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Essay: Hyper Inflation in Germany 1923

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The Hyper Inflation in Germany dated back to 1914, when World War I was ongoing. To endure the cost arisen when the war broke out, Germany decided to bankroll the war solely by borrowing from neighbouring countries. It confide in the victory of Germany in World War I, which could bring Germany wealth and riches to pay off the dept.

The strategy, however, was in deep water right from the beginning. Weakened by the loss of her allies, Germany surrendered on 11 November 1918. Initially, Germany believed that she would be able to annex resource-rich countries in the west and east, and to impose reimbursement on the defeated Allies. [1] The defeat in WW1 not only obstructed Germany’s organisation of war economies, but saddled Germany with an enormous reparation in the Treaty of Versailles that she could not afford. The situation deteriorated when Germany continued to print money without any economic resources backing it. By late 1919, 48 paper marks were required to buy a US dollar.[2]

▲ 50 Mark Note in 1919, Equivalent to 1 US Dollar at that point [3]

From August 1921, Germany started to buy foreign currency with mark at any price.[4] This accelerated the devaluing of the mark. Hence, more marks are required to buy the foreign currency. The exchange rate of the mark was 50 per dollar in late 1919 and 1000 per dollar in 1922, a 20-fold devaluation.

▲ 1000 Mark Note in 1922, Equivalent to 1 US Dollar at that point, a 95 per cent devaluation from 1919 [5]

By late 1922, Germany was unable to repay her debts, making the Mark practically worthless. In January 1923, Belgian and French troops occupied Ruhr, the only industrial region of Germany, and the reparations were paid by whatever goods produced there. The workers in Ruhr adopted the passive resistance; they left their work and did not lift a finger. However, the demand in the market was unchanged, with the decrease in the supply, the price of goods and service will rise, disintegrating inflation. To encourage workers in Ruhr to return to their occupation, the government provided enthralling incentives in the form of excessively wages. Per contra, the government was already adhered to a dilemma. There is no way for the government to make money from nowhere. Thus, the value of the Mark must go down. At that instant, the inflation threw off into a hyperinflation.

▲ 50,000,000 Mark per dollar in early 1923 and 50,000,000,000,000 Mark per dollar in late 1923. The enormity of the currency scalars highlights the extent of the hyperinflation [6][7]

The paper money devaluated as quick as a wink, creating grotesque scenes. The price of a cup of coffee had doubled by the time it was drunk; employees were paid in the morning so that they could scuttle to the market and spend their ever-devaluating paper notes; children used barren banknotes as toys, as they were cheaper than real toys. Forasmuch as the devastating situation, several economists had proposed various solutions to get to the bottom of it.

▲ (left) Children used banknotes as toys [8] (right) A throng of people in front of a grocery store, eager to spend their cash as their money was losing value by the time. [9]

Karl Helfferich’s proposed adding a new currency ‘ Roggenmark’, but it was rejected in August 1923. Afterwards, a new Rentenmark was issued in November 16 1923. Twelve zeros were cut from the prices. The new Rentenmark achieved a stable currency until the death of the president of the Reichsbank Rudolf Havenstein on 20 November 1923. The new Rentenmark experienced devaluation afterwards.

Date Amount of Rentenmarks in circulation

Nov 30 1923 500,000,000

Jan 1 1924 1,000,000,000

July 1924 1,800,000,000

▲ Amount of Rentenmarks in circulation between 1923 and 1924 [10]

The clutter was iron out after the implementation of a law on August 30 1924, allowing the trade of 1 trillion marks to one new Reichsmark, same as a Rentenmark. By 1924, 1 dollar was equal to 4 Rentenmarks. Afterwards, the government carried out revaluation by raising the exchange rate of the Rentenmark to other currencies. The Law on the Revaluation of Mortgages was implemented on 16 July 1925, finishing the hyperinflation.

Among the all, the middle class, particularly the savers and the workers, suffered the most in the hyperinflation. Savers depend on the interest of their savings to earn a living. Under hyperinflation, their assets were eaten away. Workers were fortunate enough to have a job, but their wages were worthless as the money devalued rapidly after they were paid.

On the other hand, the poorest the richest and had somehow benefited from the hyperinflation. The poorest are mostly producers such as farmers. Under hyperinflation, they could sell their goods at a humongous price, making huge profits. The richest, mostly business magnates, could pay their loans at a lower cost, making them better off.

As seen in the above, the hyperinflation in Germany depended on the harsh punishments on Germany in the Treaty of Versailles. Yet without other factors such as the overprinting of paper notes, the purchase of foreign currency with German Mark and the passive resistance in Ruhr, it might not led to such a disaster. Instead of organizing her war economics, Germany’s erroneous decision brought huge financial burden to the country, ultimately causing the hyperinflation in Germany. Over confidence can be a killer.

Hyper Inflation in Zimbabwe 2008

The hyperinflation in Zimbabwe 2008 is in one way or another analogous to the hyperinflation in Germany 1923. Zimbabwe’s peak inflation rate is estimated to be 80 billion per cent in November 2008, surpassing the inflation rate of German Mark in 1923.

On 18 April 1980, the Republic of Zimbabwe was born. In early years, Zimbabwe experienced a strong economic growth, especially in agricultural output. Noticing most of the farmlands were in the hand of the white, the government implemented a land reform program in the 1990s to redistribute land from the white to the black. However, it turned out that most of the farmland went to people and officials with little to no knowledge about farming. This resulted in a sharp decline in agricultural output. The economy of Zimbabwe collapsed under the decline in agricultural industry, saddling Zimbabwe with debts, similar to that Germany suffered in the Treaty of Versailles.

▲ Zimbabweans gathering leftover wheat for food [11]

In the late 1900s, Mugabe, the prime minister of Zimbabwe, directed troops to battle in the Second Congo War. The financial situation was already tense, but the fat hit the fire when high salaries were given to the government officials and army. Zimbabwe was reporting to the International Monetary Fund of a war expense of $23 million a month. [12]

To cover the huge war expenses, Zimbabwe did what Germany did in the 1920s — printing paper notes without any resources backing up. With that being said, the upcoming inflation crisis is inevitable. Once the inflation evoked, hyperinflation is only a few ink jets away.

▲ A political cartoon ‘Obama takes a “Note” from Mr. Mu
gabe’, satirizing Zimbabwe of overprinting money to resolve her financial crisis [13]

As the economy is declining, printing money became a short-term solution for preventing hyperinflation. Ironically, the government tried to impose laws to restrict people raising the prices of goods, stopping inflation. However, this creates shortages of goods which raised the prices. It’s a vicious cycle.

Without any feasible solutions, the inflation rate increased greatly during the mid-2000s. The peak of hyperinflation occurred in November 2008, with an inflation rate of 80 billion % per month.

▲ Zimbabwe inflation rate from 1980 to 2008 [14]

What happened next was the same as in Germany 1923. People could not afford to buy the basic goods. Sarcastically, they were recognized as ‘Poverty billionaires’, with wages of a billion when a loaf of bread cost three billion. The Zimbabwe government eventually stopped using Zimbabwe dollars and adapted the practise of using US dollars. The hyperinflation in Zimbabwe has come to an end.

▲ ‘Poverty billionaires’ in Germany 1923 (left) [14] and in Zimbabwe 2008 (right) [15]

▲ (left) 50,000,000,000,000 German mark in 1923 [16] and 100,000,000,000,000 Zimbabwe dollars in 2008 (right) [17]

▲ Paper notes were regarded as rubbish under hyperinflation in Germany 1923 (left) [18] and in Zimbabwe 2008 (right) [19]

As shown in the above, the hyperinflation in Zimbabwe is in one way or another similar to that in Germany 1923. The factual reality, looking at what happened in the hyperinflations, suggesting that history keeps repeating itself. In both cases, the economy collapsed when the government tried to print money to restore the economy. It is clear that people have not learnt from history, yet they should have done so.

Appendix – list of references

Cover Photo 1: ROGER-VIOLLET 23 Jun 2015 One thing that Germany and Greece do have in common is relatively recent experience of hyperinflation https://secure.i.telegraph.co.uk/multimedia/archive/02052/Weimar-republic_2052284b.jpg

Cover Photo 2: Lethanhnam Aug 5 2016 German children playing with stacks of money during the hyperinflation period of the Weimar Republic https://imgur.com/gallery/MD42K

Cover Photo 3: Dec 13 2016 A one hundred trillion dollar note from Zimbabwe http://americanhistory.si.edu/blog/hyperinflation-france-zimbabwe

[1] Hyperinflation in the Weimar Republic https://en.wikipedia.org/wiki/Hyperinfation_in_the


[2] History US Dollars to Mark Conversion


[3] Photo of 50 Mark Note 1919 http://broughtonbirnie.co.uk/blog/?p=785

[4] Fergusson When Money Dies p. 40

[5] Germany Note for 1000 1922 https://www.pinterest.com/pin/350858627194961017/

[6] 50 Million Mark https://en.wikipedia.org/wiki/File:GER-98a-Reichsbanknote-


[7] 50,000,000,000,000 German Mark Banknote

50,000,000,000,000 German marks banknote

[8] Lethanhnam Aug 5 2016 German children playing with stacks of money during the hyperinflation period of the Weimar Republic https://imgur.com/gallery/MD42K

[9] Bildarchiv Preußischer Kulturbesitzhttp://ghdi.ghi-dc.org/sub_image.cfm?image_id=4093

[10] https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic

[11] Land Issue in Zimbabew http://gideonmendel.com/the-land-issue-in-zimbabwe/

[12] BBC Online 25 July 2000 Mugabe’s Costly Congo Venture

[13] Robert Romano 14 Jan 2009 The sky is the limit http://netrightdaily.com/2009/01/the-skys-the-limit/

[14] A women used banknotes to light her stove https://mashable.com/2016/07/27/german-hyperinflation/#uQjX8Ns8hsqz

[15] Starving billionaire https://www.taringa.net/posts/economia-negocios/18721853/Zimbabwe-se-convirtio-en-el-pais-con-los-millonarios-mas-pob.html

[16] 50,000,000,000,000 German Mark Banknote

50,000,000,000,000 German marks banknote

[17] https://www.economicshelp.org/blog/390/inflation/hyper-inflation-in-zimbabwe/

[18] Gjergi Erebara 4 Dec 2016 monedha-hungareze https://www.reporter.al/monedha-hungareze-2/

[19] Is hyperinflation coming back to Zimbabwe? https://www.reporter.al/monedha-hungareze-2/

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