German Hyperinflation
In 1923, Germany's currency, the paper mark, lost almost all of its value in one of the most extreme episodes of hyperinflation in modern history. Prices rose so quickly that wages were paid more than once a day, savings were wiped out, and ordinary people carried banknotes in baskets or wheelbarrows to buy basic goods. The crisis shook faith in the young Weimar Republic and left a lasting imprint on German attitudes toward money and economic policy.
The roots of the collapse lay in the First World War. The German government financed much of the fighting through borrowing rather than taxation, expecting to make defeated enemies pay afterward. Instead, Germany lost the war and was saddled with reparations under the Treaty of Versailles, fixed in 1921 at a very large sum. The mark had already been losing value through the war and its aftermath, as the government continued to run deficits and the central bank, the Reichsbank, printed money to cover them. Historians still debate how much blame belongs to reparations, to wartime finance, and to domestic political choices, and most see a combination of all three.
The decisive shock came in January 1923, when French and Belgian troops occupied the Ruhr, Germany's industrial heartland, after Germany fell behind on reparations deliveries. The German government backed a policy of passive resistance, urging workers and officials to stop cooperating with the occupiers, and paid them to stay home. With production falling and state spending soaring, the government turned to the printing press on a vast scale. The mark's value plunged, and by late in the year prices were doubling in days, and eventually hours. Those with debts could repay them cheaply, while pensioners, salaried workers, and anyone holding cash or bonds were devastated. Some people with real assets, such as land or industrial holdings, fared much better.
The crisis ended in the autumn and winter of 1923. The government under Chancellor Gustav Stresemann called off passive resistance, and a new currency, the Rentenmark, was introduced in November, backed in principle by land and industrial assets and issued in strictly limited amounts. Together with budget discipline, this stabilized prices with surprising speed. The Dawes Plan of 1924 then restructured reparations payments and brought in foreign loans, ushering in several relatively stable years.
The consequences were deep and long-lasting. Many middle-class Germans lost their savings and came to distrust the republic and the political establishment, though historians caution against drawing a straight line from 1923 to the rise of the Nazis, who gained mass support only after the Great Depression. Still, the memory of inflation strongly shaped German economic thinking, contributing to the postwar emphasis on central bank independence and price stability.