When Money Dies

The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany


By Adam Fergusson

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When Money Dies is the classic history of what happens when a nation’s currency depreciates beyond recovery.In 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to 4,200,000,000,000 marks), the German republic was all but reduced to a barter economy. Expensive cigars, artworks, and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump of coal; and a bottle of paraffin for a silk shirt. People watched helplessly as their life savings disappeared and their loved ones starved. Germany’s finances descended into chaos, with severe social unrest in its wake.Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, “quantitative easing,” that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline. Whatever the reason for a country’s deficit — necessity or profligacy, unwillingness to tax or blindness to expenditure — it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? Germany in 1923 provides a vivid, compelling, sobering moral tale.


To my Mother

Note to the 2010 edition
When this book was first published in 1975, as its prologue observes, comparison of contemporary prices and values with those of half a century earlier was of limited advantage. Thirty-five years on, when currencies have continually merged, diverged, depreciated or disappeared, and when costs and wages have risen and fallen with so little uniformity, the exercise sheds no more light. True, statisticians have reckoned that the pound sterling of 1923 would do the job of £623 today; and that the 1923 dollar might now buy $220 worth of goods and services. However, rather than be burdened with interesting but highly speculative comparative calculations, the reader is invited to accept the text as it was written.
In dealing with the stupendous figures with which Germany wrestled in the Weimar period, the book maintains the same numerical designations as were used then and as appeared on her banknotes. That is to say, when a milliard meant one thousand million, when a billion was still a million times a million, when the term billiard was coined to indicate a thousand times more, and a trillion was 1,000,000 cubed. To have converted these words to the more modern usage, when a billion boasts only nine noughts and a trillion a mere twelve, might, I fancy, have added to what a German minister of the 1920s justly called 'the delirium of milliards'.
No more today than in 1975 is it suggested in this history that any advanced economy is threatened with inflation approaching such severity as in post-Imperial Germany. Yet, as we move into the second decade of the twenty-first century, the sobering lesson remains: the folly for any government to choose the soft option when a nation's economy must be protected; or to shrink from inescapable measures until it is politically too late, too suicidal, to take them.
Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, 'quantitative easing', that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline. Whatever the reason for a country's deficit - necessity or profligacy, unwillingness to tax or blindness to expenditure - it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? It is alarming that some respected bankers and economists today, in the US as in Britain, are still able to commend 'the printing press' (in so many words!) as a fail-safe, a last resort. A country's budget can indeed be balanced in that way, but at the cost, to whatever degree, of its citizens' savings and pensions, their confidence and trust, their morals and their morale.
At any rate, it is not hard to contemplate a recurrence of the challenging post-'oil shock' conditions of the 1970s which inspired this book in the first place. Then there were rocketing prices and wages, strikes and closures, unemployment, helplessness and hopelessness. In 1975, US inflation stood at 8%; Britain's was rising from 10 to 27% (and was still at 18% in 1981 when Margaret Thatcher and Geoffrey Howe brought in the painful disciplines that defeated it); Japan's rose to 30%. Valid measures needed to restore equilibrium were fierce and long, and the scars of both disease and recovery were slow to heal.
People's trust in their currency is here a central theme. As it evaporates, they spend faster, the velocity of circulation increases, a little money does the work of much, prices take off, and more money is needed. The quantity theory of money found its finest object lesson in Germany after the First World War. Today, opinion divides about the diagnosis - deflation, or inflation, or both; and about the cure - the harsh contraction of the State, or neo-Keynesian relaxation and quantitative easing.
Among the causes of this kind of misfortune, ill-judged philanthropic social experiments and ill-funded wars should no doubt be included. Germany has been there, twice; and the Weimar Republic's experience adequately explains that country's continuing determination, in or out of the Euro-zone, never to return.

When a nation's money is no longer a source of security, and when inflation has become the concern of an entire people, it is natural to turn for information and guidance to the history of other societies who have already undergone this most tragic and upsetting of human experiences. Yet to survey the great array of literature of all kinds - economic, military, social, historic, political and biographical - which deals with the fortunes of the defeated Central Powers after the First World War is to discover one particular shortage. Either the economic analyses of the times (for reasons best known to economists who sometimes tend to think that inflations are deliberate acts of fiscal policy) have ignored the human element, to say nothing in the case of the Weimar Republic and of post-revolutionary Austria of the military and political elements; or the historical accounts, though of impressive erudition and insight, have overlooked - or at least much underestimated - inflation as one of the most powerful engines of the upheavals which they narrate.
The first-hand accounts and diaries, on the other hand, although of incalculable value in assessing inflation from the human aspect, have tended even in anthological form either to have had too narrow a field of vision - the battle seen from one shell-hole may look very different when seen from another - or to recall the financial extravaganza of 1923 in such a general way as to underplay the many years of misfortune of which it was both the climax and the herald.
The agony of inflation, however prolonged, is perhaps somewhat similar to acute pain - totally absorbing, demanding complete attention while it lasts; forgotten or ignorable when it has gone, whatever mental or physical scars it may leave behind. Some such explanation may apply to the strange way in which the remarkable episode of the Weimar inflation has been divorced - and vice versa - from so much contemporary incident. And yet, one would have thought, considering how persistent, extended and terrible that inflation was, and how baleful its consequences, no study of the period could be complete without continual reference to the one obsessive circumstance of the time.
The converse is also true: except at the narrowest level of economic treatise or personal reminiscence, how can a fair account of the German inflation be given outside the context of political subversion by Nationalists and by Communists, or the turmoil in the Army, or the quarrel with France, or the problem of war reparations, or the parallel hyperinflations in Austria and Hungary? How can one gauge the political significance of inflation, or judge the circumstances in which inflation in an industrialised democracy takes root and becomes uncontrollable, unless its course is charted side by side with the political events of the moment?
The Germany of 1923 was the Germany of Ludendorff as well as of Stinnes, of Havenstein as well as of Hitler. For all their different worlds, of the Army, of industry, of finance and of politics, these four grotesque figures stalking the German stage may equally be represented as the villains of the play: Ludendorff, the soulless, humourless, ex-Quartermaster-General, worshipper of Thor and Odin, rallying point and dupe of the forces of reaction; Stinnes, the plutocratic profiteer who owed allegiance only to Mammon; Havenstein, the mad banker whose one object was to swamp the country with banknotes; Hitler, the power-hungry demagogue whose every speech and action even then called forth all that was evil in human nature. In respect of Havenstein alone the description is of course unjust; but the fact that this highly-respected financial authority was sound in mind made no difference to the wreckage he wrought.
Or one may say that there were no real human villains; that given the economic and political cues, actors would have been in the wings to come on and play the parts which circumstances dictated. Certainly there were many others as reprehensible and irresponsible as those who played the leading roles. The German people were the victims. The battle, as one who survived it explained, left them dazed and inflation-shocked. They did not understand how it had happened to them, and who the foe was who had defeated them.
This book presents a few new facts, but many forgotten facts and many hitherto unpublished opinions - most usefully of those who could observe events objectively because their purses, health and security were unaffected by what they were witnessing. The most bountiful store of such material is the records of the British Foreign Office, supplied originally by the embassy in Berlin where Lord D'Abernon prosecuted in those years one of the most successful ambassadorships of the age. His information was amply augmented by the consular service in every important city in Germany, as by reports from individual members of the Allied commissions concerned with reparations or disarmament. The documents in the Public Record Office, apart from being among the more accessible, are also probably the most important source available, not only because the British Embassy through D'Abernon was in exceptionally close touch at all times with Germany's senior politicians, but because the withdrawal of the United States presence at the start of 1923, and the almost complete interruption of any communication between Berlin and Paris earlier still, rendered sporadic or superficial what might have been information of comparable value. Supplemented by contemporary German material, I have not hesitated to draw as fully as seemed justified on those papers.
I have tried as far as possible to keep these actions, reactions and interactions in their proper historical sequence in the hope that this perhaps obvious order is in this case both a new and enlightening one, and the better to expose a number of important but little-noticed relationships. In relating the story, I have followed, and at times had to hang on grimly to, a special thread which wound through Austria, Hungary, Russia, Poland and France, too. It is one which the great authorities have sometimes seemed to lose touch with: the effect of inflation on people as individuals and as nations, and how they responded to it.
I have not, however, dared to draw hard and fast conclusions about humanity and inflation on the basis of what I have written here: the facts speak very well for themselves. Still less have I expounded any economic lessons or indulged in theoretical explanations of economic phenomena. This is emphatically not an economic study. Yet inflation is about money as well as people, and it would be impossible to tell the tale without introducing figures, sometimes vast figures, again and again. Vast figures were what the people of central Europe were assailed by and bludgeoned with for years on end until they could bear no more. The value of the mark in 1922 and 1923 was in everyone's mind; but who could comprehend a figure followed by a dozen ciphers?
In October 1923 it was noted in the British Embassy in Berlin that the number of marks to the pound equalled the number of yards to the sun. Dr Schacht, Germany's National Currency Commissioner, explained that at the end of the Great War one could in theory have bought 500,000,000,000 eggs for the same price as that for which, five years later, only a single egg was procurable. When stability returned, the sum of paper marks needed to buy a gold mark was precisely equal to the quantity of square millimetres in a square kilometre. It is far from certain that such calculations helped anyone to understand what was going on; so let the un-mathematical reader take heart.
Because of the varying ways in which nations express large amounts, I have tried to avoid notations such as billions and trillions upon which custom is confusingly divided. When I have departed from this practice, due indication has been given.
It has been harder in the writing to find enough simple epithets to describe without repetition the continuous, worsening succession of misfortunes that struck the German people at this time. It was a difficulty noticed and noted by Mr Lloyd George writing in 1932, who said that words such as 'disaster', 'ruin', and 'catastrophe' had ceased to rouse any sense of genuine apprehension any more, into such common usage had they fallen. Disaster itself was devalued: in contemporary documents the word was used year after year to describe situations incalculably more serious than the time before. When the mark finally dropped out of sight and ruin was all around, there were still Germans to be heard predicting Katastrophe for the future.
I have tried, therefore, to limit the number of disasters, crashes, cataclysms, collapses and catastrophes in the text, as well as the degree of crisis and chaos, to a digestible amount, to which the reader may mentally add as much more as his power of sympathy dictates.
In one other matter the reader must act independently. It has been necessary frequently to give the 1920s' sterling or dollar equivalents of the mark sums involved, in order to show the scale of the mark's depreciation. The continuing process of inflation in all western countries makes conversion to present-day values an unrewarding occupation. For the lowest range of conversions I have kept to the £sd system of 12 pence to the shilling and 20 shillings to the pound. At this distance, cost of living comparisons are fairly futile; yet it may be useful to reckon that in the middle of 1975 it was necessary to multiply every 1920 sterling figure by about 15 times to find an equivalent. Thus a wage of £200 in 1919 might be worth £3,000 today; a sum of ten shillings worth seven or eight pounds. For dollars, a multiplicator of six or eight could be enough. If a mark in 1913 would buy almost a pound's worth of goods and services in 1975 (some items, clearly, were much more expensive; others such as labour much cheaper in real terms than now), then a simple but rough conversion is available for sterling readers whom it amuses or vexes to imagine paying £148,000,000 for a postage stamp: for marks they should read pounds.
There is no constant rule of thumb for coping accurately with the later stages of the inflation. Until autumn 1921 the internal depreciation of the mark sometimes lagged far behind its fall abroad - making Germany such a haven for tourists. Later on (from the beginning of 1922), as public confidence in the mark dissolved, domestic prices adjusted themselves rapidly upwards in tune with the dollar rate, and at the end were even heftily anticipating the mark's fall. This was one more of the phenomena of the times which fatally confused the issue then and which exercised the interest of economists for many years afterwards.
This is, I believe, a moral tale. It goes far to prove the revolutionary axiom that if you wish to destroy a nation you must first corrupt its currency. Thus must sound money be the first bastion of a society's defence.

1: Gold for Iron
Just before the First World War in 1913, the German mark, the British shilling, the French franc, and the Italian lira were all worth about the same, and four or five of any were worth about a dollar. At the end of 1923, it would have been possible to exchange a shilling, a franc or a lira for up to 1,000,000,000,000 marks, although in practice by then no one was willing to take marks in return for anything. The mark was dead, one million-millionth of its former self. It had taken almost ten years to die.
The mark's fall began gradually. In the war years, 1914-1918, its foreign exchange value halved, and by August 1919 it had halved again. In early 1920, however, although the cost of living had risen less than nine times since 1914, the mark had only one-fortieth of its overseas purchasing power left. There followed twelve months of nervous fluctuation, but then the mark sped downwards with gathering momentum, dragging social misery and political disruption in its wake. Not until 1923 did Germany's currency at last go over the cliff-edge of sanity to which it had, as it were, clung for many months with slipping finger-tips. Pursuing the money of Austria and Hungary into the abyss, it crashed there more heavily than either.
The year 1923 was the one of galloping inflation when a kind of madness gripped Germany's financial authorities and economic disaster overwhelmed millions of people. It was the year of astronomical figures, of 'wheelbarrow inflation', of financial phenomena that had never been observed before. The death of the mark in November 1923 came as a merciful release, for the events of the preceding eight months had ensured that the old mark could never recover. They ensured, too, that Germany would have to undergo appalling rigours of financial reconstruction such as might otherwise have been escaped. The re-establishment of monetary sanity, which bankrupted thousands, robbed millions of their livelihoods, and killed the hopes of millions more, indirectly exacted a more terrible price which the whole world had to pay.
The inflation of 1923 was so preposterous, and its end so sudden, that the story has tended to be passed off more as a historical curiosity, which it also undoubtedly was, than as the culmination of a chain of economic, social and political circumstances of permanent significance. It matters little that the causes of the Weimar inflation are in many ways unrepeatable; that political conditions are different, or that it is almost inconceivable that financial chaos would ever again be allowed to develop so far. The question to be asked - the danger to be recognised - is how inflation, however caused, affects a nation: its government, its people, its officials, and its society. The more materialist that society, possibly, the more cruelly it hurts. If what happened to the defeated Central Powers in the early 1920s is anything to go by, then the process of collapse of the recognised, traditional, trusted medium of exchange, the currency by which all values are measured, by which social status is guaranteed, upon which security depends, and in which the fruits of labour are stored, unleashes such greed, violence, unhappiness, and hatred, largely bred from fear, as no society can survive uncrippled and unchanged.
Certainly, 1922 and 1923 brought catastrophe to the German, Austrian and Hungarian bourgeoisie, as well as hunger, disease, destitution and sometimes death to an even wider public. Yet any people might have ridden out those years had they represented one frightful storm in an otherwise calm passage. What most severely damaged the morale of those nations was that they were merely the climax of unreality to years of unimagined strain of every kind. Financially, for nearly four years, the ultimate cataclysm was always just round the corner. It always arrived, and there was always an even worse one on its way - again, and again, and again. The speeches, the newspaper articles, the official records, the diplomatic telegrams, the letters and diaries of the period, all report month by month, year by year, that things could not go on like that any longer: and yet things always did, from bad to worse, to worse, to worse. It was unimaginable in 1921 that 1922 could hold any more terrors. They came, sure enough, and were in due course eclipsed, and more than eclipsed, with the turn of the following year.
To ascribe the despair which gripped those nations entirely to inflation would of course be misleading. In the winter of 1918-1919 all three underwent political revolutions, following the deprivations of wartime and crushing military defeat: so that conditions were fundamentally unfavourable to any revival of national spirit not rooted in revenge, and would have remained so even had the peace treaties permitted the losers to struggle however gradually to their economic feet. It is not always clear what events - what popular uprising, or Allied ultimatum, or political assassination - contributed to the inflationary panic; or which were themselves directly or indirectly caused by the ceaseless depreciation of the currency and rise in the cost of living.
Undoubtedly, though, inflation aggravated every evil, ruined every chance of national revival or individual success, and eventually produced precisely the conditions in which extremists of Right and Left could raise the mob against the State, set class against class, race against race, family against family, husband against wife, trade against trade, town against country. It undermined national resolution when simple want or need might have bolstered it. Partly because of its unfairly discriminatory nature, it brought out the worst in everybody - industrialist and worker, farmer and peasant, banker and shopkeeper, politician and civil servant, housewife, soldier, merchant, tradesman, miner, moneylender, pensioner, doctor, trade union leader, student, tourist - especially the tourist. It caused fear and insecurity among those who had already known too much of both. It fostered xenophobia. It promoted contempt for government and the subversion of law and order. It corrupted even where corruption had been unknown, and too often where it should have been impossible. It was the worst possible prelude - although detached from it by several years - to the great depression; and thus to what followed.
That is to put the inflation of early 1920s back again in its historical setting. From there, very probably, it is unwise to try too hard to rise it. After all, no one would argue strongly that the German inflation directly caused the world depression, nor even that it alone spawned Nazi Germany. Unquestionably it made the one the more unbearable and, as a contributary cause, made much easier the coming of the other. However, it is the purpose in the pages which follow not to predict by analogy a similar destiny for any industrialised, democratic nation in the grip of severe inflation, but rather, by recounting an extraordinary story, to present some of the evidence of what inflation may do to people, and what in consequence they may do to one another.
The origins of the German inflation are in some ways fundamental, in some ways incidental, to this theme. They were both internal and external. Even during the war, Germany's financial arrangements were such as to permit the grossest monetary excesses by her national banking system. They were eventually to render post-war inflation uncontrollable, while the nature and presentation of the Entente's reparation demands - the indemnity for the war - encouraged the activities of the printing presses to the utter exclusion of other, more desirable policies. Nor may it be overlooked that Germany's industrialists ruthlessly drove their Government down the road to monetary doom.
Nevertheless, it was the natural reaction of most Germans, or Austrians, or Hungarians - indeed, as for any victims of inflation - to assume not so much that their money was falling in value as that the goods which it bought were becoming more expensive in absolute terms; not that their currency was depreciating, but - especially in the beginning - that other currencies were unfairly rising, so pushing up the price of every necessity of life. It reflected the point of view of those who believe the sun, the planets and the stars revolve with the moon around the earth.
In a lengthy interview many years afterwards with Pearl Buck, Erna von Pustau, whose father was a small Hamburg businessman who ran a fishmarket, made the same point: 'We used to say "The dollar is going up again", while in reality the dollar remained stable but our mark was falling. But, you see, we could hardly say our mark was falling since in figures it was constantly going up - and so were the prices - and this was much more visible than the realisation that the value of our money was going down … It all seemed just madness, and it made the people mad.'
In other words, the causes of the mark's depreciation, which certainly escaped Germany's politicians and bankers as well, had little enough to do with how the people, individually or collectively, reacted to it. Most of them clung to the mark, the currency they knew and believed in, long after the eleventh hour had come round for the umpteenth time. Most had no choice; but all were encouraged or bemused by the Reichsbank's creed of Mark gleich Mark - paper or gold, a mark is a mark is a mark. If prices went up, people demanded not a stable purchasing power for the marks they had, but more marks to buy what they needed. More marks were printed, and more, and more. Inflation, already in its fourth year when revolution overthrew the old regime, added a new, overwhelming uncertainty to the many uncertainties that attended the birth of the Weimar Republic.
Although the German revolution originated as a military mutiny against the bungling of the Army's leaders, and was bent upon getting rid of the officer caste who had brought military disaster upon the country, it had distinguishable economic origins as well. Support for the Soldiers' Councils which were coming into being in every unit as the war drew to an end rested heavily on the personal financial calamities which so many of the soldiers and their families were already experiencing. Their frustrations had been eloquently aggravated by the arrival at the front in the spring of 1918 of a group of seasoned anti-war agitators - the leaders of the factory strikes which had ravaged the country after the Treaty of Brest-Litovsk with Communist Russia. The ruthlessly annexationist terms of that treaty were but another of the crass political mistakes - including the unrestricted submarine warfare that brought the United States into the battle, and the return of Lenin to Petrograd - which were made by the Great German General Staff of whom the Kaiser liked to regard himself the war lord. Through the late summer of 1918 defeatism and disaffection spread; and when defeat itself came the Army was torn in two, essentially between the professional soldiers and the conscripts.
The Supreme Command lost no time in exculpating itself in respect of losing the war. As the Kaiser fled to Holland, at least a week too late to save the monarchy in any form, and Ludendorff made off to Sweden, the odium of signing the Armistice was placed firmly on the head of the civilian authority. A month later, in December 1918, President Ebert at the Brandenburger Tor was welcoming the legions home with the words: 'I salute you, who return unvanquished from the field of battle.'
The myth of the Dolchstoss


On Sale
Oct 12, 2010
Page Count
288 pages