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Hyperinflation Explained - What happened to Germany and Venezuela?

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Stacks of marks were taken everywhere for simple items in the market.

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In the span of a few months the cost of bread was that of 250 marks to 200,000,000,000 marks. This made trading with foreign countries impossible. Instead of using the money, the people started to barter their items.

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Not counting the rise of Nazism, the 1923 hyperinflation is arguably the most significant failure of the Weimar Republic. For several months in 1923, Germans battled price inflation so rapid that it created ridiculous situations - along with considerable misery and suffering.

Background

In early 1923, German workers embarked on a prolonged general strike as a protest against the occupation of the Ruhr by French troops. Despite its parlous economic condition, the Weimar government decided to support this strike by continuing to pay striking workers. It did so by increasing print runs of banknotes, a policy the government had been using intermittently since 1921.

Government economists understood the dangers of flooding the economy with paper money, so the policy was intended to be temporary. But as the Ruhrkampf continued into the summer and autumn of 1923, no alternative way could be found to address the crisis. Paper money was continually pumped into the German economy, leading to devaluation and hyperinflation.

By mid-1923, the nation's central banks were using more than 30 paper factories, almost 1,800 printing presses and 133 companies to print banknotes. Ironically, the production of paper money became one of Germany's few profitable industries. At the height of the crisis, Germany's state governments, major cities, large companies, even some pubs were all issuing their own paper money.

Prices and denominations soar

As more banknotes went into circulation, the buying power of each Reichsmark decreased, prompting sellers to raise prices. In 1918, a loaf of bread cost one-quarter of a Reichsmark; by 1922 this had increased to three Reichsmarks. In 1923 the market price for bread spiralled, reaching 700 Reichsmarks (January), 1200 (May), 100,000 (July), two million (September), 670 million (October) and then 80 billion Reichsmarks (November). One dozen eggs cost a half- Reichsmark in 1918 and three Reichsmarks in 1921. In 1923, the market price increased to 500 (January) then 30 million (September) and four billion Reichsmarks (October).

The Weimar government was not strong enough to fix wages or prices, so its only response was to issue more paper money. This cycle of inflation and currency releases spiralled through 1923. The denomination of banknotes increased, the largest note with a face value of 100,000,000,000,000 (100 trillion) Reichsmarks. The face value of postage stamps also skyrocketed. By 1923, the largest-priced stamp cost five billion Reichsmarks - but even this was not enough to post an ordinary letter.

On one day alone, October 25th 1923, the Weimar government released banknotes with a face value of 120,000,000,000,000 (120,000 trillion) Reichsmarks - while announcing plans to triple its daily output. By November, the Treasury reported there were 400,338,236,350,700,000,000 (400.3 billion trillion) Reichsmarks in circulation across Germany.

The impacts of hyperinflation

The rapid devaluation of paper money caused ludicrous scenes. The value of paper money disappeared so quickly that some companies paid employees in the morning so they could rush off and spend their wages at lunchtime. Wives waited at their husbands' factories on payday so they could hurry to the stores. One man reported ordering a coffee but found its price had doubled by the time it arrived at his table.

By September 1923, as the hyperinflation crisis neared its worst, Germans needed enormous amounts of paper money for even basic commodities. It was not uncommon to see shoppers hauling buckets, bags, even wheelbarrows full of banknotes. One Munich woman dragged a suitcase of banknotes to her local grocery store; when she left it outside briefly, someone stole the suitcase but emptied the money onto the street.

Children played with worthless banknotes as toys; their mothers used them to light stoves and boilers, line cake tins, even as wallpaper. Many Germans abandoned money altogether and began bartering as a means of obtaining what they needed.

Economic effects

The hyperinflation crisis also made foreign exchange almost impossible. Before World War I, one US dollar had purchased about four Reichsmarks. By the end of 1920, this had increased to 70 Reichsmarks; a year later it was 180.

At the worst of the hyperinflation in late 1923, the exchange rate for one US dollar had skyrocketed to 48,000 Reichsmarks (January) then 192,000 (June) 170 billion (October) and four trillion (November).

As a consequence, German corporations found it impossible to do business or trade abroad. Unable to acquire gold or foreign currency, the Weimar government had no capacity for meeting reparations instalments. Some claimed the government had deliberately sabotaged the German economy as a protest against Allied reparations, though there is no direct evidence of this.

Winners and losers

There were winners and losers from the 1923 hyperinflation. The worst affected were the Mittelstand (middle class) who relied on investments, savings or incomes from pensions or rents. In 1921, a family with 100,000 marks in savings would have been considered wealthy - but within two years, this would not be enough for a cup of coffee.

Public servants also suffered because increases in their wages failed to keep pace with the private sector. Among those who fared better were farmers, business owners or producers who manufactured and sold important commodities. While the value of money fluctuated, the real value of these goods did not; those who sold them could do so on their own terms.

Germans with large debts also benefited from hyperinflation, since they could be easily repaid. Some clever businessmen borrowed early in the inflationary cycle to buy property, then repaid the loan weeks or months later for next to nothing.

The 1923 hyperinflation forced the Weimar government to confront its own extinction. There was open talk that the government might be removed by a popular revolution or a military putsch. An attempted coup in Munich, launched by Adolf Hitler and the National Socialists (NSDAP) in early November 1923, seemed a sign of what might come.

The crisis forced the collapse of two cabinets as ministers bickered about the best way to end the crisis. It was newly appointed finance minister Hans Luther who produced the eventual solution.

In October, Luther ordered the formation of a new reserve bank ( Rentenbank) and a new currency (the Rentenmark). The value of the Rentenmark was indexed to the value of gold - though it could not be redeemed in gold because the government had no gold reserves. One Rentenmark was initially valued at one billion 'old' Reichsmarks while foreign exchange was pegged at 4.2 Rentenmarks to one US dollar.

Eager to bid farewell to hyperinflation, the German public embraced the new currency. This allowed prices and wages to gradually normalise.

1. The hyperinflation crisis of 1922-23 was caused in large part by the Weimar government printing banknotes to pay striking workers in the occupied Ruhr.

2. By mid-1923, the printing of these banknotes, which were not backed by gold, was causing a rapid increase in both prices and wages.

3. This hyperinflation led to farcical scenes, such as extraordinary prices and Germans pushing wheelbarrows of cash to buy simple items.

4. Hyperinflation also eroded the cash savings of the middle class and caused foreign exchange rates to skyrocket, disrupting commercial activity.

5. The hyperinflation crisis was eventually ended with the formation of a new reserve bank and the issue of a new national currency called the Rentenmark.

Citation information
Title: "The hyperinflation of 1923"
Authors: Jennifer Llewellyn, Steve Thompson
Publisher: Alpha History
URL: https://alphahistory.com/weimarrepublic/1923-hyperinflation/
Date published: September 26, 2019
Date accessed: Today's date
Copyright: The content on this page may not be republished without our express permission. For more information on usage, please refer to our Terms of Use.

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The 1923 hyperinflation that crippled Germany was the result of devalued and worthless paper money being recklessly pumped into the economy.

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Episode #4 of the c ourse "World's biggest financial crises"
The United States was not the only country to experience significant financial struggles. Germany, one of the largest developed countries in the world, also had its share of difficulties. The hyperinflation in the Weimar Republic is an example. The crisis began when Germany could not make one of their payments for war reparations in 1923.

The government issued more money, causing the value of the German mark to decrease. This was also in addition to a general strike, which meant that no goods were being created. The economy was weak to begin with, but these two factors only added to the problems. There was more money and not enough goods to buy to match the money.

Prices were out of control, leaving the mark virtually worthless. For example, in January 1923, a loaf of bread cost 250 marks, but by November of the same year, the same loaf of bread now cost 200,000,000,000 marks. People were literally burning the money and using it as fuel instead of attempting to buy anything with it. Workers collected their wages in suitcases and rushed money to loved ones immediately so they could spend it before it was worthless. Prices were rising so quickly that it was difficult to combat. For example, if a family sold their house in attempt to live off of the money from it, the money that they gained from the house wouldn't even be enough to buy a meal in just a few weeks. Bartering became more and more common. Menus at restaurants had to be revised every half an hour to keep up with the outrageous inflation.
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In 1923, the new Chancellor created the Rentenmark, which was backed by American gold. A new plan to meet reparation payments was also created in 1924. The American government also loaned the Germans roughly $200 million. These small changes stabilized Germany and it became a booming industrial center.

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Hyperinflation in the Weimar Republic, 1921-1924

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Episode #4 of the c ourse "World's biggest financial crises" The United States was not the only country to experience significant financial struggles. Germany, one of the largest developed countries in the world, also had its share of difficulties. The hyperinflation in the Weimar Republic is an example.

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What occurred from the printing of money eventually became one of the biggest downfall's of the Weimar Republic. As more money was printed, its value started to decrease. The economy was already at its lowest; workers were striking instead of producing goods, and by the time they realized the problem, hyperinflation had already spiraled out of control.

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In order to pay these workers, the government decides to temporarily print money.

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But how are these workers getting paid if there is practically no money?

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Citizens would dump the marks out onto the street.

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The marks would even be made out of the most ridiculous things.

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German woman using the worthless marks for fuel.

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Children playing with stacks of banknotes (reichsmarks).

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The Weimar government essentially dug its own grave. Citizens were left to fend for themselves considering their savings had become useless, making them suffer for a period of time. Eventually, the new finance minister, Hans Luther, solved the issue with the creation of a new reserve bank (Rentenbank) and a new currency (Rentenmark). Along with with the backing of gold and loans from America, Germany was able to see a brighter future.

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Post WWI, Germany had no means of paying their debt off in 1923. Due to the French and Belgian troops occupying the Ruhr regions of Germany, strikes towards their military involvement became a daily occurrence. However, the Weimar government had been behind the scenes, encouraging workers that were part of trade unions to continuously strike by paying them.