The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class (51 page)

Many of the masses lost what trust they had left in the Republic. Democracy withered. And then Hitler, the troublemaker from Munich, did finally conquer Berlin.

Afterword
Why a German Trauma?

Of course, it was economic depression, not inflation, that finally brought Hitler to the Reich Chancellery, on 30 January 1933. But then he did not care which horse of the apocalypse he rode to power. Hyperinflation in the early 1920s had nurtured the seed of Nazism. A decade later, depression – accompanied by what might be called hyperausterity – brought the toxic plant into fruit.

Specifically a
German
trauma, though
?
Why is this? After all, the German inflation of 1914 to 1923 – it was a much slower, and more toxic, process than most people think – was not the only example of this phenomenon. For instance, after the First World War, Austria, Hungary, Russia and Poland suffered from hyperinflation. In fact, Hungary underwent the experience once more after the Second World War, on an even worse scale. As did Greece. France and Italy at various points suffered from severe to hyperinflation, too, but none of these countries seems to have been permanently scarred by the experience in the same way.

Almost every German after 1918 experienced the humiliation of defeat. Most suffered in some way, often severely, from the results of that defeat – shortages, political instability, rises in prices. A great country fell from a great height, and it is to that extent hardly surprising that the pain was all the more severe. But does this explain the lasting, almost obsessive memory of ruin that has persisted there ever since?

It was peculiar to Germany that the country’s extensive and exceptionally privileged educated middle class, the
Bildungsbürgertum
– higher civil servants, academics and teachers, Protestant clergy, lawyers, doctors – suffered, arguably, most comprehensively. This was a class that had bought large numbers of war bonds, whose value had started to fall even before the end of the war. In the years following 1918 the return from these would dwindle to nothing. Professional salaries and fees had also started a steep decline during the war, a fact that had caused bitter complaint even while the Kaiser was still on the throne.

With socialists in power after 1918, the wages and welfare of ordinary workers, manual and junior white-collar alike, were far more important to the republican government. The incomes of the pre-war elite, which had already declined relative to that of the average German worker, did not increase sufficiently to keep up the standard of living such men and their families had been used to. The private wealth, based on property, savings and fixed-income investments, which had cascaded down the generations, suddenly all but evaporated. Their sons could not afford to study as their fathers and grandfathers had.

Crucially, it was not just a question of money. The prestige of the class to which most of these students belonged, since the eighteenth century closely associated with its services to the German monarchical states, also took a tumble. After 1918, with the glamour and power of monarchy no longer a decisive factor in Germany, even the social status of this class seemed doomed.

The
Bildungsbürgertum
felt humiliation arising from defeat in the war – it had always been keenly patriotic – political alienation from a republican system that seemed bent on denying its values and handing the country over to the ignorant proletariat – and, to cap it all, it was experiencing financial ruin, which it could blame on the inflationary financial policies of the republican government. No wonder the educated middle class decamped, in its overwhelming majority, to the nationalist right.

A cartoon in the satirical magazine
Simplicissimus
showed a threadbare member of the educated middle class begging a little soup from a gang of well-fed workers. It was a shameless exaggeration – many workers were also suffering from the ills of the country after 1918, and had less to fall back on than the
Bildungsbürgertum
– but there was enough truth in it to help explain the terrible divide that opened up in Germany during the early years of the Weimar Republic. The Herr Professor forced to beg. The self-description of the educated class as the ‘new proletariat’ or the ‘new poor’ became widespread at this time.

So, who did well out of the inflation in Germany? Creditors lost almost everything. By contrast, everyone, broadly speaking, who owed money, had their debt liquidated by inflation. And there were the profiteers and speculators, obviously. People who worked in banks – an area of business that mushroomed during the inflation. Investors in stocks and shares – unlike fixed investments, these increased in price along with inflation and over the years in many cases provided an excellent return. Farmers, who could pay off their mortgages and other debts, and who – especially if they were prepared to sell on the black market to middlemen and desperate town-dwellers – could charge high prices for their produce. And the industrialists such as Hugo Stinnes, who could borrow money from the Reichsbank at low interest, and pay it back in depreciated marks. They could also sell in export markets and use the foreign exchange from the sales to buy up businesses, properties and other material assets inside Germany. This is how Stinnes, by the time of his death, came to own or part-own a large shipping line, many hotels, newspapers, engineering, timber and pulp, and other enterprises, reckoned to have reached about 4,500 in total, as well as the mining and steel businesses where he had first made his fortune before the First World War. He was not alone in this, merely the best-known of the ‘robber barons’ of the inflation.

Even the workers did not, in most cases, suffer a steep fall in their standard of living until the runaway hyperinflation brought complete economic chaos from the spring of 1923 onwards, ended only by the currency reform in November 1923.

The hyperinflation ended in the winter of 1923–4 because the situation became so destructive and chaotic that even those (quite large) sections of the population that had coped with and even done well out of inflation almost until its end realised that things had gone too far. Even if the end of the inflation brought slump and unemployment – which it did for a while – by the autumn of 1923 its end was a national necessity.

As John Maynard Keynes had warned three years earlier, inflation was a means for governments to
‘confisca
t
e . . .
an important part of the wealth of
t
heir
citizens’.

The German educated middle classes certainly thought so, and with good reason. And what the
Bildungsbürgertum
felt and thought was, above all, extremely important in the formation of public opinion. It taught, it wrote, and even in the changed circumstances after 1918 it knew how to publicise its grievances. The collective memory of this group within German society was – perhaps remains, nine decades later – suffused not just with a sense of economic loss but also of stark social decline. Add into this mix a profound, almost existential bitterness, arising not just out of military defeat and revolution, but of being made to pay the price of a war for which they and most Germans – with some reason – never acknowledged sole responsibility. The resulting historical echo resonates beyond mere economics or even politics. As already noted, other countries have suffered from inflation, some equal to Germany’s and some even worse, but it does not seem to have affected their national psyches to the same extent.

It seems, in the case of Germany, that this is in good part because a relatively small but once extraordinarily privileged social group, the
Bildungsbürgertum
, lost more than anyone else, as a result both of inflation and the lost war. This group also suffered from the demise of the elaborate network of monarchical privilege, spread over many localised power centres, that had been a particular feature of pre-1914 Germany, and in which the
Bildungsbürgertum
, as a kind of intellectual seneschal class, had played a
key supporting role. Its children (and grandchildren) might not have matched the previous generations’ exalted status and financial security, but because of their continuing inheritance of education, of pride and self-confidence, they turned out to be a great opinion-forming force during the next three-quarters of a century. Every educated family in Germany seemed (and even now seems still) to have a story of how the inflation had caused drastic forfeiture of status and wealth.

The fall of the
Bildungsbürgertum
, when it occurred, took place from a great height. It went from a position of unchallenged privilege within continental Europe’s most powerful country to become, in practical terms, just one group competing in a modern political and economic marketplace for which it felt little else but contempt and loathing.

It was, of course, the sons of this class who provided the shock troops of the anti-Republican movement, acting as assassins and terrorists for the far right and its shadowy armed wing, represented by groups such as Organisation Consul. The conspiracy to murder Weimar’s brightest and finest, Walter Rathenau, exemplified this principle. Interestingly, Erich von Salomon, after serving his five-year sentence for involvement in the Rathenau plot, became a well-known writer. His novel-cum-memoir
Der Fragebogen
(The Questionnaire), written after the Second World War as a critical response to the Allied denazification campaign, included something of an apologia for why young men of his cultivated background and intelligence became enemies of German democracy. The inflation, Versailles, national humiliation. It was all in there. After its publication in 1951, the book became a major bestseller of its time, exercising a profound influence on opinion in the new Federal Republic of West Germany and elsewhere in the world.

Thus, the Weimar-era
Bildungsbürgertum
passed an understandable and seemingly indelible sense of loss, grievance and injustice on to new generations. This phenomenon played an important, perhaps crucial, part in transforming the experience of the inflation, which had been a harsh but more or less bearable experience for many, even most, Germans – one shared by the populations of many other countries during the twentieth century – into a unique consensus of universal national catastrophe. This consensus still haunts the nation’s collective memory and constitutes a decisive influence on German government policy, even in the twenty-first century.

To drive home the point about the fragility of money as a store of value, Germany was forced, after the Second World War, to experience a second dose of drastic devaluation. This time, it was one administered from outside.

For four and a half years, following the horribly drawn-out defeat of Hitler’s regime, the country had no central government of its own. During the period after the First World War, Germany, though vanquished, had kept its own sovereign central administration, exercising a freedom of choice, regarding her political and economic options, which was hindered only by the disarmament and reparations clauses of the Versailles Treaty. After 1945, by contrast, the Reich was divided into four zones, each under direct military rule of the victorious Allies. Initially only the tiniest administrative units remained in the hands of Germans. All of the other main state powers were reserved for the foreign soldiers and for administrators appointed by the occupying countries.

This second bout of devaluation, following the demise of the Third Reich, all but rendered the currency worthless. The prized ‘material assets’ that in this instance formed the basis of the post-war economy consisted of cigarettes, black-market agricultural produce and illegally traded ration items originating from the occupying forces. In the end, as in 1923, a new currency had to be introduced in order to re-establish some universally acceptable expression of value.

As was the case when the Rentenmark came into being, the birth of the Deutschmark in June 1948 (confined at the time to the western zones of occupied Germany) permitted the release of large amounts of produce of all kinds that had been hoarded in anticipation of a reliable means of exchange. The Reichsmark, successfully established in 1924, had later been subjected to secret debasement by the Nazis, especially during the Second World War, when its fate resembled that of the old goldmark between 1914 and 1918. By the final stage of the Hitler regime’s death struggle, in 1944–5, it had been thoroughly devalued. Once Germany had been defeated, and her central government ceased to exist, the Reichsmark became all but worthless.

Weimar Finance Minister, and later Chancellor, Hans Luther had spoken at the height of the hyperinflation in 1923 of Germany ‘starving with full barns’ (
bei vollen Scheuern verhungern
), and the same was true in late spring of 1948, just before the new Deutschmark was launched. ‘Material assets’ – valuables, food, above all, cigarettes – were the key to survival, and the black market ruled. And as in 1923–4, during 1948–9, goods and services that had for years been impossible to purchase with money quickly became available once more upon presentation of the new, valorised currency.

Thus, those who had suffered in the 1920s inflation suffered again, and young Germans of the 1940s generation also gained a taste of what it meant for money to be worthless. The suffering of German civilians was, moreover, increased by the fact that drastic food shortages, exacerbated by punitive policies on the part of the victorious powers (especially the so-called ‘Morgenthau Plan’), caused widespread malnutrition and even starvation. Added to this, whereas in 1918 Germany’s towns had remained undamaged, by 1945 massive Anglo-American air raids had destroyed vast swathes of housing, industrial plant and infrastructure of all kinds, as well as laying waste on a horrendous scale the country’s rich architectural and cultural heritage. It was widely perceived that national reconstruction would take decades to achieve.