officers are undoubtedly the poorest of the poor in Austria today ,” Frau Eisenmenger observed . “ Thus it happens every day … that elderly , retired officials of high rank collapse on the streets of Vienna from hunger .”
Farmers could remain indifferent to the chaos and could even benefit from the currency decline . They had food to eat and barter , and what they didn ’ t need for themselves they watched increase in price almost daily . The rapid decline of the currency often led farmers to refuse to even send produce to the cities . Those who had placed mortgages on their farms watched the principal balance wither into insignificance . A young German woman who lived in the city , but who worked for a summer on a farm in the early 1920s , was simply shocked by the difference . “ The contrast between country and city was so enormous ,” she recalled , “ that it cannot be understood by people who have not lived through it .”
Business owners and stock investors shielded themselves somewhat . Inflation permits industrialists to buy low and sell high almost without fail as they transform input materials into final product . Frau Eisenmenger in Vienna observed this in the increase in nominal value of her industrial shares and found it vaguely unsettling , although she later realized the prices of her stocks did not keep pace with the cost of living . Investing in common stocks wasn ’ t error-proof , either : When the German mark rebounded temporarily in late-1921 , stock prices tumbled .
Savers were big losers . Savings declined precipitously — and to many simple Germans inexplicably — in purchasing power . Those who had “ prudently ” placed their savings in banks and in war bonds were punished in the same way as their interest payments shrunk in real value to a pittance , and they couldn ’ t help pondering on the chaos created . “ Saving is the very source of wealth and health of a sound nation ,” reminisced one German who had grown to adulthood during the inflation and could see years later the moral damage done by those days , “ but we were no longer a sound nation . We were on our way to become a crazy , a neurotic , a mad nation .”
Rampant inflation encourages what appears to be odd , irrational behavior because it turns money into a wasting
Artist ’ s depiction of the assassination of Dr . Walter Rathenau from an Italian newspaper , 1922 .
asset . Stories were told during those years of bachelors resorting to buying swaddling clothes when there was little else left in the stores , of fine grand pianos in the houses of unmusical families , etc . A stable currency is in this way not merely a convenience ; it may be a pre-condition for any attempt at rational resource allocation in a diversified economy .
Workers ’ wages trailed inflation , so German industrialists were able to take advantage of the declining mark by pricing competitively in foreign markets . The revenues generated were often kept in foreign currency in foreign banks , bank deposits that acted as bets against the German mark and a way to avoid German taxes . Bankruptcies actually declined during those months in which the mark lost value , and perversely increased when it rebounded . “ It gives some inkling ,” wrote the Frankfurter Zeitung in 1921 , “ of the awful debacle which may be expected if a rapid and permanent improvement of the mark actually takes place .”
The Frankfurter Zeitung needn ’ t have worried . French political opinion stiffened against the Germans in late 1921 , and as reparation payments resumed in 1922 the mark experienced a fresh wave of selling . The payments became a growing source of resentment as they became associated with the decline in the mark .
Germany ’ s Foreign Minister Walter Rathenau believed the Treaty payments should be made until Germany could
© Giancarlo Costa / Bridgeman Images get the Allies to modify them , a position that angered members of the Reichstag — the German Parliament — who wanted to refuse to pay . In late June 1922 , Rathenau — erudite , cosmopolitan , Jewish — was assassinated by two fanatical young former German military officers ( part of a large anti-Weimar group ) during his morning commute to the Foreign Office .
The financial world was shocked by the assassination , and the mark resumed its slide . Food prices jumped by over 50 % in July 1922 . The cost of living became impossibly high for pensioners and salarymen , widening the schism between city and country , and in the cities between civil servants and those few who speculated in currency and stocks .
Pearl S . Buck , the widely traveled Nobel Prize-winning American writer , chronicled those times using the reminiscences of Erna von Pustau , a German woman in her 40s of aristocratic bearing who had emigrated to New York in the early 1940s . Frau von Pustau told Buck of her childhood in Hamburg as the youngest of three daughters in a respected merchant family , and how she observed anti-Semitism creep into her circle . It became more acceptable , she said , with “ the lie that the Jews were the ‘ guilty ones ’ for inflation … ‘ Stock exchange ’ and ‘ Jews ’ were very much connected in the minds of the people … Looking around for the guilty ones , in a situation which nobody really understood , made those who lost their fortune , especially the middle class , ready prey for anti-Semitic propaganda .” She was taken aback by the changes in her own father ’ s attitudes , recalling sadly her father ’ s new view in the 1920s that “ creative capital is the capital we Germans have : parasitic capital is the capital of the Jews ,” and she recalled lamenting to a friend that “ You should have known my father as he used to be .”
Keynes had underestimated the rate of depreciation of the German mark in his 1920 book , but he watched events closely and updated his views in a September 1922 editorial . He reiterated his main point that to expect Germany to pay more than about two billion in “ gold marks ” per year was “ in the realm of phantasy ” that derived , he wrote , from the belief that “ the extremity of France ’ s need enlarges Germany ’ s capacity [ to pay ].”
34 FINANCIAL HISTORY | Summer 2022 | www . MoAF . org