Coupled with the loss of industry is the loss of population. Not only did this mean less people to work in Germany to make it economically strong, but it also meant a loss of income for the government via taxes. As there were less people to tax this would mean a rise in taxes for those left in the country to make up for the loss of revenue; yet the government was reluctant to raise taxes, and decided to print more money.
The signing of the treaty of Versailles left the public with a lack of confidence in the government and the financial system. This is because the German public were not expecting to lose the war, let alone to have the government sign a crippling treaty. During the spring offensive in 1918, the public was told that they were going to win the war and all their poverty would be fixed by reparations from the allies. But the reality was; in fact, the opposite of this; thus shaking people’s confidence in the government and the financial system. This lack of faith in the currency led the hyperinflation as where people thought the money was worth less, the prices would rise, leading to an unsustainable rate of inflation.
The Treaty of Versailles was a big factor in hyperinflation as it was designed to make Germany weak and powerless, and yet Germany had to still pay reparations and other costs. Printing more money seemed to be a solution to this problem, yet it brought its own problems.
The German people at the time blamed the French and the Belgian for the hyperinflation. This is because the invasion of the Ruhr was when hyperinflation really took off. The allies invaded the Ruhr to collect unpaid reparation, and the government called the workers to strike and set up a “passive resistance” and the strike was funded by the government. Income to the government fell as Germany’s industrial land was brought to a halt, but welfare to the workers had to be paid. With a lack of income the government just printed more money.
It wasn’t just these factors that caused the hyperinflation, there were also political reasons.
The instability of government was also a factor. The government had no real grounding, due to frequently changing coalitions and no money to achieve its aims.
However, instead of raising taxes which would have been unpopular but economically safer, the government instead decided to print more and more money to try and solve the problem. However this caused a huge increase in the amount of money in circulation which rapidly increased inflation and lessened the money’s real value.
The Government had also put a lot of money into the First World War, and it was confident of winning it all back. However they lost the war, and were left with a huge national debt and reparations; which together was a huge amount for the government to pay. So to try and combat this, the government printed yet more money.
Economically the hyperinflation was caused by a huge loss of confidence in currency, due to a combination of all these reasons. It was also unable to try and stop this chain of events.
Overall I think that although all of the reasons are important, the Treaty of Versailles was the main cause. For without it the government wouldn’t have had to deal with the invasion, and public opinion would still be good. However; I think the government could have tried to raise taxes instead of printing more money, but this would have led to other problems, such as an unpopular government, which would increase support for extremists. So overall I feel that hyperinflation was inevitable and was caused by all of the above reasons.
