“When Money Dies: The Nightmare of Deficit Spending, Devaluation and

Hyperinflation in Weimar German” by Adam Fergusson

Read our article in the Cayman Financial Review Magazine, eversion 

“The Treaty includes no provisions for the economic rehabilitation of Europe, – nothing to make the defeated Central Empire into good neighbours, nothing to stabilise the new States of Europe …
It is an extraordinary fact that the fundamental economic problem of a Europe starving and disintegrating before their eyes, was the one question in which it was impossible to arouse the interest …
Reparation was their main excursion into the economic field, and they settled it as a problem of theology, of politics, of electoral chicane, from every point of view except that of the economic future of the States whose destiny they were handling.”
  –  John Maynard Keynes (1920) The Economic Consequences of the Peace 

The second edition of Adam Fergusson’s original 1975 book “When Money Dies: The Nightmare of Deficit Spending, Devaluation and Hyperinflation in Weimar Germany” was recently re-published by Public Affairs (ISBN: 1586489941, US$14.95). Fergusson’s book deals with the early period of the fragile interwar Weimar Republic, in particular the hyperinflation that culminated in 1923 when – eventually – the Rentenmark was introduced:

“It was at that point, when it was only necessary to strike off 12 noughts to effect a simple conversion, that the paper mark – still the only legal tender – was at last stabilised. A million million marks equalled a gold mark. A gold mark equalled a Rentenmark. Mark gleich Mark, once more: the vital question was whether anyone, whether everyone, would believe it. Confidence was all.” (p. 206) The volume presents a thorough and engaging historical account of the human element of hyperinflation that I strongly commend reading.

As the author notes in the prologue, the publication of first edition was – at least partially – motivated by the “Great Inflation” of the 1970s that ensued in Fergusson’s home country the United Kingdom. In the 1970s, the UK and other advance economies experienced double-digit rates of inflation. In Germany, however, inflation was significantly lower albeit still at elevated level by the standards of the “Great Moderation”.

One contributing factor for this difference in inflation rates might stem from the very events vividly depicted in Fergusson’s narrative. One may speculate about causal links due to long-term institutional memory, but the Bundesbank’s hawkish policy stance certainly contributed to modern Germany’s record of rather modest inflation. Especially, given that Germany and other countries faced similar global shocks, the unusual historical experience of hyperinflation in the interwar years might have played a part in re-shaping the peoples’ and central banks’ preferences thus inducing different inflation outcomes.

However, rather than being an economics treatise Fergusson emphasises that “the facts speak very well for themselves. Still less have I expounded any economic lessons or indulged in theoretical explanations of economic phenomena. This is emphatically not an economic study.” Rather than offering any causal economic account of what was happening Fergusson’s aim is to describe “the effect of inflation on people as individuals and as nations, and how they responded to it”.

He does a good job achieving that aim. In order to accomplish this task Fergusson makes use plentiful anecdotes. For those he relies mostly on reports collected by the British Foreign Office at the time – written sources “most usefully of those who could observe events objectively because their purses, health and security were unaffected by what they were witnessing”.

Fergusson draws on the reports by the then Ambassador Lord D’Abernon whose tone is of a rather casual and dry English style. For instance, “On October 21, after the mark had moved in three days from the 24 milliards to 80 milliards to the pound, Lord D’Abernon noted with some statistical glee that (at 60 milliards) this was ‘approximately equal to one mark for every second which has elapsed since the birth of Christ.’” (p. 196) or “Inflation is like a drug in more ways than one,” remarked Lord D’Abernon. “It is fatal in the end, but it gets its votaries over many difficult moments.” (p. 135)

The book is full of biting contemporary British commentary such as “The fees in the Courts of War,” wrote Lloyd George, with a fine touch for epigram, “are all on the highest scale.” Germany had lost the action and had to pay the full costs.

Fergusson’s volume contains a prologue, fifteen chapters and an epilogue. The narrative of the book is linear keeping “actions, reactions and interactions in their proper historical sequence”. The first chapter (“Gold for Iron”) starts with the aftermath of the First World War and the terms of the peace that Lord Keynes so brilliantly analysed, anticipating the calamity to come.

The final chapter (“The Wounds are Bared”) finishes off with a description of the unemployment and dislocation endured from bringing inflation down eventually – an anecdotal description of what economists would cold-heartedly call the sacrifice ratio.

In terms of the spatial coverage Fergusson does not merely confine himself to Weimar Germany and devotes parts of the book to parallel and, sometimes, leading developments in the other defeated axis powers of the First World War. Austria and Hungary suffered the same fate of hyperinflation due to unmanageable fiscal positions after being on the losing side the First World War and subject to substantial fiscal shortcomings from the war expenses and the demands of the Reparations Commission.

The situation of Austria was even worse than that of Germany in some respects. Indeed, prospects in Austria were so grim that its future as an independent state was at stake. “Now was seen,” said one commentator, “the hitherto unparalleled spectacle of an Austrian Chancellor touring Europe offering his country to the highest bidder.” (p. 97)

In some ways Fergusson’s description of Austria in 1922 is frighteningly reminiscent not only of the UK in the 1970s when the first edition of his book appeared, but also of countries struggling with servicing their sovereign debts these days: “In Austria as a whole, about one-fifth of the population depended on government money for their salaries or (if retired) for their pensions, the railways having two ex-employee pensioners for every three workers still on their staff.” (p. 153)

So, the timing of first edition seems deliberately chosen. For the first edition from 1975, given the political upheaval that culminated in the United Kingdom’s “Winter of Discontent” of 1979 it is interesting to note the author’s description of the ubiquitous strikes Germany of 1922: “It was plain … that other forces were at work than a mere wage or sympathy strike. It seemed probable that hidden and illicit leaders were trying to seize the State by the throat.” 

Correspondingly, the timing of the recent second edition does not appear to be accidental. It is important to recognise that monetary and fiscal policies are intimately linked through inter-temporal budget constraints, what last year’s Nobel Prize laureate Christopher Sims termed the “fiscal theory of the price level” – or in less pretentious terms:

You cannot have a cake and eat it too. This is particular pressing at a time when prosperous nations on either side of the Atlantic face substantial long-term fiscal gaps with seemingly little intention of closing them any time soon.

Inflation, especially high, volatile and unexpected rates of inflation have extremely harmful economic and human consequences, as brilliantly illustrated in Fergusson’s volume at hand. Let us hope our democratically elected political leaders recount their history lessons, and to paraphrase the introductory quote of Lord Keynes, that they settle the imminent problem of persistent fiscal gaps not “as a problem of theology, of politics, of electoral chicane, [but from] that of the economic future of the States whose destiny they [are] handling.”

Or else I am tempted to concur with an earlier review of Fergusson’s book by the Wall Street Journal that revealingly recommended: “Everybody ought to read this book. But baby boomers must.”

The views expressed in this review are those of the author and are not necessarily reflective of views at the Federal Reserve Bank of Dallas or the Federal Reserve System. Any errors or omissions are the responsibility of the author.



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Christoffer Koch

Christoffer specialises in monetary policy and banking. He studied economics at the University of St Andrews before completing a master’s and doctoral degree at Oxford University where he was a Rhodes Scholar. He also worked for the IMF, the ECB and Lehman Brothers on different research projects.

Christoffer Koch
Research Economist
Federal Reserve Bank of Dallas
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