On this day, 15 October 1923, Germany introduced the Rentenmark to curb hyperinflation, and it worked. Eliot Wilson tells us more
Weimar Germany brings a number of images to mind. There is the gloriously seedy licentiousness of Cabaret. There is the new republic’s fragility (there were 14 chancellors between 1918 and 1933), increasing street violence and the looming foreknowledge of the appointment of that 14th and last chancellor, Adolf Hitler.
Then there is hyperinflation.
How hyperinflation took hold of Germany
Hyperinflation was the curse of the very early years of the new state. Germany had paid for its war machine by borrowing, and by the end of 1918 it owed 156bn Marks. The Treaty of Versailles, signed in June 1919, formally ended the conflict between Germany and the five principal Allied Powers: France, the British Empire, the United States, Italy and Japan. The German delegation had not been involved in the six months of negotiations, but were simply presented with the treaty and instructed to sign.
Versailles explicitly held Germany responsible for the war and made her liable for reparations. An interim payment of 20bn Marks was due by May 1921, after which a Reparations Commission would determine future payments in cash and kind. When it met in May 1921, Germany’s total liability was assessed at 132bn Marks, payable over a period of 42 years.
These were staggering sums. The overall liability of 132bn Marks was roughly an equivalent burden on the economy of £8 trillion today. And the German government was already badly in arrears, only being able to deliver 7.5bn of the 20 billion Marks initially demanded.
The increase in the national debt during the First World War had already unleashed damaging rates of inflation, from five per cent in 1914 to 21 per cent in 1918. By 1921 it seemed that some stability had been achieved, although the currency had been mauled: the Mark seemed to bottom out at about 90 to the dollar (in 1914 it had been 4.2). The situation was about to get much worse.
The President of the Reichsbank, Germany’s central bank, was a 64-year-old Prussian lawyer, Rudolf Havenstein. With a succession of fragile governments unwilling to countenance spending cuts, Havenstein decided to rely on his instincts.
He believed inflation was caused by the Mark’s weakness against foreign currencies. The duty of the Reichsbank was to print more money to sustain higher prices. But the more money Haverstein had printed, the further prices climbed, requiring the printing of more money. It was the most catastrophic course of action he could have chosen.
Haverstein was also buying foreign currency at any cost in Marks to make reparations payments. In the first half of 1922, again, the value of the Mark stabilised, but that was relative: in a year, it had crashed from 90 to the dollar to 320 to the dollar.
Inflation slid into hyperinflation after a panic that summer. The Jewish industrialist serving as foreign minister, Walther Rathenau, was assassinated in Berlin by members of the ultra-nationalist antisemitic group Operation Consul. The republic lost its collective nerve.
By the end of the year, the cost of living had increased 17-fold in six months. For the 34th time in 36 months, Germany failed to pay a proportion of the reparations in coal, and in January 1923, French and Belgian soldiers occupied the heavily industrialised Ruhr Valley to enforce payment. German workers went on strike, and to support them the Reichsbank supplied more paper money, fuelling hyperinflation’s ravening appetite.
1923 was the year when the economy slipped the moorings of rationality and reality. A loaf of bread which had cost 160 Marks in Berlin at the end of 1922 carried a price tag of 200m Marks a year later. These were not merely numbers on a piece of paper, but a descent into a topsy-turvy world.
As 1923 wore on, many workers were paid twice a day and would spend their wages immediately: their value would have fallen substantially over the course of the day. In a café that August, diarist Victor Klemperer’s wife Eva ordered a cup of coffee at 6,000 Marks. When she came to pay the bill, the price had risen to 12,000 Marks.
This dizzying spiral affected voters of every class. The poorest might see the price of staples like bread and potatoes rising, but Germany’s prudent bourgeoisie saw the value of savings and pensions melt away, while property owners and debtors had their liabilities effectively written off. And there seemed to be nothing anyone could do about it.
A radical solution came from Karl Helfferich, a right-wing economist and wartime vice-chancellor. If hyperinflation had caused the Mark to lose its value, why not replace it with a currency tethered to something more tangible? He proposed a Roggenmark (“Rye Mark”) indexed to the price (in Marks) of rye and other agricultural produce. It was deemed impractical because of the volatility of the price of rye, but the idea took root.
Gustav Stresemann had become chancellor of a grand coalition in August 1923; shuffling his cabinet in October, he appointed Hans Luther as finance minister. Luther had previously been agriculture minister, and he re-examined Helfferich’s scheme. Instead of rye prices, he created an alternative currency, the Rentenmark, indexed to mortgaged industrial and agricultural property.
The introduction of the Rentenbank
On this day, 15 October, in 1923, Luther established the Deutsche Rentenbank to manage the new currency, which would be issued a month later. There was no time to lose: in November, a dollar, worth 4.2 Marks in 1914, had the purchasing power of 4.2 trillion Marks. The existing currency was junk.
And it worked. Respected financier Hjalmar Schacht was appointed currency commissioner and the Rentenmark came into circulation alongside the Mark on 15 November. Because its supply was fixed and its backing appeared solid, the public had immediate confidence in it: 12 zeros were cut from prices and the new prices quoted in Rentenmarks remained stable. In 1924, the new Reichsmark was introduced. It was worth one Rentenmark, or one trillion Marks.
Hyperinflation was over, but the reputation of the Weimar Republic had already suffered a grievous blow. In Landsberg Prison in Bavaria, a man recently convicted of high treason but treated leniently, was watching and learning. Adolf Hitler was released on 20 December 1924.
Eliot Wilson is a writer and historian. He is a senior fellow for national security at the Coalition for Global Prosperity and a contributing editor at Defence on the Brink