When Money Dies & The Downfall of Money

These books about the Weimar Republic and the German Hyperinflation after WWI are enlightening. Written by, in order, Amam Fergusson and Frederick Taylor, they both describe the history (When Money Dies is a bit tedious). It began with Archduke Ferdinand of Austria being assassinated in Sarajevo. All the leaders of Europe were somewhat related and WWI started as a bit of a family fight. Germany was part of the Austria-Hungary connection and the rest is history (you can read about WWI).

So Germany thought it would be a quick battle. They went off the gold standard in 1914 and decided to finance the war by borrowing. In fact, the German money supply expanded by 5x between 1913 and 1918. Germany didn't have the same kind of empire as the UK and France thus less access to food and resources. The blockage of their ports didn't help. After they lost in 1918, the Kaiser fled to Holland, and the government from '18 to '23 had many diverse parties including socialists, communists.. there was no true leadership. When the Germans retreated - they'd taken over a large part of France - they destroyed much of the territory which enraged the French resulting in the very tough reparations agreed to in Versailles - and, if the Germans didn't sign the treaty, the French threatened and actually did take over quite a bit of Germany's industrial territory in the Ruhr. Many Germans were furious at the signing of the Treaty. The UK and France owed a lot of money to the US and we didn't give them any break - thus the focus on Germany paying for the destruction,.,.,

So the net of this was that the Reichsbank decided to print Marks and didn't realize the level of inflation it would cause - to some extent, they thought inflation actually was the problem that printing money could solve. From August 1914 through December 1923, the Mark went from 4.19 to the dollar to 4.2 trillion. Ultimately, the Rentonbank was created by Gustav Stresemann. It began to issue Rentonmarks in limited quantities. This began to calm markets and this new currency began to be viewed as a stable currency.

The impact of this was that Germany faced a humiliation of defeat. Financially sophisticated Germans found ways to swap Marks for real assets. Workers demanded large and frequent raises... Citizens with land, the ability to grow food, etc. did ok - city dwellers suffered from hunger and disease. For example, in Stuttgart in 1922, 40% of female students had thyroid problems due to the lack of Iodine. Tuberculosis and rickets were also very common.

But one of the biggest impacts was that while people with debt got to pay it back with essentially nothing. Yet people on a fixed income, loyal Germans who bought war bonds or lived on fixed-income, and many "wealthy" families were ruined. This plus further economic weakness leading up to and including the Depression essentially led to WW2.