90 Years Ago: The End Of German Hyperinflation

Tyler Durden's picture

Submitted by Thorsten Polleit of the Ludwig von Mises Institute,

On 15 November 1923 decisive steps were taken to end the nightmare of hyperinflation in the Weimar Republic: The Reichsbank, the German central bank, stopped monetizing government debt, and a new means of exchange, the Rentenmark, was issued next to the Papermark (in German: Papiermark). These measures succeeded in halting hyperinflation, but the purchasing power of the Papermark was completely ruined. To understand how and why this could happen, one has to take a look at the time shortly before the outbreak of World War I.

Since 1871, the mark had been the official money in the Deutsches Reich. With the outbreak of World War I, the gold redeemability of the Reichsmark was suspended on 4 August 1914. The gold-backed Reichsmark (or “Goldmark,” as it was referred to from 1914) became the unbacked Papermark. Initially, the Reich financed its war outlays in large part through issuing debt. Total public debt rose from 5.2bn Papermark in 1914 to 105.3bn in 1918. In 1914, the quantity of Papermark was 5.9 billion, in 1918 it stood at 32.9 billion. From August 1914 to November 1918, wholesale prices in the Reich had risen 115 percent, and the purchasing power of the Papermark had fallen by more than half. In the same period, the exchange rate of the Papermark depreciated 84 percent against the US dollar.

The new Weimar Republic faced tremendous economic and political challenges. In 1920, industrial production was 61 percent of the level seen in 1913, and in 1923 it had fallen further to 54 percent. The land losses following the Versailles Treaty had weakened the Reich’s productive capacity substantially: the Reich lost around 13 percent of its former land mass, and around 10 percent of the German population was now living outside its borders. In addition, Germany had to make reparation payments. Most important, however, the new and fledgling democratic governments wanted to cater as best as possible to the wishes of their voters. As tax revenues were insufficient to finance these outlays, the Reichsbank started running the printing press.

From April 1920 to March 1921, the ratio of tax revenues to spending amounted to just 37 percent. Thereafter, the situation improved somewhat and in June 1922, taxes relative to total spending even reached 75 percent. Then things turned ugly. Toward the end of 1922, Germany was accused of having failed to deliver its reparation payments on time. To back their claim, French and Belgian troops invaded and occupied the Ruhrgebiet, the Reich’s industrial heartland, at the beginning of January 1923. The German government under chancellor Wilhelm Kuno called upon Ruhrgebiet workers to resist any orders from the invaders, promising the Reich would keep paying their wages. The Reichsbank began printing up new money by monetizing debt to keep the government liquid for making up tax-shortfalls and paying wages, social transfers, and subsidies.

From May 1923 on, the quantity of Papermark started spinning out of control. It rose from 8.610 billion in May to 17.340 billion in April, and further to 669.703 billion in August, reaching 400 quintillion (that is 400 x 1018) in November 1923. Wholesale prices skyrocketed to astronomical levels, rising by 1.813 percent from the end of 1919 to November 1923. At the end of World War I in 1918 you could have bought 500 billion eggs for the same money you would have to spend five years later for just one egg. Through November 1923, the price of the US dollar in terms of Papermark had risen by 8.912 percent. The Papermark had actually sunken to scrap value.

With the collapse of the currency, unemployment was on the rise. Since the end of the war, unemployment had remained fairly low — given that the Weimar governments had kept the economy going by vigorous deficit spending and money printing. At the end of 1919, the unemployment rate stood at 2.9 percent, in 1920 at 4.1 percent, 1921 at 1.6 percent and 1922 at 2.8 percent. With the dying of the Papermark, though, the unemployment rate reached 19.1 percent in October, 23.4 percent in November, and 28.2 percent in December. Hyperinflation had impoverished the great majority of the German population, especially the middle class. People suffered from food shortages and cold. Political extremism was on the rise.

The central problem for sorting out the monetary mess was the Reichsbank itself. The term of its president, Rudolf E. A. Havenstein, was for life, and he was literally unstoppable: under Havenstein, the Reichsbank kept issuing ever greater amounts of Papiermark for keeping the Reich financially afloat. Then, on 15 November 1923, the Reichsbank was made to stop monetizing government debt and issuing new money. At the same time, it was decided to make one trillion Papermark (a number with twelve zeros: 1,000,000,000,000) equal to one Rentenmark. On 20 November 1923, Havenstein died, all of a sudden, through a heart attack. That same day, Hjalmar Schacht, who would become Reichsbank president in December, took action and stabilized the Papermark against the US dollar: the Reichsbank, and through foreign exchange market interventions, made 4.2 trillion Papermark equal to one US Dollar. And as one trillion Papermark was equal to one Rentenmark, the exchange rate was 4.2 Rentenmark for one US dollar. This was exactly the exchange rate that had prevailed between the Reichsmark and the US dollar before World War I. The “miracle of the Rentenmark” marked the end of hyperinflation.

How could such a monetary disaster happen in a civilized and advanced society, leading to the total destruction of the currency? Many explanations have been put forward. It has been argued that, for instance, that reparation payments, chronic balance of payment deficits, and even the depreciation of the Papermark in the foreign exchange markets had actually caused the demise of the German currency. However, these explanations are not convincing, as the German economist Hans F. Sennholz explains: “[E]very mark was printed by Germans and issued by a central bank that was governed by Germans under a government that was purely German. It was German political parties, such as the Socialists, the Catholic Centre Party, and the Democrats, forming various coalition governments that were solely responsible for the policies they conducted. Of course, admission of responsibility for any calamity cannot be expected from any political party. Indeed, the German hyperinflation was manmade, it was the result of a deliberate political decision to increase the quantity of money de facto without any limit.

What are the lessons to be learned from the German hyperinflation?

The first lesson is that even a politically independent central bank does not provide a reliable protection against the destruction of (paper) money. The Reichsbank had been made politically independent as early as 1922; actually on behalf of the allied forces, as a service rendered in return for a temporary deferment of reparation payments. Still, the Reichsbank council decided for hyperinflating the currency. Seeing that the Reich had to increasingly rely on Reichsbank credit to stay afloat, the council of the Reichsbank decided to provide unlimited amounts of money in such an “existential political crisis.” Of course, the credit appetite of the Weimar politicians turned out to be unlimited.

The second lesson is that fiat paper money won’t work. Hjalmar Schacht, in his 1953 biography, noted: “The introduction of the banknote of state paper money was only possible as the state or the central bank promised to redeem the paper money note at any one time in gold. Ensuring the possibility for redeeming in gold at any one time must be the endeavor of all issuers of paper money.” Schacht’s words harbor a central economic insight: Unbacked paper money is political money and as such it is a disruptive element in a system of free markets. The representatives of the Austrian School of economics pointed this out a long time ago.

Paper money, produced “ex nihilo” and injected into the economy through bank credit, is not only chronically inflationary, it also causes malinvestment, “boom-and-bust” cycles, and brings about a situation of over-indebtedness. Once governments and banks in particular start faltering under their debt load and, as a result, the economy is in danger of contracting, the printing up of additional money appears all too easily to be a policy of choosing the lesser evil to escape the problems that have been caused by credit-produced paper money in the first place. Looking at the world today — in which many economies have been using credit-produced paper monies for decades and where debt loads are overwhelmingly high, the current challenges are in a sense quite similar to those prevailing in the Weimar Republic more than 90 years ago. Now as then, a reform of the monetary order is badly needed; and the sooner the challenge of monetary reform is taken on, the smaller will be the costs of adjustment.

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yogibear's picture

On 20xx decisive steps were taken to end the nightmare of hyperinflation in the United States: The Federal Reserve, stopped monetizing government debt, and a new means of exchange, the XXX, was issued next to the US dollar.

Some time in the near future.

FightingtheFed's picture

Willing to bet that within 2-3 years the average American will come to understand why the German Nationalists expelled the Criminal element from the country in the 30s and outlawed Sepculation.

Of the course the criminal element has learned from their past mistakes.. So now they will creat a convenient War or a Gov't shutdown to be blamed on Congress in order to protect their evil asses!


johnQpublic's picture

so what we need is a new Hitler?

DoChenRollingBearing's picture

I think it is too late to have easy reforms.  Something bad is going to happen before we get anything good.  When and what?  I don't know...


Wyatt Junker's picture

What will happen: War.

When it will happen: Probably 2017.

NoDebt's picture

Lesson from this:  If you have a fiat currency, don't lose a war.  (It makes the collapse much quicker.)


debtor of last resort's picture

The worst that can happen is the deer in the headlights. Life is a challenge, and we're spoiled.

ZerOhead's picture

Schacht later wrote in 'The Magic of Money' in 1967 that it was allowing private bankers to take over control of the Reichsbank in 1922 and their ensuing currency speculation for their own profit that really got the hyperinflation ball rolling...




The great German hyper-inflation of 1922-23 is one of the most widely cited examples by those who insist that private bankers, not governments, should control the money system. What is practically unknown about that sordid affair is that it occurred under the auspices of a privately owned and controlled central bank.

Up to then the Reichsbank had a form of private ownership but with substantial public control; the President and Directors were officials of the German government, appointed by the Emperor for life. There was a sharing of the revenue of the central bank between the private shareholders and the government. But shareholders had no power to determine policy.

The Allies’ plan for the reconstruction of Germany after WW1 came to be known as the Dawes Plan, named after General Charles Gates Dawes, a Chicago banker. The foreign experts delegated by the League of Nations to guide the economic recovery of Germany wanted a more free market orientation for the German central bank.

Schacht relates how the Allies had insisted that the Reichsbank be made more independent from the government:

‘On May 26, 1922, the law establishing the independence of the Reichsbank and withdrawing from the Chancellor of the Reich any influence on the conduct of the Bank’s business was promulgated.’

This granting of total private control over the German currency became a key factor in the worst inflation of modern times.(3)

Zero Point's picture

WW2 wasn't called that until the US joined in.

Realistically the world (pretty much) has been at war for over a decade.

Just waiting for two more players to join before we call this one WW3.

Diogenes's picture

What, another one? The US is already at war and has been at war continuously since 2001. Are you still not satisfied?

TBT or not TBT's picture

Iraq and Afghanistan were tiny nothings compared to WWII

Zero Point's picture

Was Germany invading Poland part of WW2 ya think?

Vampyroteuthis infernalis's picture

Paper money, produced “ex nihilo” and injected into the economy through bank credit, is not only chronically inflationary, it also causes malinvestment, “boom-and-bust” cycles, and brings about a situation of over-indebtedness.


Paper money is not the problem. Corrupt governments and central bankers with no respect for a country's economic situation is the problem. It was convenient to print marks and cover the bill at the average citizen's expense. 

Stuck on Zero's picture

We're okay.  We now have central planning watchdogs to make sure that nothing bad happens in world finance ever again.  For example the IMF must have 30 different groups working on preventing problems (http://www.imf.org/external/np/exr/facts/groups.htm).  We also have the UN Financing for Development  (http://www.un.org/esa/ffd/) that has committees all over the world, we have the World Bank with hundreds of local chapters, and we have 115,000 employees in 250 different job categories working for the U.S. Treasury.  With all of that careful and sincere watchfulness how could anything go wrong?


limit_less's picture

here is another possibility. the Germans said to the allies "were going to print the money to pay for the Versailles Treaty and if you dont like you can go f@^* yourselves."

The US owes everyone money, is the US saying to everyone, the same thing that Germany said to the allies? 

mofreedom's picture

Some dude named Sun Zoo said sit back, eat popcorn and let the enemy defeat itself.  He must have been fatter than my pa!

GMadScientist's picture

Know your Orville Redenbacher.

Diogenes's picture

"so what we need is a new Hitler?"


Need it or not, it's what you are going to get. Don't worry, he will be practically the same as Bush and Obama.

Pure Evil's picture

You can almost hear the shrill voice shrieking in the wind, repeating,

  "she damnit!.......she will be practically the same as Bush and Obama"

When does it finally get to be her turn.

Heil Hitlery

Dr. Sandi's picture

A seasoned puppeteer can operate a marionette of any gender. A really talented one can do several at once.

Croesus's picture

@ Diogenes: 

Hitler was a Nationalist...not an Internationalist, meaning that any Bush/Obama/Clinton/Brzezinski-incarnate would NOT be "the 2nd coming of Hitler", just 'Moar of the same'. 

Most people, regardless of race, or political ideology, are inherently Nationalistic at heart. 

As the 99% in America continue to watch and experience "The Great American Downfall", the average American will get more and more pissed-off at "management" in Washington and NYC.

What you are, in effect, seeing today...is a "Political Bubble"...a bubble inflated by "Nationalistic feelings" (the 99%), sitting atop an "Internationalistic Needle" (the .01% of 1%). 



Offthebeach's picture

I can't wait until we invade Canada and crush its dark heart.

babkjl's picture

What!?! We kicked your ass in 1812 and burned the White House! We have nearly as many guns and rifles per capita plus lots of mountains and wilderness to hide in and snipe from. How did that Vietnam adventure against peasants with simple SKS rifles go? We also watched "Red Dawn," have all your military tactics manuals, plus 1960s Vietnam booby trap manuals and guerilla warfare handbooks on our 3 TB hard drives along with a robust prepper culture just in case. It's much better that we remain good friends. You should consider inviting Queen Elizabeth II back as your Sovereign: fire your Congress and Senate, replace with a House Of Commons and Senate with Ron Paul as your Prime Minister. 

nmewn's picture

Well, at least Canadians are no longer pretending to be an independent nation and not some territorial prize of the British Empires armies and the royal family.

Glad we finally got all that cleared up ;-)

FightingtheFed's picture

Good point for the most part but any sense of Nationalism in this country has been steam rolled over the past 25-30 years or so by the 1%'s Media..

Now they are all for support of the troops in their various Wars but not Nationalism. Of course like you say they are Globalists/Inernationalists.


Well I also disagree with the "most people" part as well.. By definition a Nation is a similar group of people who share values, norms, and culuture.. That 9/10 includes race and ideology. Remember 95% of blacks vote D? 80-85 latinos vote D? They obviously don't share the same values and norms as the Republican party. Hence not Nationalistic.

dracos_ghost's picture

"History may not repeat itself, but it does rhyme" -- Mark Twain

I think it will take at least a decade for Americans to realize there is a Germany never mind any history attached to it.

Miztli Raiser's picture

Someone asked once to Hitler how did he achieved the currency stability and the economic miracle in Germany from 1933-1937.

Hitler answered: Economic renaissance and currency stability are achieved when the financial speculators are sent to the concentration camp.

That said, Hitler overcome the world crisis in times of peace by issuing money free of debt, expelling jewish bankers from the monetary space and by the honest work of German People.

Too much for frankling delano rossevelt that  sent the American People to war in order to overcome the 1929 crisis.. By the way, caused by jewish bankers.

There it goes.. This is fight club!!

By the way.. The concentration camps were camps of labour.. Not death camps, as the mythology of jewsh bankers has spreaded. The tale of the holocaust is laughable for those who dare to make a little bit of investigation. 

Dr. Sandi's picture

Do we set up separate concentration camps for the majority of slimeball bankers who are gentiles, or do they get a free pass?

Colonel Klink's picture

Nope, throw them into the same ones.  Majority of the slimeball bankers aren't gentiles.

BigJim's picture

The Nazi 'economic miracle' is like all miracles... it's bullshit:


GMadScientist's picture

Then you won't mind if you send you to a labor camp...say in N Korea?

mathdock's picture

Edit to read "...Federal Reserve, stopped from monetizing..."  ...in other words, an act imposed upon the otherwise unwilling Fed.  But it's a spot on rhyme of the Weimar situation.

kralizec's picture

So, the Fed hasn't reached Peak Insanity yet?  I bet fuckin' Yellen can help that along!


prains's picture

When do we get our 2015 Debt Jubilee Hats?

Dre4dwolf's picture

Probably assigned to you upon entering the labor camps.

Offthebeach's picture

You're in the labor camp now.
New model, free( ish ) range.
You even get camp script, not as much, but a little something.
Better treatments can be bought by those King Rats that better exploit camp interns and kick up profits.

JLee2027's picture

Jim Sinclair was saying on Greg Hunter that mortgages would be converted to the new currency, there would be no free ride. Following that train of thought, if mortages convert, so will credit cards, student loans, etc. So the national debt will be defaulted, but my mortgage will continue? I don't think so. I also question this, as I don't think the banks will live to see the new money as the derivatives financial bomb goes off. Or if they do somehow survive, they'll be burned to the ground by angry mobs.

So I think he's wrong. The only way to recover from this debacle is to free ourselves from debt. Completely...clean sweep.

Harbanger's picture

I don't think he said they will default on the national debt, the USD will be revalued down.  Converting mortgages to the new USD is one part of the capital control scheme.  Could be why banks are converting equity lines of credit into mortages now.

JLee2027's picture

No, he didn't say that. But what is the point of hyperinflation if all the debts just "convert" ? Some will be erased, and I'm betting the dogs in Washingtion will want to restart the spending binge by clearing the national debt. 

Of course given the outcry over ObamaCare, the screaming over hyperinflation will be 1000x louder. They'll give in and wipe it all out. Or face pitchforks.

Not My Real Name's picture

The excellent book, "When Money Dies", by Adam Fergusson, chronicles the Weimar hyperinflation.

According to Fergusson, the mortgage lenders got completely screwed because many many people ended up paying off their loans with the rapidly depreciating fiat. Although things got out of hand long before, mortgages were not revalued (by decree) until February 14, 1924. Even then any mortgages that hadn't been retired by homeowners were only revalued at 15% of their original value in gold. Even then, most people still made out at the expense of the lenders.

Fergusson also noted, "A further law of July 1925 introduced a retrospective element to cover extinct mortgages which had been held in good faith since at least five years before, and raised the rate of revaluation to 25%"


JLee2027's picture

Super post, thanks for that.

The German banks survived so they could do that by decree. Our banks won't survive in my opinion and such a law would not pass Congress. A financial Stone Age is coming is my best guess.

JLee2027's picture

I believe digital money is intrinsically limited and flawed. Unless it's in your pocket or under your bed, you don't have it. Now think 2015 here. A worldwide, historic, banking collapse caused by excesses in derivatives and debt (both forms of digital money) has happened. Bitcoin? No. Digital money won't be trusted for generations, if ever again.

Diogenes's picture

The debts the banks owe will be wiped out, the debts the people owe to the banks will be translated into the new currency.

JLee2027's picture

That's what the elites want to happen, yes. But when bankers are hanging from trees, riots are in progress over "My EBT won't buy a postage stamp" and food shortages have broken out, then what they want will make no difference. They'll be lucky to survive.