06 October 2010

Money Matters: Inflation in Pre-Hitler Germany

By Delia DeLeest

Hyperinflation is exactly what it sounds like: money becoming worth less and less in a very short period of time. Pre-World War II experienced this and the result affected the entire world and the course of history.

Though the Armistice in November of 1918 ended the actual fighting of World War I, it took over six months of negotiations to form an actual peace treaty. The Treaty of Versailles was signed June 28, 1919, five years to the day of the assassination of Archduke Ferdinand (and the Mrs. Archduke, who is always forgotten), which is the event that started the whole war ball rolling in the first place.

One of the provisions of the treaty was that Germany accept full responsibility for the war and that they pay reparations of $31.4 billion (equivalent to $400 billion in 2010 U.S. dollars). It was felt by many, both Germans and others, that this was excessive and the signing of the treaty caused distrust of the government and extreme unrest among the German people. Along with the monetary reparations, Germany was also stripped of its provinces and territories. There was no way Germany was going to be able to pay this bill and they didn't even bother trying. This, of course, did not go over well with their creditors.

The original war debt created within Germany itself also had to be figured into this equation. During the war, the mark was also taken off the gold standard, thus making it easier to simply print more money as it was needed, thus feeding the inflationary need for more money for purchasing. These are only a few of the factors that caused the horrendous decline of the mark; thousands of other things combined from before, during and after the war to decimate the country's monetary system.

In December of 1919, the exchange rate was 47 marks to one US dollar, by December of 1922 it was 7,000 to 1 and by December of 1923, (are you ready for this?) one US dollar was the equivalent of 4,200,000,000,000 marks. I double and triple checked and, yes, that is the right number of zeros. Children were given stacks of marks to play with like building blocks, because it was cheaper than buying actual blocks to play with.

The result of this inflation was awful. Those who thought they were well-off became paupers overnight. Exchanging your money for foreign currency was illegal, as was hoarding food and other necessities. If you wanted to survive, you were forced to break the law. Farmers who had food available in the country refused to ship it into the city. If the food made it to its destination without being stolen along the way, the money people wanted to use to pay for the produce was relatively worthless. There are heartbreaking stories of farmers dumping their milk while people starved in the cities. Policemen were pulled from their horses and the unfortunate animals were butchered right there in the street in a frantic quest for sustenance.

In response, the government tried various things, but printing more money only fed the inflationary fire and raising taxes only increased the cost of living, which again, fed inflation. Is it any wonder that during those times one such as Adolf Hitler, a charismatic nationalist who promised a bright future, came into power? The inflation didn't create Hitler, but it made Hitler possible. The people were looking for a savior, someone who was willing to do something different than their government in the past and he certainly fit the bill.

Delia DeLeest is fascinated by all things 1920s. She suspects she was once a flapper or, more probably, a bootlegger in a previous life. Her third 1920s era book, NOT LOOKING FOR TROUBLE, is being released from The Wild Rose Press at the end of October.

1 comment:

Deb said...

Coincidently, I just heard on NPR this week that Germany has finally finished paying its WWI reparations debt--it either made the final payment recently or will make it very shortly.

I remember reading a story about a German woman in the 1920s who received a letter from her bank telling her that her savings account held 1,000,000 marks--it sounded impressive, but the stamp on the envelope was worth 2,000,000 marks.