Topic: Inflation

Government troops during the communist-led Spartakus uprising in January 1919 in Berlin stand next to a sign declaring "Whoever goes beyond this point will be shot."

In the summer of 1923 the Ruffelmacher family of Altenberg near Nuremberg had only one wish: to get out of Germany. They would" sehr gern hier Abschied nehmen" (they would very gladly bid farewell from here) , wrote 45-year-old Kathe to her children Mathias (18), Friedrich (16), and Marie (15) in Bay City, Michigan, on August 9, 1923. "It is no longer nice here." She asked them to make haste that she and her husband, along with their three other children- Hans (14), Kathe (11), Georg (3)-and cousin Maria (15) could soon join them in the United States. Neither religious persecution nor political oppression lay behind this plea, nor were they fleeing the law: Poverty drove them away. Kathe's husband Leonhard (50) "doesn't even earn 2 million a week," not enough to feed the five hungry mouths in the family.

What? Two million a week not enough to live on?

A look at the prices in Kathe's letter explains her despair. In early August 1923 one pound of meat stood at 180,000 marks, a four-pound loaf of bread at 90,000, a liter of beer at 30,000; one egg cost more or less 15,000 marks. And one U.S. dollar brought 7,000,000 marks. In Winterhausen near Wiirzburg 60-year-old Johann Hofmann recorded in his diary in stunned disbelief how it was "almost indescribable how much everything cost." A pound of butter: 20,000 marks. A cow: 20,000,000 marks. A six-pound loaf of bread: 4,800 marks. One month later that loaf cost 135,000 marks, in early September, 450,000. In early October it was 3,500,000 marks, and in mid-November a mind-boggling 220,000,000,000 marks-or just about 5 cents because on November 15 one U .S. dollar was worth 4,200,000,000,000 that is 4.2 trillion marks.

Five years after the end of World War I financial chaos ruled in Germany; civil war and disintegration of the country seemed imminent It was commonly felt that the culprits were the socialist government of the "November Criminals" in Berlin, and France, Great Britain, and the United States, the winners of the war. In November 1918 the former had staged a treasonous revolution; in June of 1919 the latter had forced Germany to sign the Treaty of Versailles. Things were not expected to get better until the Weimar Republic was overthrown and the chains of Versailles were broken. But was that really true?

Rations cards, such as these for 40 grams (1.4 oz.) of bread, were issued before and after World War I to help feed the country's population.

Facing certain defeat, the Imperial High Command under Paul von Hindenburg and Erich Ludendorff had told the civilian government in September 1918 to seek an armistice based on U.S. President Woodrow Wilson's 14 Points. Announced in January 1918 as America's war aims, they called for an end to secret diplomacy and "open covenants of peace, openly arrived at. " The plan demanded freedom of the seas, the removal of trade barriers, general disarmament, and the right of self- determination of nations. Germany was to evacuate Belgium, return Alsace-Lorraine to France, renounce its conquests made in the Treaty of Brest-Litovsk with Soviet Russia in March 1918, and agree to the establishment of a Polish state. But the situation in eastern Europe was still unstable, and with anti-Bolshevism rampant not only in Berlin but in London, Paris, and Washington as well, Germany might not have to meet these conditions. Germans could live with a peace based on Wilson's points, because the war had devastated French, not German soil and the Bolshevik revolution had removed the military threat in the east.

The Germans immediately interpreted the Allied response of mid-October as a pactum de contrahendo, an unwritten agreement between the warring sides, by which the Allies had also accepted Wilson's program. Then, in the last days of October, sailors in Kiel refused to raise anchor for a suicide mission. The mutiny spread and turned into a nation-wide revolution. Armistice negotiations opened on November 8; the next day William II abdicated and Social-Democrat Philip Scheidemann proclaimed the German Republic. On November 11 the government of Friedrich Ebert signed the armistice. On January 18,1919, the peace conference opened in the same Hall of Mirrors in Versailles where Otto von Bismarck had proclaimed the German Empire exactly 48 years earlier.

The Germans, though excluded from the negotiations, awaited the results with confidence, seeing that the change in government had met one of Wilson's preconditions for peace. Several occurrences were meant to show that the war- time aim of making the "world safe for democracy" had been achieved: the brutal suppression of the communist-led Spartakus Revolt in Berlin in January 1919, obstruction of Kurt Eisner's anarchist experiment in Munich in February, the prevention of a Bavarian-Soviet Republic in April by regular troops and irregular Freikorps, and elections for a Constituent Assembly- which met in Weimar rather than in civil-war- torn Berlin, hence the name Weimar Republic.

Expectations for a lenient peace were so high that the draft treaty handed to the Germans on May 7 came as a profound shock. The conditions "surpass in their...hatred," so Hoffmann, "even the worst fears." Germany would lose 13 per- cent of its territory, 10 percent of its population, and all its colonies. The army was reduced to 100,000 long-serving volunteers; it would have no planes, sub- marines, or ships of more than 10,000 tons. The country's rivers would be under international control, the left bank of the Rhine occupied for 15 years. Germany had to agree to plebiscites in Schleswig, Silesia, and East Prussia; could place no tariffs on imports from Allied countries until 1925; and would be excluded from the League of Nations until 1926. Much of this contradicted Wilson's 14 Points, though most of the territorial losses had been expected; and by ceding territory in the agricultural East, with its unskilled labor force, to Poland, Germany wrote off some of its structural problems.

The real bone of contention was Article 231 of the treaty, the so-called 'War Guilt Clause." It forced Germany to accept responsibility "for causing all the loss and damage" to its enemies "as a consequence of the war imposed upon them by the aggression of Germany and her allies. " The Article not only held Germany morally responsible for the war but formed the legal basis for reparations as well. The Germans were to make restitution not because they had lost the war-they could have lived with that- but because they had started it. No German agreed with such an interpretation of events: Hoffmann expressed a universally held opinion when he wrote that the Allies had "as much responsibility, nay, even more than Germany, for the outbreak of the war."

"What hand would not wither that binds itself and us in these fetters?" Scheidemann asked in disbelief. Yet, faced with an Allied ultimatum, they signed the treaty on June 28, the fifth anniversary of the murder of Austrian Archduke Francis Ferdinand. Virtually all Germans viewed the treaty as pure and simple revenge, an attempt to crush the country for the remainder of the century. The rightwing Deutsche Zeitung, published with a black band of mourning, greeted the news with "Vengeance! German nation!... Vengeance for the shame of 1919!" The Frankfurter Zeitung declared that "it must not and it cannot remain so." The National Assembly ratified the treaty in July, but hardly a German intended to live up to it.

They felt no obligation to do so because in their minds the Allies had betrayed them, forced them to sign the treaty once they could no longer resume the fight. In July 1919 General John J. "Black Jack" Pershing's worst fears of late 1918 came true: "We should never have (signed the armistice). If (the politicians) had given us another ten days we would have rounded up the entire German Army, captured it, humiliated it German troops today are marching back into Germany announcing that they have never been defeated." Reeling from defeat and looking for a scapegoat for the lost war , the Germans convinced themselves and believed because they wanted to believe, that while still undefeated on the battlefield, they had signed an armistice in order to prevent unnecessary bloodshed. When the subsequent peace-treaty did not reflect Wilson's points, the myth arose that Germany had not been defeated in honest battle but by dishonest deceit.

Depiction of the Dolchstosslegende, or the myth that the German army had been stabbed in the back by the Socialists, on a 1924 campaign poster of the German Nationalist Party

Not just the Allies were seen to have betrayed Germany. Treasonous elements within the country-socialists, communists, pacifists, war profiteers, those who now formed the government in Berlin- had staged a revolution in November 1918 just as armistice negotiations were getting under way and "stabbed" the army "in the back." Nothing could have been further from the truth, but when war hero Hindenburg testified as much before the Reichstag on November 18, 1919, the Dolchstosslegende, or the myth of being stabbed in the back, also gained universal acceptance. How patriotic Germans would deal with these November Criminals became apparent with the murder of Rosa Luxemburg, Karl Liebknecht, and Kurt Eisner in 1919. Karl Gereis and Mathias Erzberger in 1921 and Foreign Minister Walther Rathenau in 1922 form the beginning of a long line of Germans murdered by the far right-a line that leads directly to Auschwitz and Dachau.

The enemy without was more difficult to attack, though few doubted that in the long run "vengeance" meant war. In the short run Germany had to husband its resources and shield them from the Allies, because the country was already teetering on the brink of bankruptcy. Rather than finance the war through taxes, the Imperial government had financed it through bonds and loans. Between 1913 and 1919 the national debt rose from five to 154 billion gold marks, while paper money in circulation increased from two to 45 billion. At five billion marks, interest on the national debt was larger than the Imperial budget had been in 1913. As the gap between receipts and expenditures continued to grow in 1919, the policy of reckless borrowing, inflation, and currency devaluation continued as well. Enter reparations. The Treaty of Versailles had not specified an amount, but in the spring of 1920, the Allies estimated their total war-related expenditures at 632 billion gold marks or $158 billion (approx. $1,450,000,000,000 in 1998 dollars when adjusted for inflation-that same year, the federal budget stood at $6.4 billion, declining to $3.3 billion in 1923). Even the Allies realized that paybacks at that level were beyond the means of Germany, which had expected to pay 30 billion over 30 years. At the Boulogne Conference in June 1920, the Allies presented them with a bill of 269 billion gold marks (including interest) to be paid by 1963, though they reduced it to 226 billion in January 1921. When the Germans rejected these terms, French troops occupied Dor1mund and Dusseldorf in March. In April a somewhat chastened Germany countered with an offer of 50 billion (200 billion including interest) , but there was a hitch; Germany insisted that Article 231 be dropped. This the Allies refused to do in London in May 1921 and set Germany's obligations at 132 billion gold marks at six-percent interest, to be paid at 2 billion annually, plus 26 percent of the value of all German exports with final payments in 1988. In less than a year the Allies had cut their bill in half.

For the Germans that was not good enough, especially since the report of the World War Foreign Debt Commission to the U.S. Congress in February 1922 complicated the issue even more. Debts owed the United States amounted to some $13 billion (52 billion gold marks). Of the 21 debtors, Great Britain owed tile most with $4.9 billion; France owed $4.1 billion; Italy about $2 billion; and down to $26,000 for Liberia. The U.S. Treasury wanted the money back at two-percent interest over 62 years, i.e. by 1984. Since none of the debtors had the funds to pay, and since the United States refused to swap debts-Great Britain alone was owed more than $10 billion-the only way for them to pay the United States was to insist that Germany make reparations to the letter of the law.

Germany had no intention of doing this and continued to resort to the printing press. By late 1921 the German budget could no longer be balanced with conventional means. After a first payment of one billion marks under the London payments plan, the country asked for a moratorium in July 1922 and declared that it could make no cash payments in 1923 or 1924. The Reparations Commission declared Germany in default in December 1922. In early January 1923, France, with Belgian and Italian support but against British wishes, sent 60,000 men to occupy the Ruhr River. By now one U.S. dollar was worth 18,000 marks, and the budget deficit had reached 469 billion. The German government called on the population to offer "passive resistance" and for- bade officials to take orders from the occupying forces. Economic life along the Rhine came to a standstill. The Germans hoped that the loss of reparations in coal and iron ore would convince" the French that it was more profitable to cooperate with than to fight Germany.

But time was on France's side. As long as passive resistance lasted, the German government not only lost the tax income from its industrial base but had to keep the population alive as well. Deprived of the coal from the Ruhr mines, the government spent all its foreign currency reserves during the spring of 1923 to buy coal from abroad. As its financial needs increased sevenfold, the gap was once again filled with the printing press. Notes in circulation increased to 663 billion marks by August and the floating debt topped one trillion marks: there was no German currency any more. French- sponsored separatist movements along the Rhine and in Silesia, impending left- wing revolutions in Thuringia and Saxony, and open treason in Bavaria, where Prime Minister Gustav von Kahr appointed himself "State Commissar General" in cooperation with General von Lossow, seemed to foreshadow the complete disintegration of the country.

Germany played chicken with the highest stakes-and lost. On September 26 Berlin cried "chicken," revoked the policy of passive resistance, and declared a state of emergency. Saxony was occupied by Reichswehr troops in late October. A communist-inspired uprising in Hamburg was suppressed in early November. On the 15^th came the long overdue stabilization of the Reichsmark, which was exchanged at the rate of one billion to one Rentenmark. Overnight Germany's internal World War I debts were reduced to a mere 154 Rentenmark.

By then the Ruffelmachers were safely in Michigan. But for most Germans, including Hoffmann, the Rentenmark represented "fraudulent bankruptcy" by their own government. Using admittedly "vengeful " French reparations demands as an excuse, the government "shook off its debts by defrauding its children of savings accumulated by the sweat of their brows, sentenced many old people to starvation (Hungerdasein) , and even drove many of its citizens...to suicide." Hoffmann wrote from experience.

As war bonds, pensions, and lifetime savings became worthless, he witnessed how "tears spring from the eyes" of people Hoffmann had known all his life. They faced poverty and the humiliation of begging, "denn es langt nicht (because there just is not enough)." Many members of the older generation, "will once again sit hungry at the dinner table and- at 70 or 80 years of age-spend a sleepless night because worry and hunger drive the sleep away." In late November 1923 Hoffmann recorded that "on the 20^th at 8 in the evening 65-year-old merchant Lorenz Trunk shot himself in his bed. He too is a victim of these hard times."

The government had betrayed its people once again and lost what little trust and faith the middle classes had in the democratic system. The far left and the far right would always oppose the 'Weimar System." When the depression hit in 1930, the middle classes, with nothing left to fall back on, would join them.

This true legacy of the government- sponsored inflation of 1923 becomes clear only with the benefit of hindsight. Even Johann Hoffman failed to record the final event of that crazy year when police bullets stopped a few hundred rightwing radicals led by a former general and a former army corporal in front of the Feldherrnhalle in Munich early on November 9,1923. The general was Erich Ludendorff, the corporal was Adolf Hitler.

From: German Life; October/November 1998

Inflation Questions:

• What was the rate of inflation (as a percentage) from August 1923 to November 15, 1923?
• What was the unwritten agreement the Germans thought that they had with the Allies called?  What did the Germans believe the agreement contained?
• What specific aspects of the Versailles Treaty are listed in this reading?
• Why did they sign it?
• Explain the Dolchstosslegende?  Who were the November criminals?
• How much did the Germans have to pay in Reparations?  How were the payments structured?
• Why did the France occupy the Ruhr in 1923?
• What caused the inflation?
• What was the exchange rate for the Rentenmark?
• Why does this author blame the German government for the inflation?
• What price did ordinary people pay for this period of inflation?
• What historic event is referred to in the last sentence of the reading