Adding to the
problem of mere quantity of currency in Germany during the hyperinflation of
the 1920s was the almost infinite “Velocity of Money” that resulted. The “Velocity of Money,” the rate at which
money is spent, went to the maximum as people rushed to spend whatever currency
they had before it lost any more value.
As any monetary economist will quickly tell you, this effectively
multiplied the amount of currency in circulation immensely, adding to the rate
of inflation like pouring gasoline on highly inflammable material.
Stores refused
to sell what little stock they could acquire except for hard foreign
currency. Farmers refused to bring food
into the city. While foreigners were
buying everything in sight at a pittance, ordinary people were starving to
death. As the London Daily Mail reported on August 6, 1923 in an interview, “Villagers
who used to send butter to Berlin are no longer troubling to do so. They already have crates in their cottages
packed with worthless paper money. ‘Why
get more’? A workingman said to me: ‘We
used to talk about the stupid peasants, but now they are laughing at us.’”
A number of
expedients were tried both to provide circulating media and, possibly, call a
halt to the tremendous rate at which money was losing its value. In October 1918, interest coupons on government
war bonds were temporarily declared legal tender. In October 1923, interim notes of the Reichs
Bank for Treasury Certificates, partial bonds of the treasury certificates, and
whole treasury certificates of the Reich were declared legal tender. These were denominated in gold Marks and U.S.
Dollars.
For a short
time, an attempt was made to stamp the old silver coins of the Second Reich
(for virtually no gold coin existed in Germany) with countermarks indicating
their value in inflated currency. Private
individuals, businesses and municipalities issued Notgeld (“Un-money”) to
provide the crying need for anything to carry out transactions. Postage stamps, special privately-issued
micro- and fractional-currency, commodity-backed municipal bills of exchange in
small denominations, such as a quarter measure of wheat . . . almost anything
that could be conceived as currency was pressed into service, limited only by
the imagination or desperation of the people.
To be able to
carry out transactions and continue in business, enterprises resorted to
issuing bonds denominated in commodities.
As Hjalmar Schacht recalled,
Many business firms
took to paying their workpeople with foodstuffs. But that was only an imperfect and partial
emergency measure. Firms requiring
capital for business and investment adopted the practice of issuing bonds in
respect, not of money, but of coal, electric kilowatt-hours, potash, cement,
and so forth which constituted the real value of such bonds. (Schacht, Confessions,
op. cit., 153.)
Regular coinage
rapidly became a thing of the past. When
it cost hundreds of thousands times the face value to mint a single coin,
issuing coins represented a pure drain of resources and effort. While a few of the regular issues of the
Second Reich had been continued for a short time by the Weimar Republic (the
Five and 10 Reichspfennigs in iron and zinc), their face values were
ridiculously low in view of a price level that increased by tens of thousands
of Marks per hour. Anything less than 1
million Reichsmarks soon ceased to have any meaning, as did anything less than
1 billion Reichsmarks within a very short time.
Nothing like
this had ever happened before. Its
effect on the German psyche is beyond calculation. We today can look at instances of
hyperinflation, even that of the former Yugoslavia that has surpassed that of
Germany in the early 1920s, and know that, bad as it may be, there can,
somehow, be an end to it. Germany in
1923 had no such assurance. For all they
knew, the absolute chaos was a permanent condition, a social and economic
Armageddon following four years of total war that in itself had seemed like the
end of the world.
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