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.