The German Hyperinflation, 1923
Excerpt from Paper Money by "Adam Smith" (George J.W. Goodman), pp. 57-62.
In the mid-1960s, money manager George J.W. Goodman began to write a series of irreverent
and witty columns for New York magazine under the borrowed name of capitalism's founding
theorist, Adam Smith. As "Adam Smith," Goodman went on to write several bestsellers about
economics, the stock market, and global capitalism, among them The Money Game,
Supermoney, and Paper Money, from which this account of the Weimar Republic's disastrous
hyperinflation is excerpted.
Before World War I Germany was a prosperous country, with a gold-backed currency,
expanding industry, and world leadership in optics, chemicals, and machinery. The German
Mark, the British shilling, the French franc, and the Italian lira all had about equal value, and
all were exchanged four or five to the dollar. That was in 1914. In 1923, at the most fevered
moment of the German hyperinflation, the exchange rate between the dollar and the Mark
was one trillion Marks to one dollar, and a wheelbarrow full of money would not even buy a
newspaper. Most Germans were taken by surprise by the financial tornado.
"My father was a lawyer," says Walter Levy, an internationally known German-born oil
consultant in New York, "and he had taken out an insurance policy in 1903, and every month
he had made the payments faithfully. It was a 20-year policy, and when it came due, he
cashed it in and bought a single loaf of bread." The Berlin publisher Leopold Ullstein wrote that
an American visitor tipped their cook one dollar. The family convened, and it was decided that
a trust fund should be set up in a Berlin bank with the cook as beneficiary, the bank to
administer and invest the dollar.
In retrospect, you can trace the steps to hyperinflation, but some of the reasons remain
cloudy. Germany abandoned the gold backing of its currency in 1914. The war was expected
to be short, so it was financed by government borrowing, not by savings and taxation. In