When Money Dies
For anyone wishing to understand the consequences of hyperinflation here is the opening page of Adam Fergusson's 1975 classic When Money Dies - The Nightmare of the Weimar Collapse.
JUST BEFORE THE First World War in 1913, the German mark, the British shilling, the French franc, and 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 one was willing to take marks in return for anything. The mark was dead, one million-millionth of its former self. It had taken almost ten years to die.
The mark's fall began gradually. In the war years, 1914-1918, its foreign exchange value halved, and by August 1919 it had halved again. In early 1920, however, although the cost of living had risen less than nine times since 1914, the mark had only one-fortieth of its overseas purchasing power left. There followed twelve months of nervous fluctuation, but then the mark sped downwards with gathering momentum, dragging social misery and political disruption in its wake. Not until 1923 did Germany's currency at last go over the cliff-edge of sanity to which it had, as it were, clung for many months with slipping finger-tips. Pursuing the money of Austria and Hungary into the abyss, it crashed there more heavily than either.
The year 1923 was the one of galloping inflation when a kind of madness gripped Germany's financial authorities and economic disaster overwhelmed millions of people. It was the year of astronomical figures, of 'wheelbarrow inflation', of financial phenomena that had never been observed before. The death of the mark in November 1923 came as a merciful release, for the events of the preceding eight months had ensured that the old mark could never recover. They ensured, too, that Germany would have to undergo appalling rigours of financial reconstruction such as might otherwise have been escaped. The re-establishment of monetary sanity, which bankrupted thousands, robbed millions of their livelihoods, and killed the hopes of millions more, indirectly exacted a more terrible price which the whole world had to pay.
The inflation of 1923 was so preposterous, and its end so sudden, that the story has tended to be passed off more as a historical curiosity, which it also undoubtedly was, than as the culmination of a chain of economic, social and political circumstance of permanent significance. It matters little that the causes of the Weimar inflation are in many ways unrepeatable; that political conditions are different, or that it is almost inconceivable that financial chaos would ever again be allowed to develop so far. The question to be asked — the danger to be recognised — is how inflation, however caused, affects a nation: its government, its people, its officials, and its society. The more materialist that society, possibly, the more cruelly it hurts. If what happened to the defeated Central Powers in the early 1920 is anything to go by, then the process of collapse of the recognised, traditional, trusted medium of exchange, the currency by which all values are measured, by which social status is guaranteed, upon which security depends, and in which the fruits of labour are stored, unleashes such greed, violence, unhappiness, and hatred, largely bred from fear, as no society can survive uncrippled and unchanged.
Certainly, 1922 and 1923 brought catastrophe to the German, Austrian and Hungarian bourgeoisie, as well as hunger, disease, destitution and sometimes death to an even wider public. Yet any people might have ridden out those years had they represented one frightful storm in an otherwise calm passage. What most severely damaged the morale of those nations was that they were merely the climax of unreality to years of unimagined strain of every kind. Financially, for nearly four years, the ultimate cataclysm was always just round the corner. It always arrived, and there was always an even worse one on its way — again, and again, and again. The speeches, the newspaper articles, the official records, the diplomatic telegrams, the letters and diaries of the period, all report month by month, year by year, that things could not go on like that any longer: and yet things always did, from bad to worse, to worse, to worse. It was unimaginable in 1921 that 1922 could hold any more terrors. They came, sure enough, and were in due course eclipsed, and more than eclipsed, with the turn of the following year.
To ascribe the despair which gripped those nations entirely to inflation would of course be misleading. In the winter of 1918-1919 all three underwent political revolutions, following the deprivations of wartime and crushing military defeat: so that conditions were fundamentally unfavourable to any revival of national spirit not rooted in revenge, and would have remained so even had the peace treaties permitted the losers to struggle however gradually to their economic feet. It is not always clear what events — what popular uprising, or Allied ultimatum, or political assassination — contributed to the inflationary panic; or which were themselves directly or indirectly caused by the ceaseless depreciation of the currency and rise in the cost of living.
Undoubtedly, though, inflation aggravated every evil, ruined every chance of national revival or individual success, and eventually produced precisely the conditions in which extremists of Right and Left could raise the mob against the State, set class against class, race against race, family against family, husband against wife, trade against trade, town against country. It undermined national resolution when simple want or need might have bolstered it. Partly because of its unfairly discriminatory nature, it brought out the worst in everybody — industrialist and worker, farmer and peasant, banker and shopkeeper, politician and civil servant, housewife, soldier, merchant, tradesman, miner, moneylender, pensioner, doctor, trade union leader, student, tourist -especially the tourist. It caused fear and insecurity among those who had already known too much of both. It fostered xenophobia. It promoted contempt for government and the subversion of law and order. It corrupted even where corruption had been unknown, and too often where it should have been impossible. It was the worst possible prelude — although detached from it by several years — to the great depression; and thus to what followed.
The mark's fall began gradually. In the war years, 1914-1918, its foreign exchange value halved, and by August 1919 it had halved again. In early 1920, however, although the cost of living had risen less than nine times since 1914, the mark had only one-fortieth of its overseas purchasing power left. There followed twelve months of nervous fluctuation, but then the mark sped downwards with gathering momentum, dragging social misery and political disruption in its wake. Not until 1923 did Germany's currency at last go over the cliff-edge of sanity to which it had, as it were, clung for many months with slipping finger-tips. Pursuing the money of Austria and Hungary into the abyss, it crashed there more heavily than either.
The year 1923 was the one of galloping inflation when a kind of madness gripped Germany's financial authorities and economic disaster overwhelmed millions of people. It was the year of astronomical figures, of 'wheelbarrow inflation', of financial phenomena that had never been observed before. The death of the mark in November 1923 came as a merciful release, for the events of the preceding eight months had ensured that the old mark could never recover. They ensured, too, that Germany would have to undergo appalling rigours of financial reconstruction such as might otherwise have been escaped. The re-establishment of monetary sanity, which bankrupted thousands, robbed millions of their livelihoods, and killed the hopes of millions more, indirectly exacted a more terrible price which the whole world had to pay.
The inflation of 1923 was so preposterous, and its end so sudden, that the story has tended to be passed off more as a historical curiosity, which it also undoubtedly was, than as the culmination of a chain of economic, social and political circumstance of permanent significance. It matters little that the causes of the Weimar inflation are in many ways unrepeatable; that political conditions are different, or that it is almost inconceivable that financial chaos would ever again be allowed to develop so far. The question to be asked — the danger to be recognised — is how inflation, however caused, affects a nation: its government, its people, its officials, and its society. The more materialist that society, possibly, the more cruelly it hurts. If what happened to the defeated Central Powers in the early 1920 is anything to go by, then the process of collapse of the recognised, traditional, trusted medium of exchange, the currency by which all values are measured, by which social status is guaranteed, upon which security depends, and in which the fruits of labour are stored, unleashes such greed, violence, unhappiness, and hatred, largely bred from fear, as no society can survive uncrippled and unchanged.
Certainly, 1922 and 1923 brought catastrophe to the German, Austrian and Hungarian bourgeoisie, as well as hunger, disease, destitution and sometimes death to an even wider public. Yet any people might have ridden out those years had they represented one frightful storm in an otherwise calm passage. What most severely damaged the morale of those nations was that they were merely the climax of unreality to years of unimagined strain of every kind. Financially, for nearly four years, the ultimate cataclysm was always just round the corner. It always arrived, and there was always an even worse one on its way — again, and again, and again. The speeches, the newspaper articles, the official records, the diplomatic telegrams, the letters and diaries of the period, all report month by month, year by year, that things could not go on like that any longer: and yet things always did, from bad to worse, to worse, to worse. It was unimaginable in 1921 that 1922 could hold any more terrors. They came, sure enough, and were in due course eclipsed, and more than eclipsed, with the turn of the following year.
To ascribe the despair which gripped those nations entirely to inflation would of course be misleading. In the winter of 1918-1919 all three underwent political revolutions, following the deprivations of wartime and crushing military defeat: so that conditions were fundamentally unfavourable to any revival of national spirit not rooted in revenge, and would have remained so even had the peace treaties permitted the losers to struggle however gradually to their economic feet. It is not always clear what events — what popular uprising, or Allied ultimatum, or political assassination — contributed to the inflationary panic; or which were themselves directly or indirectly caused by the ceaseless depreciation of the currency and rise in the cost of living.
Undoubtedly, though, inflation aggravated every evil, ruined every chance of national revival or individual success, and eventually produced precisely the conditions in which extremists of Right and Left could raise the mob against the State, set class against class, race against race, family against family, husband against wife, trade against trade, town against country. It undermined national resolution when simple want or need might have bolstered it. Partly because of its unfairly discriminatory nature, it brought out the worst in everybody — industrialist and worker, farmer and peasant, banker and shopkeeper, politician and civil servant, housewife, soldier, merchant, tradesman, miner, moneylender, pensioner, doctor, trade union leader, student, tourist -especially the tourist. It caused fear and insecurity among those who had already known too much of both. It fostered xenophobia. It promoted contempt for government and the subversion of law and order. It corrupted even where corruption had been unknown, and too often where it should have been impossible. It was the worst possible prelude — although detached from it by several years — to the great depression; and thus to what followed.