What were the causes of the German hyperinflation of 1923 and what were its economic, social and political consequences to the end of 1923?

Topic: EconomicsConsumer Science
Sample donated:
Last updated: May 2, 2019

The German hyperinflation of 1923, which effectively provided the extreme right with a medium to seize power, arguably had its roots within Germany’s inability to meet the clauses drawn up in the Treaty of Versailles, which the French were keen to vigorously enforce. Significantly the turmoil was also one of Germany’s own doing and coupled with her refusal to comply with the Allies demands, the causes of the hyperinflation can be categorised in to either long term reasons, the fact that Germany was unable realise its commitment to repay loaned ‘War Bonds’ and secondly from the burden of the unworkable reparations bill, or into the short term factor of 1923 which saw the impact of the French invasion of the Ruhr lead to the economically crippling action of ‘passive resistance’. The German hyperinflation itself had widespread and devastating consequences for Germany’s economic, social and political climate and perhaps most significantly hit the middle class who, after suffering the loss of their money which had been tied up in banks and pensions, lost faith in the Weimar Republic and ignoring the ‘red menace’ of the Communist threat, unlike they had previously done in 1919, swayed towards the extreme right in search of a reactionary monarchist party who operated in similar fashion to that of the now disbanded but not forgotten Kaiserreich.Significantly Germany was suffering from acute inflation before 1923 and the French invasion of the Ruhr. The German war effort itself was financed not through taxation but instead was funded by borrowing from the German population, in particular from the upper classes who were willing to invest in Germany in the hope that it would reign victorious over the Allied powers.

The loans came in the shape of ‘War Bonds’ and were to be repaid, with added interest, after the conclusion of the war where it had been assumed that the defeated Allied powers would be drained of their money in order to repay the German population. In stark contrast the onus fell upon Germany to repay its own internal debts and this placed massive financial burdens upon the German Government who realised that they were in no position to meet their debts. In addition by May 1921 the Allied Reparations Commission had also finalised the amount that they believed that Germany owned in order to meet the structural and long-term costs that the Allies had endured in the First World War, with the unpayable sum of six thousand six hundred million marks agreed. This, coupled with Germany’s own internal debts, had disastrous repercussions for Germany’s economic footing and by 1922 Germany was left saddled with huge unworkable debts that would ultimately leave it crippled and susceptible to the threats of both the left and the right.The government, lead by Finance Minister Water Rathenau, was forced to comply however at the same time also opted to pursue a policy of ‘fulfilment’ which looked to ensure that the Allied powers would recognise that the bill was unfeasible and opt to alter it. Outside Germany however it had become apparent to the Allies, who were becoming increasing alarmed at the falling value of the mark, that the reparations bill was placing enormous pressures on Germany’s economy and instead of relieving Germany’s financial strain insisted that the government stabilise the value of the mark.

Don't use plagiarized sources.
Get Your Custom Essay on "What were the causes of the German hyperinflation of 1923 and what were its economic, social and political consequences to the end of 1923?..."
For You For Only $13.90/page!

Get custom paper

Consequently international flight from the German mark became common place as its value began to plummet and this therefore meant that German imports became increasing expensive and in order to deal with this raise in prices the powerful German trade unions sought to compensate by ensuring substantial wage rises. A steep and accelerating inflation rate thus set in as both wage and price rates spiralled out of control of the German government and it was evident that German finances were in a critical condition. The German government looked to resolve its financial difficulties by printing excess quantities of paper money and as a consequence the French Prime Minister, Poincare, who was ardent that the Treaty of Versailles was to be fully complied with, accused the government of printing money as a deliberate attempt to drive the value of the mark down and then to pay of the rest of their reparations bill in workless currency.On 9 January 1923, after exclaiming that if necessary he would seize’ productive pledges’ from Germany, Poincare ordered French and Belgian forces into the Ruhr, justifying his actions by indicating the a German consignment of telegraph poles had not materialised. The German Government responded by issuing a policy of ‘passive resistance’ which declared that German coal workers were not to comply with French orders and effectively strike against the French occupation. It was a deliberate attempt force the French out, however at the same time the German government was forced to pay the German workers who were now unemployed and secondly suffered the financial loss of tax revenues which together created a substantial budget deficit. Within six months a single dollar amounted to around five million German marks and again the government responded by incompetently printing more paper money. Between the months of September, October and November 1923 there was a spike in the hyperinflation rate and a ‘J’ curve effect noted.

The dollar was now worth around four billion marks and famously there were reports of the now worthless currency being used to fuel household stoves. The German economy had completely collapses, to the extent that under Stresemann the policy of ‘passive resistance’ was abandoned, the damage however was already devastating.The effect of the German hyperinflation had a devastating economic impact. Significantly the value of the German mark completely collapsed and lost all international recognition. The descent of the currency into worthlessness was worsened by the effect of the ‘J’ curve which ensured that that the rate of inflation was accelerating which therefore ensured that little could be done to halt its rapid increases, indicated by the fact that by November 1923 workers were demanding pay twice in the working day as to ensure that they could buy as much as possible before they suffered another rise in prices. Although the effect had occurred over several years by the end of 1923 it had spiralled out of control and had reached a point where financially Germany was almost beyond the point of return.

Furthermore Germany also witnessed the flight of foreign investors from the mark and this itself had serious implications for Germany who was forced to pay exorbitant amounts for food imports, with the Allied blockade seriously affecting Germany’s ability to deal with the rest of the world. In consequence the exchange method of barter replaced money, with reports of grand pianos being traded for food indicating that the mark had lost all faith. Ultimately however the inflexible method which barter produced ensured that it would not be able to survive in the long-term as constant exchange would eventually become impractical. Economically Germany was ruined, the fact that the Reichsbank was forced to churn out vast quantities of paper money illustrated the point that a complete collapse in the German economy had occurred.As a direct consequence of the widespread effect of the acute inflation the German social structure was also vastly affected. Significantly however it must be observed that, despite the turmoil, some benefited from the collapse of the economy. In particular these were the upper classes and Prussian Junkers, who, as Hugo Stinnes illustrates, had speculated on the decline of the market and had made millions from its collapse.

Moreover the aristocracy and wealthy industrialists were often in fact able to use the devalued currency in order to pay off debts in relation to their mortgages and bank loans respectively. Furthermore, much of the wealth of the upper classes was in fact tied down to their estates and lands, of which the intrinsic value remained, if not increasing due to widespread rising prices. Conversely the middle class had to suffer the experience of witnessing the value of their savings diminish beyond recognition. Much of the middle class, the ‘Mittlestand’, had invested heavily in schemes such as pensions and other insurance policies and this therefore meant that they lost practically everything that they had invested as the value of the mark drastically fell.Effectively the middle class, who in reality had been the deciding factor in the formation of the Weimar Republic, had not only lost everything but more importantly lost faith in the Republic. Conversely however the working class were not as drastically hit, initially they remained reasonably financially secure as their trade unions ensured that wage rate kept in line with the rising prices. Nevertheless by late 1923 the value of the mark had gone haywire and this therefore meant that the working class were unable to meet the demands which goods were now fetching.

Significantly, this lead to an upshot in crime rates and in particular juvenile delinquency as the working class were now forced to steal in order to survive. By October 1923 malnutrition and starvation had become widespread with the working class most heavily affected as they could simply not afford common goods and at the same time were unable to use the method of barter as they had no real possessions of value.Erich Maria Remarque, in the Black Obelisk, described the affect of hyperinflation on the political spectrum of Germany as ‘Everyone is a communist who isn’t on the extreme right’.

Significantly this carries much weight. It must be noted that the circumstances were conducive to a resurgence in support for communism as both unemployment, malnutrition and they fact that the rich were benefiting from the acute inflation, forced much of the biter working class towards support for the KPD. An uprising in Saxony, which acted as the centre of the bid for power, was disrupted by the suppression of the communist party with Stresemann having an active role, however in any case the threat from the right was far more appreciable.The extreme right was able use the resurgence in communist support to exploit the fear of the middle class, who had now lost all faith in the Republic, and this therefore meant that the support which the Weimar Republic had utilised in 1919 was gone. Moreover the French occupation of the Ruhr inflamed nationalist feelings within the population, spurred on by rightist propaganda relating to the French use of black colonial troops, much of the German population was left outraged by the French actions and more importantly by the fact that the Weimar Republic would not forcefully defend itself.

The Krupps incident and the murder of Schlageter, who was portrayed as a National hero, did little to ease tensions. Furthermore by August, the Stresemann lead government called of their policy of ‘passive resistance’ and importantly the extreme right used this opportunity to accuse the Weimar government of not acting against the French but instead allowing the French to remain in German territory. Levels of support for the extreme right had grown substantially and by September 1923 leading figures such as von Seekt, Ludendorff and Stinnes were contemplating a takeover of power.

The series of events however ended in turmoil, due to the fiasco of the Beer Hall Putsch of 1923; where quarrelling amongst the right lead to the catastrophic defeat for Hitler’s NSDAP and saw power remain in the hands of the Weimar Republic.In conclusion it can be observer that German hyperinflation itself has its origins within the First World War, notably the period of acute inflation was one of Germany’s own doing through the policy of ‘passive resistance’. Appreciably the fall out of the inflation was widespread, with the economy crippled and growing tensions between the classes resulting in a rise in support for both the extreme left and right.

Choose your subject


I'm Jessica!

Don't know how to start your paper? Worry no more! Get professional writing assistance from me.

Click here