From Marks to Deutsche Marks
A Synopsis of German Currency During the First Half of the Twentieth Century

Prior to World War I the German Mark was a solid currency. When hostilities broke out on July 31, 1914, the Reichsbank, the German Central Bank, stopped redeeming Mark notes for gold, and to finance the war they printed Marks as needed. This action provided fuel for inflation but there was no spark to light an economic fire. Men were busy fighting and not spending. And if the women had Marks to spend there was little to spend it on because war rationing strictly constrained the available products. Germany’s financial principles were not worried. Germany intended to win the war and the spoils would finance economic recovery.

As we know, Germany did not win the war. And the Reichsbank floating debt had increased from 3 billion to 55 billion Marks during wartime. If that was not a bad enough situation, the Versailles Treaty required enormous reparation payment which bled the country for years. So how was Germany to cope with this situation? They simply printed more and more Marks.

Such extreme deficit spending was not acceptable to the European economy of the early 1920’s. Faith in the German Mark took a nosedive. In January 1918, 5.21 Marks could be exchanged for one U.S. dollar. Three years later it took 64.91 Marks to buy $1. By late 1923, 150 German printing companies had 2,000 presses going day and night turning out currency. In December of that year it took 4,200,000,000,000.00 (yes, 4.2 trillion) Marks to buy $1! The worthless, easily printed Mark was pure inflation fuel and it didn’t need to find a match to explode. Spontaneous combustion produced the most infamous example of hyperinflation the world has known.

With inflation this bad the German citizen suffered unbelievably. Worthless Marks could buy nothing produced outside of Germany. And within Germany a worker could not earn money fast enough to even meet the rapidly increasing cost of necessities like food. People were starving. The country needed monetary reform.

In November 1923, a new bank, the Rentenbank, was created to issue a new currency – the Rentenmark. This money was exchangeable for bonds supposedly backed up by land and industrial assets. Each Rentenmark was valued at one trillion old Marks. So how did printing new Marks stop inflation? The answer is as much psychological as it is good economics. Supply of the new notes was strictly limited resulting in them holding their perceived value. And the claim of property backing the Rentenmark seemed to give the currency some credible value but of course this could have easily been disputed. Finally, after April 1924, the Reichsbank required businesses to repay loans in gold backed notes equal to the original value of the loan.

There was other support for the Rentenmark known as the Dawes Plan negotiated between Germany and the U.S. Government. The plan restructured Germany’s reparation payments through 1929 making them more manageable. For example the 1922 payment was about $2 billion, the figure for 1924 was reduced to $50 million. This large reduction in reparations payments was accompanied by a loan of $200 million from the U.S., which would allow for heavy investment in the German infrastructure. The Dawes plan also provided for the gradual removal of French and Belgian troops from the Rhineland.

The Rentenmark was a temporary currency and in August 1924 the Reichsmark was introduced. It was equal in value to the Rentenmark and in addition the Reichsmark had a 30% gold backing. The stage was now set for the pendulum to swing from inflation to recession.

The economic crisis of 1923 led to turmoil throughout the populace. As you might imagine, such a crisis is fertile ground for politicians to plant their seeds for the future. Parts of Germany were in a state of emergency and the opponents of the post-war Weimar State used the situation to try and further destabilize the situation. (The Weimar State refers to the city where the German National Assembly met in February 1919 to form a new German government.) In 1923 there were many strikes, which fueled a fear of Communism amongst the middle class. The middle class looked for conservative support and found it in the decrees of political groups such as the National Socialist German Workers Party or NSDAP (Nazi Party). Considering the existing economic climate and the failings of the current government to respond to challenges, almost everyone believed another political alternative was a better alternative. It was this environment that helped catapult Hitler to dominance.

After 1924 Germany had a new, stable form of currency, the Reichsmark. Unfortunately the situation that devalued the Mark was about to recur, another war. Hitler was obsessed and ruthless but he was not stupid. He printed money like it was water but he understood the economic mistakes that caused the problems in the 1920’s. He avoided these same problems through a system of wage and price controls enforced by the Gestapo.

Again Germany lost a world war and the remarkable Reichsmark was now worthless. In an attempt to save it, the Allies reinstituted Hitler’s wage and price controls. But there was nothing on the shelves to buy. If you wanted something from a German you needed Lucky Strike cigarettes, nylons or chocolates. Barter was the only credible form of exchange.

According to WWII historian Aidan Crawley, by the spring of 1947 the Allied occupation was heading for a disaster of such proportions that it threatened to destroy not only Germany, but the other nations of Western Europe as well. Mr. John Hynd, the British Minister responsible for Germany, said in a speech, “it was a matter of days whether twenty-three million people were going to starve in the streets. Postwar peace was harder on the German citizens than the daily raids of B-17 and B-24 bombers.

Economic turmoil again for Germany! What was the next recovery plan? The Allies proposed a new currency however Russia said it would agree only if Russia controlled the printing plates. Despite Russia’s attempt to control the post-war German economy by controlling its currency, the United States, Britain, and later France, agreed on economic unification in their occupation zones. In the United States a new currency, the Deutsche Mark, was printed and secretly shipped to Germany in large crates labeled “Bird Dog.” On June 20, 1948 the Allies announced currency reform. On the first day everybody was allowed to exchange 40 Reichsmarks for 40 Deutsche Marks. After that wages, rents and pensions continued to be paid at the same level as before but savings were converted into Deutsche Marks at a rate of 10 to 1. This of course had a terrible impact if you had money held by German banks.

Concurrent with currency reform, a little-known German free-market economist by the name of Ludwig Erhard, made a critical maneuver. He was appointed by the Allies to head a committee on economic reform. He pushed his committee into a shock recovery approach – eliminate price and wage controls but strictly control the money supply. Erhard acted as if his plan had received full approval and endorsement by the Allied authorities. It was a brilliant bluff that worked. Historian Dennis Bark documents the results as thus. The day following (the announcement of currency reform) euphoria engulfed most Germans at the sight of goods and food items they could only dream about in the past. Bakeries miraculously produced and displayed delicious cakes; vegetables, butter and eggs appeared in abundance. Items that had obviously been hoarded secretly and had been available on the black market only, suddenly appeared in display windows. Productivity almost immediately increased six fold with product value determined by the laws of supply and demand.

Between 1949 and 1964, East Germany also used the name Deutsche Mark for its currency. In 1964 the name was changed to “Mark der Notenbank” and in 1968 to “Mark der DDR” or mark of the German Democratic Republic. Only after the fall of the Berlin wall was the West German Deutsche Mark introduced to East Germany to become the currency for all Germans.

The Deutsche Mark became a symbol for German stability, and in fact for European stability. In January 2002 this colorful currency was retired in favor of a new form of exchange, the Euro. The Mark, which dates back to the 1870’s, is gone. Long live the Mark.