Thursday, May 10, 2018

The Rise of Hitler.

During the hyperinflation in Germany of the 1920s, the country's currency, the mark, went crazy. Money became worthless. Hundreds of thousands of Germans starved to death. Just like what's happening today in Socialist Venezuela. The stupid ones were those who had nest eggs: the thrifty, holders of government bonds, but primarily the country's pensioners. Large sections of the middle classes saw themselves stripped of their assets, losing almost everything they had set aside for years. Banks, savings banks, and insurance companies suffered huge losses and were left with nothing but their paper money. As a result, they had to start the majority of their businesses over from scratch. It's an era that is still part of the national psyche today in Germany. This is how Adolf Hitler came to power. He promised to save the Germans who were losing everything and were starving to death in the 20's. He painted the Jews as the villian, and used them as a scapegoat, and the root of all the world's problems. As has been done for 2,000 years. He aligned himself with the Muslim world to spread hate against Jews in the name of saving the German people. I don't understand why nobody is ever told this part of the story.
If one word could describe Germany, in 1919, during the immediate aftermath of World War I, it would be "starvation." Even after an armistice ended World War I, the victors continued a devastating blockade of Germany. While some 900,000 German men, women and children were starving to death, the American and British public knew nothing about it, deliberately caused by the continuation of a wartime British naval blockade. Britain's post-war naval blockade of food to Germany in 1919 matched the then current blockade of news by the American and British press. Even today, only a few non-Germans know the truth, and American and British historians, for the most part, have participated in the coverup of this most appalling crime. The guilt of the world press in covering up the atrocity is compounded by the fact that the American and British public were told of the starvation itself, but were kept ignorant of the policies of the Allies which produced it.
Newspapers carried stories of relief efforts to rescue the starving. The most famed of these efforts was directed by Herbert Hoover, later to become the 31st president. John Maynard Keynes wrote about Herbert Hoover's mission to help the starving in Germany:
"You think this is a kindergarten for the little ones. No, these are children of seven and eight years. Tiny faces, with large, dull eyes, overshadowed by huge puffed, rickety foreheads, their small arms just skin and bones, and above the crooked legs with their dislocated joints the swollen, pointed stomachs of the hunger edema. "You see this child here," the physician in charge explained, "it consumed an incredible amount of bread, and yet it did not get any stronger. I found out that it hid all the bread it received underneath its straw mattress. The fear of hunger was so deeply rooted in the child that it collected the stores instead of eating the food: a misguided animal instinct made the dread of hunger worse than the actual pangs. Meanwhile, elderly German women search through piles of garbage for something to eat in Berlin in 1919."
Meanwhile, the armistice terms dictated by the Allies at Versailles would assure that Germany could not recover economically even to the point of providing a subsistence livelihood for the majority of its citizens. France was to get Alsace-Lorraine outright; she would occupy all German territory west of the Rhine for 15 years and she would take possession of the rich coal mines of the Saar district, which was to be governed by the League of Nations. Poland would get the important industrial region of Upper Silesia, most of Posen Province and West Prussia, thus establishing a "Polish Corridor" to the sea and cutting off East Prussia from the rest of Germany. Denmark and Belgium would slice off several border regions and the League of Nations would take charge of Germany's African colonies. If Germany did not sign, the Allies were ready to invade and occupy the country. After a number of resignations, the German government at Weimar agreed to the "unheard-of injustice" of the Treaty of Versailles.1
Immediately following the war, Germany was wracked with insurgencies, coups and counter-coups. The Bolsheviks attempted a takeover similar to the revolution in Russia. The Allies, meeting in Versailles, celebrated the unrest and destruction. And the people - particularly the American people - were kept in the dark about the continuing blockade. Communist agents, sent by the Bolshevik regime in the fledgling USSR, were fomenting revolutions throughout the prostrate country.
"Hitler was born at Versailles. While the murder of defenseless civilians was carried out in Bavaria, the delegates at the Paris Peace Conference had their first meeting. Far from being horrified at such massacres, the Allies could not contain their glee. The Bavarian bloodbath was a gift from the gods, which meant that Germany would be split and more Germans would be killed. They offered food and money to bolster their opposition to Berlin. Although the war had ended, Germany was still under Allied blockade, which was ruthlessly enforced. The first state of Germany to benefit from a lifting of the blockade would be communist-controlled Bavaria."
"The Allied peace terms turned out to be extremely severe, far exceeding the worst fears of the German government. The peace treaties of Brest-Litovsk and Bucharest were declared invalid and the food blockade around Germany was to continue. Thus Germany's capitulation was accomplished and an end set to four years of enormous bloodshed. The effectiveness of the blockade, initiated years before the entry of the United States into the war, and which led to the sinking of the Lusitania, has been well documented."
"It was the blockade that finally drove the Central Powers to accept defeat. At first mild in its application, the blockade's noose gradually tightened until, with the American entry, all restraint was cast aside. Increasingly deprived of the means to wage war, or even to feed her population, the violent response was insurrection; apathy and demoralization the mute consequence of dashed hopes and thin potato soup."
Berliners exchanged potato peelings for firewood. Soup kitchens were everywhere. As the grip of the Allied blockade tightened, waste materials became valuable commodities to be processed and reused. The Allies clearly intended to starve the German people to death, foreshadowing the Morgenthau Plan of the latter days of World War II - a plan that actually went into operation to starve and exterminate one third of the German population.
After confiscating the German merchant navy, the Allies proceeded to confiscate German private property all over the world, contrary to all precedent from previous wars when private property had been held in escrow until the ratification of peace treaties, when it would revert to its legitimate owners. The Allied powers reserved the right to keep or dispose of assets belonging to German citizens, including companies they control. This wholesale expropriation would take place without any compensation to the owners. And, Germany remained responsible for the liabilities and loans on the assets that were taken from them. Profits, however, remained in the hands of the Allies. Thus, private German property and assets were confiscated in China, Thailand, Egypt, Liberia, and in many other countries.
Germany was also precluded from investing capital in any neighboring country and had to forfeit all rights "to whatever title it may possess in these countries." The Allies were given free access to the German marketplace without the slightest tariff while products made in Germany faced high foreign tariff barriers. As Germany was experiencing near famine conditions. It was at this moment the Allies decided to confiscate a substantial part of what was left of Germany's livestock.
"The Germans were made to deliver cattle, horses, sheep, goats. A strong protest came from Germany when dairy cows were taken to France and Belgium, thus depriving German children of milk. Food shortages were such that 60,000 Ruhr miners refused to work overtime unless they were paid, even in the form of butter. When it became obvious that Germany would not be able to deliver the coal ordered by the treaty, the Allies lowered the amount from 43 million tons to 20 million tons. The virtual confiscation of German coal production led to the deaths of German children for lack of fuel for heat."
In his biography of Woodrow Wilson, Arthur Walworth says that the British command in Germany reported that food shortages raised a specter of anarchy.
"Herbert Hoover, who had gone abroad after the armistice eager to use American surpluses to feed the hungry of Europe, soon had found that the idealistic professions of individuals at London and Paris did not square with their actions as officials of electorates that were swayed by war hatred and economic necessity. Shipments had been delivered to Allies and to neutrals, but British officials had refused to break their blockade to let cargoes go into Germany. Moreover, Germany had failed to act on an agreement to turn over merchant ships before receiving food and showed no desire to pay for shipments in gold - a possibility that French financiers were thought to be opposing so that their nation might get what gold there was as indemnity.
There is evidence that Wilson actually thought the European powers would accept his "14 Points" and feed starving Germans now that the war was over. But, of course, that was not the case as discovered by Wilson's humanitarian point man, Hoover. England's Lloyd George, meanwhile, thought that the starvation was being ameliorated. He favored - although quietly - feeding his ex-enemy.
Frustrated by apathy and obstruction, Hoover was brought on the carpet by [British Prime Minister] Lloyd George, who was inclined to brush him off as 'that Salvation Army man.' The prime minister, distressed by reports of famine in Germany, wanted to know why Hoover had not done his job. At this the American let him have the bitter truth. Lloyd George, feeling that tact was not one of Hoover's great qualities, asked him to give the council an expurgated version of his remarks. This was done, and a stormy and wordy session ensued."
The food blockade was not terminated until July 12, 1919. On May 7 of that year, Count von Brockdorf-Rantzau had indignantly referred to this fact in addressing the Versailles assembly. "The hundreds of thousands of noncombatants," the German chief delegate had stated, "who have perished since November 11, 1918, as a result of the blockade, were killed with cold deliberation, after our enemies had been assured of their complete victory."
The murderous Allied blockade, which continued for eight months after the end of the war, was one reason why a German war veteran who decided to go into politics a decade later was able to revive the seared memory of a German nation which had suffered greatly and vault himself to absolute power. His name, of course, was Adolf Hitler.
From 1922-1923, hyperinflation plagued Germany and helped fuel the eventual rise of Adolf Hitler. You could say journalist Eugeni Xammar had a stroke of reporter's luck when the Barcelona daily La Veu de Catalunya sent him to Berlin in the fall of 1922, a pivotal moment in the country's history. In the months that followed, it was the most exciting place in the world to report from. Germany's financial structures collapsed, and the mark began its descent into near worthlessness.
"The price of tram rides and beef, theater tickets and school, newspapers and haircuts, sugar and bacon, is going up every week," Xammar wrote in February 1923. "As a result no one knows how long their money will last, and people are living in constant fear, thinking of nothing but eating and drinking, buying and selling. There is only one topic on everyone's lips in Berlin: the dollar, the mark, and prices. Have you seen this? For heaven's sake, stop! I've just bought a six-week supply of sausages, ham, and cheese."
Nearly every day the journalist sent home new stories of the hyperinflation he was witnessing; reports of everyday insanity in a country whose currency was going crazy. In 1914, at the start of World War I, the dollar was worth 4.20 marks. From then on the German currency steadily declined, and in the fall of 1922 it went into freefall. By November 1923 the dollar was at 4.2 trillion marks. The nightmare came to an end shortly thereafter, and the dollar was back at 4.20 again, albeit against the new incarnation of the currency: the rentenmark.
Few people understood what had happened. Even today, three generations later, much of it sounds pretty incredible. Take for example the family that sold its house to emigrate to America. On arrival at the port of Hamburg, they found that the money wasn't enough to pay for their crossing -- in fact, it didn't even pay for their tickets back home. Then there was the man who drank two cups of coffee at 5,000 marks each, only to be presented with a bill for 14,000. When he asked why this was he was told he should have ordered the coffees at the same time because the price had gone up in between. And then there's the story about the couple that took a few hundred million marks to the theater box office hoping to see a show, but discovered it wasn't nearly enough. Tickets were now a billion marks each.
At the height of the crisis, the inflation rate was in the tens of thousands -- per month, that is. And this in the era before the invention of the pocket calculator.
"The effect of the devaluation of the German currency was like that of a second revolution, the first being the war and its immediate aftermath. Deep-seated faith was being destroyed and replaced by fear and cynicism. What was there to trust, who could you rely on if such were even possible?"
It is true to say that nothing seemed safe anymore -- all semblance of order went out of the window, and with it faith in the Weimar Republic, in democracy, indeed in the future itself. After all, what was there to look forward to? Most people had seen their life savings wiped out while the state was able to shrug off its debts. "Inflation took the basic law-and-order principles of loyalty and trust to the extreme."
The hyperinflation left behind a national trauma that can be felt to this day. The experiences of 1923 have etched themselves into the German psyche. Fear of inflation is widespread, and German economists feel more duty-bound than others to vouchsafe economic stability.
But did it all really have to go so far? Could the catastrophe have been averted? And if so, how? The seeds of the problem were sown many years earlier. Indeed the ball was first set in motion by World War I, during which Germany spent an estimated 160 billion marks on its men and machinery; an unimaginably large sum. The only way the state could finance this was to acquire money by unconventional means.
On August 4, 1914, just three days after the Reich had declared war on Russia, parliament passed a series of currency acts that would have a fundamental impact on the country's money markets. The new legislation suspended the standard of backing cash with gold "until further notice," claiming that an "exceptional increase in unbacked paper notes" was an "economic necessity" in times of war. In other words, the Reich intended to pay for its war effort by printing more and more money.
The sheer volume of banknotes increased dramatically. Whereas there were just 13 billion marks in circulation in 1913, this had jumped to 60 billion by the end of the war. Unfortunately this still wasn't enough to cover the state's expenditures. "As things stand, the only way to finance the cost of fighting the war is to shift the burden into the future through loans," economist Karl Helfferich said in 1915.
The Reich thus racked up huge debts with its own people, repeatedly issuing government bonds; a total of almost 100 billion marks in all. At first Germans bought these bonds almost unthinkingly, secure in the belief that victory was in sight. The national debt shot up from 5 to 156 billion marks.
"There is a point at which printing money affects purchasing power by causing inflation," warned socialist Eduard Bernstein in 1918. But his words and those of others went unheeded. The mountain of bank notes continued to grow, while the volume of goods gradually declined.
It was a classic constellation. Too much money and too few goods could lead to only one thing: Inflation. A government decree setting a maximum price for important consumables such as grain and coal didn't help either. Such artificial limits simply dammed up inflation, causing the liquidity glut to flood the market with even greater devastation when the economy collapsed after the end of the war.
So although the Weimar Republic was not bankrupt from the outset, its creditworthiness was restricted, and inflation saddled the fledgling state with a congenital defect that would have dire consequences.
Ironically, the monetary depreciation in its milder form initially helped stimulate the economy. With its comparatively low value against the dollar, sterling and the French franc, the cheap mark boosted German exports in the early days of the Weimar Republic. Industrial output increased by 20 percent within a year, unemployment fell to below 1 percent in 1922, and real wages rose significantly. The "lubricant of inflation," as economic historian Carl-Ludwig Holtfrerich put it, breathed new life into the private sector.
The post-war boom was all the more remarkable because the rest of the world economy was sinking into a deep recession. The United States and Britain stabilized their currencies even though it put up to a fifth of their respective working population out of work. The governments of the Weimar Republic took the opposite approach, buying themselves an economic upswing and full employment at the cost of catapulting the mark to dizzying heights. Although it would probably be unfair to suggest the politicians in Berlin deliberately drove inflation forward, they didn't exactly try very hard to rein it in. For a while the strategy proved convenient. But they were playing with fire, as soon became apparent.
The huge budget deficit and growing interest payments restricted the state's freedom of movement considerably. The enormous war reparations that Germany had been saddled with were especially hard on the young republic.
Even before the final figure had been agreed upon, German delegates at the 1919 Paris Peace Conference complained that the proposed reparations would "crush all creative urges, the will to work and all entrepreneurial spirit in Germany forever." However, the row over the size of the reparations only broke out in earnest later.
In 1921, the Allies set Germany's reparations at 132 billion goldmarks (pegged at the value of the mark in 1913). From then until 1932 an estimated 26 billion goldmarks was paid out in cash and goods, corresponding to an annual 10 percent of national income. In other words, although the burden was considerable, it was more-or-less affordable.
It was less the size of its reparations than continued uncertainty about them that destabilized the Weimar economy. The mood was especially vitriolic within the Reparations Commission, with the French --- keen to exact revenge for their military defeat in 1871 -- proving completely intransigent.
It therefore took just a relatively minor delay in the delivery of wood, coal and telegraph poles to escalate the conflict, and in January 1923 France marched 100,000 soldiers into Germany's Ruhr valley, seized control of the mines, and confiscated the coal. "This was a fatal blow to German industrial production," Holtfrerich says.
An entire region ground to a halt, and an important source of tax revenues dried up. Because the Ruhr valley was no longer permitted to deliver coal, Germany was forced to obtain its fuel elsewhere -- often from abroad at great cost, depleting its much-needed foreign currency reserves.
At the same time, millions of Germans were living in abject poverty. "Never in my life have I seen such swarms of starving people wandering about," wrote Franz Geyer, the future mayor of the Ruhr valley city of Bochum. Many young children suffered from deficiency diseases such as rickets, and at times tuberculosis reached almost epidemic proportions. In Mannheim, lung disease was reported in 43 families in one 220-household street alone.
Public opinion was unanimous as to the source of this misery, pinning the blame for all Germany's woes firmly on France and its uncompromising stance. As bitterness turned into open resistance, shopkeepers refused to serve French people, and Germans crossed the street to avoid meeting Frenchmen.
"The enemy is among us," wrote the Hildesheimer Allgemeine newspaper, appalled at the occupation of the Ruhr. "He has crept into the heart of the German economy to suck out our life-blood and destroy our very existence as a nation." A 10,000-mark note issued the year before was nicknamed the "vampire bill" because it depicted a man who appeared to have a bite-mark on his neck.
But the vertiginous descent of the mark began in 1922, before the French occupied the Ruhr -- and the drama took its course. Creeping inflation (i.e. currency devaluation of up to 50 percent a year) gave way to galloping inflation (more than 50 percent a year) and eventually became hyperinflation (more than 50 percent a month), and with it the state lost all financial control.
The depreciation of the mark can hardly be explained in terms of quantifiable causes. As so often in economics, expectations played a decisive role. The nerve-wracking wrangling over Germany's reparations had completely undermined faith in the country's economic prospects. Holtfrerich believes the hyperinflation could not have come about without a "collapse in faith in the currency" which in turn prompted a slump in "expectations about the future development of the internal and external value of the mark."
One clear sign of this lack of faith was the almost overnight retreat by foreign creditors from the German money market, selling their government bonds on a massive scale as they went.
By the time German Foreign Minister Walter Rathenau was assassinated on June 22, 1922, all hope of a return to economic stability had been lost. And yet the exchange rate didn't go into freefall until the early summer of the following year. The mark had now forfeited all three of the functions that characterized a currency: It served as neither a mathematical unit nor a form of payment -- let alone as a tool for preserving value. "The mark was already dead in the water in October 1922," observed historian Helmut Kerstingjohänner.
In December 1922, the dollar was still worth 2,000 marks. Within four months this had jumped to 20,000 marks, and by August 1923 it stood at more than a million. The Weimar Republic was "teetering on the edge of the abyss," as the then Interior Minister Wilhelm Sollmann put it. "Even the most courageous among us must get dizzy in light of the fragility of the bridge and the distance to the safety of the far shore," he said.
In addition to the state printing office, more than 130 companies were commissioned to print banknotes, and as long as paper was readily available a total of 1,783 presses churned out the nation's bills. Employees brought rucksacks to work on payday to stash their money - and then spent it immediately.
At the Junkers plant in Dessau the company gave its workers the equivalent of the day's price of three-and-a-half loaves of bread at 9am every morning. Their wives, who were waiting at the factory gates, took the money and dashed off to the shops before the new dollar exchange rate was published at around midday.
Many doctors insisted on being paid not in cash but sausages, eggs, coal, and the like. Because of the constant increase in prices, shops stopped displaying them in their windows. And when the Prussian authorities forced them to do so nonetheless, it drove prices even higher because traders simply took prospective increases into account.
Even cremation became too expense for many because the price was pegged to that of coal. So the dead were buried in the conventional manner again. But here too there were opportunities to cut costs, and a 50 centimeter-high coffin dubbed the "nose-squasher" proved particularly popular.
People lived in a strange kind of tension. On the one hand there was the daily fight for survival, for food, and for heating fuel. "If we more-or-less manage to prevent the city of Cologne from collapsing completely, I shall get down on my knees and thank my Maker," the city's mayor, Konrad Adenauer, said.
Bizarrely enough, goods were no longer in short supply. There was simply no stable currency to buy them with. As the later Chancellor Hans Luther noted in 1923, Germany threatened to "starve with full barns."
On the other hand it was also a time of phenomenal wastefulness. The people were gripped by the urge to panic-buy. They squandered their money, and lived from one day to the next. "We're drinking away Grandma's house" proclaimed one popular tune of the day.
The only objects of real value were tangible assets: diamonds and coins, antiques, pianos and art. The works of contemporary artists like Lyonel Feininger, Paul Klee, Max Pechstein and Karl Schmidt-Rottluff were in especially high demand. And if you had foreign currency, you lived like a king.
One senior mail inspector gained notoriety when it was revealed he had intercepted letters containing foreign banknotes: 1,717 dollars, 1,102 Swiss francs, and 114 French francs - enough to buy two houses for himself and a piano for a friend, with enough left over for an indulgence-like donation to the church.
In fact petty crime in general increased in leaps and bounds. Potato fields were plundered, bakeries raided, shop windows smashed. Prices weren't the only thing that went out of control. All values seemed to have been corrupted. Dance halls and strip bars opened up in the cities, and cocaine sales skyrocketed. People lived as if there were no tomorrow. Economist Joseph Schumpeter noted the "disorganizing effects of the collapsing currency on the national character, on morals, and all branches of cultural life."
Given that the mark had been discredited, many cities and even companies began creating their own currencies and printing emergency money. One firm in southern Germany issued a 50,000-mark bill featuring the clever aphorism "If coal is even more expensive, feel free to use me as fuel."
It was clear a radical monetary change was needed to halt the permanent depreciation and return to a more ordered state of affairs. In mid-November 1923 the government began issuing rentenmarks, claiming the new currency was backed by mortgages on industrial and agricultural land. This was of course fictitious. If push came to shove, no industrialist or farmer would have agreed to exchange his land for money. But after years of nerve-racking inflation the German people were so desperate for stability they were prepared to trust the new currency unquestioningly.
History may hail "the miracle of the rentenmark," but in reality it constituted an admission that the German Reich was bankrupt. And as always, it was the populace that picked up the tab.
The stupid ones were those who had nest eggs: the thrifty, holders of government bonds, but primarily the country's pensioners. In other words, those who received money without having to work for it, who lived on their pensions or the interest on their savings. Large sections of the middle classes saw themselves stripped of their assets, losing almost everything they had set aside for years. Banks, savings banks, and insurance companies suffered huge losses and were left with nothing but their paper money. As a result, they had to start the majority of their businesses from scratch in 1924.
By perverse contrast, the winners of the hyperinflation were those with massive debts; first and foremost the state, but also private individuals who had borrowed money to buy houses, construction land or farmland, and whose loans were slashed by the switch to the rentenmark.
Some industrialists made huge gains from the period of hyperinflation. Hugo Stinnes, whom Time magazine crowned "Germany's new Kaiser," built up an immense corporate empire comprising heavy industry, newspapers, ships and hotels -- all based on a mountain of debt. As late as the summer of 1922, Stinnes was recommending that people continue capitalizing on "the weapon of inflation." Indeed manufacturers and craftsmen in general profited from the crisis since they possessed plants and buildings -- that is, tangible assets that outlived the currency switch.
Most farmers also did extremely well. "They had money to burn, and spent it willy-nilly," writer Lion Feuchtwanger recalled. Some bought themselves entire stables of racehorses, others expensive cars. "Farmer Greindlberger drove from the grimy village street of Englschalking to Munich in an elegant limousine complete with a liveried chauffeur, while he himself was dressed in a brown velvet jacket and a green chamois-tufted hat," Feuchtwanger wrote of the rural rich.
Never before had Germany witnessed such a fundamental redistribution of wealth, and many of the winners were those who had previously been wealthy.
Much should have been done differently between 1914 and 1924 to avoid this disaster. Firstly, Germany should have had more powerful institutions, namely governments backed by the people that placed greater emphasis on prudent budgeting and could have reached a better deal with the Allies. At the same time foreign countries -- especially France -- should have been more sensitive to deeply indebted Germany's needs and taken greater account of the predicament it was in. Most importantly, however, the Allies should have been clearer about the size of Germany's war reparations much sooner. In the absence of this, the Reich descended into a kind of fiscal anarchy.
Disillusioned, many Germans chose to withdraw from the bitter reality of their lives, and simply left the country. In 1923, the authorities counted three times as many emigrées as the year before. Some sought refuge in sects, others committed suicide. Millions more became radicalized.
It's no coincidence that Adolf Hitler's inexorable rise to power began in November 1923, the highpoint of Germany's inflation, when he organized the abortive Beer Hall Putsch in Munich.
Catalan Germany correspondent Eugeni Xammar witnessed the spectacle at close quarters, having recently conducted an interview with "the future ex-dictator of Germany." In this interview Hitler claimed the high cost of living was Germany's biggest problem, promising "We intend to make life cheaper." To this end he demanded that shops -- many of which were in Jewish hands -- be brought under state control. And he stressed, "We expect all kinds of miracles of these national stores."
The journalist from Barcelona wasn't shy about stating what he thought of his interviewee. Hitler was, Xammar wrote, "the stupidest person I have ever had the pleasure of meeting." Tragically, most Germans were soon to have a very different opinion of him.

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