WHEN MONEY DIES: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany

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    When Money Dies is the classic history of what happens when a nation’s currency depreciates beyond recovery. In 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to 4,200,000,000,000 marks), the German republic was all but reduced to a barter economy. Expensive cigars, artworks, and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump of coal; and a bottle of paraffin for a silk shirt. People watched helplessly as their life savings disappeared and their loved ones starved. Germany’s finances descended into chaos, with severe social unrest in its wake.

    Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, “quantitative easing,” that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline. Whatever the reason for a country’s deficit—necessity or profligacy, unwillingness to tax or blindness to expenditure—it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? Germany in 1923 provides a vivid, compelling, sobering moral tale.

    Softcover, 269 pages

    Note to the 2010 edition


    1. Gold for Iron

    2. Joyless Streets

    3. The Bill Presented

    4. Delirium of Milliards

    5. The Slide of Hyperinflation

    6. Summer of ’22

    7. The Hapsburg Inheritance

    8. Autumn Paper-chase

    9. Ruhkampf

    10. Summer of ’23

    11. Havenstein

    12. The Bottom of the Abyss

    13. Schacht

    14. Unemployment Breaks Out

    15. 15 The Wounds Are Bared

    16. Epilogue




    Selected Excerpts

    Lady Listowel, (Judith, Countess of Listowel, formerly Judith de Marffy-Mantuano.) whose father held a senior post in the Hungarian diplomatic service recalls the distress among the circle of her family's friends in Budapest:

    One used to see the appearance of their flats gradually changing. One remembered where there used lo be a picture, or a carpet, or a secretaire. Eventually their rooms would be almost empty and on paper some people were reduced to nothing. In practice, people didn't just die. They were terribly hungry, and relations and friends would help with a little food from time to time. We sent them parcels, or took them ourselves because we had no cash to pay for postage. And some of them begged—not in the streets—but by making casual visits (one knew only too well what they had come for) or by writing letters asking for help. Everyone still tried to keep up appearances: at first, early on, people looked around to see what economies they could make, what clubs to resign from, what luxuries to do without. Later it was a question of considering what necessities to do without.

    And when food was not the problem—after all, we lived most of the time in the country where we could get it—there were troubles because we had no money. Only one of us could afford to go into Budapest at a time. There was no way to get medical help without money. If you had toothache you couldn't afford a dentist. If you needed to go to hospital, you might get into a convent: otherwise you stayed at home, and got better, or got worse.

    Ernest Hemingway returned to Kehl in late April, fortified by a visa obtained from the German consular attache in Paris with the aid of a bribe. Since the year before, the little Rhineland town 'had been transformed.

    The waiter sat down at the table. 'No, there is no one here now,' he said. 'All the people you say you saw in July cannot come now.—The French will not give them passports to come to Germany . . . The merchants and restaurant keepers in Strasbourg got angry and went to the police because everybody was coming over here to eat so much cheaper and now nobody in Strasbourg can get a passport to come here . . . Now no Germans can get passports to go across the river to Strasbourg where many worked. They could work cheaper than the French, so that is what happened to them. All our factories here are shutdown. No coal, no trains. This was. one of the biggest and busiest stations in Germany. Now nix. No trains, except the military trains, and they run when they please … We haven't had any fun since 1914. If you made any money it gets no good, and there is only to spend, it. That is what we do. Last year I had enough money saved up to buy a Gasthaus at Hernberg: now that money wouldn't buy four bottles of Champagne.'

    Hemingway recorded for the Toronto Daily Star that Champagne then Jzost 38,000 marks a bottle, luncheon 3,500 marks, a sandwich 900 marks, and beer 350 marks a stein.

    I remembered that last July I stayed at a deluxe hotel with Mrs. Hemingway for 600 marks a day. 'Sure,' the waiter went on, 'I read the French papers. Germany debases her money to cheat the Allies. But what do I get out of it?'

    Excerpt from the Prologue

    In October 1923 it was noted in the British Embassy in Berlin that the number of marks to the pound equaled the number of yards to the sun. Dr. Schacht, Germany's National Currency Commissioner, explained that at the end of the Great War one could in theory have bought 500,000,000,000 eggs for the same price as that for which, five years later, only a single egg was procurable. When stability returned, the sum of paper marks needed to buy a gold mark was precisely equal to the quantity of square millimeters in a square kilometer. It is far from certain that such calculations helped anyone to understand what was going on; so let the unmathematical reader take heart.

    Because of the varying ways in which nations express large amounts, I have tried to avoid notations such as billions and trillions upon which custom is confusingly divided. When I have departed from this practice, due indication has been given.

    It has been harder in the writing to find enough simple epithets to describe without repetition the continuous, worsening succession of misfortunes that struck the German people at this time. It was a difficulty noticed and noted by Mr Lloyd George writing in 1932, who said that words such as 'disaster', 'ruin', and 'catastrophe' had ceased to rouse any sense of genuine apprehension any more, into such common usage had they fallen. Disaster itself was devalued: in contemporary documents the word was used year after year to describe situations incalculably more serious than the time before. When the mark finally dropped out of sight and ruin was all around, there were still Germans to be heard predicting Katastrophe for the future.

    I have tried, therefore, to limit the number of disasters, crashes, cataclysms, collapses and catastrophes in the text, as well as the degree of crisis and chaos, to a digestible amount, to which the reader may mentally add as much more as his power of sympathy dictates.

    In one other matter the reader must act independently. It has been necessary frequently to give the 1920s' sterling or dollar equivalents of the mark sums involved, in order to show the degree of the mark's depreciation. The continuing process of inflation of all western countries makes conversion to present-day value an unrewarding occupation. For the lowest range of conversions have kept to the £sd system of 12 pence to the shilling am shillings to the pound. At this distance, cost of living comparisons are fairly futile; yet it may be useful to reckon that in the middle of 1975 it was necessary to multiply every 1920 sterling figure by almost 15 times to find an equivalent. Thus a wage of £200 in 1919 may be worth £3,000 today; a sum of ten shillings worth seven or eight pounds. For dollars, a multiplicator of six or eight could be enough. If a mark in 1913 would buy almost a pound's worth of goods services in 1975 (some items, clearly, were much more expensive than others such as labor much cheaper in real terms than now). No simple but rough conversion is available for sterling readers whom it amuses or vexes to imagine paying £148,000,000 for a postage stamp: for marks they should read pounds.

    There is no constant rule of thumb for coping accurately witt later stages of the inflation. Until autumn 1921 the internal depreciation of the mark sometimes lagged far behind its fall abroad; making Germany such a haven for tourists. Later on (from beginning of 1922), as public confidence in the mark dissolved, domestic prices adjusted themselves rapidly upwards in tune to the dollar rate, and at the end were even heftily anticipating mark's fall. This was one more of the phenomena of the times which fatally confused the issue then and which exercised the interest of economists for many years afterwards.

    This is, I believe, a moral tale. It goes far to prove the revolutionary axiom that if you wish to destroy a nation you must corrupt its currency. Thus must sound money be the first bastion of a society's defense.

    Book Review by Alex Kurtagic

    Warren Buffett recommendations notwithstanding, it says something about the state of our economy when someone decides it is time to resurrect a 35-year-old account of the Weimar-era hyperinflation.

    Written during the stagflationary 1970s, Adam Fergusson’s When Money Dies: The Nightmare of the Weimar Hyperinflation contains much to titillate our morbid curiosity, besides an instructive illustration of what we can expect should the Austrian economists’ gloomiest prophecies ever come true. (The book, long out of print, was fetching close to $700 on eBay this summer, and has now been made available in electronic format.)

    Defined in the present text as occurring when the rate of inflation exceeds 50 percent per month, hyperinflation is caused by an uncontrolled increase in the money supply and a loss of confidence in the currency. Because of the absence of a tendency towards equilibrium, fear of the rapid and continuous loss of value makes people unwilling to hold on to the money for any longer than is necessary to convert it into tangible goods or services. Hyperinflation is therefore characterized by very rapid depreciation and a dramatic increase in the velocity of the circulation of money.

    Although the most famous (because it was the first to have been systematically observed and because it was deemed to have made Hitler possible), the hyperinflation of Weimar-era Germany, where Papiermark-denominated prices came to double every 3.7 days, takes “only” fourth place in the hyperinflationary hall of fame. The first place belongs to post-World War II Hungary, where in July 1946 peng?-denominated prices doubled every 15 hours. The second place belongs to Mugabe-era Zimbabwe, where in November 2008 Zimbabwean dollar-denominated prices doubled every 24.7 hours. And the third place belongs to Balkans War-era Yugoslavia, where in January 1994 Yugoslav dinar-denominated prices doubled every 1.4 days.

    In Germany the inflationary cycle had already begun during World War I, when the paper mark went from 20 to the pound (at the time worth around 4 dollars) to 43 to the pound by war’s end. Although the paper mark continued tumbling downward, spiking momentarily in the first quarter of 1920, it recovered somewhat afterwards and remained more or less stable until the first half of 1921. The London Ultimatum, however, which demanded war reparations to be paid in gold marks to the tune of 2,000,000,000 per annum, plus 26% of the value of German exports, triggered a new leg of rapid depreciation. The French policy towards Germany, backed by the British, was virulently vengeful, and imposed an onerous burden on Germany’s economy: in fact, the amount demanded was in excess of Germany’s total holding of gold or foreign exchange. The deficit in the budget, of which reparations contributed a third, was made up by discounting government Treasury bills and printing money.

    Despite a momentary respite during the first half of 1922, during which international reparations conferences caused the paper mark to stabilize at around 320 to the dollar, the lack of an agreement triggered a new crisis, resulting in a phase of hyperinflation. Fueled by the German government’s policy of passive resistance to French occupation of the Ruhr, which from January 1923 meant subsidizing through money-printing an anti-occupation strike by German workers, said hyperinflation escalated exponentially until November that year, when the introduction of the Rentenmark finally stopped the economic rot. By that time the German currency had fallen to 4,200,000,000,000 paper marks to the dollar.

    Fergusson attributed the extraordinary self-inflicted destruction of Germany’s monetary system to a failure on the part of its government and the Reichsbank to link currency depreciation to money printing. Depreciation was initially believed to have been the result of the Entente powers forcing up foreign exchange through market manipulations. The German public appeared equally ignorant, believing that prices were going up as opposed to the value of their currency going down. Anti-Semitic explanations, not refuted by visible examples of vulgar Jewish ostentation, financial acrobatics, and profiteering, were also popular. The consequent misery and economic chaos showed the weaknesses of the chartalist monetary standard.

    Combining a clear exposition with contemporary private diary entries, When Money Dies offers a harrowing narrative. The Weimar inflation obliterated savings, devoured wages, and caused assets to be distributed in the most unfair ways imaginable. As the wealthy had the means to protect themselves and even take advantage of the situation, and as the working class was organized and able to secure wage increases through frequent strikes and union demands, the main victims were the middle class—professionals, civil servants, the rentier class, and those on fixed incomes, who were reduced to penury and destitution. Landlords were also affected as a result of government-imposed rent controls.

    The industrialist class, on the other hand, was not unhappy with the inflation, as they benefited from it. Indeed, some industrialists and profiteers made fortunes at everyone’s expense. Individual industrialists were able to acquire assets (usually fixed assets and raw materials) for minuscule amounts by securing large bank loans that became virtually worthless within weeks because of the low interest rates. Said industrialists also welcomed the virtual destruction of fiscal burdens: high inflation also made tax assessments worthless by the time taxes were due.

    One of the effects of inflation was to turn everyone into a speculator — in the stock market, in foreign exchange, in commodities, and in assets, which offered protection from depreciation as well as profit opportunities. Foreign visitors in Germany were also able to take advantage of a notable differential between the official rate of foreign exchange and prices in real terms within Germany, where in relation to solid currencies like the dollar and the pound goods and services were available at bargain prices.

    For most of the inflationary period Germany enjoyed full employment, but the incentive to work hard and save was progressively eroded by the increasing fugacity of purchasing power. The main concern was somehow keeping ahead of the mark’s accelerating depreciation, so as to be able to still obtain the necessities of life. Payday had to come with increasing frequency, and finally daily in order to keep up with prices, which rose with increasing rapidity until they changed by the hour. Part of the rise was due to the need to factor in depreciation occurring between the time the money was paid to the merchant and the time the merchant was able to dispose of it. It became the norm to spend money as quickly as it was obtained and for shops to sell out in a single day. Coffees were ordered two at a time, to avoid having to pay more for any second cup. Barter, bribes, and corruption also became universal.

    Despite the prodigious nominal amounts, people’s main problem during this period was a chronic scarcity of money. Dozens of paper mills and printing firms and thousands of printing machines working night and day could not keep up with prices, causing the total amount of money in circulation constantly to decrease in real terms. Obviously, the more furious the money printing, the more acute the rate of depreciation, but his was something apparently not understood by Rudolf Havenstein, the president of the Reichsbank (German central bank), whose main preoccupation was ensuring there was enough money available to meet economic needs. Depreciation accelerated to such a degree that it eventually made more sense directly to burn money in the stove than first use it to purchase wood.

    The scarcity of money was reflected in the government’s budget, which dwindled to paltry amounts in real terms, further aided by the breakdown of the taxation system and the ridiculously low price of stamps and railway fares. By the end of the hyperinflationary cycle, the government’s income was a fraction of 1 percent of its outgoings.

    Food became progressively scarce as a result of hoarding and the refusal by farmers to sell their produce against worthless paper. Farmers were, in fact, relatively well off until almost the end, as they were able to produce their own food. City-dwellers were forced to sell their possessions in exchange for comestibles, and those visiting friends or relatives witnessed the latter’s flats gradually emptying of furniture, paintings, and any movable asset of value. Once these were gone, looting and farm raids was the next step for some. For others it was starvation and death.

    The highest denomination note, issued towards the end of 1923, was 100,000,000,000,000 marks (compare with Hungary’s 100,000,000,000,000,000,000 peng? note in 1946). By this time, Dr. Havenstein had the equivalent of 300 ten-tonne train wagons of unissued bank notes awaiting distribution for the day. The mark, however, had become not only worthless but largely shunned in favor of foreign currencies and tangible assets. Also in circulation were not only the official Papiermark issued by the central bank but also emergency money issued by municipalities, local banks, and even private firms in the effort to make up for money shortages. Such an environment had made it impossible to ascertain with precision the value of anything, as sellers used their own indexes and asked whatever they thought they could get people to pay for their goods or services. The chaos and economic breakdown was so complete that Germany by late 1923 was on the verge dismemberment, with the republic having long been under siege from both Communists and the Far Right. Hitler, who attempted his Beer Hall Putsch in November that year, was among the agitators.

    The death of Dr. Havenstein and the appointment of Dr. Hjalmar Schacht, marked the end of Weimar hyperinflation. This occurred under the auspices of a military dictatorship, comprised of Hans von Streisser, Otto von Lossow, and Gustav von Kahr, appointed by Prime Minister Eugen von Knilling, who, following a period of political violence an assassinations had declared martial law in September 1923. The discounting of Treasury bills was stopped and the Rentenmark—a temporary currency—was introduced at the rate of 1,000,000,000,000 Papiermark to 1 Rentenmark; also, debts were largely rescinded, unfairly to the detriment of many. Somehow, the confidence trick worked and a semblance of normality returned. Unfortunately, however, the price of stopping hyperinflation was steep and known in advance: mass unemployment, a sharp economic slowdown, and bankruptcies. The hyperinflation was allowed to carry on as long as it did partly because of an absence of political will to swallow the necessary bitter medicine.

    Among the casualties were some of the industrialists and profiteers who were caught out in the hyperinflationary game of musical chairs once the currency reform was enacted. Those who survived and had benefited from the economic conditions were forced to adjust to the dull world of hard work, thrift, small profits, and taxes. Some, like the Jewish-Lithuanian Barmat brothers, still managed to exploit the situation to their advantage: they converted their assets into the new, strong mark and issued loans at extortionate rates of interest (of up to 100%) while credit was nearly impossible to find elsewhere. Hyperinflation had bred universal corruption, however—a world of dog-eat-dog rapacity, opportunism, and pauperized billionaires, where the worst human instincts flourished and became a matter of survival.

    The post-hyperinflationary credit crunch was, not surprisingly followed by a credit boom: starved of money and basic necessities for so long (do not forget the hyperinflation had come directly after defeat in The Great War), many funded lavish lifestyles through borrowing during the second half of the 1920s. We know how that ended, of course: in The Great Depression, which eventually saw the end of the Weimar Republic and the beginning of the National Socialist era.

    From the vantage-point of 2010, we see glimpses in Fergusson’s account of the way events might play out in the United States and possibly Western Europe in the coming years, absent any political will to tackle the mountain of public and private debt, the enormous budget deficits, and the stupendous above-growth monetary expansion of the past decade. The crises are likely to be similar in kind, but follow a different order. The credit boom of the 2000s has been followed by the credit crunch of the late 2000s. Analysts of the Austrian school deem us to be in the initial stages of a Second Great Depression, and vaticinate much worse to come.

    Personally, I sometimes get tired of the unrelenting pessimism coming from some Austrian-influenced quarters, and wonder whether there is not a morbid curiosity there—untempered by personal experience—to witness a catastrophic collapse; but, all the same, I am not going to take chances and risk losing the little I have because I was bored by the truculent fantasies of some cleverer-than-thou commentators. When Money Dies is well worth reading if you are searching for a real-life overview of the sequence of weird phenomena that emerge during a inflationary cycle. Those who can would be well advised to use it and related texts to design in advance coping strategies in the event of monetary failure.

    Adam Dugdale Fergusson (born 10 July 1932) is a British journalist, author and Conservative Party politician who served one term in the European Parliament (MEP). He has remained involved in the field of European Union affairs since, as a Special Adviser to Conservative governments and as a business consultant. Among other books, he wrote When Money Dies, a classic account of hyperinflation in the Weimar Republic. It deals with not only the economic impacts that hyperinflation had upon society in the Weimar Republic, but also the way that society itself changed. Societal norms were broken down in the wake of hyperinflation, and Fergusson approaches this topic.

    First published in 1975, When Money Dies was hailed as a cult classic in the wake of the Financial crisis of 2007-2010, with copies changing hands on eBay for up to $1000. As a result, When Money Dies was republished in July 2010, becoming an Internet sensation after allegedly being commended by financier, Warren Buffett.


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