THE WORLD'S MOST FAMOUS
CASE OF
HYPERINFLATION
PART TWO
Presented by
POST WWI
After WWI, reparations were imposed upon
Germany by the Treaty of Versailles.
By May 1921, Germany was required to pay
reparations in gold or foreign currency in
annual installments of 2 billion goldmarks
(plus 26% of the value of the country’s exports).
Inflation took the basic law-and-order principles
of loyalty and trust to the extreme.
-Martin Geyer
Historian
As things stand, the only way to finance the cost
of fighting the war is to shift the burden into the
future through loans.
-Karl Helfferich
Economist (1915)
There is a point at which printing money affects
purchasing power by causing inflation.
-Eduard Bernstein
Socialist (1918)
FIRE UP THE PRESSES!
In the two years past World War I,
the German government added
to the monetary base of the
Papiermark by printing money.
Satirical Comic
Gutenberg and the Billions-Press,
“I never intended this!”
3
3
2
2
Monetary Base
1
1
Wholesale Price Index
1914
1915
1916
1917
1918
1919
1920
1921
At first, the additional monetary
supply looked like it was working.
The mark was trading for a low
value against the dollar, sterling,
and the French franc and this
helped to boost exports.
20%
Industrial output increased by
20% per year, unemployment fell
to below 1% in 1922, and real
wages rose significantly.
100,000,000,000
Economic historian Carl-Ludwig Holtfrerich
said that the "lubricant of inflation” helped
breathe new life into the private sector.
10,000,000,000
1,000,000,000
Suddenly, this “lubricant” turned into a slippery slope:
100,000,000
10,000,000
Weimar Germany CPI (log scale; inflation per annum)
1,000,000
100,000
10,000
1,000
100
10
0
1921
Apr
Jul
Oct
1922
Apr
Jul
Oct
1923
Apr
Jul
Oct
At its most severe, the monthly rate of inflation
reached 3.25 billion percent, equivalent to prices
doubling every 49 hours.
HYPER INFLATION
When did the “lubricant”
of inflation turn into a toxic
hyperinflationary spiral?
Defined by most economists
as a 50% increase in the
price of goods per month.
1
Foreign markets refused to buy
German debt or Papiermarks
2
The exchange
rate depreciated
3
THE EFFECTS
The rate of inflation
accelerated
Hyperinflation in Germany left millions
of hard-working savers with nothing left.
Over the course of months, what was enough
money to start a stable retirement fund was no
longer enough to buy even a loaf of bread.
R
Cost of
bread in
Germany
200,000,000,000
(In Marks)
1,500,000
1
163
NOV
1918
NOV
1922
R
A
SEP NOV
1923 1923
WHO WAS AFFECTED?
The middle class – or
Mittelstand – saw the
value of their cash
savings wiped out
before their eyes.
WEALTH TRANSFER
Borrowers gained at the
expense of lenders.
Wealth was transferred
from general public to the
government, which issued
the money.
The efficiency of the
economy suffered,
as people preferred
to barter.
Renters gained at the
expense of property owners.
(In Germany’s case, rent ceilings did not
keep pace with general price levels.)
People preferred to hold onto
hard assets (commodities, gold,
land) rather than paper money,
which continually lost value.
STORIES FROM THE
WEIMAR REPUBLIC
A young couple took a few hundred million marks to the theater box
office hoping to see a show, but discovered it wasn't nearly enough.
Tickets were now a billion marks each.
A man who drank two cups of coffee at 5,000 marks each was
presented with a bill for 14,000 marks. When he asked about
the large bill, he was told he should have ordered the coffees at
the same time because the price had gone up between cups.
The price of tram rides and beef,
theater tickets and school, newspapers and haircuts, sugar and bacon,
is going up every week. As a result no
one knows how long their money will
last, and people are living in constant
fear, thinking of nothing but eating
and drinking, buying and selling.
-Eugeni Xammar
Journalist (1923)
The effect of the
devaluation of
the German
currency was like
that of a second
revolution, the
first being the
war and its
immediate
aftermath.
Mann said
deep-seated faith
was being destroyed
and replaced by
fear and cynicism.
-Golo Mann Historian
SEVERE CASES OF HYPERINFLATION
While the German hyperinflation from 1921-1924 is the most known – it was not the worst episode in history
HUNGARY
1946
In mid-1946, prices doubled every fifteen hours,
giving an inflation rate of 41.9 quintillion percent.
By July 1946, the 1931 gold pengõ was worth
130 trillion paper pengõs.
1 Quintillion %
1
1 Quadrillion %
1 Trillion %
1 Billion %
1 Million %
0%
Germany Zimbabwe
1923
2008
2
Hungary
1946
ZIMBABWE 2008
Zimbabwe's peak month of inflation is estimated at
79.6 billion percent in mid-November 2008.
HYPERINFLATION HAS BEEN
SURPRISINGLY COMMON IN THE 20TH CENTURY,
HAPPENING MANY DOZENS OF TIMES THROUGHOUT
THE WORLD. IT CONTINUES TO HAPPEN EVEN TODAY
IN COUNTRIES SUCH AS VENEZUELA.
WHAT WOULD BECOME OF GERMANY AFTER
ITS BOUT OF HYPERINFLATION?
A YOUNG MAN NAMED
ADOLF HITLER BEGAN
TO GROW ANGRY THAT
INNOCENT GERMANS
WERE STARVING...
We are opposed to swarms of Americans
and other foreigners raising prices
throughout Germany while millions of
Germans are starving because of the
increased prices. We are equally opposed
to German profiteers and we are
demanding that all be imprisoned.
Adolf Hitler Politician (1923)
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