What were the causes of the German hyperinflation of 1923 and what were its economic, social and political consequences to the end of 1923?
What were the causes of the German hyperinflation of 1923 and what were its economic, social and political consequences to the end of 1923?
The German hyperinflation of 1923, which effectively provided the extreme right with a medium to seize power, arguably had its roots within Germany’s inability to meet the clauses drawn up in the Treaty of Versailles, which the French were keen to vigorously enforce. Significantly the turmoil was also one of Germany’s own doing and coupled with her refusal to comply with the Allies demands, the causes of the hyperinflation can be categorised in to either long term reasons, the fact that Germany was unable realise its commitment to repay loaned ‘War Bonds’ and secondly from the burden of the unworkable reparations bill, or into the short term factor of 1923 which saw the impact of the French invasion of the Ruhr lead to the economically crippling action of ‘passive resistance’. The German hyperinflation itself had widespread and devastating consequences for Germany’s economic, social and political climate and perhaps most significantly hit the middle class who, after suffering the loss of their money which had been tied up in banks and pensions, lost faith in the Weimar Republic and ignoring the ‘red menace’ of the Communist threat, unlike they had previously done in 1919, swayed towards the extreme right in search of a reactionary monarchist party who operated in similar fashion to that of the now disbanded but not forgotten Kaiserreich.
Significantly Germany was suffering from acute inflation before 1923 and the French invasion of the Ruhr. The German war effort itself was financed not through taxation but instead was funded by borrowing from the German population, in particular from the upper classes who were willing to invest in Germany in the hope that it would reign victorious over the Allied powers. The loans came in the shape of ‘War Bonds’ and were to be repaid, with added interest, after the conclusion of the war where it had been assumed that the defeated Allied powers would be drained of their money in order to repay the German population. In stark contrast the onus fell upon Germany to repay its own internal debts and this placed massive financial burdens upon the German Government who realised that they were in no position to meet their debts. In addition by May 1921 the Allied Reparations Commission had also finalised the amount that they believed that Germany owned in order to meet the structural and long-term costs that the Allies had endured in the First World War, with the unpayable sum of six thousand six hundred million marks agreed. This, coupled with Germany’s own internal debts, had disastrous repercussions for Germany’s economic footing and by 1922 Germany was left saddled with huge unworkable debts that would ultimately leave it crippled and susceptible to the threats of both the left and the right. The government, lead by Finance Minister Water Rathenau, was forced to comply however at the same time also opted to pursue a policy of ‘fulfilment’ which looked to ensure that the Allied powers would recognise that the bill was unfeasible and opt to alter it. Outside Germany however it had become apparent to the Allies, who were becoming increasing alarmed at the falling value of the mark, that the reparations bill was placing enormous pressures on Germany’s economy and instead of relieving Germany’s financial strain insisted that the government stabilise the value of the mark. Consequently international flight from the German mark became common place as its value began to plummet and this therefore meant that German imports became increasing expensive and in order to deal with this raise in prices the powerful German trade unions sought to compensate by ensuring substantial wage rises. A steep and accelerating inflation rate thus set in as both wage and price rates spiralled out of control of the German government and it was evident that German finances were in a critical condition. The German government looked to resolve its financial difficulties by printing excess quantities of paper money and as a consequence the French Prime Minister, Poincare, who was ardent that the Treaty of Versailles was to be fully complied with, accused the government of printing money as a deliberate attempt to drive the value of the mark down and then to pay of the rest of their reparations bill in workless currency. On 9 January 1923, after exclaiming that if necessary he would seize’ productive pledges’ from Germany, Poincare ordered French and Belgian forces into the Ruhr, justifying his actions by indicating the a German consignment of telegraph poles had not materialised. The German Government responded by issuing a policy of ‘passive resistance’ which declared that German coal workers were not to comply with French orders and effectively strike against the French occupation. It was a deliberate attempt force the French out, however at the same time the German government was forced to pay the German workers who were now unemployed and secondly suffered the financial loss of tax revenues which together created a substantial budget deficit. Within six months a single dollar amounted to around five million German marks and again the government responded by incompetently printing more paper money. Between the months of September, October and November 1923 there was a spike in the hyperinflation rate and a ‘J’ curve effect noted. The dollar was now worth around four billion marks and famously there were reports of the now worthless currency being used to fuel household stoves. The German economy had completely collapses, to the extent that under Stresemann the policy of ‘passive resistance’ was abandoned, the damage however was already devastating.
