Dying Money

I have recently read When the Money Dies by Adam Fergusson. He tells the story of the Weimar Hyperinflation in Germany that climaxed in 1923.

Just before the First world Wart in 1913, the German mark, the British shilling, the French franc, the Italian lira were all worth about the same, and four or five of any were worth about a dollar. At the end of 1923, it would have been possible to exchange a shilling, a franc or a lira for up to 1,000,000,000,000 marks, although in practice by then no was willing to take marks in return for anything. The mark was dead, one million-millionth of its form self. It had taken almost ten years do die (1).

These were amazing and disturbing events.

• The main problem was the inflationary policies of the German Reichsbank., Rudolf Havenstein, its long-serving President, did not under that link between loose monetary policy and rising prices. He thought his responsibility was to provide plenty of currency, but he could never catch up.

• Huge printing presses were run day and night trying to print sufficient banknotes, but they could not keep up.

• Banknotes declined in value so fast that a basket was needed to carry sufficient money to by some bread. On more than one occasion, a thief stole the basket and left the banknotes behind, because they had lost their value.

• Workers in the large industrial plants initially survived quite well, because unions were initially able to push through wage increases.

• Unemployment eventually escalated and workers suffered with the rest of society.

• People on fixed incomes suffered terribly. Pensions declined in value. Savings and government bonds sold to support the war effort had their value destroyed. The middle classes lost everything that they had.

• People sold furniture and jewellery to purchase food.

• People with mortgage debt found that their debts had disappeared.

• The country folk were better off, because at least they had access to food.

• Farmers were reluctant to supply food to the cities, because they were unwilling to exchange it for money that quickly became worthless.

• Groups of desperate people wandered around the countryside looking for food to steal.

• Food riots were frequent in the cities. They had to be put down using military force.

• Retailers were frightened to buy good to sell, because by the time they sold them, the money they received would be less than what they had paid. They were reluctant to set prices because they did not know what money would be worth by the time the goods were sold.

• Many industrialists and financers prospered (this created hostility to Jews).

• Government departments like the railways and post office could not put up prices quickly enough, so they were constantly losing money.

• The tax base was eroded by inflation, so the government was always short of money.