~ Jens Parsson. [edited/comments ~R]
2: The Descent
That was how it was in the heyday of the boom (re last chapter), the government’s actual deficits were relatively innocuous. In fact, the government’s budget was closer to balance at the brink of the crash in 1922 than at any time since 1914. What…? You mean exponentials, and the Lily Pond effect had come into play…?
But while the government’s new deficits diminished, the inflation had become self-sustaining, feeding on the old ones. The government was unable to refinance its existing debts except by printing new money. The government’s creation of paper wealth steadily fell behind the rising prices, and the inflation entered its catastrophic decaying stage. Hmmm… so, it wouldn’t and couldn’t work, but that still didn’t stop them trying.
The final convulsion when it began was at first bizarre and at last became sheer nightmare.
Near the end in 1923, buyers were vying with one another to buy up any kind of goods at any price before their little money could evaporate. The seas of marks which had been stored up, especially by trusting foreigners, flooded forth and fought to buy into other investments, almost anything but marks.
Germany’s money printing industry could not turn out enough trillions to keep up. translation: Government wheeled out the bazooka, and wanted the last say. (Can’t beat the Fed?)
Farmers, who were comfortable enough, would not sell their food to the townsmen for their worthless money.
Starvation and abject poverty reigned. The middle class virtually disappeared as professors, doctors, lawyers, scientists and artists pawned their earthly goods and turned to field or factory to try to earn a little food. The dying of the middle class? Why does that sound familiar…?
Production began to fall. As factories closed, the workers too became unemployed and joined the starving. The whole system ground to a halt. Food riots and Marxist terror broke out throughout Germany. Gosh, now there’s a future vision to aspire to… Lets play that game shall we… (sarc)
Eighty-five persons died in a riot in Hamburg. The famous beer hall Putsch led by Adolf Hitler in Munich in November 1923, the last month of the inflation, was only one of many and not the worst.
Once the old Reichsmark had been thoroughly obliterated, the return to a stable currency was so absurdly simple as to become known as the “miracle of the Rentenmark”. No, really? Do tell…
Gustav Stresemann, who was later foreign minister throughout the trying 1920’s has been described as by far the greatest German of the Weimar era. In October, the Reichstag voted him dictatorial powers under the Weimar constitution. He in turn called upon Dr. Hjalmar Schacht, who accomplished the introduction of the Rentenmark with no staff but his secretary and no establishment but his dark back office and a telephone.
The Rentenmark was placed in circulation beside the devalued Reichsmark and carried no real value of its own but the naked avowal that there would be only so many Rentenmarks and no more. The Germans miraculously believed it and, still more miraculously, it turned out to be true. The German finance ministry balanced its budget, and that was the end of the inflation. Gosh. Gosh… you mean… fiscal discipline? It’s as simple as that???
Stabilization through the Rentenmark was by no means painless. To convince the skeptical required a series of severe bloodlettings to foreign-exchange speculators and businesses, all of whom depended on the continued depreciation of the official currency. Ahh, so not so simple, there is actually a price to pay. It just all depends on who pays the price…
Schacht’s greatest achievement was not so much in the introduction of the Rentenmark but in making a new non-inflationary money policy stick. The grand-daddy of all credit squeezes ensued. New inflation, was then abruptly and finally stopped.
The entrenched interests in Germany characteristically fought Schacht every inch of the way, although a few later acknowledged the rightness of his course. So, the money men didn’t want a bar of it… Gosh, that sounds familiar too…
Germany now took its stored-up dose of hard times. What? No free lunches?
Germans who had been caught in the inflation were relieved of their worldly goods. Businesses which were based on nothing but the inflationary boom were swept away. Credit for business was practically impossible to come by. Unemployment temporarily skyrocketed. Government spending was slashed, government workers dismissed, taxes raised, working hours increased, and wages cut. You say that like it is a bad thing…
However – lets be damn clear. This is the price of fixing the crisis. THERE IS NO ALTERNATIVE. So build a bridge and get over it – find a way to get your head around it. That was the solution then – and it is still the only solution today.
The shock to the German people of the final inflation, the stabilization, and the unemployment was so great that in the elections of May 1924, six months after the close of the inflation, millions of voters flocked from the moderate center parties to the extremes.
Germany very quickly began to feel better economically however, as the stabilization medicine did its work. Yes, yes actually, it CAN be done… imagine that.
Only by the greatest efforts did Germany get itself going again in this way. Even so, because of the permanent shortage of credit Germany’s revival was unhealthily based (against Schacht’s warnings) on new foreign loans. The world depression which followed after 1929 knocked debtor Germany flat again, and Hitler followed close behind. There are no free rides…?
Continued: Gains and Losses (next chapter).