It was the time when bundles of banknotes were burned because you couldn’t do anything else with them. It was the time when an egg cost 300 billion marks, when workers first thing in the morning tried to convert their daily wages into potatoes and bread because that wage was practically worth nothing in the evening. The hyperinflation that Germany experienced a hundred years ago was probably the worst the world had ever seen. The writer Alfred Döblin wrote at the time: “You don’t buy, but exchange perishable money for more durable goods. Exchange it for food, luxury goods, amusements.”
The inflation of 1923 was deeply disturbing to people, a time of madness, humiliation and helplessness. Bad experiences passed down in most families have been burned into the nation’s collective memory. Anyone who subscribed to war bonds during the First World War out of patriotism or calculation was completely expropriated. Others benefited from the destruction of money, especially if they had business or real estate assets.
The big question is: does this period of revaluation of all economic values still have any significance for the present? Has it left a long-term mark on the soul of the German people, and if so, how? Some historians and economists saw and still see the hyperinflation of 1923 as the great trauma of the Germans, as a key experience that turned the Germans into compulsive stability fanatics, which is also noticeable a hundred years later, for example in the European Central Bank. The memories of hyperinflation “still gripped Europe’s most powerful nation,” the British magazine once said New Statesman.
Told like this, the simple thesis of the Germans traumatized by inflation sounds quite plausible. But she is still wrong. Historical research has long since said goodbye to it, and it is only occasionally kept alive at academic regulars’ tables.
War, nights of bombing, expulsion had a far more drastic effect than monetary policy
First the obvious: Of course, National Socialist dictatorship, war, nights of bombing, expulsion, guilt and persecution were much greater traumas than inflation could be. After 1923, the memory of hyperinflation lingered, but this memory had few political consequences. It was not inflation that brought Hitler to power in 1933, but the opposite, catastrophic deflation, i.e. falling prices, which led to mass unemployment and hardship. After that, the Germans cheered the “Führer” as he printed money to build autobahns and prepare for World War II. When the war was over they again had almost worthless currency and the majority were expropriated. Only then did the turning point come. The American victors gave the West Germans the Deutschmark, a currency designed for stability, overseen by an independent bank of German states, today’s Bundesbank. And with Ludwig Erhard they got a politician who took advantage of the new money.
It is obvious: the great German trauma of inflation does not exist. The effect is exactly the opposite. Only when Germany had become a stable, democratic community did the country also get a stable currency. The latter is a symptom of the former. The great Austrian economist Joseph Schumpeter formulated the realization that “everything is reflected in the monetary system of a people that this people wants, does, suffers, and that at the same time the monetary system of a people has a significant influence on its economy and its fate in general. The condition of a people’s monetary system is a symptom of all its conditions.”
In fact, hyperinflation was a symptom not only of the economic and political situation in Germany after the First World War, but also of the state of the people’s soul. The 1920 Treaty of Versailles, which blamed Germany alone for the war, sparked impotent anger across the political spectrum from left to right. The victorious powers forced the vanquished to pay reparations in an almost incalculable amount. In 1920, John Maynard Keynes, a young economist who had worked for the British Treasury during the war, wrote an alarming book on the “Economic Consequences of the Peace Treaty” which made him instantly famous. Keynes wrote that it was “as certain as anything can be” that the Germans would not be able to pay the reparations. In any case, this is not a prerequisite for the rational use of money.
Inflation was rife throughout Europe – but there were also countries with solid economies
All of Europe was in turmoil at the time. There were enormous price increases everywhere, the currencies were shattered, and distribution battles broke out over the distribution of the consequential costs. In some countries, the currency depreciation was at times more than 50 percent a month, which officially crossed the line to hyperinflation: in the Republic of Austria, for example, in Poland or Hungary. Czechoslovakia was a notable exception. The country was a democracy from the start and financed the aftermath of the war in a solid manner. The historian Harold James has an explanation for this: Czechs and Slovaks had an “internal enemy” – noble and mostly German-speaking landowners whose land the government could expropriate and sell. The distribution battles were thus outsourced.
Germany, too, could have avoided hyperinflation. However, the way there was already taken during the war. For example, by boastful politicians like Finance Minister Karl Helfferich (he was to become an important figure on the extreme right after the war). In March 1915, Helfferich said to great applause in the Reichstag: “The entire future standard of living of our people must, as far as possible, be freed and relieved of the enormous burden that the war is increasing. The lead weight of the billions has the instigators of this war deserved, they may drag it through the decades, not us.” The Germans foresaw the same fate for their opponents in the war as they themselves suffered after the war.
By that time, the European powers had long since abandoned their gold-backed currencies and turned on the printing press to finance wars. Germany embarked on the path to softening the currency even earlier. As the historian Carl-Ludwig Holtfrerich writes, the government began withdrawing coinage metal from circulation as early as 1906 and increasing the reserves of the Reichsbank just in case. For this purpose, the denomination of banknotes was reduced from 100 to 20 marks. While ordinary people used to pay only with coins, banknotes have now become the normal means of payment. “This created the first prerequisites for using the money press to finance the war,” writes Holtfrerich. It is therefore no coincidence that the German military decided at exactly this time the Schlieffen Plan, i.e. the plan to march through neutral Belgium in the event of war in order to attack France from the north.
After the First World War, the mark had already lost massively in value, but the Germans could still have avoided the march into hyperinflation. At times, the mark was even in demand internationally: in the summer of 1920, you only had to pay 40 marks for a dollar (compared to 100 marks in February). At times, the Reichsbank even intervened against the mark, i.e. it depressed its exchange rate in order to promote export opportunities for German industry. The explanation for the strength of the mark was the Kapp Putsch of March 13, 1920, in which right-wing military forces tried to overthrow the republican constitution. The fact that the republic dealt with the putschists relatively quickly created new confidence.
Chancellor Stresemann managed to turn things around: Six stable and good years followed
However, hopes for stability were dashed in the following two years, and the market spiraled downwards more and more. Harold James sees the murder of Foreign Minister Walther Rathenau on June 24, 1922 by right-wing extremist conspirators as the event after which it was almost impossible to turn back. From then on, foreign countries lost all confidence in German assets. In January 1923, French and Belgian troops occupied the Ruhr area to force the delivery of reparations. The Reich government, on the other hand, announced “passive resistance”: Two million workers went on strike and received their wages from the state, which had to print more and more money, which further accelerated the devaluation of money.
In September 1923, Chancellor Gustav Stresemann finally stopped the hopeless fight against the French and Belgians and took up the fight against inflation. The rescue was a transitional currency called “Rentenmark”. One Rentenmark corresponded to 4.2 trillion paper marks. Actually, the Rentenmark was not a currency in the narrower sense, but a bond. That is why there were no national symbols on the banknotes. The bonds were backed by private and government real estate assets. The cover was actually only a theoretical concept. It was crucial that the Germans gained confidence and accepted the Rentenmark. Contemporaries at the time spoke of the “miracle” of the Rentenmark. In view of the previous history, this is not entirely unreasonable. Then, in the spring of 1924, the Reichsmark came into circulation, a new, stable currency that cost the same as a Rentenmark.
Even before the first Rentenmark notes reached the public, the Republic was once again under acute threat. On November 9, 1923, Hitler’s Nazis staged a coup in Munich to establish a fascist dictatorship in Germany. Bavarian police successfully stopped the putschists at Odeonsplatz. The republic was saved for now.
If there was an inflation trauma, it was overcome: The six good years of the Weimar Republic began with the Rentenmark. They ended with the stock market crash of October 24, 1929 and the global economic crisis.