Financial History 142 Summer 2022 | Page 35

Collection of the Museum of American Finance
Examples of hyperinflated German currency from the 1920s . a middle-class Viennese widow , Anna Eisenmenger , published in the early 1930s . The war ’ s end left Frau Eisenmenger with a war-blinded son , a daughter with tuberculosis and a son-in-law with amputated legs . She struggled to keep the family together , relying on a trusted banker to help her navigate the chaos , but it occasionally overwhelmed her . The banker advised converting her Austrian currency into Swiss francs , but she nervously declined , only to later watch her bank balance and her son ’ s pension that he had converted into government bonds decline in value by three fourths almost overnight . The scant food shipments into the city were priced at 4 – 5 times what she had paid a few months before , and fruit was nowhere to be found . She watched in anguish as her grandson developed scurvy .
The treaty terms caused things to go from bad to worse . British economist J . Maynard Keynes warned the Allies that the terms imposed were too harsh . He wrote a book , The Economic Consequences of the Peace , in which he detailed the problems . He did so , however , in compendious numerical detail , a prose style that probably did little to increase the book ’ s appeal for the politicians who were the intended audience .
Keynes enumerated the claims made by the Allies and the extent to which they probably exceeded actual war damages , claims that included pensions for the widows of Allied soldiers . He analyzed Germany ’ s ability to make the required payments , concluding , “ It is , in my judgment , as certain as anything can be … that Germany cannot pay anything approaching this sum .”
The new German “ Weimar ” Republican government responded to this inability the same way most governments have : they printed the money . As reparation payments came due , the German mark would take a fresh drop in value : by the close of 1921 , over 200 marks were required to buy a dollar , a drop that was only gaining steam . British Embassy staff in Berlin reported to London that “ The daily creation of fresh paper money which the government requires in order to meet its obligations both at home and abroad inevitably decreases the purchasing value of the mark , and in turn [ brings ] about a further decline , and so on ad infinitum ,” concluding that “ I hardly know a single German of either sex who is not speculating in foreign currencies .” The skids were thus greased . All of this is intriguing in the way a car crash is intriguing , but we ’ re interested in whether history provides a few “ financial survival ” suggestions for such unsettled times .
The losers under such an inflationary policy are numerous and easy to spot : Working men and women whose wages failed to keep pace with inflation struggled , as did salaried people without any equity interest in the profits of their companies . The rentier middle class living off the fixed interest on bonds and mortgages paid in paper currency watched their capital slowly destroyed ; interest and dividends fell from 15 % of national income before the war to a mere 3 % 10 years later . Worse off of all were pensioners and the disabled living on some fixed amount of government largess , who were often reduced to destitution . “ Former civil servants and
www . MoAF . org | Summer 2022 | FINANCIAL HISTORY 33