Tuesday, March 24, 2009

Weimar Hyperinflation Details

How Does Inflation Get out of Control?

Many people consider Weimar Germany to be the worst hyperinflation ever, but it was just the best publicized. In fact, there have been hundreds of hyperinflations recorded in world history. According to Dollar Daze, the majority of all national currencies ever issued have been destroyed by hyperinflation.

So, what exactly causes a hyperinflation? Essentially, it boils down to a psychology in the government, a refusal to balance the budget combined with widespread financial guarantees to its citizens. Rather than balance expenditures with taxes or cut expenses, the government simply prints the money to make it's budget work. The printing of money causes a gradual inflation, which feeds itself. The alternative to inflation is unemployment and liquidation, which the government cannot abide, so the ever-widening budget gap is funded with ever-greater money printing.

Obviously, it is impossible not to notice that we have embarked upon that path today. Our government has determined to spend, borrow, and print its way out of an economic downturn. It is a first for the American government, which has one of the oldest stable currencies in the world, younger than only the British Pound. It is also a first time in the history of the world that the international reserve currency has flirted with hyperinflationary policies.

The following are some excerpts from a book on the Weimar hyperinflation, vignettes of the people's experiences, and their psychology which both enabled and sought to cope with the economic catastrophe. In the end, the German authorities did not choose to end their hyperinflation. Right to the very end, they consciously chose the path of hyperinflation to avoid the alternative of economic downturn. They considered inflation to be stimulation and dealt with its consequences, right up until the point when they could no longer forestall unemployment with stimulation, because they reached the point of both monetary insolvency AND high unemployment. At that point, the country's economic basis was nigh-well destroyed. The longer they delayed the economic adjustment, the more painful it finally was, and that on top of years of accumulated pain brought on by the hyper-inflation itself.


Much as it may have been recognised that stability would have to be arranged some day, and that the greater the delay the harder it would be, there never seemed to be a good time to invite trouble of that order. Day by day through 1920, 1921 and 1922 the reckoning was postponed, the more (not the less) readily as the prospective consequences of inflation became more frightening. The conflicting objectives of avoiding unemployment and avoiding insolvency ceased at last to conflict when Germany had both.

The take-off point in the inflationary progress, after which the advent of hyperinflation was but a matter of time, the point indeed when it became self-generating and politically irreducible except for short periods, was not indeed to be found on the graph of the currency depreciation, or of the velocity of its circulation, or of the balance of payments deficit. Nor in Germany's case did it notably coincide with some ultimate crisis of confidence in the mark, at home or abroad — Rathenau's murder, or the occupation of the Rhine ports, or the London Ultimatum, all of which had immediate seismic effects upon it. Rather it lay on the falling curve of political possibility, with which was closely linked the degree of political power and courage that the government, sorely pressed as it was, was able to muster.

What really broke Germany was the constant taking of the soft political option in respect of money. The take-off point therefore was not a financial but a moral one; and the political excuse was despicable, for no imaginable political circumstances could have been more unsuited to the imposition of a new financial order than those pertaining in November 1923, when inflation was no longer an option. The Rentenmark was itself hardly more than an expedient then, and could scarcely have been introduced successfully had not the mark lost its entire meaning. Stability came only when the abyss had been plumbed, when the credible mark could fall no more, when everything that four years of financial cowardice, wrong-headedness and mismanagement had been fashioned to avoid had in fact taken place, when the inconceivable had ineluct-ably arrived.


If prices went up, people demanded not a stable purchasing power for the marks they had, but more marks to buy what they needed. More marks were printed, and more, and more. Inflation, already in its fourth year when revolution overthrew the old regime, added a new, overwhelming uncertainty to the many uncertainties that attended the birth of the Weimar Republic.

Thus were the Government's plans drawn up, wilfully and simply, for financing the war — not by taxation, but by borrowing; and with the printing press as the well to supply both the needs of the Government and the growing credit demand of private business. Taxation was to play not the smallest part in meeting the costs of war before 1916. Helfferich had actually announced to the Reichstag in March 1915 that the war was to be financed exclusively by borrowing. Issue after issue of War Loan transformed the greater part of German private fortunes into paper claims on the State. Our enemies, especially Britain, took another line. They met the cost of war with taxes aimed primarily at those industries and groups to whom the war spelled prosperity. Britain's policy of taxation proved socially more equitable than Germany's policy of War Loans which lost their value after the war was over …

As the war machine lumbered expensively on, circumstances and policies combined to pull the wool over the financial eyes of the German people, not least those classes who had most to lose. Every German stock exchange was closed for the duration, so that the effect of Reichsbank policies on stocks and shares was unknown. Further, foreign exchange rates were not published, and only those in contact with neutral markets such as Amsterdam or Zurich could guess what was going on. It was never clear how much the steep rise in domestic prices was due to economy measures and war shortages rather than to inflation — and even the relevance of those prices was rendered dubious by the much higher black market rates. Only when the war was over, with the veil of censorship lifted but the Allied blockade continuing, did it become clear to all with eyes to read that Germany had already met an economic disaster nearly as shattering as her military one. The scales may have fallen at last from German eyes with the coming of peace, but that did not mean that the difficulties and injustices created by war-time inflation had passed unnoticed.

It must be admitted generally now that the cause of the depreciation of our currency and of the purchasing power of the mark was neither the commercial balance during the war nor the estimate of our military situation abroad; but in the exploitation of our currency for the purpose of obtaining money for the Treasury, that is to say in a fictitious increase of our total income. In as much as the country issued milliards in the form of extraordinary levies, War Loans, Treasury bills, and so on, without withdrawing from circulation corresponding amounts in the shape of taxes, it created new paper income and wealth incessantly, while the real national wealth was steadily being diminished by the war.

Even the most respectable of Austrian citizens now breaks the law, unless he is prepared to starve for the sake of obeying it … The fact that the future is so uncertain has led to stagnation in industry and public works, and swelling numbers of unemployed supported by the State … yet it is impossible to get domestic servants or indeed any sort of workers …

The State has been obliged to put 10,000 kronen notes into circulation — each equivalent to two years' income from my capital. A suit costs about six times what it was in 1913, but some things like food are a hundred or two hundred times as much … Paper clothes are being sold. Never had I dreamed it possible that one could purchase so little for 10,000 kronen … Jealousy and envy flourish in this atmosphere, and if one has procured some harmless article of food, one is careful to conceal the fact from one's fellow men. Hunger reigns inexorably and selects its dumb and uncomplaining victims above all from the middle classes …

Twice a day we are all forced to await the quotation of the Zurich bourse. Every fresh drop in its value is followed by a wave of rising prices … The confidence of Austrian citizens in the currency administration of the State is shaken to its foundation. The State which is perpetually printing new banknotes deceives us with the face value … A housewife who has had no experience of the horrors of currency depreciation has no idea what a blessing stable money is, and how glorious it is to be able to buy with the note in one's purse the article one had intended to buy at the price one had intended to pay.

Speculation on the stock exchange has spread to all ranks of the population and shares rise like air balloons to limitless heights … My banker congratulates me on every new rise, but he does not dispel the secret uneasiness which my growing wealth arouses in me … it already amounts to millions.

The cost of living since the outbreak of the war had risen by nearly twelve times (compared with three times in the United States, almost four times in Britain and seven times in France). Food had accounted for half the family budget then, but now nearly three-quarters of any family's income went on it. The food for a family of four persons which cost 60 marks a week in April 1919, cost 198 marks by September 1920, and 230 marks by November 1920. Certain items such as lard, ham, tea and eggs rose to between thirty and forty times the pre-war price. On the bright side - in contrast to Austria - the official unemployed figure was low, and only 375,000 people were on the dole.

Indeed, the apparent health of industry was one of the factors which most effectively confused the inflation issue. Bolstered by a financial programme geared to subsidising in various vital ways an industrial front which continuous depreciation of the currency had already made highly competitive in foreign markets, the lot of German industry had materially improved over the previous twelve months.

Inflation provided the answer to the equation. If a budget did not balance, the deficit had to be made good somehow. In October 1920 Germany's national debt stood at 287,800 million marks. At the old 1914 parities this sum equalled £14,400 million; but at the new it represented only £1,200 million.* (Great Britain's national debt amounted then to £8,075 million.) A year before Germany's great inflation is generally thought to have started, Germany's national debt had all but been wiped out.

The daily creation of fresh paper money which the government requires in order to meet its obligations both at home and abroad (services and goods which it is 'obliged both to render and deliver') inevitably decreases the purchasing value of the mark and leads to fresh demands, which in turn bring about a further decline, and so on ad infinitum.

Even progressive increases in taxation could not completely meet the situation, since new impositions meant an increased cost of living, which automatically reduced the purchasing value of the mark, and in turn brought about more inflation and budget instability.

The newspaper complained of the 'quite small capitalist upper class' making huge profits by taking advantage of the exchange fluctuations, while foreigners were using the discrepancy between the home and foreign values of the mark 'to purchase our goods en masse'. It demanded that profits on exchange and dollar speculations be taxed intensively, and went on:

Blackett noted that the rent restriction Acts hit much the same classes, who were 'forced to starvation in order to subsidise the German workman's wages and the employer's profits'. The bread and rail subsidies, financed by inflation, combined with the rent restriction, enabled the foreigner to buy German goods well below world prices and, if he lived in or visited Germany, to travel, eat and occupy houses at ridiculously cheap rates. 'A gradual process of buying up and carrying off Germany's movable capital, secondhand furniture, pianos, etc., is taking place at the expense of Germany as a whole.'

SOCIAL unrest was one of the obvious symptoms of inflation. The disease, the Austrian and German financial world seemed to agree, was itself not containable without international goodwill and a significant relaxation of the obligations under the peace treaties. Germany's politicians therefore set about relieving the symptoms wherever possible. More measures were brought in so that the government might be seen publicly to be dealing with profiteering. The Prime Minister of Bavaria even submitted a Bill to the Reichsrat to make gluttony a penal offence.

But in this respect conditions are hopelessly unhealthy, and the public will continue to be swayed by rumours and to speculate either in goods or in stocks and shares.

The previous fall in the mark had also produced unfortunate results by driving the population in shoals into the shops in a mania of purchasing. While abusing the foreigner for buying out Germany with his profitable rate of exchange, the native has been no whit behind in emptying the shops of their stocks … Many thought that their money would soon have no value whatever and that it must be exchanged for goods while there was yet time: others realised that the purchasing mania would help the falling rate of exchange to raise prices, and they therefore bought on speculative grounds.

The press pointed out that a disastrous slump in trade could not but ensue when the purchasing power of the population was exhausted, and that meanwhile the poorer classes were suffering. All efforts, however, were in vain to drive sense into a panic-stricken people, and articles in the shops could be seen being marked up to a higher price day by day.

In the eight years since 1913, the price of rye bread had risen by 13 times; of beef by 17. Those were the commodities which had fared best. Sugar, milk (at 4.40 marks a litre), pork and even potatoes (at 1.50 marks a Ib.) had risen between 23 and 28 times; butter had gone up by 33 times. These were only the official prices — real prices were often a third higher — and all these prices were roughly half as much again as in October, only two months before.

The brief December recovery of the mark brought no relief. That event, which caused unemployment transiently to treble to 3 per cent, gave another warning of what would inevitably have to be suffered when, one day, the printing presses stopped printing banknotes to order. Before the war, when the mark was sound, there were normally about 9,500 bankruptcies a year. As wartime inflation increased, the number regularly dropped, from 7,739 in 1914, to 807 in 1918. The total number in 1921, during the first seven months of which the mark was fairly stable, was 2,975, more than double the 1920 figure and three times that of 1919.* (The annual bankruptcy figures from 1912 were: 9,218, 9,725, 7,739, 4,594, 2,279, 1,240, 807, 1,015, 1,324, 2,975.) The 1921 figures were the most indicative; for in comparing the number of bankruptcies during the various months of the year it could be shown that a falling mark was associated with a decline in bankruptcies, and vice-versa. The largest number, 845, was in the spring when the mark stood highest; but after it reached its lowest in November the number was 150. The Frankfurter Zeitung commented: 'It gives some inkling of the awful debacle which may be expected if a rapid and permanent improvement of the mark actually takes place.'

It was natural that a people in the grip of raging inflation should look about for someone to blame. They picked upon other classes, other races, other political parties, other nations. In blaming the greed of tourists, or the peasants, or the wage demands of labour, or the selfishness of the industrialists and profiteers, or the sharpness of the Jews, or the speculators making fortunes in the money markets, they were in large measure still blaming not the disease but the symptoms.

It was significant enough that union, demands were still for higher wages to meet rising prices rather than, before all else, stable prices and a stable currency. A few of the financially sophisticated could be heard blaming the government, and the Finance Minister in particular, but a typical view was that prices went up because the foreign exchange went up, that the exchange rate went up because of speculation on the Stock Exchange, and that this was obviously the fault of the Jews. Although the price of the dollar was a matter for almost universal discussion, it still appeared to most Germans that the dollar was going up, not that the mark was falling; that the price of food and clothing was being forcibly increased daily, not that the value of money was permanently sinking as the flood of paper marks diluted the purchasing power of the number already in circulation.

Most successful businessmen, however, stuck happily to the heresy that only by a continually falling exchange rate could Germany compete in neutral markets. After them, the deluge. Neither they, nor the politicians, nor the bankers — with distressingly few exceptions — perceived any direct connection between inflation and depreciation. And yet, as the printing presses churned out bank notes the exchange continued rapidly to fall. What impressed the ordinary politician was the danger of social unrest which would, in his opinion, inevitably arise if there were any scarcity of currency. He could not see, or intentionally ignored, the obvious danger which proceeded from continuous inflation. Social unrest appeared, just the same.

ONLY the country people were surviving in Germany in any comfort: anyone who lived off the land had the readiest access to real values. It was not surprising that even when they ensured that the money receipts for their goods were no more than equivalent in purchasing power to what they were used to, they were accused of extortion — the more so if they delayed the sales of produce in the full knowledge that prices would be higher the longer they waited. Erna von Pustau went to stay in the country and asked her hosts bluntly what they were doing with all the money they were squeezing out of the townspeople. They replied candidly that they were paying off their mortgages. The principle of Mark gleich Mark had helped agriculture enormously: for the country people, landowners, farmers or peasants, life had started again. At the end of August 1922 when the mark passed 2,000 to the dollar — 9,000 to the pound — a mortgage of seven or eight years' standing had been 399/4OOths paid off. When Frau von Pustau returned home the talk in the family was about prices going up, about the credits which had to be reduced, about the middle-class party, about big business and the workers who always asked for more … The contrast between country and city was so enormous that it cannot be understood by people who have not lived through it.

To condemn the individual's struggle for survival in such chaotic circumstances as either selfish, or unnatural, or wrong, was in many ways unjust. When people do not understand what is happening, or why it is happening, and have no idea about what to do about it, and are not told, panic must follow. Even so, that the countrypeople were behaving naturally brought no comfort to townspeople who had no goods to barter, and whose incomes remained static.

On September 9 the financial authorities announced that in the previous ten days 23 milliard marks had been printed and distributed, representing 10 per cent of the total circulation of paper in the country. 'The daily production of the Federal printing press,' the newspapers dutifully recorded, 'has now risen to 2.6 milliards of paper marks. In the course of this month it will be increased to almost 4 milliards of paper marks, at which figure it is hoped the shortage of money will be definitely overcome.'

Shortage of liquid cash, indeed, was acute, and the July emergency money law was coming into its own. Large industrial concerns began to pay their workmen partly in notes and partly in coupons of their own, which were accepted by local tradesmen on the understanding that they would be redeemed within a very short time. Municipalities, too, started to issue their own currencies, aware that any delay in receiving their pay packets would dangerously aggravate workers whose main concern was to spend them before they depreciated. The cities and towns developed a parallel fear of unemployment which on a large scale might lead to outbreaks of Communist-inspired disorder, and so began artificially to create employment for their staff. The citizens of Frankfort noted with alarm that large tracts of quite serviceable road were being repaired outside the town and that the overhead system of telephone wires was being converted into an underground one.

At home in Germany, where people were resorting to trade by barter and progressively turning to foreign currencies as the only reliable medium of exchange, new Orders were brought in relating to the purchase of foreign bills and the use of foreign exchange to settle inland payments. In addition to imprisonment, fines could now be imposed of up to ten times the amount of an illegal deal.

Sure enough, in the Ruhr, numerous factories were using various devices to avoid having to put men out on the streets. Bochumer Verein, in Essen, for example, engaged 1,500 men making stock articles for railways although there was no immediate requirement for them. Such measures, however, were only possible for firms with big financial reserves, and small firms were already dismissing workers in small numbers. With the November price increases -butter at 800 marks a lb., eggs at 22 marks each — shops were also cutting down on assistants because sales were dropping off.

The disparity between the rise in the cost of living and the rise in wages had now become very marked. Whereas since the war the former had gone up by about 1,500 times, the wages of the miner — in November 1922 the best paid worker — had gone up by barely 200 times. With the mark in mid-November at 27,000 to the pound and 6,400 to the dollar, and with prices following the course of both with unfailing regularity, not only were wages in general failing to keep pace but the workers were not even being paid what was their due. Owing to the shortage of paper money of all kinds, federal currency or Not geld, they were finding that by the time the balance was paid it had lost 50 per cent of its value. The best-paid workers were unable to purchase the barest necessities of life. The others and — as ever — those on fixed incomes or dependent on savings suffered accordingly.

Bonar Law, who fully appreciated that the stabilisation of the mark meant, for Germany, unemployment, an industrial crisis and enormous financial strain, whereas failure to stabilise meant catastrophe, was now equally unable to convince the French Prime Minister of the futility of amassing vast quantities of German paper marks by means of retortionary or extortionary measures.

'Inflation is like a drug in more ways than one,' remarked Lord D'Abernon. 'It is fatal in the end, but it gets its votaries over many difficult moments.' Hopelessly addicted, the Reichsbank ploughed on.

Petty crimp? the crime of desperation, was flourishing. Pilfering had of course been rife since the war, but now it began to occur on a larger, commercial scale. Metal plaques on national monuments had to be removed for safe-keeping. The brass bell plates were stolen from the front doors of the British Embassy in Berlin, part of a systematic campaign unpreventable by the police even in the Wilhelmstrasse and Unter den Linden. That members and families of the British Army of the Rhine suffered severely from burglaries probably reflected the fact, not that thieves had particular animus against the forces of occupation, but that these days foreigners were so much more robbable than anyone else. Over most of Germany the lead was beginning to disappear overnight from roofs. Petrol was syphoned from the tanks of motor cars. Barter was already a usual form of exchange; but now commodities such as brass and fuel were becoming the currency of ordinary purchase and payment. A cinema seat cost a lump of coal. With a bottle of paraffin one might buy a shirt; with that shirt, the potatoes needed by one's family. Herr von der Osten kept a girl friend in the provincial Capital, for whose room in 1922 he had paid half a pound of butter a month: by the summer of 1923 it was costing him a whole pound. 'The Middle Ages came back,' Erna von Pustau said.

Communities printed their own money, based on goods, on a certain amount of potatoes, or rye, for instance. Shoe factories paid their workers in bonds for shoes which they could exchange at the bakery for bread or the meat market for meat.

DR SCHACHT, the author of the reform, had no illusions about its shortcomings. He understood that the Rentenmark could hold the tide only so long, that new credits from abroad were essential, and that for that reason no departure could be made (despite the pleadings of the government, desperate for money) from the strictest discipline. Nothing could be done that would put at risk the currency stability or the budgetary balance. 'After a long devaluation,' Schacht held on January 24, 1924, 'stability can only be regained at the cost of a severe crisis. We are in the midst of this crisis. External commerce is at a standstill. The balance of trade is active [i.e. in Germany's favour] only because imports have ceased as importers have no means of paying. Industry is living on old stocks.'

Their numbers amounted to millions, and none was on the list of receivers of unemployed or short-time relief. They were the ones who had had their wealth shot away by the war, without knowing it. They looked in vain for charity to help, but the charitable institutions and the religious societies, just like the literary and scientific foundations and many of the universities and hospitals, had equally had the fountains of their incomes reduced to a trickle or less. Any who had held industrial debentures had lost their capital, to the benefit of industries who redeemed those debts with worthless paper. Any who had held industrial shares in 1913 would have had their capital reduced by three-quarters, and a pittance paid in dividend totals over the years -- but in practice most people had panicked long since and sold the bulk of their shares for what they could get for them to the industrial profiteers and speculators who amassed the nation's wealth to themselves, paying themselves not dividends, but 'fees'. Germany's capital had been redistributed in the most cruel way, no longer spread reasonably evenly among millions, but largely in coagulated blobs among the new plutocracy.

It was widely remarked that the destitution inflicted by the inflationary process was not general. The very evidence, indeed, of great wealth — ostentatiously flaunted by the new rich who had it -misled many observers, including the French, into supposing that Germany's refusal to pay reparations on the nail was Teutonic knavery. The existence until the Ruhr invasion of full employment, an obviously prosperous working class, a buoyant economy, a booming home market, a strongly competitive position in foreign markets, factories bursting with production — all made possible by the vast scale of Germany's borrowing — could have fooled anybody.

Once more, however, here was a false dawn. Germany's trouble was that the inflation boom had never been liquidated. Stabilisation had ended the period when entrepreneurs could borrow as much as they wished at the expense of everyone else. A vast number of enterprises, established or expanded during monetary plenty, rapidly became unproductive when capital grew short. More realistic transport, fuel and food prices, and the return of rents to economic levels meant that wages, too, had to be raised substantially in real terms.

Firms that mushroomed during the inflation now found that the real interest they paid on loans for the first time was positive rather than negative, lower though the rates appeared to be. Perhaps most significant, for the first time they were obliged to pay real taxes, many of which were extremely high because of the necessity rapidly to balance the budget and to bring official salaries, which had fallen disastrously, up to an acceptable level again. Companies were often unable to buy new machinery after stabilisation came, so much so that huge stocks of unsold iron and coal began to build up in the Ruhr. Not even the foreign loans flowing in were able to prevent the seizing up once again of the Ruhr mining industry where pit after pit, especially any producing poor quality coal, was forced to close. Workers were to flock from pit to agriculture, from mines and quarries and engineering to the production of food and direct consumer goods, and to building. Hugo Stinnes himself had been deceived by the artificial prosperity of inflation into a fanatical confidence in the future of coal. It was the post-stabilisation depression in the coal, iron and steel industries, contriving even the depopulation of Ruhr townships, which led eventually in June 1925 to the collapse of the Stinnes empire.

The Stinnes debacle demonstrated above all that great industrial possessions could not be held without adequate liquid resources (as early as June 1924, Stinnes had been trying to pledge Bochumer Verein and Gelsenkirchen shares against Dutch loans); and that vertical combines were inefficient and unprofitable except under the exceptional conditions which had bred them.

Germany which had undergone almost every conceivable form of collapse during the previous six years — military, political, social, financial, economic — now crashed downwards again just as her many times demoralised people had supposed that, with international help, she was beginning to rise from her knees. Confidence was shattered. The flow of foreign money slackened. The Reichs-bank policy of credit restriction was maintained as firmly as ever to counteract a net outflow of gold and foreign exchange. The shifting of the working population was accompanied by a new, terrifying increase in unemployment and short-time working. Because labour was a buyers' market, those with work were nonetheless often compelled to work a 54-hour week. There was such an alarming rise in the cost of living that to prevent agitation the index had to be cooked. And there was a new, spectacular toll of bankruptcies. Much though public works were instituted to try to mop up labour, the unemployed figure had passed 1,300,000 by December 1925, and was gathering pace daily. The return of rational conditions had brought a necessary but brutal slimming of the immensely swollen public services: those who had been dismissed from the posts and the railways were now being joined not only by former miners and steel-workers but by the many who had started businesses on their own.

In the inflationary period new factories were built, old establishments reorganised and extended, new plant laid down, participations in all fields of industrial activity bought up, and the great amorphous concerns founded. Too late, it was found that this process had undermined the capital structure of the country: capital was frozen in factories for which, because of the extermination of the rentier and the reduction of the real wages of so many of the great consumer classes, there was no economic demand. Once the demand for goods was shut off and the flow of cash dammed, the fate of the productive apparatus was sealed. Even in 1924, firms of undoubted solidity and large assets were unable to pay out trifling sums of money. In 1926 that apparatus was still too great in relation to the working capital and the nation's power of consumption. Thus, whereas in 1913 there were 7,700 bankruptcies, and in 1924 only 5,700, the figure for 1925 was 10,800; and between the third quarter of 1925 and the second of 1927, bankruptcies numbered 31,000 — a rate of 15,000 a year.

In practice, furthermore, a great many bankruptcies were refused by the courts in the absence of assets with which to meet claims. Between May and November 1925, the number of protested bills per week doubled from 2,691 to 5,406. Many banks were immobilised by having had to lend to their industrial customers who had had to be kept alive but now could not repay. The banks found it prohibitively hard and unrewarding to liquidate securities, and under those conditions were unwilling to take over bankrupt factories in lieu of money. With shares now at far below value in a moribund Stock Market, there were endless sellers and no buyers.

Throughout the later inflationary years the shrill argument had gone on over who was to blame and what was the cause of the unceasing, increasing financial crisis — never a true crisis because instead of coming to a head it always did the impossible by getting even worse. Month upon month every excuse was found for it but the right one; every attempt made to stem the fall of the mark but the fundamental one.

Nor was German honour inflation-proof. The corruption among officials in 1924, Lord D'Abernon reported, was 'appalling', whereas before the war bribery had been almost unknown, and a high degree of uncorruptibility evident in public and private, if not always in commercial, life. There were few in any class of society who were not infected by, or prey to, the pervasive, soul-destroying influence of the constant erosion of capital or earnings and uncertainty about the future. From tax-evasion, food-hoarding, currency speculation, or illegal exchange transactions — all crimes against the State, each of which to a greater or less degree became for individuals a matter of survival — it was a short step to breaching one or other of the Ten Commandments.

In Germany not until well after the return to stability did the nature and extent of the corruption in high places begin to be known. Events like the sentencing in March 1924 to three years' gaol of Dr Zeigner, the egregious ex-Premier of Saxony, for corrupt practices and bribery had raised scarcely a ripple. The end of the year brought to light a far more formidable array of financial scandals, enough to confirm the view that the old universal integrity had sunk in the whirlpool of inflation, and to deliver another stunning blow to the nation's morale.

How great does inflation have to be before a government can no longer control it? Most economists accept that mild inflation has certain therapeutic advantages for a nation which must deal with the social and economic problems to which industrial democracies are usually subject. Most electorates still accept the statements of their politicians' pious intentions in regard to controlling ever rising prices: and yet the Deutschmark, the currency of the country which had most reason to fear inflation, lost two-thirds of its purchasing power between 1948 and 1975. The pound lost almost half its purchasing power between 1970 and 1975. In neither instance, however, did such depreciation represent a deliberate, cynical policy; which, no doubt, would also have been claimed by the German bankers and governments of the early 1920, who looked for causes of their monetary difficulties beyond their own printing press and tax system — and found them, without difficulty and to their complete intellectual satisfaction. It remains so that once an inflation is well under way (as Schmb'lders has it) 'it develops a powerful lobby that has no interest in rational arguments.' This was as true for Austria and Hungary as for Germany.

There came a stage when it was politically impossible to halt inflation. In the middle of 1920, after the brief post-Kapp Putsch period of the mark's stability, the competitiveness of German exports declined, with unemployment beginning to build up as a result. The point was presumably not lost on the inflators. Recovery of the mark could not be achieved without immediate repercussions in terms of bankruptcies, redundancies, short-time working, unemployment, strikes, hunger, demonstrations, Communist agitation, violence, the collapse of civil order, and thus (so it was believed) insurrection and revolution itself.

In war, boots; in flight, a place in a boat or a seat on a lorry may be the most vital thing in the world, more desirable than untold millions. In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finer than honour, clothing more essential than democracy, food more needed than freedom.

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