The Downfall of Money
Frederick Taylor Bloomsbury Rs 599 Pp 320 GERMANY TODAY is a very strong economic power and, to use a cliche, has been holding the fort for the entire European region. It is known for its prudence and has, in a way, been criticised for being too finicky about what the other euro nations are doing. The euro crisis has been overcome mainly due to the leadership position taken by Germany. However, this has not always been the case, and Frederick Taylor, in his book, The Downfall of Money, shows what happened in this geography from the time of World War I till around five years after the war ended. Germany was a nation in a mess, with economic chaos pervading every sphere. Germany, which had free convertibility of marks into gold, had to move away at the time of the war mainly due to the metal disappearing from the system. The war had a crippling effect on the economy, especially after Germany lost. The double whammy came from the Treaty of Versailles, which heavily penalised the nation for the war and, contrary to what is taught in history books, America was particular that Germany should bleed, and pay for all the losses of the Allies. The threat was that if Germany did not pay up, the war would restart and the consequences would be severe. There was, therefore, no option for the country, which had to work hard to repay the money. Internally, there was a lot of dissatisfaction over the outcome of the war and while civil unrest was common, the government tried to inflate its way by increasing wages. The pension bill for the government staff, as well as monetary support to the maimed—which numbered 1.5 million—added a lot of purchasing power in the system. The profile of the government was to remain big and it had to pay higher wages to placate the masses. The working day was shortened and productivity declined sharply. The welfare system worked even as taxes were not collected, which meant that the government was in the throes of a large deficit. The result on both scores was high inflation. The rise of inflation was severe and there was a time when a load of bread was selling at a peak of 140 bn marks. Workers then demanded higher wages, but the government simply had no money to pay, thus driving prices up a spiral. This was the time when the mark depreciated like crazy. From an exchange rate of 4.2 marks per dollar at the time of the war, it moved up steadily to 7.4 when it concluded. But after that, hyperinflation set in and, by December 1923, the exchange rate had reached 4.2 trillion marks for a dollar. This was the stage when a new currency, called rentenmark, was introduced to make people used to thinking of small numbers again and the rate was fixed at 1 trillion marks for 1 rentenmark. This also led to the withdrawal of the paper marks. Along the way, Taylor has some interesting tales to narrate, especially about the hyperinflation in Germany. The best hotel in Germany cost around 15 Canadian cents and the only cheap product was public transport, fares of which were not raised by the government during those inflationary times. Economist John Maynard Keynes was always against the Treaty of Versailles and felt, at the onset, that the economic consequences of peace were going to be more damaging than could be conceived. In hindsight, he was proved right, as the brokering of peace did well for the victors, but impoverished the vanquished—America, Britain, France and Belgium were keen to make Germany pay for the war, and this had dire consequences. However, curiously, a number of investors thought that it made sense to invest in Germany just after the war concluded, on the premise that the economy would have to recover and they could make money by selling off at that point of time. But what happened finally? By 1924, with the new currency coming in, inflation came down and sanity was restored. While the reparation threat was there, no one got all the money and Germany used US money to repay France and Britain. Once the Depression set in in 1929, all three defaulted to the US and the story faded quietly. While the book is on the downfall of money, Taylor concentrates more on the historical context and traces the fall of the mark to the political situation in Germany, which went through turbulent times. Taylor refers to the opponents of Germany as ‘enemies’, which is refreshing, considering that conventional textbooks in history always refer to Germany as the enemy in both the wars. In fact, the author also traces the rise of Adolf Hitler, who took a dislike to Jews mainly on account of their involvement with trade and looked upon this community as being responsible for the problems of the nation. Taylor does not quite venture into World War II, but does draw a comparison with World War I in terms of the consequences on Germany. While the first war led to the pauperisation of the nation, the second one had a focus on restoration. The allied forces worked towards rehabilitation with the main motivation being that the country did not drift to communism, which was viewed as a possible unsavoury outcome. Therefore, the Marshall Plan was worked out to enable this development. This later led to a collaboration between France and Italy to include Germany to create the European Economic Community to be followed by what was called the EU. Most of the debt was repaid by Germany at the time of reunification in 1990, while the last tranche was settled as late as 2010. The author also draws parallels between Germany in the 1920s and other euro nations today. The single currency means that the euro nations cannot inflate their way out, as Germany had done and have hence been forced to reform. But both the stories are still Germany-centric. The narrative here is very interesting for anyone inclined towards history, but could prove difficult for those not familiar with Germany’s past. As the period covered is just around 10 years in a voluminous book, it is not easy reading. The fall of the mark, though, is interesting. However, as it is narrated in the context of historical developments, it could be difficult to assimilate in one go.
Frederick Taylor Bloomsbury Rs 599 Pp 320 GERMANY TODAY is a very strong economic power and, to use a cliche, has been holding the fort for the entire European region. It is known for its prudence and has, in a way, been criticised for being too finicky about what the other euro nations are doing. The euro crisis has been overcome mainly due to the leadership position taken by Germany. However, this has not always been the case, and Frederick Taylor, in his book, The Downfall of Money, shows what happened in this geography from the time of World War I till around five years after the war ended. Germany was a nation in a mess, with economic chaos pervading every sphere. Germany, which had free convertibility of marks into gold, had to move away at the time of the war mainly due to the metal disappearing from the system. The war had a crippling effect on the economy, especially after Germany lost. The double whammy came from the Treaty of Versailles, which heavily penalised the nation for the war and, contrary to what is taught in history books, America was particular that Germany should bleed, and pay for all the losses of the Allies. The threat was that if Germany did not pay up, the war would restart and the consequences would be severe. There was, therefore, no option for the country, which had to work hard to repay the money. Internally, there was a lot of dissatisfaction over the outcome of the war and while civil unrest was common, the government tried to inflate its way by increasing wages. The pension bill for the government staff, as well as monetary support to the maimed—which numbered 1.5 million—added a lot of purchasing power in the system. The profile of the government was to remain big and it had to pay higher wages to placate the masses. The working day was shortened and productivity declined sharply. The welfare system worked even as taxes were not collected, which meant that the government was in the throes of a large deficit. The result on both scores was high inflation. The rise of inflation was severe and there was a time when a load of bread was selling at a peak of 140 bn marks. Workers then demanded higher wages, but the government simply had no money to pay, thus driving prices up a spiral. This was the time when the mark depreciated like crazy. From an exchange rate of 4.2 marks per dollar at the time of the war, it moved up steadily to 7.4 when it concluded. But after that, hyperinflation set in and, by December 1923, the exchange rate had reached 4.2 trillion marks for a dollar. This was the stage when a new currency, called rentenmark, was introduced to make people used to thinking of small numbers again and the rate was fixed at 1 trillion marks for 1 rentenmark. This also led to the withdrawal of the paper marks. Along the way, Taylor has some interesting tales to narrate, especially about the hyperinflation in Germany. The best hotel in Germany cost around 15 Canadian cents and the only cheap product was public transport, fares of which were not raised by the government during those inflationary times. Economist John Maynard Keynes was always against the Treaty of Versailles and felt, at the onset, that the economic consequences of peace were going to be more damaging than could be conceived. In hindsight, he was proved right, as the brokering of peace did well for the victors, but impoverished the vanquished—America, Britain, France and Belgium were keen to make Germany pay for the war, and this had dire consequences. However, curiously, a number of investors thought that it made sense to invest in Germany just after the war concluded, on the premise that the economy would have to recover and they could make money by selling off at that point of time. But what happened finally? By 1924, with the new currency coming in, inflation came down and sanity was restored. While the reparation threat was there, no one got all the money and Germany used US money to repay France and Britain. Once the Depression set in in 1929, all three defaulted to the US and the story faded quietly. While the book is on the downfall of money, Taylor concentrates more on the historical context and traces the fall of the mark to the political situation in Germany, which went through turbulent times. Taylor refers to the opponents of Germany as ‘enemies’, which is refreshing, considering that conventional textbooks in history always refer to Germany as the enemy in both the wars. In fact, the author also traces the rise of Adolf Hitler, who took a dislike to Jews mainly on account of their involvement with trade and looked upon this community as being responsible for the problems of the nation. Taylor does not quite venture into World War II, but does draw a comparison with World War I in terms of the consequences on Germany. While the first war led to the pauperisation of the nation, the second one had a focus on restoration. The allied forces worked towards rehabilitation with the main motivation being that the country did not drift to communism, which was viewed as a possible unsavoury outcome. Therefore, the Marshall Plan was worked out to enable this development. This later led to a collaboration between France and Italy to include Germany to create the European Economic Community to be followed by what was called the EU. Most of the debt was repaid by Germany at the time of reunification in 1990, while the last tranche was settled as late as 2010. The author also draws parallels between Germany in the 1920s and other euro nations today. The single currency means that the euro nations cannot inflate their way out, as Germany had done and have hence been forced to reform. But both the stories are still Germany-centric. The narrative here is very interesting for anyone inclined towards history, but could prove difficult for those not familiar with Germany’s past. As the period covered is just around 10 years in a voluminous book, it is not easy reading. The fall of the mark, though, is interesting. However, as it is narrated in the context of historical developments, it could be difficult to assimilate in one go.
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