The Adventure of Inflation
The financial advisers of the German Government used the method of inflation to keep the German people working on cheap money to avoid a revolution which they feared would happen if unemployment prevailed, to wipe out their internal debt, and to dupe the world. At first, no doubt, they believed that they could control this system of postponing the evil day of reckoning, but, once having started the ball rolling, it increased with frightful velocity down hill. Every time the mark fell in value more marks had to be printed. When its purchasing power fell so far below the real value of wages that the workers clamoured for increased pay, the printing presses had to be turned again to provide the additional money which again fell in the foreign exchange while more slowly prices rose in Germany. The German financiers never checked this wheel in its mad revolutions. They protested that they were unable to check it. To some extent it was a gamble with loaded dice. They were bound to win—up to a point. As long as foreign money was paid for worthless paper—whatever the figure of exchange—they would be taking good money for bad, which is excellent business. As long as by increasing the quantities of paper they could enable their industrialists to employ cheap labour, it was good business. As long as the paper itself and the labour of printing were not more costly than the purchase value represented by fantastic numbers on the note, they could carry on the economic life of the country and at the same time abolish all their internal debts. People who had invested all their savings in war loans found that their income had withered away. Industrial companies who had borrowed real capital could pay it back in false notes. And private individuals who were ruined by this means could at least recoup themselves a little at the expense of the foreigner by selling German paper for pounds, dollars, or francs, and gambling on the exchange. It was a great game, which absorbed the interest of large numbers of the German people. Waiters in hotels, clerks in offices, vendors of newspapers, middle-class housewives, did their little bit of daily speculation, and secreted foreign money for rainy days. The great industrialists and professional financiers speculated on a large scale and made enormous profits, while the game lasted. But it was a game bound to fail in the long run. It was bound to fail when no other country would buy German marks at any rate of exchange, and when those who possessed real things, such as potatoes, meat, milk, or manufactured articles, refused to part with them for any number of German notes. That time came during the occupation of the Ruhr, when, to subsidise the passive resistance of the workers, the German Government poured out a vast tide of paper money, and when the German nation was cut off from its chief source of real wealth in that great industrial region.
I saw from time to time the progress along the road to ruin. Although it enabled a minority to get rich quick, it caused intense suffering among the mass of the German people. The wages of the workers never kept pace with the fall in the purchasing power of their wages, although they were raised week by week on an ascending scale. What five marks would buy in 1913 a million marks would not buy in 1923. It made trade impossible, because no sooner were prices adjusted to the new note issues than a fresh burst of inflation made them less than the cost price of the goods a week before. It was futile to save when thrift was mocked by this depreciation and disappearance of money values. German people had to spend quickly in food or drink or foolish things, because what they had to-day would be worthless to-morrow. The German housewife despaired. She could not keep pace with these rising prices. Some of them went crazy over millions of marks that had no meaning. Germany, apart from its profiteers, stinted, scraped, and toiled, without decent reward for its labour, and with certain ruin ahead.
Looking back on that amazing adventure of inflation, one must ask oneself the question what would have happened in Germany if its Government had endeavoured to stabilise its finances by not issuing money beyond its real backing, and trying to balance its Budget according to sound methods. It is my opinion that the illusion of German prosperity would have been more rapidly dispelled and that their default in the payment of reparations would have happened earlier. Foreign speculators would not have been “bitten in the ear,” German speculators would not have made profits over exchange gambles; but the Allies would not have received more payments, and there would have been widespread unemployment and revolt among the German people. They were between the devil and the deep sea, and though they chose the devil of inflation, it postponed the plunge into the deep sea for a year or two more.
In fairness to Germany, it must be remembered that she did make very heavy payments in money and kind, amounting all told to more than £400,000,000 sterling—that is to say, nearly half the amount of the British debt to the United States of America, which the British people, richer than Germany at the present time, find an almost intolerable burden, although they are paying only £30,000,000 a year to reduce it. In Germany’s post-War state it was a drain upon her dwindling capital which she could not sustain at anything like that rate, and with or without inflation it crippled her. The Dawes Report was an acknowledgment of that fact, although it took into account the immense sums of money secreted abroad. Previous default had caused the French occupation of Düsseldorf, Duisburg, and Frankfurt, arousing a flame of hostility in German minds. But when France marched into the Ruhr against the will of the British, and without their co-operation, the whole of the German people, without difference of class or political opinion, denounced it as a violation of the Peace Treaty, and as a sentence of ruin, not only to Germany herself, but to the whole of Europe.