Talk:The Downfall of Money (Book)

Snippets

It might have been wars between the great powers that ruined the twentieth century, but in the first years of the twenty-first it was arguably the lack of them. (unclear how)

Exploiting the Germans’ declared intention in February 1915 to wage unrestricted submarine warfare against Entente shipping in the North Sea, the British initiated a total ban on imports and exports of all kinds, to and from the territories of the Central Powers, including food and other goods entering via neutral territories such as Holland and the Scandinavian countries. (this wasn't already done at the start of the war)

Excluded from power while the German Empire lasted, the Social Democratic Party and its members had come, over more than four decades, to form a parallel society within society. Inside this sheltered environment flourished paradisiacal, even fantastic imaginings of what life would be like when the day of proletarian power finally arrived. The party had never planned on carrying out the transition to this ideal state under the circumstances of a catastrophic lost war. Nor had it foreseen taking power in a nation exhausted by war, heavily loaded with debt, excluded from world markets and threatened with heavy reparations, and half-starved thanks to a ruthless blockade that continued even after the armistice. (obviously, when regime change occurs, it is rarely under happy circumstances)

Everyone in Europe and America bought mark notes. They have been hawked by itinerant Jews in the streets of the capitals, and handled by barber’s assistants in the remotest townships of Spain and South America . . . the argument has been the same . . . Germany is a great and strong country; some day she will recover; when that happens the mark will recover also, which will bring a very large profit. So little do bankers and servant girls know of history and economics. (Timing is everything. And also, thinking out all the endgames.)

Weimar had become famous 120 years or so previously as the home of the great writer Johann Wolfgang von Goethe, Germany’s Shakespeare - and more.

These are, by the look of them, enviable human beings living in an enviable city in an enviable country, at a time when Germany was continental Europe’s most powerful and efficient country, and Europe itself still ruled the world. That world was, as we now know, approaching its end. Soon it would be gone for ever. Astonishingly, considering how favourable the fundamentals of the country seemed at that juncture, this was the last time until well into the latter half of the twentieth century that Germany would be simultaneously fully solvent, fully employed and fully at peace.

Germany was tied to the moribund Austro-Hungarian Empire, whose gilded façade concealed a snake-pit of warring nationalities, and whose frantic attempts to hold on to its recently acquired Balkan territories had caused the war in the first place.

The planners’ way of thinking seemed justified by past events. During the hundred years since the twenty-year struggle against Napoleon had been decided at the Battle of Waterloo, Prussia and its German allies had needed to fight no war longer than a few months in duration.

The first part of this financial plan of campaign involved abandoning the gold standard.

Despite attempts by the government-guided press to convince them of the solidity of the everyday currency, many Germans suddenly didn’t trust paper any more. They wanted the security of the gold that the currency was alleged to represent. In the first weeks of July, around 163 million gold marks* were redeemed from German banks and stuffed under the nation’s collective mattress.

Although all over the country patriots had obediently given up their gold and silver coins, many other Germans – especially in rural areas – proved immune to patriotic blandishments. They held on to the value they knew they could rely on, whatever the outcome of the developing European catastrophe.

In the city of Düsseldorf, in the northern Rhineland – its adult population a mix of white-collar officials and industrial workers – staples such as potatoes were often unavailable for months at a time.

Before August 1914, Germany had held overseas investments of between £980 million and £1,370 million in countries with which she later found herself at war. At least 60 per cent of these were subjected to outright confiscation.8

Finally, there was the breathtaking hypocrisy of the so-called Sykes–Picot Agreement, which, even as the Entente encouraged Arabs to raise the standard of rebellion against their Turkish overlords, proposed to divide up the Arabic-speaking Middle East (Syria, Lebanon, Palestine, Iraq) between Britain and France.

but, rather, to show that all the countries involved in the war knew that they couldn’t afford to pay for their folly. The losers would have to do that.

a coup in Petrograd brought to power the far-left Bolshevik party. It was led by the brilliant Marxist theorist and agitator Vladimir Ilyich Lenin, whose passage from Swiss exile back to Russia during the summer had been arranged by the German authorities precisely in order to facilitate Russia’s exit from the war.

With the Germans so uncomfortably close to Petrograd, a little more than a week after signing the treaty the Bolsheviks moved their capital back to the relative safety of Moscow, which had been the seat of the Tsars until the time of Peter the Great.

Nightclubs and dance halls, which had been officially forbidden for most of the war, returned with a vengeance once the ban was relaxed from New Year’s Eve 1918. ‘The public launched itself like a pack of hungry wolves into the long-forbidden pleasure,’ wrote the liberal Berliner Tageblatt on 1 January 1919. ‘Never have Berliners danced so much, and so frantically.

Compared with other countries, post-revolutionary Germany became a very highly taxed nation.

Erzberger had another part-answer to this: high-value banknotes and securities would be called in by the banks and overstamped or replaced with new paper; the old or unstamped ones would become invalid.

The problem was that, while conversion of marks by Germans into foreign currency was a bad thing, because it meant that German wealth was leaving the country, the proposed remedy would also affect the existence of large and small holdings of marks by foreigners in other countries, which were actually a good thing – these holdings by foreigners served to buttress the external value of the currency and thereby contributed to keeping domestic inflation at bay.

even when a decent tax haul was achieved, the fact that it was inevitably collected in arrears undermined its usefulness. The capacity of shrewd operators to further delay payment until the real value of the assessment had diminished, often drastically, would prove an almost insuperable problem throughout this period.

The ‘Weimar parties’, and the governments chosen from their members, whose composition would change with alarming frequency – seven governments came and went in the first five years of the Republic’s existence - became, to the nationalist right, the ‘Versailles traitors’. The country split down the middle, in other words, but not about the acceptability of the treaty. Almost everyone agreed that it was unjust and immoral.

It would become even more so when the Republican candidate, Warren G. Harding, won the presidency in late 1920 on an ‘America First’ platform,

In mid-1921, between a fifth and a quarter of the insured working population of Britain was out of work: 2.4 million people.17

There was a coup in Portugal, during which the Prime Minister and several of his cabinet were murdered. The Prime Minister of Japan was assassinated, the Prime Minister of Spain likewise.

It was in good part due to this fact that in 1913, 15 per cent of Germany’s wealth had its origins in investment income rather than wages and salaries.

During the course of the inflation, this would be subject to a drastic reduction, falling to a mere 3 per cent.7

The idea of the Werkstudent may seem normal to modern readers – and, indeed, ‘working your way through college’ was already an everyday phenomenon in America in the 1920s – but in the social and political context of Germany after the First World War it was perceived as shocking, a sign of class and therefore (from this hitherto privileged group’s point of view) national decline.

The cheapness of living in France – and the franc continued to decline, steadily though at a more modest rate than the mark, throughout this period – was a great lure to the ‘lost generation’, as were Paris’s cultural riches, although escaping Prohibition was another one. Some other American expatriates went the whole hog and moved to Berlin, where in these years the economic power that their currency provided was, literally, fantastic

The inflation wiped out the savings of the entire middle class, but those are just words. You have to realise what that meant. There was not a single girl in the entire German middle class who could get married without her father paying a dowry. Even the maids – they never spent a penny of their wages. They saved and saved so that they could get married. When the money became worthless, it destroyed the whole system for getting married, and so it destroyed the whole idea of remaining chaste until marriage. The rich had never lived up to their own standards, of course, and the poor had different standards anyway, but the middle class, by and large, obeyed the rules. Not every girl was a virgin when she was married, but it was generally accepted that one should be. But what happened from the inflation was that the girls learned that virginity didn’t matter any more. The women were liberated.

Until 1 January 1876 – easily within living memory, therefore, in the Germany of Stresemann and Helfferich – individual German states had enjoyed the right to issue their own currencies. Thalers, Gulden, Kreuzers and so on, plus their smaller denomination coins, had circulated throughout pre-unification Germany

One figure crucial to understanding the depth and social significance of the change in 1913 has already been mentioned. The proportion of Germany’s national income going to rentiers – people living from the proceeds of their investments – had been 15 per cent. By 1925-6, it had fallen drastically to around 3 per cent. These so-called ‘passive’ capitalists (who included wide swathes of the educated middle class) became a far less important factor in German society. The ‘active’ capitalists – industrialists, bankers and traders – and the producers – manual workers – now prospered.

Investors in stocks and shares – unlike fixed investments, these increased in price along with inflation and over the years in many cases provided an excellent return.

As already noted, other countries have suffered from inflation, some equal to Germany’s and some even worse, but it does not seem to have affected their national psyches to the same extent. It seems, in the case of Germany, that this is in good part because a relatively small but once extraordinarily privileged social group, the Bildungsbürgertum, lost more than anyone else, as a result both of inflation and the lost war.

Many Germans saw membership of the euro (and the abandonment of their precious mark) as yet another sacrifice for the sake of a peaceful continent.