Why Germany Caught Hyperinflation in 1921 (Documentary)

The Weimar Republic, born from the November 1918 revolution, faced a myriad of challenges in its infancy. Political instability, uprisings, and assassinations plagued the new government. The Versailles Peace Treaty exacerbated the situation by imposing harsh conditions, including Allied occupation, disarmament, war reparations, and territorial losses. The German economy was in shambles, with the Mark losing half its value by 1918. The government's decision to print more money and create new credit institutes to finance the war led to rampant inflation. By 1921, the Mark had lost 96% of its value compared to 1913. The Vossische Zeitung highlighted the government's exploitation of the currency as the cause of the devaluation. The post-armistice crisis saw a rapid devaluation of the Mark, with exports crippled by various factors and internal strife paralyzing the economy. The situation was dire, with the Mark's value plummeting and living expenses skyrocketing, pushing the German republic towards bankruptcy.

In 1921, the Weimar Republic was hit with the London Schedule of Payments, the final war reparations bill set at 132 billion gold Marks, payable in annual installments with additional conditions. The announcement led to a further devaluation of the Mark and the collapse of Chancellor Konstantin Fehrenbach's government. The situation was mirrored in Austria, which suffered an even worse inflation due to similar wartime policies and the disintegration of the Austro-Hungarian Empire. The economic dislocation was further exacerbated by the dispute over Upper Silesia, a region rich in industry and resources. The League of Nations' decision to divide the region between Germany and Poland left both sides dissatisfied and caused additional economic turmoil. The new border disrupted the flow of work and commerce, leading to unemployment and hardship. The German government's reaction to these challenges included increasing taxes, which was met with resistance and avoidance by the wealthy, further destabilizing the economy.

The German government's response to the economic crisis included increasing taxes, particularly income tax, which was the most significant burden on regular citizens. However, the taxation system was ill-equipped to handle the effects of high inflation. As the Mark's value plummeted, the government printed more money, leading to a rise in prices and a decrease in the currency's real value. Salaries increased on paper to compensate, but this also meant higher income tax payments from citizens whose earnings had lost purchasing power. Wealthier Germans, who had gained from the war, often avoided taxes through loopholes and by moving their assets abroad, speculating against the Mark and evading taxes. This evasion, coupled with extravagant spending to reduce taxable income, highlighted the growing wealth inequality and social unrest. The government's inability to effectively tax the wealthy and the increasing state deficits painted a grim picture for the German economy in 1921.

The German inflation crisis deepened in 1921, with the government continuing to print money to fund its operations and to quell social unrest. In October 1921, a meeting of bankers and financial experts from Switzerland, Italy, and Germany concluded that Germany was on the brink of bankruptcy, unable to pay war reparations and sustain its economy. The government faced a significant payment due in February 1922, which it could not cover with its current income. The public, including experts, struggled to comprehend the scale of the financial crisis, with numbers reaching into the billions. The ongoing collapse of the Mark eroded the social fabric of Germany, as a stable currency was a symbol of trust and stability. The crisis was not only an economic issue but also a social one, as it affected the value of work and the everyday measurement of value for regular Germans.