T.M.’s Book Review: The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class

The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class, by Frederick Taylor
© 2013
ISBN: 978-1-62040-236-8 Hardback; also available on Kindle.
416 pages, 25 chapters, appendix, bibliography, and index.

Be assured that I am not an economist, but I do keep the family bankbook balanced. Past that and I am mostly lost in the world of high finance. I read this book in order to answer three questions:

  1. What caused the hyperinflation in post-WWI Germany?
  2. What effect did it have on ordinary citizens and how did they cope?
  3. What lessons are to be learned to better prepare my family’s finances?

This book tackles a complicated financial story in a surprisingly easy-to-read narrative. The author translates economic mumbo-jumbo into everyday language in twenty-five chronological chapters. The Afterword provides a good explanation of how the economy provided fertile ground for extremists of every flavor to grow, and why Adolf Hitler was eventually elected to office.
The Appendix is excellent in showing the steady devaluation of the German mark from 4 marks to one dollar to 4.2 trillion marks to one dollar. It only took one decade of political and economic shenanigans to make the German currency worthless.

All through the narrative I was reminded of what is occurring today compared to 1914-1923. The mark was taken off the gold standard to finance a war; coins were minted of cheap alloys; government debt was incurred that would take generations to repay (Germany paid its’ final war reparation bill in 2010, a full 96 years after WWI began); societal safety nets were expanded by politicians unable to say “No, we do not have the money”; government bureaucracies expanded each year; the policy of allowing inflation was a ploy by highly trained, professional economists to pay war reparations with devalued money (it did not work).

In the worst of times, the city dwellers (golden horde) formed gangs and raided nearby farms for food. They did not offer to pay or work for the food – they looted. Welfare and unemployment fraud were epidemic. Violators were ignored. Politicians responded by raising the monthly checks to prevent riots and to stay in office.

The subtitle of this book is worth remembering: Germany’s Hyperinflation and the Destruction of the Middle Class. The poor in Germany were the first to die from disease, suicide, and starvation. The ultra-rich, in most cases, had the ability to leave the country, or weather the storm. The middle class small business owners, government employees, artisans, and union workers were gradually driven into the ranks of the poor. They first sold their possessions, their children, and then themselves in order to eat. After the hyperinflation was remedied, they remained poor and traumatized. German citizens had purchased 158 billion marks of bonds during the war with the promise of a nice rate of return. In 1923, the government remedied hyperinflation by introducing a new currency. All of the war bonds were then collectively worth fifteen cents. The government stole all that money by merely changing the rules.

So, what does an ordinary citizen do today? Lessons from true German accounts in the book are:

  1. Eliminate all household debt,
  2. Increase your savings,
  3. Increase you stash of material (tangible) assets that will feed, clothe, and protect your family in lean times and are good items for barter,
  4.  Do not have a mortgage, especially if you are a farmer. Thus, your home and land are yours. You have shelter and dirt for growing food.

I recommend this book to anyone interested in history, and for those looking for real life advice on what to do to avoid the approaching economic calamity. It is a hard true story, but well worth your time. Take notes, and read and heed.