All Commentary
Monday, September 1, 1986

Memories of the 1923 German Inflation

Edgar Bissantz, a retired architect, resides in Santa Barbara, California

For decades prior to World War I, the German mark enjoyed a relatively stable exchange rate of about 24 cents against the U.S. dollar. However, during the war, the German government paid its bills by printing large quantities of marks. Because of the resulting inflation, by the war’s end in 1918 the mark had fallen to about six cents against the dollar.

Few people today remember that immediately after the war, many U.S. citizens, often at the urging of their bankers, purchased German marks as investments. The bankers pointed out that, although Germany was being asked to pay the Allies huge reparations, the country’s land and buildings were essentially intact. Thus, many investors reasoned, the economy would be quickly restored by her industrious people. The mark would regain its “normal” value of 24 cents, which would yield a potential 300 per cent profit to investors. Unfortunately, the bankers did not take into account the fact that the German printing presses were continuing to turn out paper marks, and that the value of the mark was still falling.

My father’s banker in Wichita persuaded him to buy $1,000 worth of marks to remain on deposit in a German bank in the seaport of Bremen. My father soon received a bank statement crediting him with what was then a substantial number of marks. After that, other statements arrived at regular intervals, their balances always listing certain deductions for the cost of postage, carrying charges, and letters written. At the same time, the value of the marks was being eroded by the continuing inflation. But American investors were scarcely aware of that. Finally, in 1923, the value of my father’s account had become so small that it was a nuisance for the bank. My father was asked to withdraw his balance in full.

As I was about to depart on a student tour of Europe, my father forwarded the statements to me. He asked me to visit the bank on my stopover in Bremen, close out the account, and take the money to use on my tour. Little did my father realize what was going on.

By the time I checked into my hotel in Bremen, the collapse of the German currency was in full swing. The existing currency had been overprinted to raise their denominations by millions or billions of marks. Cities and towns were printing their own paper money, of value only locally and momentarily. Merchants refused to give up their wares for the German paper money that was losing value from minute to minute. Few pedestrians were to be seen, and there was no vehicular traffic at all. The streets of the great seaport were practically deserted. One could walk without fear right down the middle of the street. Business had come to a standstill.

I found the bank, closed my father’s account, and received in settlement a few paper notes—then practically worthless. I placed them in a letter to my father and went to the post office. Several women, each seated behind a large basket of paper money, were officiating. One took my letter, weighed it, and wrote in pencil the amount of postage in the corner of the envelope—by that time postage stamps were a thing of the past—and gave me three bills from her basket in change. The postage to mail the letter to my father cost more than the marks in the envelope! Alas, my father’s thousand dollar bank account had disappeared with the inflation.

Those three mark notes that I received from the Bremen postmistress many years ago—a million mark bill issued by the Freie Hansestadt Bremen, a ten million mark bill, and a thousand mark bill overprinted for one billion marks—have been framed and still hang over my desk, as a reminder that only where government can print paper money, without regard for anything of value, can such a thing happen.