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Many Americans may be inclined to assume that Germans were barbaric because they supported Hitler, and whatever happened there couldn’t possibly apply to the United States. But the Germans have had much more in common with Americans than we might realize.
Germans were educated and industrious. Germany had world-class universities. Germans long led the world in scientific achievement. Many German companies were highly efficient producers. German immigrants contributed a great deal to American cultural life, including kindergartens, gymnasiums, picnics, hamburgers, hot dogs, and Christmas trees. The long list of notable Germans or persons of German descent in America includes historian Hannah Arendt, astronaut Neil Armstrong, dancer Fred Astaire, Wizard of Oz author L. Frank Baum, landscape painter Albert Bierstadt, brewer Adolphus Busch, actor Tom Cruise, singer John Denver, entertainment entrepreneur Walt Disney, movie reviewer Roger Ebert, Life magazine photographer Albert Eisenstadt, physicist Albert Einstein, New York Yankee legend Lou Gehrig, condiment king Henry J. Heinz, hotelier Conrad Hilton, comedian David Letterman, novelist Thomas Mann, dishwasher entrepreneur Frederick Maytag, journalist H.L. Mencken, movie director Mike Nichols, political cartoonist Thomas Nast, New York Times publisher Adolph Ochs, pharmaceutical entrepreneur Charles Pfizer, pioneering modern architect Ludwig Mies van der Rohe, slugger Babe Ruth, cartoonist Charles M. Schulz, novelist John Steinbeck, piano maker Henry E. Steinway, blue jeans peddler Levi Strauss, real-estate wheeler-dealer Donald Trump, and electrical industry pioneer George Westinghouse. Despite hideous things that happened in Germany during the 1930s and 1940s, we are part of a common civilization and should recognize that what happened there could happen here.
Effects of war socialism
During World War I, the German government expanded rapidly and gained pervasive control over the economy. This was the “war socialism” that inspired Lenin and his comrades in Russia. After the war, the German government retained most of its costly bulk. Municipalities were subsidized by it; similarly, many of today’s financially hard-pressed states are lobbying Washington for bailouts. There were government-run pensions not unlike the unfunded pension liabilities our federal and state governments are struggling with. The German government provided health insurance for increasing numbers of people. It supported 1.5 million disabled veterans. It subsidized artists. There were government theaters and government opera houses. The government owned many businesses, including those producing margarine and sausages, and they lost money. Government-owned railroads were bankrupt because, among other things, freight rates weren’t increased fast enough to cover soaring costs. All those programs were aggressively defended by interest groups who benefited from them.
So the German government was financially stressed out when it was hit with external shocks. German political leaders had expected to win World War I, but they turned out to be wrong about that. Then they expected a postwar settlement according to the lofty principles expressed by Woodrow Wilson, but they were wrong about that, too. The Allies, particularly Britain and France, demanded substantial reparations. Reparations by themselves weren’t so bad — at their peak in 1921, they amounted to 1.2 billion German marks, or about 11.8 percent of the German government’s budget. But since the government was already stressed out, the reparations triggered an epic money-printing binge.
Prices of everything soared, and the inflation proved to be more socially destructive than World War I. It devastated libraries and museums. They couldn’t afford to maintain what they had, never mind acquiring new books or works of art. Scientists couldn’t afford to do their work, and scholars couldn’t do theirs. As historian Gerald Feldman observed, “It wasn’t possible any longer successfully to separate a discussion of the maintenance of German science, scholarship, and artistic life from a discussion of the social condition of their practitioners.”
Private home builders couldn’t afford to continue building new homes. Rather than deal with the interest groups defending price controls, German cities borrowed money — repayable in foreign currencies such as Swiss francs and Dutch gulden — to go into the housing business. As German marks depreciated, cities had a harder and harder time paying the interest, and they begged the national government to help. Government-run enterprises, too, had taken loans repayable in foreign currency, to import milk and cattle, and they were desperate. Retailers liked rent controls because their store space was a bargain, even though landlords couldn’t afford to maintain it. But retailers lost to inflation anyway, because price controls made it hard to recover their other costs.
German inflation, 1923
There was an often-told story about a thief who stole a useful wheelbarrow and left behind the bundles of paper money that had been in it, because the money was worthless.
In an effort to prevent the new issues of money from leading to higher prices, on July 7, 1921, the German Supreme Court ruled that when sellers priced their goods, they couldn’t fully factor in the depreciation of the mark. To illustrate what such a policy led to, Feldman related the story about “a rope manufacturer who had become convinced he could do splendid business by selling his rope for ever increasing amounts of paper marks. He rapidly became a millionaire and then a billionaire, but each time he used his capital to buy hemp, he noted that he progressively received less hemp for more money and that his production steadily decreased. Finally, the day came when he could produce only one piece of rope, and he used it to hang himself at the gate of his desolated factory.”
Government regulations bankrupted most of Germany’s insurance funds. They had been forced to invest in bonds issued to finance the government’s failed venture in the housing business. The value of the bonds was wiped out by inflation. Inflation devastated German insurance companies that had business in other countries, because customers needed payments in their own currencies, not in marks. German regulations limited the ability of insurance companies to maintain accounts in other currencies sufficient to discharge their obligations.
By disrupting all kinds of contracts, inflation led to the collapse of the German economy. Nobody could count on anything. Many judges accepted the cancellation of contracts provided it could be established that inflation was unexpected, so courts were deluged with claims that nobody could have foreseen that the inflation would go on for years. According to Feldman,
German businessmen were sending their domestic and foreign customers learned summations of cases and opinions by company lawyers or printed compilations of German court decisions allegedly sanctifying the cancellation or revision of contracts.
Debtors were pitted against creditors, with hundreds of thousands of debtors rushing to pay off their mortgages and other loans with worthless currency, and creditors helplessly insisting that the value of money borrowed be repaid. One embittered banker remarked that “our real estate credit, to which Germany owes so much for its past reconstruction and which is also so indispensable for a solid reconstruction, must be buried in the grave.”
The German inflation, however, meant that everything was incredibly cheap for foreigners. The Germans knew it and resented it. The American novelist Ernest Hemingway and his wife traveled through Germany in 1922, and he reported that “with marks at 800 to the dollar, or 8 to a cent, we priced articles in different shops. Peas were 18 marks a pound, beans 16 marks. Beer was 10 marks a stein or 1-1/4 cents.” A pastry shop they visited “was jammed with French people of all ages and descriptions, gorging cakes. The proprietor and his helper didn’t seem happy when all the cakes were sold. The mark was falling faster than they could bake.”
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