The Downfall Of Money

Title: The Downfall of Money

Author: Frederick Taylor

Publisher: Bloomsbury, 2013 (First)

ISBN: 978-1-4088-3991-1

Pages: 370

War bestows on its participants more than what they ask for. Especially so in the case of the initiators of the Armageddon. Nowhere is the maxim more worthy of application than post-first world war Germany and its finances that doomed a generation of its people to immense hardships and loss of self esteem. Germany lost the war and was burdened with reparations to be paid to the victors. At the same time, the country’s ages-old monarchy crumbled and weak administrations having fickle roots on leftism alternated at the federal level. Money was demanded from all quarters and the government opted for the easy way – printing money whenever it is necessary without any valuable reserve to shore up the currency. Hyperinflation raged in the country, along with incalculable suffering for the middle class who depended on fixed income. The mark, which ruled at 4.2 to a dollar before the war, tumbled to a level of 4.2 trillion by December 1923. This book gives the history of Germany after the war, its travails facing the economic meltdown and how it came out of it, miraculously it may seem. The author, Frederick Taylor is a fellow of the Royal Historical Society and is a prominent author of three acclaimed books of narrative history, Dresden, The Berlin Wall and Exorcising Hitler.

The book provides a decent explanation of why Germany entered the world war riding on unmatched economic growth since German unification and victory over France in 1871. The society was behind the government in its war effort. Burdened with the costs of war, Germany abandoned the gold standard and the ‘mark’ – its currency – lost any foundation on solid ground. War bonds were issued to the public at 5% interest rate, repayable after the war. Patriots subscribed to the scheme in huge numbers, trusting the government with their life savings. The regime also persuaded its citizens to surrender their gold to the exchequer on the condition of remunerating them after the war. This loan gold enabled the authorities to bring out ‘bureau notes’, which soon acquired the status of currency notes. State authorities could purchase war bonds using these instruments and the positive feedback boded ill for the economy in the long term. The war dragged on and on incessantly at great cost in terms of men and material. German navy soon lost its edge, which resulted in a total naval blockade of the country by the British. After fighting 4 years, Germany signed the armistice in November 1918. The long suffering people took to the streets, the king abdicated and fled to Holland. Germany was inaugurated as a republic. In a bitterly fought civil war, the social democrats attained power.

Germany found itself in a daunting situation. The victorious allies were baying for reparations, not just for damage inflicted on economies under German occupation, but also for the war costs of British, France and Belgium. Burdened with unstable socialist governments and a weak mark, the country was not in a position to pay reparations. The victors were no better too. They owed a large sum to America as the war debt which the creditor wanted them to repay, who had no other option than to tighten the screw on Germany. The country slipped more and more into inflation, when the stage reached that prices increased more than 50% month on month, the term ‘hyper inflation’ described the ground realities. But still, Germany had Europe’s second largest economy and unemployment was all time low. Then why did Germany fall into the trap and Britain didn’t, even though both were teetering on the edge when armistice was signed? Here, we see the power of democracy established well on the ground. Britain embarked on austerity measures, even risking public resentment, to tide over the crisis. This was not an option in Germany. Militant labour was threatening to run over the country. Unpopular ministers and administrators were being assassinated, not just being deposed. The government was not sure, whether the Reichswehr (army) would stand by them in the face of harsh measures. The Weimar Republic was afraid of the citizens; it tried to appease them by increasing wages to adjust for inflation and paid them in paper marks not backed by gold. Paper notes were printed by the billions and it soon reached a stage when the currency was not even worth the paper on which it was printed. A tipping point was the assassination of Walther Rathenau, the foreign minister who was dealing earnestly with the Allies to negotiate a settlement, at the hands of a Rightist militant. The world lost all confidence in Germany. This was complicated by the occupation of Ruhr by France which was incensed at the non-payment of reparations.

German trauma at the huge depreciation of their currency was intense. During the months of September – October 1923, when the paper mark reached its lowest, a single note of denomination 100 trillion was introduced, which was the largest denomination printed ever. Most of the notes were printed only on one side for ease and to save ink. Unemployment soured in 1923, causing further resentment and aiding the propaganda of Hitler’s far right party. People bought up provisions as soon as they had currency and tried to live off a week or month on the stock. Prostitution and auctioning of family heirlooms flourished. A heartrending story of an aged literary figure reflects true conditions in Berlin. He had a pre-war investment of 1,00,000 marks which was enough for a comfortable old age. But the hyperinflation wiped out the value of the investment, when even food items were quoted in the millions. The man bought a tram ticket with the money and traveled the full day to his heart’s content. Then he locked in to his apartment and died of starvation.

The solution to the currency issue came rather fast. Germany understood in 1923 that a polity strongly influenced by socialists and communists would always stop shy of anti-populist, strong fiscal measures to stabilize the currency. A temporary dictatorship was proclaimed in October 1923 and the regime moved decisively in. A new currency, Rentenmark, was introduced with the pre-war exchange rate. This currency was issued in regulated quantities and the old currency was stopped in circulation. The economy was gradually tamed. The reparations were paid in part by ambitious American loan plans till the country plunged into the Second World War. It was divided into the East and the West. Formal reparation payments were stopped till Germany was reunified again; the thinking at that time was it to be a very remote possibility. But in 1990, Germany was united again. It issued bonds with 20-year tenure for the repayment, and in 2010, fully paid up its due of the First World War!

Taylor’s narrative is intense and faithfully reports the ground reality, but lacks attractiveness. The aloofness of a bank statement pervades the book. You get a lot of information, but the cheery asides which adds value to a historical exposition is sorely lacking. The few plates on post-war Germany are good, but they are very few in number. Some of them are irrelevant, too.

Taylor brings out comparison with modern day’s poor nations in Europe, like Greece, to draw conclusions on the policies that need to be addressed by the debtor to move forward. It provides informative reading, as does the quoted warning of John Maynard Keynes that inflation is a device for the regime to rob its people. Governments anywhere may feel tempted to create inflation to wipe off its internal debt. The worst case happened in post-war Germany. The total amount collected in war bonds was 154 billion marks from its citizens, but at the height of hyperinflation, its value stood at just 15.4 pfennigs!

The book is recommended.

Rating: 3 Star