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‘The Downfall of Money’: Hyperinflation cripples Germany
“The Downfall of Money” is British historian Frederick Taylor’s superb account of how post-World-War-I hyperinflation in Germany stoked internal turmoil and destroyed the fortunes of Germany’s middle class, paving the way for Hitler.
Special to The Seattle Times
‘The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class’
by Frederick Taylor
Bloomsbury, 416 pp., $30
The Germans are the financially righteous nation, the finger-waggers at the improvident Greeks and, on occasion, at the Americans. Germans are that way because of their cultural memory of the great inflation of 1919-1923.
This was a particular calamity to the middle and upper classes who held bonds, mortgages, insurance policies, annuities, bank accounts and loans. All these evaporated. Borrowers were the winners — and the largest borrower was the German government.
British historian Frederick Taylor writes in his new history, “The Downfall of Money,” that by 1924 the German government “had, in practical terms, confiscated the money its most loyal citizens had lent it to fight the First World War.”
The Great War had left each belligerent power with high internal debt. France and Britain also had a debt to the U.S. Treasury. They were determined that Germany, the war’s loser, would pay them war reparations so that they could pay the Americans.
The Germans did not accept fault for the war and were determined not to pay twice.
Germany was also in turmoil. At war’s end its monarchy fell and was replaced by the Social Democrats, who had never held power. Their leader was Friedrich Ebert, a “stocky, not especially articulate” bureaucrat. He “preached the end of capitalism,” but when faced with an actual revolution in the streets of Berlin, ordered it crushed.
The year 1919 was unsettled everywhere. A few weeks after the Berlin uprising, Seattle had its closest brush with revolution, the General Strike, though it was nonviolent. In Germany, the leaders were summarily executed.
To the Germans, the burden of war reparations overhung everything. Germany’s hope was Foreign Minister Walther Rathenau, who had been the economic czar during the war. Rathenau was an intellectual, writes Taylor, of “desperately needed political imagination” who spoke fluent English and French, and had the best chance of working a deal with the Allies. He was also Jewish, and in 1922 anti-Semites assassinated him.
By January 1923, the reichsmark, which had been at 7.4 to the dollar at war’s end, was at more than 10,000. France and Belgium sent their armies into Germany’s industrial heartland to squeeze out reparations. German labor and capital went on strike, and the government in Berlin supported them with bales of paper money.
By July the reichsmark was at 350,000 to the dollar and by October, 25 billion. Commerce shut down. The Communist Party staged an uprising in Hamburg. In early November a new party, the National Socialists, had its “Beer Hall Putsch” in Munich. Both were crushed.
Then came a new mark, worth 1 trillion old ones. The new mark was backed with an assurance of tax collections on farmland, an idea dreamed up by a central banker while on vacation in Switzerland. It worked. The printing presses stopped, the inflation stopped and the chaos subsided. All debts denominated in reichsmarks — and assets — had been wiped clean.
It was a social experiment the German people have never wanted to try again. The hollowing-out of the middle class led to more radicalism in the next economic crisis, when the Nazis finally took power. For readers of political and economic history, Taylor’s account of it is a superb rendering of one of the political dramas of the 20th century.
Bruce Ramsey is an editorial writer for The Seattle Times.