German Inflation

The greatest inflation in the history of Germany occurred mainly from 1919-1923, but in fact it had already
started in 1914, with the outbreak of WWI. When the war began, the German governments increased the
money supply in order to cover the soaring costs, initially of the war itself, and afterwards, of the heavy
reparations that the Allies had imposed on Germany in the Treaty of Versailles. One means of increasing
the supply of money was the issue of war bonds purchased by many citizens. At the same time, it was
decided to cut the linkage between the German mark and the price of gold, a connection that existed at the
time in most advanced nations. The result was an expanding gap between the value of gold-based
currency (the gold mark, which was actually in use until the end of the days of the German Empire) and
paper currency, which could be printed in almost unlimited quantities. Flooding the market with printed
money rapidly lowered its value, so that the prices rose disproportionately, while the real wage of salaried
workers fell sharply. At the same time, loans and debts lost their value by the same proportion. This was
precisely the goal of the German government after the end of the war: to lessen the burden of the
reparations and to demonstrate the weakness of the German economy to the allies.  

This situation took its toll on the daily life of most citizens. The rise in prices that the consumer was required
to pay was not matched by a rise in wages. Since wages rose more gradually, it was more difficult to keep
up with the high prices. On payday, employees hurried to reach the stores before the exchange rate of the
mark vis-à-vis the dollar which was usually even lower than it had been a few days earlier. Prices rose to
absurd sums: at the end of the period of hyper-inflation, in the fall of 1923, a loaf of bread cost many
billions and to send a single postcard from Munich to Prague required stamps worth 36 billion marks (see
photo). In such a situation, the central bank ceased investing in the design of bills and in their printed
elements since it was not worthwhile to produce counterfeit bills, all of the graphic markings that were
meant to serve as obstacles to counterfeiting, and some bills were even only one-sided. Often, a
denomination – higher than the specified original bills – was overlaid onto existing bills that had not yet
entered the money cycle. There are photographs depicting children who had cut out kites from galley
sheets of bills that had become obsolete.

In November 1923, the inflation reached a peak: one dollar was worth 4,200 billion German marks. It was
clear to all that this trend could not go on. Eventually, a change of government in Germany brought an end
to the inflation, after it had achieved one of its main goals: reduction of the debts that were burdening the
German coffers. From November 15, 1923, the currency was replaced: instead of the worthless
Papiermark, the Central Bank of Germany presented the new mark (Rentermark). In the international
arena, the German government reached an understanding with the Allies in the framework of the Dawes
Plan, according to which German reparations were adjusted to the country's economic ability. Following
this, the German economy recuperated over the coming years, but millions of citizens lost their capital,
which had been deposited in savings plans.

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