Weimar Inflation, 1921–22

From The Weimar Years: Rise and Fall 1918–1933, by Frank McDonough (Bloomsbury, 2023), Kindle pp. 218-219, 238, 242:

The Weimar Republic would have undoubtedly been helped by having a stable economy, but instead it was fragile, with a rate of growth well below that of its major competitors. German growth from 1913 to 1929 was 0.3 per cent, compared to 1.4 per cent in the UK and 2.2 per cent in the USA. The state of the German budget in 1921 made grim reading. The accumulated government debt was over 400 billion marks. The government had to also bear the cost of food and wage subsidies to deal with rising inflation. The Weimar government refused to cut expenditure or to raise taxes to deal with the deficit. This kept people in jobs. Unemployment in 1921 was at a record low of 0.9 per cent.

In response to rising prices, the German government simply printed money, which only served to push prices up still further. The rising cost of living was already causing industrial unrest in the Ruhr, in the autumn of 1921, and led to bread riots. There were also severe shortages of food in shops. Prices of basic goods rocketed by 40 per cent in the last three months of 1921. Inflation was worst for those on fixed incomes, as it was gradually wiping out their savings and reducing their real spending power. This affected even previously affluent pensioners and those with investments, usually people in solid salaried middle-class occupations such as academics, civil servants, and lawyers. War widows, disabled war veterans and those on welfare on fixed benefits also suffered greatly from the rise in the cost of living.

It would be wrong, however, to think that inflation was bad for everyone. Industrial workers, supported by strong unions, saw their working hours decrease, but their wages increase, often in line with inflation. Big industry also did very well, with industrial production increasing by 20 per cent in 1921–22. The rich industrialists – among them Hugo Stinnes, the richest of them all – grew much richer during the era of high inflation and spent their money on material assets, especially property and new machinery. They also had access to foreign currency loans at low interest rates, and because of inflation interest payments on these were reducing week by week.

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Meanwhile, Germany’s reparations payment difficulties continued. During July, prices inside Germany rose by 50 per cent, which was then accepted as the beginning of the hyperinflation period. A litre of milk had cost 7 marks in April 1922, but rose to 16 marks in August, and then to 26 marks by mid-September. The prices of other basic goods rose in a comparable manner. The German government response to rising inflation was to continue printing money, with the number of marks in circulation rising from 35 billion in 1919 to 200 billion in 1922.

Hyperinflation led in turn to a dizzying fall in the value of the German mark, which the Reichsbank, lacking gold and foreign currency reserves, was powerless to stop. On 29 July, the mark hit a new low of 650 to 1 US$. The German government claimed this fall in the value of German currency was linked to the demand by the Allies for cash reparations payments. State and local authorities began to issue money tokens called Notgeld ['emergency money'] to replace payments in worthless paper marks.

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On 14 August [1922], the Conference on Reparations ended without any agreement on Germany’s request for a further payment holiday. On the next day, the German government once more defaulted on its reparations payments, claiming it could not afford to pay. The downward tumble of the mark continued. On 24 August, it plummeted to a new all-time low of US$2,000 to 1 mark [sic; should be 2000 marks to 1 US$!], or 9,000 to the British pound. On 31 August, the Allied Reparations Commission decided to grant Germany an exceptional six-month moratorium on reparations payments.