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QE2: History Lessons From Germany

The public sector also ballooned: the pre-war railway personnel of 700,000 expanded to 1.1 million; the post and telegraph services added 120,000 staff, for the authorities never lacked money for wages however high they rose. The taxation system stopped functioning usefully: by the time tax was due it was hardly worth collecting, and anyway, so far had morale and morals fallen, tax evasion had almost become a civic duty.

National and state governments intervened sporadically to regulate prices, rail fares, currency dealing, hoarding and even gluttony -- but most rules were ignored. Every chance to establish a new stable currency while Germany still had enough gold was missed, through ineptitude or lack of political courage. However, by the summer of 1922, unemployment had practically disappeared.

Meanwhile, trust in money evaporated. Everyone hurried to get rid of it, accelerating the velocity of its circulation and stoking inflation further. People sought goods of intrinsic value. Gold or foreign currencies were the most favored (though it was illegal to hold them). Speculation on the stock exchange was rife, for some the only way of making a living. Prices of industrial shares soared as the mark declined, the exchange so busy that it opened only three days a week. Those with no money to risk, and too young or old to work, shivered and starved.

Corruption was general, even where it had previously been unknown. From theft and prostitution to riots and political assassinations, crime became common. There were militaristic and secessionist outbreaks. As foreigners swarmed in over the frontiers to take advantage of the exchange rates, hapless townspeople, hungering for the food which farmers refused to sell for worthless paper, went into the country to seize it.

The outcome was disastrous for all -- except profiteers with foreign bank accounts; except farmers and landowners whose heavy borrowings and mortgages were reduced to nothing; except some industrialists and financiers whose responsible comprehension of events let them survive the storm. As Germany's internal debts were swept away, creditors were ruined.

The rentier classes who depended on savings or pensions, and anyone on a fixed income, were soon in penury, their possessions sold. Barter often took over from purchase. By law rents could not be raised, which allowed employers to pay low wages and impoverished landlords in a country where renting was the norm. The professional classes -- lawyers, doctors, scientists, professors -- found little demand for their services. In due course, the trade unions, no longer able to strike for higher wages (often uncertain what to ask for, so fast became the mark's fall from day to day), went to the wall, too.

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