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When Money Dies: The Nightmare of the Weimar Hyper-inflation
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.
288 pages, Paperback
First published January 1, 1975
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January 10, 2011
Adam Fergusson has taken one of the more dramatic episodes in economic history and rendered it sterile and devoid of life. His narrative suffers from an over-reliance upon the historical perspective described by Toynbee: "One damn thing after another."
Consider the mid-war inflation of the mark: it went from being around 1 Gold Mark= 1 Paper DM to 1 Gold Mark= 1 TRILLION Paper DM within a scant four years. Such a radical inflation led to some strange events, including--
* thieves stealing suitcases of marks and immediately dumping the contents to run away with the empty suitcases (which were worth more than the money they contained)
* diplomats finding themselves lucky enough to have one US dollar treating six of their friends to riotous parties at numerous clubs and hotels over the course of a weekend and still leaving with an inordinate amount of change
* restaurant patrons sitting down to enjoy a 5,000 mark cup of coffee, only to find that the price had increased to 8,000 marks by the time they had finished drinking it
* workers demanding to be paid twice a day, as the marks they received at the beginning of the day would be worthless by the afternoon
* people finding that the savings which would have bought a summer house were, a couple of years later, only able to purchase a few bottles of champaign
* An old bachelor found that by the time the queue he was in had reached the store, all that remained to purchase were infant's clothes. He purchased them in the realization that holding *anything* tangible was better than holding marks which would be worthless in a few hours
Why did Germany keep the printing presses rolling in the face of such events? The standard response is that only through runaway inflation could she hope to settle her war reparations with France, which she would otherwise have no way of paying. The British Prime Minister lamented that France sought to punish Germany without end, cynically maneuvering Germany into default and therefore paving the way for a French occupation of the Ruhr-- all of which played out exactly as he feared.
Indeed, France emerges as being more responsible for German suffering than has been previously described. She indirectly bears responsibility for the conditions that gave rise to National Socialism and Adolf Hitler. France occupies a seat of honor in the great tally of epic mistakes made by nations during the 20th century.
One wishes Fergusson would have settled upon a more imaginative design than to open each chapter with dire words about how just when Germans thought things couldn't get any worse, the sky really began to fall. Perhaps that is an unavoidable hazard in telling a story about hyperinflation, where things, a-hem, continue to get worse and worse.
A more effective approach would have been to track the human tragedy, to which Fergusson pays scant attention. When telling a story like this, one quickly grows weary of adding yet more zeros to the rate of exchange; such numbers only become meaningful when human affairs are attached to them. Although Fergusson faithfully recounts excerpts of diplomatic letters, there is not enough examination of what average Germans experienced through the monetary nightmare.
One cannot help but feel that a more visceral account of the Weimar hyper-inflation will one day be told.
Consider the mid-war inflation of the mark: it went from being around 1 Gold Mark= 1 Paper DM to 1 Gold Mark= 1 TRILLION Paper DM within a scant four years. Such a radical inflation led to some strange events, including--
* thieves stealing suitcases of marks and immediately dumping the contents to run away with the empty suitcases (which were worth more than the money they contained)
* diplomats finding themselves lucky enough to have one US dollar treating six of their friends to riotous parties at numerous clubs and hotels over the course of a weekend and still leaving with an inordinate amount of change
* restaurant patrons sitting down to enjoy a 5,000 mark cup of coffee, only to find that the price had increased to 8,000 marks by the time they had finished drinking it
* workers demanding to be paid twice a day, as the marks they received at the beginning of the day would be worthless by the afternoon
* people finding that the savings which would have bought a summer house were, a couple of years later, only able to purchase a few bottles of champaign
* An old bachelor found that by the time the queue he was in had reached the store, all that remained to purchase were infant's clothes. He purchased them in the realization that holding *anything* tangible was better than holding marks which would be worthless in a few hours
Why did Germany keep the printing presses rolling in the face of such events? The standard response is that only through runaway inflation could she hope to settle her war reparations with France, which she would otherwise have no way of paying. The British Prime Minister lamented that France sought to punish Germany without end, cynically maneuvering Germany into default and therefore paving the way for a French occupation of the Ruhr-- all of which played out exactly as he feared.
Indeed, France emerges as being more responsible for German suffering than has been previously described. She indirectly bears responsibility for the conditions that gave rise to National Socialism and Adolf Hitler. France occupies a seat of honor in the great tally of epic mistakes made by nations during the 20th century.
One wishes Fergusson would have settled upon a more imaginative design than to open each chapter with dire words about how just when Germans thought things couldn't get any worse, the sky really began to fall. Perhaps that is an unavoidable hazard in telling a story about hyperinflation, where things, a-hem, continue to get worse and worse.
A more effective approach would have been to track the human tragedy, to which Fergusson pays scant attention. When telling a story like this, one quickly grows weary of adding yet more zeros to the rate of exchange; such numbers only become meaningful when human affairs are attached to them. Although Fergusson faithfully recounts excerpts of diplomatic letters, there is not enough examination of what average Germans experienced through the monetary nightmare.
One cannot help but feel that a more visceral account of the Weimar hyper-inflation will one day be told.
July 14, 2019
This book effortlessly sets the stage for the Germany's 1923 hyperinflation that would be exploited by the National Socialist Workers’ Party. With this grand scale of inflation and devaluation, Germany experiences social unrest, political turmoil, and bureaucratic upheaval. This book takes you step by step through the sequence of events, while walking you side by side with those who experienced it firsthand. The price of necessities such as bread, flour, milk, and other needs continued to climb so high until it bred famine. Eventually worthless, locals found the money was more useful as wallpaper or as paper to start a fire with. The facts explored in this book are endless and critical to understanding the consequences of deficit spending.
Notably, as one of the calamities that would benefit Hitler’s rise to power, readers are also exposed to the moral decay that grew alongside inflation. Family members would see relatives asserting that “creative capital is the capital we Germans have: parasitical capital is the capital of the Jew.” The author goes into details that links the Holocaust with Germany's fiscal direction.
It is a hard read to get through because of the dull and barren tone. But the information is highly impressive. Have a highlighter ready!
Notably, as one of the calamities that would benefit Hitler’s rise to power, readers are also exposed to the moral decay that grew alongside inflation. Family members would see relatives asserting that “creative capital is the capital we Germans have: parasitical capital is the capital of the Jew.” The author goes into details that links the Holocaust with Germany's fiscal direction.
It is a hard read to get through because of the dull and barren tone. But the information is highly impressive. Have a highlighter ready!
August 11, 2013
Heavy on numbers and written in a dry, detached style, this can be a bit of a slog at times. Nevertheless it's compelling, in a car-crash kind of way, because the reader knows that this story is the precursor to National Socialism and carnage beyond our imagination (at that time).
30 years ago it would have seemed self-evident madness to print money to reflate an economy, as was done in Germany, Austria and Hungary in the 1920s. The excuse - if there can be one - for politicians at that time was that there had not been such an experiment carried out before.
Sadly, those who ignore history are doomed to repeat it. Quantitative easing is printing money by any other name. The proponents of "sound money" who were influential 30 odd years ago are no longer heard. This book should be required reading for every mandarin and flunkie in Westminster and around the world.
30 years ago it would have seemed self-evident madness to print money to reflate an economy, as was done in Germany, Austria and Hungary in the 1920s. The excuse - if there can be one - for politicians at that time was that there had not been such an experiment carried out before.
Sadly, those who ignore history are doomed to repeat it. Quantitative easing is printing money by any other name. The proponents of "sound money" who were influential 30 odd years ago are no longer heard. This book should be required reading for every mandarin and flunkie in Westminster and around the world.
January 31, 2021
I am pretty surprised by the negative reviews I see here, and I have a gut feeling this is one of those books whose content biases people into having a take on the book without even reading it. Regardless of your stance on fiscal and monetary prudence, this book ought to be a must read alongside books like 'Lords of Finance: Bankers who Broke the World'. This is so because while that books does an incredible job of detailing the economic and fiscal morass Europe rushed headlong into during the early 1900s, it does so from the perspective of central bankers and the choices and limitations they dealt with. This book on the other hand completes the entire picture from the perspective of those who ultimately faced the consequences of hyperinflation in the Weimar Republic.
The graphic depiction of the suffering caused by hyperinflation, coupled with the argument that a little understood phenomenon like inflation can start well before it is seen to be spiraling out of control presents us with timely warnings in an age of growing (if not widespread) desire for increased governmental profligacy in several western liberal democracies, as well as within more liberal and left leaning circles in many developing countries. Economic realities cannot be wished away with sophistry or hairbrained single-mindedness, regardless of their stated aims and objectives.
Excellent, important read. 5 of 5 stars.
The graphic depiction of the suffering caused by hyperinflation, coupled with the argument that a little understood phenomenon like inflation can start well before it is seen to be spiraling out of control presents us with timely warnings in an age of growing (if not widespread) desire for increased governmental profligacy in several western liberal democracies, as well as within more liberal and left leaning circles in many developing countries. Economic realities cannot be wished away with sophistry or hairbrained single-mindedness, regardless of their stated aims and objectives.
Excellent, important read. 5 of 5 stars.
June 15, 2020
Inflation, like most society-wide monetary happenings, is always complex and often incompletely grasped. At least this is true of its causes; of its effects, most of all its social effects, there is now little doubt. We learned much about inflation during the twentieth century, when the advent of permanent fiat money made hyperinflation possible for the first time. But as this book shows, the infamous German hyperinflation of 1923 was poorly understood by those who lived through it. And whatever we understand now, the past several years, and in particular the past few months, have demonstrated that we still often ignore what we know. "When Money Dies" shows what happens when reality reasserts itself. It’s not pretty.
This classic study by Adam Fergusson, first published in 1975, thus has new resonance. Whether and to what extent we face the same fate as the Germany of 1923 we will discuss later. One key to understanding Fergusson’s history is that a society, or at least some societies, can absorb a lot of punishment and keep functioning. The author points out that for half a decade after 1918, looking at German diaries, newspapers, and diplomatic dispatches, a common theme was that things could not go on “like this” any longer. Yet they did, and they got worse, month after month, year after year. Many Germans, Fergusson says, became convinced “that because conditions had been getting worse for four years they could go on getting worse forever.” The lesson is that things that once seemed impossible can easily become the new normal, and there is rarely any obvious fix.
As with most modern inflations, the process began some time before it spun out of control. It started during World War I, when the German government decided that borrowing, not taxation, would finance the war. Borrowing in the form of war loans from the populace constituted sixty percent of German spending on the war, at a time when a gold mark was, by iron definition, equal to a paper mark, and any variation was inconceivable. The Bank Law of 1875 had required currency to be backed one-third by gold and two-thirds by loans to adequately-capitalized borrowers (i.e., if I understand this correctly, fiat money was limited to being sent into circulation by borrowing by those who could repay). During the war, gold redemption was suspended, but more important for inflation, newly-created loan banks were allowed to simply create money by first printing it, then lending it to practically anyone who asked. Moreover, and most important, limitless fiat money was created by having the Reichsbank accept government securities as security for loans to the government and others—in essence, bootstrapping the money supply (an early form of quantitative easing). Today, of course, United States government securities are regarded as risk-free, and presumably German government bills were so regarded as well, though that’s not the way it turned out. But this system removes any limit to the amount of money that can be created by government mandate.
The effect of this increase in paper marks in circulation was inflation. This seems obvious to us today. But it wasn’t to the Germans—not to the average person, and not to banking experts or the government, either. Hard as it is to believe, almost nobody, and nobody in charge, recognized at the time that what created inflation was increasing the money supply. Today we cite Milton Friedman, “Inflation is always and everywhere a monetary phenomenon.” But that Friedman said it, and we remember it, implies that truth was not always recognized. In postwar Germany, all those responsible for the government’s responses, politicians and bankers, believed that the problem was not that the mark was losing value through increased supply, rather that it was depreciating against foreign currencies due to Germany’s postwar economic struggles, most of all crushing reparations demanded by the French. People thought that goods were becoming objectively more dear, not just subjectively, so their prices were rising. This belief held at the highest levels of government, where Rudolf Havenstein, the president of the Reichsbank, held that his most important duty was printing more money, since, after all, the people clearly needed it to make purchases, and that could only be done, in those days, with physical money. Naturally, this only made the problem worse. But since stock exchanges were closed, foreign exchange rates were not published, and shortages and chaos also raised prices, the real source of inflation was opaque. In a vicious circle, monetary velocity sped ever higher, further increasing inflation, since nobody wanted to hold cash that would quickly devalue, instead spending it as quickly as possible, preferably on something that would hold value. And the law permitted what were, in effect, private currencies, further exacerbating the increase in the money supply.
Fergusson narrates the gradual descent to hyperinflation, through 1922 and 1923, month-by-month, blow-by-blow. He extracts the flavor of the time through German diarists, who grasped what was happening, but not why. Tellingly, Germans first assumed the value of their war loans, still owed by the government, was secure, and were aghast when it became obvious that what was formerly a small fortune was not enough to live on anymore. But that was merely a small element of the pain and confusion. To some observers, Germany’s economy seemed in great shape, because its heavy industry, geared to exporting, boomed immediately after the war, in part because of the mark’s weakness. As a result, and because of their tight organization, wage workers suffered little initially, since employment was high and wages kept pace with inflation, due to the threat of work stoppages. By the end, though, wage workers suffered too. For different reasons, the rural populace also did not suffer much at all—yes, their war loans might have become worthless, but they had food and shelter, both rich and poor. (The rural populace appears very little in this book, except as the object of distrust from city dwellers for refusing to sell food for worthless paper; I am sure there are detailed studies of the country dwellers, which perhaps give a more nuanced picture.) It was the traditionally silent middle and upper-middle classes, the backbone of the society, who suffered.
The people did what they could to secure their positions, even as those positions eroded daily. The stock market rose as money was dumped into anything that seemed it might have tangible value. The purchase of foreign currency allowed hedging, since the mark depreciated continuously against all foreign currencies. Soon enough, average Germans thronged all the shops, buying anything for sale that might hold its value. And as things fell apart, city dwellers had to sell anything they had in exchange for food—profiting those who had food to sell. Often these were speculators sharp enough to profit by, for example, borrowing huge sums from the government, immediately converting it into foreign currency, then, after a few weeks or months, re-converting into a vastly greater quantity of marks, repaying the government loan, and using the profits to buy and resell goods.
The inevitable impact of this was social corrosion, as every man looked to himself. The great industrialists, best able to both move large amounts of capital and engage in cross-border transactions, lined their pockets. (The now-forgotten Hugo Stinnes, once the greatest magnate of Germany, gets a lot of play in these pages. He’s forgotten mostly because he died, young and unexpectedly, in 1924, so he played no role in later German history.) Those with dollars or other foreign currency to spend lived like kings, eating and drinking at fine restaurants while thin and hungry men, not long before the social elite, passed bitterly by. Middle-class apartments emptied as books, pianos, and furniture were exchanged for food. Petty crime soared and political stability plunged. Fergusson does not discuss the political turmoil in detail, other than to note that the left-wing and right-wing parties both benefited from the chaos and dissatisfaction, leading, among other events, to the Beer Hall Putsch in November 1923. But there was plenty of political turmoil, and let’s not forget, putting down Communist revolts by force had been necessary only a few years before, so the political fabric was still fragile.
Much else was happening in 1922 and 1923—for a time, Germany pulled together during the occupation by the French of the Ruhr. But the general path, financially and socially, was clearly downwards, and rapidly. The government tried to plug the ever-increasing gaps in its budget, and meet French reparations demands, by taxation—leading first to tax evasion, and then to failure to collect any but a fraction of the value taxed, as inflation eroded tax receipts to nothing between the passing of a law and the collection of the tax. But the government, perfectly aware of the problem, though not of its roots, refused to take any real action. They did not stop printing money, nor did they stop various forms of subsidies that the government could no longer afford. Politicians and bankers were caught between two stones: aware that reversing inflation, if they could, would cripple German industry, resulting in massive labor unrest and likely chaos, but also aware of the deleterious effects of the inflation on the rest of the German populace. In essence, to the extent there was any coherent policy, the government tried to steer a non-existent middle path, hoping to muddle through, while looking for foreign help to stabilize the currency through loans, which were not forthcoming. As with most middle paths, this accomplished nothing.
By September 1923, though, with inflation accelerating to inconceivable speed, the desperate government took measures to suspend the constitution and passed laws to confiscate foreign currency, gold and other precious metals, and increase the penalties for evasion. Warrantless house searches were authorized and “incitement to disobedience” led to prison. City dwellers began organizing expeditions to loot the countryside. The government tried halfhearted schemes to issue money backed by agricultural goods such as rye or mortgages on agricultural land. None of this had any effect at all on the core problem, which is that everyone did what he saw that he had to do. Whatever respect for the government was left disappeared when its resistance to the French in the Ruhr crumpled and “[c]ontempt for the Republic and its servants became almost universal.”
So what solved the problem, given that something that can’t go on forever, won’t? In essence, an agreement by everyone to accept their losses and pretend that things were normal again, through the device of a new currency, the Rentenmark, brainchild of Hjalmar Schacht, the new Commissioner for National Currency. One Rentenmark, put into circulation in October 1923, was again equal to one gold mark, and Rentenmarks were put into circulation at the point where one gold mark precisely equaled a trillion paper marks, for easy figuring of conversion. The Rentenmark was backed not by gold, which had all disappeared from government coffers (most of it gone to the French), but by mortgages on landed property and bonds on German industry. (I don’t really understand this. It appears that money was put into circulation by those with property borrowing money using their property as a guarantee, such that the amount of currency was limited by the value of those properties, and the value of those properties acted as a type of fixed index against which the currency could be valued, though not exchanged.) The effect of this conversion was, however, to eliminate all assets denominated in paper marks, which mean that savings were now completely gone, with no hope of return, as were all debts based on paper marks—whether the debtor was the government, as with war loans, or a business, or a private individual.
The Rentenmark was a collective delusion, however. It is not clear how much this was understood at the time; as with inflation being a monetary phenomenon, they understood less than we do. The mortgage “guarantees” were essentially illusory, yet the Rentenmark’s value held steady, because the populace either willed it to be so, or did not really understand. In fact, the Rentenmark was not precisely legal tender, and not convertible into any hard asset. Paper marks and private currencies continued to circulate and be printed, on a reduced scale, though. On the positive side, Schacht ensured some degree of confidence in the new currency by forbidding government borrowing through central bank discounting of government bills, which had been the major initial cause of the hyperinflation. Regardless of the precise mechanism, things began to return to normal, because of the Rentenmark.
The new normal was not like the old normal, though. Social ruptures are hard to cure, and when they are cured, the new society is much different. Trust was in short supply. No surprise, there was a lot of irrational thought and scapegoat-seeking, and again no surprise, much of this was directed against the Jews, whom most people viewed as in some uncertain way responsible. Some Jews did profit, of course, having liquid assets and cross-border connections, but so did many non-Jews, yet blame attached to Jews in general, not specific Jews. (The peasantry, unwilling to take paper marks for food, called them “Jew confetti.”) Many people to whom poverty had been a mere abstract concept were now desperately poor with no path to get back their social status. Of course, not all societies are equal, and Germans are, or were, much better at recovering than nearly any other society in history. Various laws were passed to try to offer a few pfennigs to those with worthless mortgages and bank accounts, and to adjust taxes, all of limited real benefit to the populace. It was a hard road, made harder by many businesses shuttering and unemployment soaring, since businesses had artificially expanded during times of distorted credit and foreign sales based on the weak mark. Nonetheless, the economy strengthened, and continued strengthening for a few years—until the Great Depression. But that is another story.
So could this happen here? . . . [Review completes as first comment.]
This classic study by Adam Fergusson, first published in 1975, thus has new resonance. Whether and to what extent we face the same fate as the Germany of 1923 we will discuss later. One key to understanding Fergusson’s history is that a society, or at least some societies, can absorb a lot of punishment and keep functioning. The author points out that for half a decade after 1918, looking at German diaries, newspapers, and diplomatic dispatches, a common theme was that things could not go on “like this” any longer. Yet they did, and they got worse, month after month, year after year. Many Germans, Fergusson says, became convinced “that because conditions had been getting worse for four years they could go on getting worse forever.” The lesson is that things that once seemed impossible can easily become the new normal, and there is rarely any obvious fix.
As with most modern inflations, the process began some time before it spun out of control. It started during World War I, when the German government decided that borrowing, not taxation, would finance the war. Borrowing in the form of war loans from the populace constituted sixty percent of German spending on the war, at a time when a gold mark was, by iron definition, equal to a paper mark, and any variation was inconceivable. The Bank Law of 1875 had required currency to be backed one-third by gold and two-thirds by loans to adequately-capitalized borrowers (i.e., if I understand this correctly, fiat money was limited to being sent into circulation by borrowing by those who could repay). During the war, gold redemption was suspended, but more important for inflation, newly-created loan banks were allowed to simply create money by first printing it, then lending it to practically anyone who asked. Moreover, and most important, limitless fiat money was created by having the Reichsbank accept government securities as security for loans to the government and others—in essence, bootstrapping the money supply (an early form of quantitative easing). Today, of course, United States government securities are regarded as risk-free, and presumably German government bills were so regarded as well, though that’s not the way it turned out. But this system removes any limit to the amount of money that can be created by government mandate.
The effect of this increase in paper marks in circulation was inflation. This seems obvious to us today. But it wasn’t to the Germans—not to the average person, and not to banking experts or the government, either. Hard as it is to believe, almost nobody, and nobody in charge, recognized at the time that what created inflation was increasing the money supply. Today we cite Milton Friedman, “Inflation is always and everywhere a monetary phenomenon.” But that Friedman said it, and we remember it, implies that truth was not always recognized. In postwar Germany, all those responsible for the government’s responses, politicians and bankers, believed that the problem was not that the mark was losing value through increased supply, rather that it was depreciating against foreign currencies due to Germany’s postwar economic struggles, most of all crushing reparations demanded by the French. People thought that goods were becoming objectively more dear, not just subjectively, so their prices were rising. This belief held at the highest levels of government, where Rudolf Havenstein, the president of the Reichsbank, held that his most important duty was printing more money, since, after all, the people clearly needed it to make purchases, and that could only be done, in those days, with physical money. Naturally, this only made the problem worse. But since stock exchanges were closed, foreign exchange rates were not published, and shortages and chaos also raised prices, the real source of inflation was opaque. In a vicious circle, monetary velocity sped ever higher, further increasing inflation, since nobody wanted to hold cash that would quickly devalue, instead spending it as quickly as possible, preferably on something that would hold value. And the law permitted what were, in effect, private currencies, further exacerbating the increase in the money supply.
Fergusson narrates the gradual descent to hyperinflation, through 1922 and 1923, month-by-month, blow-by-blow. He extracts the flavor of the time through German diarists, who grasped what was happening, but not why. Tellingly, Germans first assumed the value of their war loans, still owed by the government, was secure, and were aghast when it became obvious that what was formerly a small fortune was not enough to live on anymore. But that was merely a small element of the pain and confusion. To some observers, Germany’s economy seemed in great shape, because its heavy industry, geared to exporting, boomed immediately after the war, in part because of the mark’s weakness. As a result, and because of their tight organization, wage workers suffered little initially, since employment was high and wages kept pace with inflation, due to the threat of work stoppages. By the end, though, wage workers suffered too. For different reasons, the rural populace also did not suffer much at all—yes, their war loans might have become worthless, but they had food and shelter, both rich and poor. (The rural populace appears very little in this book, except as the object of distrust from city dwellers for refusing to sell food for worthless paper; I am sure there are detailed studies of the country dwellers, which perhaps give a more nuanced picture.) It was the traditionally silent middle and upper-middle classes, the backbone of the society, who suffered.
The people did what they could to secure their positions, even as those positions eroded daily. The stock market rose as money was dumped into anything that seemed it might have tangible value. The purchase of foreign currency allowed hedging, since the mark depreciated continuously against all foreign currencies. Soon enough, average Germans thronged all the shops, buying anything for sale that might hold its value. And as things fell apart, city dwellers had to sell anything they had in exchange for food—profiting those who had food to sell. Often these were speculators sharp enough to profit by, for example, borrowing huge sums from the government, immediately converting it into foreign currency, then, after a few weeks or months, re-converting into a vastly greater quantity of marks, repaying the government loan, and using the profits to buy and resell goods.
The inevitable impact of this was social corrosion, as every man looked to himself. The great industrialists, best able to both move large amounts of capital and engage in cross-border transactions, lined their pockets. (The now-forgotten Hugo Stinnes, once the greatest magnate of Germany, gets a lot of play in these pages. He’s forgotten mostly because he died, young and unexpectedly, in 1924, so he played no role in later German history.) Those with dollars or other foreign currency to spend lived like kings, eating and drinking at fine restaurants while thin and hungry men, not long before the social elite, passed bitterly by. Middle-class apartments emptied as books, pianos, and furniture were exchanged for food. Petty crime soared and political stability plunged. Fergusson does not discuss the political turmoil in detail, other than to note that the left-wing and right-wing parties both benefited from the chaos and dissatisfaction, leading, among other events, to the Beer Hall Putsch in November 1923. But there was plenty of political turmoil, and let’s not forget, putting down Communist revolts by force had been necessary only a few years before, so the political fabric was still fragile.
Much else was happening in 1922 and 1923—for a time, Germany pulled together during the occupation by the French of the Ruhr. But the general path, financially and socially, was clearly downwards, and rapidly. The government tried to plug the ever-increasing gaps in its budget, and meet French reparations demands, by taxation—leading first to tax evasion, and then to failure to collect any but a fraction of the value taxed, as inflation eroded tax receipts to nothing between the passing of a law and the collection of the tax. But the government, perfectly aware of the problem, though not of its roots, refused to take any real action. They did not stop printing money, nor did they stop various forms of subsidies that the government could no longer afford. Politicians and bankers were caught between two stones: aware that reversing inflation, if they could, would cripple German industry, resulting in massive labor unrest and likely chaos, but also aware of the deleterious effects of the inflation on the rest of the German populace. In essence, to the extent there was any coherent policy, the government tried to steer a non-existent middle path, hoping to muddle through, while looking for foreign help to stabilize the currency through loans, which were not forthcoming. As with most middle paths, this accomplished nothing.
By September 1923, though, with inflation accelerating to inconceivable speed, the desperate government took measures to suspend the constitution and passed laws to confiscate foreign currency, gold and other precious metals, and increase the penalties for evasion. Warrantless house searches were authorized and “incitement to disobedience” led to prison. City dwellers began organizing expeditions to loot the countryside. The government tried halfhearted schemes to issue money backed by agricultural goods such as rye or mortgages on agricultural land. None of this had any effect at all on the core problem, which is that everyone did what he saw that he had to do. Whatever respect for the government was left disappeared when its resistance to the French in the Ruhr crumpled and “[c]ontempt for the Republic and its servants became almost universal.”
So what solved the problem, given that something that can’t go on forever, won’t? In essence, an agreement by everyone to accept their losses and pretend that things were normal again, through the device of a new currency, the Rentenmark, brainchild of Hjalmar Schacht, the new Commissioner for National Currency. One Rentenmark, put into circulation in October 1923, was again equal to one gold mark, and Rentenmarks were put into circulation at the point where one gold mark precisely equaled a trillion paper marks, for easy figuring of conversion. The Rentenmark was backed not by gold, which had all disappeared from government coffers (most of it gone to the French), but by mortgages on landed property and bonds on German industry. (I don’t really understand this. It appears that money was put into circulation by those with property borrowing money using their property as a guarantee, such that the amount of currency was limited by the value of those properties, and the value of those properties acted as a type of fixed index against which the currency could be valued, though not exchanged.) The effect of this conversion was, however, to eliminate all assets denominated in paper marks, which mean that savings were now completely gone, with no hope of return, as were all debts based on paper marks—whether the debtor was the government, as with war loans, or a business, or a private individual.
The Rentenmark was a collective delusion, however. It is not clear how much this was understood at the time; as with inflation being a monetary phenomenon, they understood less than we do. The mortgage “guarantees” were essentially illusory, yet the Rentenmark’s value held steady, because the populace either willed it to be so, or did not really understand. In fact, the Rentenmark was not precisely legal tender, and not convertible into any hard asset. Paper marks and private currencies continued to circulate and be printed, on a reduced scale, though. On the positive side, Schacht ensured some degree of confidence in the new currency by forbidding government borrowing through central bank discounting of government bills, which had been the major initial cause of the hyperinflation. Regardless of the precise mechanism, things began to return to normal, because of the Rentenmark.
The new normal was not like the old normal, though. Social ruptures are hard to cure, and when they are cured, the new society is much different. Trust was in short supply. No surprise, there was a lot of irrational thought and scapegoat-seeking, and again no surprise, much of this was directed against the Jews, whom most people viewed as in some uncertain way responsible. Some Jews did profit, of course, having liquid assets and cross-border connections, but so did many non-Jews, yet blame attached to Jews in general, not specific Jews. (The peasantry, unwilling to take paper marks for food, called them “Jew confetti.”) Many people to whom poverty had been a mere abstract concept were now desperately poor with no path to get back their social status. Of course, not all societies are equal, and Germans are, or were, much better at recovering than nearly any other society in history. Various laws were passed to try to offer a few pfennigs to those with worthless mortgages and bank accounts, and to adjust taxes, all of limited real benefit to the populace. It was a hard road, made harder by many businesses shuttering and unemployment soaring, since businesses had artificially expanded during times of distorted credit and foreign sales based on the weak mark. Nonetheless, the economy strengthened, and continued strengthening for a few years—until the Great Depression. But that is another story.
So could this happen here? . . . [Review completes as first comment.]
November 23, 2022
ตอนราคาหมูขึ้นทะลุพรวดๆ หรือตอนราคาผักบุ้ง (หรือผักชีนะ) ที่ขาดตลาดแล้วราคาสูงจนตกใจ มายยังจำได้ว่าเรื่องแม่งใหญ่ขนาดไหน และเราทุกคนก่นด่าวิธีการแก้ปัญหาของรัฐบาล (ซึ่งก็โง่จริงๆ) ใช่ ขนาดที่ราคาหมูพุ่งแบบนั้น แต่เมื่อย้อนกลับไปเมื่อปี 1919 ซึ่งเป็นช่วงหลังสงครามโลกครั้งที่ 1 เยอรมันในตอนนั้นเป็นผู้แพ้สงคราม และสิ่งที่พวกเขาต้องเผชิญในวันนั้น วันที่ค่าเงินของพวกเขาไม่มีค่าอะไร ขนาดที่เอาไปเผาเป็นฟืนยังมีประโยชน์เสียกว่า วันนั้นพวกเขารู้สึกอย่างไร ใช้ชีวิตแบบไหน และก่อนที่มันจะเป็นเงินเฟ้อขั้นรุนแรงแบบในตอนจบ (ที่ไม่ใช่ตอนจบที่แท้จริง) รัฐบาลในโมงยามนั้นกำลังทำอะไรอยู่ (กำลังพิมพ์เงินเพิ่มไง) ทำไมไม่แก้สถานการณ์ เกิดอะไรขึ้นในห้วงเวลานั้นกันแน่ หนังสือเรื่อง When money dies จะตอบคำถามและเล่าเหตุการณ์ให้เราอ่าน ซึ่ง โคตรหดหู่เลย เพราะเล่าละเอียดมากๆ
เราจะได้เห็นในมุมมองของประชาชนว่าปรับตัวต่อสถานการณ์การเงินอย่างไร ธนาคารกลาง การเมือง อย่างละเอียด ยิ่งอ่านยิ่งเศร้า
เวลาคนพูดว่า “ของแพงขึ้น” มันไม่ได้หมายถึงของแพงขึ้น คำนี้เป็นคำลวง เป็น double thinking มันหมายถึง อำนาจเงินในมือของเราลดลงต่างหาก เงินที่พวกเราหามาอย่างยากลำบาก เก็บหอมรอมริบ (และแทบไม่เหลือเก็บ) กำลังทำให้ด้อยค่าลงไปต่างหากล่ะ
ประวัติศาสตร์มันควรเป็นแค่อดีตที่ให้เราเรียนรู้ ไม่ใช่สิ่งที่ต้องทำซ้ำ แต่มนุษยชาตก็ยังคงไม่เคยได้เรียนรู้อะไรจนเกิดเหตุการณ์ hyperinflation ซ้ำแล้วซ้ำเล่า ไม่ว่าจะเป็นที่เวเนซุอาลา ตุรกี เลบานอน ไม่รู้ว่าประเทศไหนจะเป็นประเทศถัดไป แต่มันยังไม่จบแค่นี้หรอก เศร้าจัง
“In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finer than honour, clothing more essential than democracy, food more needed than freedom.”
เราจะได้เห็นในมุมมองของประชาชนว่าปรับตัวต่อสถานการณ์การเงินอย่างไร ธนาคารกลาง การเมือง อย่างละเอียด ยิ่งอ่านยิ่งเศร้า
เวลาคนพูดว่า “ของแพงขึ้น” มันไม่ได้หมายถึงของแพงขึ้น คำนี้เป็นคำลวง เป็น double thinking มันหมายถึง อำนาจเงินในมือของเราลดลงต่างหาก เงินที่พวกเราหามาอย่างยากลำบาก เก็บหอมรอมริบ (และแทบไม่เหลือเก็บ) กำลังทำให้ด้อยค่าลงไปต่างหากล่ะ
ประวัติศาสตร์มันควรเป็นแค่อดีตที่ให้เราเรียนรู้ ไม่ใช่สิ่งที่ต้องทำซ้ำ แต่มนุษยชาตก็ยังคงไม่เคยได้เรียนรู้อะไรจนเกิดเหตุการณ์ hyperinflation ซ้ำแล้วซ้ำเล่า ไม่ว่าจะเป็นที่เวเนซุอาลา ตุรกี เลบานอน ไม่รู้ว่าประเทศไหนจะเป็นประเทศถัดไป แต่มันยังไม่จบแค่นี้หรอก เศร้าจัง
“In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finer than honour, clothing more essential than democracy, food more needed than freedom.”
November 30, 2016
I remember learning a little about the Weimar Republic many years ago during my history A-Level and being struck by the insanity of its 1923 hyperinflation. This book, originally published in 1975, seeks to calmly explain how such an extreme, bizarre situation eventuated. By November of 1923:
Whilst the month before:
This madness was enabled by Dr. Havenstein of the Reichsbank, who cranked out more and more ridiculous denominations of banknote, until Germany was drowning in money worth practically nothing. The highest denomination he reached was 100 billiards, apparently also the highest ever printed. That would be 100,000,000,000,000. As the book makes clear, however bewildering this forest of zeros is to the contemporary reader, it was so much worse for those in the midst of it. Prices were very difficult to calculate and changed constantly; there seemed no hope of things getting better. Those in charge of the German economy did not fully grasp what was happening. Havenstein insisted throughout that he was responding to inflation by printing money, rather than furthering it. In retrospect, it is easy to criticise those involved for economic ignorance. That would be highly unfair, given the multiple crises Germany was dealing with, to the extent that civil war and fragmentation into multiple states was a genuine possibility. Moreover, what might be carelessly termed the standard laws of economics, or at least expectations of economics, no longer apply when money ceases to be trusted. When hyperinflation ended, it did so quite abruptly with the introduction of a new currency, the Rentenmark.
Fergusson gives a clear and convincing explanation of why hyperinflation was allowed to go on as long as it did: basically, political weakness. Inflation was used as a tool to keep unemployment low, despite it becoming clear that the economy would need to deal with its underlying post-war weaknesses sooner or later. The politics of hyperinflation are very interesting, including how the pain was shared between social classes and the initial rise of Hitler to national notice. Although the book is only 250 pages, it manages a thought-provoking discussion of the consequences of hyperinflation, not just for Germany. 'When Money Dies' concludes with these striking comments:
The government would shortly be unable to pay cash wages to the Army, to the police, or to its own officials. Already the officers of the Ministry of Finance itself were being paid partly in potatoes. The budgetary estimates included on every page the outrageous reminder, in brackets, that all figures were in quadrillions [fifteen noughts].
Whilst the month before:
On October 15, the mark’s rate against the pound passed 18 milliards [18,000,000,000]. On October 21 [...] the mark had moved in three days from 24 milliards to 80 milliards to the pound… At the end of the month the banknote circulation amounted to 2,496,822,909,038,000,000, and still everybody called for more.
This madness was enabled by Dr. Havenstein of the Reichsbank, who cranked out more and more ridiculous denominations of banknote, until Germany was drowning in money worth practically nothing. The highest denomination he reached was 100 billiards, apparently also the highest ever printed. That would be 100,000,000,000,000. As the book makes clear, however bewildering this forest of zeros is to the contemporary reader, it was so much worse for those in the midst of it. Prices were very difficult to calculate and changed constantly; there seemed no hope of things getting better. Those in charge of the German economy did not fully grasp what was happening. Havenstein insisted throughout that he was responding to inflation by printing money, rather than furthering it. In retrospect, it is easy to criticise those involved for economic ignorance. That would be highly unfair, given the multiple crises Germany was dealing with, to the extent that civil war and fragmentation into multiple states was a genuine possibility. Moreover, what might be carelessly termed the standard laws of economics, or at least expectations of economics, no longer apply when money ceases to be trusted. When hyperinflation ended, it did so quite abruptly with the introduction of a new currency, the Rentenmark.
Fergusson gives a clear and convincing explanation of why hyperinflation was allowed to go on as long as it did: basically, political weakness. Inflation was used as a tool to keep unemployment low, despite it becoming clear that the economy would need to deal with its underlying post-war weaknesses sooner or later. The politics of hyperinflation are very interesting, including how the pain was shared between social classes and the initial rise of Hitler to national notice. Although the book is only 250 pages, it manages a thought-provoking discussion of the consequences of hyperinflation, not just for Germany. 'When Money Dies' concludes with these striking comments:
Money is no more than a medium of exchange. Only when it has a value acknowledged by more than one person can it be so used… The discovery that shattered [German] society was that the traditional repository of purchasing power had disappeared and there was no means left of measuring the worth of anything… For most, the degree of necessity became the sole criterion of value, the basis of everything from barter to behaviour. Man’s values became animal values. Contrary to any philosophic assumption, it was not a salutary experience.
November 26, 2018
There's plenty of useful data and interesting anecdotes in the book - if you can manage to keep reading until you reach them.
The writing alternates between confusing messes of exchange rates and prices to over-the-top sections that look like they were edited by replacing every second word with a more pretentious one from a thesaurus:
"Even at the time outsiders were astonished that the German middle classes, as well as the more organised bodies such as savings banks or trade unions, acquiesced unmoved in a remedy, however efficacious, which consecrated their spoliation by extinguishing all debts and annihilating the savings of the great majority."
The writing alternates between confusing messes of exchange rates and prices to over-the-top sections that look like they were edited by replacing every second word with a more pretentious one from a thesaurus:
"Even at the time outsiders were astonished that the German middle classes, as well as the more organised bodies such as savings banks or trade unions, acquiesced unmoved in a remedy, however efficacious, which consecrated their spoliation by extinguishing all debts and annihilating the savings of the great majority."
Read
June 3, 2013Just arriving at 1923, aka "the year of the wheelbarrow." Pretty fascinating so far. I had no idea that Austria and Hungary were also such basketcases after WWI. As always, with my paltry education in economics, some of the explanations go over my head. But overall Fergusson does a good job simplifying things for the layman and only includes as much political information as is necessary to understand the economic developments. Also, the British diplomats of the time were quick with a witty jab and I really enjoy the quotes from their reports.
Different situation than we are in, obviously, what with world war and reparations and such, but there are moments when you can glimpse parallels.
Eg. I didn't realize that Germany largely funded WWI through debt and the printing of money, rather than through taxation. Hellooo, Iraq War!
Eg. Resistance to increased taxation and to the abolition of assorted subsidies without a corresponding insistence on decreased government services and responsibilities. ("Tax collection was entirely ineffective, and all State enterprises ran at a huge loss.")
Eg. An ever growing bureaucracy. ("Vienna was found to contain more State employees as capital of a Republic of six-and-a-half million persons than as the capital of a monarchy of 50 million.")
Eg. No expenditure is too frivolous. For instance, Bavaria's leadership, in the face of economic catastrophe, proceeded to double the annual subsidy for encouraging the pursuit of gymnastics. (I just read an article about a poet/PhD student at the Univ. of Denver (and KCK native) who was recently awarded a $25,000 grant from the NEA which she plans to use to travel and write more poems. This one financial outlay, $25,000, will consume all of the federal income tax that was extracted from our household's paychecks last year--plus a few thousand more from some other law-abiding, tax-compliant sucker. Sure wish I had that money so I could pay for some dental work. Or, heck, so that maybe my family and I could do a little traveling ourselves rather than support someone else's trips. How is this NOT state-sanctioned, state-conducted theft?)
Oh, sorry...brief tirade there. It happens to me a lot these days.
Also there's an interesting cameo by Hemingway, making a day trip with his (first) wife from France to Germany and how amazingly cheap their day of merry-making was.
Hard to fathom what it would be like to run your household budget when "an increase of wages granted at the end of one week would not meet the rise in prices by the following Tuesday."
Update: Finished. What was especially interesting about the epilogue is that the author explored the charge made against Germany that the government, in the face of reparations and debt, deliberately inflated the money, to inflate away those debts. (Not that that really worked out, anyway.) He defends Germany ably against this charge, but the leadership still looks terrible. His view is that most of the political and financial leaders truly didn't understand the relationship between the hyperactive printing press and inflation. The belief was that other causes made the mark drop in value against other currencies, causing the inflation, and the government was then forced to burn up the printing presses just to keep up.
And, as he notes: "What really broke Germany was the constant taking of the soft political option in respect of money. The take-off point [at which hyperinflation became inevitable] therefore was not a financial but a moral one."
Not that there could possibly be any comparison made with our cowardly, craven, and corrupt Congressmen and women. Of course not.
Different situation than we are in, obviously, what with world war and reparations and such, but there are moments when you can glimpse parallels.
Eg. I didn't realize that Germany largely funded WWI through debt and the printing of money, rather than through taxation. Hellooo, Iraq War!
Eg. Resistance to increased taxation and to the abolition of assorted subsidies without a corresponding insistence on decreased government services and responsibilities. ("Tax collection was entirely ineffective, and all State enterprises ran at a huge loss.")
Eg. An ever growing bureaucracy. ("Vienna was found to contain more State employees as capital of a Republic of six-and-a-half million persons than as the capital of a monarchy of 50 million.")
Eg. No expenditure is too frivolous. For instance, Bavaria's leadership, in the face of economic catastrophe, proceeded to double the annual subsidy for encouraging the pursuit of gymnastics. (I just read an article about a poet/PhD student at the Univ. of Denver (and KCK native) who was recently awarded a $25,000 grant from the NEA which she plans to use to travel and write more poems. This one financial outlay, $25,000, will consume all of the federal income tax that was extracted from our household's paychecks last year--plus a few thousand more from some other law-abiding, tax-compliant sucker. Sure wish I had that money so I could pay for some dental work. Or, heck, so that maybe my family and I could do a little traveling ourselves rather than support someone else's trips. How is this NOT state-sanctioned, state-conducted theft?)
Oh, sorry...brief tirade there. It happens to me a lot these days.
Also there's an interesting cameo by Hemingway, making a day trip with his (first) wife from France to Germany and how amazingly cheap their day of merry-making was.
Hard to fathom what it would be like to run your household budget when "an increase of wages granted at the end of one week would not meet the rise in prices by the following Tuesday."
Update: Finished. What was especially interesting about the epilogue is that the author explored the charge made against Germany that the government, in the face of reparations and debt, deliberately inflated the money, to inflate away those debts. (Not that that really worked out, anyway.) He defends Germany ably against this charge, but the leadership still looks terrible. His view is that most of the political and financial leaders truly didn't understand the relationship between the hyperactive printing press and inflation. The belief was that other causes made the mark drop in value against other currencies, causing the inflation, and the government was then forced to burn up the printing presses just to keep up.
And, as he notes: "What really broke Germany was the constant taking of the soft political option in respect of money. The take-off point [at which hyperinflation became inevitable] therefore was not a financial but a moral one."
Not that there could possibly be any comparison made with our cowardly, craven, and corrupt Congressmen and women. Of course not.
December 21, 2021
Not the most ready to read because of the author writing style, but there content is all there for the user to discover.
The book is about the Weimar Republic hyperinflation period where the paper mark depreciated to 1/100,000,000,000 of its previous value from 1918 - 1923.
From 1913 to 1919, the prelude to the hyperinflation that would follow - a suit costs about 6x from 1913, but inelastic purchases like food cost a few hundred times more.
At the time people assumed that goods were becoming more expensive in absolute terms instead of the value of their currency was depreciating and that it was greedy industrialists causing this rise in prices.
During this period, many people still hoped that the currency would recover and so they held on. Many of these people starved. What was equivalent to a few thousand pounds in savings in 1918 would be worth less than a fraction of a pence in 1922.
The stock market went up tremendously in paper value, but in real terms stocks lost real value, but not nearly as much as the currency. Deutsche bank went from 114 GBP to 5GBP per share from pre-war to 1923, whereas the currency devalued by a trillion times.
Initial price controls didn’t factor in inflation properly. At the border, holders of French francs were able to buy all of a bakery’s goods at the price of a single item in France.
Rent controls made it impossible to raise rent prices to match inflation, and the cost of a single loaf of bread was many times more than monthly rent. This caused a halt to building housing which exacerbated shortages.
Mortgages, which were mostly fixed-rate at the time, were being paid off in record rates.
[...]
As confidence in the government and the currency waned, people hoarded all food obtainable despite harsh penalties imposed on those who did. This caused further shortages and rises in prices.
People in the countryside who had access to land and assets with real value were able to survive. Some were accused of extortion because delayed sales of produce meant one can expect a higher price in waiting.
People doing intellectual work were no longer in demand and made nearly nothing. The price paid for manual labor stayed high as the demand was relatively inelastic.
“Professors, teachers, and men of science were no longer given the right to live, and many would probably die in the coming winter for lack of food and warmth” - a Hesse professor, 1922
Money was being printed at such high rates, in the 10 days till 1922/9/9, 10% of the entire money supply was printed. Printing money was necessary because there weren’t enough bills due to prices being so high, but more printing was also part of the cause of more inflation.
Prices of goods became more out of whack. In 1922, all of Daimler Motor Company’s factories, lands, reserves, and capital could have been bought with the same amount of money as 327 of its cars.
Price quotes in advance were impossible, the final bill could be almost limitless depending on the delivery date.
[...]
Buying goods at shops required 3-4 minutes of calculating what the price should be, and several more minutes to count out the mountain of notes. The queues for goods grew longer.
[...]
Factories skewed towards producing high quantity low-quality goods. More shoes vs better shoes, because citizens were trying to rid of their cash, and goods became currency, and quantity matters most.
A currency speculator can swap 1980 million marks for 100k dollars at the Reichsbank, by swapping back and forth can make 250k dollars in pure profit at the expense of the banks who accept marks.
Workers demanded daily payments since the biweekly pay schedule meant they were chronically underpaid since inflation was increasing by the day.
[...]
Looting became common. Stores were looted, then private homes, especially those of foreigners since they may hold foreign currency. Metal plaques on monuments, brass bells, metal door parts were stolen and sold for money in systematic campaigns unstoppable by the police.
Protests became more frequent across Germany, and many cities forbade open air meetings such as Berlin.
[...]
Business bankruptcies became commonplace. Manufacturers shut down. Savings banks for smaller accounts saw their accounts be decimated to be worth less than a fraction of pennies and the business no longer made sense.
There was brewing hatred between social groups, including that directed towards peasants who had farmland. Pillaging of crops, riots, and destroying farm buildings were increasing day by day with large bands of protesters, and violent clashes occurred between rioters and outnumbered police who were often killed.
In desperation, the government began seizures of foreign currency, on 9/20/1923, the Wachpolizei raided cafes and restaurants in Berlin and demanded every customer to produce their wallets and extract all foreign money within.
Farmers refused to take marks as payment and later refused to deliver produce to towns - the towns would need to go to fetch produce. This wreaked havoc on the food supply, causing even more starvation and scarcity.
In these times of desperation, people lost their faith in authority, in democracy, and became more extreme in political values. Hyperinflation destroyed social order.
“The old virtues of thrift, honesty and hard work lost their appeal, everybody was out to get rich quickly, especially as speculation could yield far greater rewards than labor”
[...]
“Money is no more than a medium of exchange. Only when it has a value acknowledged by more than one person can it be so used. The more general the acknowledgment the more useful it is."
The book is about the Weimar Republic hyperinflation period where the paper mark depreciated to 1/100,000,000,000 of its previous value from 1918 - 1923.
From 1913 to 1919, the prelude to the hyperinflation that would follow - a suit costs about 6x from 1913, but inelastic purchases like food cost a few hundred times more.
At the time people assumed that goods were becoming more expensive in absolute terms instead of the value of their currency was depreciating and that it was greedy industrialists causing this rise in prices.
During this period, many people still hoped that the currency would recover and so they held on. Many of these people starved. What was equivalent to a few thousand pounds in savings in 1918 would be worth less than a fraction of a pence in 1922.
The stock market went up tremendously in paper value, but in real terms stocks lost real value, but not nearly as much as the currency. Deutsche bank went from 114 GBP to 5GBP per share from pre-war to 1923, whereas the currency devalued by a trillion times.
Initial price controls didn’t factor in inflation properly. At the border, holders of French francs were able to buy all of a bakery’s goods at the price of a single item in France.
Rent controls made it impossible to raise rent prices to match inflation, and the cost of a single loaf of bread was many times more than monthly rent. This caused a halt to building housing which exacerbated shortages.
Mortgages, which were mostly fixed-rate at the time, were being paid off in record rates.
[...]
As confidence in the government and the currency waned, people hoarded all food obtainable despite harsh penalties imposed on those who did. This caused further shortages and rises in prices.
People in the countryside who had access to land and assets with real value were able to survive. Some were accused of extortion because delayed sales of produce meant one can expect a higher price in waiting.
People doing intellectual work were no longer in demand and made nearly nothing. The price paid for manual labor stayed high as the demand was relatively inelastic.
“Professors, teachers, and men of science were no longer given the right to live, and many would probably die in the coming winter for lack of food and warmth” - a Hesse professor, 1922
Money was being printed at such high rates, in the 10 days till 1922/9/9, 10% of the entire money supply was printed. Printing money was necessary because there weren’t enough bills due to prices being so high, but more printing was also part of the cause of more inflation.
Prices of goods became more out of whack. In 1922, all of Daimler Motor Company’s factories, lands, reserves, and capital could have been bought with the same amount of money as 327 of its cars.
Price quotes in advance were impossible, the final bill could be almost limitless depending on the delivery date.
[...]
Buying goods at shops required 3-4 minutes of calculating what the price should be, and several more minutes to count out the mountain of notes. The queues for goods grew longer.
[...]
Factories skewed towards producing high quantity low-quality goods. More shoes vs better shoes, because citizens were trying to rid of their cash, and goods became currency, and quantity matters most.
A currency speculator can swap 1980 million marks for 100k dollars at the Reichsbank, by swapping back and forth can make 250k dollars in pure profit at the expense of the banks who accept marks.
Workers demanded daily payments since the biweekly pay schedule meant they were chronically underpaid since inflation was increasing by the day.
[...]
Looting became common. Stores were looted, then private homes, especially those of foreigners since they may hold foreign currency. Metal plaques on monuments, brass bells, metal door parts were stolen and sold for money in systematic campaigns unstoppable by the police.
Protests became more frequent across Germany, and many cities forbade open air meetings such as Berlin.
[...]
Business bankruptcies became commonplace. Manufacturers shut down. Savings banks for smaller accounts saw their accounts be decimated to be worth less than a fraction of pennies and the business no longer made sense.
There was brewing hatred between social groups, including that directed towards peasants who had farmland. Pillaging of crops, riots, and destroying farm buildings were increasing day by day with large bands of protesters, and violent clashes occurred between rioters and outnumbered police who were often killed.
In desperation, the government began seizures of foreign currency, on 9/20/1923, the Wachpolizei raided cafes and restaurants in Berlin and demanded every customer to produce their wallets and extract all foreign money within.
Farmers refused to take marks as payment and later refused to deliver produce to towns - the towns would need to go to fetch produce. This wreaked havoc on the food supply, causing even more starvation and scarcity.
In these times of desperation, people lost their faith in authority, in democracy, and became more extreme in political values. Hyperinflation destroyed social order.
“The old virtues of thrift, honesty and hard work lost their appeal, everybody was out to get rich quickly, especially as speculation could yield far greater rewards than labor”
[...]
“Money is no more than a medium of exchange. Only when it has a value acknowledged by more than one person can it be so used. The more general the acknowledgment the more useful it is."
May 3, 2020
For anyone curious about those govt's COVID cheques in the post, the first part of this book draws an interesting parallel on how hyperinflation actually got started.
Now I am optimistic about the tremendous capital in our economy and the deflationary force it presents, with an accelerating pace of technological efficiencies. Therefore I'd quote Mark Twain who said "history does not repeat but it rhymes".
Preppers will prep.
The more hedonistically inclined might consume their govt vouchers & enjoy their last bits of unearned purchasing power during lockdown.
Lastly, the optimists might have read "Triumph of the optimists" and invest those fiat cheques.
Whatever you do, do not hodl your vouchers for too long!
Note to self: re-read epilogue from time to time
Now I am optimistic about the tremendous capital in our economy and the deflationary force it presents, with an accelerating pace of technological efficiencies. Therefore I'd quote Mark Twain who said "history does not repeat but it rhymes".
Preppers will prep.
The more hedonistically inclined might consume their govt vouchers & enjoy their last bits of unearned purchasing power during lockdown.
Lastly, the optimists might have read "Triumph of the optimists" and invest those fiat cheques.
Whatever you do, do not hodl your vouchers for too long!
Note to self: re-read epilogue from time to time
August 5, 2015
Very interesting book. Give you a insight of what happens in a hyperinflation. When the monetary system falls apart, society falls apart.
This book also gives you and idea of the desperate circumstances the German people were living in, giving a better understanding of how Adolf Hitler could get into power.
This book shows that in a hyperinflation of the currency there are winners and losers. Those with the best understand of money could avoid getting burnt. This book will give you a better understanding of how to survive a hyperinflation.
You never know you might just have to live through a hyperinflation yourself one day!
This book also gives you and idea of the desperate circumstances the German people were living in, giving a better understanding of how Adolf Hitler could get into power.
This book shows that in a hyperinflation of the currency there are winners and losers. Those with the best understand of money could avoid getting burnt. This book will give you a better understanding of how to survive a hyperinflation.
You never know you might just have to live through a hyperinflation yourself one day!
December 28, 2021
What an incredible and shocking book, a must read for anyone eager to better understand the dangers of inflation not only for human wealth but also for human souls. Especially relevant amidst rising inflation all over the world.
July 19, 2015
I liked it. It shows that any currency can be compromised, hopes dashed and fortunes fail....except the ones that contributed to this happening with foreknowledge. They set up the game to win.
April 1, 2018
Great read and a cautionary tale for our times of over spending madness in our First world nations!
May 20, 2021
A lively page-turner of a book, very much worth reading. My one significant complaint is this: the author writes as if the printing press was the cause of Weimar hyperinflation. The real problem, the one that Schacht understood and fixed, was two-part. The central bank was willing to loan at rates lower than inflation; and the government borrowed essentially unlimited amounts of money at that rate, driving inflation with their spending. (Note to Modern Monetary Theorists: the Weimar government tried and failed to soak up that money with extra taxation! You need a lot of political trust and an undivided country to pull that off.)
I came out with the following main takeaways, reading a bit between the lines:
1. Hyperinflation didn't just happen. First the Kaiser's government funded WWI with inflation instead of taxes, trying to hide the consequences with price controls and a closure of the stock market; then the Weimar government, coming in with very little legitimacy, tried to solve all its problems with inflation since it had few other choices.
2. Germany had an unusually incompetent central bank. Havenstein was repeatedly warned that the prime rate was too low, and repeatedly ignored that warning.
3. Hyperinflation is temporary; and, for a private citizen, it's easily survivable. Keep a deep pantry (standard warnings apply), have a general habit of stocking up on the things you use, and have laughably tiny stocks of gold and silver; that's enough to weather the storm. With a little more gold, plus stock in foreign companies and maybe some physical foreign currency, you can do better than that: there are some deals to be had during hyperinflation.
4. Intellectual work and salaried work don't pay during hyperinflation; neither does holding debt. Having physical assets, taking on debt, and currency speculation do pay off, although currency speculation will cease to be profitable when the hyperinflation ends, and it will end in a matter of days.
4.a. Edit: Lilo relates that this book is wrong about German farmers under hyperinflation. They had enough to eat, but they weren't coming out of it rich; they were taxed heavily and had to get enough money to pay the taxes. This sounds easy but wasn't -- imagine covering a $10,000 tax bill with paper currency worth half a cent -- and a lot of farmers lost their farms. Her comment beneath this review is well worth reading in general: one farmer had his farm saved by a tax agent; his son returned the favor twenty years later, by sparing the tax agent's wife from execution after she said, off-handedly, that maybe Hitler didn't know what he was doing. This was an extremely generous favor under the Third Reich. Her fire-eating review of Look Who's Back is completely justified!
4.b. This said, companies producing raw materials remain a good choice under hyperinflation; finished goods will be a mess, but anyone who can reinvest their profits in physical plant will come out with a lot of it. Oil companies would do particularly well.
5. Don't get attached to your local currency or the competence of your local government. The more people trusted the mark, the worse they fared.
6. Hyperinflation doesn't destroy public order, for the most part, although it can create long-lasting grievances. Your stockpile will probably not get looted, but you might want to quit the country afterwards.
7. Retail prices are low early in hyperinflation, high towards the end. But high retail prices mean that the end of this period is approaching.
8. Don't do your accounting, even your mental accounting, in the hyperinflating currency. You'll just get confused! Is it really accurate to do accounting in grams of gold or silver, though? Gold, in particular, has a lot of fans and not much use value. I wonder if I should do my accounting in cows.
And finally, drawing from Lilo's account: if your country experiences hyperinflation, move away as soon as you can. Once you have moved to any place that will take you, don't ever go back; it doesn't matter how awful the country you moved to is, or how promising things seem to be back home. The image in your head of what life under Hitler was like for Jews, is what it was like for non-Jews; what it was like for Jews doesn't bear thinking about. And, as this book closes by saying, hyperinflation smashes the guardrails of politics. It takes quite a bit to put them back.
I came out with the following main takeaways, reading a bit between the lines:
1. Hyperinflation didn't just happen. First the Kaiser's government funded WWI with inflation instead of taxes, trying to hide the consequences with price controls and a closure of the stock market; then the Weimar government, coming in with very little legitimacy, tried to solve all its problems with inflation since it had few other choices.
2. Germany had an unusually incompetent central bank. Havenstein was repeatedly warned that the prime rate was too low, and repeatedly ignored that warning.
3. Hyperinflation is temporary; and, for a private citizen, it's easily survivable. Keep a deep pantry (standard warnings apply), have a general habit of stocking up on the things you use, and have laughably tiny stocks of gold and silver; that's enough to weather the storm. With a little more gold, plus stock in foreign companies and maybe some physical foreign currency, you can do better than that: there are some deals to be had during hyperinflation.
4. Intellectual work and salaried work don't pay during hyperinflation; neither does holding debt. Having physical assets, taking on debt, and currency speculation do pay off, although currency speculation will cease to be profitable when the hyperinflation ends, and it will end in a matter of days.
4.a. Edit: Lilo relates that this book is wrong about German farmers under hyperinflation. They had enough to eat, but they weren't coming out of it rich; they were taxed heavily and had to get enough money to pay the taxes. This sounds easy but wasn't -- imagine covering a $10,000 tax bill with paper currency worth half a cent -- and a lot of farmers lost their farms. Her comment beneath this review is well worth reading in general: one farmer had his farm saved by a tax agent; his son returned the favor twenty years later, by sparing the tax agent's wife from execution after she said, off-handedly, that maybe Hitler didn't know what he was doing. This was an extremely generous favor under the Third Reich. Her fire-eating review of Look Who's Back is completely justified!
4.b. This said, companies producing raw materials remain a good choice under hyperinflation; finished goods will be a mess, but anyone who can reinvest their profits in physical plant will come out with a lot of it. Oil companies would do particularly well.
5. Don't get attached to your local currency or the competence of your local government. The more people trusted the mark, the worse they fared.
6. Hyperinflation doesn't destroy public order, for the most part, although it can create long-lasting grievances. Your stockpile will probably not get looted, but you might want to quit the country afterwards.
7. Retail prices are low early in hyperinflation, high towards the end. But high retail prices mean that the end of this period is approaching.
8. Don't do your accounting, even your mental accounting, in the hyperinflating currency. You'll just get confused! Is it really accurate to do accounting in grams of gold or silver, though? Gold, in particular, has a lot of fans and not much use value. I wonder if I should do my accounting in cows.
And finally, drawing from Lilo's account: if your country experiences hyperinflation, move away as soon as you can. Once you have moved to any place that will take you, don't ever go back; it doesn't matter how awful the country you moved to is, or how promising things seem to be back home. The image in your head of what life under Hitler was like for Jews, is what it was like for non-Jews; what it was like for Jews doesn't bear thinking about. And, as this book closes by saying, hyperinflation smashes the guardrails of politics. It takes quite a bit to put them back.
June 30, 2021
Annoying.
I picked this up in an attempt to understand, or even be swayed by neoliberal obsessive fear of inflation, but the annoying thing about orthodox economists is they repeat assumptions as facts without interrogating them. He quotes Copernicus saying something along the lines of 'printing money dilutes it's value' as if monetary systems in the 16th and 20th centuries functioned in the same way, ignoring the existence of Keynes, whose economic policies were largely to thank for the golden age of capitalism which was coming to an end as this book was written.
There is a lot of picking and choosing of facts to fit theories. For example, the author talks about too much employment caused over demand which lead to inflation, then later on mentions the blockade of Germany without considering at all what impact that might have - possibly constraining demand, along with the ruined infrastructure of the country at the time, which would have the same affect.
The author also spends time talking about how an inefficient tax system meant budgets weren't balanced which lead to deficit spending and inflation, which fails to understand the fact tax isn't needed to fund spending, the problem results from failing to control demand at the top end of the income scale.
The author talks about people at the time as if they were very ignorant because they were only capable of seeing things in terms of price rises rather than currency depreciation, but then says from one week to the next, double the amount of labour hours were needed to buy the same item. As Adam Smith says, only labour is a true measure of value, so this would imply prices really were going up too.
There were issues with speculation etc that undoubtedly exacerbated issues, but the sense of 'people back then were stupid, unlike us now' is very annoying. The author sneeringly quotes a piece from a contemporaneous financial paper which said the currency depreciation was greater than the amount printed, which would suggest the printing is less the cause than a symptom, without any interrogation, even though to me it seems like a reasonable conclusion to come to.
There is no real examination of the type of currency the Mark was at the time, just numbers after numbers after numbers.
The the narration of the audiobook I listened to was terrible. The reader takes great effort to pronounce every French name correctly, but obviously didn't bother to find out the most basic conventions of German pronunciation.
Very dull book as history and inadequate as economics.
In short, hyperinflation is bad, but the cause is a bit more complicated than 'they printed too much money.'
I picked this up in an attempt to understand, or even be swayed by neoliberal obsessive fear of inflation, but the annoying thing about orthodox economists is they repeat assumptions as facts without interrogating them. He quotes Copernicus saying something along the lines of 'printing money dilutes it's value' as if monetary systems in the 16th and 20th centuries functioned in the same way, ignoring the existence of Keynes, whose economic policies were largely to thank for the golden age of capitalism which was coming to an end as this book was written.
There is a lot of picking and choosing of facts to fit theories. For example, the author talks about too much employment caused over demand which lead to inflation, then later on mentions the blockade of Germany without considering at all what impact that might have - possibly constraining demand, along with the ruined infrastructure of the country at the time, which would have the same affect.
The author also spends time talking about how an inefficient tax system meant budgets weren't balanced which lead to deficit spending and inflation, which fails to understand the fact tax isn't needed to fund spending, the problem results from failing to control demand at the top end of the income scale.
The author talks about people at the time as if they were very ignorant because they were only capable of seeing things in terms of price rises rather than currency depreciation, but then says from one week to the next, double the amount of labour hours were needed to buy the same item. As Adam Smith says, only labour is a true measure of value, so this would imply prices really were going up too.
There were issues with speculation etc that undoubtedly exacerbated issues, but the sense of 'people back then were stupid, unlike us now' is very annoying. The author sneeringly quotes a piece from a contemporaneous financial paper which said the currency depreciation was greater than the amount printed, which would suggest the printing is less the cause than a symptom, without any interrogation, even though to me it seems like a reasonable conclusion to come to.
There is no real examination of the type of currency the Mark was at the time, just numbers after numbers after numbers.
The the narration of the audiobook I listened to was terrible. The reader takes great effort to pronounce every French name correctly, but obviously didn't bother to find out the most basic conventions of German pronunciation.
Very dull book as history and inadequate as economics.
In short, hyperinflation is bad, but the cause is a bit more complicated than 'they printed too much money.'
November 18, 2013
People who think "money is overrated" should try not having any. That's the terrible lesson at the heart of "When Money Dies," an extensive and often brutal look at what happens when runaway inflation makes everything monetary - your paycheck, your bank account, your investments, your life savings - as worthless as toilet paper. The cover illustration for my edition is itself unsettling - a period photo of piles of money, as large as piles of leaves, being swept up in the street like garbage.
Adam Fergusson weaves the economic history and actions of the Weimar Republic (bad) together with the things that were done to postwar Germany by France (worse) and the pain it caused to Germans (brutal). The German government blithely printed more and more money (railroad boxcars full of it, toward the end) and prices for everything - most notably, food - increased beyond comprehension. Women sold themselves on the street to feed their babies, thinking "better a live prostitute in the house than a dead child." Farms in the countryside were looted for food (and everything else) by roving bands of hungry, and angry, people. Riot police were pulled off their horses and the horses were cut up for food on the spot. This is the stuff of nightmares, but it all happened.
The whole thing is meticulously documented by Fergusson, who writes in the prologue:
The book, too, is totally absorbing.
Adam Fergusson weaves the economic history and actions of the Weimar Republic (bad) together with the things that were done to postwar Germany by France (worse) and the pain it caused to Germans (brutal). The German government blithely printed more and more money (railroad boxcars full of it, toward the end) and prices for everything - most notably, food - increased beyond comprehension. Women sold themselves on the street to feed their babies, thinking "better a live prostitute in the house than a dead child." Farms in the countryside were looted for food (and everything else) by roving bands of hungry, and angry, people. Riot police were pulled off their horses and the horses were cut up for food on the spot. This is the stuff of nightmares, but it all happened.
The whole thing is meticulously documented by Fergusson, who writes in the prologue:
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.
The book, too, is totally absorbing.
November 2, 2021
Everyone should read this book. It teaches that:
1) inflation, used purposefully or via incompetence, is an easy way to divide and destroy a society,
2) civilization hangs by a thread, a much thinner thread than we realize, and
3) history, while it never repeats exact... [see the rest on my book review site.]
1) inflation, used purposefully or via incompetence, is an easy way to divide and destroy a society,
2) civilization hangs by a thread, a much thinner thread than we realize, and
3) history, while it never repeats exact... [see the rest on my book review site.]
December 26, 2011
Poignant and detailed description of Germany's nightmare with its 1920s hyper-inflation, its causes, and its overwhelming impact on German society in a few short years. A must-read book for anyone studying or attempting to understand how someone/something like Hitler could ever arise from a modern society.
October 18, 2022
It was my first time reading an economics related book and I couldn't recommend it more. Some of the contents were already known to me, regarding on how central banks "printing" money leads to disastrous consequences on anyone that chooses to stick with that currency, but it was my first time reading first-hand accounts of what inflation and hyper-inflation do to a country, the people in it and everyone around them. How could a generation lose everything they had trying to survive when facing the hard war reparations and the political instability, how this money-printing machine turned a country against itself and how savage people have become in just a few months and how this led to an increase in populism, how both the far-right and the far-left rose during these years and how that may have led to the Second War.
But I guess the only people that managed to escape this toll were the ones that didn't depend on money for they day-to-day life such as the farmers and country people, and that should be a very important advice.
I think everyone should read this or anything similar to understand why now everything is expensive, and how can you protect yourself against this threat.
But I guess the only people that managed to escape this toll were the ones that didn't depend on money for they day-to-day life such as the farmers and country people, and that should be a very important advice.
I think everyone should read this or anything similar to understand why now everything is expensive, and how can you protect yourself against this threat.
March 29, 2023
3.5/5 being harsh rounding down for Goodreads.
Good at describing the causes and societal impact of hyperinflation during early 20s Germany. Not too heavy on the economic terminology and doesn't overload you with numbers. But the writing is a bit dry and I was sort of disappointed in that regard. Could've had more focus on the impact on normal people. Also has some stuff on Austria and Hungary. The main argument is that inflation on such a large scale damages the morals and structure of a society, leading to distrust between different groups. a loss of faith in democracy, aids extremists on the left and right, etc and basically traumatises a society. It also argues that the German hyper-inflation wasn't done deliberately to avoid paying the Versailles reparations but instead was done by a mix of incompetence and attempting to avoid unemployment (edit - plus to support the resistance to French occupation of the Ruhr in 1923). The book came out in 1975 and I haven't read that much on Weimar Germany yet so I don't know if the way it is presented here still holds up well academically.
Good at describing the causes and societal impact of hyperinflation during early 20s Germany. Not too heavy on the economic terminology and doesn't overload you with numbers. But the writing is a bit dry and I was sort of disappointed in that regard. Could've had more focus on the impact on normal people. Also has some stuff on Austria and Hungary. The main argument is that inflation on such a large scale damages the morals and structure of a society, leading to distrust between different groups. a loss of faith in democracy, aids extremists on the left and right, etc and basically traumatises a society. It also argues that the German hyper-inflation wasn't done deliberately to avoid paying the Versailles reparations but instead was done by a mix of incompetence and attempting to avoid unemployment (edit - plus to support the resistance to French occupation of the Ruhr in 1923). The book came out in 1975 and I haven't read that much on Weimar Germany yet so I don't know if the way it is presented here still holds up well academically.
February 26, 2021
One of the driest, most boring books I've seen in a while.
Fergusson sets out with an ambitious goal of covering the human misery of the Weimar hyperinflation event, but the book reads like it was written by a historian paid-by-the-word to deliver a recount of the mark-dollar and mark-pound conversion rates, sprinkled with fun barter anecdotes. That might be the British way, but it's a waste of time.
On the plus side, I think I realized that something like this is very unlikely to happen today. People complain about how the Internet is making everyone stupid, but people really, _truly_ were stupid back then.
Fergusson sets out with an ambitious goal of covering the human misery of the Weimar hyperinflation event, but the book reads like it was written by a historian paid-by-the-word to deliver a recount of the mark-dollar and mark-pound conversion rates, sprinkled with fun barter anecdotes. That might be the British way, but it's a waste of time.
On the plus side, I think I realized that something like this is very unlikely to happen today. People complain about how the Internet is making everyone stupid, but people really, _truly_ were stupid back then.
July 25, 2023
Quite eye opening and gave me a greater understanding of the hyperinflation and the very real consequences for average people. The idea of workers demanding wages twice a day because their morning wages were worth so much less by the end of their shift was quite astonishing. Also did a fairly good job of uniting a decent thread of argument, which gestured towards Hitler's subsequent rise to power, without making grand claims based totally in post-war inflation/unemployment.
Unfortunately has the problem of getting bogged down in names/places/officials which take a lot of the thrill out of the book and makes it pretty dry for long stretches.
Unfortunately has the problem of getting bogged down in names/places/officials which take a lot of the thrill out of the book and makes it pretty dry for long stretches.
June 4, 2023
For a book on what is such a lively and intense part possible in an economy - hyperinflation - the writing comes off very dry and almost academic, though punctuated with smatterings of intense examples. Funnily enough though, this sense of "life goes on, it's worse than before, and some times it's really bad" ends up being a pretty accurate explanation of what a high inflation episode could feel like, and I think well reflects the inequality and despair and yet stoicism that such an episode creates. While I haven't been through hyperinflation myself, the emotion from the book felt right in line with the ~70% inflation episode Sri Lanka went through in 2022 and, though at a higher magnitude, reflected well the sentiments on the ground. Good book, but could have been far far far better.
December 21, 2021
Not an easy read. The main takeaway is to hold real assets during hyper inflation.
October 19, 2023
Not an easy read, but very interesting. Unbelievable that this really happened and in that sense good to read, and know, that it can happen again. A bit of an abrupt ending.
April 10, 2020
Such an interesting (and pertinent) topic. I enjoyed reading about this history but didn't really enjoy Fergusson's writing style. It was not always easy to catch his meaning, or even always to know whom was being referred to. It would have been more accessible if there had been a key outlining who were the key protagonists over these years for reference. Epilogue was great. Great last page.
Key reflections
- People living through this hyperinflation could not grasp what was going on, and thought it could not get worse, which it repeatedly did. Even more telling - none, from the public to the policymakers and state bank understood the correlation between endless money printing and inflation, it was always blamed on other things.
- people with anything of real value can survive. Those who produce things of value, especially farmers will survive better than the rest. There was a divide between the countryside and the cities.
-So terrible and scarring was this period, and so damaging to faith in or even the idea of democratic government that it seems inevitable that a phenomenon like Hitler and the Nazis would prosper. People were desperate for anyone/thing to haul the country off its knees, and accepted that it would need to be strong and ruthless. (See page 250)
-Equally, it is easy to see how the rise of antisemitism came about, with the divisions in society, and need for/comfort in having a scapegoat. It happened also in Hungary at the same time.
- Not only does the rise of extreme politics seem inevitable, but also the need for Germany to fight a new war, to try and reassert itself, regain its pride, and rid itself somehow of all that befallen it.
- Tellingly Fergusson concludes that whilst in theory the measures to halt hyperinflation were available throughout this period, in practice it was not politically viable to do so once started, until complete destruction had taken place. Perhaps this is the most important truth of the book.
Quotes
p234: Extract from diary of Judith Listowel (Hungary) re the resentment of Jews: "It was resented when Jews bought these things. The Jewish women would turn up at parties or at 'the dansants' when we were all broke, wearing the silver fox furs - three at a time for ostentation - and diamonds which they had bought from our relations..."
"Antisemitism had been negligible before inflation. .....The Jews had been badly treated in Hungary since the 1860s, and were not received socially for many years. 9 out of 10 bore grudges, and when the opportunity of impressing the arrogant gentiles arrived at last, who was to blame them for taking it? When they made a success of inflation, they were hated for it. When they were ostentatious about it, they were hated even more. It may have been stupid of them, and of course the wiser Jews, especially the older ones, were greatly upset, and remonstrated with the younger, because they foresaw the antagonism their behaviour would create."
p246: General Arthur Wauchope in memorandum to London in 1927 "deduced there was a fair chance of having to fight a new war with Germany 'within the lifetime of this generation'".
p248: "More than any other thread that links the two world wars, the history of the inflation is a reminder that for the nation that supremely promoted both of them, the second was merely an extension of the first, reinforcing the adage that the seeds of battle are planted in peace treatises."
p254: "In all three cases [Germany, Austria, Hungary], after inflation reached a certain advanced stage, financial and economic disaster seems to have been a prerequisite for recovery."
"The take off point in the inflationary process, after which the advent of hyper-inflation was but a matter of time,.... was not to be found on the graph of the currency depreciation, or the velocity of its circulation.......[but the] falling curve of political possibility, with which was closely linked the degree of political power and courage that the government, sorely pressed as it was, was able to muster."
Key reflections
- People living through this hyperinflation could not grasp what was going on, and thought it could not get worse, which it repeatedly did. Even more telling - none, from the public to the policymakers and state bank understood the correlation between endless money printing and inflation, it was always blamed on other things.
- people with anything of real value can survive. Those who produce things of value, especially farmers will survive better than the rest. There was a divide between the countryside and the cities.
-So terrible and scarring was this period, and so damaging to faith in or even the idea of democratic government that it seems inevitable that a phenomenon like Hitler and the Nazis would prosper. People were desperate for anyone/thing to haul the country off its knees, and accepted that it would need to be strong and ruthless. (See page 250)
-Equally, it is easy to see how the rise of antisemitism came about, with the divisions in society, and need for/comfort in having a scapegoat. It happened also in Hungary at the same time.
- Not only does the rise of extreme politics seem inevitable, but also the need for Germany to fight a new war, to try and reassert itself, regain its pride, and rid itself somehow of all that befallen it.
- Tellingly Fergusson concludes that whilst in theory the measures to halt hyperinflation were available throughout this period, in practice it was not politically viable to do so once started, until complete destruction had taken place. Perhaps this is the most important truth of the book.
Quotes
p234: Extract from diary of Judith Listowel (Hungary) re the resentment of Jews: "It was resented when Jews bought these things. The Jewish women would turn up at parties or at 'the dansants' when we were all broke, wearing the silver fox furs - three at a time for ostentation - and diamonds which they had bought from our relations..."
"Antisemitism had been negligible before inflation. .....The Jews had been badly treated in Hungary since the 1860s, and were not received socially for many years. 9 out of 10 bore grudges, and when the opportunity of impressing the arrogant gentiles arrived at last, who was to blame them for taking it? When they made a success of inflation, they were hated for it. When they were ostentatious about it, they were hated even more. It may have been stupid of them, and of course the wiser Jews, especially the older ones, were greatly upset, and remonstrated with the younger, because they foresaw the antagonism their behaviour would create."
p246: General Arthur Wauchope in memorandum to London in 1927 "deduced there was a fair chance of having to fight a new war with Germany 'within the lifetime of this generation'".
p248: "More than any other thread that links the two world wars, the history of the inflation is a reminder that for the nation that supremely promoted both of them, the second was merely an extension of the first, reinforcing the adage that the seeds of battle are planted in peace treatises."
p254: "In all three cases [Germany, Austria, Hungary], after inflation reached a certain advanced stage, financial and economic disaster seems to have been a prerequisite for recovery."
"The take off point in the inflationary process, after which the advent of hyper-inflation was but a matter of time,.... was not to be found on the graph of the currency depreciation, or the velocity of its circulation.......[but the] falling curve of political possibility, with which was closely linked the degree of political power and courage that the government, sorely pressed as it was, was able to muster."
May 6, 2012
In 1914, 20 German Marks equalled a British pound. By 1924 a British pound was equal to the number of yards to the sun and Germany was all but a barter economy. The First World War had left Germany on its financial knees, though its industrial base remained strong. The payments to the allies under the Versailles Treaty hung heavily on the struggling economy. Gradually inflation started to rise, devaluing the mark against foreign currencies. This allowed German business to grow, but the domestic economy started to spiral out of control. The Reichsbank’s solution was to increase wages and print more money to enable the populace to purchase goods. And as prices increased, the denominations of notes increased, and the value of savings and pensions plummeted. It soon became apparent that the only way to extract the value of money was to immediately spend it as Germany entered a period of hyper-inflation (when the value of money at the end of a month was worth half that at the start). By 1923, it was not uncommon for salaries to be raised several times a month to keep pace with inflation. Unable to pay the reparations to the Allies, the French and Belgians moved into the Ruhr, Germany’s industrial heartland, to seize and exploit its assets, further weakening the economy and its ability to make such payments. Whilst people suffered, unemployment remained quite low, however by 1924 it was clear that a new strategy was needed to end the madness of exponential inflation. The solution was to introduce a new currency with a stable commodity base and to move the economy onto it, and to balance the books to reduce the need for deficit finance. The result, whilst curbing inflation, was a massive drop in industrial production as German goods became more expensive on the world market leading to mass unemployment. Although not directly responsible for the rise of National Socialism, Fergusson makes a good case that the turbulence of economic circumstance, the disenfranchisement of the middle classes, and the rise of unemployment helped provide the conditions within which it could grow.
Adam Fergusson does an admirable job of detailing for a lay audience what happened with the German economy in the early 1920s. He uses a mix of historical sources, including letters, British diplomatic material, and newspaper reports. Sometimes the narrative is a little dry and it would have been good to include more detail on Austria and Hungary, the strategy of German industrialists, and the French/Belgian intervention in the Ruhr. Although not its intention, what the book demonstrates is the value of the European project in binding Europe into a common monetary framework that makes it easier for countries whose economy is in trouble to weather financial storms. As the present crisis demonstrates, that process is not always straightforward and easy, and is fraught with difficult politics and decisions, but what Fergusson’s book highlights is that trying to cope on their own with politicians who seem clueless about core economic principles can be a hell of a lot worse.
Adam Fergusson does an admirable job of detailing for a lay audience what happened with the German economy in the early 1920s. He uses a mix of historical sources, including letters, British diplomatic material, and newspaper reports. Sometimes the narrative is a little dry and it would have been good to include more detail on Austria and Hungary, the strategy of German industrialists, and the French/Belgian intervention in the Ruhr. Although not its intention, what the book demonstrates is the value of the European project in binding Europe into a common monetary framework that makes it easier for countries whose economy is in trouble to weather financial storms. As the present crisis demonstrates, that process is not always straightforward and easy, and is fraught with difficult politics and decisions, but what Fergusson’s book highlights is that trying to cope on their own with politicians who seem clueless about core economic principles can be a hell of a lot worse.
September 30, 2012
It's a quick and engrossing read on a very sad topic. After World War One, Germany, Austria, and Hungary all had increasingly catastrophic inflation. The consequences, which Fergusson sketches, were dire: the inflation wiped out most of the savings, self-confidence, and virtues of the middle class, and crippled public support for democratic governance.
The main thing I got from the book was a much better sense how it happened: I had vaguely assumed the inflation was a conscious tactic to evade payment of war reparations. It wasn't. The allies demanded payment in gold or goods, not paper. The inflation was caused by a combination of bad economic theory and insufficient tax collection leading to money printing.
The theoretical mistake is actually an interesting one. I had always assumed inflation meant "too much money in circulation." That's what Havenstein, president of the Reichsbank, also thought. All during the inflation, the real total value of money in circulation was *dropping*, resulting in businesses having a hard time finding enough cash to make payroll. The printing was an attempt to get ahead of this problem and ensure adequate circulating currency.
We now understand inflation to be about both the volume of currency and the rate of circulation. It was the rate, not the volume, that drove the German economy into the abyss.
That said, I wish the book had a bit more formal economics to explain what happened; as it is, the reader is left sharing some of the confusion that the contemporaries did.
The reviews and cover might make you think the author is an inflation alarmist or a crank about the gold standard. He's not. Other reviewers have said "this book should warn you about where the US may be heading." I had the opposite impression. This book left me with the impression that, in normal circumstances, governments are perfectly capable of controlling inflation. The Weimar inflation was so catastrophic in large part because the extraordinarily feeble German government was unable to act effectively and therefore left people with very little confidence in savings.
The main thing I got from the book was a much better sense how it happened: I had vaguely assumed the inflation was a conscious tactic to evade payment of war reparations. It wasn't. The allies demanded payment in gold or goods, not paper. The inflation was caused by a combination of bad economic theory and insufficient tax collection leading to money printing.
The theoretical mistake is actually an interesting one. I had always assumed inflation meant "too much money in circulation." That's what Havenstein, president of the Reichsbank, also thought. All during the inflation, the real total value of money in circulation was *dropping*, resulting in businesses having a hard time finding enough cash to make payroll. The printing was an attempt to get ahead of this problem and ensure adequate circulating currency.
We now understand inflation to be about both the volume of currency and the rate of circulation. It was the rate, not the volume, that drove the German economy into the abyss.
That said, I wish the book had a bit more formal economics to explain what happened; as it is, the reader is left sharing some of the confusion that the contemporaries did.
The reviews and cover might make you think the author is an inflation alarmist or a crank about the gold standard. He's not. Other reviewers have said "this book should warn you about where the US may be heading." I had the opposite impression. This book left me with the impression that, in normal circumstances, governments are perfectly capable of controlling inflation. The Weimar inflation was so catastrophic in large part because the extraordinarily feeble German government was unable to act effectively and therefore left people with very little confidence in savings.
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