The Downfall of Money: Germanys Hyperinflation and the Destruction of the Middle Class
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10 November 1921:
At the mill no more coarse rye to be had. Only exchangeable for unprocessed rye, but the farmers are not selling any unprocessed rye. Maize costs 300 marks, potatoes cost 105, the dollar costs 300 marks.
5/6 December 1921:
A pound of butter costs 44 marks. A litre of milk in Lüneburg 5 marks, here 3 marks, a hundredweight of potatoes 100 marks, a hundredweight of rye 300 marks; buckwheat, because not well grown, 500 marks; coarse maize at 160 marks, one egg 4 marks. We have got a new salary law. According to this I receive a basic salary of 2600 marks; local and inflation supplement 8400 marks, child supplement 5600 marks, and nevertheless one cannot get by on this. If we did not have our tavern, things would go badly for us.19
There was a massive increase during the war and into the period of inflation in the number of Germans owning or renting small garden plots, including those in, and on the edge of, cities. The figure for those belonging to registered gardening clubs almost tripled between 1913 and 1919 from 37,000 to 91,000, and the actual number of amateur gardeners could be expected to have reached several times this figure. A national organisation for small gardeners was founded in 1921 and rapidly reached a total membership of 400,000.20 In Vienna, where inflation was raging in similar conditions, the number of eggs for sale from large-scale commercial production in 1918 was 13.7 million against 2 million from hens kept on small plots or allotments. By 1922 the figures were drastically changed: only 9.5 million came from commercial production while quantities originating from privately kept hens had increased almost tenfold to 19.2 million.21 Despite the growth in the popularity of big-city allotments, for many town dwellers at this point the crucial factor was whether they had family in the country. Again and again, in personal accounts, the story of a schoolteacher’s family in Silesia stands for the rest:
Of course, a family with four children at this time could hardly live from the purchasing power of the 1920s. Here the farming background of both my father and my mother came to our aid. Whether it was from my mother’s family in Himmelwitz, seven kilometres distant, or from Hohndorf, fifty kilometres away, as in my father’s case, we received from those farms enough bread, smoked meat, ham, eggs and butter so that the teacher’s children did not need to go hungry.22
For many in the early 1920s, faced with food shortages and employment difficulties in the towns and cities, a solution lay in choosing to contribute to a short-lived but in its way spectacular reversal of what had been a long-established and seemingly inevitable demographic trend: the steady urbanisation of the Reich. During the early post-war years, including the time of the hyperinflation, 2 million Germans emigrated from the urban areas back to the countryside.23
The city dweller who stayed put, who had no rural relations, who worked in a factory or mine or office or shop and lived in an apartment block with no garden, was faced with severe shortages or, as the inflation soared out of control, with unaffordable black market prices. In February, a little less than a month after the Ruhr invasion had sparked another dramatic fall in the mark, the London Sunday Times reported from Berlin:
. . . the general effect of the slump has been the rapid increase in the price of food. Meat, for instance, has gone up about 250 per cent in the last fortnight, and there have been food riots in several of the poorer districts in Berlin. The public takes it out on the retail dealer, for whom there also exists a special profiteers’ court. But it is now generally admitted that the farmer is mainly responsible. He snaps his fingers at the Government orders, and quotes his prices only in the equivalent of dollars. He knows full well that any interference with him would bring the Agrarian party buzzing about the ears of Dr Cuno’s administration.24
The answer to the shortages for many was expressed in the German verb hamstern, to forage. The needy townie would head out into the nearby countryside and try to buy, beg or barter food from the local farmers. Many a farmstead would suddenly acquire a store of someone else’s heirlooms, many a farmer’s wife or daughter would sport fine jewellery or clothing of recent provenance.
Not all of the urban population were prepared to go to the countryside to do deals with farmers for food. Some sought other, more drastic solutions to their plight. In Saxony, Germany’s oldest, now somewhat rundown, industrial area, and the other major central German state, Thuringia, the left remained strong. In April 1923, following elections, the Social Democratic Party had taken power in Saxony with the support of the Communist Party, which had made strong gains at the local polls following its absorption of the left-wing members of the now defunct Independent Social Democratic Party. Later in the year, the local Social Democrat Premier in Thuringia would also go into a formal coalition with the Communist Party. This meant social as well as political polarisation.
Neither the middle classes in either of these states, nor the farming population, were prepared to cooperate with these left-wing governments. In response, socialist and Communist worker groups fanned out into the countryside, not to offer heirlooms for turnips, but to take what they felt the farmers were withholding from the working class.
Cases of workers leaving the towns and plundering farmers’ fields for food were common, here as elsewhere in Germany during this time. In Saxony it was more organised, in fact semi-official. For instance, 500 workers from a porcelain factory at Radeberg, near Dresden, marched out to a nearby agricultural village, where they discovered and confiscated large quantities of dairy products. Admittedly, the farmers were issued with receipts for the produce, in exchange for a promise to supply the townspeople in future, but this was quasi-official expropriation on the Soviet model by any other name. Butchers arrived at the village a few days later, to slaughter livestock to feed the town.25
Even in the countryside, the battle for existence was taking on ugly forms. The war of all against all that became the most recognisable human symptom of the hyperinflation had begun.
Having decided to bet all the chips it held on ‘passive resistance’ in the Ruhr, Chancellor Cuno’s government now decided to exploit the rare, and temporary, mood of unity in the Reich to try to regain some kind of stability in the economy and in the political life of the country. In February and March there was, despite everything, a short breathing space, where if things did not get better, they at least did not get much worse.
The question was whether this so-called ‘government of experts’ was capable of the task that had defeated every previous Weimar government. The omens were not good.
Footnotes
* 12½ pence.
* Herr von der Ohe refers to the Wirtschaft which provides extra income. This can mean a tavern or inn, or more generally just a ‘business’.
21
The Starving Billionaires
Faced with the inevitability of an enormous increase in his government’s already huge budget deficit due to support measures for the ‘passive resistance’, the man who, before he became Chancellor, had been the country’s most popular politician, put together a multi-faceted financial and diplomatic package. This, Cuno and his other ‘technical experts’ hoped, would enable Germany to weather the crisis, get the French out of the Ruhr, and come through on the other side with some kind of game-changing revision of the reparations terms.
In the excitement of the post-Ruhr invasion period, on 23 February 1923 the Reichstag, including the Social Democrats, passed an ‘emergency law’. This allowed the Cuno government to introduce, without recourse to legislation, changes in welfare, financial, economic and judicial regulations that would normally require the Reichstag’s approval.
Within the framework of these new government powers, stricter penalties for profiteering, unjustified raising of prices, the black market and transgressions against import and export restrictions were immediately announced. Finally, the government hoped, this would enable them to get a grip on prices, which were blamed precisely on profiteering by retailers.
There were two other prongs to the government’s anti-inflati
on attack. The government also began to publicise an internal dollar (that is, gold-backed) loan that would pay 120 per cent in 1926 (in gold, not paper marks), and which would thereby raise, it was proposed, $200 million to bolster the financial exertions needed to support passive resistance in the Ruhr. The aim was to soak up some of the massive quantities of gold and foreign exchange held by German corporations and individuals. The appeal was to patriotism, as it had been in 1914. And, secondly, the Reichsbank was prevailed upon (initially unwillingly, it must be said), to use its already existing, and surprisingly well-stocked, gold and foreign exchange reserves to support the mark, which had tumbled in value to around 40,000 to the dollar at the end of January.1
The government’s fear was that if the mark fell any further, the essential imports of food and coal from abroad necessary to survive the ever-tightening French stranglehold on the Ruhr would become unaffordable. Astonishingly, though the jury remained out on the success of the internal dollar loan (to which Stinnes, ominously, refused to contribute a single dollar, guilder, pound or Swiss franc), the mark did come down in February 1923, and as a result of systematic and complex selling action by the bank, stayed down. For a while, British coal remained affordable and could replace the German coal impounded by the French in the Ruhr. Again, for a while.
Astonishingly, with the mark hovering at around 21,000 to the dollar, the new ‘Goldilocks level’, there were still those heavy industrialists who felt that it was too high for their export purposes. They pressured Havenstein of the Reichsbank to nudge the rate down to between 23,000 and 25,000.
Inflation had become an addiction. And, like all addictions, the stronger its hold, the more damage it inflicts on the body of the addict. Until, sooner or later, it reaches the point where it is a question of detox or die.
The domestic wholesale prices that dictated what ordinary people paid for the necessities of life had risen with the fall in the mark’s value to 40,000 to the dollar in the weeks immediately following the occupation of the Ruhr. However, when the Reichsbank’s support effort managed to all but halve that rate later in the month, there was no corresponding fall. True, prices by and large stabilised, but the consumer got almost no relief. Clearly producers, manufacturers and retailers did not sufficiently trust the turnaround on the exchanges to actually reduce their prices to ordinary customers as a result of the improvement in the currency.2 If that was so, then they were right. The holding of the mark in the low 20,000s lasted longer than many observers expected – eleven weeks – but, finally, in the third week of April 1923, the dam broke.
There were any number of reasons. The dollar loan was drastically undersubscribed, proving that not enough of the real holders of wealth in Germany were prepared to underwrite the Ruhr passive resistance. It also became clear that the French were not going to give up. The mines were starting to produce again – not at the pre-occupation levels, but enough to show that the passive resistance was not having the hoped-for effect. Above all, Cuno’s government faced the crippling expense of the Ruhr passive resistance. Berlin had promised compensation for the Ruhr industrialists who continued the policy of non-cooperation, who shut down their mills and blast furnaces, plus support for workers rendered unemployed by the non-cooperation policy. Moreover, there were the wages due to the tens of thousands of railway officials and civil servants who had been expelled by the French and decanted into Germany proper, where they were being paid by their employer, the government, to do nothing.
Germany was now producing and exporting drastically less than before the occupation. All the costs of passive resistance could be covered only by the printing of German currency on a massive scale. Apart from the main State Printing Office in Berlin, 130 other print works were involved in satisfying the near-infinite demand for paper currency. The situation was such that even the most energetic activities of the Reichsbank’s currency exchange department could not keep the mark to dollar rate within bounds. By April, it was calculated that if the run on the mark continued, exacerbated by demands for foreign exchange from German businesses, the bank would be able to hold out for only another ten days before its reserves were exhausted.
In short, the support for the mark might have worked over a longer period, but only if Cuno had managed to pull off a diplomatic coup, or if the French had failed to make their occupation work. Neither of these had occurred. Neither the British nor the Americans, though they expressed disapproval of the Ruhr occupation, were prepared to put real pressure on the French to desist. And whatever the faults of the notoriously fractious French polity, in the matter of the Ruhr occupation, for the moment, it stood firm almost to a man. If the point of Cuno’s administration had been some kind of ordering of the country’s finances, his ‘business’ chancellorship might have made sense. In fact, the point was facing down the French, for which a tough and cunning diplomat was required.3
On 18 April, the mark, which had stood at 21,100 to the dollar four days earlier, had fallen in value to 25,000. It hit 29,900 a week later, in another week 34,275, next 42,300, and by the end of May 54,300. A month later, a greenback got its lucky owner 114,250 German marks. These were fantastical seeming figures, but in July they got even worse. The world had given up on the German currency. The Times wrote on 20 July that ‘the Berlin Foreign Exchange Market has become a farce’,4 while the Manchester Guardian’s financial editor commented on 24 July, ‘it seems almost idle to go on chronicling the complete disintegration of Germany’s financial system’.5 The paper’s correspondent in Berlin went even further a few days later. ‘The mark,’ he reported, ‘is becoming impracticable as a medium of exchange.’6
At the end of that month, the mark was exchangeable against the dollar for a seven-figure sum: 1,100,000. A week later, on 7 August, the rate was 3,300,000. In the course of sixteen weeks, the value of the mark had deteriorated to 1/130 of its already miserable equivalence in April, and around 1/700,000 of its long-forgotten pre-war value.
The German currency was now not just catastrophically diminished, but near enough worthless.
While the politicians, bankers and business leaders feared for the country and agonised over how to keep the economy halfway viable in the face of the Ruhr catastrophe, for ordinary Germans life in the summer of 1923 turned into a desperate game of pass-the-parcel. The problem was that you had to have a parcel to pass. If all you had was paper money, you were doomed. The social consequences of the inflation that had until now been only partly visible, or visible only to those with a critical eye, became impossible to ignore.
People with average incomes, and no access to agricultural produce or foreign exchange, were forced to hunt and queue for food - both because their incomes more often than not did not stretch to buying what they wanted on a particular day but also because there was, as the hyperinflation tightened its grip, a genuine shortage of food. With foreign exchange for importing food running short, and German farmers ever less willing to part with their produce for increasingly worthless paper money, the promise was of starvation amidst plenty.
In the diary of August Heinrich von der Ohe, the schoolteacher-cum-farmer on the north German plain, the entries between October 1922 and February 1923 are overwhelmingly about buying and selling. The route to survival in this crisis was clearly not through an academic salary:
30 October 1922:
Prices have undergone a huge increase. Rye 14,000 marks, coarse barley 9000 marks, a hundredweight of straw 2000 marks. Bought a farm cart from Schied for 125,000 marks. You have to pay 9000 marks for a ham.
2 December 1922:
In Celle I bought a pair of boots for 7980 marks. Straw costs 500 marks a hundredweight.
14 December 1922:
I bought a steer for 215,000 marks. The year and our money is at an end.
Today begins the year 1923:
What else will this year bring to us all?
6 January 1923:
Bought a second cow from Imker Rabe [probably a farmer neighbour] for 40
0,000 marks.
8 January 1923:
Salary from 1 January with supplement for December amounts to 310,000 marks.
18 January 1923:
The dollar has risen to 25,000 marks.
26 January 1923:
Sold a pig weighing 226 pounds, at 1300 marks per pound; next week it will be 1500.
3 February 1923:
The dollar stood at almost 50,000 marks. Rye costs 60,000 marks per hundredweight; pork 3000 marks per pound. I want to sell our cow. 1¼ million has been offered, but I want 1½. Sold our old cart for 200,000 marks. Sold a used plough for 35,000 marks. A pound of unrationed bread cost 900 marks. I was in money difficulties on many occasions, but successfully found my way out of them.
Recently bought: 1 cart for 125,000 marks, a steer for 215,000 marks, a cow for 400,000 marks, 3 piglets for 90,000 marks. For this I borrowed 425,000 marks; from my salary came a further 440,000 marks.7
For many Germans, especially after the French occupation of the Ruhr, conditions had returned to something like those they had experienced during the Allied blockade between 1914 and 1919 and had fervently hoped never to experience again. In what was rapidly becoming a barter economy, the agile and the cunning, not to mention dishonest, citizen was top of the Darwinian heap.
Earlier in the year, a Barcelona newspaper, La Veu de Catalunya, sent a journalist to report on the situation in Berlin. Even as the Reichsbank struggled to keep the mark from total collapse, Eugeni Xammar wondered at the chaotic conditions that pertained in the third largest city in the Western world.