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

However, the amount of reparations actually paid by Germany was relatively small. It has been estimated that they paid roughly one eighth of the total amount. Also, many of the required payments were in goods and not actual currency. The government were almost certainly over reacting by printed off excessive amounts of currency. The occupation of the Ruhr in 1921, Germany’s industrial heartland, cannot be blamed for hyperinflation as inflation had been on the increase since 1914. Geoff Layton believes that “the reparations issue should be seen as only a minor contributory factor to the inflation.” 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. Introducing new taxes would have increased discontent in an already unstable society and disrupted industry. Also, some believe that deficit financing was a clever tactic to portray Germany as a poor nation and avoid paying reparations. Kolb believes that “the government’s passiveness in the matter of currency stabilization is no doubt to be interpreted as part of its strategy over reparations.” In this sense the responsibility for the government’s actions can be blamed on the Treaty of Versailles, albeit indirectly.

The Wilhelmine regime must also shoulder some of the responsibility. The country was plunged into ever increasing debt and the new democratic government left to deal with it. The economy was not prepared for a long drawn out war. The Wilhelmine policy of borrowing via war bonds and foreign loans contributed to economic instability and caused wide scale anger when borrowings could not be repaid. Inflation was actually on the increase from 1914 onwards, which proves that the Wilhelmine regime, which lost power in 1918, went some way towards causing the hyperinflation of 1923.

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.