Causes Of Inflation In Germany

After World War One, Germany was thrown into downward spiral. They were left with a monstrous amount of

One of the terms that Germany had to meet was A large debt in gold for reparations to the other countries, Which was 132 billion gold marks (Doc C). Although they had to pay off reparations to other counties they did not have to rebuild bridges, roads, schools, and business as did their other allies. Germany had to suspend payments due to the Great Depression in 1931 also

Germany emerged from World War I with huge debts incurred to finance a costly war for almost five years. The treasury was empty, the currency was losing value, and Germany needed to pay its war debts and the huge reparations bill imposed on it by the Treaty of Versailles, which officially ended the war. The treaty also deprived Germany of territory, natural resources, and even ships, trains, and factory equipment. Germany’s population was undernourished and contained many widows, orphans, and disabled veterans living in poverty. The new German government struggled to deal with these crises, which had produced a serious hyperinflation.

Inflation is the sustained increase in the general level of prices for goods and services in a county, and is measured as an annual percentage change. (Investopedia) During periods of inflation, the prices of products and services will rise. There are several reasons why an economy would see a rise in inflation. Decrease in supplies, corporate deciding to charge more, and consumer confidence are some of the reasons why an economy would see the inflation rate increase. Consumer confidence is when consumers gain more confidence in spending due to a low unemployment rate and wages being stable. Decrease in supplies is when consumers are willing to pay more for a product or service is that is slowly becoming unavailable due to a decrease in supplies. Corporate decisions are when the corporations basically decide

In Germany the economy was especially vulnerable since it was built out of foreign capital, mostly loans from America and was very dependent on foreign trade. When those loans suddenly came due and when the world market for German exports dried up, the well-oiled German industrial machine quickly ground to a halt. As production levels fell, German workers were laid off. Along with this, banks failed throughout Germany. Savings accounts, the result of years of hard work, were instantly wiped out. Inflation soon followed making it hard for families to purchase expensive necessities with devalued money. Overnight, the middle class standard of living so many German families enjoyed was ruined by events outside of Germany, beyond their control. The Great Depression began and they were cast into poverty and deep misery and began looking for a solution, any solution. By mid-1930, amid the economic pressures of the Great Depression, the German democratic government was beginning to unravel. The crisis of the Great Depression

The German government ordered the workers to strike as a form of passive resistance. To compensate these workers the German government printed huge amounts of new money. This led to inflation. German currency rapidly lost value. Many people were unemployed and on the brink of starvation.

The economy appeared to have stabalised with the introduction of the Dawes Plan. Before 1924, Germany was experiencing hyperinflation. The old Papiermark was rapidly depreciating and so Germany had to print more and more of it to pay reparations. By December 1922

In addition, Germany lost all the overseas colonies, 10% of its land as well as industries. While Germany was virtually bankrupt after the war, Germany still had a ￡6.6 billion for reparations to the war. Inflation arose and the Germans suffered. Discontent towards the government increased as Ebert was the one to blame. Germany was even said to be “stab at the back” by Ebert. At this stage, the Weimar Republic was so weak and without the support from its people. However, the Ruhr Crisis happened in 1923 restored some support from the people to the government as the government called off a passive resistance to France’s occupation in the Ruhr. This was one of the reasons that the government was able to survive in these years.

The Great Depression, one the worst times for Germany, and countries across the world. Germany was the worst hit country because America had to recall it's big loans it had given Germany as they could no longer afford it, this meant Germany could not afford to reparations to the allies.

Other than war debts, Germany was also burdened with the huge indemnity imposed by the Treaty of Versailles. No money was available for reconstruction. The mark dropped in value horribly when the French troops occupied the Ruhr district in 1923. Although Stresemann could overcome the economic hardship for the time being with American aid, the Great Depression of 1929 put Germany in an economic crisis again.

Furthermore, as soon as the war broke out, the central bank (Reichsbank) declared its currency notes no longer redeemable for gold. This prevented a run on its gold reserves and allowed it to concentrate on helping the central government finance the war. However, by suspending the redeemability of its notes, the Reichsbank was no longer restricted in the amount of money it could print. With this restriction lifted, the German Government ordered the Reichsbank to print more and more money to finance the ever-increasing war expenditures. As the Reichsbank printed more money, the value of money already in circulation decreased, and people lost purchasing power as they indirectly financed their government’s debt.

Starving. You are starving. According to Germany during the Great Depression you would have been out of work and hungry for many years now. You take your trillion marks down to the corner store, wait in line, claw and fight your way for the last couple of items and then find out when you get to the cashier that due to the ever growing inflation your trillions of marks won’t be enough for a single loaf of bread, as is life in Germany in the late 20’s and early 30’s. According to Commanding Heights: The German Inflation most people especially the young have grown up in these terrible conditions were it was more cost effective to take the German marks and burn and use them as wallpaper than as actual money. Around this time you hear about a

At the conclusion of war, Germany faced pressing economic responsibility that caused much issue with the newly established Weimar government. Clause 231 of the Treaty of Versailles required a payment of 132 million marks to the Allies as a ‘war compensation’, but the already unstable Republic was unable to fulfil such agreement, defaulting the payments in 1922. In consequence, the coal-rich Ruhr valley was seized by allied troops in opposition. The subjection issued further debt and caused hyperinflation in the economy, as attempts to increase production of banknotes to compensate for the loss of the Ruhr, devalued the German mark. However, in 1923, leader of the German People’s Party, Gustav Stresemann, steadied German economy, by stabilising currency, replacing the German mark with the ‘rentenmark’ and resuming reparation payments.

The instability of the newly formed Weimar Republic resulted in a weak government prone to problems, Hitler took advantage of this weakness and introduced a secure alternative. During the hardship of the 1920s and1930s, political incompetence was highlighted, the Weimar Government proved its incompetence time and time again. .The instability of the Weimar Republic was so great that the average life-span of Reich cabinets was from 6-7 months. Their incapability of providing justice to outbreaks of violence, such as political assassinations is one example of the incompetence of the Weimar Republic. When Germany found its self in undesirable economical situations due to the Treaty of Versalles, they printed money to pay off reparations, which resulted in super-inflation. During the period of super-inflation people's life savings became worthless which contributed to the downward circle of a reduction in standard of living. As unemployment rose and people began to afford less and less with their money, people commenced searching for a better alternative to the Weimar Government. Hitler's ability to build upon these feelings whilst offering security, prosperity and full

As much as reparation requirements sparked outrage and called the republican order into question, it was the advent of unprecedented hyperinflation that truly destabilized Weimar’s long-term legitimacy. When Germans across the economic spectrum began to protest for wage increases in 1921, the government had little political support for raising taxes or to counter the demands of labor. Printing currency to meet these demands, Weimar’s government showcased its economic incompetence by creating a vicious wage/price spiral through expansionary monetary policy. By 1923, the German government had created a liquidity trap, where expanding the money supply failed to result in any economic growth. Under these circumstances, hyperinflation ran rampant. In November, the Reichsbank issued a 100-trillion-mark note, which at the time converted to roughly $24. As direct consequence of the government’s policy, currency became worthless and physical goods became king. Peasants, the poorest of the poor, “purchased pianos with heavily depreciated currency” whenever a shopkeeper or merchant was foolish enough to trade. The pocketbook was replaced by the satchel, the wheelbarrow, and the basket as the premier transportation for the worthless Reichsmark. Destabilizing the economic foundation on which Weimar depended, hyperinflation produced widespread disillusionment with the established institutions throughout German society.