When Money Dies

Adam Fergusson tells the story of the Weimar inflation as a political and human disaster, not an economic model. By late 1923 a dollar bought 4.2 trillion marks and much of the country had fallen back on barter, and the book shows what that did to the people living through it.

Fergusson, a British journalist on The Times who later sat in the European Parliament, built the book mostly from Foreign Office records, including the dispatches of the British ambassador, Lord D'Abernon. He sets those beside German sources and the diaries of people in Germany and Austria, including the Viennese diarist Anna Eisenmenger, whose middle-class savings evaporate.

First published in Britain in 1975, the book had become obscure until a 2010 newspaper report that Warren Buffett had recommended it pushed used copies above $1,000; the report appears to have been mistaken. Reviewing the 2010 US reissue for the IMF's Finance & Development, economist Jürgen Kromphardt praised its account of inflation's corrosive social effects but faulted it for offering no theory of when money printing tips into hyperinflation and no tables to support its figures. Fergusson himself frames it as a moral tale rather than an economic analysis.

Read it alongside a monetary history for the mechanics, and read it for what the statistics leave out.

1. Inflation is a political choice before it is a monetary event. Weimar governments financed the war and then their deficits through the central bank because raising taxes on powerful interests looked harder.
2. The losers are savers and fixed-income holders. War bonds, pensions and bank deposits were wiped out, while debtors and owners of real assets came through.
3. Hyperinflation feeds on itself. Once people expect the currency to fall, they spend wages instantly, prices race ahead of the presses and the government prints faster to keep up.
4. Respected officials can do the damage. Havenstein was no crank, which is why Fergusson treats him as a warning about technocrats who misread what is happening.
5. Monetary collapse wrecks trust, not just prices. The lasting cost was the destruction of the middle class's faith in the state, which helped open the way for extremists of left and right.

The book runs chronologically in fifteen chapters, from the outbreak of war to the aftermath of stabilization, and keeps one eye on Austria and Hungary throughout.

1. War and defeat (1914-1920). Germany finances the war largely with borrowing and the printing press rather than taxes, and the peace brings food shortages, political violence and the reparations bill.
2. The slide (1920-1922). Prices climb into the milliards as the government keeps covering deficits through the Reichsbank. A chapter on the Habsburg inheritance follows Austria's parallel collapse, seen through Viennese diaries.
3. The Ruhr (1923). France occupies the Ruhr, Berlin funds passive resistance with newly printed money, and the currency goes into free fall over the summer.
4. Havenstein and the abyss. Fergusson profiles Reichsbank president Rudolf Havenstein, a respected banker who kept the presses running, and describes life at the bottom of the collapse in autumn 1923, when savings were gone and extremists of right and left moved against the republic.
5. Schacht and the reckoning. The Rentenmark and Hjalmar Schacht end the inflation in late 1923, but stabilization brings unemployment, and the closing chapters and epilogue weigh the lasting damage to the middle class and to faith in the republic.

In 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to 4,200,000,000,000 marks), the German republic was all but reduced to a barter economy. Expensive cigars, artworks, and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump of coal; and a bottle of paraffin for a silk shirt. People watched helplessly as their life savings disappeared and their loved ones starved. Germany's finances descended into chaos, with severe social unrest in its wake.

Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, "quantitative easing," that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline. Whatever the reason for a country's deficit -- necessity or profligacy, unwillingness to tax or blindness to expenditure -- it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? Germany in 1923 provides a vivid, compelling, sobering moral tale.