During the three years after World War II, Germans—facing a ruined economy and wildly depreciating currency—turned to cigarettes as a medium of exchange on a massive scale. Allied occupation authorities strictly forbade this black-market currency exchange, but it literally saved the lives of many German civilians—and inadvertently made many American GIs rich.
The cigarette had already made its appearance during the war as a currency in both the Third Reich’s massive network of concentration camps as well as in POW camps. Auschwitz survivor Stefan Kosinski commented that he didn’t smoke but always kept a stock of cigarettes for exchange: “It’s like money. With it, I could buy a little margarine, some bread, some potatoes . . . and I took with me some of these foods and [for] resale.”1 Discovery of such barter operations could mean immediate death in the camps, but survival was on the line in any case.2 POWs of Germany were safe from the death penalty, but they likewise experienced closed systems of scarcity. A young British economist, R.A. Radford, wrote a classic article right after the war describing the economy of his own camp experience in an elegant, and often very funny, account. In it, we find POWs creating a spontaneous order of exchange that started with simple barter and grew to amazing efficiency. At its most developed, prices were quoted exclusively in cigarettes, and barracks were outfitted with information boards that kept track of available goods and their prices in cigarettes. In the author’s words, “The public and semi-permanent records of transactions led to cigarette prices being well known and thus tending to equality throughout the camp, although there were always opportunities for an astute trader to make a profit from arbitrage.”3 Many POWs were smokers and smoked at least some of their currency, but the supply of cigarettes was more or less continuous since the POWs received cigarette rations in packets from the Red Cross and other organizations. Still, the cigarette reached its widest role as a commodity medium of exchange in the postwar German setting. In the wake of the Third Reich’s defeat, the collapse of German society was not total. However, for the vast majority, it was close enough to seem so. Eleven million German soldiers remained in Allied POW camps. In German cities, more than half of the dwellings had been destroyed by Allied bombing, which had also left half a million German civilians dead and many more injured.4 Hundreds of thousands of Germans who had been evacuated from their homes remained stranded in rural areas far away. Moreover, after twelve years of National Socialist inflationary and restrictive economic policies, wartime shortages, rationing, and totalitarian control, ordinary Germans had been looking at something like economic collapse before the Allies even arrived to occupy Germany. Then, things got worse.
Defeated Germany was occupied in four zones: American, Russian, British, and French. Each zone offered its own variations on this story. However, the black market/cigarette nexus developed to its fullest extent in the American zone of occupation. Following the precepts of the brutal Morgenthau Plan and its slightly modified successor plan from the Joint Chiefs of Staff, JCS 1067, the American occupation was designed to keep the Germans in ruinous condition. Decisions made in Washington, DC, meant that most of the Nazi economic controls remained in place, but the American occupation authorities added new layers of social and economic intervention. Occupation food policy curtailed food imports and transport with the intention to limit calories to drastic levels.5 The reopening of factories was outlawed. The military government also forbade the fraternization of American occupation soldiers with German civilians. Ever-changing American interventions stifled economic life, producing greater scarcity than even in Germany’s last months of the war.
Allied currency policy was gasoline on these flames. Already by March 1944, the Treasury under Henry Morgenthau Jr. had laid plans for the complete weaponization of currency in Germany, adding a fiat occupational currency alongside the inflated reichsmark. As the most careful historian of Allied currency policy, Vladimir Petrov, wrote in 1967, “This [Morgenthau] view of money as an ‘offensive weapon of war’ had many aspects, one of which was the ability to induce inflation in a conquered land.”6
For ordinary Germans, a life raft appeared in the form of the black market, bane of bureaucrats everywhere.7 Survival goods that were price controlled by the Allies but usually unavailable could be found in the thriving barter economy—at higher prices, of course. Although the Allied authorities in all zones forbade “unofficial” exchange, survival made the risk worthwhile. Almost as soon as the black market appeared, the well-known problems of a barter system created the need for a medium of exchange—something more reliable than the official currencies in circulation.
In these circumstances (as in the wartime camps), cigarettes provided the solution. Ironically, the Third Reich had campaigned against tobacco use and sales, reserving most of the available cigarettes for the army. In some cities, such as Berlin, selling tobacco was criminalized just before the war ended.8 But the exigencies of the moment and the arrival of chain-smoking GIs overcame fears of punishment.
By July 1945, just weeks after the Victory in Europe day in early May, American journalist Joel Sayre described the “cigarette economy” in full swing, with a generally recognized price structure in place. “American cigarettes,” he wrote, “are considered the best, and the standard black-market price for a pack of twenty is three hundred marks, or thirty dollars. . . . The value of a pack of Chesterfields can thus run as high as seventy-five to ninety dollars”9
Since American occupational soldiers received a ration of two cartons per month—about a dozen cigarettes per day—and since the Post Exchange (PX) cigarette price was deeply discounted, GIs could make money fast, even the smokers. Many GIs during the occupation devoted substantial time to making deals for valuables that German civilians had managed to protect or barter for. Observers depict soldiers setting up on street corners prepared to pay with cigarettes for such goods. In an interview in the mid-1990s, a colleague of mine, who had served in the occupation in Linz, Austria, described the cigarette economy at some length. He commented with obvious disapproval of his fellow GIs who took extreme advantage of the situation, “Those guys could get anything they wanted. [cold stare] Anything they wanted.”10
Indeed, soldiers and occupation officials famously worked the system by buying goods with cigarettes, then selling the antiques and other hoarded valuables for inflated reichsmarks or inflated occupational currency, and then trading these currencies for dollars at a ten-to-one ratio. In his book on Allied currencies, Vladimir Petrov calculated that by leveraging their rations and cheap (subsidized) PX goods, GIs could make $12,000 a year at a time when new GIs earned about $150 a month.11
As for the Germans, their goal was obviously to survive, their main means to doing so being food and fuel. Since German small towns and farms survived for the most part intact, food was scarce and expensive but available. Hence, urban people relied on expeditions to the countryside to buy food and fuel, but the planning and execution of these journeys required many stages before a reconditioned or even rerolled cigarette reached a German farmer, who could then smoke it in peace—or use it to buy something else.
First, one must get cigarettes, or at least tobacco. In general, Germans did this by selling goods or services. In the American zone, in particular, the Germans could also turn to gathering the cigarette butts tossed on the ground by the occupying soldiers and officials. That activity became so normalized that Germans developed words for it: Kippensammlung (gathering tossed butts) and Stummeling (stubbing). Typically, groups of street urchins gathered around soldiers, waiting to scuffle for the tossed butts, or strategically lined the streets known for military traffic, to go for the stubs tossed from jeeps. A German journalist wrote a series about Stummeling, in which he confessed to donning old clothes and joining the urchins alongside certain streets waiting for butts of “very respectable length” when they flew out of passing American vehicles.12 Sayre wrote in 1945, “Remain stationary on a Berlin street while you smoke a cigarette, and likely as not you will soon have around you a circle of children, able-bodied men, and whiskered old men, all waiting to dive for the butt when you throw it away.”13
In daily exchange, butts and pieces of cigarettes could serve as smaller currency denominations. An American GI described the system with an example: He would go to an Austrian barbershop, have his hair cut, and then pull out a cigarette and pinch a finger-width piece off the end. The barber would produce a pouch and open it for the tobacco to be deposited. Sayre described visiting an apartment in which a glazier had been replacing blown-out windows. When the workman finished, the lady of the house looked around and called out to her daughter, “Come now, where have you put the butts?” The girl appeared with a bowl of twenty cigarette stubs, and the grateful glazier left with his day’s pay.14
As a currency substitute, cigarettes posed problems, of course. They were fragile, if rerollable. Then too, as mentioned, not all cigarettes were equal, and making a deal could be complicated. Monetary supply varied over time. In the American zone, a pack of twenty Lucky Strikes, Chesterfields, or Camels could run as high as ninety dollars in Berlin during the summer after the war but later fetched as much as $180.15
The military government’s interventions to stop the leveraging of cigarettes contributed to volatility in price. At the same time, American companies advertised discounted cigarettes for sale in Stars and Stripes and other periodicals. Cigarettes from America inundated military post offices, sent by the relatives of GIs trying to get in on the trade. Hefty price swings were inevitable. Yet, despite variations over time, eyewitnesses tended to think that the cigarette held its value well enough. In any case, cigarette prices were far more stable than those of the two official currencies. With periodic influxes of newly printed fiat currency, by 1947, the supply of official money had risen by a factor of six.16
However, the black market as a whole faced many obstacles in defeating the mass of Allied controls, which led to even more extreme shortages of necessities as time went on. In May 1947, the American occupation governor, General Lucius D. Clay, announced that the food situation was so serious that essential supplies were reduced to a surplus of three and half weeks.17 Things were most urgent in the biggest cities. By 1947, a pack of cigarettes in south Germany went for eighty-five reichsmarks (or occupational money), but in Berlin, a pack was double that price. Meanwhile, a fifty-watt lightbulb sold on the black market for 50 RM, two pounds of coffee for 800 to 1,500 RM, and a radio for 3,000 RM.18 A 1947 article in the social democratic newspaper Neue Zeit noted that for thirty packs of cigarettes, an American could buy a Leica camera; for seven cartons, a radio; and for three packs, a dog. The writer of the piece commented wryly: “Almost all the Americans in Berlin are now owners of these three distinguishing characteristics of the occupation of Germany.”
These scenes of collapse and misery ended on Saturday, June 19, 1948, the day the new currency, the deutsche mark, was announced. By Monday, the cigarette economy had disappeared. Yet, as Austrian economist Hans Sennholz later pointed out, the new currency was only the lesser part of the solution. The more significant change resulted from the tireless efforts of provisional German economic director Ludwig Erhard and his advisors, who had at the same moment managed to put in place sweeping economic reforms that would do away with both Nazi and Occupational market restrictions. As Sennholz wrote in his 1979 book, Age of Inflation, Erhard’s reforms “restored the freedom of markets and thus gave free play to the inexorable laws of human action.” Yet, the Americans remained hesitant even after June 1948. Lucius Clay soon wrote a heavy-handed memorandum to Erhard repeating earlier warnings that the Allied interventionist regulations could not be altered without American permission. Erhard’s reply: “I did not alter your controls, I abolished them.”
Thus, the cigarette economy disappeared over one weekend. To summarize Sennholz’s comments on these “inexorable laws” in the period of the cigarette economy: there was a lot of human action rolled up in those cigarettes.
- 1. Marwa ElShazly, Chaos and Currency: Cigarettes on the Black Market in Europe 1940–1950 (self-pub., 2019), 38. https://books.google.com/books?id=rQ_PDwAAQBAJ.
- 2. ElShazly, “Chaos and Currency,” 27–38.
- 3. R.A. Radford, “The Economic Organisation of a P.O.W. Camp,” Economica, n.s., 12, no. 48 (November 1945): 189–201. https://doi.org/10.2307/2550133.
- 4. Earl R. Beck, “The Allied Bombing of Germany, 1942–1945, and the German Response: Dilemmas of Judgment,” German Studies Review 5, no. 3 (October 1982): 325–37. https://doi.org/10.2307/1428949.
- 5. Richard Dominic Wiggers, “The United States and the Refusal to Feed German Civilians after World War II,” in Ethnic Cleansing in Twentieth-Century Europe, eds. Steven Béla Várdy and T. Hunt Tooley (New York: Social Science Monographs, 2003), 441–67. http://artemis.austincollege.edu/acad/history/htooley/WiggersGermanFood.pdf.
- 6. Vladimir Petrov, Money and Conquest: Allied Occupation Currencies in World War II (Baltimore: Johns Hopkins Press, 1967), 195. https://archive.org/details/moneyconquestall0000petr.
- 7. On black markets, see Allen Gindler, “Black Markets Show How Socialists Can’t Overturn Economic Laws,” Mises Wire, June 24, 2019.
https://mises.org/wire/black-markets-show-how-socialists-cant-overturn-economic-laws. - 8. Joel Sayre, “Letter from Berlin, July 28, 1945,” in The New Yorker Book of War Pieces (New York: Reynal and Hitchcock, 1947), 505. https://lccn.loc.gov/47011417.
- 9. Sayre, “Letter from Berlin, July 28, 1945,” 505.
- 10. Kenneth Street, interview, add date.
- 11. Petrov, Money and Conquest, 206.
- 12. Kraig Larkin, “‘One Would Not Get Far without Cigarettes’: The Cigarette Economy in Occupied Germany 1945–48,” in Money in the German-Speaking Lands, eds. Mary Lindemann and Jared Poley (New York: Berghahn Books, 2017), 250, 256. https://doi.org/10.2307/j.ctvw04bvd.19.
- 13. Sayre, “Letter from Berlin, July 28, 1945,” 506.
- 14. Sayre, “Letter from Berlin, July 28, 1945,” 506.
- 15. Sayre, “Letter from Berlin, July 28, 1945,” 505.
- 16. Hans F. Sennholz, Age of Inflation (Belmont, MA: Western Islands, 1979), 99–104. https://archive.org/details/ageofinflation00senn.
- 17. Sennholz, Age of Inflation, 2.
- 18. Bernd Sprenger, “60 Jahre Währungsreform—1948 und die
Wirtschaftspolitischen Folgen,” in Währungsreform und soziale Marktwirtschaft (Berlin: Konrad-Adenauer-Stiftung, 2008), 7–27. https://www.kas.de/documents/252038/253252/7_dokument_dok_pdf_13912_1.pdf/92654f86–158d-146d-0d15-fdf313cf5da8?version=1.0&t=1539663357696.
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