The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class (43 page)

The idea for a rye-backed currency, based on a compulsory mortgage of the assets of German agriculture and industry, was something that, apparently, Helfferich had hit upon while on his regular summer break in the Swiss mountains.
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He had already suggested it to the Cuno cabinet, with whom he and most other nationalists stood on good terms.

Although the idea survived the change in chancellor, as his presentation to the new cabinet showed, Helfferich was now faced with a socialist finance minister whose own ideas for a reformed and solid future currency were based, surprisingly, for a Marxist, on a fairly conventional scheme. This involved, at base, a swift return to the gold standard. To Finance Minister Hilferding, in any case, placing the fate of the German currency in the hands of a bank financed by industrial and agricultural interests gave off an unpleasant (to a socialist) whiff of the old collaboration between the Prussian landowning aristocracy and the iron and steel barons. This was the alliance which had excluded the workers from power in the Kaiser’s time, and been derided by the left as the dominance of ‘rye and iron’.

Weeks of argument, compromise and counter-compromise, proposal and counter-proposal, followed. The problem with Minister Hilferding’s idea of an immediate return to a gold backing was, however, twofold: first, the Reichsbank didn’t have nearly enough gold to provide the support that would give the precious-metal-backed scheme credibility; second, the attempt to get industry and private wealth to put up for a domestic gold loan under Cuno had already been a miserable failure.

As August turned to September and the arguments went on, it was starting to become clear that Helfferich’s rye-based proposal would have to be adopted, probably in some dressed-up form to keep the gold enthusiasts happy. Meanwhile, however, away from the hothouse atmosphere of Berlin politics, the country was making its own arrangements with the crisis.

Although the 1923 harvest was proving to be a good one, Germany’s landowners and farmers were clearly holding back the release of much produce on to the market in anticipation of receiving payment in hard currency once the reform of the mark finally came to pass. Throughout the country, barter had become the habitual mode of trade for millions of ordinary Germans who had no access to foreign currency. Because the amount of paper money now issued by the Reich in such huge six- and seven-figure denominations was still insufficient to meet all the public’s needs, and in any case became all but valueless within days or even hours of coming into individuals’ possession, states, municipalities, and even private companies had started printing their own promissory notes, based on whatever resources they controlled. These notes would be issued as currency, usually (but not always) valid only in a specific locality. Some indulged themselves in a little dark humour. One industrial firm printed a 500,000-mark note which was festooned with the larky motto: ‘If a briquette of coal costs more than my face, feel free to stick me in the stove in its place’.

Until 1 January 1876 – easily within living memory, therefore, in the Germany of Stresemann and Helfferich – individual German states had enjoyed the right to issue their own currencies. Thalers, Gulden, Kreuzers and so on, plus their smaller denomination coins, had circulated throughout pre-unification Germany. In particular, the small-change coins of the various currencies were exchangeable in everyday use at rates known to ordinary Germans. More than most European countries, therefore, Germany had something of a tradition of localised currencies.

The practice of issuing ‘emergency money’ (
Notgeld
) had been going on since the war years, when local communities had been permitted to cover temporary shortages in low-value coins by issuing paper substitutes. By 1922-3 this had developed into a whole alternative monetary system. Until then, the Reichsbank had ensured that these notes, though subjected to a slightly larger discount than government-issued money, were nonetheless backed by securities deposited with the Reich Credit Corporation or the Reichsbank. By the summer of 1923, however, Finance Minister Hilferding estimated that between 60 and 70 trillion of the paper marks in circulation actually originated from unbacked sources of money. These were, strictly speaking, illegal. They might have been acceptable to many traders and customers but were actually issues of paper over which the government had no control and for which it provided no guarantee, adding further to inflation and to the generally chaotic currency situation.
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Total catastrophe was clearly on the cards. In Hamburg, a rich merchant city-state where long-established foreign trade and ready availability of foreign currencies conditioned the outlook, as early as mid-September there were plans in quite respectable political circles, including among members of Stresemann’s own party, for introducing a hard, foreign exchange-backed currency for use within the city jurisdiction. This would become operative in the case, as seemed increasingly likely, that the German mark simply became worthless as a medium of exchange.
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In areas occupied by the French and Belgians, farmers were demanding payment in francs, and the occupiers were encouraging this kind of desertion of the mark at every turn, as well as supporting small but active separatist movements in the occupied parts of the Rhineland and the Palatinate with money and official favour.

The message was stark: if the Reich government could not provide its people with a stable and reliable store of value and means of exchange, then the people, taken individually or communally, would have to do it for themselves. This was potentially disastrous for the continued stability and integrity of the fifty-year-old German state.

All the same, when it came to money, the real problem was the cost of the campaign of resistance against the French and their Belgian confederates in the Ruhr. When Hilferding took office on 14 August 1923 and cast an eye over the books, he was horrified at the disastrous state of the Reich’s finances. During the next four weeks Germany faced an expenditure of 405 trillion paper marks, with 240 trillion going directly into the Ruhr struggle. Against this, the revenues of the government were 169 trillion, of which tax receipts, drastically shrunk by the inflation, represented a purely ‘incidental’ element.
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In short, the Ruhr struggle was becoming unsupportable. It either had to be abandoned or a diplomatic solution had to be found, leading to a French withdrawal. Hilferding had spent the past few years criticising other politicians for blaming all Germany’s economic ills on foreign policy, and especially Versailles and its attendant problems. Now, however, in the situation caused by the Ruhr occupation, he announced ruefully at a meeting of the Reichstag’s Budget Committee on 23 August: ‘A good foreign policy is the best financial policy!’
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The trouble was, the French had no intention of withdrawing from the Ruhr. The reason for this was quite simple. They were winning there. The German resistance was on the brink of collapse.

On 23 August, the same day that his Finance Minister wryly expressed the connection between German foreign policy and her financial state of health, Chancellor Stresemann admitted to a cabinet meeting that morale among the population in the occupied Ruhr, apparently fiercely strong back in January when the area had first been occupied, was now crumbling. It would not, he told his colleagues, survive the onset of winter.

No one present when Stresemann shared his pessimistic opinions saw fit to gainsay him. In fact, the Social Democratic Interior Minister of Prussia, Carl Severing, who was also at the meeting in an advisory capacity, took an even more pessimistic view. He thought that the resistance was basically over. The local police, Severing said, were now cooperating with the occupation forces, the Ruhr industrialists were in the process of making an accommodation with the French, and the morale of the workers, the backbone of the resistance, had now fallen so low that the once-vaunted discipline of the trade union movement in Germany’s largest industrial region was shattered beyond short-term repair.
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When it came to the financial crisis, nothing, not even the government’s plans for indexed tax collection, or the new decrees aimed at restricting and taxing private acquisition of foreign exchange in Germany, was working. On 1 September 1923, the mark stood at 10.5 million to the dollar, as opposed to 3.7 million a little more than two weeks earlier when the new government took office. Another two weeks, and the exchange rate had toppled to 109 million to the dollar.

One last hope of the German government and people had been a conference between Stanley Baldwin, the new British Prime Minister, and his French counterpart, Poincaré, in Paris in the third week of September. However, when the results of the discussions were announced on 19 September, it was grimly apparent that the British had failed to put any pressure on the French. The communiqué issued by the British embassy in Paris stated that there were no major differences of opinion between the two countries. The next day, the German cabinet met and agreed that a capitulation in the Ruhr had become inevitable. Support for passive resistance there would have to be abandoned. The leaders of the resistance in the Ruhr, the premiers of the German states and leading politicians of the democratic parties would have to be prepared for the fact.
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On 26 September, a joint announcement by Reich President and government, though still protesting the illegality of the French occupation of the Ruhr, nonetheless confirmed the end of Berlin’s support for passive resistance.

The Social Democrats, in particular, had been nervous that abandonment of resistance in the Ruhr would lead to yet more accusations of a ‘stab in the back’. Sure enough, the nationalist right, seeing its opportunity, launched into a torrent of accusations along those lines, even making the ludicrous claim that resistance had been on the brink of victory (just as the German army had supposedly been in November 1918). The German National People’s Party called on the government to declare the Versailles Treaty null and void.

The nationalist-conservative government in Bavaria went even further. The state had been becoming ever more ‘semi-detached’ from Berlin since 1920, and now full separation seemed on the cards. On the same day that President Ebert and Stresemann’s government jointly announced the end of support for the resistance struggle in the Ruhr, the Bavarian government responded to the new emergency by transferring presidential powers within the state away from Ebert in Berlin to Gustav von Kahr, currently District President of Upper Bavaria (which included Munich), former Premier of the state (1920-21), and champion of anti-Communist order. Under paragraph 48 of the Weimar constitution, the President in Berlin could assume semi-dictatorial powers. Now, according to the Bavarians’ peculiar interpretation of their own legal rights, Kahr as ‘General State Commissioner’ superseded the national President and could exercise these powers in his place without consulting anyone. Sure enough, Kahr proclaimed martial law in Bavaria immediately on taking office.

Once again, the Reich government was faced with the fact that it could not prevent the Bavarians from doing what they were doing, unless it was prepared to use force. Moreover, even if it was theoretically prepared to do so, the Reichswehr had made it clear that it would not take action against a right-wing government of ‘order’. A left-wing state government was another matter, as would soon become clear.

Further grist to the ever-sharpening tensions between the Berlin government and its supposed junior partner in Munich arose almost immediately, when the Reich ordered the banning of the official Nazi newspaper, the
Völkischer Beobachter
, which was published in Munich. The Nazi Party was already illegal in most German states, and on 27 September it pushed its luck even further by displaying a viciously anti-Semitic article entitled ‘The Dictators Stresemann and Seeckt’, attacking the Chancellor and the Reichswehr Minister, the first for being married to a Jewish woman, the second to a woman who was half-Jewish. On 1 October, the Reichswehr’s commander in Bavaria, General von Lossow, refused a direct order from Seeckt to close down the offices of the
Völkischer Beobachter
. From now on, the power of the Reichswehr Minister – actually, of any Berlin minister – in Bavaria existed only on paper.
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The Nazi Party represented just one part of the reactionary forces in Bavaria in the late summer of 1923, but an exceptionally noisy and comparatively united one. Adolf Hitler’s eloquence and energy had fuelled an extraordinary rise from poverty and obscurity that had turned him, at barely thirty-four, into a national figure. In the columns of the fashionable Berlin
Weltbühne
, the Nazis’ self-proclaimed Führer appeared not at all in the first half of 1922, then three times in the second half. When initially mentioned, towards the end of November, Hitler is loftily dismissed as a ‘demagogue of middling calibre’, part of the entourage of General Ludendorff.
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Suddenly, in the first half of 1923, a trawl through the index finds Hitler present twenty-six times; in the second half, forty-five!

By the latter part of the year of hyperinflation, Hitler is a name. An idea. What later generations would call a ‘brand’.

It was not that the authorities in Berlin failed to realise the danger presented by the rise of a figure like Hitler, or by the new kind of paramilitary party organisation he had shaped and already come close to perfecting. The problem was that, as things stood in the autumn of 1923, they could do nothing about him. The writ of the Reich simply did not run within Bavaria. So long as Kahr
and his Reichswehr chief, Lossow, now supposedly subordinate to the State Commissioner rather than the Reich Minister, refused to take action against Adolf Hitler’s violent rhetoric and even more violent political plans, then the Nazis would continue to flourish in Germany’s southernmost state.