The military chiefs hid themselves in their castles—sullen, broken. They put all the blame on the German people. It was they who had blundered and had been defeated. The invincible German armies had never been defeated. Never! Only Ludendorff in an incautious book confessed the truth that he had not been able to hold the line against the overwhelming assault of the Allies. But his argument was the same. It was German will-power that had broken behind the lines. It was Bolshevism and Pacifism that had let down the fighting men. When the Peace Treaties were published the German people gasped and, for a time, despaired. They were confronted with conditions which would crush them for all time. However hard they worked, all the profits of their labour would be seized by their enemies. However much they pinched, more would be demanded. There was no fixed sum which they could wipe out by stupendous effort, but only sums rising higher in fantastic figures for ever and ever. They were the bondslaves of the world.
That mood did not last, though it came back again. A new mood followed and buoyed them up for a year or two. They had lost the War, but they would show the world that they could win the peace. German genius, organisation, and industry would rise above even the monstrous penalties exacted by their enemies. They would capture the markets of the world, smash all competitors by an industrial war, regain their liberty and commercial power. The Krupp works which had made great guns and all the monstrous machinery of war converted their plant to the instruments of peace, produced ploughs, steam-engines, safety razors, cash registers, everything that is made of metal for the use of life. Every factory in Germany got to work again. There were no unemployed as in England, because the workers accepted low wages, and desired work almost as much as bread in a fever of industrial energy, to wipe out the War and build up the prosperity of a peace. Defeat was better than victory in its moral effect upon the German people. At least they did not fall into that idleness, that craving for gaiety, that moral lassitude and indiscipline of spirit which overcame the victorious peoples. When I went to Germany, several times after the War, I was amazed at its energy and industry. There were no scenes in Berlin like those in London, with processions of unemployed and innumerable beggars and crowds of loungers round the Labour Exchanges. There was an air of activity in Germany, startling and rather splendid. The whole nation was working full steam ahead, and the products of its industry were being offered in the markets of the world at less than the cost price of similar goods in England. It steadied them and gave them a purpose in life.
And yet beneath this superficial appearance of renewed prosperity and industrial power there was, as I could see, something rotten. Misery was not to be seen in the open, as in London, but it was there, in middle-class homes and mean streets. The whole of this new industrial adventure in Germany was based upon underpaid and under-nourished labour, upon cut-throat prices, and upon the temporary advantage of a falling exchange.
The German Government was tinkering with its money, speeding up the printing presses, issuing notes beyond the backing of real securities. The illusion of a Germany capturing the world’s markets had no great basis of truth. The world markets had lost their purchasing power, however cheap were German goods. Russia was not buying much from Germany, nor Austria, nor Poland, nor Hungary, nor Turkey. Looking into the figures given me by experts—English as well as German—it seemed certain that there was an adverse trade balance against Germany when her national expenditure was reckoned with her revenue. The reparations she was beginning to pay, the deliveries in kind she was making to France, Belgium, and Italy, the costs of the Armies of Occupation on the Rhine, were eating into her capital wealth and swallowing up her last gold reserves. She had to pay her indemnities by buying foreign money—dollars, sterling, francs—and after each payment her own money depreciated by irresistible economic laws.
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.