Pensioners, theoretically quite generously provided for in Weimar Germany compared with elsewhere in Europe, also suffered badly from the inflation, though the state tried to make regular compensation for price increases.
In terms of who was winning and who was losing from the economic situation in Germany during these years, however, one thing seemed clear: the situation there was the opposite of what was happening in other large, advanced Western countries. German government policies differed drastically from those prevalent in Britain, America and, though she was still struggling with a strong and continuing element of war-induced inflation, France.
Keen to reduce debt and somehow support the huge sums necessary to pay interest on war bonds, which in the victor countries (as also in Germany) had been bought largely by better-off citizens and wealthy institutions, France and Britain raised interest rates, tightened belts and tried to stabilise and, if possible, reduce the high wages that had been a feature of the war economy. In other words, whereas in wartime, with uninterrupted production an absolute priority, the industrial workforce had been favoured above all other social groups, things changed when peace came. Once the post-war boom had served to move these countries’ economies more or less promptly from a war to a peacetime footing, the governments of the victorious powers changed their economic and fiscal policies. These now swung around to favour not the worker and the debtor but the saver, the bond holder and the business owner.
This sudden lunge towards post-war austerity was particularly pronounced in the case of Britain. Here the government, heavily indebted, and also conscious that the nineteenth century’s most powerful country was ceding national and economic prestige to the newly ascendant America, aimed to smother inflation, and to do so quickly. London’s ultimate ambition was to return to the gold standard as soon as possible, and to regain the pre-war exchange rate against the US dollar (which had remained backed by gold). This involved stringent fiscal and interest rate policies and also cutting government waste and excess of all kinds. Classic austerity politics.
The accusation of chronic waste was one to which, as the government was aware, it had become more vulnerable due to a vastly increased wartime bureaucracy. The large swathes of the British press owned by the Harmsworth brothers, Lords Northcliffe and Rothermere, including The Times and the Daily Mail, soon began a vigorous and highly effective campaign on this issue, to the extent that a kind of ‘waste panic’ became widespread. The Harmsworths even sponsored ‘anti-waste’ candidates, who actually won three by-election victories.1 The name of the political game was therefore, from 1921 onwards, nothing but cuts – some of the most drastic in British history up to that time, especially affecting social spending, housing, education and defence.
In November 1918, at the general election that had followed the armistice, Lloyd George’s government had promised a ‘land fit for heroes’. Instead, Britain soon succumbed to a programme of systematic cuts in public expenditure, many affecting the fortunes of returning soldiers. Most notoriously, these savings included those suggested by a committee under the chairmanship of a businessman-turned-politician, Sir Eric Campbell Geddes.
Geddes had made a fortune in the Canadian railroad business. With the firmness of purpose of a man whose considerable wealth resided largely abroad, he recommended slicing £87 million (a huge amount at the time, representing around 10 per cent of British gross domestic product) from public expenditure.
Although less than two-thirds of the recommended cuts were actually carried out, the social and economic effects – combined with tax changes and higher interest rates – were drastic. The new policies smelled to many of renewed class war, with the working class on the receiving end. They encouraged a strike wave that lasted through the mid-1920s, and helped fuel the rapid rise of the British Labour Party. In strictly practical terms, however, the result of the cuts, including the ‘Geddes Axe’, was indeed a fall in the cost of living. Just as intended, inflation was brought under control.
In France, the post-war interest on domestic debt (including war bonds bought by French individuals and institutions) claimed up to 50 per cent of the ordinary government budget. The country was, as one historian put it, ‘held hostage to interest payments on the public debt’, which amounted to a ‘political time bomb’.2 The French government, eager to assure foreign bankers and holders of French currency that it paid its debts, and struggling to make the Germans pay, introduced measures to ensure that holders of government and war bonds – mostly banks, insurance companies and so on, plus wealthy individuals – were paid their interest at all costs. ‘To meet the interest obligation, the government had to raise immense sums from one group and give them to the other.’ The group that suffered was, as in Britain, the ordinary working population, while the beneficiaries were mostly the haute bourgeoisie and the powerful financial institutions. This indeed amounted to ‘a socialism of the rich’.
Anti-inflationary austerity such as imposed in Britain and, in a different way, in France, was precisely the opposite of what happened in Germany.
In Berlin, the new republican government made no attempt to protect the prudent bond holder and the saver, as occurred in France and Britain. It continued, motivated both by inclination and perceived necessity, to favour the earning-and-spending industrial workforce, and to support employment at all costs, including jobs in the bloated state sector. After all, the welfare of the masses was both the German Republic’s raison d’être and its existential insurance policy.
Even after large-scale socialisation plans had been abandoned in 1920, the government continued to use wartime legislation to subsidise employment, especially in the state sector, and to regulate food prices and rents broadly in favour of the workers. And, of course, it continued to print money in order to do so. So inflation crept up, slowly at first and then gathering speed. The effect of this was to let the bond holder, the rentier (who lived from the proceeds of investments) and the saver survive as he or she might – or, in fact, might not.
The individuals and institutions who benefited from post-war deflation and austerity in France and Britain had their counterparts in Germany, the old educated class dominated by academics, lawyers and civil servants, the Bildungsbürgertum. However, their German relations in social status were placed in a very different situation. This group had always relied on supposedly ‘safe’ investments such as German government bonds, savings certificates and fixed annuities of various sorts to supplement, or in many cases enable, their style of life. The decline in the mark and the consequent shrinkage of returns from fixed-rate investments, especially holdings of German domestic war debt – in which this supremely patriotically inclined class had invested to a disproportionate extent – exerted a wholly ruinous and politically toxic effect. Unlike their British and French equivalents, who were protected from some of the ravages of inflation, German war bond holders had been completely let down by their government, and apparently wilfully so.
The question of whether Germany could in fact have managed to steer some kind of benign middle course, keeping the mass of the working class in employment but at the same time leaving the middle classes with some semblance of solvency, exercised many minds at the time, and has exercised more since.
Britain after the Second World War, for instance, had to deal with a vast accumulation of debt, mainly owed to America. However, under the strong and on the whole efficient Labour government that succeeded Churchill’s wartime coalition, she nonetheless managed to keep up payments on her debt, while at the same time creating a welfare state and a free national healthcare system, and maintaining full employment. At the same time the British middle classes, though generally feeling somewhat shabby and impoverished during the post-war era, were not wholly ruined by the process. In fact, they survived sufficiently well to flourish again in the 1950s, once the phase of socialist austerity was over.
Something similar to the British solution following the Second World War might, theoretically, hav
e worked for Germany after 1918, if there had been a similar sense of national solidarity as was found among all classes in Britain in 1945; if, as in post-war Britain, the government had enjoyed a clear mandate for its policies; if the increasingly weak governments that ruled Germany after 1920 had not been hampered by their disunity and by an extreme, not to say violent, right-wing opposition. And, perhaps above all, if the debts that Germany owed after 1918 – mostly the costs and reparations it agreed to pay under the Versailles Treaty – had been debts that the country truly acknowledged its duty to fulfil, as Britain had, however reluctantly, in the case of its borrowings from America after the Second World War.
In fact, of course, even German politicians who followed a policy of ‘fulfilment’ of the treaty terms, including reparations, did so only in order to show their impossibility. Almost no one in Germany, across the entire political spectrum, considered the debts owed to the victors under the Versailles Treaty as legitimate ones.
To structure Germany’s economic and financial policies in order to make the country capable of paying reparations – again, theoretically possible, as most historians agree – would have been regarded by many, if not most, Germans, as treachery. Moreover, it would in all probability have imposed a political and social cost feasible only under conditions of strong government, popular moral commitment and unshakeable social solidarity. None of those circumstances characterised Germany after 1918.
The post-war boom that was engineered in Germany, and permitted to continue even after other countries deflated their economies, was by its nature an inflationary one. And the tacit consensus was that an inflationary boom was better than no boom at all.
Sebastian Haffner described the developing division in German society, not just between republicans and anti-republicans but between those who could find ways of living and even flourishing within this strange hollow boom, and those who were shut out of it. The stock exchange had become one way of investing wealth before it slipped away. There was, as ever with share trading, a risk involved. All the same, so long as companies kept selling and growing, as they did for the most part between 1919 and 1922, the market quickly adjusted the value of investors’ shares to correspond to inflationary movements. Thus the stock market automatically maintained the value of investments and, if the investor was lucky and a company was doing well, even increased it.
Among his young middle-class friends in the Berlin of the developing hyperinflation, Sebastian Haffner could see who had managed to adapt to the times and who had not.
Life was good for the young and the nimble. Overnight, they became free, rich and independent. It was a situation where slow thinking and a reliance on previous experience were punished with hunger and death, but impulsive action and swift comprehension of a new situation were rewarded with sudden, huge wealth. The twenty-one-year-old bank manager became a phenomenon, as did the High School senior who took heed of his somewhat older friends’ stock market tips. He wore a tie in the fashion of Oscar Wilde, organised champagne parties, and provided for his embarrassed father.3
Elsewhere in the country, young bank workers, like the ‘high-rollers’ of Wall Street and the City of London in the early 2000s, were able to use their access to foreign currency to live the high life. In Hamburg, the bank clerk Hermann Zander, after completing his brief post-war service with the anti-Communist Freikorps, settled into a career as a foreign exchange dealer with the Commerzbank. He described his privileged situation during the hyperinflation in jaunty terms:
This is the time when we had the ever quicker developing inflation, during which I had the opportunity to make diversions into Valuta (foreign currency).
Any paper marks that were still left over at close of business would be spent on fun or used to buy goods. We were a merry band of colleagues, to which now and then my father would attach himself.4
Some days were jollier than others, and required parental guidance:
One day it happened that, after our last drink at the ‘Mampes Stuben’ bar on the Jungfernstieg, we decided to go on somewhere. We piled into an electric taxi . . . and, without planning to, ended up on the Herbertsrasse (a red light area). My father noticed this and uttered the memorable words:
‘Hermann, my son, this is not the place for us!’
Sebastian Haffner’s own father, a senior civil servant, naturally refused to become involved in the black market. However, neither would he engage in any other kind of trading, even of a legitimate sort.
Yes, my father was one of those who did not understand the times, or did not want to understand them, just as he had refused to understand the war. He dug himself in behind the assertion that ‘A Prussian official does not speculate’, and did not buy stocks.5
What Sebastian Haffner’s father represented was the old pride of Germany: the cream of the so-called Bildungsbürgertum, the classically educated elite. These were the men who since the eighteenth century had filled the roles of higher civil servants, law officers, Protestant pastors, writers and academics in the various monarchical states, large and small, that made up the old Reich.
Until 1914 the Bildungsbürgertum had managed to maintain its standard of life and its social status, despite the inroads being made by the new, aggressive class of industrialists and business managers on the one side and the increasingly aspirational junior white-collar and skilled working classes on the other. This small but disproportionately influential elite group – calculated, even if their families are included, at less than 1 per cent of the population at this time, or between a half and three-quarters of a million people altogether6 – had always depended on inherited money and privilege to perpetuate itself. It was in good part due to this fact that in 1913, 15 per cent of Germany’s wealth had its origins in investment income rather than wages and salaries. During the course of the inflation, this would be subject to a drastic reduction, falling to a mere 3 per cent.7
The money of the educated middle class, be it from academic or legal fees, or from a civil servant’s salary, was not the flashy wealth of the big businessman or the great landed aristocrat. All the same, it was steady, and comfortable enough in more stable times, if prudently invested, to house this caste’s members in a decent apartment or villa. Above all, until the war and the inflation intervened, it was sufficient to ensure that the males of each generation could afford to take the essential step of studying a traditional subject at a traditional German university. In this way they would acquire the qualifications and connections (the latter often through student duelling clubs) that enabled them to gain footholds on the civil service, judicial or academic career ladders, like their fathers and grandfathers before them.
The old, smooth pre-war career path was now a thing of the past. In the summer of 1921, 92 per cent of students at the technical university in Dresden filled in a questionnaire about their financial circumstances. At that time (when the mark had temporarily stabilised at around 60-70 marks to the dollar) it was reckoned a student needed 450 to 500 marks a month to sustain a minimal standard of living. Of 865 responders, 217 had 450 or more marks a month to live on, and the rest – 648 – less. Often a lot less. Almost a quarter of the students had around 300 marks, and another quarter less than that, in nine cases as little as 100. The situation was similar at other universities.8
The post-war period saw the unprecedented rise of the Werkstudenten (working students), usually from a newly impoverished middle-class background, who worked their way through university where their fathers would have been treated to a more or less comfortable parental allowance to do so. The idea of the Werkstudent may seem normal to modern readers – and, indeed, ‘working your way through college’ was already an everyday phenomenon in America in the 1920s – but in the social and political context of Germany after the First World War it was perceived as shocking, a sign of class and therefore (from this hitherto privileged group’s point of view) national decline.
It was typical of the inflationary era, however, that the ind
ividual who was prepared to improvise and ‘think outside the box’ – not to mention to go against social conventions – could end up not just surviving but thriving. One such Werkstudent from a formerly comfortable middle-class home recalled later in life how his family got by after his father died, and how he financed his university education:
My father had left a fortune of 800,000 marks, but by the summer of 1922 the value of the mark had dropped to 400 per dollar. Every month, it got worse. My mother finally used her last 65,000 marks to buy a typewriter, and she began typing students’ theses to support the youngest children. I went to Holland that spring, looking for anything that would earn hard currency, and I found a job at the Queen Anna coal mines in the province of Limburg. We worked far down, at the bottom of the mine, hacking away with pickaxes. It was tremendously hot, usually one hundred degrees or so, and full of dust, but by the end of the spring vacation I’d saved fifty guilders, which was about twenty-five dollars. Then I figured out how to beat the inflation. I used the guilders as security for a short-term bank loan, and then I’d repay the bank loan with the deflated marks and take out another loan. I paid for a whole semester at Heidelberg that way, and at the end I still had the same fifty guilders.9
His case was not typical. Perhaps, in a sad way, it helped that his father was dead, that a woman had been forced to take over as head of the family, and that they therefore knew it was a matter of sauve qui peut.
During the war, the educated middle class had already suffered a fall in its relative standard of living. Now it found itself both economically and psychologically besieged. The higher civil servants, such as Sebastian Haffner’s father, and the museum director who had found himself an object of a British journalist’s pity back in the spring of 1920, were especially hard hit. By 1920, the real value of their salaries was reckoned at only 20 per cent of what it had been in 1913.10 And still the insistence held among such men that ‘a Prussian civil servant does not speculate’.
The Downfall of Money: Germanys Hyperinflation and the Destruction of the Middle Class Page 23