The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class (26 page)

German children are again showing symptoms of under-feeding and malnutrition. People with fixed salaries are feeling the pinch more and more severely . . .

Many Germans suffered, and continued to suffer, even three years after the end of the war. So, who benefited from the way that Germany boomed during this ‘take-off’ phase of the inflation, while all around the world seemed in a phase of ‘bust’?

In September 1917, after America’s entry into the war, the German-Jewish shipping magnate and friend of the Kaiser Albert Ballin had expressed what he hoped was a basic truth about Germany’s likely post-war position:

[I regard] our gravely ailing currency as an admirable means of dispelling the hatred felt abroad against Germany, and of overcoming the reluctance to trade with us [likely to be felt by] our enemies. The American who no longer gets for his dollar 4.21 marks’ worth of goods from us, but 6.20 marks’ worth, will rediscover his fondness for Germany.
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By 1920, the currency was seriously ailing, and a great deal more still by 1921-22. Ballin himself was long dead. Seemingly unable to bear the prospect of German defeat, the loss of much of his fleet and the confiscation by the Allies of his remaining ships, the Director of the famous Hamburg-Amerika Line had taken an overdose of sleeping pills on 9 November 1918.

All the same, at least some of what Ballin had said proved true. The advantages of inflation to Germany’s export industries were obvious. As the exchange rate tumbled, German goods became progressively cheaper in foreign markets. The pricing strategies of German manufacturers were further aided by the fact that, although workers, especially union members, were constantly demanding inflation-adjusted wage increases, those same wages were starting from a low real base. The need for inflation-adjusted increases was also mitigated by continuing government support for food prices and by the continuance of wartime rent controls (what that meant for the government’s control of the deficit – or lack of it – was another matter).

The patriotic British, French or American (or Danish, or Dutch) businessman might prefer to buy from his own countrymen, but German quality was high and German prices, at that time, were hard to resist. In any case, it was common for large German companies and conglomerates to trade through wholly or partly owned foreign subsidiaries, especially those based in Holland. It was a quite deliberate strategy in the early post-war period when goods labelled ‘Made in Germany’ still encountered plenty of hostility in former enemy countries.
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Germany’s net national product grew by 10 per cent in 1920 and by 7 per cent in 1921.
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Meanwhile, German industrialists could ship out their wares and get foreign exchange for them, which they could either hoard abroad as an insurance against further deterioration of the mark (and as a way of avoiding Herr Erzberger’s irritating taxes) or repatriate at a more favourable exchange rate than had existed at the original time of production of the exported goods. Since domestic price rises lagged behind falls in the exchange rate, anything which industrialists then purchased inside Germany – whether other businesses, plant and machinery, land or property – was extraordinarily cheap.

In 1920 a British journalist reported that, although the exchange value of the mark to the pound was substantially less than one penny, its purchasing power inside Germany itself was 2½ to 3 pence. So the German businessman could change back the proceeds of his exports at a certain rate and immediately find himself able to buy three or four times what an ordinary German could buy with his or her hard-earned paper marks.

Once the international rate of the mark started to tumble again in the late summer of 1921, and exchange rate changes became so swift and frequent that the domestic market prices found it harder and harder to keep up with them, the opportunity for any savvy businessman with access to foreign currency became, if anything, even greater. There was, in any case, absolutely no point in leaving rapidly depreciating paper money in a bank account and watching it waste away, as the less fortunately placed, or less worldly, members of the old middle class were forced to do.

The rich industrialist bought and bought and got richer and richer, not so much in paper marks but in physical things. The flight into ‘material assets’ (
Sachwerte
) became, for a minority of the German nation, a way to solid riches among the growing financial chaos. As the prominent German industrialist Emil Guggenheimer, a director of the MAN mining and engineering company, remarked ruefully and with only slight exaggeration, ‘we are all actually no longer manufacturers, but have become speculators’.
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Even Curt Riess’s father, who had once plied his trade as a maker of ceremonial uniforms for the courtiers of Germany’s pre-war kingdoms and principalities but was now a plain, though highly skilled, tailor to the gentry, entered into the practical spirit of the time. Finding that, having contracted to make a suit at a specific price, by the time he got to work the three metres or more of cloth he needed cost more than the customer was due to pay him, Herr Riess swiftly changed his policy so that he accepted payment only in hard currency – dollars, pounds, Swiss francs. This was how he stayed in business when many colleagues were bankrupted.
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The fact that there were laws against what Herr Riess was doing made little difference to him or to millions of others who were protecting their fortunes in this way. After all, even if the business owner was prosecuted, the penalty was usually a fine – payable in rapidly depreciating paper marks.
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So individuals salvaged their livelihoods and continued to enjoy the standard of living to which they felt entitled.

On a quite different scale of reckoning, these were also the circumstances under which Hugo Stinnes, the human ‘calculating machine’, became Germany’s most powerful businessman, seen by conspiracy theorists as the secret ruler of the country. As he wrote to the tax authorities with ‘a mixture of contempt and pride’ in 1920:

The Reich, which today has 236 billion in debts and whose burden of debt grows from month to month, whose credit-worthiness is well shown by the value of its currency, that prints notes upon notes without any coverage and that has long been bankrupt . . . This poor Reich cannot give any guarantees or present a prospect of their realization upon which a businessman can base his balances. The basis for my business is my personal credit at home and abroad, this credit is until now unshaken; I can get any credit I need today at home and abroad.
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Access to domestic credit at low rates, especially from the Reichsbank, and to foreign currency, was everything. In an inflationary situation, someone like Stinnes could borrow almost unlimited amounts at favourable rates, courtesy of the Reichsbank’s policy of automatic loans to German industry, and, moreover, by the time he began to pay back the loan it would be worth less in real terms – as time went by, a very, very great deal less.

Hated by millions as a personification of capitalism’s ugly excesses, the curious thing was that Stinnes bore little resemblance to the stereotype of the plutocrat. Photographs of him at the height of his wealth and power show him as a slight, undistinguished figure. Often, when photographed in the street or some other public place, he would seem to be glancing at the camera with wary unease. Even in family photographs, he seems tense. When out and about – and he travelled a great deal – he wore a slightly shabby, old-fashioned dark suit and a bowler hat. In appearance, then, Stinnes more resembled a Charlie Chaplin everyman character than an economic super-villain.

Germany’s most powerful businessman lived in a surprisingly modest villa in his native Mülheim on the Ruhr with his wife and seven children. It was a happy marriage by all accounts, and he was an affectionate, if demanding, father. His daughter, Clärenore (b.1901), acted as his secretary and his ‘eyes and ears’. Personally rather shy, with a somewhat high-pitched voice and strong traces in his accent of his native Westphalia, Stinnes was nevertheless a stubborn optimist. When in difficult situations, according to his son Edmund, he would say: ‘I never give up hope. If they want to hang me and the noose is already round my neck, I simply think how often ropes have broken.’
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Tellingly, on his business card Stinnes called himself not an industrialist or a company director but simply a ‘Merchant’ (
Kaufmann
). Stinnes is so strongly identified with Germany’s great inflation that it can be forgotten that he made a very large fortune before the war, when prices were more or less stable. However, his was a cool, calculating and unflappable psychological make-up perfectly attuned to the roller-coaster ride that was inflationary Germany after the First World War.

Hugo Stinnes and the men (they were all men) of his ilk became ever more wealthy as the Germany economy lurched onward, and even as the country’s political and social systems creaked with the strain. The new democratic Germany, paradoxically, was feeling more like the plaything of a small elite than the pre-war Empire ever had. Whatever the true statistics, two or three years after the revolution the country felt like an early example of the ‘1 per cent’ ruling the ‘99 per cent’.

Any German, whether industrialist or private individual, who had access to foreign currency as the inflation gathered pace was in a highly advantageous position. Naturally enough, however, the main institutions and individuals holding valuta (foreign currency) were the foreigners themselves. This applied especially to the Americans. Every nation, in the aftermath of war, was a debtor nation, with the exception of the United States. During the period after the First World War, its citizens had money burning a hole in their collective national pocket – in dollars, suddenly the hardest currency in the world – and were looking for places to invest or lend it.

In 1920, after the initial fall in the mark’s international value had temporarily subsided – when it was hovering around sixty to the dollar for months on end – many in America started to think that the only way the mark could go was up. After all, Germany had, in one sense, been artificially reduced to a state of near-penury. Post-war Germany was, by this estimation, the same country as pre-war Germany – one of the main engines of the global economy – but with, admittedly, a few bruises to show from the four-year fight that had brought it low. Why should these 70 million industrious and skilled people not soon be back at the top of the European industrial league, with full order books for their industries, their political scene calmed down and their currency once more as solid as before? Anyone who held on to marks until they got back to something like pre-war parity would, so this narrative would have it, make a huge killing.

An American loan – or, as the deceptively cheerful twenty-first-century phrase goes, a ‘bail-out’ – was the holy grail for most Germans in the post-First World War era. A share of the money waiting to be invested by the rich cousins across the Atlantic – and it should not be forgotten that many millions of Americans were of German descent – would give Germany a breathing space and help her to cope with the reparations demands being heaped upon her by the Belgians, the French and the British. And not just that. American loans and investments to Germany would also give America a stake in the country’s future, thus potentially garnering Washington’s support in the Reich government’s struggle against the other victorious nations’ demands on her. A post-‘bail-out’ Germany bankrupted by reparations would no longer just suffer alone. It would be a Germany where American bankers and investors had lost a very great deal of their own money.

It would, however, take some years, and some radically changed circumstances, before any official loans from the United States would become available. In the meantime, however, starting from the spring of 1919, Germany faced a growing tide of foreign speculators eager to make money out of the falling mark, precisely in anticipation that at some point it would stop falling and rise again. In the period 1919–20, at least 36 per cent of all deposits in the seven major Berlin banks were thought to originate from such sources.
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In October 1920, 100 million dollars (at that time a little over 6 billion paper marks) in German industrial securities and 30 million (1.8 billion marks) of municipal bonds were bought on the American market. There were also plenty of American institutions and individuals simply speculating in marks or mark options, betting on a rise. Such options were advertised for sale by brokering companies, who dangled juicy profits before the bold investor.
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The German government and the country’s financial sector had no objection to this wave of speculation. It is true that the Reich became unhealthily dependent upon these unreliable sources of hard currency – this was speculative money that could be withdrawn at any time, not long-term, productive investment in Germany – but the fact remained that at this stage it was just about the only way the Reich and its institutions were going to get any funding from the victorious nations, and particularly the United States.

The foreign craze for buying marks did, for a while, help bolster its value. As John Maynard Keynes put it at the time, for Germany the speculative inflow took the place of ‘her much discussed international loan’: ‘. . . and on the easiest terms imaginable – as for interest, most of it bears none; and as for capital, only such proportion is repayable as Germany may herself decide to when she comes to fix the value of the paper mark’.
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