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How significant was the Treaty of Versailles as a factor in explaining the German hyperinflation of 1923?

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Introduction

How significant was the Treaty of Versailles as a factor in explaining the German hyperinflation of 1923? In 1923, Germany saw a rapid increase in inflation which reached unprecedented levels. In January of that year, one US Dollar was equal to 17,792 Marks, but by November a Dollar was equal to 200,000,000,000 Marks. This was the highest rate of inflation ever seen and had far reaching social as well as economic consequences. The causes of this "hyperinflation" have been widely debated. Most people at the time placed the blame solely on the harsh terms of the Treaty of Versailles. This was the treaty agreed by the allies and Germany to end the First World War, although Germany had little say in the matter. Germany was forced to pay reparations to the allies for damage caused during the war. ...read more.

Middle

He thinks that the blame should be placed on the government's handling of the economy. There is certainly a lot of evidence that the actions of the Weimar government did little to help the economic situation in the early 1920s. Instead of raising taxes and cutting expenditure, approaches which would be proved effective by Stresemann in 1923, they adopted a policy of "deficit financing." They borrowed more money and printed more currency in order to maintain public spending and avoid raising taxes. The government's attempt to postpone payments in 1922 ended in disaster, when the French claimed that Germany was breaking the terms of the treaty and occupied the Ruhr. But the blame cannot be placed solely on the government and it must be understood that they were in a tough situation. ...read more.

Conclusion

It makes sense to distinguish between the period of slow increase in inflation from 1914 to 1921, and the period of rapid increase in inflation from 1921 to 1923. The slow increase in inflation cannot be attributed to the Treaty of Versailles and the issue of reparations, as these didn't exist at that time. This was caused by incompetent government policies and the burden of a long drawn out war. However, it is easy to see the reparations as a trigger cause of the rapid increase in inflation from 1921 onwards. The treaty caused the government a major dilemma - how to find enough foreign currency to pay the reparations without increasing taxation on the population. The allied occupation of the Ruhr exacerbated this problem. But although the treaty made matters worse, the government could still have tackled the problem without resorting to the mass printing of money that caused hyperinflation. Therefore the Weimar government must take most of the blame for the hyperinflation of 1923. ...read more.

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