The great German hyperinflation of 1923 is passing out of living memory now, but that doesn’t mean that it has been forgotten. Indeed, you don’t have to go too far to hear it cited as a terrible example of what can happen when a government lets the economy spin out of control, and the episode still remains a minor feature of the British history curriculum, studied – briefly – by 15 and 16 year olds taking their GCSE. In consequence, a surprisingly large number of Brits can recall at least some of the details of that period. They may remember, for instance, that at its peak German inflation hit 325,000,000 percent, while the exchange rate plummeted from 9 marks to 4.2 billion marks to the dollar. They may recall that it became cheaper to decorate a room with high-denomination banknotes than with wallpaper; or that when thieves robbed a worker who had used a wheelbarrow to cart off the billions of reichsmarks that were his week’s wages, it was reported that they stole the wheelbarrow but left the useless wads of cash piled on the kerb. Others have had one or other of the famous photos taken in this period burned into their memories, such as one that shows a German housewife firing her boiler with an imposing pile of worthless notes [below left].
It’s easy, in these circumstances, to suppose that 1923 was a uniquely strange and terrible episode, but the truth is that it was not. Indeed, the German hyperinflation was not even the worst of the twentieth century; its Hungarian equivalent, dating to 1945-46, was so much more severe that prices in Budapest began to double every 15 hours. (At the peak of this crisis, the Hungarian government was forced to announce the latest inflation rate via radio each morning, so workers could negotiate a new pay scale with their bosses, and issue the largest denomination banknote ever to be legal tender: the 100 quintillion (1020) pengo note. When the debased currency was finally withdrawn, the total value of all the cash then in circulation in the country was reckoned at 1/10th of a cent. [Bomberger & Makinen pp.801-24; Judt p.87]) Nor was 1923 even the first time that Germany had experienced an uncontrollable rise in prices. It had also happened long before, back in the early years of the 17th century. And that hyperinflation (which is generally known by its evocative German name, the kipper- und wipperzeit) was a whole lot stranger and more colourful than what happened in 1923.
In fact the kipper- und wipperzeit was – at least in my opinion – quite possibly the most bizarre episode in the whole of economic history– and that’s a judgement, incidentally, that I reached having written an entire book on the unquestionably strange Dutch tulip mania of 1636-37.
What made the kipper- und wipperzeit so incredible, and so unlike other instances of hyperinflation, was that it was the product not only of slipshod handling of the economy, but also of quite deliberate attempts made by a large number of German states to systematically defraud their neighbours. This international monetary terrorism – as it may be helpful to think of it – had its roots in the economic problems of the late sixteenth century, and lasted long enough to merge into the general crisis of the 1620s caused by the outbreak of the hideously bloody Thirty Years’ War, which killed roughly 20 percent of the population of Germany. While it lasted, the madness infected large swathes of German-speaking Europe, from the Swiss Alps to the Baltic coast, and resulted in some surreal scenes: bishops took over nunneries and turned them into makeshift mints, the better to pump out debased coinage; princes indulged in the tit-for-tat unleashing of hordes of crooked money-changers, who crossed into neighbouring territories equipped with mobile bureaux de change, bags full of dodgy money and a roving commission to seek out any gullible peasants who could be persuaded to swap their good money for for the changers’ bad. By the time it stuttered to a halt, sometime partway through the 1620s, the kipper- und wipperzeit had undermined economies as far apart as Britain and Muscovy, and – just as was the case in 1923 – it was possible to tell how badly things were going wrong from the sight of children playing in the streets with piles of worthless currency.
It’s not my intention, here, to explore in detail either the roots of the financial crisis or the detail of its outcomes. There are plenty of works, mostly in German, that do that in exhaustive detail. [Gaettens] But it may be helpful to know a couple of things: that the economies of Europe had already been destablised, at around this time, by a flood of precious metals from the New World (where in 1540 the Spaniards discovered an entire mountain of silver in Peru) and of copper from the Kopperburg in Sweden. This kick-started a sharp rise in inflation, as any substantial increase in the money supply will do. In addition, there were, in this formative economic period, strict limits to the control that most states had over their coinage. Foreign currency circulated freely even in the largest countries, such as France and England; it has been estimated that in Milan, then a small but powerful independent duchy, as many as 50 different, mainly foreign, gold and silver coins were in circulation. [Kindleberger (1991) p.153] This in turn meant that a good deal had to be taken on trust; at a time when coins actually were worth something – in that they were supposed to contain specific amounts of precious metal equivalent in value to their stated value – there was always a risk in accepting foreign coins of unknown provenance. The strange currency might turn out to have been clipped (that is, have had their edges snipped to produce metal shavings that could then be melted down and turned into more coins); worse, it might have been debased – melted down, adulterated with base metal and then recoined with a much-lower-than-advertised proportion of gold, silver or copper. Contemporary mints, which were often privately-owned and operated under licence from the state authorities, had yet to invent the milled edge to prevent clipping, and hand-produced coins by stamping them out with dies. In short, the system might have been designed to encourage dangerous and crooked practices.
This was particularly the case in Germany, which was then not a single state but an unruly hodge-podge of nearly 2,000 more-or-less independent fragments, ranging in size from quite large kingdoms down to micro-states that could easily be crossed on foot in an afternoon. Most of these states huddled together under the tattered banner of the Holy Roman Empire, which had once been a great power in Europe, but which was by 1600 riven by factionalism – not least serious religious divisions produced by the Reformation, which left it divided between Protestant and Catholic. At a time when Berlin was still a provincial town of no real note, the Empire was ruled from Vienna by the Habsburgs, but it possessed little in the way of central government, and its great princes did much as they liked most of the time. A few years later, the whole ramshackle edifice would be famously dismissed, in Voltaire’s phrase, as neither holy, nor Roman, nor an empire.
The coins minted in the Holy Roman Empire reflected this barely-suppressed chaos. In theory the local currency was controlled and harmonised by the terms of the Imperial Mint Ordinance issued at Augsburg in 1559, which specified, on pain of death, that coins could only be issued by a selected group of imperial princes via a limited number of mints which were grouped geographically into ‘circles’ and subject to periodic inspections by officials known as Kreiswardeine. The quantity of foreign coins permitted to circulate within the Empire’s borders was restricted, and it was forbidden to export either imperial coins or any silver. In practice, however, the Ordinance was never very rigorously enforced, and because it was excessively costly to mint small denomination coins, rather than larger ones, the imperial mints soon stopped producing them altogether.
Unsurprisingly, this practice soon created strong demand for the low denomination coins for use in everyday transactions. In consequence, the Empire began attracting, and circulating, foreign coins of unknown quality in large quantities, and unauthorised mints known as Heckenmünzen began to spring up like mushrooms after summer rains. As the number of mints in operation rose, demand for silver and copper soared. It is no surprise that coiners soon began to yield to the temptation to debase their coinage, reducing the content of precious metal to the point where the coins were actually worth substantially less than their face value. The inevitable consequence was a sharp rise inflation. [Schnabel & Shin pp.10-11]
The problems that the appearance of ‘bad’, or adulterated, money can cause an economy have long been studied by economists. Even before the debasement of the Empire’s coinage began in the last years of the 16th century, the effects of the practice had been described by Sir Thomas Gresham (1518-79), an English merchant of Queen Elizabeth’s reign. Gresham is remembered for stating what has become known as ‘Gresham’s Law’ – that the ‘bad’ money in an economy invariably drives out good. Put more formally, what the Law implies is that the appearance of an over-valued currency (such as one in which the stated content of precious metal is much less than expected) will result either in the hoarding of good money (because to spend good money and chance receiving bad money in change means to risk an economic loss) or in the melting down and recoining of good money to make a larger, and nominally more valuable, amount of debased coinage.
What happened in Germany after bad money started to circulate there c.1600 might have been designed as a case study to illustrate the application of Gresham’s Law. The local currency was increasingly stripped of its gold, silver and copper content – though Charles Kindleberger, whose essay on the kipper- und wipperzeit summarises much of the existing literature, points out that the trouble remained largely confined to low-denomination copper coins; ‘the larger coins of gold and silver,’ he points out, ‘were frequently weighed and tested’, whereas ‘subsidiary coins, used for retail trade and wages and by the ordinary person in payment of rents, dues, and taxes, more frequently were reckoned at their nominal value, whether from ignorance or to save transaction costs.’ [Kindleberger (1991) p.154] As a result, the Imperial currency, the kreuzer, lost about 20% its value between 1582 and 1609. After that, things began to go really seriously wrong.
One reason for the lurch into real financial crisis was the need felt by Germany’s thousands of rulers to hoard the cash they’d need to pay for looming conflict – the Thirty Years’ War broke out in 1618. But another was a desire for revenge against rogue states that were churning out debased coinage and allowing it to leak into their neighbours’ healthier economies. Notes Kindleberger:
Debasement was at first limited to one’s own territory. It was then found that one could do better by taking bad coins across the border of neighboring principalities and exchanging them for good with the ignorant common people, bringing back the good coins and debasing them again. The territorial unit on which the original injury had been inflicted would debase its own coin in defense, and turn to other neighbors to make good its losses and build its war chest. More and more mints were established, [and] debasement accelerated in hyper-fashion…
[Kindleberger (1996) p.111]
Here it may be instructive to pause and ask what the phrase kipper- und wipperzeit actually means. It’s period slang, and has been variously explained. The broad meaning is not disputed – it may be best translated, not very literally, as ‘the time of giving short measure in weighing’ – but whether you believe that kippen and kipper translate as ‘clipping’ or ‘tipper’ or ‘to tilt’, and wippen and wipper as ‘seesaw’ or ‘culling’ or ‘to wag’ (as different authors suggest) is pretty much a matter of personal preference. [Coupe p.95; Vitullo p.111; Denzel p.9; Kindleberger (1991) pp.150-1; Schnabel & Shin p.2] The phrase is certainly intended to hint at the assay scales that moneychangers used to calculate exchange rates in this period, though, and an element of cheating is definitely implied; the ‘wagging’ mentioned above is probably a reference to the way that ‘money exchangers kept their scales moving to befuddle the innocent onlookers whose good money was being exchanged for bad.’ [Redlich pp.17-21] In short, the changers were crooks and con-men, and the kipper- und wipperzeit was a period of near financial anarchy in which rival states competed to outdo each other in undermining their enemies’ economies.
That this was a ‘pathological episode’ [Kindleberger (1996) p.110] may be doubted; too much care and calculation went into plots to cheat neighbouring territories for that. But it was certainly deliberately criminal. Great cunning was used; bad coins were smuggled past customs posts and city gates hidden in bags of produce, and then brought out on market day; they were coated with good metal to disguise them; crooked mints made a point of keeping a small supply of good coins on hand in case of a visit from the kreiswardeine; and quick-thinking con men ‘went abroad, setting up exchange booths, exploiting as best they could pastors, millers, and peasants.’ [Kindleberger (1991) pp.154, 156, 158, 166] A second group of criminals were employed by mints to seek out what remained of the good coins and buy them in order to keep them coiners supplied with precious metals. These transactions were, I need hardly add, themselves settled with debased coins. [Schnabel & Shin p.13]
Some cities were alert enough to profit; Leipzig, which was already noted for the trade fairs that brought in visitors from all over central Europe, paid higher prices for silver than any other imperial town, ‘so that silver poured into it.’ Brunswick, which had had 17 mints in 1620 (itself a quite excessive number) boasted 40 three years later, and it was there that the first convent was requisitioned and ‘in the course of a few months, [it] converted itself into a mint employing 300 to 400 workers.’ At the height of the crisis, it was possible for business-minded princes, nobles and even ordinary merchants to rent mints by the week to turn out their own kippergeld. Inevitably, all these enterprises had limited prospects. Once they got a reputation for poor coins, they were doomed – but then so were their more honest competitors, for they soon found that ‘the higher price of silver and rising wages made it unprofitable to produce standard subsidiary coins. Thus honorable mints stopped producing subsidiary coins altogether’ [Kindleberger (1991) pp.158, 160-1] – but of course this merely opened fresh opportunities for other crooks, who opened unauthorised mints to churn out small denomination coins of even more doubtful provenance. So weak were the Imperial efforts to clamp down on this that (on the basis, presumably, that if you can’t beat ‘em, join ‘em) ‘even official mints started to take part in the coins business.’ [Schnabel & Shin p.11]
In consequence, the panic soon began to draw in all classes. By the first months of 1622, when the process had already become ‘manic,’ everyone was at it:
As soon as one receives a penny or a groschen that is a bit better than another, he becomes a profiteer… It follows that doctors leave the sick, and think more of their profits than of Hippocrates and Galenus, judges forget the law, hang their practices on the wall and let him who will read [the medieval legal commentators] Bartholus and Baldus. The same is true of other learned folk, studying arithmetic more than rhetoric and philosophy; merchants, retailers and other trades – people push their businesses with short goods.
[Contemporary pamphlet quoted by Gaettens p.89]
Not, perhaps, surprisingly, it was the already wealthy who were most heavily implicated, though. Among those who made fortunes from the kipper- und wipperzeit were the celebrated Duke of Alva – supreme commander of Spanish forces in the Low Countries – and the Polish Duke Januz of Ostrog, who on his death ‘left a sum of 600,000 ducats, 290,000 different coins, 400,000 crowns, and 30 barrels of broken silver.’ The Duke of Braunschweig-Wolfenbüttel was amongst the worst transgressors; in 1617, he ordered his mints to start coining 210 groschen from each mark of silver instead of the standard 110, and in 1621 he upped that total to 330 – meaning that his coins were by then worth only one-third of their nominal value. [Schnabel & Shin p.12] Perhaps the greatest of the profiteers, however, was none other than Albrecht Von Wallenstein – who during the Thirty Years’ War became not only a great prince, but also generalissimo of all the Imperial forces in Europe in large part as a result of the huge fortune he made during the inflationary period. Wallenstein achieved this by investing the fortune he inherited from his dead wife in a mint lease covering Bohemia, Moravia and Lower Austria, profiting hugely from churning out debased coinage, and then using those profits to snap up the estates of dispossessed Protestant noblemen after the Defenestration of Prague sparked war in 1618 – transactions that were, naturally, also completed in dodgy kippergeld. In consequence, the prince was one of the few nobles able to finance his own private mercenary army ‘at a time when other armies had to rely on booty just to feed their troops.’ [Kindleberger (1991) pp.160, 163]
Little has been written as to how exactly the kipper- und wipperzeit got its start, and its origins remain something of a mystery. Kindleberger speculates, based on old German histories, that ‘the first invasion of debased money came from Italy and Switzerland as early as 1580,’ and that the unholy Bishop of Chur was the most important of these early villains, exporting his dubious coins north via Lindau, on Lake Constance; but the economist nonetheless concedes that this did not in itself set inflation inexorably in motion, and adds that it was coining to the north, in the Swabian, Franconian, Bavarian and Upper Rhineland ‘circles’ that was ‘particularly insolent.’ [Kindleberger (1991) pp.159-60]
The consequence was more than merely economic difficulty; the premises of exchangers suspected of dealing in kippergeld were stormed by angry mobs in Brandenburg, while a February 1622 riot in doomed Magdeburg left 16 dead and 200 wounded. By then, the Imperial economy was already wrecked: ‘trade and business stagnated almost completely. Craftsmen and farmers were no longer willing to sell their services and products for worthless money. Tax revenues also ran dry, as taxes were paid in copper money.’ [Schnabel & Shin p.13]
It’s hard at this distance to judge exactly how badly the kipper- und wipperzeit hit the German economy, but the effects were plainly considerable. Some territories were far worse hit than others – Saxony and Frankfurt perhaps worst, and the Hanseatic towns of northern Germany the least. How things went depended largely on the financial prudence of a district’s rulers, and it is no real surprise to find that the cautious merchants of the League and the Dutch Republic were not attracted to the profits of debasing. [Schnabel & Shin p.14] Overall, though, it would appear (judging by the inadequate data that survives) that the prices of basic foodstuffs rose roughly eightfold in most of Germany between 1620 and 1623, afflicting not only the poor but those on salaries and, in particular, city workers who had no land on which to cultivate food of their own. [Kindleberger (1991) pp.163-4] It’s also possible to calculate that, by 1621, the average low-denomination coin circulating in the Empire was worth only about a fifth of its face value. [Scnhabel & Shin p.12] Kindleberger contends that the process ran on until – by about 1623 – there was so much rotten currency in circulation that it became all but impossible to get anyone to accept more kippergeld. It was only at that point that the great magnates of the Empire, led by the Elector of Saxony, decided it would be in their best interests to revert to the terms of the Mint Ordinance of 1559, permit the resumption of mint trials, and fix an exchange rate for the Reichstaler. This new exchange rate remained in force for about 40 years, but, even so, it proved impossible to really staunch inflation for many years in the midst of war. [Kindleberger (1991) pp.167-8]
Kindleberger concludes his essay with a quotation from Macaulay that may be allowed to stand for the Kipper- und Wipperzeit – and indeed for all hyperinflations – as well; indeed, it is so apposite that it will also serve as a conclusion to this post. Writing of a similar English wave of coin clipping that occurred in 1696, the great historian observed:
It may well be doubted whether all the misery which has been inflicted on the English nation in a quarter of a century by bad Kings, bad Ministers, bad Parliaments and bad Judges, was equal to the misery caused in a single year by bad crowns and bad shillings.
[Macaulay's History of England, IV, 186]
WE Bomberger and GA Makinen. ‘The Hungarian hyperinflation and stabilization of 1946-46.’ Journal of Political Economy 91 (1983).
William Coupe. The German Illustrated Broadsheet in the Seventeenth Century: Historical and Iconographical Studies. Baden-Baden: Heitz, 1966.
Markus Denzel. ‘State and finance in the Holy Roman Empire from c.1650 to c.1800: a survey.’ Unpublished paper, International Economic History Congress, Helsinki, 2006.
Richard Gaettens. Geschichte der Inflationen. Vom Altertum bis zur Gegenwart. Munich: Battenburg, 1982.
Tony Judt. Postwar: A History of Europe Since 1945. London: Pimlico, 2007.
Charles P. Kindleberger. ‘The economic crisis of 1619 to 1623.’ In Journal of Economic History 51:1 (1991).
________________. Manias, Panics and Crashes: A History of Financial Crises. New York: John Wiley, 1996.
Fritz Redlich. Die deutsche Inflation des frühen 17. Jahrhunderts in der Zeitgenössischen Literatur: Die Kipper und Wipper. Cologne: Böhlau, 1972.
Isabel Schnabel and Hyun Song Shin. ‘The “Kipper- und Wipperzeit” and the foundation of public deposit banks.‘ Unpublished working paper, November 2006.
Juliann Vitullo and Diane Wulftahl. Money, Morality, and Culture in Late Medieval and Early Modern Europe. Farnham: Ashgate, 2010.