Printing Time

The Great Disorder: Politics, Economics, and Society in the German Inflation 1914-1924, Gerald D. Feldman, 1998.

Skat Players, Otto Dix, 1920

This is the first of two posts on Gerald Feldman’s The Great Disorder. This book, a magisterial analysis of German political economy from 1914-1924, runs at just under a thousand pages. To try harness it in under two-thousand words would be an insult. However, The Great Disorder is conveniently split into two ‘books’, so I thought I would tackle them as such. This first instalment covers the period from before the war up until, but not including, the hyperinflation.

In his own lifetime, John Maynard Keynes was without doubt most famous for his 1919 The Economic Consequences of the Peace. It is hard to overstate quite how influential this pamphlet was - it had a celebrity almost in the league of Tom Paine’s Rights of Man, and it made Keynes the most famous economist in the world. His argument, that the Treaty of Versailles was a disaster, doomed for failure, is familiar to most. There is some truth (alongside much error) in this prognosis. But The Economic Consequences was unavoidably bound up in the narrow and incendiary politics of its time. Despite how often one finds it invoked, it is not a foundation for an understanding of the disorders afflicting Weimar Germany in its early years, let alone the circumstances of its eventual collapse.

Gerald Feldman’s The Great Disorder may well be that foundation. In fact, it might even be the full building. A ridiculously detailed account of economic and political change in Germany from 1914-1924, The Great Disorder tracks, blow by blow, the fiscal, monetary, social, and political consequences of the lost war, and the crises which overlap and culminate in the hyperinflation of 1924. At times, it can be impenetrable: again and again, the debates between industrialists are recounted, block quote by block quote. Arguments can get lost in Feldman’s uncompromising thoroughness. But there are moments of invaluable, unparalleled clarity; moments which reveal the magnitude of the achievement The Great Disorder represents.

Feldman begins where any understanding of Weimar Germany must: the war. The expectation of a quick victory was as reflected in the fiscal and monetary tools Germany employed as it was in their military strategy. The predicament was twofold: an unwillingness to substantially increase taxation, as a result of the fraught federal politics of the Reich; and the lack of international creditor nations a la the United States. It was hence domestic borrowing through war-bond drives that would bear the financial burden. At first, this was a source of pride. But as the years dragged past even the most hardcore propagandists in the Reichsbank realised the debt expansion and the pressure on the exchange rate could only be solved with an indemnity, unpalatably radical tax reform notwithstanding. Financially, Germany had committed to winning the war. This is perhaps why so many officials and politicians held out hope so long. Reichsbank president Rudolf Havenstein only admitted in July 1918 that the coverage of Treasury bills would be “extraordinarily difficult if we do not get a large war indemnity”. Continuous credit creation had left Germany with a fifty-one billion mark floating debt. Feldman describes this as a “novel and terrifying experience… the basic point of departure for the Weimar inflation”.

However, Germany lost the war and there would be no lifesaving indemnity. To the contrary, it would become clear at Versailles that Germany would be expected - quite reasonably - to deliver reparations to Belgium, France, and Britain. Here I would like to step back, because, as Feldman is keen to point out, there are many historiographical tics and common misconceptions that can crop up when this infamous issue is raised. Crucially, it is often forgotten that the reparations programme was not set at Versailles - it was agreed only that such a programme would be pursued. Hence, it was not the scale of the reparations burden (as common wisdom suggests), but the uncertainty which surrounded how, how much, and how soon reparations would be demanded that had the most destabilising impact. Feldman’s book cannot be understood if you forget that behind every election, conference, and commission, it was always known that reparations was not necessarily an issue of fulfilment or repudiation, but a live and malleable - if unavoidable - political question.

At the centre of this question would be the new government, known to us as the Weimar Republic, that had emerged from the German Revolution of 1919. Feldman argues that this revolution is not aways given the credit it deserves, left in the shadow of events in Russia and the doomed Spartacist uprising in Berlin. But the early Weimar government did represent a radical break with the past. Socialisation, if not socialism proper, became a priority amongst (or perhaps because of) the challenges Germany faced. Mathias Erzberger’s tax programme illustrated the way that, in a more severe but similar manner to what Daunton describes in Britain, the financial fallout of war invited radical fiscal politics. An empire which had previously levied little central taxes and boasted only meagre direct taxes was now a republic with a comprehensive taxation programme framed around an emergency capital levy. Inflation was behind this fiscal revolution, but so was politics. Erzberger famously quipped that “a good finance minister is the best socialisation minister”. Still, a radical approach to taxation did not mean that the Weimar state was ran by labour - far from it. As Charles Maier outlined, the “basic compromise” underpinning the Weimar Republic was a co-operation between industry and labour which threatened to shatter whenever the trade-offs of inflation became impossible to bear. It was titans of heavy industry and raw materials (the larger-than-life personalities of Hugo Stinnes and Walther Ratheneau, in particular), who had the most influence on Weimar politics. But the unique conditions of Weimar corporatism meant these figures were open to co-ordinating with organised labour; even if, as prices and tensions grew after 1921, working hours, wages, and productivity created cracks in this fragile industrial peace.

Fundamentally, the Weimar governments - for there were many between 1919 and 1923 - were limited by the same constraints: the uncertainty surrounding reparations, the unavailability of a major foreign loan; and, Feldman writes, a “need to contain the forces of upheaval”. The first was a political question that constrained the second, while the third complicated the first by setting limits on the fiscal austerity France and Britain expected Germany to enact in order to fulfil its payments. All these constraints heightened the influence of heavy industry, especially under the conditions of the inflationary (but not hyper-inflationary) boom of 1919-1922. Export industries became the only source of foreign currency, necessary not just to meet reparations, but also debts owed to neutral countries incurred during the war. Their prices filtered down the German economy, while their “real values” were repeatedly suggested a tool that might solve all problems: collateral for a foreign loan, payments-in-kind; or, by the Allies, as evidence Germany could meet its payments if only it tried. It would be a common concern amongst foreign politicians that industrialists controlled the Weimar state, quite understandably. However, Feldman is keen to observe that this does not imply a cynical dishonesty on behalf of Weimar politicians, nor that the social and economic issues they pleaded were false.

So far, I have not said much about inflation - that will be the focus of my next piece. I have instead tried to sketch out, very roughly, the political-economic context it occurred within, as Feldman describes it. But I would like to stress that little consensus existed at the time about the causes of the intermittent, sporadically high inflation of 1919 until 1922. How one explained it depended on both theoretical and political commitments. The dominant interpretation in Germany was the “balance-of-payments school”, which argued reparations were the root cause. Finding the foreign currency to meet reparations placed downwards pressure on the mark and induced a trade surplus. Inflation, so it went, was hence not primarily a result of currency creation, but depreciation ‘inevitably’ induced by fulfilling (or attempting to fulfil) Versailles. This theory made the inflation not Germany’s ‘problem’; and implicitly sent an ultimatum to the Allies: choose reparations, and suffer unemployment as your industries are outcompeted by a Germany that must continually devalue.

Outside of Germany, however, the “quantity school” was more influential. It stressed that the balance-of-payments issue was exaggerated, while deficit spending of the Weimar government was to blame for the inflation. This, of course, suited many Allied politicians, who argued Germany was not taking reparations seriously; spending beyond its means - on food subsidies and the railroads, in particular - while deliberately using inflation as a tool to support heavy industry. Pleading poverty was intended to undermine Versailles: that the eight-hour day, a keystone of the Revolution, remained while reparations payments were left unmet seemed a smoking gun.

Both arguments contain a grain of truth. As time went on, the strength of the latter grew; the hyperinflation was more-or-less unambiguously a result of the extraordinary expansion in money-printing, even if the reparations issue, embodied in the Ruhr crisis, was a catalyst. But the tensions identified by the balance-of-payments theorists were real. The austerity measures that were called for could have shredded what remained of Germany’s social fabric. At the end of the day, the unavoidable issue was one of splitting losses between and within classes. Resolving this question was difficult without a reparations bill, as experiences in Britain, Italy, and France demonstrate. With it, a simple resolution was almost impossible. Inflation created a breathing space. It was the least politically fraught way of splitting losses. But it did not facilitate a durable solution. Feldman writes that “Germany had bought time through inflation”. By late 1922, that time appeared short. In 1923, it ran out.