Talk continues about the coming of the digital pound. Like the closure of high street banks, it is the presumed inevitable consequence of the decline in the use of coins and banknotes. We are told that by 2031 only 6 per cent of Britain’s transactions will be in cash, the rest by card, fuelled from private bank deposits. That will be a challenge, perhaps an agonising one, for those without plastic cards or bank accounts, and for whom cash (while shops still accept it) or foodbanks may be all that is left.
In Weimar Germany exactly a century ago, ceaseless need for physical cash drove hyper-inflation to unimaginable heights. Today, when demand for such cash is disappearing, reflection on the very opposite experience is instructive, not merely because trust in money can be so fleeting.
Picture yourself, if you will, as a man in Berlin in the late summer of 1923. You are on a tram with your weekly wages in your attaché case – a fat bundle of new banknotes, each with a face value of 20 million Marks and each worth about a dollar (all your thinking is in dollars). You are using your lunch-time break to hurry to the Bourse to invest them in an industrial share before 4 o’clock in the afternoon, for you have special reason to suppose that the latest exchange announcement then will show them to be worth only half as much. Yes – the office messenger collected the firm’s pay-day money from the bank that morning in a Schubkarre, a barrow.
You are lucky to work for a newspaper. If you were, say, a lawyer or a dentist or an architect or a professor, you would find that no one needs your skills enough to pay for them. However, newspapers are much in demand, because so many people want to know the latest share prices.
You observe that the tram fare, though highly subsidised, has gone up to 55,000 Marks, equal to about half a cent. You proffer a note and receive 19,945,000 Marks in change. This takes some minutes for the conductor to count out – in paper denominations ranging from 200, 500, 1000, 10,000 Marks right up to 10 million. Because other passengers are waiting, you don’t bother to check your change. Anyway, in due course, you will give every note of up to 100,000 Marks to the grateful beggars lurking near the food shops if they are open.
At least the Strassenbahn, corporation-owned, is obliged to take your money. Earlier, your wife queued for two hours to swop three lumps of last winter’s coal for a loaf of bread, and two old candles for half a kilo of sausage and some butter. You were lucky a year ago to give your 19th– century silver canteen to a farmer in exchange for the side of salt beef which still feeds your family on Sundays. Black markets are open, but farmers’ markets have closed; and food can only be bought, if at all, by barter or with foreign exchange. Milk is available because farmers cannot sensibly sit on it, but thousands of bottles remain unsold. You have sympathy for the idle citizens hanging about the streets no less than for the hungry townspeople far from Berlin who, deprived of food, have simply gone into the countryside to take it.
It is illegal to hold foreign money, but everyone does who can. You guard the little you have left against an emergency: dollars, Swiss francs, guilders, perhaps some sterling. The value of your savings, your capital, has long since melted away: like everyone else’s it was largely held in government or corporate bonds, now worth nothing. Your insurance policy is worthless. At least you don’t have a tax problem that cannot be settled with small change and, fortunately for you, strict rent control at pre-war levels means you live virtually free in a good apartment. Your landlady is destitute.
In Berlin as in other cities, signs of hunger are everywhere – rickets in children, scurvy in adults. Evidence of general desperation is in the crime figures – robbery, burglary, counterfeiting, prostitution, violence, murder – and of course throughout the country in food riots, in the advance of militant parties of Left and Right, in the threats of secession, in assassinations and attempted Putsches. Threatened by the danger that the Russian revolution of 1917 would spread to a post-war Germany burdened with two million unemployed, disheartened, demobilised soldiers, the new republican government in Weimar could only follow its imperial predecessor’s lead, resorting to the printing press to supply the immediate domestic need for banknotes that taxation could not provide. It had had a willing Reichsbank, under one Dr Rudolph Havenstein, prepared to discount whatever amounts were called for – “whatever it takes”, as a later comment had it.
As your tram trundles along the Kurfurstendamm, you recall that fear of unemployment had been among the motives for the economic stimulus of hyper-easy money. How well it had worked! With limitless credit available, a handful of huge industrial concentrations had driven the economy maniacally forward. The competitiveness of exports, produced so cheaply, had started the ruin of parallel industries in France and other trading partners, and later the collapse of the French franc. But for a time there had been full employment, at least in the labour market.
And here is your main reason for speculating on the stock exchange. Everyone who can do so is still at it: for most it has long been their only means of making enough money to exist. Industrial shares remain a first choice as a haven of appreciation. Anyway, any share is better than holding paper money, and more sensible than buying gewgaws in which some find a financial refuge.
These conditions had led to an explosion in the number of bank accounts in Germany – at two and a half million, five times as many as pre-war – and a similar explosion in new small banks, many of them little more than note-issuing institutions. However, the parallel explosion in bank staff, four times the pre-war figure, has mainly been due to the time it takes, as on your tram, to count the banknotes in every transaction.
By last Spring, that short, dubious inflation-driven investment spree was over. To enforce reparations and intent on seizing material goods – steel, coal, telegraph poles – the French and Belgian armies invaded the Ruhr, Germany’s biggest industrial area had shut down in protest, and after a brief burst of patriotic fervour, extreme worklessness and dejection had returned nationwide. Strikes are breaking out, all the time, in the public sector, sometimes to prevent dismissals (the post office has twice the staff it needs), but generally for higher wages in distant pursuit of the cost of living. The trade unions have the clout to get what they want, necessitating ever more paper money to pay them: in fact, a week before our notional tram journey, the Mark’s depreciation was so great that a walk-out was abandoned because the union leaders couldn’t decide how much to strike for. No pay strike, you reflect, is ever for what is most worth having – a stable currency.
You reflect on today’s morals and morale. The civil service is corrupt, bribable, bribing – unthinkable before the war. You do your best not to give way to the suspicion that your neighbours are doing better than you. You sternly dismiss what the Nazi rabble-rouser in Bavaria is blaming on the Jews. And yet you don’t really know where the enemy is. Well, you try not to be revolted by the sight of tourists and profiteers, glutted with foreign money, making pigs of themselves in the cafes and restaurants of Unter den Linden (the place where, notoriously, the price of a meal rises between courses).
Nonetheless, as a journalist, you have had a notable advantage this mid-August day. You have just sub-edited for immediate publication an extraordinary speech by the Reichsbank president describing his latest titanic efficiency in supplying a despairing nation with the banknotes it was calling for so insistently.
“The Reichsbank”, Dr Havenstein had proudly told the Council of State, “today issues 20,000 milliard Marks of new money daily, of which 5,000 milliards are in large denominations. In the next week, the bank will have increased this to 46,000 milliards daily, of which 18,000 milliards will be in large denominations . . . In a few days we shall therefore be able to issue in one day two-thirds of the total circulation”.
You may not have recognised the full purport of what you have just edited; but you were wise to have taken the tram rather than risk walking to queue to get rid of your salary in time. Ineluctably, within 48 hours of that announcement, the Mark’s value will fall from 3 million to the dollar to 5.2 million, from 12.5 to 22 million to the pound. The deranged argument on which the bank’s latest excess is based will draw no criticism either from the economists in the Council or commentators in the press. And Havenstein will not be the last central banker to cause mayhem by declaring a substantial amount of quantitative easing in advance. President-for-life and ignorant of any quantitative theory, he blames the ceaseless depreciation of the Mark on speculation, on the crushing reparations demands, on the ever-rising dollar (all movement is relative!), on the now dysfunctional tax system – on anything but the printing press.
Lack of liquid money has long been seen as the problem. The previous September, the daily production of paper Marks by the federal press was a mere 2.9 milliards – and it was hoped then that raising it to 4 milliards would overcome the shortage. It did not; and at that point large companies, public utilities and many municipalities helpfully began to print their own currencies (Notgeld) in big amounts – redeemable notes or coupons to keep their workers calm, all adding to the blizzards of new money now swamping the economy. The Reichsbank is prepared to discount them too. These paper promises, like the federal paper, never stop moving: their holders getting rid of them as quickly as they can, each 1,000-Mark note doing the work of a 10,000-Mark one moving one-tenth as fast. Prices and wage claims climb in step. Poverty multiplies among those with no industrial muscle.
Producing enough unforgeable paper money at short notice in larger and larger denominations is a monumental exercise. Each fresh issue requires a new, often beautifully engraved design. For a time, overprinting depreciating notes with higher values has been one answer. Faute de mieux, printing on one side only is another. In practice, Havenstein’s patriotic obligations are being achieved by 30 paper mills, 150 printing firms and 2000 printing presses toiling away day and night, perpetually adding to the torrent, the cataract, the tempest of banknotes to meet an insatiable demand. No less a feat is the distribution of these fantastic quantities, always too many, yet never enough. Some will be carried by aeroplanes. By September 1923, the Reichsbank will have ready enough paper notes to fill 300 10-ton railway wagons, waiting to come to the country’s rescue. By October the first 100-billiard note (14 noughts, the highest ever printed) will be out, and the presses’ bounty will produce nearly 74 million million million Marks a week, quadrupling in six days the total previous circulation.
It will be a month before Havenstein’s death in office, the Schacht reforms with the introduction of the Rentenmark, and the return of financial sanity. But that, no doubt like the digital pound in an i-wallet, is another story.