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Most readers will be familiar with
the great hyperinflation of Weimar Germany.
Indeed, it is often held up as the icon of what can go drastically wrong when
government throws off all restraint as regards to the production of fiat
money. I do not need to labour the point much as to
how billions and then trillions of marks were literally not worth the paper
they were printed on and how workers had to be paid by the hour lest their
wages rapidly lost purchasing power in the brief time between being paid and
spending that same money.
As ever, gold and silver proved to be safe havens
from the ravages of inflation. Indeed, anything other than the mark seemed to
a good place to park one’s wealth. In those days, that could be
anything from bedpans to US dollars to precious metals. However, depending on
one’s accumulated wealth, gold and silver were amongst the top assets
in terms of holding and transporting wealth. Despite this, one set of figures
and one notable week in the life of Weimar Germany
demonstrated that one particular form of wealth proved to be in particularly
heavy demand.
Thanks to an article by Rob
Kirby that listed the increasing value of gold and silver in terms
of German marks, I was able to plot a couple of graphs. The chart of the
price of silver and gold over the period from January 1919 to November 1923
shows the rapidly deteriorating value of the Mark. For those having trouble
counting the zeroes, gold went from 170 marks per ounce in 1919 to 87 trillion marks per ounce about five
years later.
Likewise silver went from 12 marks to nearly 544
billion marks per ounce. The next step was to see how the gold-silver ratio
performed over this period and that is where the surprise came as we can see
below. For practically all of that five-year period, gold and silver
faithfully followed the historic range between 14.17 and 16.10 with one
temporary blip to 27 in
September 1921. But, lo and behold, the ratio leapt to 160 on the week
beginning October 23rd 1923 and stayed there till our price record ends on
November 30th 1923!
What was going on here? Was there an error in the
gold price data? Perhaps an extra zero had been accidentally introduced thus
skewing the numbers. I queried Rob Kirby on this but we both agreed that the
numbers were correct.
This left an obvious mystery, why would gold
suddenly become ten times more expensive than silver in very short measure?
The only clue was to look at the timeline of Weimar
Germany
during 1923 and the truth became quickly evident. The timeline below is taken
from Wikipedia (see link)
October 6, 1923 Dr. Gustav Stresemann
(People’s) forms 2nd cabinet
October 20, 1923 General Alfred Mueller marches on Saxony to prevent a communist takeover. Also:
General Otto von Lossow in
Bavaria is relieved of command by Berlin; he refuses.
October 23, 1923 Communist takeover of Hamburg
October 25, 1923 Hamburg uprising suppressed
November 8, 1923 Beer Hall Putsch
November 9, 1923 Beer Hall Putsch quelled.
November 12, 1923 Dr. Hjalmar
Horace Greeley Schacht was named ‘’Reichswaehrungskommissar’’.
November 15, 1923 Rentenmark
issued; pegged to the Gold Standard; Rentenmark 4.2
= 1 US dollar; at this time:
Old Reichsmark 4,200,000,000
= 1 US dollar
On October 23rd, the communists began an uprising in
Hamburg.
With memories of the Bolshevik Revolution of 1917 still fresh in the memories
of Germans, this must have set alarms bells furiously ringing. Was Weimar Germany
about to go the way of Tsarist Russia? The message racing through the minds
of many a panicked German must have been “Get out of here!” and
spare no expense in doing so!
Tales of mass executions and the often violent
expropriation of wealth by Lenin and his cohorts surely would have focused
the minds of wealthy Germans on getting their wealth changed into a form that
was easily transportable and that could only mean gold. With an equivalent
amount of silver weighing about sixteen times as much, it seems quite apparent
that demand for gold skyrocketed whilst other forms of tangible but more
cumbersome wealth were traded in for gold to the extent that people were
prepared to give up 90% of their assets to accommodate this dectupling of the gold price. It must have been a
desperate frame of mind that bid gold up to such feverish prices.
As it happened, less fraught people who traded one
ounce of gold for 160
ounces of silver probably made a killing as the Germany
nation finally stabilized into some semblance of normality. One wonders how
such trading in gold and silver fared as another form of socialism - National
Socialism – began to cast its shadow across the land. Doubtless, that
is a tale for another time.
By : Roland Watson
May
10, 2006
The
Silver Analyst
http://silveranalyst.blogspot.com
Further analysis and comment on the silver market can be read in the
subscriber-only Silver Analyst newsletter described at http://silveranalyst.blogspot.com where readers can obtain the first
issue free. Comments and questions are also invited via email to silveranalysis@yahoo.co.uk.
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