In 1919, John Maynard Keynes wrote:
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.
This process was seen almost immediately in Germany.
Germany paid for the First World War by printing and borrowing money. The inflation unleashed by the former wiped out the capital of those creditors created by the latter. Theo Balderston writes that:
The main wealth redistribution was from creditors to debtors…The annihilation of internal war debt made the German taxpayer the greatest beneficiary…portfolio diversification should have limited many wealth-redistrubutional effects. It was the small rentier – the ‘widows and orphans’, the house-owners, whose wealth was least diversified, who probably suffered most.
The war’s end brought no end to their suffering.
The Weimar Republic faced existential political threats from left and right and bought social peace with printed money. Initially, this helped Germany avoid the high postwar unemployment seen in Britain, for example, whose government implemented austerity measures and tamed inflation. As the mark tumbled against other currencies, German exports boomed. While, in 1921, industrial production fell by 31% in Britain, 22% in the United States, and 12% in France, in Germany it grew by 45%.
But whatever the average German gained from lower unemployment they paid for in higher prices. “German Trade Boom and the Sinking mark,” read a Guardian headline in October 1921. Listing “The results of the depreciation,” the article noted:
In the first place German industry is flourishing in an unprecedented manner. Profits are enormous, big dividends are being paid, export trade has been stimulated, production has increased, and unemployment has almost vanished. In the second place the cost of living is going up and the standard of living down.
“The cost of living in Germany has risen by about 40 per cent during the last three months,” it went on:
The price of wheat has risen about 300 marks per ton and of rye about 250 marks per ton during the last fortnight…Potatoes cost 1 mark a kilo on February 5, 9 marks on June 4, and 10 marks now.
German children are again showing symptoms of under-feeding and malnutrition. People with fixed salaries are feeling the pinch more and more severely…
Exporters could either keep the foreign currency they received abroad to avoid depreciation and taxes at home, or repatriate it at an exchange rate more favorable than when they made their initial sale. “[W]e are all actually no longer manufacturers,” said the industrialist Emil Guggenheimer, “but have become speculators.”
Not all Germans were so placed. Ernest Troeltsch, a civil servant, wrote:
The downward pressure on the way of living for the entire middle class and official class is also a matter of great sensitivity. These are the new poor, who face the new rich. All their income is swallowed up by housing expenses, heating and food; so far as everything else goes, one lives from old things and uses one’s old clothes absolutely to the limit…But the old things will wear out, and then the hardship will be bitter, without even taking account of the difficult accommodation situation.
Eventually, inflation’s palliative effects wore off. Between January and October 1923, unemployment rose from 3% to 27% in Prussia; 8% to 61% in Saxony; 1% to 37% in Hessen.
Discontent boiled over. “Believe me, our misery will increase,” a young veteran claimed:
The scoundrel will get by. But the decent, solid businessman who doesn’t speculate will be utterly crushed; first the little fellow on the bottom, but in the end the big fellow on top too. But the scoundrel and the swindler will remain, top and bottom. The reason: because the state itself has become the biggest swindler and crook. A robber’s state!..If the horrified people notice that they can starve on billions, they must arrive at this conclusion: we shall no longer submit to a state which is based on the fraudulent idea of a majority and demand a dictatorship.
On November 9, 1923, this veteran led an uprising in Munich to establish this dictatorship. It failed and he was imprisoned. As Germany’s economy recovered, he faded into the background. But the country’s economic calamities were not over and when they reemerged, so, too, would Adolf Hitler.
