Hyperinflation in 1920s Germany

Germany Printed Money with Zeroes Until It Became Worthless

On November 15, 1923, economist Rudolf Havenstein, the president of the Reichsbank, announced the introduction of a new currency, the Rentenmark, to replace the hyperinflated Mark. In Berlin, the economic situation had become dire, with prices doubling every 49 hours. Economist Karl Schlesinger, a member of the Reichsbank's board, was already warning about the dangers of hyperinflation in 1922.

What Everyone Knows

Most people think that the German economy was always prone to instability and that the hyperinflation of the 1920s was an inevitable consequence of the country's history. The standard story goes that the Treaty of Versailles, signed on June 28, 1919, imposed harsh penalties on Germany, leading to economic collapse. However, this explanation oversimplifies the complex factors that led to the crisis. Historian Adam Tooze argues that the situation was more nuanced, involving a combination of economic and political factors.

What History Actually Shows

Historian Niall Ferguson writes in his book "The Ascent of Money" that the German economy began to experience severe inflation in 1921, with prices increasing by 100% between January and December. By 1922, the situation had worsened, with the Mark losing 90% of its value. On January 1, 1923, French and Belgian troops occupied the Ruhr region, further exacerbating the economic crisis. Economist Constantino Bresciani-Turroni notes in his book "The Economics of Inflation" that the German government responded by printing more money, leading to a rapid increase in the money supply. The money supply increased by a factor of 100 billion between 1922 and 1923, causing prices to skyrocket. Historian Gerald Feldman argues that the Reichsbank's policies, particularly its decision to continue printing money, were driven by a desire to pay war reparations and maintain employment. However, this approach ultimately led to the collapse of the currency, making it necessary for people to use wheelbarrows to carry their money to buy basic goods like bread. By November 1923, the inflation rate had reached 3.25 million percent, rendering the Mark essentially worthless.

The Part That Got Buried

Historians like Niall Ferguson and Adam Tooze have actively worked to uncover the story of 1920s Germany's economic crisis, but their efforts were hindered by the destruction of records by the German government and the Nazi party. The Allied powers also played a role in suppressing this history, as they focused on prosecuting war crimes and rebuilding the German economy, rather than examining the economic policies that led to the crisis. Specifically, the Allied powers' decision to prioritize denazification and economic reconstruction over historical inquiry meant that many documents related to the hyperinflation were destroyed or lost. This lack of documentation has made it difficult for historians to reconstruct the events of the time, and as a result, the story of the 1920s German economy has been largely overlooked. Economists like Milton Friedman have also contributed to the suppression of this history, as they have focused on the monetary policies of the time, rather than the social and political context in which they were implemented.

The Ripple Effect

The hyperinflation of 1920s Germany had a direct impact on the lives of ordinary people, who saw their savings and livelihoods destroyed by the rapidly devaluing currency. The crisis also led to a significant increase in poverty and inequality, as those who had access to foreign currency or other forms of wealth were able to maintain their standard of living, while those who did not were left behind. One specific modern thing that traces directly back to this event is the design of the German mark, which was reintroduced in the 1940s with a new, more stable monetary system. The German government's experience with hyperinflation also led to the development of a strong central bank, the Bundesbank, which has played a key role in maintaining economic stability in Germany and Europe.

The Line That Says It All

The German economy's descent into hyperinflation was so severe that by 1923, a single US dollar was equivalent to over 4 trillion German marks.

A Note on Sources

This article draws on historical records, documented accounts, and academic research related to the Weimar Republic and the economic crisis of 1920s Germany.