partly owned foreign subsidiaries, especially those based in Holland. It was a quite deliberate strategy in the early post-war period when goods labelled ‘Made in Germany’ still encountered plenty of hostility in former enemy countries.5 Germany’s net national product grew by 10 per cent in 1920 and by 7 per cent in 1921.6
Meanwhile, German industrialists could ship out their wares and get foreign exchange for them, which they could either hoard abroad as an insurance against further deterioration of the mark (and as a way of avoiding Herr Erzberger’s irritating taxes) or repatriate at a more favourable exchange rate than had existed at the original time of production of the exported goods. Since domestic price rises lagged behind falls in the exchange rate, anything which industrialists then purchased inside Germany – whether other businesses, plant and machinery, land or property – was extraordinarily cheap.
In 1920 a British journalist reported that, although the exchange value of the mark to the pound was substantially less than one penny, its purchasing power inside Germany itself was 2½ to 3 pence. So the German businessman could change back the proceeds of his exports at a certain rate and immediately find himself able to buy three or four times what an ordinary German could buy with his or her hard-earned paper marks.
Once the international rate of the mark started to tumble again in the late summer of 1921, and exchange rate changes became so swift and frequent that the domestic market prices found it harder and harder to keep up with them, the opportunity for any savvy businessman with access to foreign currency became, if anything, even greater. There was, in any case, absolutely no point in leaving rapidly depreciating paper money in a bank account and watching it waste away, as the less fortunately placed, or less worldly, members of the old middle class were forced to do.
The rich industrialist bought and bought and got richer and richer, not so much in paper marks but in physical things. The flight into ‘material assets’ (Sachwerte) became, for a minority of the German nation, a way to solid riches among the growing financial chaos. As the prominent German industrialist Emil Guggenheimer, a director of the MAN mining and engineering company, remarked ruefully and with only slight exaggeration, ‘we are all actually no longer manufacturers, but have become speculators’.7
Even Curt Riess’s father, who had once plied his trade as a maker of ceremonial uniforms for the courtiers of Germany’s pre-war kingdoms and principalities but was now a plain, though highly skilled, tailor to the gentry, entered into the practical spirit of the time. Finding that, having contracted to make a suit at a specific price, by the time he got to work the three metres or more of cloth he needed cost more than the customer was due to pay him, Herr Riess swiftly changed his policy so that he accepted payment only in hard currency – dollars, pounds, Swiss francs. This was how he stayed in business when many colleagues were bankrupted.8
The fact that there were laws against what Herr Riess was doing made little difference to him or to millions of others who were protecting their fortunes in this way. After all, even if the business owner was prosecuted, the penalty was usually a fine – payable in rapidly depreciating paper marks.9 So individuals salvaged their livelihoods and continued to enjoy the standard of living to which they felt entitled.
On a quite different scale of reckoning, these were also the circumstances under which Hugo Stinnes, the human ‘calculating machine’, became Germany’s most powerful businessman, seen by conspiracy theorists as the secret ruler of the country. As he wrote to the tax authorities with ‘a mixture of contempt and pride’ in 1920:
The Reich, which today has 236 billion in debts and whose burden of debt grows from month to month, whose credit-worthiness is well shown by the value of its currency, that prints notes upon notes without any coverage and that has long been bankrupt . . . This poor Reich cannot give any guarantees or present a prospect of their realization upon which a businessman can base his balances. The basis for my business is my personal credit at home and abroad, this credit is until now unshaken; I can get any credit I need today at home and abroad.10
Access to domestic credit at low rates, especially from the Reichsbank, and to foreign currency, was everything. In an inflationary situation, someone like Stinnes could borrow almost unlimited amounts at favourable rates, courtesy of the Reichsbank’s policy of automatic loans to German industry, and, moreover, by the time he began to pay back the loan it would be worth less in real terms – as time went by, a very, very great deal less.
Hated by millions as a personification of capitalism’s ugly excesses, the curious thing was that Stinnes bore little resemblance to the stereotype of the plutocrat. Photographs of him at the height of his wealth and power show him as a slight, undistinguished figure. Often, when photographed in the street or some other public place, he would seem to be glancing at the camera with wary unease. Even in family photographs, he seems tense. When out and about – and he travelled a great deal – he wore a slightly shabby, old-fashioned dark suit and a bowler hat. In appearance, then, Stinnes more resembled a Charlie Chaplin everyman character than an economic super-villain.
Germany’s most powerful businessman lived in a surprisingly modest villa in his native Mülheim on the Ruhr with his wife and seven children. It was a happy marriage by all accounts, and he was an affectionate, if demanding, father. His daughter, Clärenore (b.1901), acted as his secretary and his ‘eyes and ears’. Personally rather shy, with a somewhat high-pitched voice and strong traces in his accent of his native Westphalia, Stinnes was nevertheless a stubborn optimist. When in difficult situations, according to his son Edmund, he would say: ‘I never give up hope. If they want to hang me and the noose is already round my neck, I simply think how often ropes have broken.’11
Tellingly, on his business card Stinnes called himself not an industrialist or a company director but simply a ‘Merchant’ (Kaufmann). Stinnes is so strongly identified with Germany’s great inflation that it can be forgotten that he made a very large fortune before the war, when prices were more or less stable. However, his was a cool, calculating and unflappable psychological make-up perfectly attuned to the roller-coaster ride that was inflationary Germany after the First World War.
Hugo Stinnes and the men (they were all men) of his ilk became ever more wealthy as the Germany economy lurched onward, and even as the country’s political and social systems creaked with the strain. The new democratic Germany, paradoxically, was feeling more like the plaything of a small elite than the pre-war Empire ever had. Whatever the true statistics, two or three years after the revolution the country felt like an early example of the ‘1 per cent’ ruling the ‘99 per cent’.
Any German, whether industrialist or private individual, who had access to foreign currency as the inflation gathered pace was in a highly advantageous position. Naturally enough, however, the main institutions and individuals holding valuta (foreign currency) were the foreigners themselves. This applied especially to the Americans. Every nation, in the aftermath of war, was a debtor nation, with the exception of the United States. During the period after the First World War, its citizens had money burning a hole in their collective national pocket – in dollars, suddenly the hardest currency in the world – and were looking for places to invest or lend it.
In 1920, after the initial fall in the mark’s international value had temporarily subsided – when it was hovering around sixty to the dollar for months on end – many in America started to think that the only way the mark could go was up. After all, Germany had, in one sense, been artificially reduced to a state of near-penury. Post-war Germany was, by this estimation, the same country as pre-war Germany – one of the main engines of the glo
bal economy – but with, admittedly, a few bruises to show from the four-year fight that had brought it low. Why should these 70 million industrious and skilled people not soon be back at the top of the European industrial league, with full order books for their industries, their political scene calmed down and their currency once more as solid as before? Anyone who held on to marks until they got back to something like pre-war parity would, so this narrative would have it, make a huge killing.
An American loan – or, as the deceptively cheerful twenty-first-century phrase goes, a ‘bail-out’ – was the holy grail for most Germans in the post-First World War era. A share of the money waiting to be invested by the rich cousins across the Atlantic – and it should not be forgotten that many millions of Americans were of German descent – would give Germany a breathing space and help her to cope with the reparations demands being heaped upon her by the Belgians, the French and the British. And not just that. American loans and investments to Germany would also give America a stake in the country’s future, thus potentially garnering Washington’s support in the Reich government’s struggle against the other victorious nations’ demands on her. A post-‘bail-out’ Germany bankrupted by reparations would no longer just suffer alone. It would be a Germany where American bankers and investors had lost a very great deal of their own money.
It would, however, take some years, and some radically changed circumstances, before any official loans from the United States would become available. In the meantime, however, starting from the spring of 1919, Germany faced a growing tide of foreign speculators eager to make money out of the falling mark, precisely in anticipation that at some point it would stop falling and rise again. In the period 1919–20, at least 36 per cent of all deposits in the seven major Berlin banks were thought to originate from such sources.12 In October 1920, 100 million dollars (at that time a little over 6 billion paper marks) in German industrial securities and 30 million (1.8 billion marks) of municipal bonds were bought on the American market. There were also plenty of American institutions and individuals simply speculating in marks or mark options, betting on a rise. Such options were advertised for sale by brokering companies, who dangled juicy profits before the bold investor.13
The Downfall of Money: Germanys Hyperinflation and the Destruction of the Middle Class Page 19