The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class (31 page)

In terms of who was winning and who was losing from the economic situation in Germany during these years, however, one thing seemed clear: the situation there was the opposite of what was happening in other large, advanced Western countries. German government policies differed drastically from those prevalent in Britain, America and, though she was still struggling with a strong and continuing element of war-induced inflation, France.

Keen to reduce debt and somehow support the huge sums necessary to pay interest on war bonds, which in the victor countries (as also in Germany) had been bought largely by better-off citizens and wealthy institutions, France and Britain raised interest rates, tightened belts and tried to stabilise and, if possible, reduce the high wages that had been a feature of the war economy. In other words, whereas in wartime, with uninterrupted production an absolute priority, the industrial workforce had been favoured above all other social groups, things changed when peace came. Once the post-war boom had served to move these countries’ economies more or less promptly from a war to a peacetime footing, the governments of the victorious powers changed their economic and fiscal policies. These now swung around to favour not the worker and the debtor but the saver, the bond holder and the business owner.

This sudden lunge towards post-war austerity was particularly pronounced in the case of Britain. Here the government, heavily indebted, and also conscious that the nineteenth century’s most powerful country was ceding national and economic prestige to the newly ascendant America, aimed to smother inflation, and to do so quickly. London’s ultimate ambition was to return to the gold standard as soon as possible, and to regain the pre-war exchange rate against the US dollar (which had remained backed by gold). This involved stringent fiscal and interest rate policies and also cutting government waste and excess of all kinds. Classic austerity politics.

The accusation of chronic waste was one to which, as the government was aware, it had become more vulnerable due to a vastly increased wartime bureaucracy. The large swathes of the British press owned by the Harmsworth brothers, Lords Northcliffe and Rothermere, including
The Times
and the
Daily Mail
, soon began a vigorous and highly effective campaign on this issue, to the extent that a kind of ‘waste panic’ became widespread. The Harmsworths even sponsored ‘anti-waste’ candidates, who actually won three by-election victories.
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The name of the political game was therefore, from 1921 onwards, nothing but cuts – some of the most drastic in British history up to that time, especially affecting social spending, housing, education and defence.

In November 1918, at the general election that had followed the armistice, Lloyd George’s government had promised a ‘land fit for heroes’. Instead, Britain soon succumbed to a programme of systematic cuts in public expenditure, many affecting the fortunes of returning soldiers. Most notoriously, these savings included those suggested by a committee under the chairmanship of a businessman-turned-politician, Sir Eric Campbell Geddes.

Geddes had made a fortune in the Canadian railroad business. With the firmness of purpose of a man whose considerable wealth resided largely abroad, he recommended slicing £87 million (a huge amount at the time, representing around 10 per cent of British gross domestic product) from public expenditure.

Although less than two-thirds of the recommended cuts were actually carried out, the social and economic effects – combined with tax changes and higher interest rates – were drastic. The new policies smelled to many of renewed class war, with the working class on the receiving end. They encouraged a strike wave that lasted through the mid-1920s, and helped fuel the rapid rise of the British Labour Party. In strictly practical terms, however, the result of the cuts, including the ‘Geddes Axe’, was indeed a fall in the cost of living. Just as intended, inflation was brought under control.

In France, the post-war interest on domestic debt (including war bonds bought by French individuals and institutions) claimed up to 50 per cent of the ordinary government budget. The country was, as one historian put it, ‘held hostage to interest payments on the public debt’, which amounted to a ‘political time bomb’.
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The French government, eager to assure foreign bankers and holders of French currency that it paid its debts, and struggling to make the Germans pay, introduced measures to ensure that holders of government and war bonds – mostly banks, insurance companies and so on, plus wealthy individuals – were paid their interest at all costs. ‘To meet the interest obligation, the government had to raise immense sums from one group and give them to the other.’ The group that suffered was, as in Britain, the ordinary working population, while the beneficiaries were mostly the
haute bourgeoisie
and the powerful financial institutions. This indeed amounted to ‘a socialism of the rich’.

Anti-inflationary austerity such as imposed in Britain and, in a different way, in France, was precisely the opposite of what happened in Germany.

In Berlin, the new republican government made no attempt to protect the prudent bond holder and the saver, as occurred in France and Britain. It continued, motivated both by inclination and perceived necessity, to favour the earning-and-spending industrial workforce, and to support employment at all costs, including jobs in the bloated state sector. After all, the welfare of the masses was both the German Republic’s
raison d’être
and its existential insurance policy.

Even after large-scale socialisation plans had been abandoned in 1920, the government continued to use wartime legislation to subsidise employment, especially in the state sector, and to regulate food prices and rents broadly in favour of the workers. And, of course, it continued to print money in order to do so. So inflation crept up, slowly at first and then gathering speed. The effect of this was to let the bond holder, the
rentier
(who lived from the proceeds of investments) and the saver survive as he or she might – or, in fact, might not.

The individuals and institutions who benefited from post-war deflation and austerity in France and Britain had their counterparts in Germany, the old educated class dominated by academics, lawyers and civil servants, the
Bildungsbürgertum
. However, their German relations in social status were placed in a very different situation. This group had always relied on supposedly ‘safe’ investments such as German government bonds, savings certificates and fixed annuities of various sorts to supplement, or in many cases enable, their style of life. The decline in the mark and the consequent shrinkage of returns from fixed-rate investments, especially holdings of German domestic war debt – in which this supremely patriotically inclined class had invested to a disproportionate extent – exerted a wholly ruinous and politically toxic effect. Unlike their British and French equivalents, who were protected from some of the ravages of inflation, German war bond holders had been completely let down by their government, and apparently wilfully so.

The question of whether Germany could in fact have managed to steer some kind of benign middle course, keeping the mass of the working class in employment but at the same time leaving the middle classes with some semblance of solvency, exercised many minds at the time, and has exercised more since.

Britain after the Second World War, for instance, had to deal with a vast accumulation of debt, mainly owed to America. However, under the strong and on the whole efficient Labour government that succeeded Churchill’s wartime coalition, she nonetheless managed to keep up payments on her debt, while at the same time creating a welfare state and a free national healthcare system, and maintaining full employment. At the same time the British middle classes, though generally feeling somewhat shabby and impoverished during the post-war era, were not wholly ruined by the process. In fact, they survived sufficiently well to flourish again in the 1950s, once the phase of socialist austerity was over.

Something similar to the British solution following the Second World War might, theoretically, have worked for Germany after 1918, if there had been a similar sense of national solidarity as was found among all classes in Britain in 1945; if, as in post-war Britain, the government had enjoyed a clear mandate for its policies; if the increasingly weak governments that ruled Germany after 1920 had not been hampered by their disunity and by an extreme, not to say violent, right-wing opposition. And, perhaps above all, if the debts that Germany owed after 1918 – mostly the costs and reparations it agreed to pay under the Versailles Treaty – had been debts that the country truly acknowledged its duty to fulfil, as Britain had, however reluctantly, in the case of its borrowings from America after the Second World War.

In fact, of course, even German politicians who followed a policy of ‘fulfilment’ of the treaty terms, including reparations, did so only in order to show their impossibility. Almost no one in Germany, across the entire political spectrum, considered the debts owed to the victors under the Versailles Treaty as legitimate ones.

To structure Germany’s economic and financial policies in order to make the country capable of paying reparations – again, theoretically possible, as most historians agree – would have been regarded by many, if not most, Germans, as treachery. Moreover, it would in all probability have imposed a political and social cost feasible only under conditions of strong government, popular moral commitment and unshakeable social solidarity. None of those circumstances characterised Germany after 1918.

The post-war boom that was engineered in Germany, and permitted to continue even after other countries deflated their economies, was by its nature an inflationary one. And the tacit consensus was that an inflationary boom was better than no boom at all.

Sebastian Haffner described the developing division in German society, not just between republicans and anti-republicans but between those who could find ways of living and even flourishing within this strange hollow boom, and those who were shut out of it. The stock exchange had become one way of investing wealth before it slipped away. There was, as ever with share trading, a risk involved. All the same, so long as companies kept selling and growing, as they did for the most part between 1919 and 1922, the market quickly adjusted the value of investors’ shares to correspond to inflationary movements. Thus the stock market automatically maintained the value of investments and, if the investor was lucky and a company was doing well, even increased it.

Among his young middle-class friends in the Berlin of the developing hyperinflation, Sebastian Haffner could see who had managed to adapt to the times and who had not.

Life was good for the young and the nimble. Overnight, they became free, rich and independent. It was a situation where slow thinking and a reliance on previous experience were punished with hunger and death, but impulsive action and swift comprehension of a new situation were rewarded with sudden, huge wealth. The twenty-one-year-old bank manager became a phenomenon, as did the High School senior who took heed of his somewhat older friends’ stock market tips. He wore a tie in the fashion of Oscar Wilde, organised champagne parties, and provided for his embarrassed father.
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Elsewhere in the country, young bank workers, like the ‘high-rollers’ of Wall Street and the City of London in the early 2000s, were able to use their access to foreign currency to live the high life. In Hamburg, the bank clerk Hermann Zander, after completing his brief post-war service with the anti-Communist Freikorps, settled into a career as a foreign exchange dealer with the Commerzbank. He described his privileged situation during the hyperinflation in jaunty terms:

This is the time when we had the ever quicker developing inflation, during which I had the opportunity to make diversions into
Valuta
(foreign currency).

Any paper marks that were still left over at close of business would be spent on fun or used to buy goods. We were a merry band of colleagues, to which now and then my father would attach himself.
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Some days were jollier than others, and required parental guidance:

One day it happened that, after our last drink at the ‘Mampes Stuben’ bar on the Jungfernstieg, we decided to go on somewhere. We piled into an electric taxi . . . and, without planning to, ended up on the Herbertsrasse (a red light area). My father noticed this and uttered the memorable words:

‘Hermann, my son, this is not the place for us!’

Sebastian Haffner’s own father, a senior civil servant, naturally refused to become involved in the black market. However, neither would he engage in any other kind of trading, even of a legitimate sort.

Yes, my father was one of those who did not understand the times, or did not want to understand them, just as he had refused to understand the war. He dug himself in behind the assertion that ‘A Prussian official does not speculate’, and did not buy stocks.
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What Sebastian Haffner’s father represented was the old pride of Germany: the cream of the so-called
Bildungsbürgertum
, the classically educated elite. These were the men who since the eighteenth century had filled the roles of higher civil servants, law officers, Protestant pastors, writers and academics in the various monarchical states, large and small, that made up the old Reich.