15,697
edits
Changes
no edit summary
[[File: 100-Billionen-Geldschein.jpg|400px|thumbnail|left|100 Billion Mark Bill]]
__NOTOC__
Among the defining features of early twentieth century Europe and one of the contributing factors to World War II, was the economic maelstrom known as “hyperinflation” that ravaged Germany from 1921 until 1923. Although the short period is often overlooked in popular histories of the period, there is no denying the impacts that the process had on Germany, Europe, and the world. Because of the hyperinflation of the 1920s, the effects of the later worldwide Great Depression were accentuated in Germany, which ultimately undermined the legitimacy – at least in the eyes of the German people – of the Weimar government. As the Weimar government attempted to fix the economy that was seemingly spiraling out of control, the German people turned to organizations on the far right and left wings of the political spectrum for answers. Despite eventually being able to end the crippling process of hyperinflation by 1923, the damage had already been done to Weimar government, which was living on borrowed time at that point.
In the nearly full century since Germany’s bout with hyperinflation, historians and economists have examined Weimar government records, private business reports, and anecdotal sources such as letters, in order to determine the extent of the process and ultimately how it began. Scholars have learned that Germany’s hyperinflation was actually quite a complicated process and there have been a number of factors identified as contributing to its origin. Essentially, all of the ingredients that went into creating Germany’s hyperinflation can be grouped into three categories: the excessive printing of paper money; the inability of the Weimar government to repay debts and reparations incurred from World War I; and political problems, both domestic and foreign.
===Inflation and Hyperinflation===
[[File: GermanHyperChart.jpg|300px|thumbnail|left|Chart Showing the Course of Germany’s Hyperinflation]]
In order for one to understand the causes of Germany’s hyperinflation during the early 1920s, one must first understand how the process is related to and also different from a standard inflationary cycle. Simply stated, inflation is when the prices of goods rises, causing an imbalance in the money supply if it happens too quickly. 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. Basic goods such as food and fuel are affected first, but eventually the process will influence the prices on everything. As troubling as inflation can be to an individual’s pocket book, or even an entire nation’s economy, it is nothing compared to 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. <ref> Widdig, Bernd. “Cultural Dimensions of Inflation in Weimar Germany.” <i>German Politics and Society</i> 32 (1994) p. 11</ref> 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.
As the prices of goods soared at what were until then unimaginable levels, Germans increasingly found it difficult to purchase even the most basic items. For example, one loaf of bread coast twenty-nine pfenning when World War I began in 1914, but by the summer of 1923 that same loaf of bread cost 1,200 Reischsmarks and just a few months later, in November, the price had soared to an astronomical 428 billion Reichsmarks! <ref> Widdig, p. 11</ref> Because of the steep price increases Germans were forced to improvise in a number of different ways. Many would pay for meals as they ordered because the prices would increase significantly in the time it took to eat while others used the virtually worthless bills to heat their homes. All Germans, no matter their income level, had to devise ways to deal with the new economic reality.
As one of the “losers” in World War I, Germany was forced to pay exorbitant reparations to the “winners,” primarily France and Belgium, for the damage done to those countries. The reparations payments, which were putative more than anything, resulted in an adverse balance of payments in Germany. The Weimar government, as well as German corporations, had difficulties obtaining credit abroad to fund industries that could inject money into the economy needed to make the payments, which combined with a loss of territory under the Treaty of Versailles, meant that Germany needed to import more raw materials to keep its industry going. The result was a further devaluation of the Reichsmark. As with the domestic debts it incurred from the war, the German government saw devaluation of the currency as a viable option, but the reality was that it gave itself little room for economic maneuvering. <ref> Laidler, David E., and George W. Stadler. “Monetary Explanations of the Weimar Republic’s Hyperinflation: Some Neglected Contributions in Contemporary German Literature.” <i>Journal of Money</i> 30 (1998) p. 819-20</ref>
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. In order to rectify the situation, the government decided to print more money, which in turn devalued the already plummeting Reichsmark. The inability to provide for basic social services with non-inflated currency stemmed from the Weimar government’s inability to grasp the scope of the situation. Officials and economists in the Weimar government viewed Germany’s economic woes through the lens of the nineteenth century instead of seeing it as it really was – an economic process taking place within a complex system that was integrated with the economies of the other industrialized nations. <ref> McNeil, William C. “Weimar Germany and Systematic Transformation in International Economic Relations.” In <i>Coping with Complexity in the International System.</i> Edited by Jack Snyder and Robert Jervis. (Boulder, Colorado: Westview Press, 1993), p. 193</ref>
The final nail in the German economy’s coffin of the early 1920s was actually two unforeseen events that took place both inside and outside of Germany’s borders. The first event was the assassination of German foreign minister Walther Rathenau in June 1922. The assassination caused political panic in the increasingly unstable Germany 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. <ref> Overy, Richard. <i>The Penguin Historical Atlas of the Third Reich.</i> (London: Penguin, 1996), p. 130</ref>
