The 1923 hyperinflation forced the Weimar government to confront its own extinction. The hyperinflation of the Weimar Republic was a 3 year period of hyperinflation in Germany, between June 1921 and January 1924. It was caused by the extremely rapid growth in the supply of paper money.
What was life like in Weimar Germany?
The early years of Weimar were filled with turmoil and suffering. The people weren’t organized. The extreme Left launched frequent rebellions. There were food shortages and poverty. France invaded Germany in 1923-1925 to collect WWI reparations. It was an absolute mess.
How to pronounce Weimar, Germany?
The pronunciation is: Weim-ah-rine-ehr. It’s sometimes ok to be informal and say Weim or Weimar and many other hoomans will understand what you are talking about. Others, however, will be clueless.
Why did the Weimar Republic collapse?
Why did the Weimar Republic collapse? The government had to take out extensive loans. Many individuals were out of work because of the war. Citizens felt that the government did not serve their needs. Significant financial resources were given to another country.
Was the Weimar Republic good for Germany?
The Weimar Republic first began after the devastation Germany experienced in World War 1. Germany needed an organized government to recover money, land, and respect from the other European countries. The Weimar Republic proved to be the answer, and although it first came under intense dislike and scrutiny, it later led Germany into economic ...
What happened to the German economy in the 1920s?
The first event was the assassination of German foreign minister Walther Rathenau in June 1922. The assassination caused political panic in the increasingly unstable German y and set off a speculation crisis that saw the Reichsmark plunge in value on world currency markets. Rathenau’s assassination was followed by the occupation of the Ruhr Valley by French and Belgian military forces in January 1923. The French and Belgian governments hoped that by occupying the mineral and industrially rich Ruhr Valley they could force the Germans to make reparations payments; but the occupation had the opposite effect. The occupation of the Ruhr further crippled industrial output, which in turn devalued the German currency even more. By November 1923, the Reichsmark was worth only one-trillionth of its pre-World War I value. [7]
What were the main causes of World War II?
Among the most important factors that led to World War II, albeit indirectly, was the hyperinflationary cycle Germany experienced from 1921 through 1923. During that period, the Weimar government watched as prices soared over 1000% and sat helplessly as its currency essentially lost all of its value. The factors that contributed to that short but devastating cycle can be attributed to excessive printing of currency, the inability to pay off wartime debts and reparations, and a couple of major political events. Although the Weimar government was eventually able to quell the hyperinflationary cycle, the German people lost confidence in the government and so began looking elsewhere for political answers.
What is the process of hyperinflation?
The process of hyperinflation is when inflation continues to increase unabated until there is a 1000% in prices over the course of a year. [1]When the German economy transitioned from an inflationary to a hyperinflationary cycle in 1921, it was an extremely difficult burden for the average German to bear.
What was the Weimar government's fiscal corner?
The fiscal corner that the Weimar government found itself in as the result of wartime debts incurred by and reparations forced upon the previous government, was further exacerbated by its own leaders’ inability to grasp the complexity of the situation that was rapidly unfolding. The Weimar government became extremely myopic and was plagued with what seemed to be eternal gridlock in the halls of the Reichstag (the German parliament). The left and right wing parties were nearly equal in the Reichstag in 1921. To many people today, this may seem like the optimal form of “checks and balances,” but in early 1920s Germany it resulted in political stalemate where neither side was willingly to give ground. Among some of the most fundamental issues that neither side could agree upon was the need to raise taxes for social services, such as the payment of military pensions for veterans.
Why did the German government print so much money?
It also began a policy of excessive currency printing so that by the end of the war there was six times more money in circulation than when the war began. [3]Once the war was over, the new German government – commonly referred to as the “Weimar” government for the capital it chose – continued the policy of excessive printing in a move to manipulate its currency in order to help the struggling economy. Weimar economists theorized that devaluing their currency would help Germany’s industrial sector rebuild because the prices of its exports would be more attractive to foreign investors. Foreign investors could simply buy more German exports with their own currency, which was worth much more than the Reichsmark. [4]The economists were correct in that German exports temporarily increased, but they failed to consider the plethora of other factors that were driving the inflationary cycle.
What causes inflationary cycles?
During an inflationary cycle, there is too much money in circulation, which causes the currency to devalue and the prices of commodities to increase in proportion. Although the reasons for a typical inflationary cycle are complicated, most economists point toward excessive printing of money or other currency manipulation by the central banks – “Quantitative Easing” during the last recession would be an example of this – as the primary factor.
What were the main beneficiaries of Germany's hyperinflation?
Perhaps the biggest beneficiaries of Germany’s hyperinflation, though, were the far rightwing and leftwing political parties and paramilitary organizations. As the Weimar government appeared to be unable to deal with the economic problems of the 1920s, more and more Germans began turning to extreme organizations for answers. Rightwing paramilitary groups such as the Freikorpsengaged in armed battles with communist organizations like the Spartacus League on the streets of nearly every major German city during the 1920s, which left hundreds dead by the end of the decade. [11]Eventually, the National Socialist German Worker’s Party presented itself as a viable alternative to what it described as a weak and degenerate Weimar government.
What was the war-related conditions that produced Weimar Germany?
The war-related conditions that produced Weimar Germany, and kicked off the hyperinflation episode that climaxed in 1923, are unique. Weimar’s particular events, in their particular sequence, may never happen again. But the abstract mechanics of how Weimar Germany got hyperinflation are fascinating, because the political factors ...
How long did the Weimar Republic last?
So, while it is true the Weimar Republic ran for 14 years, from 1919-1933, and then ended disastrously — it was followed by the rise of Hitler and Nazi rule — historically there were at least three distinct chapters to the Weimar era.
Why did the printing press make sense?
In the beginning, the logic of the printing press made sense. The German labor force had to be paid, or else German export revenues would dry up and the economy would simply stop. Printing currency to pay workers — while also paying war debts — thus seemed a reasonable move.
What is path dependency?
Path dependencies can lead to forced escalation or forced movement down a particular path. When a path dependency kicks in, the current course of action has to be continued, or perhaps even escalated, because there is no way to stop it and no way to reverse it. Like a chain of dominos, the next step has to be taken, and then the next.
Why did the German government agree to wage increases?
The government agreed to the wage increases, at least at first, to keep the economy going and avoid crippling strikes.
What are political forces?
Political forces are pressures that demand a certain policy outcome, or force a given government course of action, given the strength of the particular interest groups involved. Political forces can result in actions like funding a military budget no matter what or meeting union wage demands no matter what. When political forces are strong enough, they can overwhelm economic realities in the sense of politicians making non-economic decisions because they feel they have no other choice.
Why did France want reparations?
Because Europe had been devastated by the war, the immediate business at hand was deciding on reparations, meaning, how much Germany would have to repay. France, above all other countries, was furious with Germany, and wanted to extract the largest payment amount it could.
What was the main crisis in 1923?
The hyperinflation crisis, 1923. The Weimar government's main crisis occurred in 1923 after the Germans missed a reparations payment late in 1922. This set off a chain of events that included occupation, hyperinflation and rebellions.
How did the flood of money lead to hyperinflation?
This flood of money led to hyperinflation as the more money was printed, the more prices rose. Prices ran out of control, for example a loaf of bread, which cost 250 marks in January 1923, had risen to 200,000 million marks in November 1923. By autumn 1923 it cost more to print a note than the note was worth.
How many people were expelled from the Ruhr region?
Other people were expelled from the Ruhr region altogether. Overall, 132 were killed and approximately 150,000 expelled from the area. The immediate consequences of the occupation were not good for the Weimar government – they decided to print more money to pay the workers in the region, contributing to hyperinflation.
What group rebelled in September?
A nationalist group called Black Reichswehr rebelled in September.
Why did Germany have high inflation?
Germany was already suffering from high levels of inflation due to the effects of the war and the increasing government debt.
When did Germany default on reparations?
In November 1922 Germany defaulted on its reparations payment as scheduled. The first reparations payment had taken all she could afford to pay. The French believed Germany could make the repayment but were choosing not to, however the German government argued they could not afford to pay.
Who won hyperinflation?
Hyperinflation winners: Borrowers, such as businessmen, landowners and those with mortgages, found they were able to pay back their loans easily with worthless money. People on wages were relatively safe, because they renegotiated their wages every day.
Why did hyperinflation happen in Germany?
In a follow-up piece on the Weimar Germany era, we will take a closer look at the reasons why hyperinflation happened; the logistical drivers behind endless currency printing; the capital preservation strategies used by industrialists and wealthy elites; and the uncomfortable parallels that suggest America could be on its own “road to Weimar” 100-plus years on.
What are the lessons of hyperinflation?
Hyperinflation Lessons from Weimar Germany. In a rampant monetary inflation, the rich can become super-rich, and wealthy industrialists can become out-of-this-world rich, like Greek gods living atop a financial Mount Olympus. If you sit atop an industrial empire when runaway inflation comes, and if you deploy the right strategies, ...
Why did Germany's top tier learn to love the destruction of Germany's currency?
In the Weimar era, Germany’s top tier learned to love the destruction of Germany’s currency, the mark — prior to the wheelbarrow point, anyway, when it literally took a wheelbarrow’s worth of paper to buy a loaf of bread — because Germany’s upper echelons had figured out how to grow even wealthier as a result of runaway inflation, through skillful moves on the asset management gameboard.
What was the Weimar Germany policy?
It sounds bizarre, but in the post-World War I Weimar Germany period, the country’s elite — and particularly its top industrialists — came to be openly in favor of radically inflationary monetary policy, that is to say, printing like there was no tomorrow.
Why did nobody know how to get away from the madness of the printing?
Nobody really knew how to get away from the madness of the printing, meanwhile, because mass volumes of currency creation were keeping the economy’s lights on.
Why did the bankers fail to see?
They failed to see not because they were blind, but because the moneyed elites were getting rich from the situation, and the union workers were getting paid, too (via inflation-indexed collective bargaining agreements that enabled stratospheric wage hikes), and these powerful interest groups prefer red the bankers cover their eyes and ears in a “see no evil, hear no evil” style as the printing presses rolled on.
What was the purpose of price controls?
Price controls, meanwhile, were introduced for various commodities and services vital to industrial production . This subsidized the outsized profits of the industrialists, as prices rose all around them, with much of the profit shielded from taxes and consistently moved abroad.
Inflation and Hyperinflation
The Causes of Germany’s Hyperinflation
- As the average German struggled to survive during the crippling period of hyperinflation during the early 1920s, government leaders and economists searched for its cause in order to rectify the situation. They quickly found that there was not one single cause, but instead the cycle was brought forth by a number of contributing factors that combined...
The End of The Cycle and Its Results
- Although Germany’s bout with hyperinflation was a gradual process and took a while to peak, it ended rather quickly. After numerous failed attempts to alleviate the process, the Weimar government introduced a new currency known as the Rentenmark in 1923. Unlike the Reichsmark, which was not backed by gold or any other tangible asset, the Rentenmark was back by real esta…
Conclusion
- The period after World War I was an extremely critical juncture in world history where the stage was set for World War II. Among the most important factors that led to World War II, albeit indirectly, was the hyperinflationary cycle Germany experienced from 1921 through 1923. During that period, the Weimar government watched as prices soared over 1000% and sat helplessly as …