MEMORIA DESCRIPTIVA DE INSTALACIONES SANITARIAS

To make matters worse, on January 11, 1923 France and Belgium occupied Germany’s Ruhr valley to capture the German coal, iron and steel production in the Ruhr area. This was supposedly done to gain the money that Germany owed in reparations. France had the iron ore and Germany had coal to make steel, so there had been a history of tensions related to their trade that exacerbated the problem. This aggressive act was a classic case of a debtor/creditor/trading relationship turning antagonistic. This occupation caused the stock market and the currency to plunge. But the currency plunge and the hyper-inflation became so severe that they drove nominal stock prices up. The stock index number of shares increased from 8,981 in December 1922 to 22,400 in January

333 _{Bresciani-Turroni p. 270-1} 334 _{Bresciani-Turroni p. 366-7} 30 40 50 60 70 80 90 100 110 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Real Wages of a Skilled Worker (1914 = 100) Real Wages of an Unskilled Worker

1923, and to 45,200 in February.336 _{It’s a good example of how a bearish development can be so negative for a} country’s currency that it can cause nominal stock prices to rise.

A pause in the mark’s decline occurred when the Reichsbank began its policy of supporting the mark by imposing an artificial exchange rate that linked the mark to the dollar.337 _{It did this by issuing its first dollar-denominated} treasury certificates. The dollars raised were to be employed by the Reichsbank in an attempt to stabilize the exchange rate. The Reichsbank pledged abroad a good part of the one billion gold marks’ worth of gold reserves with which it had started 1923 in order to obtain the requisite foreign exchange for the support action. This “stabilization action” succeeded between February and April. But that policy finished unsuccessfully, as all fixed exchange rates that are pegged inconsistent with the fundamentals inevitably do. That is because the Reich’s floating debt rose from 2.1 to 6.6 trillion marks between the end of January and March and the acquiring of further foreign credits reduced Germany’s gold reserves to under 500 million gold marks (by the end of 1923). German also had silver stocks—which were not explicitly shown in the Bank’s Statements—largely lost in the same period. So in the second half of April 1923, the mark fell again.

It was estimated that this early 1923 failed currency defense cost more than three hundred million gold marks. This defense was abandoned and the dollar rate soared.

There was also a very big redistribution of wealth, from high income earners to low income earners. The next table shows how the distribution of wealth shifted from 1913 to 1923. It conveys that it was not the middle income earners and moderate wealth holders who were affected the most severely by the postwar redistributive processes; it was exclusively the upper income groups. Their losses had less to do with taxes (which did have an adverse affect because they were based on the individual’s ability to pay) than with the effect of inflation on the value of the capital assets the wealthy held to store their wealth. The table and charts below show this redistribution of wealth.

Of course, all holders of financial wealth suffered, in varying degrees. The table that follows shows estimates of how much by wealth category.

336 _{Bresciani-Turroni p. 270}

337_{Bresciani-Turroni p. 271}

No. of Taxpayers (%) Net Wealth (%) No. of Taxpayers (%) Net Wealth (%)

above 10000 to 20000 34.2% 7.4% 47.5% 14.9% above 20000 to 30000 20.4% 7.4% 19.4% 10.5% above 30000 to 50000 19.5% 11.0% 15.7% 13.3% above 50000 to 100000 14.7% 14.9% 10.6% 16.1% above 100000 to 500000 9.8% 27.9% 6.1% 25.6% above 500000 to 1000000 0.9% 9.5% 0.5% 7.4% above 1000000 to 3000000 0.5% 11.1% 0.2% 7.3% above 3000000 to 10000000 0.1% 6.5% 0.0% 3.5% above 10000000 0.0% 4.4% 0.0% 1.5% Total 100% 100% 100% 100% Dec-1913 Dec-1923 Wealth Category in Gold Marks

The first table above indicates that at December 31, 1923, taxable wealth was more equally distributed than it had been ten years earlier. It also shows that the two lowest wealth classes virtually doubled their share of aggregate wealth, the middle categories increased their share of the total, and the classes above these fell. The second table also indicates that over this ten year period the aggregate value of wealth declined by 61.2%, which was much greater than the 25-30% fall in real national income between 1913 and 1923. That is because (a) the income from capital and (b) the value of capital became a smaller proportion of national income.

The period of most acute and widespread poverty was 1923. Not coincidently, it was also the year of the highest crime rate. Plunderings and riots became common. To cope with the social unrest which the collapse of the mark had caused, the Reich declared a state of siege on September 27, 1923.338

By mid-1923, people were eager for some cash-like vehicle to hold their liquidity in. New forms of credit were invented and desperation made some of them work. In the summer of 1923, when the scarcity of money was most acute, the Berlin banks decided to issue a kind of check which was to be acceptable at their branches and which was also willingly accepted by the public, who were desirous of having any means of payment whatever.

Private firms, industrial companies, combines, and public authorities issued all kinds of provisional money. This was very similar to what happened in other inflationary deleveragings like when the banks became dysfunctional such as in Argentina.

In August 1923, the value of foreign currencies employed in transactions within Germany was almost ten times as great as the value of the paper-mark circulation.339

So the currency was essentially defunct and all debt denominated in it was extinguished—i.e., marks no longer served a meaningful purpose of either a medium of exchange and as a store of wealth.

In an attempt to satisfy the desperate demand for value-maintaining means of payment, the Reich brought out a five hundred million gold mark loan in August 1923. It was issued in notes of small denomination so that they could be used as means of payment. To support the value of these, the Reich also issued exchange-rate linked treasury certificates—i.e., certificates whose value was effectively denominated in dollars pegged to the dollar exchange rate. The Reich also permitted provinces, municipalities, chambers of commerce and large business firms to issue emergency money denominated in gold marks. Also, some companies borrowed by issuing “loans at a stable value” which were tied to what they produced—e.g., rye farmers issue rye-backed debt.

Because it was impossible to do accounting for, and convey the meaning of, money because its value changed so fast, the accounting system was changed and the practice of valuing things in gold became generally adopted.

338 _{Holtfrerich p. 312} above 10000 to 20000 -18.9% -21.7% above 20000 to 30000 -44.4% -44.9% above 30000 to 50000 -53.0% -53.2% above 50000 to 100000 -57.8% -58.0% above 100000 to 500000 -63.6% -64.4% above 500000 to 1000000 -69.4% -69.7% above 1000000 to 3000000 -73.8% -74.6% above 3000000 to 10000000 -78.5% -79.2% above 10000000 -85.3% -86.4% Total -41.6% -61.2%

During the hyperinflation the prices of equity shares generally were determined by investors on the basis of the “intrinsic value” of the companies rather than as multiples on earnings. In the last phase of the inflation (i.e. in 1923), there was a tendency to overvalue shares. Then, after the stabilization of the mark, the prices of shares declined rapidly. The average quotation for December 1923 was 26.9 (1913 = 100).