War, Inflation and Moral Decay.
1914 marks Germany’s entrance into WWI, and the German people’s descent into one of the most extreme economic catastrophes in recent history. A myriad of disputes over governments, borders, African colonies, and a naval arms race mounted tension throughout Europe. As the sun was rising on the New World at the dawn of the 20th century, the dogs of war were howling. History is built on watershed moments, and while Germany struggled to regain her footing amidst the rising tides of global political upheaval; the face of a nation, and the trajectory of the world, changed forever.
On July 31st, 1914, the central bank of Germany gave up the gold backing of the Mark, her national currency.
The war was expected to be relatively short and inexpensive on all fronts. In order to preserve the state gold supply, the Reichsbank suspended the conversion of banknotes. They also set up loan banks funded entirely by indiscriminately printed paper money. These loan banks distributed credit, often in the form of war loans to military manufacturing, as well as to private businesses and industries.
Germany financed her way through the war through borrowing and overprinting paper money. A culture of war profiteering amongst sectors of industrialists flourished in those early days of rising inflation. Records show that between July 24th and August 7th of 1914, the quantity of paper notes in circulation increased by more than two milliard (1 milliard=1 thousand billion) marks.
Many industry giants condoned this path to rapid inflation and survived it.
Prices doubled between 1914–1919, the duration of the war, but even this would seem relatively stable based on the unprecedented post-war hyperinflation yet to come. A once confident Germany had lost the war and her dominance in Europe had been shaken. The Treaty of Versailles called for reparations for Germany’s war crimes in gold backed marks. This was nearly impossible debt due to the already steady depreciation of the unbacked currency. The country, however, was still an intrinsically rich, productive nation. France sought reparations regardless of available gold, occupying through military presence areas of rich material production. Germany lost control of production in the Ruhr, along with her African colonies, the Rhineland and Upper Silesia.
Germany lost 1/7th of her pre-war territory along with 1/10th of its population. Following the end of the war, a national assembly was convened in the city of Weimar where a new constitution was written and adopted.
Following the brutal end of an unexpectedly bloody war, the people of Germany were in a state of intense political chaos. Bolshevik communist groups that were causing civil unrest throughout Europe took advantage of rising class tensions in the fragile populous and attempted coups became the order of the day. The overprinting of money was rampant, cities began to print their own paper notes and distribute them in sacks to workers on payday. The people became increasing nervous and panicked; the affluent began frantically exchanging their savings, selling them for other more stable currencies, while ordinary people moved their currency to real goods.
Even non-musical families bought pianos, simply because they were a thing of value that could still be bought with their nearly worthless money.
Rural farms stopped selling food to townspeople for paper money, holding out for more practical barters. Essential supplies like food became increasingly scarce, while the paper money supply grew proportionately more plentiful. Once affluent women traded their heirloom gold for harder to come by sacks of potatoes.
The behavior of a radically destabilized population led to even faster inflation rates. Prices doubled again within five months in 1922. In November 1923, one United States dollar was equal to one trillion marks. The German mark was essentially dead. Around the same time the Reichsbank issued a new currency, the Rentenmark.
The Rentenmark was equal to 1 billion regular marks and was backed by mortgages on the land as well as bonds. This money was more like an illusion because neither factories nor land could be turned into cash or used abroad.
The word credit, however, derives from the Latin credere meaning “to believe”, and the German people needed to believe in the Rentenmark.
Farmers brought their produce back to market, and the townspeople bought it. An artificial normalcy was blanketed over the still struggling state. While some standards increased, resentment and anger still matriculated beneath the surface.
The Weimar Republic sought relief in restructuring their debt twice, however America’s own economic depression and adoption of the protectionist Harvey-Smoot tariff added to Germany’s unresolved unemployment problems. The extreme reduction in trade to the US further disrupted an already precariously balanced economy.
Warring factions of socialist and communist groups fed off the intensified class divisions within the decaying state. As time went on the National Socialist German Worker’s Party, often referred to as the Nazi party, won more and more seats in parliament.
Thomas Mann, a German writer and social critic of the time, remarking on the perceived apathy of his countries people summed it up as follows:
“the market woman who, without batting an eyelash, demanded 100 million marks for an egg, lost the capacity for surprise and nothing that has happened since has been insane or cruel enough to surprise her.”
The divides between the working, middle and elite classes were beyond repair.
A middle class German woman Erna von Pustau told American novelist Pearl Buck:
“inflation had finished the process of moral decay which the war had started. … Our times made us cynical. The pie was growing smaller and more people wanted to have pieces of the pie, and so there was nothing left from the ‘good neighbor’ atmosphere of former days. Everybody saw an enemy in everybody else.”
