Hyperinflation in Germany, 1923

Hyperinflation

In 1923 Germany experienced Hyperinflation. The value of money plummeted. Hyperinflation was caused by several things. Government policy was designed to force changes to the terms of the Treaty of Versailles. The economy was struggling. Confidence in banks and investments was low. Overseas trade was difficult. Combined, they created Hyperinflation, a situation in which money became virtually worthless. 

Hyperinflation in Germany, 1923

Inflation is the term used to describe an increase in the cost of goods in an economy. Typically a rate of inflation will be between 2 and 6% over the course of a year. This means that if something costs £1 at the start of the year, it will cost £1.02 – £1.06 a year later. In general, it is accepted that relatively low levels of inflation are a good thing for an economy, however high levels of inflation pose problems as companies cannot accurately forecast their results and the value of money drops disproportionately to the value of goods and / or labour. Hyper inflation is a term used to describe levels of inflation that are very high. This was the case in Germany in the period 1919 – 1923.

In January 1919 one US Dollar could buy 8.9 German marks. In January 1922 one US Dollar could purchase 191.8 German marks. What does this mean?

This means that the buying power of the German mark (Germany’s currency) has dropped at an incredible rate. Something that cost one US dollar in 1919 would have cost 8.9 German marks. 3 years later it costs 191.8 German marks, but still is worth one US Dollar. This shows that the value of the German currency has dropped dramatically. Several things contributed to this devaluation of the German currency, which continued to decline in value throughout 1922 and 1923:

  1. The Reparations Bill. Having to pay the Allies large sums of money had a significant impact upon the German economy. It meant that a large proportion of income had to leave the country.
  2. Reaction to the Reparations Bill. In order to manage Reparations payments strict economic controls and fiscal (taxes) practices were required. It can be argued that the Government deliberately failed to put many of these things into place, in an attempt to force the Allies into rethinking the level of Reparations to be paid. The consequences of this include the following point:
  3. French occupation of the Ruhr. The Ruhr valley is the Industrial heart of Germany. Whilst it was occupied by the French, the German economy could not benefit from its industrial output, thus straining the economy even further.
  4. The cost of War. Even without the reparations, the war had a high cost for Germany.
  5. Loss of land and colonies. This led to the cost of raw materials increasing as the German economy could no longer depend upon cheap imports from her own colonies or produce the raw materials in the same quantities from German sources. The increase in the cost of raw materials was inflationary, it meant that prices would have to rise.
  6. Printing more money. In order to control inflation, a Government can limit the amount of currency in circulation. At the height of the reparations repayment crisis the Weimar Government did the exact opposite, it printed MORE money.

The scale of hyperinflation can be seen in this chart which illustrates the cost of items against an index. 1 is the starting point, anything above 1 is an increase in cost relative to that first figure (so 3 would mean that items had risen in price by 300%). NB: Usually an index would start with 100, the figures here are so large that the number of 0’s would simply become too onerous to type out!

Wholesale Price Index

July 1914
1.0
Jan 1919
2.6
July 1919
3.4
Jan 1920
12.6
Jan 1921
14.4
July 1921
14.3
Jan 1922
36.7
July 1922
100.6
Jan 1923
2,785
July 1923
194,000
Nov 1923
726,000,000,000

Source: http://www.usagold.com/GermanNightmare.html

Links

Impact of the First World War on Germany

Terms of the Treaty of Versailles

How did Germany recover from the economic crisis of 1923?

Teach the Hyperinflation Crisis. An Active Learning exercise designed to make the complexities of Hyperinflation understandable.

When Money Dies: Five currencies that crashed – excellent infographic based post that looks at five instances of hyperinflation.

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Weimar Germany Lessons and Teachers Resources

Rise of Hitler revision chart 1-9 GCSE Exam Preparation. Usefulness of Sources: the SA and Nazi methods of control.
Revision exercises@ Life in Nazi Germany 1-9 GCSE History Revision Guide Weimar and Nazi Germany
Teaching resource: How did the Nazi’s rise to power?

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Impact of the First World War on Germany The Treaty of Versailles and its impact on Germany
Weimar Constitution 1919-1923: Years of Crisis?
Spartacist Uprising Kapp Putsch
The Munich Putsch Hyperinflation in Germany, 1923
Reparations Did the Economic Crisis of 1923 help the Nazi’s?
Origins of the Nazi Party 1924-1928: A Golden Era?
Gustav Stresemann German Foreign Relations 1919-1932
Germany in the Great Depression Rise of the Nazi Party
Failings of the Weimar Republic Totalitarian Regime in Nazi Germany
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The Holocaust History Teachers’ Resources

Revision Diagrams

Was the Weimar Republic Doomed from the outset? To what extent did Germany recover under Stresemann?
The Nazi Party up to 1929 How did Hitler become Chancellor of Germany?
Who gained from Nazi rule?

Revision Diagrams

Was the Weimar Republic doomed from the start? |To what extent did Weimar recover under Stresemann?
How did the Nazi Party develop up to 1929? How did Hitler become Chancellor?
How did Hitler become Chancellor? How did the Nazi’s create a Totalitarian State?

 

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