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Why Did Germany Experience Hyperinflation in 1923?

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Introduction

Amanda Belden L6A Dec 2001 WHY DID GERMANY EXPERIENCE HYPERINFLATION IN 1923? In 1923 the Weimar Republic experienced its biggest economic crisis yet, hyperinflation. The crisis was not created because of one event, but due to several, whose consequences escalated as the years went on. The root of the problem lay in the economic hangover of WWI as Germany lost the war and was severely in debt. The Weimar constitution prevented quick decisions to be taken and so the resolves were the 'easy way out' rather than those that would help the republic in the long-term. The invasion of the Ruhr was the last measure for the German economy, and as a result it succumbed to hyperinflation. It was unknown at the time how the decisions taken would affect Germany's economy later on, and so the government acted in the present rather than the future. However, with hindsight, it is possible to outline the lead up to the economic crisis and hyperinflation in Germany. After WWI, the defeated Germany was in a very bad position economically. Inflation had begun during the war itself, as the government of the time funded the war by borrowing and printing more money. The government's expenditure was high and taxation low. It had been assumed that Germany would actually win the war and that peace would lead to economic stability. ...read more.

Middle

Both of these reasons heavily impacted the decisions the Weimar government took in response to the inflation after WWI. In 1919 the German government had two options in which to curve the effects of inflation. One was to cut expenditure and to raise taxes. Naturally this would have been very unpopular with the German people who had little money. Such action would have hit the industries hard so unemployment would have risen and incomes fallen. However, there would have been an increased confidence in the currency and the foreign value of the mark would have been stabilised and inflation lowered. The other option open to the government was to borrow and print more money. This seemed much more attractive to the government as there was an acute need for money in the economy. With this method the government was able to maintain government expenditure, which meant that welfare payments would remain and the government's economic policies would seem popular. The government chose the easy and more favourable option, to print and to borrow more money. The problem with this was that with borrowing money, Germany fell further and further into debt. It also became imperative to feed money into the economy as the Weimar Republic was facing pressures on all sides. The victorious powers had imposed the Treaty of Versailles on Germany and were continually asking for reparations, and the people in Germany were starving as the living standard fell further. ...read more.

Conclusion

The above shows that the crisis was not triggered by one factor, there were several. Germany experienced inflation in 1923 because it was sparked by the Ruhr invasion, but it cannot be said whether hyperinflation would not have occurred without such a trigger. At the time the Weimar government was criticised for hyperinflation, but there were other factors involved, such as French revenge for WWI and the nature of the Weimar constitution. The pressure of reparations and welfare seemed to prevent a cure from being found in response to inflation. After such a destructive war the people were looking for an immediate response to the problem, not a long-term one. The government also decided to prevent unemployment, trying to act in the best interests of the people as Germany had just been hauled through a gruesome defeat, which had stripped the country of its pride, and the people were severely wounded. However the printing of more money caused inflation. Blame for the crisis was not placed on the Imperial government, which had borrowed the money during the war, but on the Republic, which had to 'clean up' the causes of such action. Unfortunately inflation was slow to take hold in the post-war period, if it had been more apparent, it may have been conquered earlier. Although Weimar ended up surviving hyperinflation, the Republic was tarnished with its memory. The crisis became a shadow, which only took its full form during the Depression of 1929 and contributed to the death of the republic. ?? ?? ?? ?? ...read more.

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