Here’s the continuation of our story of how a paper progenitor of cryptocurrency delayed the rise of fascism in 20th century Germany. In particular, it’s a progenitor of U.S. Property Coin. For a summation of this instructive tale, please, see the USPC white paper, pages 5 and 6.
In Part 1, the Weimar Republic – Germany’s interwar government – faced inflation so overwhelming that the mark was worth only one-trillionth of its value before the conflict we now remember as the First World War. This led to enough discontent by November 1923 that extremist political parties marched in the streets and one, the Nazis, was emboldened to attempt a coup of the Bavarian state government. It failed and its leader, Adolf Hitler, was sent to prison.
Hitler was pardoned and released in December 1924 but, by then, hyperinflation had been eliminated. The economy was growing again. Prosperity had finally returned to Germany and it would be years before its citizens were angry enough at the status quo to back a fascist government.
Here’s how the German government solved hyperinflation and took the wind out of the Nazis’ sails.
The Germans have a word for it
It was the month of the Beer Hall Putsch that the Weimar Republic’s hyperinflation was at its worst. The only real limit to how high hyperinflation can go is the nation’s capacity for printing money. The Reichsbank ran its presses 24/7, and even stopped printing the backs so they could churn out twice as much. Finally, it accepted what was obvious to everyone — that the paper mark was worthless — and stopped the presses. That, not 2,000 brownshirts tangling with police in Munich’s Odeonplatz, was the big news.
And you’ve heard stories about Germans taking wheelbarrows full of marks to the grocer to buy a loaf of bread. But have you actually seen a photo of that happening? You might find something similar on Google Images if you looked, but it’s not exactly about shopping for staples.
These photos are generally about bankers moving money between the vault and the teller windows, or people withdrawing from or depositing to the bank. Please, if you find a photo of a wheelbarrow full of marks dated 1923 or 1924, in an actual store, please let me know.
This meme had to start somewhere, and I was pleased to find that someone has already dug up this particular parcel of earth. I’m indebted to blogger Keri Peardon, who usually writes about vampires, but really nailed this. The Tennessee-based history buff, short fiction author and medieval re-creator reports that there were contemporaneous cartoons depicting wheelbarrows full of cash, but it might have been just a metaphor.
And Germans, who don’t always get humor, get metaphor. There are so many concepts that are best rendered in German because no other language can express them so precisely. Schadenfreude. Zeitgeist. Realpolitik. And here’s another blog post with even better examples.
But the money that saved Germany was what came to be called Notgeld. It roughly translates as “emergency money” or “necessity money”. Sometimes it was issued by local banks rather than the central Reichsbank. Sometimes it was backed by the full faith and credit of a municipal government rather than that in Weimar. And sometimes it was simply IOUs from the merchant — which is how paper money started in the first place. When merchants and chambers of commerce are involved in anything, you can bet it’s going to be played for its marketing value. Notgeld issuances became commercial art, like this one promoting Hamelin tourism, leveraging the famed Pied Piper legend.
Many of the Notgeld issuers were scrupulous about not being perceived as mere subcontractors to the Reichbank’s printing division. They wanted their currency to be backed by something real so it would have fixed value, Wertbeständige. Sometimes the underlying asset was gold. Rye grain was also a popular commodity backing Wertbeständige Notgeld. Some utility companies offered notes backed by cubic meters of methane gas. I found one that was backed by schmalz, or pig fat.
Ultimately, a new and more competent administration came into office and the Weimar treasury developed its own Notgeld, one that was backed by the land the government owned and planned to develop for agricultural or commercial purposes. Essentially, anyone holding one of these notes owned a piece of the mortgage on these properties, which had inherent value — unlike the central bank’s long-empty gold vaults.
Suspending Reichsbank operations, they treasury chartered the quasi-governmental Rentenbank, which issued the rentenmark at the pre-war exchange rate of 4.2 to the dollar. Then — and this was the key part — they didn’t print up any more rentenmark notes than the property was actually worth. The German people did their part by trusting in this new currency. This gave the Reichsbank the breathing room it needed to acquire gold reserves and, within the year, gold-backed marks were once again available and the ogre of hyperinflation was slain.
More about Hitler
Four months later, Adolf Hitler checks out of Landsberg, gets himself a book deal and, like the rest of Germany, starts to prosper. His following, though fanatical, had dropped to fewer than a million voters. That’s a lot of book sales, but only 3% of the electorate.
There was still plenty of resentment about the Versailles Treaty. And if you looked objectively at what communism was doing to Russia, what ineptitude was being displayed by the western democracies, and how effectively Italy’s new fascist regime was running Italy, you might conclude that this could be a good model for your own Fatherland. And of course, there was still rampant anti-Semitism, racism and xenophobia of all expressions.
But there was this huge sigh of relief that, economically, Germany was starting to come back. You could get a job and make money — and that money would actually be worth something by the time you got to the butcher shop. The unhinged speeches and street thuggery turned off all but the most intransigent goons. And, as Hitler started to enjoy the good life that came from being a bestselling author and rubbing elbows with Germany’s rich and famous, the goons themselves began to feel slighted. By 1928, the Nazi Party lost another 100,000 voters and two Reichstag seats. It was fading into irrelevance.
What saved the Nazis? The Great Depression. In the 1930 elections, they rebounded strongly, seating 107 Reichstag members, and Hitler was named chancellor three years later. Hollywood tells the story better than I can from there.
But here’s my takeaway: With cryptocurrencies such as USPC, we now have an effective tool to work around hyperinflation wherever in the world it erupts. But, as we create this entirely new asset class, we need to ask ourselves how we can craft it so that it addresses irrational exuberance, unhedged speculation, artificial constraints on demand and any other externality that can sink the global economy.
The rentenmark was in part responsible for delaying the rise of Nazism by almost a decade. Maybe USPC can prevent the next rabble-rousing megalomaniac from climbing down off his beer hall barstool.
U.S. Property Coin (USPC), a project of real estate development and management firm Primior, anticipated to be the first Securities and Exchange Commission-regulated, asset-backed security token drawing underlying value from real estate, providing investors a complete, transparent, stable and highly liquid digital asset that has the potential to appreciate over time and deliver yield by default.