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When money dies: The nightmare of the Weimar collapse

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This book tells the story of the hyperinflation in Weimar Germany and its aftermath (1919-1926) and, to some extent, the ensuing rise of Hitler's Nazi Germany. It is a story which is so complex and convoluted that it takes a historian to even begin to do it justice. Fortunately, this book's author is not only an accomplished historian, well versed in his subject, but also a gifted writer. The result is a remarkable book about an almost indescribable and incomprehensible period in the world's history.

So, if you've ever wondered about the hyperinflation in Germany following the Great War (WWI), and by extension what the REAL consequences of inflation, hyperinflation, deflation and depression might be, this is the book you've been looking for. In fact, I've only read one other book which even comes close; that being `The Fiat Money Inflation in France: How It Came, What it Brought, and How It Ended' by Andrew Dickson White. But this book is much more timely, much broader in scope, much more comprehensive, and much easier to relate to our more modern times.

In it, you'll learn a lot and find the answers to many puzzling questions. Among them: what caused the inflation, what were its impacts, and why it was allowed to continue; which groups and social classes fared the best, which the worst, and why; how the inflation resulted in the redistribution of wealth; what happened to landlords, shop owners, government employees, members of unions, free workers, and pensioners, as well as the middle-class; what the man or woman on the street had to do simply to survive; who prospered, who lost everything, and why; what the government did and didn't do and what the impacts were on people at all social levels, and on industry; how the hyperinflation was finally ended, why the resulting deflation and depression was worse in many ways, and why; and what those living through the deflation/depression period had then to do in order to survive and, in some cases, prosper.

There is also much anecdotal evidence as to just how much misery both inflation and deflation can cause. For example: the well dressed elderly man who couldn't afford two cents (American money) for a bag of apples; the little old lady who supported herself by selling her crucifix chain one tiny gold link at a tme; the foreign students who bought rows of houses out of their allowance; the substitution of paste-board coffins for wooden ones; the life insurance policies that eventually were worth less than their annual premiums; the banks that did away with smaller savings accounts because the paper required to book them was worth more that the money in the accounts; the man who said it was better to have a prostitute in the house than the corpse of a dead baby; the beggars who, in October 1923, purportedly wouldn't accept anything smaller than a one million mark note; and finally, that even with the first "billiard" [a thousand million million] and five billiard notes being printed in November 1923, people still clamored for more.

Apart from the Weimar Republic: This book is essentially a case study in inflation and its aftermath which should be of interest to anyone contemplating or concerned about the current state of America's, and the world's economic future, and the direction America is headed. In reading it, it is well to keep in mind what Gunter Schmolders articulates (pg. 248), "With inflation alone can a government extinguish debt without repayment, or wage war and engage in other non-productive activities on a large scale: it is still not recognized as a tax by the tax-payer."

In any event, if you do read this book, and if you are anything like me: You'll likely conclude, as I did, that everyone talks about inflation, but no one, especially the politicians who cause it, really knows what they are dealing with or what the consequences may be.

This is a frightening account of the German, Austrian and Hungarian hyperinflations of the early 1920's. It includes blow-by-blow accounts by diplomats, bankers, and ordinary folk who survived the total annihilation of their currencies. Fergusson has done an outstanding job of documentation and must have spent thousands of hours in archives. It is indeed a shame that this book is out-of-print.

Review of the First Edition (rare hardcover) of When Money Dies, written by me on May 25, 2006, & not reedited:

I first read this book some 25 years ago. I was so impressed I immediately bought a dozen copies & gave them to pals. (In 1980 they were 3-4 pounds sterling each--it's ironic & interesting that the price of this out-of-print book now fetches multiple zeros).
Here are some parallels with our time:
The Germany of the '20s finds it cannot meet the costs of war reparations. The US of the 2000s starts a war intending to pay reparations before it begins, and then finds itself unable to meet the mounting costs of war reparations it originally thought would leap out of the ground and just pay themselves. (Meanwhile, the US's wounded soldiers [& the families of its dead soldiers] are going to require entire lifetimes of domestic reparations).
The Germany of the '20s attempted to buy/finance prosperity with ballooning deficits. The US of the 2000s wants to buy/finance prosperity with ballooning deficits. Neither nation-State can be told it is wrong--and neither admits (or even recognizes) inflation is a hidden and pernicious tax.
Germany before the '20s had every confidence in the mark. The US in the 2000s believes the only currency in the world is the dollar, & the only thing money can be made of is paper and ink (never gold or silver). But as one mixes ink with paper, hoping the mixture will have exchange value, one finds that one has given value to neither material.
As Germany becomes more unhinged in the '20s, it moves towards a strong man as a moth to a flame. As the US grows more unhinged, it loses faith in its 'strong man' (even if he does not lose faith in himself). If the US should subsequently shun whoever wants to be the next 'strong man', there may yet be be hope. Since it is possible for the next wannabe 'strong man' to be laughed off the stage, it is yet possible the US will not succumb. The jury is still out.
At times the mark strenghthens (goes against the ultimate trend, for short periods): the Germans of the '20s (and other investors) think the crisis is over and it is time to buy. At times the dollar strengthens (goes against the ultmate trend [?], for short periods): the world of the 2000s thinks the crisis may end--isn't it now time to buy cheap US assets?
The Germans of the '20s can add more zeros to their paper--but paper production does not keep up with the 'demand' for money. The US of the 2000s has but to generate a computer entry and like magic, the 'demand' for money is met. The paper of Germany leaves a trail [Fergusson proves this]--computer entries can be a hidden and dirty little State Secret [until prices rise as the money actually depreciates, the state can suppress much of the evidence].
At many levels, this book about a frightening past speaks to a menacing present. Because of its price, many will not get to read that message. Between the Germany of the '20s and the US of the 2000s, there are differences too, but not differences that necessarily help. The potential for money supply to soar (the Fed's ability to create credit by computer without even having to buy ink, paper, and printers) has never been so boundless. We of the 2000s prefer to believe we are more intellegent than the Germans of the 20s. We live with the hope that our enlightened leaders [!] comprehend inflation & understand that deficit spending shall ruin us. Enlighted people that they are, from government top to government bottom, we know and rely upon our leaders' fiscal responsibility. Just look at how enlightenment runs through the Nation--budgetary constraints are placed upon our brilliant leader, by those guardians of the Public Purse & Trust, a US legislature that checks and balances all his raw power. In truthiness [that is, if one buys their spin], they all do their utmost to preserve & protect the currency, while shouldering their duties to preserve and protect our Constitution. Tonight, can I sleep contentedly, knowing both these National Treasures are safe and sound?
Read this book: it is still found in libraries. You will be witness to ink on paper that actually has and holds its value.
May 25, 2006

This often difficult-to-read narrative describes the Hyperinflation of the Weimer Republic. The author used archived sources - newspapers and books - to recount the order of events. Personal interest stories are not included. Certain ideas stand out. This could be instructive in coming years.

Below I list salient points from When Money Dies:
* The inflationary period was for 10 years, the last 4 being extreme (the Weimer mark finally died in 1923). The end of the inflation was sudden.
* Government and banks continually reassured the population the worst was over, and people usually were encouraged as a result.
* To service debt, government enacted many new taxes, even some unusual taxes. But tax collection wasn't very successful and tax evasion became socially acceptable.
* Logically, the enormous government debt could only be paid back through inflation. Nevertheless, people were not prepared for hyperinflation.
* Most Germans had not grasped the draconian terms of the Treaty of Versailles at the time it was agreed upon.
* Food and fuel prices went up faster than those of clothing and other goods.
* The middle class in particular was wiped out.
* Laws were enacted against hoarding fuel and food. Shops were often closed and had reduced hours. For the sake of survival, everybody broke laws concerning hoarding, black markets and taxation.
* The German and Austrian people were long-suffering. They believed in their currency until almost the end, and they were constantly saying the worst was over when in fact things only got worse and worse.
* Foreigners descended on the land, buying up and exporting anything of value that could be moved. Eventually foreigners were buying businesses, land and anything that could be sold. Because foreigners got everything at fire sale prices, resentment built against them.
* The Army, defeated in WWI and starved of funds, revived very quickly. This was a big surprise within Germany.
* Extremist factions arose. The best paid workers finally couldn't afford the necessities of life. Riots and unruly mobs became common.
* When nationalist spirit was eventually revived, out of defeatism after WWI and the great hyperinflation, it was rooted in revenge.

The appeal now of this book, When Money Dies, is obvious. Mathematically, sovereign debt in so much of the world cannot be repaid in real terms. The International Monetary Fund has recently come out with extremely dire warnings. However, signals from government and banking officials are encouraging. Like the German people almost a century ago, I want to believe them when they say we're in recovery and the worst is over. It would be easier to believe had I not read this book.

Adam Fergusson has taken one of the more dramatic episodes in economic history and rendered it sterile and devoid of life. His narrative suffers from an over-reliance upon the historical perspective described by Toynbee: "One damn thing after another."

Consider the mid-war inflation of the mark: it went from being around 1 Gold Mark= 1 Paper DM to 1 Gold Mark= 1 TRILLION Paper DM within a scant four years. Such a radical inflation led to some strange events, including--

* thieves stealing suitcases of marks and immediately dumping the contents to run away with the empty suitcases (which were worth more than the money they contained)

* diplomats finding themselves lucky enough to have one US dollar treating six of their friends to riotous parties at numerous clubs and hotels over the course of a weekend and still leaving with an inordinate amount of change

* restaurant patrons sitting down to enjoy a 5,000 mark cup of coffee, only to find that the price had increased to 8,000 marks by the time they had finished drinking it

* workers demanding to be paid twice a day, as the marks they received at the beginning of the day would be worthless by the afternoon

* people finding that the savings which would have bought a summer house were, a couple of years later, only able to purchase a few bottles of champaign

* An old bachelor found that by the time the queue he was in had reached the store, all that remained to purchase were infant's clothes. He purchased them in the realization that holding *anything* tangible was better than holding marks which would be worthless in a few hours

Why did Germany keep the printing presses rolling in the face of such events? The standard response is that only through runaway inflation could she hope to settle her war reparations with France, which she would otherwise have no way of paying. The British Prime Minister lamented that France sought to punish Germany without end, cynically maneuvering Germany into default and therefore paving the way for a French occupation of the Ruhr-- all of which played out exactly as he feared.

Indeed, France emerges as being more responsible for German suffering than has been previously described. She indirectly bears responsibility for the conditions that gave rise to National Socialism and Adolf Hitler. France occupies a seat of honor in the great tally of epic mistakes made by nations during the 20th century.

One wishes Fergusson would have settled upon a more imaginative design than to open each chapter with dire words about how just when Germans thought things couldn't get any worse, the sky really began to fall. Perhaps that is an unavoidable hazard in telling a story about hyperinflation, where things, a-hem, continue to get worse and worse.

A more effective approach would have been to track the human tragedy, to which Fergusson pays scant attention. When telling a story like this, one quickly grows weary of adding yet more zeros to the rate of exchange; such numbers only become meaningful when human affairs are attached to them. Although Fergusson faithfully recounts excerpts of diplomatic letters, there is not enough examination of what average Germans experienced through the monetary nightmare.

One cannot help but feel that a more visceral account of the Weimar hyper-inflation will one day be told.

Fergusson's book, written 40 years ago, was republished in 2010 obviously to offer parallels to today's economic and financial travails. The book is a worthy addition to the history of the fated Weimar Republic. Though hyper inflation is not America's problem yet, currency debasement and the spector of economic and financial collapse of civil society surely is and should be considered with caution and should be foreseen. "Inflation is the ally of political extremism, the antithesis of order." In sometimes exhausting detail, Fergusson confronts the breakdown in German civil society by way of tax evasion, public and private corruption, food hoarding, currency speculation and illegal exchange transactions. The hectic maddening details of daily German lives fascinates. His chronological storyline borders however on repetitious for long passages and is regrettably academic as the exchange rate in the depreciation of the mark to the pound, and the mark to the dollar is described quarter after quarter without sufficient explanation of cause and effect. Ruhrkampt, the French occupation of the Ruhr, is weaved into the story line and factored into the cause for the continuing crises. Weimar Germany's concurrent burden of the French demand for reparations is detailed without polemic appeals. Austria and Hungary's ordeals are described. In his convincing concluding chapter, the author rejects the claim that the Germans deliberately tried to inflate their money "to avoid the costs of reparation." The "soft political option," or political cowardice to make early tough choices was inflation's cause providing a take-off point when hyperinflation "was but a matter of time." This book is a focused scholarly examination of the economic and financial crises of Germany, Austria and Hungary, post World War One. With one brief aside about "Dolchstoss," the presumed "stab in the back" of the German Army by German politicians, Fergusson avoids in large measure the political causation issues of pre Nazi Germany. Liaquat Ahamed's "Lords of Finance" is also a superb macro addition to understanding the run up to Hitler and Nazi Germany.

When Money Dies, written by Adam Fergusson, is a case study of the death of the German Mark during the 1920s.

So what exactly happened in the Weimar Republic?

In short, the post-war Weimar Republic found itself with a staggering amount of debt. The government lacked the political will to raise taxes or to cut spending. Therefore, to deal with these debts, Germany chose the "easiest" path -- the path of printing money. Anyone familiar with Germany's history knows what happened next -- the death of their currency.

One of the biggest advantages of this book is that it provides an on the ground view of what actually happened, such as how people coped with the extraordinary circumstances when even the basic things, such as buying groceries, became extremely difficult due to the massive currency debasement the German citizens suffered from.

It's important to note that this book is not an economics book, but rather a realistic story (with some price data provided) of Germany's hyperinflation during the 1920s. So, if you're looking for a scholarly case study of Germany's hyperinflation, this book is not for you. All in all, this book is quite informative. On a personal note, I found the author's writing style to be dry and not engaging.

The Weimar Republic crisis and hyperinflation have some very disturbingly similar aspects to the problems we are now facing in our own country, America. Actually it seems that the Weimar crisis is our worldwide crisis nowadays. Labor problems, decadent morals, populace overwhelming debt, government insolvency, banker stranglehold on the country's resources, war debt, foreign occupation, food price escalation, farmer refusal to bring produce to market at a loss, price fixing, black-market commerce that plagued the German people in the 20's and 30s is strikingly current. Except for one glaring irony, Germany is today the power house economy of the world. What a stunning reversal!!!

Reading the text, one gets the unsettling feeling that not only history repeats itself but that, very possibly, the heirs and grandchildren of the original financial players are again reenacting the drama of that time for the devastating transfer of middle class wealth to the coffers of the money manipulators. Nothing breeds repetition like stunning success. Germany was picked to the bone as this text adequately conveys very possibly by the same vultures that are busy picking the bones of the rest of the world today. "When Money Dies" is universal in its application and timely for the worldwide situation. It might very well give us a roadmap of what's in store for all of us.

Every class and every book I've come across which mentions the collapse of the German economy following the Great War makes it sound as if the government of German simply churned out more and more paper marks from the printing presses for lack of any better ideas to meet their treaty obligations.

The real story is more complicated. Adam Fergusson not only looks at issues such as prewar economic policy, taxation, bloated government spending, out-of-control deficit spending by the government and inflation as a means to maintain full employment he also looks at concurrent developments in Hungary and Austria, which also were on the losing side and also suffered from hyperinflation. Fergusson's book is not only authoritative it also draws the reader in on a topic which is normally very dry and difficult to follow... economics. Very absorbing.

I've heard about this book repeatedly, and when I finally got around to reading it, I almost fell off my chair. We all know the short version of the causes of WWII, but the path from WWI reparations to the rises if Hitler has a lot more important lessons along the way. The truly chilling aspect of this book is the parallels between Weimar Germany in the 1920s to the US government today. Both refusing to acknowledge the consequences of endless money printing, and in both cases, almost everything the government does only makes things worse.

Every politician should be required to read this book. It's scary, and the implications for the US and world economy today are frightening.