The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class (44 page)

The apparent powerlessness of the central government did not just bear on the situation in the traditionally separatist south. Saxony and Thuringia had always been strongholds of the socialist left – so much so that even under the monarchy, Saxony had been known as ‘the red kingdom’. By 1923, while Bavaria and many rural areas of eastern Germany had long since become reactionary strongholds, the populous and industrialised central German states had moved to the other extreme. They had started to create their own revolutionary institutions, including armed socialist militias known as the ‘proletarian hundreds’ (
proletarische Hundertschaften
). Similar workers’ militias had been founded elsewhere, including the Ruhr and other parts of Prussia, but had been suppressed. Only in socialist-ruled Saxony and Thuringia, due to a more left-wing Social Democratic leadership than in Prussia, and the involvement of a rapidly growing Communist movement in the state government, did they continue to develop and expand. By September, they were rumoured to number 50,000–60,000, and to be engaged in military-style training exercises in both the cities and the countryside.

With paramilitary organisations of the right, such as Hitler’s National Socialists, openly mobilising for a ‘march on Berlin’, it was not hard to argue that the hundreds would be needed to defend German democracy against its armed enemies.
11
Although by no means all the socialist militia were Communists, there were also stories of Moscow’s involvement in financing and arming the hundreds. And they seem to have been true.
12

In Moscow, Lenin was suddenly no longer in charge. On 25 May 1922, a matter of months after the Bolsheviks had finally confirmed their hold on power, their leader had suffered the first of a series of strokes. A second in December and a third, wholly debilitating, stroke in March 1923 removed Lenin from politics altogether. He would live on, in a mute and paralysed condition, until the beginning of 1924, but meanwhile the Bolshevik regime was entering a long period of collective leadership, riven by rivalries and disagreements, which would end only with Stalin’s assumption of unchallenged leadership half a decade later. With Germany – for many in Moscow always the next great revolutionary hope – in political and economic chaos and the entire capitalist system, at least to Communist eyes, imploding, it seemed an ideal time for a workers’ uprising there.

Particularly among the group allied to the brilliant civil war general and intellectual firebrand Leon Trotsky, who believed in ‘permanent revolution’, this seemed the moment to strike. At a secret meeting of the Politburo on 23 August 1923, the green light was given for a Communist revolution in Germany, to be spearheaded by the ‘proletarian hundreds’. A successful uprising in the world’s second largest industrial country would bolster the Trotskyite cause within the Bolshevik leadership. It would also, incidentally, ensure that the new ‘bourgeois’ Stresemann government, which was clearly attempting to find a
modus vivendi
with the arch-capitalist British, would not abandon the Rapallo Treaty and become part of a possible anti-Communist block. Hence the Moscow leadership’s authorisation of a secret fund, to be controlled by the Soviet ambassador in Berlin, for the promotion of the so-called ‘German October’ – or, rather, in Trotsky’s case, a ‘German November’, for he argued that the Communist coup should take place on the ninth of that month, the fifth anniversary of the revolution that overthrew the Kaiser in 1918.

It is one of the special curiosities of this most strange of German autumns that Adolf Hitler had the very same fateful date in mind – 9 November 1923 – for his planned ‘march on Berlin’.

As the crisis approached, not everyone in Germany perceived themselves to be in a hopeless position. Despite the tragic absurdity of the price rises, there were those who had found a way to live with it.

In July 1923, for instance, after a series of strikes and numerous demonstrations by members of the public service unions, the mass of German civil servants had become the first major income group in the country to have their earnings inflation-proofed – or, more precisely, subjected to an elaborate and ingenious indexing system that awarded civil servants constant updating and pre-payment in their wage payment arrangements. Moreover, these adjustments were based not on accomplished facts but on a formula for anticipating rises in prices. Although they were already privileged by the fact that their salaries were in many cases paid quarterly, or if not then monthly in advance, under this new agreement their adjusted inflation supplements – which by this time, with the currency falling so quickly, could amount to huge cash sums – would also be paid in advance, before the actual anticipated inflation had, in fact, occurred. The effect on the government budget of such huge (and nonsensical) payments was clearly highly inflationary. In fact, higher civil servants were accused of exploiting their possession of large quantities of cash to indulge in substantial foreign-currency speculation.
13

All this did not, in the end, wholly protect civil servants from their share of the general suffering. By the late autumn of the year no one, no matter how often they were paid or their salary recalculated, could be protected from the total collapse of mark-denominated financial transactions that engulfed Germany and made her currency essentially worthless.

The respite awarded to civil servants during much of the hyperinflationary period did, however, make them even more unpopular with their fellow citizens than they had previously been (and they had not been much loved). It soon became apparent, moreover, that one of the chief aims of Stresemann’s government was to begin the stabilisation of the government finances preparatory to rescuing the mark. To this end, it planned to use the bureaucracy’s unpopularity among the general public as a weapon. The civil service, the lower ranks of which, particularly, had improved their position since 1918, was going to be subjected to a drastic, even brutal, programme of cuts.

Quarterly pay was unilaterally abandoned by the new government towards the end of August, to be replaced by weekly salaries, and the civil service unions’ protests ignored. During September–October 1923, plans for sweeping redundancies in the numbers of bureaucrats were developed, and again conveyed without room for negotiation to their representatives. On 27 October, a ‘Decree for the Reduction of Public Personnel’ (
Personalabbauverordnung
) was issued. This allowed for a quarter of the entire public service, from blue-collar staff to white-collar bureaucrats – from school janitors to government councillors – to be dismissed over the next couple of years. Fifteen per cent would be gone by 31 March 1924, and the final 10 per cent at a point still to be determined. The leaders of the various public service unions complained, and there were even wild accusations of a ‘pogrom’ against civil servants being waged by an unholy alliance of government and big industry, but ultimately nothing was done.
14
In dealing with the bloated public-service sector, the Stresemann government had successfully shown it meant business.

Vigorous debates over the basis for the inevitable new currency – gold, or rye, or some hybrid – continued in the government committees and the public press. Meanwhile, there were other areas in which a foundation was also being laid for the inevitable end to inflation. The currency had to be rescued if Germany was not to be doomed to political and economic disintegration.

Erzberger’s tax reforms had offered a brief window of opportunity during which solvency had become a realistic possibility, before the reparations crisis of summer 1921 had refuelled the inflation and rapidly wiped out most of the government’s real income from the new charges. Succeeding governments had tried to close loopholes, keep pace with inflation and put a stop to late payment and capital flight, but without success. Tax avoidance had become not just easy, but socially respectable. Towards the end of September 1923, the Reichstag passed a government bill raising taxes, introducing some new ones and also drastically increasing the ‘multiplier’ used, and providing for regular updating of this inflation-adjusting mechanism. The government also provided for steep increases in penalties for late payment. Only a reform of the financial system and the currency would fully solve the government’s problem, but at least, for the first time since the inflation began, paying taxes was no longer ‘optional’ and delay no longer completely painless.
15

There were indications that Stresemann’s advent to power at the head of the ‘Grand Coalition’ had begun to turn the vessel of the German state around. In general, however, that was not how it looked to many of the Reich’s citizens in those crucial weeks. The apparent inability of the supposed ‘stabilisation administration’ to carry out much in the way of visible stabilisation, and the ever-increasing political disorder in different parts of the Reich, gave an impression, in these early weeks, of weakness. Assistant headmaster Herr von der Ohe remarked in his diary on 10 October 1923:

Siegfried [presumably Herr von der Ohe’s son] was at the circus. The ticket cost ten million marks. A fellow student treated him to this. Think of it: children handing each other gifts of ten million. The dollar is said to be worth three billion. This will probably mean the end of the Stresemann ministry.
16

Herr von der Ohe had the good fortune to run a small agricultural operation on the side, of course, and thus was granted extra protection from the breakdown of the money economy. He was wrong about the future of the government, however. Although that government had undergone a serious crisis just before Herr von der Ohe’s diary entry, despite the multiple problems it still faced, and its serious divisions, it would see the stabilisation programme through.

However, the first step needed to save democracy was its suspension.

23
Everyone Wants a Dictator

It was astonishing that a government apparently constantly under threat of disintegration could have done what Gustav Stresemann’s administration – or, rather, technically, two administrations – did in the 109 days between 13 August and the last day of November 1923.

The first cabinet of the ‘Grand Coalition’ lasted until 3 October. It fell because of disagreements, not over the necessity for emergency powers to solve the political and economic crisis, but over their extent.

Stresemann’s ministry was subjected to intrigues from the right, including industrial interests inside the German People’s Party around Hugo Stinnes, who were looking to completely reverse the worker-friendly laws that had been adopted in 1918, which they blamed for the country’s economic plight. These included the eight-hour working day (Monday to Saturday, representing a forty-eight-hour week) and workers’ representation on factory committees. In turning back the clock, this powerful group favoured not just temporary emergency powers but something close to a permanent dictatorship, similar to the regime in Bavaria. Clearly, they wanted the socialists out of the government and Stresemann, whom many even in his own party considered a dangerous moderate, out of power altogether.

The coalition also, however, suffered from rigidity on the part of the Social Democratic Party. Although the socialist ministers, realising that lagging productivity was a contributory factor in Germany’s current travails, had agreed in cabinet to a compromise ruling on working time reforms, their own party refused to give an inch. The party also insisted that the Berlin government should take steps to force the defiant Bavarian reactionaries into line. This view, though legally and morally correct, was – given the Reichswehr’s complete unwillingness to take up arms against Kahr and his paramilitary friends in Munich – almost comically impractical.

The crisis lasted for three days. The government fell on the evening of 3 October, when the Social Democrats refused to support the extension of emergency powers to the economy, which would have allowed the government to make changes to working conditions without consulting the Reichstag. Then, on 6 October, it rose again. In the interim, with President Ebert refusing to replace Stresemann as Chancellor, and no other possible political constellation in sight, someone found a form of words – involving ‘fundamental recognition of the eight-hour day . . . but also the possibility of a contractually agreed exceeding of the current working time’ that enabled the Social Democrats to vote for reform of the eight-hour day after all.
1

The major personnel change in the new cabinet, however, was that the keen (but in many ways conventionally minded) socialist Hilferding was replaced as Finance Minister by a supposedly non-party figure. In fact, the new man, Hans Luther, was a moderate conservative expert who had already served as Food and Agriculture Minister and, as a former mayor of Essen, the home of Krupp, also stood close to the industrial interest. At the very least, he represented a more reassuring, or at least less controversial, figure than Hilferding. The socialist representation in the cabinet was reduced from four to three, and, with a man of Luther’s background at Finance, the balance had tipped decisively towards the kind of base for the urgent currency reorganisation - drawing on national reserves of agricultural and industrial wealth - that had been put forward by the nationalist Helfferich earlier in the summer.

The way lay open for what would be known as the Rentenbank (literally ‘annuity bank’) and for a new system of money for Germany. This was, essentially, the idea that Helfferich had first put forward under the title of ‘Rye Bank’. It came not a moment too soon.