Causes of the Great Inflation

The causes of the German inflation Prices had been rising since the early months of the war The problems came to a head in 1923 with hyperinflation Many Germans thought it was an outcome of the Treaty of Versailles, particularly the reparations Many blamed it on scapegoats, e.g. Jews

The causes of the German inflation The fundamental cause of the hyperinflation was a huge increase in the amount of paper money in circulation These had been printed to pay off the interest on Germany’s massive debts There were other causes

The causes of the German inflation Long term  The military demands of the First World War led to a huge increase in costs Medium term  The costs of introducing social reforms and welfare  The demands of reparations from 1921 Short term  The French occupation of the Ruhr in 1923 led to the government encouraging ‘passive resistance’ - strikes

The long term causes Germany had made no financial provision for a long war The Kaiser’s government did not increase taxation Instead it borrowed massive amounts by selling ‘war bonds’ to the public, and when this didn’t work well enough it just let the debt grow 84% of war expenditure had been borrowed

The long term causes War years had almost full employment, but since it was military based demand for consumer goods grew while the amount of consumer goods did not – this led to an increase in prices Defeat meant worse economic problems Volker Berghahn in 1919 – Germany’s finances were ‘an unholy mess’

Medium term causes The Weimar government could control inflation only by increasing taxation or cutting government spending But due to the domestic situation neither were very attractive, as both would cause political and social difficulties e.g. unemployment, industrial decline

Medium term causes So from 1919, guided by Erzberger, the government extensively increased taxes on profits, wealth and income, but did not aim at balancing the budget It adopted this policy in the belief that it would  Maintain demands for goods and thereby create work  Overcome problems of demobilising millions of returning troops  Cover the cost of public spending on the extensive welfare state  Reduce the real value of the national debt

Medium term causes The government believed a booming economy would help ex soldiers find jobs Unfortunately the essential part of the policy was to allow inflation to continue Reparations were only one contributing factor, but it was the printing of money to pay them off that caused inflation

Medium term causes DateExchange rate against dollar Wholesale price index July January January ,7922,785 November ,000,000,000750,000,000,000

Short term causes Germany had been allowed to postpone many reparation payments It asked for another ‘holiday’ from making payments in July 1922, and Germany was declared in default The French government, led by Poincar é, ordered French and Belgian occupation of the Ruhr, Germany’s industrial heartland

Short term causes A policy of ‘passive resistance’ was taken – workers were told to strike but their wages were still paid At the same time taxes couldn’t be collected from the Ruhr and the French prevented the delivery of coal to the rest of Germany It was in this situation that the government’s finances collapsed By autumn 1923 it cost more to print a bank note than the note was worth

Prices Item for sale in1913Summer 1923November kg of bread0.29 marks1,200428,000,000,000 1kg of butter2.7026,0006,000,000,000,000 1 pair of shoes12.001,000,00032,000,000,000,000

The fundamental cause is to be found in the mismanagement of Germany’s finances 1914 onwards At no time did the government seem willing to bring spending and borrowing back within reasonable limits