When Money Dies
If you wish to destroy a nation, you must first corrupt its currency.
Germany was constantly battling between inflation and reparations for WW1.
Germany was expected to pay 132 thousand million gold marks or 6 thousand 600 million pounds. That meant 2 thousand million marks or 100 million pounds were to be paid every year, a sum equivalent to 26% of their exports. Further sanctions were threatened if they didn’t comply.
While a few financially sophisticated Germans blamed the government for the rise in prices, the typical view was prices went up because the foreign exchange rate went up, which was because of speculation on the stock exchange and that was ‘obviously’ the fault of the Jews.
Most people and officials were in denial over the printing to satisfy reparation payments as the cause of all the dramatic increases in price across Germany.
Between 1913 and the end of 1921, the currency supply had increased 21x.
As inflation worsened, people turned to a barter-based economy. Companies would issue bonds for shoes you could use to buy shirts or food from the bakery and some people would even pay rent in butter or purchase goods with coal.
Inflation was so aggressive a cup of coffee would cost more than what you paid for it by the time you finished it.
With wages struggling to keep up with inflation, unions pushed to back wages with gold or index them to the cost of living.
The inflation of the mark created massive demand for other currencies, which only worsened its exchange rate relative to those currencies.
The periods where the currency stabilized led to lower levels of nationalization and decreased support for radicals like Hitler, but further destabilization allowed radicals like him to garner more support.
The vast unemployment of the 1930s gave Hitler the votes he needed to come to power. Inflation didn’t create Hitler, but it paved his way to a seat of power.
Inflation was not solely from paying war reparations. It was actually a problem well before the reparations were demanded and those reparations were often settled in gold or gold equivalents. Reparations did, however, encourage inflation to devalue the reparations in relative terms and also offered a scapegoat for hyperinflation.
The way inflation mushroomed between mid-1921 and the end of 1922 when Germany was actually paying very little in reparations fails to explain why the period of least inflation coincided with the period of largest reparation payments. The astronomic inflation which ensued was a result of German policy whereby the government paid for passive resistance in the Ruhr.