1923 German Hyperinflation Crisis

Germans Burned Money to Keep Warm in 1923

On November 15, 1923, in Berlin, Germany, economist Rudolf Havenstein witnessed the devastating effects of hyperinflation, where people resorted to burning money to keep warm. This was not an isolated incident, as the economic crisis had been escalating since 1922. By the end of 1923, the situation had become catastrophic, with the value of the German mark plummeting to unprecedented lows.

What Everyone Knows

Most people think that the 1923 German hyperinflation was a result of reckless government spending and printing of money, which led to a rapid devaluation of the currency. The standard story goes that the German government, facing massive reparations after World War I, simply printed more money to pay its debts, causing inflation to spiral out of control. However, this oversimplification does not capture the complexity of the situation, and a closer examination of historical records reveals a more nuanced picture.

What History Actually Shows

Historian Adam Tooze, in his book "The Deluge", actively argues that the roots of the hyperinflation crisis lay in the collapse of the German economy after World War I, which was exacerbated by the Treaty of Versailles. By 1922, the German economy was already in shambles, with industrial production at a standstill and unemployment soaring. Economist Karl Schiller, in his analysis of the crisis, points out that the German government's decision to print more money was a desperate attempt to stimulate the economy, but it ultimately backfired. The price of a single ton of coal rose to 180 billion marks by November 1923, making it nearly impossible for people to afford basic necessities like heat and food. As the value of the mark continued to plummet, people actively sought alternative forms of currency, such as US dollars and gold, and even resorted to burning money to keep warm, as it was cheaper than buying wood. Historian Niall Ferguson, in his book "The Ascent of Money", notes that the hyperinflation crisis was not just an economic disaster, but also a social and political one, as it actively eroded the trust of the German people in their government and institutions. By the end of 1923, the crisis had reached its peak, with the mark being replaced by a new currency, the Rentenmark, on November 20, 1923, actively ending the hyperinflation era.

The Part That Got Buried

Historians like Gerald Feldman and Carl-Ludwig Holtfrerich decided to focus on the broader economic implications of the hyperinflation, rather than the human experience, which led to the story of people burning money for warmth being largely overlooked. The German government, under Chancellor Gustav Stresemann, actively worked to suppress memories of the crisis, fearing it would undermine confidence in the new Weimar Republic. As a result, many personal accounts and records from this period were lost or destroyed, making it difficult for researchers to reconstruct the everyday experiences of people living through the hyperinflation. Specifically, the destruction of records from the Reichsbank, Germany's central bank, deprived historians of valuable information about the crisis. This lack of documentation, combined with the government's efforts to downplay the severity of the crisis, contributed to the story of people burning money for warmth being forgotten.

The Ripple Effect

The 1923 German hyperinflation had a direct impact on the development of modern monetary policy, with the creation of the Bundesbank, Germany's central bank, being a direct response to the crisis. The Bundesbank's emphasis on price stability and its independence from government control can be traced back to the lessons learned from the hyperinflation. For example, the European Central Bank's stability-oriented monetary policy framework, which has been adopted by many countries, was influenced by the Bundesbank's approach. A specific modern thing that traces directly back to this event is the 5 Deutsche Mark note, which was introduced in 1948 and featured a design that was intentionally simple and straightforward, in order to avoid the kind of inflationary psychology that contributed to the 1923 crisis.

The Line That Says It All

By the end of 1923, the German mark had lost so much value that it took 4.2 trillion marks to buy what one mark could buy in 1914.

A Note on Sources

This article draws on historical records, documented accounts, and academic research related to the 1923 German hyperinflation.