When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar, Germany

When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar, Germany

Posted by jack_miller | Published a year ago

With 216 ratings

By: Adam Fergusson, Antony Ferguson, et al.

Purchased At: $16.99

When Money Dies is the classic history of what happens when a nation's currency depreciates beyond recovery. In 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to 4,200,000,000,000 marks), the German republic was all but reduced to a barter economy.

Expensive cigars, artworks, and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump of coal; and a bottle of paraffin for a silk shirt. People watched helplessly as their life savings disappeared and their loved ones starved. Germany's finances descended into chaos, with severe social unrest in its wake.

Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, quantitative easing, that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline. Whatever the reason for a country's deficit - necessity or profligacy, unwillingness to tax, or blindness to expenditure - it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? Germany in 1923 provides a vivid, compelling, sobering moral tale.

I am from Venezuela, a country that is suffering all manners of disruption including hyperinflation. Mr. Fergusson’s Highly readable book explains how it was in post World War I Germany, including the policy that produced Germany’s hyperinflation and how that hyperinflation went on to destroy most Germán govt and economic institutions
S, clearing the way for Hitler’s ascendancy.
Despite the many differences between Germany in the 1920s and Venezuela today, the book helps to understand the hows and whys of today’s disasters in Venezuela

- gavin_myers

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.

- harley_roberts

This book’s strength is the details of how hyperinflation impacted everyday life for citizens of post-WWI Germany. It’s weakness is that it doesn’t offer much background and context - the reader is expected to already have considerable knowledge about the Weimar Republic, how it came to be, what was going on politically in it and around it, and where it was headed. This is not an introductory text.

The frequent mentions of how far the mark had fallen against the dollar and the pound at various points in time are important for the historical record, but feel repetitive as a reader. The author spends about every third page throwing out lists of numbers that eventually become so large as to be meaningless.

- gage_ramirez

I got this book in October 2010 based on a recommendation from either BullionVault.com or another website devoted to providing a dissenting view to mainstream economics. It was first published in 1975, just four years after the Nixon administration had severed the last tie between gold and the U.S. dollar by closing the international “gold window” and terminating the right of foreign governments to exchange dollars for gold. At that time the prospect of an American hyperinflation seemed far off, even as inflation was rising fast, and those scratchy old silent-film clips of forlorn Germans pushing wheelbarrowfuls of banknotes to the bakery to buy bread were quaint and unreal-looking.

As I type these words the price of gold is US$1,818 per ounce, an increase of 4400% since 1971, and last week Switzerland, long a bastion of monetary probity, gave up on maintaining the value of its franc and pegged it instead to the moribund Euro, joining the other major currencies in a death-spiral of competitive devaluation. For those aware of what hyperinflation is, the possibility of experiencing it for ourselves is becoming ever more plausible and imminent. Adam Fergusson’s book gives a detailed picture of how hyperinflation—the death of a paper currency—played out in a modern industrial economy in the 1920s. It’s not a pretty sight.

I never knew much about the Weimar hyperinflation, but assumed that it had something to do with the payment of war reparations imposed on Germany by the Treaty of Versailles. And while Fergusson’s topic is not really the cause of the hyperinflation, he does eventually come out and say that war reparations probably had nothing to do with it. Instead we see a fledgling republic facing severe social and economic problems, but whose leadership throughout remains stubbornly timid and ignorant. The leaders of both the government and its central bank, as well as newspaper editors and other leaders of opinion, were almost unanimous in asserting that the inflation had nothing to do with the runaway printing of banknotes, which they saw as an effect rather than as a cause of rocketing prices.

Hyperinflation inflicts severe suffering on almost everyone except those able to profit by making bets on the collapse of the currency. The suffering, though, is very unequally distributed, and the injustice of the whole process is one of its most striking features. With a whole generation of children malnourished, women selling their bodies for a pork chop, and retired civil servants dropping dead on the street from hunger and cold, you also have farmers hoarding bumper crops, unwilling to sell for worthless paper money, and industrialists in a frenzy of factory-building to make use of cheap credit. Some of the best parts of the book are extracts from the journals and letters of housewives describing what they see around them. They witness mob violence and exchange their pianos for potatoes.

In other ways though I found the book to be a dry read, and I felt that it was really addressed to people who were already students of this period of German history and had a grasp of the people and events of that time. The author assumes a knowledge of the time and place that in my case was lacking, which made the reading tougher going. I also found that his style lacked fluency, which made things harder as well. A sentence taken at random: “The uncertainties to which these postponements gave rise in large measure accounted for the wild fluctuations of the mark during the year.” Another writer would have put this is a more readable way.

All of that said, this book was for me very readable because of its relevance to the events unfolding around me in the world. The enormous federal budget deficits in the United States are starting to look like the Weimar deficits, and although printing presses are no longer used to create money, dollars are being created by the trillion—a figure that became familiar in Germany in the early 1920s. When I go shopping I’m struck by how much less my money buys than even a year ago, and I fully expect that prices will only accelerate upward from here.

But does that mean we’re headed for actual hyperinflation? According to writers like James Turk of GoldMoney.com and John Williams of ShadowStats.com, yes we are. Williams, a longtime statistician with the U.S. federal government, thinks it will be in the next year or two.

But are our governments as timid or as deep in denial as the Weimar republic? I’ll leave that question with you. Another thing I’ll leave with you is a favorite quote from another writer, Henry Hazlitt, an American journalist on economics and finance. In 1946 he wrote these words:

"Inflation discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse."

If you’re looking for a refutation of Hazlitt’s points, you won’t find it in When Money Dies.

- benson_kelly

In 1914, 20 German Marks equalled a British pound. By 1924 a British pound was equal to the number of yards to the sun and Germany was all but a barter economy. The First World War had left Germany on its financial knees, though its industrial base remained strong. The payments to the allies under the Versailles Treaty hung heavily on the struggling economy. Gradually inflation started to rise, devaluing the mark against foreign currencies. This allowed German business to grow, but the domestic economy started to spiral out of control. The Reichsbank's solution was to increase wages and print more money to enable the populace to purchase goods. And as prices increased, the denominations of notes increased, and the value of savings and pensions plummeted. It soon became apparent that the only way to extract the value of money was to immediately spend it as Germany entered a period of hyper-inflation (when the value of money at the end of a month was worth half that at the start). By 1923, it was not uncommon for salaries to be raised several times a month to keep pace with inflation. Unable to pay the reparations to the Allies, the French and Belgians moved into the Ruhr, Germany's industrial heartland, to seize and exploit its assets, further weakening the economy and its ability to make such payments. Whilst people suffered, unemployment remained quite low, however by 1924 it was clear that a new strategy was needed to end the madness of exponential inflation. The solution was to introduce a new currency with a stable commodity base and to move the economy onto it, and to balance the books to reduce the need for deficit finance. The result, whilst curbing inflation, was a massive drop in industrial production as German goods became more expensive on the world market leading to mass unemployment. Although not directly responsible for the rise of National Socialism, Fergusson makes a good case that the turbulence of economic circumstance, the disenfranchisement of the middle classes, and the rise of unemployment helped provide the conditions within which it could grow.

Adam Fergusson does an admirable job of detailing for a lay audience what happened with the German economy in the early 1920s. He uses a mix of historical sources, including letters, British diplomatic material, and newspaper reports. Sometimes the narrative is a little dry and it would have been good to include more detail on Austria and Hungary, the strategy of German industrialists, and the French/Belgian intervention in the Ruhr. Although not its intention, what the book demonstrates is the value of the European project in binding Europe into a common monetary framework that makes it easier for countries whose economy is in trouble to weather financial storms. As the present crisis demonstrates, that process is not always straightforward and easy, and is fraught with difficult politics and decisions, but what Fergusson's book highlights is that trying to cope on their own with politicians who seem clueless about core economic principles can be a hell of a lot worse.

- kaiya_collins

Pray to whatever deity you revere that we never repeat the experience documented in this stunning analysis of the causes and effects of the hyperinflation allowed by the political masters in the Weimar Republic. History, sadly, confirms that our political masters never learn, and regularly repeat their political ancestors' idiocies.

We read in horror as the wealth of the German people is pillaged by all and sundry, while the once-solid middle class is reduced to beggary, while even the rich are ruined, forced to sell any asset of value for the pittance needed to buy a loaf of bread - only to find the price doubled when the shop opens the next morning.

This is not a pleasant read, nor a quick one - but those who take the time to read and absorb will appreciate the lesson, and perhaps even take precautions against the possibility that our current political rulers will repeat the sins of their forebears.

Probability is probably a better word than "possibility" . . .

- iris_carter

Incredibly interesting account of how a currency can get out of control and take on a life of its own.

Amazingly Havenstein couldn't connect that by printing so much money that he contributed to such conditions, didn't he buy things himself?

Granted Germany was in great social difficulties so its rather difficult to know what could have happened if hyperinflation had not happened. A civil war may have had Hitler in power earlier or the communists may have taken over. Both of which would have had great ramifications throughout Europe at those times. Granted the French squeezing the Germans until the pips squeaked was not the greatest idea to bring democracy to Germany and taking over the Ruhr as well did stiffen the resolve of the Germans, which says a lot for politicians grasp of current thinking.

Its a useful lesson for the people in Government to learn although the conditions are different to what Germany experienced.

I suppose fundamentally if a county is going to war then it should make sure it wins it.

I think in todays financial climate I wonder what war we lost. Perhaps it was the war for prosperity, unfortunately austerity won that war and we are going to be the losers.

- aubriella_harris

The Weimar hyperinflation conjures up images of universal suffering. Yet, as Adam Fergusson explains, there were plenty of winners too. Industrialists and speculators did very well. Individuals with access to loans saw their debts turn to dust overnight. They flaunted their new found wealth in the face of poverty and starvation. People on fixed incomes and savers on the other hand saw their wealth evaporate. Riots and looting were common.

During the London riots of 2011 the press unanimously proclaimed the looting and destruction of property as a contemporary phenomenon, the decadence of 21st century consumer society gone mad. One need only look at hyper-inflationary Germany and Austria to discover that this isn't true. Hordes of the impoverished urban poor ransacked the towns and countryside, smashing shops, burning farms, slaughtering livestock. The looting surpassed manifold by the devastation that was left behind. The rise of extremist ideologies was another manifestation of this collective insanity.

Adam Fergusson explains how the debasement of the German Mark was not inevitable, it was engineered, the result of a deliberate policy of monetary expansion, ultimately leading to a loss of faith in the Mark. Enabled by bad government and encouraged by speculators and industrialists. The latter grasping the opportunity to enrich themselves at the expense of society at large. Their modern equivalents, interestingly enough, are the hedge fund and private equity financiers.

The debasement of currency is relevant in both the past and the present. The Soviets made use of it after the revolution, debasing their currency to wipe out the wealth of the money holding classes.

A well researched historical account of Weimar hyperinflation, based on a thorough understanding of monetary theory.

- keagan_kelly

I have just finished reading When Money Dies and my eyes have been opened. I will read it again because some of the economic concepts are not easy to grasp, and I persevered through these to gain the whole picture of the printing of currency from 1914 to 1924 and its aftermath. The whole picture of post-war and of pre-war Germany is fascinating.

I was shocked that the Reichsbank man, responsible for the printing of money in the 1920s until he died in November 1923, a Dr Haverstein, did not link the vast printing of marks to the progressive devaluation of the mark. Can you believe it? Frankly, it was fortunate that he died since his successor, a Dr Schact, realised this territying link and brought the printing presses to a halt and introduced the Rentenmark to replace the mark.

The way the Fed, the BoE and other central banks are printing their currency in QE makes me wonder if, perhaps, they are all Dr Haversteins and do not realise that when you print more of a currency, you reduce the value of the individual units already in existence.

O, the hunger and starvation! When the urban people had the marks to buy food, the farmers refused to be paid in hyperinflated marks so they stockpiled the food on the farms. So, no food was available to buy even though the people had the currency to purchase.

But then, once the currency had been stabilised with the Rentenmark from January 1924, the farmers brought out their food to market but the people did not have the currency to buy. O dear, O dear! How bloody stupid!

It seems to me that without hyperinflation, which resulted from the printing of marks from 1914 to finance the killing machine of the first world war and went on post war, Hitler would not have come to power. The pain of the economic deprivation was blamed on the Jews and anti-semitism was everywhere long before Hitler used it to unite the nation racially.

Indeed, after the currency got back to some sort of normality from the end of 1924 with the Reichsmark, there were two notorious and well-publicised legal cases of corruption going all the way up through the politicians and civil servants, even involving the President lightly. I mention this because these two cases were started by two Jews from Lithuania, and I couldn't help thinking that this would not have done anything but inflame the already existing anti-semitism.

As the middle class in Germany, Austria and Hungary were being wiped out of existence, they sold their precious valuables and sentimental objects to realise their national currency, though grossly devalued. Food better than sentiment! Well, who would turn up to the selling parties but Jewish women, who were willing to buy and who would be wearing objects they had previously purchased elsewhere from the dying middle class.

So, there is in this book, a thread of antisemitism linking the two world wars. It made the national antisemitism and the industrial killing of Jews from 1939 more understandable by the dreadfully psychologically traumatised Germans. One wise word would be that one particular group of people should not take economic advantage of a whole nation of people, who are in dire hardship.

I thought that Adam Ferguson put the occupation of the Ruhr by France and Belgium into perspective. It made a difference but it was not, by any means, the whole story. The Germans were to blame for their economic misfortune and not the invading victors of the war. Nevertheless, the stone hearted Poincare, PM of France, led his people into the lion's jaws because the hatred by the Germans of the French for their hardheartedness in the Ruhr in the 1920s was shown most terribly in the second world war, particularly when so many young Frenchmen were removed from France to work as slaves.

In fact, as I write, I realise that I am making a powerful argument for the EU and the Euro. Better not to have national currencies when a supranational currency can force the national governments to work together cooperatively.

I haven't plumbed the depths of this wise book, yet. I will gain even more from it on a further reading. I think that an economic history of Germany between the wars is, arguably, the best history for that period and that country. The consideration of the dark valley between these two wars is greatly helped by When Money Dies, in a way in which a non-economic book could never achieve.

- trenton_phillips

This is a massively interesting book with spooky parallels to today's money-printing excesses. It is written almost exclusively from an economic standpoint. The author is particularity strong in describing how different the situation looked within Germany--an eerie parallel with Londoners gloating at the high values of their houses and not realizing what that means in macro terms. Perhaps this is personal taste but I could have done with less week to week economic data and more on the background. The Communists are only pesky operatives on the margins when it is plausible that, if Germany had been more economically responsible, the consequent mass unemployment could have tilted the country toward Moscow. Another minor gripe to an otherwise excellent book is that we cruise right on by that iconic wheelbarrow scene. The impact of 100 milliard notes gets lost in the big numbers. All the notes in that wheelbarrow could be reduced to one note, it's just a question of adding zeroes, but we are left wondering when the wheelbarrows rolled. Perhaps before the big notes?

- lucca_reyes

This is a good book for anyone to read, explaining as it does the serious way that politicians let the Mark (and Germany) slide into ruin, reducing virtually everyone to penury. Some of the anecdotes detailed give a real idea of the desperate struggle of living through this period.

Some people (and I am amongst them) will draw some parallels between this episode and current debt-financing of western economies. We can only hope that our leaders have more sense now than they did then!

- freya_jones

Couldn't read past the first two chapters, written very sloppily for such a complex topic. If you want a more insightful read, opt for Lords of Finance by Liaquat Ahmed.

- maxim_morgan

This is a sobering look at the effects of racing inflation. Although it is quite scary, it is a lesson we can all take to heart at this time of economic turmoil. The causes of the problem in the 1930s were not the same as today, but we cannot count on avoiding problems in the future if our politicians fail to get a grip on the current problems we face.

- ariya_adams

I found this book a bit hard to read, it was good, maybe more academically orientated than I was hoping. I was looking for more of a documentary/ story style with facts so didn't quite meet what I was after; saying that I read it all.

- summer_jackson

This must be the ultimate book about Germany in the 20'ies - ind inflation in general. It is superbly written, describes both the political side and the practical side of the hyper-inflation, and gives a chilling picture of everyday life in Germany in the period when money stopped making sense.

- josephine_miller

And you thought the 2008 financial crash was bad? This book is a wake-up call to the potential hazards of quantitative easing.

- briana_morales

The eye witness accounts and the attempts to make the scale of numbers work is good. What is bad is almost no attempt to explain or expand on the economic machinery underlying it all, also no real international references beyond throwaway mentions. An ok book if you know the rough period and want details, not much good if not.

- felix_rivera

Although very readable, I had anticipated a wider discussion of the subject, including the consequences. However, that does not negate the usefulness of this volume for the thoughtful person wanting to better understand our current problems. Whatever people choose to claim, there really are no new rules.

- rose_green

A frightening read with so many parallels to today's money printing Government budgeting. Should be compulsory reading for all politicians and central bankers.

- adrienne_jackson

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