Hyperinflation

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Summary
Hyperinflation happened because the Weimar government printed banknotes to pay reparations and - after the 1923 French invasion - the Ruhr strikers. Because these banknotes were not matched by Germany's production, their value fell. Prices spiraled out of control and people with savings and fixed incomes lost everything.
Anger at foreigners, and at the rich profiteers who made their fortunes from the hyperinflation, added to the support of extreme political parties such as the fascists and the communists.
Causes of Hyperinflation
The word `inflation' describes a situation in which prices are rising and the value of money is falling. It is commonly said that inflation is caused by too much money chasing too few goods. Inflation occurs, in other words, when the supply of goods fails to keep up with demand. Inflation is not easy to stop once it has got started. An inflationary spiral tends to set in. Rising prices produce a demand for higher wages: higher wages mean that goods cost more to produce: prices have to go up again to pay for the wage increases.
Germany began to suffer serious inflation during the war. The German government did not pay for the war by taxing people more heavily. Instead it paid its bills by printing banknotes. Soon there was too much money chasing too few goods. An inflationary spiral had started.
Things got worse at the end of the war. A huge amount in reparations was demanded from Germany. The sum to be paid was fixed at £6,600,000 in 1921. Many foreigners thought that Germany would be unable to pay. They began to lose confidence in Germany's currency. Foreign banks and businesses expected increasingly large amounts of German money in exchange for their own currency. It became very expensive for Germany to buy food and raw materials from other countries. This led to a further increase in prices in Germany.
Late in 1922 Germany failed to pay an instalment of reparations on time. France replied in January 1923: French troops occupied Germany's main industrial region, the Ruhr. The French were determined to make Germany pay every penny she owed. They wanted to keep Germany weak. A weak Germany meant that France was safe from the threat of attack.
The German government ordered a policy of passive resistance in the Ruhr. Workers were told to do nothing which helped the invaders in any way. What this meant in practice was a general strike. The cost of the government's policy was frightening. All the workers on strike had to be given financial support. The government paid its way by printing more and more banknotes. Germany was soon awash with paper money. The result was hyperinflation.
Alan White and Eric Hadley, Germany 1918-1949 (1990)
Causes of Hyperinflation Questions
1.Define inflation.
2.Identify the three reasons why hyperinflation occurred in Germany.
Effects
This table shows what happened to the price of bread in Berlin (prices in marks):
December 1918 / 0.5
December 1921 / 4
December 1922 / 163
January 1923 / 250
March 1923 / 463
June 1923 / 1,465
July 1923 / 3,465
August 1923 / 69,000
September 1923 / 1,512,000
October 1923 / 1,743,000,000
November 1923 / 201,000,000,000
and this is what happened to the price of some other goods:
Item / 1913 / Summer 1923 / November 1923
1 egg / 0.08 / 5,000 / 80,000,000,000
1 kg butter / 2.70 / 26,000 / 6,000,000,000,000
1 kg beef / 1.75 / 18,800 / 5,600,000,000,000
Pair shoes / 12.00 / 1,000,000 / 32,000,000,000,000
Effects Question
  1. Looking at the first chart, between what two months did hyperinflation seem to get completely out of control?
  1. What product was the most expensive to purchase in Germany in November, 1923? Based on this answer, do you think ordinary German people had a lot of nice things at home? Why or why not?

Personal Experiences with Hyperinflation
As soon as the factory gates opened and the workers streamed out, pay packets (often in old cigar boxes) in their hands, a kind of relay race began: the wives grabbed the money, rushed to the nearest shops, and bought food before prices went up again. Salaries always lagged behind, the employees on monthly pay were worse off than workers on weekly. People living on fixed incomes sank into deeper and deeper poverty.
Experiences Questions
  1. Why did people rush to spend their money as soon as they received it? Look at the charts above for hints.
  1. Why were people on monthly salaries worse off than people on weekly salaries?

Personal Experiences with Hyperinflation
Two women were carrying a laundry basket filled to the brim with banknotes. Seeing a crowd standing round a shop window, they put down the basket, for a moment to see if there was anything they could buy. When they turned round a few moments later, they found the money there untouched. But the basket was gone.
The memories of a German writer
Experiences Questions
  1. Why would thieves steal the baskets but not the money inside?

Personal Experiences with Hyperinflation
Countless children, even the youngest, never get a drop of milk and come to school without a warm breakfast ... The children frequently come to school without a shirt or warm clothing or they are prevented from attending school by a lack of proper clothing. Deprivation gradually stifles any sense of cleanliness and morality and leaves room only for thoughts of the struggle against the hunger and cold.
Report by the Mayor of Berlin, 1923
A friend of mine was in charge of the office that had to deal with the giving out of ... pensions ...in the district around Frankfurt.... One case which came her way was the widow of a policeman who had died early, leaving four children. She had been awarded three months of her husband's salary (as a pension). My friend worked out the sum with great care ...and sent the papers on as required to Wiesbaden. There they were checked, rubber stamped and sent back to Frankfurt. By the time all this was done, and the money finally paid to the widow, the amount she received would only have paid for three boxes of matches.
A German woman who ran a Christian relief centre for the poor
Billion mark notes were quickly handed on as though they burned one's fingers, for tomorrow one would no longer pay in notes but in bundles of notes... One afternoon I rang Aunt Louise's bell. The door was opened merely a crack. From the dark came an odd broken voice: 'I've used 60 billion marks' worth of gas. My milk bill is 1 million. But all I have left is 2000 marks. l don't understand any more'.
E Dobert, Convert to Freedom (1941)
One fine day I dropped into a cafe to have a coffee. As I went in 1 noticed the price was 5000 marks - just about what I had in my pocket. I sat down, read my paper, drank my coffee, and spent altogether about one hour in the cafe, and then asked for the bill. The waiter duly presented me with a bill for 8000 marks. 'Why 8000 marks?' I asked. The mark had dropped in the meantime, I was told. So I gave the waiter all the money I had, and he was generous enough to leave it at that.
The memories of a German writer
Experiences Questions
  1. Read the personal stories above of ordinary Germans attempting to deal with hyperinflation. Summarize the problems that hyperinflation caused besides the rising cost of goods to the German people.

Results of Hyperinflation
Certain things about the inflation roused people to anger, and this anger led to outbreaks of violence:
Many shops remain unopened and others are barricaded ... Many lorries were held up on their way to market and were looted of potatoes, meat and bread as well as of tobacco and boots.
Evening Standard (a British newspaper) for 13 October 1923
Results of Hyperinflation Questions
  1. Why do you think hyperinflation caused outbreaks of violence?

Results of Hyperinflation
This financial disaster had profound effects on German society: the working classes were badly hit; wages failed to keep pace with inflation and trade union funds were wiped out. The middle classes and small capitalists lost their savings and many began to look towards the Nazis for improvement. On the other hand landowners and industrialists came out of the crisis well, because they still owned their material wealth - rich farming land, mines and factories. This strengthened the control of big business over the German economy. Norman Lowe, Mastering Modern World History (1982)
Results of Hyperinflation Questions
  1. Who was hardest hit by hyperinflation? Why?
  1. Why were landowners and industrialists able to come out of hyperinflation well?

Results of Hyperinflation
When I was a student in Freiburg only some 30 miles from the Swiss border there was a regular influx of visitors from nearby Basle. They were quite ordinary people who came for a day's shopping and enjoyment. They filled the best cafes and restaurants, bought luxury goods. Most of us had very little money and could never afford to see the inside of all those glamorous places into which the foreigners crowded. Of course we were envious . . . Contempt for such visitors combined with envy to produce in most of us a great deal of anti-foreigner and nationalist feeling.
Memories of William Guttman
Results of Hyperinflation Questions
  1. Why did hyperinflation lead to anti-foreigner feelings?

SAQ - Make A Prediction: Using knowledge of coalition governments and Germany’s experience with democracy, how would the Hyperinflation crisis hurt the Weimar Republic and help the rise of the authoritarian leader Adolf Hitler?

Write your answer on the back or a separate piece of paper.