The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class (34 page)

The boom that has just set in in the building trade is responsible for the reduction in the figures of the unemployed, sunk this week to 50,000. This sudden activity is due to two reasons. The older one is that the fortunate or unfortunate possessor of too many paper marks is desirous of exchanging them for something tangible in bricks and mortar even at the incredible cost of construction. The newer follows upon the heels of the law just passed allowing landlords to raise rents at fixed percentages of pre-war prices. This benefits the middle classes to the same extent as it injures them, for house property was the safest method of investing savings before the war, and, owing to the drastic regulations controlling profiteering on the part of landlords, many retired couples, owners of considerable property containing residential flats, are today on the brink of starvation. The new statutes provide for an increase in rents all over the country of 300 per cent on pre-war figures. Building a house containing twelve to twenty such flats has thus become the latest form of profitable investment.
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The other fashionable speculative object was furniture. That was being hoarded, too, on the basis of the same hopes that the housing crisis would ease in a year or two, as would the inflation, and suddenly people would need to furnish new homes.

The trend had been clear for years. Now, for those who could manage it, the headlong flight into ‘things’ had begun.

18
Kicking Germany When She’s Down

On 22 November 1922, four years and eleven days after the armistice that ended the First World War, President Ebert undertook what appeared to be a desperate throw of the dice for the Republic to which he had been midwife in those dark days of defeat. After the failure of attempts to create a broad coalition to deal with the increasingly grave financial crisis, the former Social Democrat leader showed how far he had travelled since the revolution. He passed over the usual politicians and appointed Wilhelm Cuno, an ‘expert’ conservative businessman, supposedly without party affinity, to be Chancellor of Germany.

The new Chancellor was not even a member of the Reichstag. The President had a wide range of reserve powers under the constitution, conferred upon him in order to protect the Republic against political chaos-making. Ebert used them now, in what historians have seen as the first, furtive example of what would become an unhealthy habit in the Weimar Republic: Rule by Presidential Decree.

The President’s choice was described in the
Manchester Guardian
as a ‘new and perhaps dangerous experiment’. As for
The Times
of London, which had initially seen Cuno as a man of ‘tact’ who could rally left and right alike to defend Germany, as early as the day after his formal appointment it was already describing his cabinet as a ‘patchwork’ whose ‘colour comes from the right’ and about which ‘nobody has a good word to say . . . and nobody expects . . . to last long’. The
Vossische Zeitung
also felt that, far from being an ‘unpolitical’ cabinet of experts and businessmen, the new government actually represented a resurgence of the old conservative elite. The
New York Times
was also not sure about the new Chancellor. Its headline, likewise something of a patchwork, read:

CUNO CABINET FACES REICHSTAG FRIDAY;

Baron Von Rosenberg, Chosen Foreign Minister,

Is Yet to Be Heard From.

NO POLITICS IN MINISTRY.

New Chancellor Said to Plan to Handle Economic Situation on Non-Partisan Lines.

Since July, the German economy was technically, according to the most commonly accepted definition, in a state of ‘hyperinflation’, which meant prices were increasing at a rate in excess of 50 per cent per month. The mark on the morning of 22 November had stood at 6,300 marks to the dollar – and that was after something of a positive ‘bounce’ due to the new, supposedly business-friendly administration. In other words, the mark was now worth around 1/20 of its rate at the beginning of 1922, and 1/1,500 of its pre-war value.
1
And so President Ebert put his faith in a ‘cabinet of business’ under a man with a reputation as an organisational miracle worker.

Dr Wilhelm Carl Josef Cuno, born in 1876 in what was then Prussian Saxony but is now Thuringia, was tall, distinguished looking and very successful in business. His background was solid, civil-servant middle class. In time-honoured fashion, he had got his doctorate in law and gone, like his father, into the Prussian government service. He rose quickly in the Finance Ministry to the high rank of
Geheimer Rat
(Privy Councillor, and entitled to be addressed as ‘excellency’), before transferring in wartime to head the Reich Grain Board, then being appointed a chief adviser to the Reich Treasury on economic affairs. In 1917, Cuno left government service and joined the board of the once mighty but now much diminished Hamburg-Amerika Line (HAPAG) as the protégé of Albert Ballin, friend of the Kaiser and the great German shipping magnate of the age.

Ballin, who had been forced to watch his beloved shipping line’s wartime decline and the death of his hopes for Germany, committed suicide in November 1918, and Cuno was appointed to run the company. His success in reviving the fortunes of the HAPAG with extraordinary speed propelled Cuno to international note. As
The Times
reported, ‘the remarkable revival of the company’s activities since the war shows how very judicious this selection was. It has quickly re-established services to North and South America, to Africa, and the Far East, in the Baltic, and in the Levant, by associating itself with British and American shipping lines, and fresh vessels are constantly being added to its fleet.’
2

Crucially, given the importance of Wall Street and Washington in the matter of reparations and loans, Cuno was reputed to be good at dealing with the Anglo-Saxon nations in general, but especially with the Americans, as his recent success in getting from them what he wanted for HAPAG seemed to show.

The appointee had been lurking in the background of German politics for some time, seen by many as a potential saviour – he had come into the picture as a possible finance minister the year before but had been vetoed by the Social Democrats – and now this was his chance at the great office his admirers had long wished to see him occupy. His appointment would not have surprised (or for that matter impressed) the late Walther Rathenau, who at the Genoa conference, where the HAPAG Director had been an adviser, remarked wryly that Cuno was ‘a fat cigar which will have to be smoked some day for the sake of its lovely band’.
3

Cuno had been a member of the German People’s Party until 1920, when he resigned in protest against the party leadership’s ambivalent attitude towards the Kapp putsch. He had been reckoned a moderate compared with the heavy industrialists who dominated the party’s authoritarian, fiercely anti-labour right wing and supplied most of its funding. The Social Democrats nevertheless declared themselves unwilling to join his new government, but undertook to support it on a case-by-case basis. So this was, despite all its pretensions to creating a ‘new beginning’, yet another minority government. A lot was being expected of a man who, for all his evident business talent, had little or no political experience.

What seemed unquestionable was that Germany needed a stronger direction, under a Chancellor who knew what he was doing. In June, Josef Wirth’s government had suspended cash payments of reparations, sending the currency into a further tailspin. In July, Wirth had requested full relief on cash reparations payments for the rest of the year and for two years after that, citing the decline of the mark and the sharp increase in inflation inside Germany. The policy of ‘fulfilment’ was crumbling and being replaced by something more confrontational.

Meanwhile, as summer turned to autumn, the French continued to demand their money and, if not, then a whole range of direct controls over the German economy, as the price of a full-scale reparations moratorium.

The Americans and British, having again failed at an emergency conference in London in August to persuade the French to consider reduction of reparations to a more manageable level, pulled out of the unified reparations policy. This was bad news for Germany in the sense that the two Anglo-Saxon powers would no longer act as a powerful moderating force. French Premier Poincaré vowed to go on alone in demanding ‘productive pledges’, physical guarantees that reparations for France and Belgium would actually be paid and not somehow constantly postponed to some indefinite future. The new German government was also continuing the dangerous game of delaying the delivery of reparations in kind, or under-delivering, all the time complaining about how much the deliveries were hurting their economy.

By November 1922, a French incursion into the Ruhr to seize control of Germany’s richest industrial assets was widely expected. The expectation did not inspire confidence in Germany, nor in her currency.

Even in late 1922, hyperinflationary Germany remained the world’s second largest economy.
4
All the same, the country was beginning to resemble a runaway train filled with unhappy passengers, gradually picking up speed as it hurtled towards an unknown destination.

In first class, the leaders of the new Republic’s elite were watching the increasingly neglected landscape whizz past ever faster with a sense of growing panic, but little idea what to do except to keep denying it was their fault. And blaming the Allies for demanding all those reparations.

Back in second class, those resentful souls who had until recently occupied first class were plotting how to get back there, if necessary by murderous means.

In the cramped and ill-supplied aisles of third, a battle royal was shaping up between the growing Communist Party and the new, ultra-rightist mass organisations - most prominently Adolf Hitler’s National Socialists - who were competing for the loyalty of Germany’s lower middle and working class.

Everyone was shouting instructions. Everyone was insulting everybody else, even when they were supposed to be allies. Fights were constantly breaking out. No one was putting on the brakes. To do so would be to admit that the German train was running out of track.

Rathenau’s assassination certainly plunged the German body politic into horrified confusion. All the same, it seems unlikely that the situation in the late autumn of 1922 would have been much better had he not fallen to the assassin’s bullets. The German mark might have held up somewhat better, and foreigners might have had a foreign minister they felt more able to trust, but the basic facts would have remained the same: no success in passing the truly effective new taxes that the country desperately needed in order to close the deficit and therefore meet its reparations commitments. No reduction in the bloated bureaucracy. No cuts in the never-ending subsidies to the vastly overmanned state-owned railways and post office (which were such great engines of employment). No curtailment of low-interest loans from the Reichsbank to industry and business. And, of course, no currency stabilisation plan.

The French and the Belgians believed that the German government had not done any of the things that needed doing, not because it could not but because it had no desire to. They would say that the runaway train of inflation was continuing its wild ride because the Germans had deliberately disabled the brakes. The British and the Americans had mostly come to the conclusion that the Germans’ difficulties were genuine, but this realisation seemed to make little practical difference. The Americans, in particular, still wanted their wartime inter-Allied loans repaid, especially by their single largest debtor, France. While this remained the case, the French were not going to take the pressure off Germany.

So, when Chancellor Cuno started a number of apparently energetic and bold initiatives to break the reparations deadlock, as was his brief in the role of Germany’s dynamic new leader, it was not, with hindsight, surprising that he met with a blank wall of refusal from Poincaré and his chief negotiator, Jacques Seydoux. An immediate reparation payment of 20 billion gold marks, financeable by an international loan? After that, a three- to four-year moratorium with only payments in kind to continue? Thirty-year ‘Rhineland Security Pact’? No, no, and no.

At an Allied conference in London in December and then another in January 1923 in Paris, all Cuno’s suggestions were shot down. True, Britain’s new Conservative Prime Minister, Bonar Law (Lloyd George had finally lost power in October 1922), came up with a hugely complex and not especially generous offer to the French at the Paris conference which involved, among other things, Britain’s forgiving at least some of the money the French owed from wartime. Meanwhile, however, it also meant that France would have to abandon a swathe of German reparations liabilities and also give up the more than a billion gold marks’ worth of gold she had deposited at the Bank of England as a security for wartime loans. There would, furthermore, be no cash to fix the hole in the French national budget, or to pay for reconstruction of the former occupied areas.

‘We having together knocked Germany down, one of us is going to kick her while she is on the ground, and the others will let her,’ complained Law regarding the aggressive French demands.

Finally, things started coming to a head. On 26 December, Germany had been declared in default for timber and telegraph pole deliveries due under the reparations clauses. Then, after the Paris conference had brought no financial agreement between the Allies that might have persuaded the French to hold off, on 9 January Germany was also declared, by a vote of three to one in the Reparations Committee (France, Belgium and Italy against Britain), in deliberate default on coal deliveries, too. Germany was accused of delivering only 11.7 million tons of coal during 1922 instead of the agreed 13.8 million (a much more serious, or at least less ridiculous, business, than that with the timber). This triggered a possible use of force which two days later became actual. On 11 January, French and Belgian troops crossed the boundary from their post-war areas of occupation, held since 1919 under the terms of the Versailles Treaty, and advanced into hitherto German-ruled territory.