Nazi Germany and the Hyperinflation Which Fueled Its Rise

An individual 500,000,000 Papiermark

Even before the dust settled on the battlefields of World War One a new international paradigm was quickly being established to subvert the old. While treaties like the Sykes-Picot agreement, would perpetuate the old norms of international power through colonial resource acquisition. The newly arriving economic order demanded not just an amass of resources, but necessitated an ever advancing technological manufacturing capability couched within an international market growth paradigm. Along with the Treaty of Versailles this new international system quickly delved into an economically stratified Europe hamstrung by the political environment of the era culminating in vast swells of instability across the continent. This instability festered over the decade and grew tensions amongst lower, working, and middle class individuals to the likes of a powder keg in many of Europe’s former top nations. The growth of fascists regimes succeeded where establishment politics apparently could not. With the ability to play upon the legends of a previous past national glory and at the lore of a futurist guided modernity, fascist leaders carefully managed the growing mistrust for failed establishment orders into new and volatile political apparatus that promised prosperity and greatness in a time of stark instability.

In this paper I will describe not just the tension points which propelled these leaders forward, but the degree to which we can apply a sense of comparative analysis. Here, I will include resources from this semester’s past reading along with reference material from Network, Finance, Economic, and Nazi Germany historians. In addition, I will rely heavily upon a series of translated primary source documents collected in an anthology entitled, The Nazi Germany Sourcebook: an Anthology of Texts by Professor of Humanities Roderick Stackelberg in team with Professor of German Language and Literature Sally A. Winkle. The Paper is organized into two pieces. The first being a history of early 20th century German monetary policy and social history. While the second portion will be dedicated to an analysis of Nazi party economic policy and political constructions in addition to how the loose economic rhetoric of the Nazi party was built around the past failures of the Weimar system.

Setting and Place

Modernity and tradition itself are contemporary terms. The way in which the public perceives the norms of the past (traditionalism) in contrast to the norms and hopes of the era (modernity) vary dependent upon culture, class, and time. In practice, we will look at the concept of modernity and traditionalism through a demarcation in time influential for the German People. For this paper, as we look at the rise and legitimization of the Nazi party. We will see a compounding of rhetoric around the economic hardships average citizens faced during the 1920s. Spawned by the monetary policies of the Weimar Republican precipitated by the outcome of World War One, the Treaty of Versailles, and the newly emerging international economic paradigm spawned the shakeup in the colonial power makeup.

Post War Paradigm in Germany

Prior to World War One, German production and GDP had been on a steady incline for several decades along. Germany had a vibrant and dominate chemical and pharmaceutical industry in addition to an extensive heavy industrial manufacturing capability which had access to a large internal and external foreign market. Berlin, itself, was a growing financial center of Europe, and though not on the scale or depth of London, Paris or New York, the Goldmark was beginning to be seen as a large international reserve currency. Helping contain inflation while enabling the country to compete, internationally, against its French and English neighbors. (1)

However, this status would quickly change. As Germany would be at direct odds with the powers of international finance, the Entente and the looming realities of total war. External financial speculation quickly lead to the evaporation of the German bond and stock market along with the freezing of foreign investment in the country. (2) As the German government could no longer reasonably rely upon the raising of capital through the sale of war bonds to fund the war effort, the German government turned to Reichbank, its central bank, for assistance. The central bankers decided to move away from the gold-backed Goldmark, and introduced a fiat based “Papiermark,” along with a change to monetary where they subsequently decided to increase the money supply in order to fund the national budget through debt spending.

According to Economic Historian Niall Ferguson, the Papiermark’s inflationary status would quickly delve into near “worthlessness” by 1918. With nearly a 1040 percent increase in circulator money by prewar standards. (3) Though, price controls on staples levied the pinch for some, the cost of consumer goods was observed to be in a rapid and steady incline. In cities like Berlin, the cost of living had increased nearly 2.3 times over since the war first started. (4) And by war’s end, in the winter of 1918, the economic scenario had gotten so bad in Germany, US Food Administrator and future American President Herbert Hoover, stated, that due to a lack of financing, the German government would be forced to place Belgian coal miners on furlough, and that the looming harsh winter temperatures without the much needed heating coal could potentially “result in [an] enormous loss of human life.” (5) Following the conclusion of the war and the creation the Weimar Republic, the currency would begin to stabilize but no longer near the parity it had seen before the war.

In regards to currency inflation, it can generate a series of both positives and negative effects. Entrepreneurs can dynamical act to the changing market dynamics and buy out desperate competitors or move into new markets. The average citizen can take advantage of inflation by easily paying off existing debts. Foreign capital, a much needed influence in a post war economy, could easily flow in and purchase hard assets and commodities during periods of devaluation. While simultaneously bringing stability to the market. Even the national economy can draw some benefit as international consumers seek out, what appears to be, ever cheaper and competitively priced products and temporarily boost production.

Inflation, just like trade wars, does hold the potentiality of generating a short-lived boom cycle, and from 1920–1922 the Weimar Republic saw just that. (6) However, just as the pendulum was swinging in the early republic’s favor, the cycle would come back in a destructive manor. (7) Post war expenditures quickly racked up the national debt, expanding at a rate “in excess of 10 per cent of [the] national product” per year by 1920. In response, finance officials slowly began to inflate the national currency again. With growing international concern over the long term stability of the German economy. Foreign exchange markets would, once again, respond naturally. Exchange prices surged from 7.43 marks to the dollar in November of 1918 to 7,589 marks per dollar by 1922. (8) The Treaty of Versailles, which required portions of the German war reparations to be paid in the nation’s pre war currency, I.e., a gold back currency, became unattainable. In the January of 1923, the French government took matters into their own hands with the invasion of the industrial region of Ruhr in western Germany guaranteeing access to hard commodities like coal. This act of foreign invasion was just another notch in a long list of growing political and economical failures on the part of the early republic. That would place a pinch on the self-serving interests of both the wealthy and the working classes of Germany.

Political and Economic Instability

1.26 trillion or 1.26 x 1011 or 1,260,000,000,000 was the average price increase of German goods between the years of 1913 and 1923. (9) In November of 1923, the same month as Hitler’s “Beer Hall Putsch,” the rate of inflation would hit some 4.2 trillion marks per U.S. dollar. (10) This era, known as the “Great Inflation,” would be seen as the advent of the “fundamental malfunction of… [the] political economy” in Weimar Germany. (11) Spawning the rise of authoritarian factions on the left and right spectrum of the populace. (12)

As one can imagine, hyperinflation radically shifted the norms of Germans society. Cash on hand became worthless, debts were erased, and those on fixed incomes quickly shuffled into the pauper lines, and the hyperinflation that would go on to grip society would generate a series of economic tensions that would last in the minds of the public for years to come. As prices rose, individuals become less likely to purchase goods resulting in a lack of demand. This lack of demand reduced the need for workers. The workers, whom can find fewer and fewer job opportunities, subsequently drop out of the economy and succumb to the strife of poverty. Desperate, the formerly employed look for answers outside of establishment reason.

Dawes Plan

The French invasion of the Ruhr region was not the sole catalyst in the hyperinflation that consumed the political and economic consciousness of the Weimar Republic. However, the international response that did follow, in early 1924, would directly lead to a gradual sense of monetary control throughout the later half of the 1920s. (13) Charles Dawes, an American banker and close political ally of American President Calvin Coolidge devised a plan that would finally settle the question of German repayment, “once and for all.” (14) Conveniently named, the Dawes plan was designed to restructure German debt in order to free up the internal mechanism of the German economy. In regards to currency, the new liquidity offered to Reichbank would allow the struggling central bank to once again reintroduce the Goldmark and begin to offer a currency backed by gold. Which, over time, would hold the potential to stabilizing the currency. On the back end, the 500 million USD loan spawned international interest and reinvestment in German industry. Interjecting nearly two billion dollars in foreign capital over the course of the next five years and leading to what, Finance Network Historian Nomi Prins described as, a “boom period for the Germany economy” until the start of the Great Depression in 1929 and the currency deflationary period that followed. (15)

The stability it would bring to the economy would eventually lead to France withdrawing troops from the Ruhr industrial region in July of 1925. (16) Due to the growing sense of stability spawned by successful inflationary controls, the duplicity in foreign investment, and a growing position of power within the European sphere as a result of the signing of the Locarno Pact. The government of the Weimar Republic was growing more economical prosperous, but the financial policy failures of the 1920s loomed over the growing polarization in society. As many formerly well to do middle class Germans, with an exhausted generational wealth, turned to the reactionary nativist policies of the National Socialist German Workers Party of Germany.

Fascism

“Side by side with social democracy, with whose aid the bourgeoisie suppresses the workers or lulls their class vigilance, stands fascism.” ~ Program of the Communist International (New York: Workers Library Publishers, 1929), pp. 18–23

The rise of the German National Socialist Workers party came about during a time of great political and economic turmoil. The failure of the Weimar republic to manage its monetary crisis enabled the breath of Germany’s political paradigm the rhetorical ammunition to attack the legitimacy of the state along a consortium of viewpoints. Anti-Semitic nationalist factions blamed hyperinflation on a shadowy cabal of international Jewery in the world of finance and business, while communists railed against the likes of Hugo Stinnes, German industrialist who used foreign finance channels to purchase devalued German real-estate assets and businesses in order to formulate near monopolistic control across several industries in the country. The attack on the institution from both “sides” of the political spectrum polarized the republic. The sitting majority party, the Social Democratic party, began to cleavage some support to the Communist party, while establishment members of the Conservative party formed a coalition with the fascist Nazi party who was mounting great support with independent and disenfranchised voters.

Fascism, itself, is a rather tricky term to define as, according to Historian Robert Paxton, there is no one singular point to which intellectual historians can pin point to as a founding ideological doctrine. (17) As such, we become confronted with one of the defining characteristics of fascism, where, instead of a consistent train of thought or methodology of success. We actually find a lack of consistent ideology, and instead an elastic set of actions and characteristic, which at its basis, enables the party to successful spread support through all walks of life. (18) In his article “The Five Stages of Fascism” Paxton goes about describing the methodology through which academics characterize the umbrella nature of fascist regimes. No one fascist group perfectly overlaps within one another, but what sticks out most in Paxton piece is this identification of a fluidity in all things. All fascists leaders do share a similar set of clear end goals; single party dominance and the perpetuation of the nation-state, but without an inherent methodology or ideological consistency those in front of you are nothing but a means to an end.

Rhetoric

Dear Herr Hitler,

…You know that I do not intend to give you any tactical advice, as I admit absolutely to your superiority in this field. But perhaps as an economist I may say this: if possible, do not put forward any detailed economic program. There is no such program on which 14 millions could agree. Economic policy is not a factor for building up a party, but at best collects interest. Moreover, economic measures vary with time and circumstances. It merely depends on the spirit out of which they are born. Let that spirit by the deciding factor.

With a vigorous “Heil”

[signed] Hjalmar Schacht (19)

“We know their aims. Nobody knows what their next measures will be” (20)

Party and government policy for the Nazi regime was to say the very least, variable, and highly dependent upon the audience and time period. Nazi leaders carefully crafted their rhetoric to their direct audience noting factors like geographic location, class, industry type, and religious makeup. Here, we will look at a document detailing a speech by Adolf Hitler to the Industry Club of Düsseldorf Germany. Hitler addresses this audience on January 27th, 1932 just six months prior to the Nazi party winning their first Reichstag election. (21) This speech represents a prime example in the varying ways that Hitler was able to craft the ideas of national socialism around his audience while continually referencing their positionally within German strata, the problems that faced the public at the time in regards to the “failures” of the Weimar Republic, and the promised hopes of tomorrow. One keynote on the piece, is that just as Hjalmar Schacht had suggested, there is not a singular policy statement, outside of outlawing Bolshevik organizations, found throughout the entire two and half hour speech. Instead, Hitler constructs his dialog around the “spirit” through which his ideas are born.

The speech retains three key characteristics through which the Nazi party argues support; the failure of the Weimar government and the need for new forms of economic arrangement, the superiority of national socialism over marxism as the most efficient means of achieving that greater tomorrow, and the authority through which grants national socialism its ability to rise to power I.e. German racial superiority and the inferior nature of democratic methods versus that of a single, fascist, hierarchical structure. Each component has its own sub-headers of support organized in a fashion that places them on continuum. From traditionalist norms and historical events of the past along with a new historicism, to the pressing issues and developing modern norms of the time, followed by a futurist perspective of a glorious organized tomorrow. Each of the three competent are stated along lines of, in this case, an establishment industrialist perspective.

Several emotions are drawn upon, but what rings clearly early on in the speech is the pressing fears of the day, the rise of Marxism and how the sitting government enabled such to occur. Surely, a rise of Marxism in Germany could be construed as a gripping claim to a room full of wealthy capitalists. The promise of sharing wealth with that of the laborer versus that of factory owner would certainly be opposed to by the audience. Hitler is able to pinpoint what precipitated such a rise.

“Do you believe that when seven or eight million men have found themselves for ten or twenty years excluded from the national process of production, for these masses Bolshvism could appear as anything else than the logical theoretical (weltanschaulich) complement of their actual, practical economic situation?” (22)

Poverty, spawned by the crippling hyperinflation and the recession of the early 1920s enabled the political paralysis and disenfranchisement of the decade. While the successive invasion of the Ruhr region, prompted by the poor fiscal controls of the Weimar Republic, became the call to arms for the National Socialist movement. (23) While in the grips of the Great Depression and the elections of 1932 looming, sixth election in twelve years, Hitler offered leading industrialist the opportunity to combat the revival of the Marxist movement. (24) Just as he had done in 1923 when the National Socialist attempted their own black shirt march on Berlin, during what would become known as, the “Beer Hall Putsch.”

In his alliance with the industrialists, Hitler appeared to the “spirit” of their authority. Arguing that, “in the economic sphere people are not of equal value or of equal importance in all branches from the start.” (25) This argument, that in the business sphere there are those with “special abilities” is concurrent within the political argument of which he forms shortly after. Stating that democracy, just as it had in Weimar German, enabled the weak to collectivize and succeed while all along still making poor decisions. In contrast with the business world where only the most successful, I.e., the industrial superiors in front of him, survive and lead. Through an alliance between the two groups, they can successfully combat the problems that they see in front of them. Which is not just a problem with the state of politics and society at their feet, but the inherent corruptibility in its ethos. As such, Hitler would propose a system where the Nazi party would form a singular government and through that enact their national socialist plans.

Just as seen in the Gentile text, The Struggle for Modernity: Nationalism, Futurism, and Fascis Hitler describes the idealized period of past, where Germany rose to a new level of greatness through internal organization under the lust of a golden aura. But after launching into his goals of unity between the Nazis and the industrialist Hitler, he harkens back to the present day failures in the economy for the capitalist class. Compacted by the deflationary monetary practices of the sitting central bank and the market influences developed by the reneging of German colonies spawned by the Treaty of Versailles. Hitler proposed a new era of German dominance within the international world. By looking to the past failures of 16th century German politics where Hitler described Germany’s internal “suffering” dictated by a lack of a strong German dominate in the international system. Hitler indicates that, for Germany to rise again within the international scene, the internal suffering of the day must be end, which can only be done through the, “formation of the political will of the nation as a whole.” (26)

Within this two and a half hour speech, Hitler doesn’t speak to the fiscal failings of the nation. He doesn’t even state a single policy through which to combat it. Instead, he speaks to the depression era would resonate with extremely wealthy business men. The average family directly experienced the grind of hyperinflation with the purchasing of bread via wheelbarrows of money. The wealth industrialist is effected by the era via the lack of German influence in international markets. The Versailles Treaty limited German access to colonial markets and the cheap resources they offered. Hitler finished his speech providing a small timeline of his quick rise from a “nameless German Soldier” to the man that stood, verbosely, before them. (27) He promised a new era of access international economies and a foreign policy that is Germany first. The leader of the workers party doesn’t speak about workers nor access to food for those starving. For the people before him, Hitler offered internal organization and market dominance abroad. At no point in two and a half hours was a policy mentioned, but somehow a pathway towards greatness was throughly presented.

In conclusion, the fascist party of German National Socialist Workers Party rose to power in a time of great internal political and economic struggle. The Nazis, while not offering much in the form of concrete policy platform, presented themselves to their respective audience as an outlet of change. Reflexively, by offering no specific policies, the German populace could place upon their own experiences within the generalized rhetoric of the Nazi party. In this, fascists leaders are able to direct the populace towards their own respective end goals, while their followers crafted the message into their own.

Endnotes

1. Ferguson, Niall. The Ascent of Money: A Financial History of the World. London: Penguin Books, 2009. Pg. 102
2. Ferguson, Niall. The Ascent of Money, Pg. 103
3. Ferguson, Niall. The Ascent of Money, Pg. 102–103
4. Ferguson, Niall. The Ascent of Money, Pg. 102
5. Prins, Nomi. All the Presidents Bankers: The Hidden Alliances That Drive American Power. New York: Nation Books, 2014. Pg. 56
6. Ferguson, Niall. The Ascent of Money: A Financial History of the World. London: Penguin Books, 2009. Pg. 105
7. Ferguson, Niall. The Ascent of Money, Pg. 106–107
8. Stackelberg, Roderick, and Sally Anne. Winkle. The Nazi Germany Sourcebook: An Anthology of Texts. London: Routledge, 2002. Pg. 82
9. Ferguson, Niall. The Ascent of Money: A Financial History of the World. London: Penguin Books, 2009. Pg. 105
10. Stackelberg, Roderick, and Sally Anne. Winkle. The Nazi Germany Sourcebook: An Anthology of Texts. London: Routledge, 2002. Pg. 82
11. Ferguson, Niall. The Ascent of Money: A Financial History of the World. London: Penguin Books, 2009. Pg. 105
12. Stackelberg, Roderick. Hitlers Germany: Origins, Interpretations, Legacies. London: Routledge, 1999. Pg. 75
13. Stackelberg, Roderick. Hitlers Germany: Origins, Interpretations, Legacies. London: Routledge, 1999. Pg. 78
14. Prins, Nomi. All the Presidents Bankers: The Hidden Alliances That Drive American Power. New York: Nation Books, 2014. Pg. 79
15. Prins, Nomi. All the Presidents Bankers Pg. 81
16. Stackelberg, Roderick. Hitlers Germany: Origins, Interpretations, Legacies. London: Routledge, 1999. Pg. 78
17. Paxton, Robert O. “The five stages of fascism.” In Fascism, pp. 81–103. Routledge, 2017. Pg. 4
18. Paxton, Robert O. “The Five Stages of Fascism.” The Journal of Modern History 70, no. 1 (1998): Description
19. Stackelberg, Roderick, and Sally Anne. Winkle. The Nazi Germany Sourcebook: An Anthology of Texts. London: Routledge, 2002. Pg. 117
20. Kershaw, Ian. Hitler: A biography. WW Norton & Company, 2010 Pg. 432
21. Stackelberg, Roderick, and Sally Anne. Winkle. The Nazi Germany Sourcebook: An Anthology of Texts. London: Routledge, 2002. Pg. 99–100
22. Stackelberg, Roderick, and Sally Anne. Winkle. The Nazi Germany Sourcebook: An Anthology of Texts. London: Routledge, 2002. Pg. 108
23. During the prosecution for Hitler’s Beer Halll Putsch Hitler claimed, in his own defense, that the German people would lose the territory of the Ruhr, “if the people did not wake up from its lethargy. (Stackelberg, Roderick, and Sally Anne. Winkle. The Nazi Germany Sourcebook: An Anthology of Texts. London: Routledge, 2002. Pg. 86)
24. “Reichstag (Weimar Republic).” Wikipedia. October 06, 2018. Accessed October 23, 2018. https://en.wikipedia.org/wiki/Reichstag_(Weimar_Republic).
25. Stackelberg, Roderick, and Sally Anne. Winkle. The Nazi Germany Sourcebook: An Anthology of Texts. London: Routledge, 2002. Pg. 105
26. Stackelberg, Roderick, and Sally Anne. Winkle. The Nazi Germany Sourcebook: An Anthology of Texts. London: Routledge, 2002. Pg. 110
27. Stackelberg, Roderick, and Sally Anne. Winkle. The Nazi Germany Sourcebook: An Anthology of Texts. London: Routledge, 2002. Pg. 111

Sources

• Ferguson, Niall. The Ascent of Money: A Financial History of the World. London: Penguin Books, 2009.
• Gentile, Emilio. The Struggle for Modernity: Nationalism, Futurism, and Fascism. Westport, CT: Praeger, 2003.
• Grazia, Victoria De. “How Fascism Ruled Women: Italy, 1922–1945.” Italica 71, no. 1 (1994): 132. doi:10.2307/479421.
• Hett, Benjamin Carter. The Death of Democracy: Hitlers Rise to Power and the Downfall of the Weimar Republic. NY, NY: Henry Holt and Company, 2018.
• Kershaw, Ian. Hitler: A biography. WW Norton & Company, 2010
• Paxton, Robert O. “The Five Stages of Fascism.” The Journal of Modern History 70, no. 1 (1998): 1–23. doi:10.1086/235001.
• Prins, Nomi. All the Presidents Bankers: The Hidden Alliances That Drive American Power. New York: Nation Books, 2014.
• Stackelberg, Roderick, and Sally Anne. Winkle. The Nazi Germany Sourcebook: An Anthology of Texts. London: Routledge, 2002.
• Stackelberg, Roderick. Hitlers Germany: Origins, Interpretations, Legacies. London: Routledge, 1999.