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The German Hyperinflation of 1923

There was a time when an average German carried billions of marks in their pockets but could still buy nothing. A loaf of bread cost 200 billion marks. A week’s pension would not buy even a cup of coffee. The mark was freefalling and its value decreasing by the minute. Restaurants stopped printing menus because by the time the food arrived the price had gone up. One guy drank the first cup of coffee at 5,000 marks. The second cup cost him 9,000 marks. The stories from those days were horrifying and amusing at the same time. One boy was sent by his mother to buy two bread buns. He stopped on the way to play football, and by the time he got to the shop, the price had gone up, so he could only afford to buy one. One man set out for Berlin to buy a pair of shoes. But when he got there, all he could afford was a cup of coffee and the bus fare home.

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Children playing with German banknotes that were reduced to worthless pieces of paper by the inflation. 

The absurd situation began sometime around the middle of the First World War, when the German government decided that instead of using the taxpayer’s money to fund the war they would simply borrow money from other nations. The Germans were confident that they would be able to pay off the debt once they won the war by seizing the resource-rich industrial territories and imposing reparations on the defeated Allies.

But the plan backfired. Germany lost the war and ended up with massive debts. In addition, the Treaty of Versailles imposed Germany a huge fine of 132 billion marks (or $31.4 billion) as reparations for causing loss and damage to the Allies on account of the war. In order to pay off the debts, the government turned to deceit—they began to print money, and used it to buy foreign currency, which was then used to pay reparations. Soon there was too much money chasing too few goods and inflation spiraled out of control.

At first, inflation crept up slowly—from 4.2 marks per dollar before the war to 48 marks per dollar when the treaty was signed. Then it accelerated rapidly. In the first half of 1922, the mark was at 320 marks per dollar. By the end of the year, it had fallen to 7,400 marks per US dollar. Eventually, the mark touched a mind-boggling 4.2 trillion marks to one US dollar.

Employees brought suitcases and backpacks to work on payday to collect their wages, and then dashed off to the nearest shop before the exchange rate changed. Banknotes of higher and higher denomination started turning up every few weeks. When the 1,000-billion mark note came out, few bothered to collect the change when they spent it. The hyperinflation peaked in October 1923 and banknote denominations rose to 100 trillion mark. The currency had lost meaning.

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The 100 trillion mark banknote. Photo credit: National Numismatic Collection, National Museum of American History.

People stopped dealing in cash and started bartering instead. Many doctors insisted on being paid in sausages, eggs, coal, and the like. People exchanged a pair of shoes for a shirt, and some crockery for coffee. There was widespread economic panic and mistrust. People began to live as if there were no tomorrow. Dancehalls and strip bars opened up in the cities, and cocaine sales skyrocketed.

Strangely enough, goods were not in short supply. There was simply no stable currency to buy them with. The only objects of real value were tangible assets—diamonds, gold, antiques, and art. Soon the country crumbled into petty thievery. People began stealing anything—soaps, hairpins, copper pipes, gasoline.

It was clear than a radical monetary change was needed to halt the permanent depreciation and return to a more ordered state of affairs. In late 1923, the mark was replaced by a new currency—the Rentenmark, which was backed by mortgages on agricultural and industrial land. The value of the Rentenmark was fixed at the old exchange rate of 4.2 Rentenmark for one US dollar.

Germany limped back to normalcy but the country was never the same again. Lost savings were never recovered, “nor were the values of hard work and decency that had accompanied the savings,” wrote George J.W. Goodman, the American author and economist. “There was a different temper in the country, a temper that Hitler would later exploit with diabolical talent.”

Pearl S. Buck, the American writer, who was in Germany in 1923, wrote:

The cities were still there, the houses not yet bombed and in ruins, but the victims were millions of people. They had lost their fortunes, their savings; they were dazed and inflation-shocked and did not understand how it had happened to them and who the foe was who had defeated them. Yet they had lost their self-assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, of ethics, of decency.

Related: The Trillion Dollar Campaign

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A Berlin banker counts stacks of bundled marks.

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Kids prepare to fly a kite made with banknotes.

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Three kids busy making kites with worthless banknotes.

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A display of extremely high food prices during hyperinflation.

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A shop owner advertises "selling and repairing in exchange for food," one of many Germans turning to a barter economy amid hyperinflation.

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Worthless banknotes are collected to be burned.

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Children use bundles of banknotes as building blocks.

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A woman uses banknotes to light her stove.

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A man uses one-mark notes as wallpaper, a more affordable option than even the cheapest rolls of wallpaper.

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A shopkeeper stuffs excess cash into a tea chest next to his register.

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