Of Monies and Juries and Freedoms

Michalis Trepas


“Weimar” usually conjures thoughts of hyperinflation and the German creed for monetary stability. It may also remind of the first pluralistic – if fateful – constitution, or perhaps of Bauhaus. In addition to these mental schemes, I intend to suggest another one. It is narrow in scope and widely underappreciated, I believe: The deep liberal tradition which underpinned the market economy and the personal liberties, when private exchange relationships were falling apart.

Following the suspension of gold convertibility at the start of World War I, the high public expenditures, the reparations and the general hardships of war, the value of the German currency tumbled. It stabilised somewhat from the middle of 1920 to the middle of 1921, only to fall anew, uncontrollably, later. The runaway inflation had a strong, detrimental effect on the traditional middle class of savers. This class was already under intense pressure: From the one hand, an expanding postwar state was encroaching upon private economic activity; from the other, goods and labor markets were becoming more concentrated. As for the rest of society, the working classes were not that hurt by inflation, while the corporations even enjoyed a short-term boost while it remained high, but contained.

The critical point was, naturally, the living cell of a market economy, the private transactional relationship. The currency’s continuous sliding led it to severe strains, especially in the relationship between lenders and borrowers, since a large number of mortgage contracts had been concluded before the War. The debtors kept fulfilling their obligations at face – nominal – value, in a currency with rapidly diminishing purchasing power. Some calls for a state intervention for a revalorisation of debts on the basis of their value in gold, or a temporal freeze of payments until monetary order was restored, were to no avail. The creditors then turned to the courts for protection.

The judicial system was reluctant to intervene, out of respect of the separation of powers (according the Weimar Constitution, currency matters were reserved for the parliament). So, at first, the courts upheld the nominalistic principle and refused to accept a revalorisation of debts. But then, something began to change in the courts’ reasoning. The currency’s slide prior to 1921 could be attributed to the conditions of the “war economy,” whose burden was to be shared by everyone in the country. The unrestrained fall thereafter, the courts said, was a monetary phenomenon, punishing “blindly and unpredictably” only the creditor class. As a legal scholar noted, if the law accepted the acquisition of “real” property in exchange of “worthless pieces of paper,” then the law itself had lost its meaning.

It had become clear that, the judicial maintenance of a fictitious parity between the monetary unit before and after the loss of purchasing power was against “common sense, justice and the daily experience of Germans.” This change of perspective, empowered by a relevant political mobilisation, gradually fostered some case-law endorsing the revalorisation of debts. A case reached the highest court at the time (Reichsgericht, in Leipzig), which, in autumn of 1923 – along a monetary reform initiative – decided in favor of a debt revalorisation. The debt should partially readjust in terms of “real” purchasing power, that is, according to its initial value in gold. This way, every person would bear a fairer portion of the “national disaster” that was runaway inflation.

In order to overcome the nominalistic principle and the legal tender legislature, the Court turned to the Civil Code, the capstone of German liberalism’s legal work in late 19th century. The redemption of debts, the Court reasoned, in a worthless currency, violated the principle of good faith, which should be observed during the fulfillment of obligations. The Court’s choice of a liberal principle like this, stresses the importance of the Civil Code as the main, definitive legal paradigm of the era. Shortly after, in an unprecedented public intervention, the judges’ club set the principle of good faith “higher than any single law,” noting that it dominated the entire body of law.

The story, fascinating as it is, did not end “happily ever after.” The decision was followed by a torrent of cases, a couple legislative acts on (partial) revalorisation and further appeals to the Court. As creditors deemed the legislated percentage of revalorisation as too low, they claimed a violation of their constitutional right to property. In a seminal decision in 1925, the Court upheld the constitutionality of the contested law. In doing so, for the first time, the Court thoroughly interpreted a number of constitutional rights and duties (Equality, Share of Burden, Contractual Freedom, Property), essentially anchoring the legal order in their respect and away from the Codes. A nascent nexus, consisting of monetary stability, the market economy and personal freedoms, had just formed around the hard- pressed middle class.



Dawson John, “Effects of inflation on Private Contracts: Germany, 1914-1924,” Michigan Law Review, Vol. 33, 2/1934, pp. 171- 238

Friedrich Carl, “The Issue of Judicial Review in Germany,” Political Science Quarterly, Vol. 43, 2/1928, pp. 188-200

Nörr Knut, “From Codification to Constitution: On the Changes of Paradigm in German Legal History of the Twentieth Century,” Τijdschrift voor Rechtsgeschiedenis, Vol. 60, 1992, pp. 145-155

Nussbaum Arthur, “Debts under Inflation,” University of Pennsylvania Law Review and American Law Register, Vol. 86, 6/1938, pp. 571-601

Rheinstein Max, “The Struggle between Equity and Stability in the Law of Post-War Germany,” University of Pittsburgh Law Review, Vol. 3, 2/1936, pp. 91-103