When Money Dies – Nightmare of the Weimar Collapse
by Charles Moore
Originally published: 02 August 2010, The Daily Telegraph
A timely recounting of the Weimar disaster that aided Hitler’s rise to power. The Weimar story is a lesson from history – what can happen when a nation follows the wrong economic doctrine.
THIS BOOK BY ADAM FERGUSSON: WHEN MONEY DIES – NIGHTMARE OF THE WEIMAR COLLAPSE, first published in 1975, has just been republished as a warning. It was spotted by Warren Buffett and printed on the internet (see below for link). Now an enterprising publisher has rushed it out. Concerned citizens have sent copies to central bankers to remind them of what was once, and could be again.
In fact, though, its report of the German hyperinflation is so extreme that it has the perverse effect of making the modern reader feel almost cosy. If the cost-of-living index in Germany stood at one in 1914, it was 15 million in September 1923, 3,657 million in October and, on November 12 1923, 218,000 million. In the 10 days to November 13, government expenditure exceeded revenue by 1,000 times. If you found a case full of banknotes, the sensible thing was to steal the case and leave the money.
Farmers withheld food in order to get higher prices for it, or refused to be paid in what was known as “Jew-confetti”. Desperate townspeople went marauding through villages. The value of pensions and savings was utterly wiped out. Some people were murdered; others starved. Even Gordon Brown never got close to this achievement. The Western world today has not suffered total defeat in total war, is not facing strong revolutionary movements from Right and Left, and is not paying crippling reparations (though government debt almost amounts to the same thing). Things aren’t that bad, we comfort ourselves.
But the Weimar story does contain plenty of relevant lessons. One is the power of the wrong economic doctrine. In Germany at that time, economic experts simply had no idea of the quantity theory of money. Havenstein, the president of the Reichsbank, believed that the incredible inflation of the mark had nothing to do with the fact that he was printing ever more notes. In fact, he turned his job into that of a demented printer, churning out notes which, as Adam Fergusson well puts it, were “far too many yet far too few”. His disastrous sway is a cautionary tale for those of us who tend to believe that the independence of the central bank from government is invariably a good thing. Some claim that Alan Greenspan was the modern Havenstein, doing everything he could to ignore basic financial truth and keep asset prices rising.
In Weimar Germany, incomprehension trickled down from the top. When something terrible is happening, and people cannot understand why, their natural reaction is panic. Once inflation really got going, people could see that it was useless to keep money, so they went out on insane spending sprees, buying, for example, pianos which they couldn’t play. By the same token the other way round, people’s irrationality can have a good effect. Havenstein died in November 1923, and his successor, Schacht, presided over a new medium of exchange called the Rentenmark, guaranteed by mortgages on agricultural property and bonds on German industry. Although they could easily have decided otherwise, people chose to believe what they were told, that a trillion marks equalled a gold mark and a gold mark equalled a Rentenmark. The currency stabilised.
This book also shows the incremental power of a bad phenomenon. Once inflation gets going, many acquire an interest in its continuance. The word “crisis” means the moment when a problem comes to a head, but the trouble with inflation is that it is a way of postponing (and therefore ultimately worsening) that crisis. As Lord D’Abernon, the astute British ambassador to Germany at the time, put it, “Inflation is like a drug in more ways than one. It is fatal in the end, but it gets its votaries over many difficult moments.” Today, a similar addiction is shown by those, including our recently defeated government, who try to put off tackling the deficit lest tough action produce slump. When the world has gone mad, making things worse can seem like making them better.
Just now, experts are debating whether the greatest risk to the world is deflation or inflation – 1930s depression or Weimar explosion. I am not qualified to judge, although it seems worth pointing out that it could be first one and then the other. But what is fascinating about the history of economic collapse is that it brings one back to the basis of civilisation. Government and civil society itself depend for their existence on an infinitely complicated web of trust. Money is a prime expression of this. If money cannot be trusted, nor can any but the most primitive exchanges between human beings. You cannot plan, build, save, borrow, bequeath. Your values, both material and moral, radically deteriorate. In extreme cases, only your next meal matters.
Adam Fergusson shows that Germany’s material collapse was also a moral one. All authority failed. “My dear lady,” said a bank official to a woman inquiring anxiously about her War Loan, “where is the state which guaranteed those securities for you? It is dead.” Once it died, people tended to hate and fear anyone who might conceivably be doing better than they: “Germany’s capital”, Fergusson writes, “had been redistributed in the most cruel way, no longer spread reasonably evenly among millions, but largely in coagulated blobs among the new plutocracy”.
At such a point, angry citizens identify those coagulated blobs (usually inaccurately and unfairly) and attack them. Political leaders who stir the hatred seem plausible. It is actually possible to build a new state on the basis of such hatred. After reading this, I understood better than before why anti-Semitism was so important to Hitler: it seemed to explain things.
The full text of the book can be found here:
Written by aurick
02/08/2010 at 2:21 pm