The 1923 hyperinflation (2024)

In 1923, Germany was gripped by one of the worst hyperinflation crises in human history. The besieged Weimar government, short on revenue and under pressure to revive an ailing economy, tried spending its way out of trouble by printing high volumes of banknotes. The outcomes were disastrous, leading to currency devaluation and ludicrous scenes as ordinary Germans struggled to cope. The 1923 hyperinflation was resolved by the year’s end but not before causing significant suffering and a collapse in confidence in the government.

Background

In early 1923, German workers embarked on a prolonged general strike in protest against the Ruhr occupation (Ruhrkampf). The Weimar government decided to subsidise this strike, a decision that would have a devastating impact on Germany’s already struggling economy.

In 1922, the Weimar ministry ordered increased print runs of banknotes, in the hope of stimulating the economy and also, to pay striking industrial workers in the Ruhr. Government economists understood the dangers of flooding the economy with paper money – it was intended as a temporary measure rather than a long-term policy.

As the French occupation and the Ruhrkampf continued into the summer and autumn of 1923, the government could find no alternative way to address the crisis. Berlin continued to pump paper money into the German economy, a strategy that devalued banknotes and led to the hyperinflation of late 1923. The effects of hyperinflation on German society would prove disruptive for many and utterly disastrous for some.

The print-press economy

Both the amount of paper Reichsmarks in circulation and price inflation had already been increasing gradually since 1921. By April 1923, Wilhelm Cuno’s government was spending more than seven times the amount it received as revenue.

Most of this spending was funded by increased print runs of banknotes. By mid-1923, the nation’s central banks were employing more than 30 paper factories, almost 1,800 banknote printing presses and 133 companies to print and issue banknotes. The production of paper money, ironically enough, 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 issuing their own paper money. The problem was compounded by Germany’s wartime decision (1914) to abandon the gold standard, leaving paper Reichsmarks without any intrinsic or supporting value.

Billionaire bread

As more banknotes were sent into circulation, the value and buying power of each Reichsmark decreased, prompting sellers to raise prices.

In 1918, a loaf of bread cost one quarter of a Reichsmark and by 1922, this had increased to three Reichsmarks. In 1923, the market price for bread spiralled, reaching 700Reichsmarks(January) 1200 (May) 100,000 (July) 2 million (September) 670 million (October) and then 80 billion Reichsmarks(November).

The price of eggs, another household staple, followed a similar pattern. One dozen eggscost half a Reichsmarkin 1918 and three Reichsmarksin 1921. By 1923, the market price had increased to 500 (January) then 30 million (September) and four billion Reichsmarks(October).

Multi-trillion mark bills

The Weimar government was neither willing nor strong enough to fix wages or prices, so its only response was to issue more paper money. This tit-for-tat cycle of price inflation and banknote releases continued to spiral upwards through 1923.

As prices skyrocketed, requiring greater amounts for simple items, the government increased the denominations of banknotes. At the height of the crisis, the largest note had a face value of 100,000,000,000,000 (100 trillion)Reichsmarks. The cost of postage stamps also increased, the largest valued at five billionReichsmarks – though by late 1923, even this was not enough to post an ordinary letter.

On one day alone, October 25th, the government released a tranche of banknotes with a face value of 120,000 trillionReichsmarks – but also announced plans to triple its daily output. By November, the Treasury reported that there were400,338,236,350,700,000,000 (400.3 billion trillion)Reichsmarksin circulation.

Buckets of cash

The rapid devaluation of paper money created ludicrous scenes. The value of paper money evaporated so quickly that some companies paid employees in late 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 learned its price had doubled by the time it arrived at his table.

By September 1923, as the hyperinflation crisis was near its worst, Germans needed enormous amounts of paper money to buy 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; she left it outside briefly, where someone stole the suitcase – after emptying the money onto the street.

On the streets, children sometimes used worthless banknotes as toys. In the home, their mothers used lower-value banknotes 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 impact

The hyperinflation crisis had broader effects on the economy, rendering foreign exchange almost impossible. Before World War I, one US dollar had purchased about fourReichsmarks. By the end of 1920, this had increased to 70Reichsmarks and a year later, it was 180.

By late 1923, however, the exchange rate for one US dollar had skyrocketed to 48,000Reichsmarksin January, then 192,000(June), 170 billion(October) and four trillion(November). As a consequence, German corporations found it difficult, bordering on impossible, to do business or trade abroad.

Unable to acquire gold or foreign currency, the Weimar government had no capacity at all for making its instalments of war reparations. Some foreign observers claimed it had deliberately sabotaged the German economy as a protest against the reparations burden, though there is no direct evidence of this.

“The government virtually yielded its role to the representatives of major industrial and financial interests. Employers were on the offensive: workers were battered and worn down by the economic crisis. The mine owners had taken the lead in September 1932, and every major industry quickly followed. By spring 1924, the pre-war work shift, twelve hours in the factories and eight and a half hours in the mines, had been re-established. Employers also won greater freedoms to fire workers at will and to ignore labour representation in the workplace. The crisis of hyperinflation enabled business to destroy – not totally, but to a significant degree – the social measures it had reluctantly conceded in 1918-19.”
Eric Weitz, historian

Winners and losers

There were winners and losers from the 1923 hyperinflation. The worst affected were those of 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 amount was not enough for a cup of coffee.

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

Those with large debts also benefited from hyperinflation, as those debts 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.

Towards a solution

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

The crisis brought about the collapse of two cabinets, as ministers bickered about the best way to end the crisis.It was Hans Luther who produced the eventual solution. Luther, a local politician from Magdeburg who had previously rebuffed positions in the cabinet, was appointed finance minister in early October 1923.

By the end of October, Luther had 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, since 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.

Luther’s currency reforms were accompanied by other drastic changes, such as increased taxes, cuts to government spending and salaries, and a reduction of the public service by almost 25 per cent. These measures might have produced outraged protests a year earlier but the German public, exhausted by months of rampant hyperinflation, were by now willing to accept them.

1. The hyperinflation of 1922-23 was the result of a Weimar government emergency decision to print additional currency which, in turn, became standard policy.

2. By mid-1923, the government had outsourced money printing to 133 companies, leading to excessive amounts of banknotes flooding the economy.

3. As banknotes flooded the economy their value plummeted, leading to rapid increases in prices and wages that required even bigger issues and denominations.

4. Hyperinflation also eroded the cash savings of the middle class and disrupted commercial activity. Producers and debtors, in contrast, were usually better off.

5. The hyperinflation crisis was eventually ended with the formation of a new reserve bank, the issue of a new national currency and government spending cuts.

Citation information
Title: ‘The 1932 hyperinflation’
Authors: Steve Thompson, Jennifer Llewellyn, Jim Southey
Publisher: Alpha History
URL: https://alphahistory.com/weimarrepublic/1923-hyperinflation/
Date published: June 1, 2015
Date updated: November 15, 2023
Date accessed: September 14, 2024
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