Almost everything, even when transactions were conducted purely in German paper marks, depended on the exchange rate. The crucial time of day was three o’clock in the afternoon, when the dollar/mark rate was published. This was the signal, if – as was most often the case during the summer of 1923 – there had been a further overnight fall in the value of the mark against the greenback, for prices to go up in the wholesale and retail sectors. So, at the Junkers aircraft plant in Dessau, the company would give each worker a paper-mark sum equivalent to the price of three and a half loaves of bread. The men’s wives, waiting outside the factory gates, would then rush off to the food shops, anxious to get there before the new dollar rate became known, since after that, in all likelihood, the money would no longer buy the bread ration it was supposed to cover.27
Above all, in that summer of 1923 in Germany, the only certain way to enjoy a decent standard of living was to have foreign currency. Acquiring it, by any means possible, became a national obsession. A postal inspector who raided the mail stole $1,717, plus 1,102 Swiss francs, and 114 French francs – sufficient to buy two houses, set up his mistress in a flat (with a piano!), and make a substantial, conscience-easing donation to his church.28 Meanwhile, as the inflation rocketed, Curt Riess, student son of the tailor who now accepted only dollars, was sent on a rest cure by his father:
I can still remember how grotesque conditions had become, because I got to experience it all on my own person. I had fallen ill, and I was sent off to convalesce on the ‘Weißer Hirsch’, the still-feudal spa resort in the hills above Dresden. For the fourteen days of the cure, my father had given me fourteen dollars, in bills that could be changed into marks. He had drilled it into me to wait every day until the new dollar exchange rate was announced. That would be around three p.m.
So, at three o’clock I changed a dollar and for it I got a corresponding sum in marks. With this I could pay the daily bill at the boarding house where I was staying, as well as the tram ride into Dresden, a ticket for the opera or the theatre, and the return trip. And all that for one dollar – if, in fact, I could manage to spend the whole dollar, or rather the vast sums of marks it bought, within the twenty-four hours.
And then I waited again until three o’clock in the afternoon, changed another dollar bill, and received a pile of money. Of course, the boarding house regularly raised its charges, and the tram company its fares, and of course over the period of two weeks one had to pay more and more for a seat at the opera house. But the authorities couldn’t raise their prices fast enough to keep up with the plunging value of the mark.
Admittedly, I was in a privileged position. How many others could live off dollar bills?
Only the most privileged, of course. This class did not include an elderly Berlin literary man, Maximilian Bern, who in that year withdrew all his savings – 100,000 marks, formerly sufficient to support a modestly comfortable retirement – and purchased all it would buy by that time: a subway ticket. The old gentleman took a last ride around his city, then went back to his apartment and locked himself in. There he died of hunger.29
This could not go on. By August 1923, it was clear that Chancellor Cuno had, in fact, no solutions to the problems that his brilliant business brain had supposedly been perfectly attuned to master. A wave of Communist-influenced strikes in protest at the rapid depreciation in workers’ standards of living and food shortages was spreading through the industrial areas of the economy, and the Social Democratic trade unions, keen to keep control, were forced to participate. The Communists are thought to have been responsible for the one-day strike that hit the Reich Printing Office on 10 August, despite the efforts of the moderate Social Democrats in the printers’ union, halting production of currency for twenty-four hours. Even such a short pause in the manufacture of Germany’s most vital product of the time – paper money – caused a discernible hiccup in the economy.30 After suffering a no-confidence vote in the Reichstag, Cuno resigned on 12 August 1923.
President Ebert’s choice for the new Chancellor was the German People’s Party leader, Dr Gustav Stresemann. He headed a so-called ‘Grand Coalition’ of all the democratic parties, including the Social Democrats. There was no way of knowing it at the time, but with the appointment of this man, whose journey from extreme nationalist to apostle of European cooperation would mark him as one of the great German politicians of the twentieth century, President Ebert had opened up the possibility, at last, that the inflation could be confronted and defeated.
At a price, of course. After all, on 13 August 1923, when Gustav Stresemann took office as Chancellor and Foreign Minister of Germany, the mark stood at 3,700,000 to the dollar.
The German state was still haemorrhaging paper money on an unimaginable scale to keep the ‘passive resistance’ in the Ruhr going, though this was clearly long since a lost cause. The raptors of the right and left were gathering around the stricken form of the young German Republic. Communists were mobilising in central Germany, where their leaders had acquired a share of power, and the Nazis and their ultra-nationalist allies were raising citizen armies in the south, turning Bavaria into an armed camp. Adolf Hitler had great hopes of his ‘starving billionaires’, who would rise and sweep him to the position of absolute power that he craved.
The next three months – Stresemann’s first months as Weimar Germany’s most powerful and ultimately most respected leader – were going to be a roller-coaster ride, and everyone in the crisis-ridden country knew it.
22
Desperate Measures
Gustav Stresemann took power as the only chancellor the mainstream Weimar parties could agree to support in this latest, possibly fatal, time of crisis. A founder member of the German People’s Party, he was the most right wing of the possible candidates.
It was on the face of things surprising that the Social Democrats, in particular, were prepared to hand the supreme power in the land to Stresemann. Earlier in his political career, he had been a fervent nationalist and a strong monarchist, while during the war he had favoured annexing large parts of the surrounding countries. Perhaps worst of all, from the left’s point of view, for more than twenty years Stresemann had worked as a professional representative of big industry.
Since the left was not prepared to take on the responsibility of the chancellorship, however, the new leader had to come from one of the ‘bourgeois’ parties, and Stresemann was recognised as highly competent, a skilled political negotiator and a convincing, even inspiring, orator. And, after all, other powerful and capable figures on the business-orientated nationalist centre-right had veered towards an extreme, sometimes violently, anti-republican position during the post-war years (Karl Helfferich being perhaps the most spectacular example), but Stresemann had gone in the other direction. When forced to choose, the tavern-keeper’s son from Berlin had moved steadily in the direction of acceptance of the Republic as an accomplished fact and of the parliamentary system as the one most capable of uniting the majority of Germans.
The fact that Stresemann’s wife, Käthe (née Kleefeld), was the daughter of a Jewish industrialist who had, along with his wife, converted to Protestant Christianity, may also have formed part of the reason why the new Chancellor could never again feel comfortable with the nationalist right. After 1918, racial anti-Semitism (as opposed to the old-fashioned religiously based kind) had spread like a virus through its ranks. In his address to the Reichstag, on the day after his appointment to the chancellorship, Stresemann declared that, as befitted the seriousness of the situation, his government amounted to a ‘coalition of all forces that support the constitutional idea of the state’.1
Both the nationalists and Communists, who for their different reasons blamed the inflation as well as the political chaos on the mainstream parties, now sharpened their attacks. Cuno, whose government had been supposedly ‘above parties’, had represented, for the nationalists, the hope that things might be moving back in the direction of an authoritarian state of the old pre-war s
tyle. The new administration, which included Social Democrats, resembled earlier Weimar governments and to that extent, for the far right, was a retrograde step. On the other hand, a big advantage for the nationalists was that if Stresemann and his fellow ministers were forced to call off the passive resistance in the Ruhr, they could be accused of ‘betrayal’ and lumped together with the so-called ‘November criminals’, who had, so far as the right was concerned, sold out Germany in November 1918. The fact that the crucial post of Finance Minister in the Stresemann cabinet had been awarded to the Social Democrat Rudolf Hilferding, an Austrian-born Jew, added further fuel to the right’s propaganda fire.
That the plight of Germany had become desperate was clear to everyone. Drastic action to save the mark was clearly inevitable. In earlier years, though constantly wringing their hands and affirming the need to balance the budget, ministers had failed to take the difficult and predictably unpopular measures required. Given the underlying weakness of the Weimar political system during the immediate post-war period, this was to some extent understandable. Now, however, there was no choice but to act. For almost five years, inflation had severely affected some, but by no means all, Germans. On balance, given the alternatives, it had arguably acted to the advantage of stability. By the summer of 1923, however, the spiralling devaluation of the mark was killing the economy, threatening to cause food shortages and mass distress of the most extreme kind, and bringing the Reich itself to the brink of disintegration.
It was a measure of the anxiety felt by ministers that on 18 August, four days after the government had been officially formed, the socialist Hilferding invited no less a figure than the arch-conservative and sworn enemy of the Republic, Karl Helfferich, to address the cabinet. Helfferich duly presented his suggested solution to the collapse of the mark.
The former Imperial Secretary of the Treasury, who had done so much to promote the war loans that had helped feed the initial stages of the inflation, proposed that instead of gold being re-established as the new standard, the backing for the reform would be the country’s reserves of rye. Helfferich’s idea for a so-called ‘Rye Bank’, bizarre as it sounds to our current thinking, represented an attempt to do something that had become vitally necessary, at least at this stage in Germany’s crisis: to decouple the worth of the mark from the credibility of the Reich government. The state’s deficit was now so enormous and, particularly so long as the Ruhr crisis continued, so intractable, that no one had any faith in any fiat currency over which the government – or, for that matter, the Reichsbank, which was widely seen as its instrument – presided.
The idea for a rye-backed currency, based on a compulsory mortgage of the assets of German agriculture and industry, was something that, apparently, Helfferich had hit upon while on his regular summer break in the Swiss mountains.2 He had already suggested it to the Cuno cabinet, with whom he and most other nationalists stood on good terms.
Although the idea survived the change in chancellor, as his presentation to the new cabinet showed, Helfferich was now faced with a socialist finance minister whose own ideas for a reformed and solid future currency were based, surprisingly, for a Marxist, on a fairly conventional scheme. This involved, at base, a swift return to the gold standard. To Finance Minister Hilferding, in any case, placing the fate of the German currency in the hands of a bank financed by industrial and agricultural interests gave off an unpleasant (to a socialist) whiff of the old collaboration between the Prussian landowning aristocracy and the iron and steel barons. This was the alliance which had excluded the workers from power in the Kaiser’s time, and been derided by the left as the dominance of ‘rye and iron’.
Weeks of argument, compromise and counter-compromise, proposal and counter-proposal, followed. The problem with Minister Hilferding’s idea of an immediate return to a gold backing was, however, twofold: first, the Reichsbank didn’t have nearly enough gold to provide the support that would give the precious-metal-backed scheme credibility; second, the attempt to get industry and private wealth to put up for a domestic gold loan under Cuno had already been a miserable failure.
As August turned to September and the arguments went on, it was starting to become clear that Helfferich’s rye-based proposal would have to be adopted, probably in some dressed-up form to keep the gold enthusiasts happy. Meanwhile, however, away from the hothouse atmosphere of Berlin politics, the country was making its own arrangements with the crisis.
Although the 1923 harvest was proving to be a good one, Germany’s landowners and farmers were clearly holding back the release of much produce on to the market in anticipation of receiving payment in hard currency once the reform of the mark finally came to pass. Throughout the country, barter had become the habitual mode of trade for millions of ordinary Germans who had no access to foreign currency. Because the amount of paper money now issued by the Reich in such huge six- and seven-figure denominations was still insufficient to meet all the public’s needs, and in any case became all but valueless within days or even hours of coming into individuals’ possession, states, municipalities, and even private companies had started printing their own promissory notes, based on whatever resources they controlled. These notes would be issued as currency, usually (but not always) valid only in a specific locality. Some indulged themselves in a little dark humour. One industrial firm printed a 500,000-mark note which was festooned with the larky motto: ‘If a briquette of coal costs more than my face, feel free to stick me in the stove in its place’.
Until 1 January 1876 – easily within living memory, therefore, in the Germany of Stresemann and Helfferich – individual German states had enjoyed the right to issue their own currencies. Thalers, Gulden, Kreuzers and so on, plus their smaller denomination coins, had circulated throughout pre-unification Germany. In particular, the small-change coins of the various currencies were exchangeable in everyday use at rates known to ordinary Germans. More than most European countries, therefore, Germany had something of a tradition of localised currencies.
The practice of issuing ‘emergency money’ (Notgeld) had been going on since the war years, when local communities had been permitted to cover temporary shortages in low-value coins by issuing paper substitutes. By 1922-3 this had developed into a whole alternative monetary system. Until then, the Reichsbank had ensured that these notes, though subjected to a slightly larger discount than government-issued money, were nonetheless backed by securities deposited with the Reich Credit Corporation or the Reichsbank. By the summer of 1923, however, Finance Minister Hilferding estimated that between 60 and 70 trillion of the paper marks in circulation actually originated from unbacked sources of money. These were, strictly speaking, illegal. They might have been acceptable to many traders and customers but were actually issues of paper over which the government had no control and for which it provided no guarantee, adding further to inflation and to the generally chaotic currency situation.3
Total catastrophe was clearly on the cards. In Hamburg, a rich merchant city-state where long-established foreign trade and ready availability of foreign currencies conditioned the outlook, as early as mid-September there were plans in quite respectable political circles, including among members of Stresemann’s own party, for introducing a hard, foreign exchange-backed currency for use within the city jurisdiction. This would become operative in the case, as seemed increasingly likely, that the German mark simply became worthless as a medium of exchange.4 In areas occupied by the French and Belgians, farmers were demanding payment in francs, and the occupiers were encouraging this kind of desertion of the mark at every turn, as well as supporting small but active separatist movements in the occupied parts of the Rhineland and the Palatinate with money and official favour.
The message was stark: if the Reich government could not provide its people with a stable and reliable store of value and means of exchange, then the people, taken individually or communally, would have to do it for themselves. This was potentially disastrous for the continued stabil
ity and integrity of the fifty-year-old German state.
All the same, when it came to money, the real problem was the cost of the campaign of resistance against the French and their Belgian confederates in the Ruhr. When Hilferding took office on 14 August 1923 and cast an eye over the books, he was horrified at the disastrous state of the Reich’s finances. During the next four weeks Germany faced an expenditure of 405 trillion paper marks, with 240 trillion going directly into the Ruhr struggle. Against this, the revenues of the government were 169 trillion, of which tax receipts, drastically shrunk by the inflation, represented a purely ‘incidental’ element.5 In short, the Ruhr struggle was becoming unsupportable. It either had to be abandoned or a diplomatic solution had to be found, leading to a French withdrawal. Hilferding had spent the past few years criticising other politicians for blaming all Germany’s economic ills on foreign policy, and especially Versailles and its attendant problems. Now, however, in the situation caused by the Ruhr occupation, he announced ruefully at a meeting of the Reichstag’s Budget Committee on 23 August: ‘A good foreign policy is the best financial policy!’6
The trouble was, the French had no intention of withdrawing from the Ruhr. The reason for this was quite simple. They were winning there. The German resistance was on the brink of collapse.
On 23 August, the same day that his Finance Minister wryly expressed the connection between German foreign policy and her financial state of health, Chancellor Stresemann admitted to a cabinet meeting that morale among the population in the occupied Ruhr, apparently fiercely strong back in January when the area had first been occupied, was now crumbling. It would not, he told his colleagues, survive the onset of winter.
The Downfall of Money: Germanys Hyperinflation and the Destruction of the Middle Class Page 31