|Money distribution area in Berlin, 1923
Image by The German Federal Archive
Mid November 1923, the Hyperinflation of the Weimar Republic reached its peak. Due to Germany’s obligation to pay large reparations after World War I, a hyperinflation was induced reaching its peak in November 1923, when the American dollar was worth 4,210,500,000,000 German marks.
As Germany got ready for the war in 1914, money was printed and was supposed to be financed through war bonds instead of taxes since it was clear that going to war would cost a incredible amount of money. Back in the day, nearly everyone in the country did not even think of the possibility that Germany could lose the war and pay reparations to others. It was calculated that Germany should win and then receive payments from the enemies.
|An overprinted German stamp of October 1923
hyperinflation surcharge of 1923: 2 Million on 200 Marks
As we all know things went quite differently. Germany lost the war was was supposed to pay large reparations, which increased inflation even more. The reparations were at first paid by further money prints and the situation went out of control. Needed goods, such as food, clothes and fuel deceased since lots of production areas shut down and priced increased. The wages were adjusted to the new prices, taxes were not increased adequately and it was too late to prevent the catastrophe. In the following years, many other countries in Europe suffered from the German inflation while Germany itself slowly started to recover from the crisis.
Still, reparations had to be paid, which at one point, Germany could not afford. The famous ‘Occupation of the Ruhr’ by French and Belgian troops started. The strikers were paid additional wages and caused another boost of inflation since the money itself devaluated even more. The hyperinflation started and reached its peak in November 1923, when the American dollar was worth 4,210,500,000,000 German marks.
The German economy faced a complete breakdown. The citizens became poor, many homeless, unemployed, and increasingly unsatisfied with the political situation. Gustav Stresemann became the new chancellor in 1923 and ended the Ruhr occupation. The overall economic situation started to stabilize as well as the political relations.
The effects of the hyperinflation were fatal to many. Most citizens from the middle class lost everything and claimed to have been betrayed by the government. Political extremists found a lot of approval. The Weimar Republic continued for a decade after the crisis, and it is widely assumed that the increasing power of Adolf Hitler and the Nazi takeover resulted among other things from the economic difficulties.
If you wonder, how a hyperinflation works in general, you may be interested in a short video lecture at yovisto.
References and Further Reading:
- Monetary Explanations of the Weimar Republic’s Hyperinflation: Some Neglected Contributions in Contemporary German Literature, David E.W. Laidler & George W. Stadler, Journal of Money, Credit and Banking
- The Economics of Inflation, Costantino Bresciani-Turroni
- Zeitgeschichten auf Spiegel Online: Hyperinflation 1923: Als die Mark vernichtet wurde
Related Articles in the Blog:
- Black Thursday – The Wall Street Crash of 1929
- Vilfredo Pareto and the Law of the Vital Few
- Adam Smith and the Wealth of Nations
- John Maynard Keynes and his General Theory of Employment