Today in History- October 11, 1923: Hyperinflation in Weimar Germany Hits Highpoint, Sowing Seeds for Nazi Rise to Power

 Today is the anniversary of the collapse of the value of the German Papiermark to the level of $1 to 4 Billion Marks. Concretely, what that meant in real terms, was that a loaf of bread in Weimar Germany, which had cost less than 1 Mark, or 26 cents in 1919 immediately at the end of World War I, rose to a cost of 200 million Marks by November of 1923. 

 

You have likely seen old photos of the long lines for bread throughout Germany, or heard stories about the dislocation, shortages, chaos and absurd circumstances which were forced upon the German people after the War, and have some kind of mental construct as to what this was like for them. 

The roots of this crisis were the consequences of Kaiser Wilhelm II making the awful decisions which led to WWI, and deciding to end the Gold Standard, (convertibility of the Mark to Gold) which meant paying for the War by having the Reichstag borrow money. France, on the other hand used an income tax to finance the War. The Kaiser bet everything on winning the War, hoping that a German victory would yield enough "spoils" to pay back what they had borrowed, including seizing some of the resource rich areas to their East and West, and imposing a cash indemnity on the vanquished powers as had France after the War of 1870. 

We know what happened then. 

"The cause of the immense acceleration of prices seemed unclear and unpredictable to those who lived through it, but in retrospect, it was relatively simple. The Treaty of Versailles imposed a huge debt on Germany that could be paid only in gold or foreign currency. With its gold depleted, the German government attempted to buy foreign currency with German currency,^[11] equivalent to selling German currency in exchange for payment in foreign currency, but the resulting increase in the supply of German marks on the market caused the German mark to fall rapidly in value, which greatly increased the number of marks needed to buy more foreign currency.

That caused German prices of goods to rise rapidly, increasing the cost of operating the German government, which could not be financed by raising taxes because those taxes would be payable in the ever-falling German currency. The resulting deficit was financed by some combination of issuing bonds and simply creating more money, both increasing the supply of German mark-denominated financial assets on the market and so further reducing the currency's price. When the German people realized that their money was rapidly losing value, they tried to spend it quickly. That increased monetary velocity caused an ever-faster increase in prices, creating a vicious cycle.^[35] 

The government and the banks had two unacceptable alternatives. If they stopped inflation, there would be immediate bankruptcies, unemployment, strikes, hunger, violence, collapse of civil order, insurrection and possibly even revolution.^[36] If they continued the inflation, they would default on their foreign debt.

However, attempting to avoid both unemployment and insolvency ultimately failed when Germany had both.^[36]"

-Wikipedia

 

The highly punitive Treaty of Versailles took a horrible revenge on Germany, imposing reparations payments which were impossible, and economic conditions which were crippling. They were forced to sell off everything possible, food, machines, manufactured goods, to generate foreign exchange to meet these payments. When they had nothing left to export, they were forced to print more currency to purchase foreign currency and commodities. 

This led to extreme shortages, and the absurd situations of people being forced to use wheelbarrows and wagons to take enough Marks to the shops to buy groceries.

Here is the Consumer Price Index for that period

The post War collapse of the German economy led to a Socialist Revolution which failed, and not long after, the first political actions by Hitler’s Nazis, with the famous "Beer Hall Putsch", an armed political coup against the local government. (which should be compared to the attempt of Michigan Militia members to kidnap and kill Governor Whitmer. Fascism started with "small beginnings")

The day to day life of Germans became increasingly chaotic. Because the rate of hyper-inflation accelerated by the hour, German workers insisted on being issued paychecks by day, and later multiple times per day, literally meeting family members at plant gates to give them their pay to buy necessities before the price went up, and before the supply was gone. Literally, German housewives were running relay races to cope with the currency and shortage crises. Money had virtually no value, and there was very little to buy with it.

 

 People burned money in their stoves and fireplaces for heat and to cook with. They stuffed mattresses, papered their walls, and made clothes of it. The shortages created desperation and hardship, with meat being in such shortage that there was an epidemic of serial killers committing murder and selling the butchered remains for potted meat. (See my blog article, "How the Nazis Campaigned for the Death Penalty to Win Elections")   

Eventually, the chaos was of such a nature that the Allies had to make adjustments to prevent a Soviet backed insurrection and coup, so the Reichsbank brought in a new Chairman, Hjalmar Schacht, to stabilize the currency and implement a savage economic austerity plan, with some restructuring of debt and reparations. The Germans still suffered and the crime and street fighting accelerated, especially after the 1929 Crash and Global depression. 

 It is worth remembering that in times of deep economic depression, desperation and chaos lead to rise of radical movements, which fall prey to demagogues. Demagogues of the Left and Right all appeal to the anger and rage produced by these events, and make promises of justice, restoring order, revenge against those who victimized them, putting money on their table, and scapegoating some group, foreign or domestic for their ills. These were the circumstances in which Hitler and his Nazis rose to power, destroyed the Weimar Republic, and began to visit their nightmare upon the world.

Were it not for the leadership of Franklin Roosevelt, the United States could have gone down  this path. This is vital to keep in mind, as we navigate the crisis of the next months, and hopefully can bring about a Biden Presidency, which will learn the lessons of the 1920's, and look at the examples of how FDR led us out of the Depression. The consequences of not doing that are unthinkable.