The Downfall of Money: Germanys Hyperinflation and the Destruction of the Middle Class
Page 36
By a bizarre coincidence, in the small hours of the same day, 20 November, when the value of the paper mark would be stabilised at such a surreal-seeming level, Reichsbank President Rudolf Havenstein, the man who to a great degree must be held responsible for bringing the currency and the economy to this pass, suddenly died of a heart attack at his official residence, aged sixty-six.
As late as 19 November, Havenstein had written a lengthy and passionate letter to Reich President Ebert, yet again refusing to resign, and bitterly protesting that he and other executives of the Reichsbank could not be dismissed under the Decree for Public Personnel Reduction without endangering the institution’s precious independence.18
Havenstein’s deputy, Glasenapp, immediately took over. An expert in currency and coinage, he stood firmly behind the currency reform. And unlike Havenstein, he supported the new policy of severely restricting credit, no matter how much both business and government complained about being short of money. Within two weeks the Reichsbank, under its acting president, would issue an order stipulating that all new credit must be taken out in ‘valorised’ (i.e. fixed rate) money, and repaid in it, too, at full value.19 No more borrowing money and repaying it in worthless currency.
As for Schacht, in his capacity of Currency Commissioner the true master of Germany’s money at this juncture, he moved very quickly. Within two days of the Rentenmark’s appearance, he took action against the ‘wild’, unbacked issues of emergency money that had helped drive the hyperinflation into its terminal paroxysm. None would be accepted after 24 November, although there was a special exemption until the end of the month for the occupied territories in the west, which had problems of their own, and where the currency reform would not be introduced until the next year.
With Schacht cracking the whip, the Reichsbank also ended up refusing to accept the vast amount – 114.7 quintillion paper marks – of self-printed currency issued by the German Railways. Glasenapp, warming (now that his boss was dead) to his new role as assistant master of the nation’s financial straitjacket, announced at the end of November 1923 that Germany had to learn discipline, however hard the experience. ‘Impoverishment and shortage of capital,’ he said, ‘cannot be eliminated through artificial capital, the granting of credits and inflation.’
The new disciplinarianism was part of a chill wind from the right in German politics that gathered force as the inflation came to an end and Chancellor Stresemann’s government entered its final, somewhat desperate phase. Though the immediate threat of a violent right-wing putsch was past, it became clear in the last two months of 1923 that the creation of the Rentenbank amounted to a kind of seizure of power by the old elite.
The Rentenbank’s composition and structure, and its crucial role in the desperately hoped-for currency reform, placed representatives of industrial and agricultural interests in a position of extraordinary power over the government and the Reichstag. Government records show that, on 15 November, the administrative committee of the Rentenbank paid a visit to the Chancellor. The official reason was the inauguration of the Rentenmark. However, actually, it seems, the committee’s members used the occasion to deliver a collective tirade calling for the abolition of the eight-hour day, the end of compulsory collective bargaining, reform of the unemployment relief system and a host of other pro-business reforms.
The Rentenbank could threaten to – and frequently actually did – withhold credit from the government, and from any organisations it considered, from its highly conservative point of view, unworthy. The realisation of this led the Social Democratic deputy, Otto Wels, to declare in an angry speech to the Reichstag that the budgetary power of that body had seemingly been transferred to the Agrarian League and the Reich Association of German industry. The liberal Frankfurter Zeitung agreed about the power of the Rentenbank, complaining that ‘there are today in Germany astonishing notions of dictatorship: the exclusion of the parliament and the introjection of the chief powers of the private economy appears to be the ideal for many people today’.20
The interests represented by the Rentenbank would get a lot of what they wanted, but they would not get them from Chancellor Stresemann and his administration. In any case, General Seeckt now ran many aspects of the country’s affairs that would formerly have been the responsibility of ministers. The Reichstag did not meet at all between 13 October, when the enabling law was passed, and 20 November. Stresemann’s government had actually achieved an astonishing amount in a little more than three months, for the final three weeks of which it was reduced to a rump of its former power by the withdrawal of the Social Democrats. And it was the Social Democrats who now sealed its doom.
The vote of no confidence in the government which the Social Democrats tabled on 22 November 1923 was founded in the old accusation that Stresemann had sent the Reichswehr into action against socialist Saxony and Thuringia, but not against nationalist Bavaria. It never came to a vote, because Stresemann decided that, rather than cling to power, weakened by parliamentary attacks, he would preferred to propose a motion of his own, one of confidence, and so make an end to it one way or the other. Such a motion, asking the Reichstag to support him, failed, and he resigned.
President Ebert, knowing how destructive the Social Democrats’ action would be, had tried two days earlier to persuade them to withdraw their motion of no confidence and thus allow Stresemann to remain in power until the crisis was finally past. When it became clear that they would not retreat, he chided his old socialist comrades with the bitterly prophetic remark: ‘The thing that prompts you to bring down the chancellor will be forgotten in six weeks, but you will feel the consequences of your stupidity for ten years to come.’21
For good or ill, the fate of the German currency and economy was, for now, out of the hands of the politicians. If that left the formidable Dr Schacht, and the almost offensively rigorous administrative committee of the Rentenbank, largely in charge of the economy, this was perhaps not such a bad thing, from the point of view of impressing both the German public and the foreigners who would decide the currency’s future. As the London Times commented, beneath the sceptical headline, ‘Rentenmarks Issue: Risk of Failure’:
With the introduction of the Rentenmark the process of borrowing by way of discounted Treasury bills and thereby increasing the note circulation is to cease. For this cessation, Herr Schacht is to be responsible, and it is understood that he has every intention of keeping strictly to it. Whether the Rentenmark is to escape the fate of the paper mark will depend upon this factor . . . It is obvious that unless the budget is balanced by combining economy with taxation the Rentenmark is foredoomed to the same fate as the paper mark.22
It was all to do with trust, as was obvious from the start. That trust did not immediately appear. Schacht himself, the Currency Commissioner, in his authority’s cramped, makeshift offices in part of the Finance Ministry building, famously did not go out much or process a lot of paperwork (although it is true he did go to the Ruhr in the last week of November to check up on the – predictably miserable – situation). According to his secretary of many years’ standing, Fräulein Steffeck, his office was a storage closet, until recently used by the office cleaner. Asked about what his duties involved, she replied:
What did he do? He sat on his chair and smoked in his little dark room which still smelled of old floor cloths. Did he read letters? No, he read no letters. Did he write letters? No, he wrote no letters. He telephoned a great deal – he telephoned in every direction and to every German or foreign place that had anything to do with money and foreign exchange as well as with the Reichsbank and the Finance Minister. And he smoked. We did not eat much during that time. We usually went home late, often by the last suburban train, travelling third class. Apart from that he did nothing.23
Dr Schacht was busy creating trust, in other words.
The official rate quoted for paper marks remained at 4.2 trillion to the dollar in the days following 20 November – by law, since earlier that au
tumn, it was illegal to trade the currency within Germany at any other value. Abroad, however, its value continued to deteriorate. At one point the paper mark reached 6.7 trillion to the dollar in New York, but on 3 December it did, in fact, settle at the official rate. A triumph for Schacht and the Rentenbank.
The legend of the overnight success of the Rentenmark was nevertheless just that, a legend. A success it undoubtedly was, but it took time. A month after the Rentenmark’s introduction, The Times was referring once again to ‘German Financial Chaos’ and claiming that the government was running out of money. Its correspondent claimed that the Rentenmark was being used only for hoarding, and that he personally had never actually seen one of the new currency notes.24 Not until a few days before Christmas did the paper grudgingly admit:
The Rentenmark and the gold loan have brought a certain temporary stability. Prices, after soaring wildly, have begun to fall again, and the nerves of the population have been calmed by the substitution of something like steady values for the incalculably shifting millions.25
The Manchester Guardian, on the other hand, as early as 13 December enthusiastically wrote of ‘New Confidence in Germany. A Stable Currency’:
There is no doubt that the mood of the German people has changed profoundly during the last fortnight . . . despondency has given way to confidence, not very exuberant perhaps, but unmistakable. What are the causes? And is the outlook really as bright now as it was gloomy a month ago?
The predominating cause is the stabilising of the mark. The nightmare of astronomic figures and of brain-wearying calculations in millions, milliards and billions over every petty transaction has vanished. The purchasing power of paper money no longer dwindles to nothing overnight. The incalculable and shifting uncertainties caused by a depreciating currency are gone . . .
. . . Now that the currency is stable, the mistrust of the farmers has diminished, and the country is in fuller measure supplying the towns with food. The shortage of flour, potatoes, meat, and dairy produce, at one time almost desperate, has been relieved; not that there is plenty or even enough, but nevertheless there is an improvement.26
Hjalmar Schacht was finally appointed to the post of Reichsbank President on 22 December 1923, beating off a challenge from the inventor of the Rentenmark, Karl Helfferich, who in the end was considered too likely to alienate the Allied reparations and loans negotiators. Immediately after his appointment, Schacht was invited to London by the Governor of the Bank of England, Montagu Norman, who further made his positive feelings clear by meeting his new German colleague personally on arrival at Liverpool Street Station.27 Schacht’s move to the far grander surroundings of the Jägerstrasse undoubtedly helped confidence.
All the same, it would be well into the new year, by general agreement, before the new currency could truly be regarded as stable. The main reason was, as of old, doubt among the financial experts, especially internationally, about the ability of the German government, now – as The Times pointed out – chronically short of funds, to resist the temptation to surreptitiously start the printing presses turning again.
So far as most Germans were concerned, however, the feeling of change and hope was almost immediate. A million small incidents meant that, although weeks passed until the Rentenmark went into wide circulation, it quickly established a presence in the national psyche.
Not everyone had believed that the new currency would work, of course. A Munich lawyer, Karl Lowenstein, arrived by train at the German border after 20 November 1923, having been on a trip to Italy. He was surprised to find that the booking office at the station inside Germany demanded a valorised fare that amounted to much more money than he had on him. When Herr Lowenstein asked how, if this was so, he could get home to Munich, the ticket clerk gestured behind him. There were dozens of watches hanging from the wall of his booth. Like these travellers before him, Lowenstein would have to pawn his watch to pay his fare.28 Welcome to the beginning of post-inflation Germany!
With less government money (and a tougher attitude towards spending it), this was going to be a hard winter for many. Unemployment was going to stay high for a while, made worse by mass sackings from the civil service and the railways, before it began to fall. In December, the new minority, non-socialist government, which after almost a week’s hiatus succeeded Stresemann’s, all but abandoned the eight-hour day and other revolutionary achievements that had benefited the workers (though not necessarily the wider economy). Adolf Hitler went on trial for his rebellion, though he was not, since the Weimar justice remained ‘blind in the right eye’, severely punished. Gustav Stresemann remained Foreign Minister, and would continue to do so for almost six years. And by early in 1924 Germany was finally discussing revisions to the Versailles reparations clauses, and a generous American loan. Of the new Chancellor, the somewhat bloodless Catholic lawyer, Wilhelm Marx, the Manchester Guardian wrote:
Herr Marx is a non-committal person who excites neither animosity nor devotion. Nobody wants to assassinate him, and nobody longs to die for him. A kind of twilight calm has set in; home politics lies dormant, so to speak.
After the terrible excitements of the previous five years, this almost sounded like progress.
The end of inflation brought the German people down to earth with a bump, and, although bruised by the fall, at least they finally knew where they were and could make plans. As Herr von der Ohe, the rural teacher and farmer who had coped better during the inflation period than many other Germans, would comment when he had spent some months getting paid once again in marks that kept their value: ‘On 1 October I got 319 marks after deductions. In spite of personal financial losses, we are happy to be able to lead a normal life once more. We all hope that things will get better with the economy as well.’29 And for a while, the economy improved. Some even called the next few years in Weimar Germany the ‘Golden Twenties’.
But, of course, no one who had lost their money got it back. Not the war bond holders, nor the savers, nor the professors and civil servants and small business people who had seen their earnings dwindle to nothing, and who had been forced to sell their ‘things of material value’ to survive. When trouble came again, a little more than half a decade later, they had nothing to fall back on. Moreover, the government that faced the new economic crisis was too terrified of renewed inflation to use the full array of financial options open to it.
These factors, caused by the downfall of money, would in the fullness of time play a fatal role in the downfall of the first German Democracy.
Footnotes
* ‘Milliards’ in the original. German (long-scale) milliards are changed to Anglo-American (short-scale) billions and German billions to Anglo-American trillions throughout the text.
* An organisation set up in 1919 by former military engineers to help overcome post-war disruptions. Having become closely associated with the Nazi regime, especially during the war years, it was abolished in 1945 by the victorious Allies. It was, however, re-founded in West Germany in 1950 as the Technisches Hilfswerk, under which name it continues its work today.
25
Bail-out
The Weimar hyperinflation – that dark, febrile carnival of the German mark – ended, not immediately but surprisingly quickly, with the introduction of the Rentenmark in November 1923. The Rentenmark was the construct upon which the German government and people, and also the international financial community, based their hopes for political and economic stability in the world’s second most important industrial nation.
And, in fact, by the end of August 1924 Germany had a stable currency again. The Reichsmark put the country technically back on the gold standard – although direct convertibility, as it had existed before 1914, was never restored. It was equal with the Rentenmark, which remained in circulation. The inflation-era paper marks, initially still in circulation at an official fixed rate of 1 trillion to the new currency, disappeared from everyday use as the year went on.
The political fallout was not
so quickly dealt with. Although Hitler had been arrested after the failed Munich putsch, and formally arraigned for high treason in February 1924, he had used the trial – aided by a cooperative nationalist judge – to successfully grandstand against the Republic and the ‘November criminals’. Because Bavaria had ‘opted out’ of the ‘Court for the Protection of the Republic’ established after the assassination of Rathenau to punish such major political crimes, the proceedings took place, not in Leipzig, but in Munich. Justice all over Germany tended to go soft on right-wing crimes, but here in the counter-revolutionary south it all but bent over backwards to avoid real punishment.
For a bare-faced act of high treason, involving two dozen or so deaths, including that of police officers, the Führer was sentenced at the beginning of April 1924 to a mere five years’ imprisonment. Moreover, time already served on remand was deducted. Parole would be possible after a mere six months, conditional on ‘good behaviour’. Others received similar sentences. Ludendorff was acquitted altogether. High treason carried a maximum sentence of life in peacetime, in war one of death. After the ‘Beer Hall Putsch’, had the Bavarian courts possessed the will – or for that matter the desire – it would have been within their power to remove Hitler and the other violent enemies of democracy from the scene for many years to come. The courts did not choose to do so.
With the inflation stopped in its tracks, unemployment rose sharply, as the government had feared it would. The government parties were punished in the first of two nationwide elections held in 1924, losing more seats to the far right and the left. Despite the fact that its leader was in jail, Hitler’s Nazi Party and its ‘Folkish’ allies won thirty-two seats in the Reichstag. The Communist Party’s representation shot up to sixty-two.