The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class

by Taylor, Frederick

  A Prussian civil servant’s wife, however – the mother of his children – was in no position to take refuge in a government office, as her husband did, and pretend that nothing had changed. When inflation began to rise again, from the summer of 1921 onwards – good news as this might seem to be for business – a woman such as Haffner’s mother finally ceased being a privileged Frau Senior Government Councillor and became a survivor like any other.

  On the 31st or the first of the month, my father received his monthly salary, which represented all we had to live on – bank deposits and savings certificates had long since become worthless. How much the salary was worth, it was hard to say; its value fluctuated from month to month . . . In any case, my father would try to acquire a monthly season ticket for the underground railway as fast as he could, so that during the next month he could at least travel to work and back, although this means of transport involved considerable detours and expenditure of time. Then cheques were written for the rent and school fees, and in the afternoon the whole family would go to the hairdresser. What money remained was handed over to my mother – and the next day the entire family, even the housemaid, though not my father, got up at four or five a.m., and took a taxi to the central market. There a big shopping session was organised, and in the course of an hour the monthly salary of a Senior Government Councillor was spent on non-perishable food. Huge cheeses, whole hams, hundredweights of potatoes, were all loaded into the taxi. If there wasn’t enough room, the housemaid and one of us children would get hold of a hand cart. At around eight o’clock, just before school time, we would return home, more or less supplied with enough to see us through a month’s siege. And that was the end. For another month there was no more money.11

  The middle class had seen its standard of living and status take a severe tumble since the euphoric days of August 1914. As for senior civil servants, their continued conservative-monarchist loyalties also began to affect their traditional command of the corridors of bureaucratic power. Especially in Prussia and other Social Democrat-controlled states, democratic politicians started co-opting sympathetic ‘political officials’ into their departments to ensure that reforms and changes were not blocked by the pre-1914 old guard. More insult. More injury.12

  All the same, the educated class still had advantages. As Haffner’s description shows, the fact that a civil servant’s or academic’s salary was paid monthly made bulk buying possible. This became increasingly important as the rate of inflation began to rise still further, so that prices changed by the week, or even the day. For the manual worker living close to the existence minimum, especially if he or she was on piece work or in irregular employment, the day’s price had to paid. It was literally a matter of hand to mouth.

  Even if family savings had become more or less worthless, the middle classes generally had reserves of, for instance, more and better quality clothing than a working-class household. They possessed superior, more durable household implements, and often still a maidservant to keep the kitchen, to sew and mend. An extra pair of hands in the house also allowed more time to search and queue for affordable, decent food as inflation led to shortages and shopping queues lengthened.13 And generally the middle class had more spacious houses or apartments. Rooms could be let for extra income.

  None of the above prevented this class from developing a sharp sense of both deprivation and collective humiliation. Heinz Flügel, then in his mid-teens, was forced to watch as his father, a former career diplomat, though still only in his fifties, was gradually shunted into retirement. Now they travelled on wooden seats in fourth class for their increasingly rare summer holidays. They still had the family villa in Zehlendorf, a pleasant Berlin suburb, but life had become noticeably harder. Flügel wrote many years later:

  I can see in my memory how my father, who had been used to being waited upon, had to maintain the stoves at home. While we were busy with our school homework, he would haul the heavy coal buckets, without complaint, up from the cellar into the first floor. Today we may not be so surprised by such a thing; at that time the change felt abrupt.14

  Ernst Troeltsch, despite being a scholar of international standing and having a civil service job at the Prussian Ministry of Culture and Religion, told of the tight budgets and the ‘make do and mend’ measures that even such a household as his was forced to adopt. For working people, these were bad times, where die Teuerung (rising prices), as most ordinary people referred to the inflation, made already poor living standards even worse. For the educated middle classes, the fall in social as well as economic expectations was dizzyingly steep. Things once taken for granted were now beyond reach.

  Writing in March 1922, Troeltsch was acutely aware that, like most German academics and even educational institutions, because of the exchange rate he could no longer afford foreign books and publications. To travel abroad was, of course, impossible. ‘All luxury in art and science, all travelling, is at an end in these circles,’ he wrote. These were particular humiliations that those who still had money, and foreigners in particular, could not grasp.

  This leads to the main question, which is how Germans are actually faring. The French generally see only the luxury hotels and places of entertainment, which they pay for with German money or with better foreign currency. They see the shops in the cities and the whirlwind of pleasure seeking. It would be very important to find out from trustworthy people how things really are. But that is a very hard question to answer in definite terms. Few statistics are available to the private citizen, and the official figures no one believes. At base, however, in this area of things we only get our knowledge from chance individual observations and can hardly even make an estimation of our own situation. What is clear is the downright desperate misery of those who live off small investments and pensions. The first group, in many cases, are simply consuming their capital, with the hope – or intention – when it is all used up, of dying. Conditions for workers with children are also very hard. The necessity of returning to a free economy and stopping state subsidies means, with the prices rising as they are, rising poverty. The situation for artists, writers and all sorts of Bohemians is almost as desperate as that of the small investor. The downward pressure on the way of living for the entire middle and official class is also a matter of great sensitivity. These are the new poor, who face the new rich. All their income is swallowed up by housing expenses, heating and food; so far as everything else goes, one lives from old things and uses one’s old clothes absolutely to the limit . . . But the old things will wear out, and then the hardship will be bitter, without even taking account of the difficult accommodation situation.15

  The men of the educated middle class began referring to themselves as ‘the intellectual proletariat’. The gap between them and the lower middle class of clerks and self-employed craftsmen no longer looked so wide, or their self-identification as superior to such people so automatic. A mixture of angry nostalgia for what had been lost, and a resentment at what continued to be taken from them, made even those who had initially accepted the revolution and Republic inclined to move further and further towards the anti-democratic right.

  Further down the social scale were others disastrously affected by the inflation even during these early years. They may have been accustomed to lower standards of living than the educated classes were used to, but they were equally dependent on schemes with a fixed return. Most seriously affected were those who depended on basic government pensions and benefits of all sorts.

  The lost war had created 525,000 widows, 1.3 million orphans and 1.5 million disabled war veterans, all of whom had to be supported by the state and the municipalities from a much diminished national product. Their pensions amounted to a large proportion of public expenditure. Figures for the early 1920s are hard to pin down, but by the middle of the decade, these costs certainly totalled 20 per cent of the government’s budget as opposed to 7 per cent in the United Kingdom.16 This was in addition to those Germans who had reached retirem
ent age and routinely qualified for pensions under the pioneering social insurance system established in the 1880s. Bismarck’s famous scheme had based itself on low-risk investment vehicles that had provided a stable income for the pension schemes in times of currency stability. Now, as the mark slid further following the year of stabilisation, they brought (vanishingly) low returns.17

  The war widows, orphans and war-disabled veterans, meanwhile, were paid out of municipal funds, which from 1920 were mostly provided on a percentage basis by the central government under the tax-centralising stipulations of the late Herr Erzberger’s tax law. Even by 1919, the municipalities were hugely in debt, in good part because of their welfare commitments to war casualties and their families - and habituated to going beyond these basic tax revenues and touting bond issues on the financial markets. Come the end of 1921, German cities were finding it even harder to raise the money to care for their needy. Foreign bonds markets, since 1919 a happy hunting ground for the high-spending municipalities, had dried up as in New York, Amsterdam, London, Buenos Aires and elsewhere investors began to avoid anything giving a return in German marks. And so the Reich government was forced to take on at least part of the huge cost of war pensions, yet another reason to print more money – and even then, providing far from adequate support for the war wounded, and for the war dead’s wives and families.

  Government agencies began introducing strict, complicated and sometimes arbitrary seeming eligibility tests, and insisting that, for instance, war widows should if possible find work. A proportion of state jobs were set aside for the male war disabled, but there was no such provision for women. Once the inflation really began to take off, the dependent poor fell further behind. The ‘natural’ solution was remarriage, but with two million German males killed in the war, creating an exaggerated gender imbalance, this was not an option for many widows.

  What must always be kept in mind, however, is that these bizarre arrangements were still being made in the context of an economy operating at a very hectic pace and suffering from very minimal unemployment. While an underclass of pensioners, widows, orphans and disabled persons was being kept more or less alive through inadequate welfare and varieties of poor relief, these people did not share the company of any substantial number of unemployed.18

  The contrast between the salaries of the civil servants empowered to grant or withhold these benefits and the standard of living of the recipients caused special bitterness. In January 1922, to take a snapshot, with the so-called ‘minimum income index’ standing at 1,600 marks, a fully disabled veteran (i.e. completely unable to work) received 1,034 marks and a war widow 716 marks. The average civil servant’s salary was 1,965 marks.

  The Weimar state’s best intentions, its founders’ declared aim of building the world’s most progressive welfare system as well as its most complete democracy, were falling ever further short, the more the inflation, while seeming to keep the country working and prospering, tore at the government’s budgetary plans.

  As for prices, they began to rocket. The cost of living, including clothing, increased by 71.5 per cent between August and September 1922 alone.19 ‘The unprecedented fall of the mark in the last few days differs from the previous falls,’ wrote Morgan Philips Price of the Manchester Guardian from Berlin on 4 August 1922.‘This time it is a general psychological panic wave . . .’20

  The panic was well founded. In May 1922, the government had been able to announce that the previous financial year’s tax income was around 30 per cent above the projected take, but since this was expressed in paper marks that had been dramatically devalued since the projection was made, the figure was worse than meaningless. The real tax take had continued to slump and the deficit, therefore, to grow. Meanwhile, in that same month only 20.87 per cent of the government’s income came from taxes, the rest - bar a few fractions of a per cent representing mail and rail charges - from borrowing via Treasury bills discounted by the Reichsbank. And as expectations that the government would manage to run a surplus and thereby cut the deficit any time soon diminished to near-nothingness after June 1922, institutions and individuals both in Germany and abroad became less and less willing to acquire government debt through Treasury bills and other bonds.21

  The government tightened its welfare policies quite ruthlessly as its own financial crisis became more acute. The living standards of those disadvantaged Germans who should have been taken care of continued to lag drastically behind the ever-steeper increases in the cost of living. This condemned them – even disabled soldiers, and their fallen comrades’ widows and orphans, who had sacrificed all for their country and should have been granted a modest sufficiency by the state – to struggle, to beg, or worse.

  The good news – what there was of it – for German families during and immediately after the First World War was that private rents were strictly controlled by the government. So long as a tenant held an existing rental agreement, and stayed where he or she was, the proportion of a family’s outgoings required to keep a roof over its head constantly decreased as the inflation continued, gradually tending towards zero. A sample of working-class families’ living costs, for instance, reveals that rent made up 19.7 per cent of expenditure in 1907, 8 per cent in 1917, 7.3 per cent in 1919, and, at the climax of the inflation, a mere 0.3 per cent!22

  This was, of course, bad news for landlords. While it might be that they were able to pay off mortgages quickly because of the inflation, the financial return on their properties was miserable. Landlords, often not wealthy people but simply once-prosperous members of the Mittelstand – skilled artisans, shopkeepers, small tradesmen – who had invested in rental property as a form of saving and supplementary income, made up yet another aggrieved class in Weimar Germany.

  Given the virtual cessation of residential construction during the war, and the lack of incentive to build for rent after peace came, the housing shortages, particularly in the big cities, became even more chronic. This caused serious overcrowding, with all the consequent damage to physical and mental health. Louis Lochner, later Associated Press’s bureau chief in Berlin, arrived in the German capital during this time. He got the usual foreign visitor’s impression of ‘cafés crowded with stylishly garbed ladies’, but then began to explore the side streets and alleys away from the haunts of the well-to-do:

  I visited a typical Youth Welfare Station. Children who looked as though they were eight or nine years old proved to be thirteen. I learned that there were then 15,000 tubercular children in Berlin; that 23 per cent of the children examined by the city health authorities were badly undernourished.23

  The problems were not confined to Berlin. A survey of large working-class families in Düsseldorf published in 1923 reported an average of 3.7 persons per bedroom, and 1.9 per bed. In a low-income area of Mannheim, where the social services were especially active, of 220 families inspected, 96 failed to have what was thought to be a basic provision of beds – one bed per adult and one per two children. In a few cases, they had beds (presumably of the folding type) but not enough space to open them out. Drunkenness, incest and violence were endemic.24

  In the big tenement blocks that housed ordinary families in the industrial cities, most notoriously Berlin, the courtyards and inner tenements (the infamous Hinterhöfe) were arranged like Chinese boxes, with the most expensive flats on the outside, where there was light and air, and the cheapest, darkest and dampest making up the gloomy heart of the building. Combined with post-war shortages of affordable good quality food, and real wages that rarely rose up near the pre-war level and were usually much less, deteriorating living conditions also meant that diseases associated with deprivation and poverty rose sharply in the post-war inflation even during conditions of apparently full employment.

  The incidence in infants of rickets, caused by lack of vitamin D, a result of dietary insufficiencies but also of simple lack of access to sunlight, was estimated in 1921 for those under six months at 27.8 per cent, between six months and a ye
ar at 41.1 per cent, between a year and eighteen months at 40.2 per cent, for those between eighteen months and two at 32.4 per cent, and for those infants over two years old at 59 per cent. The two-year-olds counted had been born immediately after the war, when the continuing blockade was causing shortages of basic foods. In the port city of Lübeck on the Baltic coast, evidence of tuberculosis in two-year-olds had doubled from 12 per cent before the war to 23 per cent, and in five- to six-year-olds from 33 to 50 per cent. In Stuttgart in 1922, 40 per cent of female students at a vocational school had thyroid problems, attributable to a lack of iodine in their diets.25

  Nor was the problem confined to children. One working-class boy from Hanover, born in 1913, lost two adult older brothers to tuberculosis at this time. Both had been conscripted towards the end of the war, and had caught TB while at the front.

  It was only later that I realised the almost inhuman mental and physical burdens my mother was forced to endure during the time that both her eldest sons were dying. Even today I can scarcely grasp that she visited my brothers, who lay sick in the Nordstadt Hospital, every other day, and on the day in between would take me to the Polyclinic in the same hospital – on foot, of course, more than an hour’s walk, because there was not enough money for the tram. I still think with gratitude of the solidarity from friends and comrades, who took turns inviting us boys to eat with them, although their material situation was no better than ours.26