HAVENSTEIN, RUDOLF

HAVENSTEIN, RUDOLF (1857–1923), Reichsbank President; largely responsible for the postwar monetary policies that induced Germany's hyperinflation. Born in the Brandenburg town of Meseritz (now Miedzyrzecz), he studied law and became a county-court judge. Having joined the Prussian Finance Ministry in 1890, he was named President in 1891 of the Seehandlungs-Societa¨t (Sea-Commerce Society), an organization attached to the Prussian State Bank. By transforming the society into a modern monetary institution, he provided a valuable service to both Prussia* and the general economy. Under Havenstein's direction the society's capital base grew from 35 million to just under 100 million marks. Appointed Reichsbank President in 1908, Havenstein drafted the Bank Law of 1909 whereby Reichsbank notes were declared legal tender, convertible to gold coin upon request. Although the step brought Germany into line with nations already transacting business on the basis of an international gold standard, it became illegal upon the outbreak of World War I to convert bank notes into gold. Working with Karl Helfferich,* Havenstein helped shape German policy for financing the war, creating the system of war bonds that initially met with general applause. But the system, predicated on eventual victory, opened the door to Germany's renowned inflation.* With defeat came recognition that Germany's baseless currency could no longer be restored to its prewar value. Insisting that Germany's monetary problems were tied to balance-of-payment issues, Havenstein promoted the massive printing of currency, a policy that induced hyperinflation. Historians have traditionally argued that he failed to understand the delicate relationship between state deficits, the balance of payments, and currency availability; thus he worked under the misconception that in Germany's condition there was no solution but to increase the money supply. Recently it has been alleged that he printed money only out of fear that were he to stop, the government would eliminate the Reichsbank and maintain the process without him. Either way, the government, never convinced that Havenstein was wrong, failed to remove him. When he blissfully praised the Reichsbank's printing capacity, Lord D'Abernon responded that ‘‘such insanity has never before been spoken outside a lunatic asylum'' (Feldman). The grotesque delusion ended with Havenstein's death; occurring on 20 November 1923, it coincided with Gustav Stresemann's* emergency measures to stabilize German currency.