January 8, 2025 | Rhyming History: Weimar Germany’s Hyperinflation

There have been some epic hyperinflations over the centuries, but none was as brutal — and consequential — as Germany’s in the early 1920s. Here’s a quick Chat GPT summary followed by some graphic images and a list of lessons the world should have — but apparently hasn’t — learned:

Context of Post-World War I Germany:

After Germany’s defeat in World War I in 1918, the Weimar Republic was established, inheriting the country’s economic and political turmoil. The Treaty of Versailles (1919) placed heavy reparations on Germany, requiring it to pay significant war damages to the Allied powers. This placed a huge strain on the country’s economy.

War Debt and Reparations:

In the aftermath of the war, Germany’s government struggled to meet its financial obligations. The Weimar government resorted to printing more money to cover deficits, which contributed to inflation. Additionally, the reparations payments demanded by the Allies further drained the nation’s resources.

The Ruhr Occupation (1923):

In response to Germany’s failure to meet its reparations payments in 1922, France and Belgium occupied the Ruhr Valley, the heart of Germany’s industrial production. In protest, German workers in the region went on strike, and the government continued to print money to support them. This action significantly worsened inflation.

Hyperinflation Escalates (1921-1923):

• In 1921, inflation began to accelerate as the government printed more and more money. By 1923, inflation had spiraled out of control, with the value of the German mark plummeting. Prices for goods and services soared. People needed wheelbarrows full of currency just to buy basic necessities, and the value of savings vanished almost overnight.
• In January 1923, the exchange rate was approximately 18,000 marks to 1 US dollar. By November 1923, it had risen to 4.2 trillion marks to 1 US dollar.
• Daily life became chaotic, with businesses and workers adjusting prices constantly. People resorted to bartering, and foreign currencies like the US dollar or the French franc became more stable than the mark.

Impact on Society:

• Middle Class Hardships: The middle class was hardest hit, as savings and pensions were wiped out. Many families saw their life savings evaporate, leading to widespread poverty and a collapse in confidence in the Weimar government’s ability to manage the economy.
• Social Unrest: The hyperinflation fueled social unrest. There were strikes, protests, and political extremism. People lost faith in the Weimar Republic, and some turned to more radical solutions, including support for both left-wing and right-wing extremist movements (e.g., the Nazi Party).

Resolution and Stabilization:

The crisis was finally brought under control in late 1923 with the introduction of a new currency, the Rentenmark, which was backed by land and industrial resources rather than gold. The Rentenmark was introduced in November 1923 and helped restore some confidence in the German economy. This marked the end of the hyperinflation crisis and allowed for economic recovery in the following years, although the scars left on society and politics remained.

Legacy of Hyperinflation:

The hyperinflation of the Weimar Republic left lasting consequences:

• It contributed to the eventual collapse of the Weimar Republic and the rise of Adolf Hitler and the Nazi Party, which capitalized on widespread discontent.
• The memory of hyperinflation created a deep mistrust of paper currency and government economic management in Germany.
• The instability helped foster extremist political movements, as people sought radical solutions to their financial woes.

In summary, the hyperinflation of the Weimar Republic was the result of a combination of war reparations, political instability, and economic mismanagement. It devastated the German economy, undermined public trust in the government, and played a crucial role in the events that led to the rise of Nazism in Germany.

Graphic Consequences

Here’s what gold did in Germany during this time. As the currency became worthless, sound money became priceless:

German citizens who trusted their government and held large amounts of currency ended up taking wheelbarrows full of the stuff to buy groceries and, as seen below, burning currency in furnaces for heat.

Lessons

• There’s a limit to how much new currency a nation can create before people give up on it. At that point, it quickly becomes worthless, and the things valued in it — gold, real estate, food — soar in local currency terms. So if you think $2600/oz gold is expensive, revisit the last two years on the above chart.
• The cultural consequences of wiping out an entire generation’s savings include a loss of trust in government institutions and a willingness to follow strong leaders who promise to do whatever it takes to stop the bleeding. Hence, Hitler.
• The US tried a mini-version of this “print like crazy and hope for the best” strategy during the pandemic and got its first taste of near-double-digit inflation in 40 years. With current budget deficits at record highs and interest rates moving up despite Fed easing, the next crisis might be — like Germany in 1920 — an existential fork in the road.

John Rubino January 8th, 2025

Posted In: John Rubino Substack

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