Barter and Money in Post-War Germany

When a currency is discredited, people usually turn to substitutes. These are often foreign currencies. Sometimes though the economy functions only by resorting to barter. This is hardly a solution since bartering is usually impractical. During the late 1940s in occupied Germany, people traded goods for products like cigarettes, coal, and potatoes which were in demand and widely accepted in trade. This was particularly true of cigarettes, which went on to serve as something of a currency itself. Restoration of the German currency system came in 1948 as part of sweeping reforms that facilitated the country’s economic revival.

Cigarettes

One of the articles most commonly used in barter, so much so that it could arguably have been considered money itself, were cigarettes. During the war, cigarettes had been used as money by German soldiers in occupied countries and by prisoners-of-war held in German camps. At the POW camps, common items in barter assumed agreed-upon values. At one camp, a single ration of cigarettes was worth several chocolate issues for example. Diced carrots were worth practically nothing by contrast.

Since arranging individual exchanges upon chance encounters was unrealistic, bungalows in a camp complex would have ‘exchange and mart notices’ where each resident prisoner would list what goods he wanted or had to offer, with prices often denominated in cigarettes. Though cigarettes practically became a currency, barter in other products still existed.

Regardless, cigarettes were a highlight of the prison economy. Prisoners working as laundrymen and tailors at the camps priced their services in cigarettes. Traders existed selling products between prisoners of different nationalities, exchanging tea from the French for coffee from the English or buying meat from Sikhs in exchange for butter and jam. A trained economist resident in one of the German POW camps recorded that when large backlogs of delayed Red Cross packages finally arrived, sometimes injecting several hundred thousand cigarettes into the money supply at a camp, it caused inflation in prices.

Cigarettes, particularly American-made cigarettes, continued to be used as money in the immediate post-war period. They were a convenient alternative to the increasingly worthless Reichsmarks. Cigarettes came in standardized cartons of ten packages each containing twenty cigarettes. Besides being easily divisible, cigarettes are tolerably durable, non-perishable, light, and widely marketed and accepted. Cigarettes also varied less in value across regions as compared to other goods; lower spatial dispersion in prices made them more valuable as a common medium in trade. In the years after the war, the money-like quality of cigarettes allowed their use in occupied Germany to blur the line between barter and full-fledged money.

Injecting cigarettes into the defeated and impoverished country were foreign soldiers. American servicemen traded cigarettes, bought for very little from army exchange stores, for goods and services of far greater value. They were not the only providers of this new money. Entrepreneurs opened small factories to manufacture cigarettes from the butt-ends collected at cinemas, messes, and soldiers clubs.

Germany was destroyed by the war. Here German women clear debris from damaged buildings in Berlin. Source: Imperial War Museums.

Reichsmarks

Cigarettes had to replace something and that was the reichsmark. The German money supply rose precipitously during the war; currency and deposits, which stood at 56.4 billion marks in 1938 reached about 300 billion marks at the time of the German defeat in May 1945. Efforts to rein in the excessive number of banknotes were offset by the new marks printed by the occupiers. For the Soviets, printing new reichsmarks using captured plates provided a means to pay its soldiers in Germany who had gone years without compensation.

To prevent inflation, price controls had been in place in Germany since the outbreak of war in 1939. These continued in the aftermath of defeat. Price freezes had kept prices in Reichsmarks artificially low, preventing high inflation in the official economy but moving transactions onto the black-market. Officially, inflation may have run at manageable levels of 13%, 4%, and 10% per annum during the first three years of the occupation. However, in the black market, prices were 100 times higher while fewer good were offered for sale in the official market.

The price freeze was rather pointless since goods were also rationed. Because money abounded, it was really the ration card that dictated the limits of what someone could afford to purchase. The market for foodstuffs and other basic commodities was shaped more by rationing and the black market than by prices in reichsmarks. Besides its redundant role in purchasing rationed goods, the paper mark only retained importance in transactions involving the state, like the payment of taxes and the distribution of public servant salaries.

Black Markets

Post-war Germany functioned like a currency-less economy though in some ways cigarettes became a kind of stateless currency dominating the black market. In the big cities, exchanges open day and night, usually near the train stations, allowed anything to be traded, from railway tickets to faked documents and cigarettes were among the mediums of exchange and usually the most favored. Two of these markets in Berlin, in the Tiergarten and Alexanderplatz, opened almost as soon as American and British soldiers arrived in the city. The rations to civilians provided a caloric intake of 1,500 calories a day and this meager sum led many to these markets.

In 1946, it was estimated that as much as 50% of the trading in some goods took place in illegal exchanges and that even between one-third and one-half of all business transactions were conducted by barter. In 1947, the Duesseldorf Chamber of Commerce provided a similar estimate of the size of the black market. Things were not improving and this market was outside the view of tax and statistical authorities, bogging down attempts at post-war economic planning.

There was a lot of money to be made on the black market. Though someone might hold a regular job in order to receive a ration card and other social benefits contingent on employment, they might earn more income from other sources.

American soldiers in Germany also saw the black market as a way to supplement their wages. Many would import cigarettes from America to trade with the locals. Perhaps half of the millions of packages arriving in Germany every month by military mail were cigarette shipments. Already by July 1945, while the American army finance office in Berlin had paid out $1 million in pay that month, soldiers sent home $3 million. The involvement of American soldiers in black market buying and selling was seen as damaging their country’s reputation and attempts were made to stop this. On May 26, 1947, the U.S. Army banned the free import of cigarettes from the U.S. by its soldiers in Germany.

Coal and Potatoes

At the markets in the cities, people would barter fur coats and kitchen pots for potatoes and other foodstuffs. Farmers were unwilling to accept worthless reichsmarks for their valuable food. City-dwellers would travel into the countryside, bringing with them possessions like books, lamps, and appliances to barter for potatoes. A poll conducted in the American occupation zone in May 1946 found that 18% of the sample reported travelling to the countryside regularly to acquire food. Despite the rationing, food became even scarcer during the winter of 1946-47.

Barter was not only a feature of personal consumption in post-war Germany. Firms also transacted with each other in kind. Since fixed prices bore no relation to economic reality, firms would demand payment in kind from their buyers over and above the official price in reichsmarks. Companies also acquired much needed supplies on the black market. Their employees were also likely to receive their wages in kind, an arrangement they preferred.

Coal miners were partially paid in coal for example, an arrangement known as deputatkohle, the coal allowance. Coal, like cigarettes, was one of the favored substitutes to paper money. Miners even received their pensions in coal. They exchanged this coal for other goods, as would the mining firms themselves. If they sold their coal for cash at the official price, they would suffer a loss. Since the product was undervalued at its official price, train engineers felt even more justified in slowing their coal trains when passing cities and towns so locals could climb onto the wagons and take coal for themselves. Coal was often stolen from unguarded railroad sidings with impunity.

Restoration

The solution eventually came but monetary reform required stability. German wealth was still evaporating in the disfunction of the immediate post-war years and the losses of territories east of the Oder-Neisse line, its new eastward boundary. A new central bank was required as was a repaired financial system. American monetary reforms for Germany proposed marking down the money in circulation by 90%. Thus, banks would mark down deposits to 10% of their previous value, allowing the state to mark down the old German debt, which secured bank deposits, by 90% as well.

Monetary reforms enacted in 1948 followed the American prescription of a 10-to-1 write-down. Along with that, a new currency was launched, the deutschemark. Accompanying the monetary reform was the Lastenausgleich, a law requiring that real property be mortgaged to 50% of its value with the proceeds of mortgage payments being distributed to those who suffered losses during the war.

While sweeping in their effect, the reforms succeeded in part because of post-war solidarity and the fact that the new government had extra-latitude because of the occupation and the fact that pre-war factions that might have objected were discredited. In this way, Germany avoided repeating its monetary disasters from the period following its defeat in the First World War, which featured scarring hyperinflation. Together, the monetary reform, the Lastenausgleich, and the Marshall Plan created the conditions for an economic revival.

Lesson

The utility of money springs from its ability to serve as a medium of exchange, a store of value, and a unit of account. Though usually helpful, there is no requirement that it be state-issued or even state-sanctioned. While perhaps interpreted as simple barter, the reliance on cigarettes in black market transactions in occupied Germany, and the size of that black market, make cigarettes look like a currency itself, and even one preferable to the virtually abandoned reichsmark. Money is better thought of as a quality rather than a specific item. Articles that could be considered money one day can be discredited the next and ordinary wares, even those considered disposable, can become money under the right circumstances.

More from the Tontine Coffee-House

Read about currencies issued for military purposes and one of the most interesting of them all, the Japanese Pesos. Also learn about the rentenmark, which rescued Germany from hyperinflation. Lastly, consider subscribing to this blog’s newsletter here.