Because of hyperinflation, which affected the majority of industrial employees, Germans were forced to live in untenable conditions. Even basic products like bread, meat, and coal could no longer be purchased to heat homes due to an exponential spike in price. Payments were frequently worthless the next day after they had been received the day before.
What impact did inflation have on Germans?
Between 1921 and 1923, hyperinflation afflicted the German Papiermark, the Weimar Republic’s currency, particularly in 1923. It resulted in significant internal political unrest in the country, as well as the occupation of the Ruhr by France and Belgium, as well as widespread hardship among the general population.
What caused the German economy to be destroyed by inflation?
The result was spectacular. The German economy was depressed in the latter months of the inflation. Trade had come to a halt, many people in the towns were going hungry, and manufacturing had shut down. As can be observed, trade union unemployment increased from 6.3 percent in August to 9.9 percent in September, 19.1 percent in October, 23.4 percent in November, and 28.2 percent in December. (Technically, inflation ended in mid-November, but its disorganizing consequences continued.) However, trust swiftly returned, as did trade, manufacturing, and employment.
The “stabilization problem,” as described by Bresciani-Turroni and other writers, occurs after inflation has been brought to a standstill. However, any so-called “stabilization crisis” that occurs after hyperinflation has passed a certain point is relatively mild. This is due to the fact that inflation has caused so much economic disorganization. When it is reported that unemployment increased after the mark stabilized, this is only true for one or two months at most. Bresciani-monthly Turroni’s unemployment data expire in December 1923. The following is a timeline of events from October 1923 to June 1924.
A real stabilization crisis existed, but it manifested itself in a different way. One of the things that happens in an inflation, especially a hyperinflation, is that labor is engaged in directions other than the regular ones, and after the inflation is ended, this abnormal demand vanishes. During an inflation, labor is diverted to luxury items such as furs, perfumes, jewelry, high-end hotels, and nightclubs, while many needs are neglected. In Germany, labor was concentrated in fixed capital, new plant construction, and the overexpansion of businesses producing “instrumental” commodities. Then, as one entrepreneur put it frankly, many of these factories were discovered to be “nothing but garbage.” In many situations, it was quickly discovered that keeping them closed in the hopes of reopening later was a mistake. The cost of maintenance alone was prohibitive. It was more cost-effective to demolish them.
In other words, as the inflation disappeared, so did the distortions and illusions that it had created. The economy had been overdeveloped in some areas at the detriment of others. Inflation had resulted in a significant decrease in real wages. Individual worker average wages and employment both increased dramatically in the opening months of 1924. In January 1924, the index of real earnings was 68.1, and by June 1928, it had risen to 124. This resulted in a significant increase in demand for consumer products and a commensurate decrease in capital or industrial goods production. There was an immediate recognition of a massive overproduction of coal, iron, and steel. In these industries, unemployment has set in. However, careful attention was paid to production costs once more, and labor efficiency was restored.
If borrowing rates are any indication, there was a severe scarcity of operating capital. In April and May of 1924, the interest rate on monthly loans in Berlin reached 72 percent per year. However, a major chunk of this reflected continued skepticism about the new currency’s stability. At the same time, only 16% of loans were in foreign currencies. In October 1924, for example, while interest rates on loans in marks fell to 13%, interest rates on loans in foreign currencies fell to 7.2 percent.
It would be difficult to do a better job of summarizing the entire German inflation crisis than Bresciani-Turroni did in the last paragraph of his monumental work on the subject:
“Because of the gap between the internal and external values of the mark, inflation initially boosted production, but eventually it had a disadvantaging effect, disorganizing and constraining production. It extinguished thrift, rendered national budget reform impossible for years, stymied the resolution of the Reparations issue, and obliterated incalculable moral and intellectual values. It sparked a major shift in social classes, with a few number of people amassing money and becoming a class of usurpers of national property, while millions of people were driven into poverty. It was a sad preoccupation and daily torment for countless families; it poisoned the German people by spreading a spirit of speculation throughout all classes and diverting them from good and regular labor; and it was the source of constant political and moral upheaval. It is understandable why the record of the tragic years 1919-1923 has always weighed heavily on the German people.”
These lines appeared in print for the first time in 1931. There’s only one thing I’d like to say. The demoralization caused by the debasement of the currency was a crucial factor in the election of Adolf Hitler in 1933.
Author’s NoteI owe most of the statistics and some of the other information in this article to two books: primarily, Costantino Bresciani-The Turroni’s Economics of Inflation (London: George Allen & Unwin, 1937), and partly, Frank D. Graham’s Exchange, Prices, and Production in Hyper-Inflation: Germany, 1920-1923. (Princeton University Press, 1930, and New York: Russell & Russell, 1967). The majority of the statistics used by these authors came from official sources.
Footnotes
2 Encounter, 1975, reprinted a lecture given in 1942. The money that retailers had received earlier in the day had lost 60% of its worth!
3 Unemployed workers qualifying for unemployment benefits are not included in the data, nor are part-time workers or personnel in public emergency projects. Prof. Gunther Schmlders was kind enough to provide these to me.
Inflation in Germany during the 1920s: what happened?
In the years following World War I, Germany was in a state of crisis. Kaiser Wilhelm II’s monarchy was overthrown in the November Revolution of 1918, when large groups of sailors, soldiers, and workers took control of Germany’s cities, enraged by their living conditions and demanding an end to the war. As millions of German soldiers returned home from the Western Front, they joined the nation’s growing pool of unemployed, some joining the armed forces of far-left revolutionaries, some supporting the new liberal government, and others joining the counter-revolutionaries who wanted the monarchy restored. At least 1.1 million Germans were unemployed by February 1919, a figure that would continue to climb. The streets of most German cities saw waves of revolutionary and counter-revolutionary violence throughout the next few years. The liberal coalition government fought tooth and nail to keep its interpretations of peace, stability, and order in the face of opposing visions for the country given by far-left communists and far-right counter-revolutionaries.
In May 1919, the Treaty of Versailles saddled the new republic (often referred to as the Weimar Republic) with unprecedented levels of war debt, compounding the internal troubles. The victorious Allies were to get reparations worth half a trillion dollars in today’s money. As a form of payback, Germany’s manufactured commodities, cattle, and raw resources such as coal, iron, grain, and lumber began to be expropriated. The Weimar administration continued to manufacture banknotes with minimal backing despite the loss of physical and financial resources. The German currency began to devalue as a result of this process.
Under the weight of these foreign and internal forces, the German economy began to sag. The value of the German mark plummeted as the first repayments to the Allies were made in the early 1920s, and a period of hyperinflation began. In early 1922, one US dollar was worth 160 German marks. The currency would decline to 4,200,000,000,000 marks per US dollar by November 1923.
What was the impact of hyperinflation on people’s lives?
Consumer behavior changes when hyperinflation is present. People start hoarding today to avoid paying more for products tomorrow. Shortages result from this stockpiling. Hoarding might begin with sturdy items like cars and washing machines. People will hoard perishable products like bread and milk if hyperinflation continues. The economy collapses as daily supplies become scarce and more expensive.
What impact does hyperinflation have?
Due to increasing prices, hyperinflation causes consumers and businesses to require more money to purchase goods. Normal inflation is tracked in monthly price rises, whereas hyperinflation is recorded in exponential daily price increases that can range from 5% to 10% per day.
Why is Germany’s inflation so high?
The annual increase in the national consumer price index (CPI) was 5.2 percent, the highest since June 1992.
The hike did not surprise the ECB, according to ECB board member Isabel Schnabel, who told ZDF television that the central bank’s earlier predictions had not foreseen such a big jump.
According to Schnabel, the central bank believes inflation peaked in November, so raising rates now would be premature because price increases are expected to reduce gradually next year.
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Inflation in the euro zone is likely to jump to 4.5 percent in November, up from 4.1 percent the previous month, according to preliminary figures released on Tuesday.
Base effects, higher energy prices, a pandemic-related temporary VAT rate in the previous year, and material shortages throughout the recovery are all contributing to the recent spike in inflation.
“A downward trend should be visible in the next months, even though inflation rates will remain rather high,” said VP Bank analyst Thomas Gitzel.
“If there are no second-round consequences,” Gitzel added, “the ECB aim of 2% should already be met again by mid-2022.”
The new statistics startled Commerzbank economist Joerg Kraemer, who said it was a disturbing indicator because seasonally adjusted consumer prices grew exceptionally strongly on the month.
“Moreover, prices are rising across the board; it’s no longer only about energy and a few commodities that have been severely hit by the coronavirus outbreak,” Kraemer noted.
While he acknowledged that inflation will likely fall after the new year due to some unique circumstances, Kraemer claimed that the euro zone had too much money circulating due to significant budget deficits and the ECB’s asset purchases.
“The ECB should let up on the gas pedal, stop buying bonds, and halt its negative interest rate policy,” Kraemer added.
Why did Germany experience hyperinflation in 1923, and who helped her get out of it?
When Germany’s treasure was depleted as a result of war reparations, the German currency was heavily minted, and the value of the German MARK plummeted. Hyperinflation resulted as a result of this. Germany was hauled out of this situation by the United States.
Is there a problem with inflation in Germany?
In 2019, Germany’s inflation rate was 1.35 percent. The current rate is in line with the European Central Bank’s goal rate of “below, but close to” 2%. Many central bankers prefer inflation of 2 to 3%, but the Germans, in particular, would rather risk deflation than inflation of more than 3%.
How did Germany deal with the effects of inflation?
Stresemann collaborated on the economy with US Budget Director Charles Dawes. The German Reichsbank was restructured on Dawes’ recommendations, and the old money was summoned in and burnt. This brought the hyperinflation to a stop. The Dawes Plan, which granted Germany more time to pay reparations, was also devised by Dawes and Stresemann.