In this article you will learn more about hyperinflation in the years 1914 to 1923. Here you will learn what inflation is, how hyperinflation can occur and also who the beneficiaries and losers of this crisis were. This article will help you gain both theoretical and practical knowledge on the subject.
Prehistory – Hyperinflation 1923 in the German Empire
To a hyperinflation it doesn’t happen overnight, it’s a gradual process. The preliminary stage of hyperinflation is the so-called inflation. But what is inflation
December 12, 1990 at all and what are its causes? To better understand the hyperinflation of the Weimar Republic, we must first clarify these two questions.
What does inflation mean?
You may have heard the term inflation before and know that it has something to do with money. That is also true, but the term inflation naturally describes a little more.
the inflation is by definition the continuous depreciation of money, which leads to a decrease in purchasing power. So money loses value – in other words, fewer goods/services can be bought with one monetary unit.
Imagine you’re saving for a new phone that costs $300. It takes you two months to save and you go to the store full of anticipation to get your cell phone – but the same cell phone now costs €500 instead of €300. This would be an example of excessively high inflation, scary right?
How did hyperinflation start in the Weimar Republic?
The main trigger for inflation in the German Empire was the First World War, which gradually led to hyperinflation in the Weimar Republic. Below you can see how hyperinflation came about in the first place and how it developed.
As a result of First World War there was one increase in the money supply, because the German Empire needed more money to finance the war and this money was generated by issuing debt instruments. In order to be able to finance the war at all, the amount of cash increased rapidly.
In addition, one came shortage of goods In addition, since the economy was completely geared to war and there were not enough resources for civilian needs. So prices went up and while the purchasing power of money steadily decreased.
A debt instrument means an official document stating that a debtor agrees to pay a debt to a creditor.
The First World War lasted until 1918, and the German Empire ended with the November Revolution. Now also had to unemployed and war wounded fed and the soldiers who have returned from the war back into business incorporated will. Also, during this period, the economy was shifted from the war economy back to the normal economy – this process alone was a mammoth task.
The existing Budget deficiti.e. the money that was missing in the household budget, attempts were made to combat it by taking on more debt, which in turn further increased the money supply. In addition to these difficulties, resourceful entrepreneurs sensed their chance and took out loans, which they ultimately repaid with the devalued money, as a result the money supply increased more and more – and with it the inflation rate.
So you see that inflation is a continuous process. An increase in the money supply or an increase in prices does not lead to catastrophe per se, but if the scale of it all gets too great, it will result in unstoppable inflation.
Almost every country has either inflation or deflation. A low level is not inherently dangerous, but when inflation gets too high, it usually spells disaster for the currency.
Hyperinflation 1923 course
You already mentioned the causes of the inflation above Weimar Republic better acquainted, but how did normal inflation come about Hyperinflation 1923? First of all, we have to clarify what hyperinflation actually is.
What does hyperinflation mean?
One hyperinflation caused by inflation that can no longer be controlled. As a result, the speed of circulation of money increases rapidly.
the hyperinflation is a state of uncertainty, stopping hyperinflation is proving very difficult. People immediately spend the money they have earned because it has a lower value the next day. The value of money falls, therefore the prices rise immeasurably. As a result, people’s confidence in the currency continues to fall.
On June 9, 1923 cost 1 chicken egg still 800 marks.On December 2, 1923, 1 chicken egg already cost 320 billion marks.
Hyperinflation 1923 Causes
You already learned in the first section how inflation came about. mid 1922 the tide turned and a credit crunch ensued – there simply weren’t enough cash left to issue more credit and thereby spend more. This resulted in companies being unable to make further investments and having to lay off their employees.
Crisis year 1923
early 1923 it came to Ruhr fight, industrial production fell further due to the Franco-Belgian siege and the state intervened by printing more money to finance passive resistance. As a result, the money supply increased much further and the velocity of circulation reached record levels as a result. Confidence in the current currency was thus completely lost and all of this resulted in the hyperinflation of 1923.
The Ruhrkampf describes the passive resistance of the population as a reaction to the Belgian-French occupation of the Ruhr area. France and Belgium occupied the Ruhr area on January 11, 1923 in order to secure the respective reparation payments.
Consequences of the hyperinflation of 1923
The hyperinflation of 1923 changed people’s entire everyday life, making normal life impossible. It could happen that the price of a dish in a restaurant doubled during the meal – the prices went up every minute. For this reason, the wage payments no longer carried out monthly, but daily.
The people lived in the fear not even being able to afford essential groceries tomorrow as prices are rising much faster than wages. All of this led to a decrease in the quality of life and existential fears within the population.
Winners and losers of 1923 inflation
As negative as inflation may sound in 1923, it didn’t just have losers. There was also a winning side as a result of inflation or hyperinflation.
winner
The main winner of hyperinflation was that Country, since he was able to pay off his high debts with a worthless currency. Other winners were resourceful entrepreneurswho took out loans and invested in real assets. Furthermore, were also farmers at an advantage, since they could repay their large debts much more easily.
loser
Clearly, the losers of the 1923 hyperinflation were all those who paid fixed wages and whose wages adjusted only very slowly. The state announced that when it was repaid, a mark would still have the same value as before. As a result of this statement also counted War Bond Holders among the losers, since the state only paid back the high loans with worthless money. In addition to war bond holders and wage earners also counted banks to the losers, as they had to use up all of their equity.
End of hyperinflation and currency reform in 1923
It was clear that this state of hopelessness could not continue, which is why im Nov. 1923 the Rentenmark and in October 1924 introduced the Reichsmark. the United States helped to rebuild the desolate German economy by Charles Dawes developed a plan how to get them back in shape.
The Allies understood the importance of an economically stable and healthy country in paying for repair services and also helped build the economy. With the strengthening of the Reichsmark, confidence in the new currency increased and the era of the Roaring 20s. The problem of hyperinflation
belonged to history.
Charles Gates Dawes was an American banker and politician who
August 27, 1865 in Ohio and the developer of the so-called Dawes Plan. The aim of this plan was to rebuild Germany’s desolate economy so that Germany could pay its reparations. He even received the Nobel Peace Prize in 1925 for this plan.
Hyperinflation 1914-1923 – The most important
- inflation denotes the devaluation of money and the loss of purchasing power.
- hyperinflation happens as a result of progressive inflation and is usually unstoppable.
- The trigger for the inflation of the Weimar Republic was the First World War, more money was printed and the state took on more debt to finance it.
- Entrepreneurs began to borrow to make investments, which increased the speed of money turnover.
- Of the Ruhr fight led to the state financing the passive resistance and thus even more money had to be printed.
proof
- Fig. 2 – «Berlin daily newspaper on devaluation» by Bundesarchiv, Bild 102-00134 (www.bundesarchiv.de) licensed under CC-BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0/de /deed.en)