WHAT WAS THE MARKET VALUE OF DAIMLER DURING THE GERMAN HYPERINFLATION?

Abstract

If an economic fact is worth citing widely in journals (e.g., Barro 2006; Voth 2003; Lee Tang, and Wong 2000; Orlean 1979; Schmolders 1975) and books (Faber 2002, p. 220; Feldman 1993, p. 606; Shulman 1980, p. 20; Fergusson 1975, p. 120; and Guttmann and Meehan 1975, p. 148), then presumably it is of some interest to economists. This widely cited fact is off by least a factor of two and probably a factor of three. The German stock market was therefore damaged much more by the hyperinflation of the early 1920s than has been previously documented. Bresciani-Turroni (1931, pp. 263-65) stated that: at the beginning of November (1922) ... this enormous drop in share prices caused some odd situations. For example, all the share capital of a great company, the Daimler, was, according to the Bourse quotations, scarcely worth 980 million paper marks. Now, since a motorcar made by that company cost that time on an three million marks, it follows that 'the Bourse attributed a value of 327 cars to the Daimler capital, with the three great works, the extensive area of land, its reserves and its liquid capital, and its commercial organization developed in Germany and abroad'. (1) There are two measurement problems with his calculation. A more accurate figure for the value of Daimler's equity capital is around 94 cars. First, the nominal value of Daimler's equity in November 1922 was 196 million marks. (2) Stock market prices were quoted as a percentage of par value in Germany this time. The minimum of Daimler quoted on the Berlin Borse during November 1922 was 1375% on the 17th of November, with an of 1,663% during the month. (3) If we use the minimum share (in marks) for Daimler's shares we obtain a market capitalization of 2,695 million marks--almost three times as large a figure as that claimed by Bresciani-Turroni. Second, offsetting this error is an even worse underestimate of the of Daimler's cars. From mid-1922 onwards Daimler fixed the of their cars in $U.S. and adjusted the in marks on a daily basis in line with changes in the exchange rate. (4) I use Daimler's official lists for November 1922 from the Mercedes-Benz archives and collection, Umrechnungstabelle fur Dollarkurse von 3 000-10 000 zur Verkaufs-Anordnung Nr. 197, Blatt 1-6, dated November 13, 1922, and issued by the Unterturkheim office. For each make and model of car, there is a in marks that depends on the $U.S./mark exchange rate of the day. The prices in marks are such that the $U.S. of each model is fixed, regardless of the daily exchange rate (e.g., the Mercedes 28/60 PS six-seater Landaulet was fixed $4,800 throughout November). Daimler sold five models of car, with 25 different makes (e.g., two seater, four seater, six seater, coupe). Because the sales of Daimler in November 1922 by make have not been recorded, I calculate the minimum price, the maximum price, and an equally weighted price over all 25 makes. The minimum market capitalization of Daimler, in $U.S., was on November 10, 1922. The minimum market capitalization, in $U.S., is relevant for Bresciani-Turroni's claim because cars were priced in $U.S. this time. I divide the market capitalization on this date, 2,960 million marks (or $386,000), by the minimum, maximum, and average price, respectively. Using the maximum the market value of equity equals 70.8 cars, using the minimum 145.5 cars, and the average 94.0 cars. …