“Das Krisenjahr” – The Trauma of the Hyperinflation of 1923 During the Weimar Republic in Germany.
The fight against inflation has since become a doctrinal pillar of Germany.
Wheelbarrows of banknotes to buy a piece of bread, prices that tripled or quadrupled in a few hours ... In Germany, few people have not heard of the great inflation of 1923, “Das Krisenjahr” (the year of the crisis) as it was called in Germany. It must be said that the event deeply destabilized German society, already traumatized by the defeat of 1918 and its consequences …
The military collapse of Germany and the political and social upheavals that followed it were the starting point for this unprecedented price surge. In 1918, Germany is down. Overthrown by the revolution that broke out in November of that year, Kaiser Wilhelm II went into exile. He was replaced by a coalition of social democrats, Catholics, and liberals.
Thus was born the Weimar Republic, which would last until the advent of Adolf Hitler in 1933. But the Weimar Republic was fragile, threatened on both the right and the left. In January 1919, it bloodily crushed the Spartacist uprising in Berlin, led by the left. The repression was carried out by the Corps Francs, paramilitary units that had proliferated since the end of the war. Then, with the support of the left, the Weimar Republic thwarted the Kapp putsch, an attempted coup d'état led by conservative currents.
Politically, the situation in the country was highly inflammatory … Economically, it was equally so.
Germany has lost more than 2 million men. Having had massive recourse to borrowing, the country experienced inflationary pressures throughout the war. At the end of the conflict, households and companies held large quantities of money, mainly in fiduciary and scriptural form - bonds, bills, annuities, etc. - as metal money had almost disappeared.
Alarmed by the level of public debt, the Germans rushed to liquidate the marks they had hoarded against hard currency. This “flight from the mark” only added a new wave of paper to the money supply in circulation, in turn increasing inflation. The rising cost of living increased social unrest. Strikes increased throughout Germany, further aggravating political and social tensions. The resulting disruptions in production are pushing up prices.
And then, of course, there was the issue of reparations. They were to be the catalyst for the crisis of 1923. At the end of the war, Germany was condemned to pay 269 billion marks - more than half of which to the French - an astronomical sum that it could hardly pay when its gold reserves had melted away and its productive wealth amounted, at that time, to only a few billion marks per year.
As early as 1919, the economist John Maynard Keynes criticized the aberration of these distributions, attacking, in particular, the French intransigence:
“Clemenceau's advisors undermined the claims of the devastated regions by brazenly exaggerating them. They abandoned France's right of priority for provisions that would carry the total far beyond Germany's ability to pay ... and inflicted on Germany an unbearable burden.”
In Paris, they were determined to “make the Germans pay”, so they had no other solution than to resort to printing money.
Until the end of 1922, despite the growing tensions, inflation remained more or less under control. The dollar, which was trading at 4.2 marks in 1914, reached 42 marks in 1920 and 420 in June 1922. Germany even experienced a brief episode of growth. The breaking point came on November 22, 1922. On that day, the new Chancellor Wilhelm Cuno asked France to suspend the payment of reparations for two years. Not only did Paris refuse, but on January 11, 1923, French - and Belgian - troops occupied the industrial basin of the Ruhr to take a pledge and force Germany to pay.
Cuno's reaction was immediate: he decreed passive resistance, achieving the feat of uniting all the political parties around his policy. German workers went on strike, while some industrialists preferred to be arrested rather than work for the French. A state of siege, occupation of the mining sites, ban on sending coal to Germany, the expulsion of thousands of German workers, replaced by French, arrests ... The reaction of France was brutal. But Cuno's strategy came at a high cost: to support the Ruhr strikers financially, he was forced to turn the printing press on full blast. Already shaken, confidence in the mark disappeared completely ...
50 billion banknotes appear in Germany
Thus began the Krisenjahr at the beginning of 1923. The numbers are staggering. In January 1923, the dollar reached 49,000 marks. It is at 4.9 million marks in August, at 440 million on October 3, at 42 billion on October 20, at 420 billion on November 3 ...
Between 1913 and November 1923, the retail price index rose from 1 to 750 billion!
Everywhere in Germany, we witness amazing scenes. Individuals come to buy their bread with wheelbarrows of bills. If they leave it unattended for a few minutes, they find the bills thrown on the ground ... but not the wheelbarrow, which is stolen because its value is higher than that of the mark!
In restaurants, the price of meals varies according to the time of the order and the time when the bill is presented, so much so that restaurant owners are sometimes forced to offer extra dishes to their customers; in companies, employees are paid several times a day; bundles of bills are burned to keep warm, to upholster chairs or to line the walls ...
To respond to this incredible waltz of labels, the central bank has to print 50 billion marks. It was not the only one: the economic agents themselves, whether large companies or banks, began to manufacture their bills, which added to the rise in prices, which had become uncontrollable.
During the summer of 1923, farmers refused to accept the paper mark in exchange for their products, causing serious shortages. Everywhere, bartering reappeared. Not everyone was affected in the same way: the most affected were the rentiers, savers, and holders of public loans, many of whom belonged to the middle class. Civil servants and small businessmen, but also peasants, who are still largely dominant, fare better.
The country's level of indebtedness, speculative pressure on the mark, loss of confidence in fiat money, poor circulation of goods, multiplication of money-producing agents... All these factors combined to maintain hyperinflation.
To make matters worse, Germany was faced with secessionist attempts. In September 1923, Bavaria, soon followed by Thuringia and Saxony, refused to recognize the authority of the central government. In November 1923, a certain Adolf Hitler and a few thousand members of his National Socialist German Workers' Party (NSDAP) tried to seize power in Munich, without success.
However, the time for the end of the crisis was not far off. On August 13, 1923, Chancellor Cuno resigned. He was replaced by Gustav Stresemann, now at the head of a grand coalition. As civil war threatened and the economic situation became increasingly chaotic, his first decision was to end the passive resistance in the Ruhr - which was costing the country a fortune - and to commit to the financial obligations imposed by the Treaty of Versailles.
This decision led to renewed confidence on the part of investors. The French and Belgians evacuated the Ruhr in 1925.
The rise of Hitler was not favored by this hyperinflation, but rather by the crisis of the 1930s in a deflationary context
But it was above all the monetary reform undertaken at the end of 1923 that put an end to hyperinflation. It was entrusted to Hjalmar Schacht, former president of the Central Bank, who was appointed currency commissioner. On November 20, 1923, he banned all private currency issues and stabilized the currency by creating the Rentenmark.
One dollar now corresponded to 4.2 Rentenmarks, the value of the mark in 1913.
The new currency was introduced in August 1924 and was welcomed by investors because it was partially convertible into gold. The Dawes Plan of April 1924, which set a new timetable for reparations, formalized the evacuation of the Ruhr by France and granted an Anglo-American loan to Germany, completing the restoration of confidence. Germany finally turned the page on the crisis...
For a long time, it was believed that the great inflation of 1923 had played a decisive role in Hitler's rise to power. In reality, this was not the case. It occurred later, during the economic crisis of the early 1930s and in a context of strong deflation. What is certain, however, is that the crisis of 1923 had lasting consequences on the evolution of mentalities in Germany.
Traumatized by hyperinflation - both in the 1920s and in 1945-1948 - the Germans made monetary stability the core of their economic policy. This was the objective behind the creation, in 1948, of the Deutsche Mark and the Bundesbank, which was independent of political power from the outset. Under German influence, the fight against inflation also became one of the “doctrinal pillars” of the European Union.
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