Reichsmarks

The Reichsmark (RM) was the official currency of Germany from 1924 until 1948. While it might seem like a dusty relic, for the savvy investor, its story is a chilling and timeless lesson in the nature of money, the treachery of inflation, and the fundamental difference between currency and wealth. The Reichsmark was born from the ashes of the Weimar Republic's notorious hyperinflation, which saw the previous currency, the Papiermark, become so worthless that people used it as wallpaper. Introduced to restore stability, the Reichsmark itself eventually fell victim to political turmoil and war, ultimately losing nearly all its value. Its history serves as a ghost that haunts the vaults of monetary history, reminding us that the value of government-issued money can, and sometimes does, go to zero. For a value investor, understanding the fate of the Reichsmark is crucial to appreciating why owning a piece of a great business is infinitely superior to holding cash over the long term.

The life and death of the Reichsmark is a three-act tragedy that every investor should know. It demonstrates how quickly a currency, and the savings of a nation, can be wiped out by poor governance and crisis.

To understand the Reichsmark, one must first meet its unhinged predecessor, the Papiermark. Following World War I, Germany printed money with reckless abandon to pay war reparations, leading to one of history's most spectacular episodes of hyperinflation. By late 1923, one U.S. dollar was worth over 4 trillion Papiermarks. This economic catastrophe destroyed the savings of the German middle class and paved the way for social and political upheaval. The Reichsmark was introduced in 1924 as a cure, pegged to the value of gold and replacing the old currency at a staggering rate of one trillion Papiermarks to one Reichsmark.

For a time, the cure worked. The Reichsmark enjoyed a period of relative stability. However, this stability was an illusion. With the rise of the Nazi regime in the 1930s, the currency's integrity was once again sacrificed for political goals. Germany began secretly financing its massive rearmament program by printing money, effectively debasing the Reichsmark. While official prices were frozen by the state, the currency's real purchasing power was steadily eroding behind the scenes. During World War II, this process accelerated dramatically.

By the end of the war in 1945, Germany was in ruins and the Reichsmark was nearly worthless. Cigarettes, coffee, and nylon stockings became a more reliable medium of exchange on the black market. The final nail in the coffin came with the 1948 currency reform. In the Western Allied occupation zones, the Reichsmark was abruptly replaced by the Deutsche Mark. Savers saw their Reichsmark holdings converted at a disastrous rate of 100 RM to just 6.50 DM, effectively wiping out 93.5% of their cash savings overnight. This event, while necessary to restart the German economy, was a brutal reminder that a government can erase monetary wealth with the stroke of a pen.

The Reichsmark isn't just a history lesson; it's a masterclass in core investment principles. It highlights the profound risks of holding fiat currency and underscores the wisdom of owning productive assets.

The most important takeaway is that a currency is not a true asset. An asset, like a farm, a factory, or a share of stock in a profitable company, has intrinsic value—it produces something. A currency, by contrast, is merely a claim on a government's economic productivity and stability. Its value rests entirely on trust and sound fiscal management. As the Reichsmark's story shows, that trust can evaporate, and when it does, the currency's value goes with it.

The Reichsmark experience is a powerful illustration of purchasing power risk. Value investors are obsessed with real returns, meaning returns after accounting for inflation. Holding Reichsmarks was a guaranteed way to see your wealth disappear. Those who held “hard assets” through this period fared far better.

• Bad Investments: Cash, government bonds denominated in Reichsmarks.
• Good Investments: Productive farmland, real estate, ownership stakes in resilient businesses, and gold.

This history validates the value investing ethos: your primary goal is to preserve and grow purchasing power, and the best way to do that is by owning pieces of high-quality businesses.

The fate of the Reichsmark was sealed not by market forces alone, but by political decisions: war financing, price controls, and post-war monetary reform. This serves as a critical reminder that investors cannot operate in a vacuum. Understanding the macroeconomic landscape, including a government's fiscal health and policy direction, is essential for long-term capital preservation. A government drowning in debt is often tempted by the printing press—a clear red flag for any investor holding its currency.

The Reichsmark is more than a collector's item; it's a permanent monument to a dead currency. Its story is a powerful argument against treating cash as a long-term, risk-free investment. For the value investor, the lesson is clear: true wealth doesn't lie in holding pieces of paper whose value is at the mercy of politicians. It lies in owning durable, productive assets that can withstand the economic storms that have, and will continue to, sink currencies throughout history.