Most of us are not old enough to have experienced any particular period of significant inflation, let alone hyperinflation. What is it like at the ground level for people during hyperinflation?

“When money dies” is an excellent book by Adam Ferguson that details the economics, politics, and nightmare of the Weimar hyperinflation. The book includes fascinating little stories about the day-to-day experiences of the general public. Here is a summary of some of the notable themes that emerged.

Between 1914 and 1920, the cost of living increased 9 times and this really went over the cliff edge in 1923. The natural reaction to this was to assume that goods were becoming more expensive in absolute terms, not that the money was depreciating in value or losing its purchasing power. People also assumed that foreign currencies such as the US dollar were unfairly rising, and therefore pushing up the prices of everyday goods. The reality was that it was the US dollar that was stable and it was the local currency that was falling in value. People therefore misunderstood the underlying cause of what was happening to them. At the day-to-day level things like restaurant meals ended up costing more when the bill came compared to when the meal was first ordered. Of course when you’re talking about millions of marks to buy a loaf of bread, that meant that when some went to the shop to make an ordinary purchase, it took about three or four minutes of calculation just to work how much was owed and then several more minutes just to count out the notes for the payment. And yet people still didn’t understand what was going on, One man recounted “my relations and friends were too stupid they didn’t understand what inflation meant and they didn’t rush to get rid of their cash either. They all thought it would all stop within the next week or so and they kept thinking it’s going to end soon it’s going to end soon but it didn’t”.

At that time it was the people who had foreign currencies that did very well. There was an example of one man who found himself with a single dollar US dollar bill in 1923 and so he went to Berlin one evening with six friends and he was determined to blow the lot. They all went to dinner and lots of nightclubs and at the end of the evening they still had to change left over! There were also stories of foreign students who bought up whole rows of houses out of their allowances.

Another theme from this book was that it was the middle classes that were the hardest hit. It was a form of lingering and intense torture that inflation inflicted on them and one area that was particularly hit was their investments. This was highlighted by the story of Frau Eisenmenger from Austria. Of course Austria also went through a significant inflationary period at the same time. She had an investment in 1914 which gave her an income of 5000 Cronin a year. In 1918 she decided to cash in 20,000 Cronin so she went to her bank manager and he actually urged her to convert that Cronin into Swiss francs at the time but she declined as private dealing in foreign countries was illegal. Around then unfortunately the Cronin was losing its value rapidly and by December 2018 (only two months later) when she visited the bank, the manager said “if you had bought Swiss francs like I suggested you would not have lost three quarters of your fortune”. She replied “Lost! Don’t you think that the Cronin will recover again? Surely nothing safer than government securities?”. She was later persuaded to change what was remaining of her money into industrial stocks. In November 1919 her stocks were going up really well but this seemed incomprehensible to her and it made her feel uneasy at the time. It was quoted that “speculation on the stock market has spread to all ranks of the population and industrial stocks rise like air balloons to limitless heights”. However Frau Eisenmenger noted that in real terms the income from her burgeoning shares was actually diminishing, so although the stock market was constantly rising middle-class investments were actually diminishing in value when priced in foreign currencies. Insurance policies were actually worth less than the premiums that they had paid. As an example of just how far the share prices had fallen in real terms, if we look at the period from 1913 to 1921 the real prices of stocks had actually decreased to one-fifth of their value and by the time they reached October 1922 it was 3 one hundredths of its value. Also dividend yields were decreasing so at the time the average dividend yield was 0.25% and by comparison, gold over that time had risen by one hundred and forty three times. The other thing to note that although the stock market was increasing in nominal terms, there were times where when there was current currency stability for short periods and the stock market actually dropped in nominal terms.

Overall, the middle class literally became destitute and this was due to loss of paper savings and then they ended up having to sell that their valued possessions just to survive. Landlords were also not much better off because the government’s instituted rent restrictions and some of the landlord’s actually had to sell their properties at knockdown prices. The other thing that happened around that time was that it was the government that decided who would fill an empty tenancy, not the landlords. There was a lot of control over rental properties at that time. Also, the income of beneficiaries of the state and those receiving state pensions effectively decreased because the although the nominal amount that they were paid was increasing, the purchasing power continued to decrease. As a result of this there was a constant demand for higher wages but it just never really kept up with the increases in the prices. As a result there was ever-increasing pressure on the banks to keep printing more currency, so as the mark fell there was pressure to increase nominal wages. As a result of that, the taxation laws never really kept up with that and so people were paying a greater proportion of taxes.

There were also variations in the job market. The young and the active were able to find work but the older people were destitute. The professional classes didn’t get away and doctors and lawyers suffered a shortage of clients, bureaucrats and clerks found that their salaries were actually shrinking, but it was actually the countryside landowners and farmers that were less affected because they could produce most of their own essentials.

As the hyperinflation progressed, there began a mania of purchasing. There were queues and queues outside shops and these queues were from foreigners who wanted to buy because things seemed quite cheap to them in their currency. Locals were also queueing because they feared further price rises in the future so they wanted to buy now. The feeling at the time was that to save was folly so people wanted to buy assets that would maintain their value and therefore people began either using foreign currencies to get what they needed or resorting to barter. For example one lady exchanged a beautiful piano for a sack of wheat flour. Another sold a gold watch for four sacks of potatoes which would carry them through the winter. Indeed the food was so valuable that the price of food had gone up much faster than the price of clothing. Things got so bad that tradesmen would refuse to sell their wares for the local currency and instead demanded something of real value in exchange.

Having to queue for basic essentials did take its toll in terms of productivity. For example a housewife couldn’t spend time cleaning her house and looking after the children if she had to stand for five hours just to buy a loaf of bread. Even if she queued for that long, she might not even be able to get the bread at the end of it all. The amounts that were required to carry in terms of the local currency just became ridiculous and people would have to go around with suitcases or even wheelbarrows just to carry enough currency just to buy daily essentials. Indeed thieves actually stole the carriers such as suitcases or wheelbarrows and just left the money on the ground. That just shows just how worthless the local currency had become.

As prices continued to increase the public just kept demanding more and more of the local currency to be created to enable them to buy what they needed. However there were no cries to the government to maintain the purchasing power of what they had. The underlying problem was that people just didn’t understand what inflation was and what caused it. As a result of all this hardship the public were looking for someone to blame so they’d blame other classes, other races, different types of politicians. They blamed other countries, they blamed tourists, farmers, profiteers and speculators, but actually they didn’t blame the one thing that was causing all of the problems.

The government wanted to be seen publicly to be dealing with profiteering so they actually submitted a bill to make gluttony an offense. At the time gluttony was defined as one who habitually devotes himself to the pleasures of the table to such a degree that it might cause discomfort. Gluttony was punishable by imprisonment and/or a fine. Caterers who had abetted in gluttony were also punished and risked conviction. Foreigners who indulged in gluttony would be deported. However that bill was never actually enacted in the end.

One of the really sad effects of hyperinflation was that it brought out the worst in people. Jealousy and envy flourished and those that were able to procure a harmless piece of food for instance would have to be very careful to conceal that from others. That is very different from current times where conspicuous consumption and keeping up with the Joneses seems to be order of the day. Things were very different when inflation and hyperinflation occurs. At that time the good neighbor atmosphere had completely disappeared and everyone saw an enemy in everyone else. if you went out in the winter wearing a nice warm cozy coat, you could be mugged for that coat and hordes of townspeople at at a time would go to the countryside to steal whatever they could for their survival. The features that were coming out at the time were that bribery and corruption became increasingly common there was a communal hatred, social resentment, a sliding away of morals, people were increasingly willing to break the rules in order to survive, and there was a lack of consideration for fellow man. The instinct was of self-preservation and men’s values basically turned into animal values.

Those are the real horrors of hyperinflation.