Tower of Basel: The Shadowy History of the Secret Bank That Runs the World by Adam LeBor Page B
Authors: Adam LeBor
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seized, and prisoners were lined up against walls and shot.
Karl Marx’s predictions about the inevitable destruction of capitalism seemed to be becoming truer by the hour—especially in his homeland. The bankers’ fears that Germany was about to follow Russia into Communism seemed entirely justified. Hyperinflation set in as the government printed money to keep the economy functioning. Shoppers used wheelbarrows to move the bundles of notes needed to buy basic staples. The chaos had to be stopped. On November 13, 1923, five days after Adolf Hitler’s failed Beer Hall Putsch in Munich, a tall, imperious German started work as Reich currency commissioner. Hjalmar Schacht demanded, and got, near-dictatorial powers. Working out of a former janitor’s closet, he set to work on stabilizing the value of Germany’s new currency, the rentenmark. Currencieswere usually backed by gold, but the rentenmark was backed by the value of Germany’s land and holdings since there was no gold available to back the new currency. This was a somewhat hazy idea—how could the bearer of a rentenmark redeem his money? Would he be given a small piece of a field?
This concern did not matter. As long as Schacht was in office, nobody would want to redeem a rentenmark. He brilliantly understood the key point of the psychology of money, which is as valid today as it was in the hyperinflation of the 1920s: the appearance of financial stability creates monetary value . If people believed that someone was in charge, that the chaos would end, and that the rentenmark had value, then it would be valued. The first notes were printed on November 15, 1923. One rentenmark could be exchanged for one trillion old marks (1,000,000,000,000). One U.S. dollar cost 4.2 rentenmarks, a return to the pre-WWI exchange rate. The aim, Schacht said, was to “make German money scarce and valuable.” Other than the logistics of printing and distributing the bank notes and convincing Schacht’s foreign colleagues that order had been returned to the German economy, there was not that much more to it.
When German reporters asked Clara Steffeck, Schacht’s secretary, what he did all day, she replied,
What did he do? He sat in his dark room, which smelled of old cleaning rags, and he smoked. Did he read letters? No. And he dictated no letters. But he phoned a lot all over the world, about domestic and foreign currency. Then he smoked some more. We didn’t eat much. He usually left late and took public transportation to go home. That was all. 4
Not quite “all.” Taxes were raised, and four hundred thousand German public employees were sacked. But the rentenmark successfully stopped the German inflation so well that on December 22, 1923, Schacht was promoted to be president of the Reichsbank, while retaining his position as currency commissioner. He could now attend cabinet meetings. “Within a few weeks,”notes John Weitz, Schacht’s biographer, “he had virtually become Germany’s economic dictator.” 5
Schacht certainly looked the part of a strict Prussian banker: his hair was parted precisely down the middle, and his moustache flared briefly under his nose before stopping at a determined mouth. His eyes stared out suspiciously through a pair of pince-nez. He walked with a rigid, almost military manner and wore shirts with high celluloid collars. In fact he was not Prussian at all but was born in North Schleswig, in a land perennially shunted back and forth between Germany and Denmark. Whoever ruled the province, its inhabitants were a stubborn, hardy people. They adapted easily to their alternating masters but retained their tenacity and independence—qualities that would serve Schacht well. His grandfather, Wilhelm, was a country doctor who raised twelve children and charged every patient, rich or poor, sixty Pfennigs. Schacht’s father, also called Wilhelm, was a schoolteacher who immigrated to the United States. He
Karl Marx’s predictions about the inevitable destruction of capitalism seemed to be becoming truer by the hour—especially in his homeland. The bankers’ fears that Germany was about to follow Russia into Communism seemed entirely justified. Hyperinflation set in as the government printed money to keep the economy functioning. Shoppers used wheelbarrows to move the bundles of notes needed to buy basic staples. The chaos had to be stopped. On November 13, 1923, five days after Adolf Hitler’s failed Beer Hall Putsch in Munich, a tall, imperious German started work as Reich currency commissioner. Hjalmar Schacht demanded, and got, near-dictatorial powers. Working out of a former janitor’s closet, he set to work on stabilizing the value of Germany’s new currency, the rentenmark. Currencieswere usually backed by gold, but the rentenmark was backed by the value of Germany’s land and holdings since there was no gold available to back the new currency. This was a somewhat hazy idea—how could the bearer of a rentenmark redeem his money? Would he be given a small piece of a field?
This concern did not matter. As long as Schacht was in office, nobody would want to redeem a rentenmark. He brilliantly understood the key point of the psychology of money, which is as valid today as it was in the hyperinflation of the 1920s: the appearance of financial stability creates monetary value . If people believed that someone was in charge, that the chaos would end, and that the rentenmark had value, then it would be valued. The first notes were printed on November 15, 1923. One rentenmark could be exchanged for one trillion old marks (1,000,000,000,000). One U.S. dollar cost 4.2 rentenmarks, a return to the pre-WWI exchange rate. The aim, Schacht said, was to “make German money scarce and valuable.” Other than the logistics of printing and distributing the bank notes and convincing Schacht’s foreign colleagues that order had been returned to the German economy, there was not that much more to it.
When German reporters asked Clara Steffeck, Schacht’s secretary, what he did all day, she replied,
What did he do? He sat in his dark room, which smelled of old cleaning rags, and he smoked. Did he read letters? No. And he dictated no letters. But he phoned a lot all over the world, about domestic and foreign currency. Then he smoked some more. We didn’t eat much. He usually left late and took public transportation to go home. That was all. 4
Not quite “all.” Taxes were raised, and four hundred thousand German public employees were sacked. But the rentenmark successfully stopped the German inflation so well that on December 22, 1923, Schacht was promoted to be president of the Reichsbank, while retaining his position as currency commissioner. He could now attend cabinet meetings. “Within a few weeks,”notes John Weitz, Schacht’s biographer, “he had virtually become Germany’s economic dictator.” 5
Schacht certainly looked the part of a strict Prussian banker: his hair was parted precisely down the middle, and his moustache flared briefly under his nose before stopping at a determined mouth. His eyes stared out suspiciously through a pair of pince-nez. He walked with a rigid, almost military manner and wore shirts with high celluloid collars. In fact he was not Prussian at all but was born in North Schleswig, in a land perennially shunted back and forth between Germany and Denmark. Whoever ruled the province, its inhabitants were a stubborn, hardy people. They adapted easily to their alternating masters but retained their tenacity and independence—qualities that would serve Schacht well. His grandfather, Wilhelm, was a country doctor who raised twelve children and charged every patient, rich or poor, sixty Pfennigs. Schacht’s father, also called Wilhelm, was a schoolteacher who immigrated to the United States. He
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