German Inflation of 1923
A pivotal economic crisis during the Weimar Republic, The German Inflation of 1923 stands as a stark illustration of the perils of Fiat- unchecked monetary policy.
The Unfair Treatment of Versailles
The origins of the German Inflation of 1923 lie in the economic policies adopted during and after World War I. Germany financed its war efforts through significant borrowing, accumulating a debt of 156 billion marks by 1918, a substantial burden that set the stage for future economic challenges.
The Treaty of Versailles, signed in 1919, imposed reparations of 50 billion marks, payable in cash and in-kind, such as coal and timber, further straining the economy. The Weimar Republic, established post-war, inherited this debt and faced political instability, resorting to printing money to meet expenses and reparations, initiating a gradual inflation that escalated in the early 1920s.
The economic situation was compounded by the French and Belgian occupation of the Ruhr district in January 1923, a retaliation for Germany’s failure to meet reparation payments, and the British navel blockade restricting Germany's access to resources.
Hyperinflation
By mid-1923, the German Mark was losing value rapidly, with exchange rates against the US dollar falling from 320 marks in mid-1922 to 7,400 marks by December 1922, setting the stage for hyperinflation.
The hyperinflation of 1923 was marked by exponential price increases and currency devaluation. A loaf of bread, costing 250 marks in January 1923, rose to 200,000 million marks by November, illustrating the currency’s collapse. The government printed banknotes with denominations reaching 100 trillion marks, reflecting the scale of devaluation. The exchange rate reached an astonishing 1,000 billion (a trillion) marks per US dollar by November 1923, making imports prohibitively expensive and disrupting international trade.
Transfer of Wealth
The social impact was profound. Workers, who were paid twice daily to counteract rapid wage devaluation, rushed to spend money immediately, leading to chaotic scenes in shops. Any existing savings were wiped out, particularly affecting pensioners and those on fixed incomes, while the middle class, traditionally a stabilising force, saw their wealth eroded, contributing to social unrest.
Mass unemployment, Poverty and desperation quickly followed. Assets like gold, land and property were sold at massive discounts, with the wealth picking up assets at massive discounts. In the book Unfinished Victory, Arthur Bryant documents how many of these beneficiaries were Jewish.
These times saw massive increases in Degeneracy, progressive ideologies were pushed, and the rise in Bolshevism and sense of betrayal, all saw the perfect conditions for Hitler to thrive.
Modern Significance
The crisis ended with ending Fiat and the introduction of the Rentenmark in November 1923, a currency backed by mortgages on land and industrial property, accompanied by fiscal austerity and debt restructuring under the Dawes Plan of 1924.