The German Hyperinflation of 1922-1923 in Which the Mark Fell From 4.2 to the US Dollar in 1914 to 4.2 Trillion to the Dollar by November 1923

The German Empire had financed the First World War predominantly through borrowing rather than taxation, on the expectation of reparations from a victorious Germany. The 1918 defeat reversed the assumption. The 1919 Treaty of Versailles imposed reparations payments on Germany rather than from Germany.

The reparations bill — set at 132 billion gold marks in May 1921 — was larger than the Weimar Republic’s tax base. The Reichsbank under President Rudolf Havenstein progressively financed the reparations payments and the federal budget through monetary expansion. The money supply expanded approximately 20-fold across 1919-1922.

The mark to the US dollar exchange rate moved from approximately 4.2 marks to the dollar in 1914 to approximately 8,000 marks to the dollar by January 1923.

The Ruhr occupation

On 11 January 1923 French and Belgian troops occupied the Ruhr industrial region in response to German reparations defaults. The Weimar government responded with a policy of passive resistance — paying striking workers to refuse cooperation with the occupying forces. The cost was financed through additional monetary expansion.

The inflation accelerated from approximately 8,000 marks to the dollar in January 1923 to substantial:

— 100,000 marks to the dollar: June 1923 — 1 million marks to the dollar: August 1923 — 160 million marks to the dollar: October 1923 — 4.2 trillion marks to the dollar: 20 November 1923

The peak rate of inflation in late October-November 1923 reached approximately 20-50 percent per day.

What it looked like

The physical and social consequences were extensive:

— Workers were paid twice daily and rushed to shops within minutes of receiving wages, because the money would lose value by evening — Substantial restaurants charged fixed prices at the start of meals but the bill would be higher by the end, because the intervening hour had eroded purchasing power — Substantial banknotes were printed in denominations of 100 billion marks. The highest denomination issued reached 100 trillion marks (a single banknote worth less than 100 US dollars by November 1923) — Substantial children played with bricks of banknotes; coal-stove fuel was sometimes banknotes themselves; wheelbarrows of cash were routine for routine purchases — Substantial barter — direct exchange of goods — replaced monetary exchange across much of the German economy by autumn 1923

The middle-class population that had saved through the Wilhelmine boom of 1871-1914 was financially destroyed. Approximately 80 percent of pre-war German middle-class wealth was erased between 1919 and 1923. The social impact destabilised the Weimar political order.

Rentenmark

The new economics minister Hjalmar Schacht introduced the Rentenmark currency on 15 November 1923. The new currency was backed by mortgages on German industrial and agricultural land — not by gold reserves (which the Weimar government did not have). The exchange rate fixed at 1 Rentenmark = 1 trillion old marks = 4.2 Rentenmarks to the US dollar.

The fix held. The 1924 Dawes Plan reduced the reparations burden and provided American loans. The Weimar economy recovered through 1924-1929 — the “Golden Twenties.”

The 1929 Wall Street Crash ended the recovery. The subsequent 1930-1933 economic collapse destabilised the Weimar political system completely. The Nazi seizure of power on 30 January 1933 was the direct political consequence — although Hitler’s own political career had begun in the 1923 inflation period itself (the Beer Hall Putsch was on 8-9 November 1923, during the peak inflation).