Most of us think we know about the great German hyper-inflation of 1923 – the people struggling through the streets with wheelbarrows full of billion-Mark notes (it really happened – but sometimes thieves stole the wheelbarrows and left the money behind) , the wild, almost comical increases of prices, the (true) cliché that it opened the way for Hitler. I used to have, as an annexe to my boyhood coin collection, a small, mainly brown scrap of stiff paper in heavy gothic script which was alleged to be a ten million Mark note (these days, I have a Zimbabwean note for a similar sum) . Maybe it was genuine. It always looked a bit unconvincing to me . This is not surprising, given that many such notes were being run off at the time by local authorities or employers, as the Reichsbank’s presses could never cope with the demand for cash, cheques and credit having become entirely impossible. It may to this day be in the back of some drawer or cupboard, undisturbed. I do wonder what can have happened to all that worthless paper once the crisis was over.
But I certainly tended to think of it much as one thinks of a hurricane , when sitting in a calm valley in the English Midlands. It was something that happened elsewhere, to other people, from which we British were shielded by the sea, by common sense and (in this case) by the great piles of gold in the vaults of the mighty Bank of England.
Well, those piles of gold have largely gone, partly sent abroad secretly by warship to pay for World War Two, when it had only just begun, more recently sold off by Gordon Brown in an almost inexplicable act of folly. And, by the way, one of the most interesting features of modern history is that the Tory front bench made no protest against this grotesque act of idiocy at the time. Though they have made much of it since, the Tory leadership of the time did not regard it as important. The criticism of it in the Commons was led by a backbencher, the Blessed Sir Peter Tapsell. I remember this keenly.
And what exactly it is that sustains the Pound Sterling at its current value, I am never sure. People deride faith in God quite a lot, but it strikes me that Faith in Money can genuinely move mountains, or at least move the bulldozers that move mountains . The great sums involved in paying for our motorways, tunnels, bridges, hospitals and other great projects, paid for by such dodges as the Private Finance Initiative appear to me to be like a vast block of stone supposedly suspended as by magic in space (as one is invited to glimpse, behind a curtain in the dark, in a famous mosque in Cyprus). What is it that keeps them up? Best not to look too closely, pull back the curtain or switch on the light.
And the assurance that it couldn’t happen here was rather dented, for me, by the convulsion of inflation that set in during the early 1970s. It didn’t hurt me much – my tiny wages were so generously index-linked that the real value of my pay actually went up. But it turned my father’s apparently comfortable savings (a retirement gratuity to recognise more than 30 years in the service of the Crown) into very thin gruel indeed. It wasn’t German hyper-inflation. But it destroyed savings, punished thrift, swept away landmarks and familiarity. And at the time it seemed out-of-control and rapid. By the time it stopped, many people had lost a way of life and not found another one. It was, I now suspect, the dawning of the new age of funny money, easy credit and an economy staying up with no visible means of support. What caused it? Some say the huge demand for raw materials caused by the Vietnam war, others the oil shock after the Arab-Israeli war of 1973, others still higher wages (though I am not convinced by this). There’s also the long-term effect of Harold Macmillan’s largely-forgotten but momentous decision in 1958 to increase the deficit, which caused all his Treasury ministers to resign but which he survived. And of course there is the great expansion of the state sector, particularly in social work, education and local government, which had got under way in the Harold Wilson era. One of the many fascinating revelations and recollections in a recent Tariq Ali article on the 1960s, in the Guardian (here http://www.guardian.co.uk/society/2013/may/07/1963-beginning-of-modern-era )
…is an account of what happened when Tariq’s fellow leftist students raged at Michael Foot for selling out to the USA ( which in fact the Wilson government hadn’t done): ‘In 1965, a year after the election of a Labour government that went back on many of its promises, Michael Foot shouted at us in despair as we denounced his leader, Wilson, for "crawling to the Pentagon". "You idiots," he screamed. "Don't you realise that Wilson is the most left wing prime minister this country is ever going to have?" Our satirical laughter enraged him. We're not laughing now.’
I think we are now going through something similar to the Heath inflation, but more cleverly managed and with no end in sight. If it continues for long enough, it will be a powerful wealth tax, and will squeeze what is left of the old middle class out of existence, leaving the super-rich on top, and huge class of hand-to-mouth, moonlighting, two-or-three-job toilers at the bottom, trying and failing to pay a tax bill that cannot be met.
It will also allow the British government to default on its debt, without ever actually saying so, and for millions of near-bankrupt spendthrifts to do the same. Their debts will simply shrink away to the point that they don’t matter. But where will the money come from? From the thrifty.
Official price indexes seem to me to have lost touch with reality. Everything I need has gone up quite violently in price, especially travel and energy, but also food. The supposed inflation rates seem to have little to do with this. I think they are distorted by the bizarrely low interest rates for home loans, a puzzle which I have yet to solve. Observing these rates is, to me, like watching water flow uphill without apparent agency. When I first went into the mortgage market, interest rates rose frequently, often to very high levels indeed, in response to economic conditions. One could even predict (until 1997) that they would rise sharply after any general election. Now they barely move.
At the same time there is very little point in ordinary saving. Saved money simply depreciates, suffering what is in effect negative interest. For most people, work is increasingly hard to find, and pay is not rising, certainly not above the official rate of inflation, and is definitely not enough to absorb what I regard as the real rate.
And we hear all the time about ‘Quantitative Easing’, a polite way of printing money, being used deliberately and consciously by the Bank of England to try to revive our sagging, wheezing economy. I believe the term originates in Japan, where they make the best euphemisms. I think we are paying for it, and will pay for it. I doubt if it will lead to the scenes depicted in ‘When Money Dies’, an icy, rather detached account of the German Inflation by Adam Fergusson, which I have at last read.
Nobody nowadays is stupid enough to respond to a hole in the state’s accounts by just printing money over and over and over again (though one of the actual legal preconditions for this, the uncritically-praised move to ‘independence’ of our central bank from Parliament, is in place) . But what if our political leaders have read the history, see the problems but don’t necessarily dislike the outcome?
I think this book may have been overpraised because of its uniqueness, and because it disappeared for a while from view, and has only now been reprinted after a long period when it was very hard to find. For me, it concentrates too much on the figures, too much on the politicians, too little on the people.
(I should add here that It deals also with the parallel crises in Austria and Hungary, just as tragic but less well-known) . Actual starvation is glancingly mentioned. Violent and destructive raids on the countryside by destitute city-dwellers are described, as is a horrible descent on the Austrian city of Linz, by respectable persons turned into barbarian looters by the collapse of their world.
The connection between the collapse of money and rampant Judophobia is also made. People’s minds, inflamed by hunger, jealousy, suspicion and the old simple-minded fantasies of Jewish financiers and profiteers, fill with a sort of black smoke, leaving no room for facts or reason, or kindness. German peasants refuse banknotes for eggs, milk and meat saying ‘We don’t want any of your Jewish confetti from Berlin!’ And so a hellish outcome, 20 years later, is prefigured.
But these moments are rare, like the mention of the fact that employees of the Berlin Finance Ministry were, by the end, being paid partly in potatoes. Or the terrible anecdote of the Austrian middle-class woman, urged (by her bank manager) at the beginning of the inflation of the Krone to switch her savings into Swiss Francs, loftily ignoring the advice and then discovering that her entire family fortune, on which she had relied to see her into old age, is now worth little more than a box of matches. Like so many people then and now, she simply did not understand the way inflation, like a cloud of locusts, devours value at an astonishing speed. Actually, it does this even when there is no hyper-inflation.
How did she then live in later years? We are not told (though some hint of Austria’s post-inflation destitution and poverty is supplied in Stefan Zweig’s painful novel ‘The Post Office Girl’) . Did she abandon her status and become a charwoman or a street-sweeper (or worse) , or was she rescued in some other way? I have heard second-hand tales of Babylonian prostitution and debauchery among the educated and the formerly well-off in 1923 Berlin. Were these true? If not, how did people eat? Were the soup-kitchens enough? Could the respectable bear to go to them? How did that class which fortifies itself with secure savings, cope with the abrupt collapse of its defences. How much did the morals of the middle class survive, and how much did they simply vanish, driven out by desperation? Can morals survive at all in such conditions, or will there just be a few noble martyrs? The book, by the way, also makes almost no mention of religion or the church. How did they act? What effect did these events have on them?
Fergusson says , in the moving passage which closes his account, ‘In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano. A prostitute in the family was better than an infant corpse; theft was preferable to starvation; warmth was finer than honour, clothing more essential than democracy, food more needed than freedom’ .
I would like to have read more about all of these things. The book usefully explains the origin of the inflation in Germany’s gamble of financing the 1914 war by borrowing rather than taxation, risky even if she had won a quick victory, disastrous when she lost. It also explains that the inflation was, in the end, stopped by a confidence trick - the ‘Rentenmark’, whose value was accepted as stable largely because everyone wanted to believe in it, not because it was actually worth anything. (see what I mean about Faith in Money?) There is some general discussion of despair and demoralisation, but without the individual details it does not hit home. I wonder if, in these horrible experiences, the lasting shame and humiliation, the lasting knowledge of how low the human soul can sink in conditions of starvation and ruin, the real origins of National Socialism lie, and the real explanation as to why ‘in the land of Goethe and Schiller, etc, etc, etc etc’ this terrible barbarism was born. It was also the land of the Billion Mark Note. Note that National Socialism also flourished in Austria, and something very like it (the Arrow Cross) was powerful in Hungary. And these were the three countries most closely affected by this particular plague, all of them intensely civilised and ordered in the years before 1914, and with the most happily and successfully assimilated Jews.
I could also have done with more about the almost purposeful nature of inflation – the way in which it functions as an unacknowledged tax, plundering the thrifty to cancel the debts of the government, and of the thriftless, concentrating wealth in the hands of far fewer people than held it before.
For one of the things which constantly strikes me about modern Britain is that there must be many people who would actually quietly like to see the collapse , or at least the shrinkage, of the currency. They cannot hope to pay off their debts in any other way .The same is true of the government, which has no idea how it will manage its deficit, and borrows more each day, an action no less stupid than Weimar Germany’s incessant printing of worthless money. How convenient a large inflation would be for them.
Could anyone do such a thing deliberately? Possibly. The book quotes but does not endorse suggestions that both the Bolsheviks and some of the Warsaw Pact states deliberately used hyperinflation to destroy the hierarchies, the certainties and the middle classes which stood in their way. I have seen no proof of this, but it is not incredible, and we all know John Maynard Keynes’s attribution to Lenin of the (justified) belief that if you wish to destroy a nation, you first debauch its currency. It is also a very good way of destroying the power and influence of the independent middle class, who are the mainstay of any truly free and law-governed society, and the reliable regiments of conservatism. But of course those who are in charge of all these things are not Bolsheviks.
They are ordinary politicians, far too stupid to be so well-organised or directed. It is just an accident, a bungle, an unintended consequence by people too dim and short-sighted to understand that bills have, in the end, to be paid somehow. I am not sure whether that makes it any better, though. The results will still be very bad.
(*‘When Money Dies –the nightmare of the Weimar hyper-inflation’, by Adam Fergusson, was re-published in 2010 by Old Street Publishing, but was originally published in 1975 by William Kimber.)
