The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class (50 page)

Herr Marx is a non-committal person who excites neither animosity nor devotion. Nobody wants to assassinate him, and nobody longs to die for him. A kind of twilight calm has set in; home politics lies dormant, so to speak.

After the terrible excitements of the previous five years, this almost sounded like progress.

The end of inflation brought the German people down to earth with a bump, and, although bruised by the fall, at least they finally knew where they were and could make plans. As Herr von der Ohe, the rural teacher and farmer who had coped better during the inflation period than many other Germans, would comment when he had spent some months getting paid once again in marks that kept their value: ‘On 1 October I got 319 marks after deductions. In spite of personal financial losses, we are happy to be able to lead a normal life once more. We all hope that things will get better with the economy as well.’
29
And for a while, the economy improved. Some even called the next few years in Weimar Germany the ‘Golden Twenties’.

But, of course, no one who had lost their money got it back. Not the war bond holders, nor the savers, nor the professors and civil servants and small business people who had seen their earnings dwindle to nothing, and who had been forced to sell their ‘things of material value’ to survive. When trouble came again, a little more than half a decade later, they had nothing to fall back on. Moreover, the government that faced the new economic crisis was too terrified of renewed inflation to use the full array of financial options open to it.

These factors, caused by the downfall of money, would in the fullness of time play a fatal role in the downfall of the first German Democracy.

Footnotes

*
‘Milliards’ in the original. German (long-scale) milliards are changed to Anglo-American (short-scale) billions and German billions to Anglo-American trillions throughout the text.

*
An organisation set up in 1919 by former military engineers to help overcome post-war disruptions. Having become closely associated with the Nazi regime, especially during the war years, it was abolished in 1945 by the victorious Allies. It was, however, re-founded in West Germany in 1950 as the
Technisches Hilfswerk
, under which name it continues its work today.

25
Bail-out

The Weimar hyperinflation – that dark, febrile carnival of the German mark – ended, not immediately but surprisingly quickly, with the introduction of the Rentenmark in November 1923. The Rentenmark was the construct upon which the German government and people, and also the international financial community, based their hopes for political and economic stability in the world’s second most important industrial nation.

And, in fact, by the end of August 1924 Germany had a stable currency again. The Reichsmark put the country technically back on the gold standard – although direct convertibility, as it had existed before 1914, was never restored. It was equal with the Rentenmark, which remained in circulation. The inflation-era paper marks, initially still in circulation at an official fixed rate of 1 trillion to the new currency, disappeared from everyday use as the year went on.

The political fallout was not so quickly dealt with. Although Hitler had been arrested after the failed Munich putsch, and formally arraigned for high treason in February 1924, he had used the trial – aided by a cooperative nationalist judge – to successfully grandstand against the Republic and the ‘November criminals’. Because Bavaria had ‘opted out’ of the ‘Court for the Protection of the Republic’ established after the assassination of Rathenau to punish such major political crimes, the proceedings took place, not in Leipzig, but in Munich. Justice all over Germany tended to go soft on right-wing crimes, but here in the counter-revolutionary south it all but bent over backwards to avoid real punishment.

For a bare-faced act of high treason, involving two dozen or so deaths, including that of police officers, the Führer was sentenced at the beginning of April 1924 to a mere five years’ imprisonment. Moreover, time already served on remand was deducted. Parole would be possible after a mere six months, conditional on ‘good behaviour’. Others received similar sentences. Ludendorff was acquitted altogether. High treason carried a maximum sentence of life in peacetime, in war one of death. After the ‘Beer Hall Putsch’, had the Bavarian courts possessed the will – or for that matter the desire – it would have been within their power to remove Hitler and the other violent enemies of democracy from the scene for many years to come. The courts did not choose to do so.

With the inflation stopped in its tracks, unemployment rose sharply, as the government had feared it would. The government parties were punished in the first of two nationwide elections held in 1924, losing more seats to the far right and the left. Despite the fact that its leader was in jail, Hitler’s Nazi Party and its ‘Folkish’ allies won thirty-two seats in the Reichstag. The Communist Party’s representation shot up to sixty-two.

Fortunately, that was not the end of the story. When another election was called in December 1924, in an attempt to break the political deadlock, the economy had started to expand once more and the job market to improve. The extremist tide proved to have ebbed. The Communists lost seventeen seats. The ultra-nationalist grouping’s representation dropped even more dramatically by more than 50 per cent, back to fourteen. Although the extreme right’s main leader, Hitler, was released from his comfortable imprisonment at Schloss Landsberg in that same month, relatively little would be heard of him for the next five years.

During the year or so following the end of the inflation, however, nature punished an astonishing number of the other main protagonists of the inflation saga by removing them from this world altogether, in the prime of their lives. Reichsbank Governor Havenstein had died suddenly in November 1923 in his mid-sixties. Then Hugo Stinnes, long a martyr to gall bladder problems, finally consented to surgical intervention in the spring of 1924. The richest man in Germany died on 10 April, a few days after the botched operation, at the age of fifty-four. Almost immediately, his business empire began a rapid disintegration. Stinnes was followed to the grave less than two weeks later by Karl Helfferich, who had promised the nation that the Allies would ‘carry the weight’ of financing the First World War. During his career, he had been Imperial Treasury Secretary, Vice-Chancellor of the Empire, passionate hater of the Republic, but nevertheless co-creator of the Rentenmark. Aged only fifty-one, Helfferich was killed in a railway accident while on holiday in Switzerland, where, so he said, he often got his best ideas, such as the ‘Rye Bank’ that had formed the basis of the currency reform. Suddenly, at the end of February 1925, President Ebert succumbed to ‘septic shock’ after an emergency operation for appendicitis, and thus the Republic lost its first leader and its most dependable political fixer. He was barely fifty-four.

Germany, with its currency and politics more settled, was nevertheless now considered a better risk – even by the same foreigners who had lost a great deal of money betting on the mark in the early years of the inflation. She finally completed arrangements to borrow a great deal of money - to pay the reparations still owed to the Allies. This was the longed-for ‘bail-out’. America was booming again, with capital to burn, and keen to put it to use in Europe, especially Germany. Over the next five years, 21
billion
marks – 5 billion dollars at 1920s prices, probably between 60 and 70 billion dollars in today’s values – flowed into the German economy, most of it from eager American investors.

In 1928, the standard of living of working Germans reached a level comfortably above that which they had enjoyed before the First World War. However, the country was not the same place it had been a decade and a half earlier. It had been transformed by war, and by the death and resurrection of its financial system. The inflation, horrendous as it was for many individuals, had made the country more equal in many ways, more like other advanced industrial societies.

One figure crucial to understanding the depth and social significance of the change in 1913 has already been mentioned. The proportion of Germany’s national income going to
rentiers
– people living from the proceeds of their investments – had been 15 per cent. By 1925-6, it had fallen drastically to around 3 per cent. These so-called ‘passive’ capitalists (who included wide swathes of the educated middle class) became a far less important factor in German society. The ‘active’ capitalists – industrialists, bankers and traders – and the producers – manual workers – now prospered.

Meanwhile, the federal states and cities used their plentiful borrowed money and invested in modern housing for ordinary Germans, who for so long had suffered from terrible living conditions. Around 2.5 million new dwellings, housing some 9 million people, were built during the Weimar era. The new principle was one of ‘light, air, sun’. They attracted architects of national and international reputation to design idealistic modern developments in all the major cities.

After the currency had stabilised, the ‘passive’ capitalists tried to get back what they had lost in the inflation – their mortgages, their investments, the interest on their war bonds. By and large, they failed to get compensation. The class that had suffered drastic downward mobility during these years did not, for the most part, regain anything close to its former prosperity.

Every commentator of the time, left or right, agrees that a major and lasting effect of the hyperinflation was to encourage cynicism and selfishness. Life in early Weimar Germany felt, for most Germans alive at the time, like a zero-sum game, in which the main object was to avoid being left holding worthless paper money. And where the race for survival belonged to the swift, the cunning and the ruthless. This was the shape-shifting, unpredictable, pitilessly exploitative world of Fritz Lang’s famous film,
Dr Mabuse
the Gambler
.

Another figure tells us why this may have been allowed to happen, and why the cynicism penetrated deep into the roots of the German psyche after the First World War. In 1918, the German government owed 154 billion gold marks in domestic war debt. When the twelve noughts were wiped off the mark at the end of the inflation to give values in the new Rentenmark, that debt amounted to a sum total of
15.4 new pfennigs
.
1
Whatever the republican government’s intentions – some scholars feel the inflation was a conspiracy, some not – it had, in practical terms,
confiscated
the money its most loyal citizens had lent it to fight the First World War.

All the same, the economy of the Weimar Republic seemed to have stabilised, and with it the political situation.

But by the end of the decade, behind the façade of the so-called ‘Golden Twenties’, which had turned Berlin, especially, into such a symbolic city of enjoyment and experiment, Weimar Germany was once more in trouble. Farming, which had booked such spectacular gains during the inflation, pretty much went bust. The unemployment rate remained, though not catastrophic in its extent, stubbornly high. There were banking crises, as the huge overseas debt proved near impossible to service. This was even before the Wall Street crash of 1929 brought the long boom in America to a disastrous halt. Weimar Germany had become, as later historians would describe it, a ‘mortgaged democracy’.

And so it came about, that when the American bankers wanted their money back from their German creditors, the latter could not pay. A slump, 6 million unemployed and a return to extremism and fighting on the streets of Berlin and other German cities was the result.

October 1929 had also removed from the equation the one politician who, of all his peers, might have played a crucial role in holding German democracy together during the coming storm. On the morning of 3 October 1929, Gustav Stresemann rose early, ready to begin another day’s work as Germany’s Foreign Minister and key member of the governing coalition, positions he had held now continuously for more than six years. He died in the bathroom of his villa at 5.30 a.m., having suffered a stroke while shaving. His wisdom, intelligence and network of political influence could be replicated by no other political figure in the country. Neither could his relationships with foreign statesmen, which had facilitated Germany’s efforts to reintegrate itself into the international system as a full and peaceful participant over the past half-decade. Like so many other prominent Weimar figures, he was only in his early fifties when he died.

Following the collapse of the last ‘Weimar Coalition’ in 1930, torn apart by disagreements about the response to the new economic crisis and the resignation of Hermann Müller, its Social Democratic Chancellor, Germany was governed by presidential decree. Three more chancellors, none with a Reichstag majority, struggled to put the crisis-ridden country back on her feet. Meanwhile, the real power in the land had become the octogenarian President von Hindenburg, populariser of the ‘stab in the back’ myth of defeat, symbol of the alleged Prussian virtues, elected by a national vote after Ebert’s sudden death as what more than one commentator has called Germany’s ‘substitute Kaiser’.

Heinrich Brüning, Franz von Papen and General Kurt von Schleicher followed each other over the next three years, each with less of a base in the Reichstag and each lasting appreciably less long than his predecessor. Anxious not to repeat the disastrous mistakes of the inflation period, they all – especially Brüning, the only financial expert among them – pursued grimly orthodox, deflationary economic and financial policies. Whatever these measures may have done for the nation’s balance sheet, they caused great suffering and resentment, arguably artificially prolonging the crisis and promoting ever-increasing levels of mass unemployment that proved politically catastrophic. So the hyperinflation cast its deadly shadow over the new German crisis.