Review of When Money Dies by Adam Fergusson (1975)

The fiscal and financial conditions across Europe are far from perfect at the minute. Ireland is in debt up to its rheumy eyes and undergoing austerity measures. Greece is teetering on the edge of default and collapsing into an uncertain future. Portugal, Italy and Spain are on austerity diets after the gorging on debt for the past couple of decades. In all five countries unemployment has risen, household income has fallen, and the population are feeling financially squeezed by personal and national debt obligations. Life though is a hell of a lot better than Germany under the Weimar Republic, post World War One. Adam Fergusson’s, When Money Dies: The Nightmare of the Weimar Hyper-Inflation, tells the story of when a whole economy implodes; when very large sections of society lose everything they own, many are left starving, and petty crime, large scale demonstrations, strikes and riots become common place. The book mainly focuses on Germany, but also shows how the same problems were replicated in Austria and Hungary.

In 1914, 20 German Marks equalled a British pound. By 1924 a British pound was equal to the number of yards to the sun and Germany was all but a barter economy. The First World War had left Germany on its financial knees, though its industrial base remained strong. The payments to the allies under the Versailles Treaty hung heavily on the struggling economy. Gradually inflation started to rise, devaluing the mark against foreign currencies. This allowed German business to grow, but the domestic economy started to spiral out of control. The Reichsbank’s solution was to increase wages and print more money to enable the populace to purchase goods. And as prices increased, the denominations of notes increased, and the value of savings and pensions plummeted. It soon became apparent that the only way to extract the value of money was to immediately spend it as Germany entered a period of hyper-inflation (when the value of money at the end of a month was worth half that at the start). By 1923, it was not uncommon for salaries to be raised several times a month to keep pace with inflation. Unable to pay the reparations to the Allies, the French and Belgians moved into the Ruhr, Germany’s industrial heartland, to seize and exploit its assets, further weakening the economy and its ability to make such payments. Whilst people suffered, unemployment remained quite low, however by 1924 it was clear that a new strategy was needed to end the madness of exponential inflation. The solution was to introduce a new currency with a stable commodity base and to move the economy onto it, and to balance the books to reduce the need for deficit finance. The result, whilst curbing inflation, was a massive drop in industrial production as German goods became more expensive on the world market leading to mass unemployment. Although not directly responsible for the rise of National Socialism, Fergusson makes a good case that the turbulence of economic circumstance, the disenfranchisement of the middle classes, and the rise of unemployment helped provide the conditions within which it could grow.

Adam Fergusson does an admirable job of detailing for a lay audience what happened with the German economy in the early 1920s. He uses a mix of historical sources, including letters, British diplomatic material, and newspaper reports. Sometimes the narrative is a little dry and it would have been good to include more detail on Austria and Hungary, the strategy of German industrialists, and the French/Belgian intervention in the Ruhr. Although not its intention, what the book demonstrates is the value of the European project in binding Europe into a common monetary framework that makes it easier for countries whose economy is in trouble to weather financial storms. As the present crisis demonstrates, that process is not always straightforward and easy, and is fraught with difficult politics and decisions, but what Fergusson’s book highlights is that trying to cope on their own with politicians who seem clueless about core economic principles can be a hell of a lot worse.