German mark: gold defined in law, paper described in practice
The German mark began with gold coins specified by law. In the gold-coinage act of December 4, 1871, the empire defined the mark as one-tenth of a new imperial gold coin and divided it into 100 pfennigs. The law authorized ten- and twenty-mark pieces with a prescribed gold content. An English translation survives among the United States legation's diplomatic dispatches. Its detailed specifications describe a monetary unit attached to metal, while later records distinguish gold coinage, paper currency, bank reserves, and the interruption of gold payments in 1914.
The law defining the German mark stated that 139.5 ten-mark pieces, or 69.75 twenty-mark pieces, were to contain a pound of pure gold. The finished alloy was 900 parts gold and 100 parts copper. It also specified the imagery: an imperial eagle, denomination, and date on one side, and a state ruler's likeness or a free city's emblem on the other. Gold pieces worn below the prescribed tolerated weight were to be withdrawn, with ordinary wear handled at public expense. These rules concerned actual coins whose metal could be measured and diminish through use.
The translated Coinage Act of July 9, 1873 then provided that imperial gold coinage would replace the states' existing currencies, retaining the mark as its unit. Smaller silver, nickel, and copper denominations were included in the system. Silver coins had a private-payment acceptance limit of 20 marks, while imperial and state treasuries accepted them without that limit. The distinction between the gold standard and subsidiary coins was written into the payment rules. A monetary system could consequently use gold as its standard without making every piece used in shops a gold coin. Article 9 directed designated treasuries to exchange silver sums of at least 200 marks, or nickel and copper sums of at least 50 marks, for imperial gold coins under the Federal Council’s conditions. These exchange provisions connected smaller denominations of the German mark with the gold coinage.
William Arthur Shaw's 1896 history describes the conversion from the older silver thaler at three marks to the thaler. His discussion distinguishes the gold unit from the subsidiary silver pieces and their limited tender role. It also records the government's withdrawal and sale of old silver, with sales suspended in May 1879. This is later historical analysis, unlike the statutes' instructions. It connects the new standard with a material conversion: older coins had to be called in, some metal recoined, and other silver sold rather than merely relabeled on paper.
A German Foreign Office memorial sent to the American legation in August 1879 gives the conversion a measurable scale. It reported imperial gold coinage totaling 1,697,718,935 marks through May 1879. The memorial expressly distinguished the amount minted from the amount still within Germany. Its calculation deducted a 120-million-mark war fund and estimated exports, including pieces melted at foreign mints or retained by foreign banking houses. Production totals were therefore not interchangeable with the gold available in domestic circulation. The distinction was already present in the official statistical explanation.
The same memorial separately discussed outstanding paper currency and banks' cash. It listed government paper in five-, twenty-, and fifty-mark denominations and described the planned withdrawal of part of that issue. For banks' cash, it gave annual averages but said that the split between coined and uncoined metal could not be stated because the institutions supplied no such reports. That is a significant limit on the figures. A large gold coinage total did not supply a complete inventory of the metal held against each category of paper money.
Paper's role was changing before the war. In Indian Currency and Finance, published in 1913, John Maynard Keynes described Germany's issue of twenty-mark notes as a deliberate policy to retain more gold in the bank and less in hand-to-hand circulation. He cited the Reichsbank president's January 1913 argument for expanding issues of twenty- and fifty-mark notes so that gold reserves could grow. Keynes was discussing contemporary reserve management, not the later wartime suspension. More paper in daily use could coexist with a policy aimed at concentrating monetary gold.
The break in payments appears in a dated diplomatic record. Ambassador James W. Gerard's dispatch of August 18, 1914 included a chronology of events in Berlin. Under August 1, he recorded that the Reichsbank had stopped paying gold and that shopkeepers had refused paper currency, followed by an order establishing banknotes as legal tender. The German mark's metal standard and the practical availability of gold had become different matters. The dispatch records the disruption in transactions rather than providing a balance sheet of all gold held in the empire.
Gerard also stated the limitations of his information: the embassy had received no foreign newspapers and practically no outside information since war began, and his statements relied on censored German press dispatches.
- U.S. Department of State, Foreign Relations 1876 — Nicholas Fish dispatch with translations of the German coinage laws of 1871 and 1873 — history.state.gov
- U.S. Department of State, Foreign Relations 1879 — Andrew D. White dispatch and German Foreign Office monetary memorial — history.state.gov
- William Arthur Shaw — The History of Currency, 1896, German imperial system, Project Gutenberg edition — www.gutenberg.org
- John Maynard Keynes — Indian Currency and Finance, 1913, German note issues and gold reserves, Project Gutenberg edition — www.gutenberg.org
- U.S. Department of State, Foreign Relations 1914 — Ambassador Gerard’s August 18 dispatch and chronology — history.state.gov
- Wikipedia — German mark (1871), imperial currency and the 1914 suspension — en.wikipedia.org