5 Historical Financial Crises That Make This One Look Posh – Part Two

#4: Germany Doesn’t Understand How Money Works

Hyperinflation, as the Greeks experienced yesterday, is when money is so worthless that you are literally better off eating it than spending it. Probably the most famous example of hyperinflation in history is the German Depression of 1923. You may have seen old photographs of children playing with stacks of banknotes in the streets.

Every single one of those thousands of notes these children are playing with is totally without value. The entire stack is worth practically the same as one note. How could Germany, one of the most industrialized of nations, ever have fallen on such rough times?

The Cause

Have you heard the one about the time Germany was forced to pay through the nose for damage caused to Europe and the world during the First World War? Here’s the punchline:

“Ha, ha!”

Germany’s 1923 economic collapse, as well as the events leading up to it, was largely what allowed this world-renowned ‘stache-burglar to come to power. So, what, Germany had to pay a lot of money to other countries, and thus had no money left in their own?

Not exactly.

This is approximately the German train of thought when faced with massive reparations:

Klaus: So, how much must we pay, again?

Hans: One English Standard Shit-Tonne.

Klaus: How will we ever manage?

Hans: Well, we have printing presses….

Klaus: Brilliant! We’ll just print lots and lots of money, and nothing will ever go wrong!

Hans: Or we could just sell the presses to….

Klaus: Start printing money now!

You know how whenever a large quantity of a valuable commodity is discovered, like a gold vein or an oil deposit, the value of said commodity tends to plummet? It’s only common sense. Rare things are worth more than prodigious amounts of things. Everybody knows that. Everybody, except the Germans of the 1920s.

The Papiermark had been the German currency since the abandonment of the gold standard in 1914. Things had been okay, except for all that wartime debt they had to pay in addition to reparations. Contrary to popular belief, Germany did not pay its reparations with their own currency. No, they were required to pay it in foreign currency only. So all those newly printed Papiermarks went not towards paying other countries, but towards buying foreign currency to pay other countries.

The Aftermath

Germany’s hyperinflation got bad, fast. The Papiermark was introduced at a rate of 4.2 Mark per U.S. dollar. By November of 1923, when the situation was at its worst, one contemporary dollar was worth 238 million Papiermark. This resulted in “Zero Stroke,” an officially reported mental disorder brought on by staring at the increasing numbers of zeros on price tags, and sometimes resulting in “the desire of patients to write endless rows of zeros.”

People used banknotes to wallpaper their walls:

“On the next episode of The Martha Schtüart Show….”

…fuel their stoves:

“But mom, we had cashkabobs last night.”

…and play LEGOs at the office:

The only time this wouldn’t be seen as anti-one-percent propaganda.

…all because the bills were otherwise totally worthless. People took their wages home in wheelbarrows and suitcases, and million-Mark raises were seen less as a good thing and more as a harbinger of the end times. Stories from the era are particularly shocking. One has a man leaving a cash-filled suitcase unattended, and returning to find the case stolen and the money left behind. A woman sold her house, hoping to live on the proceeds. A few weeks later, the money couldn’t even buy a loaf of bread.

The Worst It Got

 Although there was eventually a one-hundred trillion Mark note, the bill that best sums up the severity of Germany’s hyperinflation is this one here:

This is a former one-thousand Mark note printed at the end of 1922. Because Germany couldn’t print money fast enough, they took to stamping new denominations on old bills. In a few months, this thousand-Mark note became a one-billion-Mark note. Even the man on the bill is ashamed to be involved. Just look at his face.

Finally, in November of 1923, the Rentenmark was announced. Instead of a conventional exchange rate, they just took twelve zeros off the Papiermark.

Oh, and Germany’s World War I debt? It’s all paid off… as of 2010, 92 years later.

So, yeah, Germany was bad and all, but you ain’t seen nothing yet.

Tomorrow: Yugoslavia, apparently.

Be sure to check out our regular features:

Dear Socially Awkward – Boyfriends and bats, Valentines and Hungary, and Spain or something. Submissions welcome.

The Media Manifesto – Because Communism does, in fact, mix well with mass media.

Compass Rose News – Walmart declares bankruptcy after deciding to be nice to people, and a Kansas youth reports seeing colors besides sepia.

And, of course, Xavier’s Original Miscellany – With The Superallergy, The Apathy Argument, and the reason mail on Sundays causes increased therapy.

Xavier Yes will be appearing at the Burlington Book Festival this September, so if you’re in the area, check your sanity at the door and sit awhile.

NOW UP: Part Three: Yugoslavia Shows Germany and Greece that It Knows Big Numbers, Too.

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21 responses to “5 Historical Financial Crises That Make This One Look Posh – Part Two

  1. Nice pictures. With all due respect, regarding your assesment of Germany 1923 I do agree with your title – most Germans do not understand anything about money- but your presentation of the basic facts is incorrect. The (hyper)inflation was the bill for a lost war (an credit card) and largly expropriated the German middle class to pay for it. Hitler came 10 year after this mess to power.Root cause of the hyperinflation, which started 1919, was the massive expansion of the money supply by Germany in the early years of the Weimar Republic, to eliminate the national debt. The reparation payments will not help.You have a second chance, because right now Germany has just lost the Third “Geldkrieg” against G&S et all, and its goverment let again the (dumb) middle class pay for it. We are right now repeating 1919. You havnt seen anything of this current crisis yet.

    • Thanks. While I am well aware that the reparations were not the sole cause of the hyperinflation, they were what ultimately impacted global history. The decaying Weimar Republic was already looking bad, and the soon-to-be Third Reich needed a cause. So, they blamed reparations, the easiest scapegoat. The French and Belgian occupation of the heavily industrialized Ruhr Valley – when Germany defaulted on their payments – certainly didn’t help, nor did the general strike shortly thereafter. There were many causes of the crisis, and unfortunately I cannot focus on all of them. Such is the issue with operating an entertainment site and not a finance site. I can’t get all the facts in there that might need to be, and I need to keep it entertaining. Thanks for clearing the record. If it helps, I am rather intimately involved with the crisis, and even after publishing this piece, felt some guilt for not getting everything out there. In the end, it was most clear-cut to just present what many people are already familiar with, and allow the links to inform bits of the rest.

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  3. You’ve got to feel for the woman who sold her house and a few weeks later was unable to buy so much as a loaf of bread with the proceeds.

    Rampant inflation at these levels, fortunately, has been a relatively rare occurance in world history, but it points out the fact that, as one famous economist once said, there’s no such thing as a free lunch. You can’t simply manufacture money.

  4. @pouringmyartout (because I guess I can’t reply twice): Oh, I love living next door to Germans. They haven’t invaded my house once. Of course, they’re also my family, so that probably helps.

  5. Great article. Really puts what we call a “crisis” today into perspective.

    It also makes me wonder why the Germans didn’t just try printing one note with a 1 and as many zeroes as they could fit on it, go up to the Allies and try claiming they were paying all the reparations right there. It seems like it would have worked just as well!

    • The inflation is an excuse, often used for the Third Reich. But this fuhlsome, since,as the 3rd Reich came to power, Germany was doing very well industrially…Racial Fanaticism, as of my opinion, played a much dirty role. The millions of Victims of that time and now are the witnesses. the excuse of hyper inflation of that time is not worth a tear drop from a child witnessing him becoming orphant..for him not belonging to that ‘race’.

      • to add to my comment: The time periods you are using are in the 1920’s..What about the time 1935 to 1942/43? The Germans could have stopped the killings and would payed the WW1 deaths long before 2010! This tells us, there is a time period to regard as of Inflation going mad !

      • I’m not saying it is. The volatile social and economic conditions in Germany did set the stage for the Nazis, however. It seems unlikely that such an extremist party would have gotten anywhere at all under normal circumstances. I don’t think anyone who argues this is saying it’s an excuse at all.

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