Why did hyperinflation occur in 1923

Economy: Print money as if it were 1923. Or was it 1932?

The Germans and inflation, that is a difficult subject. In hardly any other European country are the decisions of the European Central Bank (ECB) as controversial as in Germany. One explanation for this is that the experience of hyperinflation in the interwar period reverberates in many German citizens to this day. It has made people aware of the risk of monetary devaluation, which is why they are rather skeptical of a loose monetary policy such as that operated by the ECB.

A new study available to ZEIT ONLINE now shows: Germans may be drawing the wrong conclusions from their history. The investigation should arouse some interest in the ECB. Christine Lagarde will take over the top position there this Friday, and she has already announced that she wants to pay more attention to the public's image of the central bank.

But what exactly happened in the period between the First and Second World War and how did this phase impress itself on the collective memory? In order to meet its various payment obligations, the German government brought more and more money into circulation after the end of the First World War, without the companies being able to produce goods accordingly. Inflation rates skyrocketed and many citizens' savings were devalued.

Hyperinflation was only ended by a currency reform in 1923. After that, things went very well economically until the Great Depression set in, which was triggered by the collapse of the New York Stock Exchange in 1929 and which also affected the Weimar Republic. A period of mass unemployment and corporate bankruptcies followed, which paved the way for the National Socialists.

Two crises merge

As part of the study, a team of authors led by Nies Redeker from the Jacques Delors Institute in Berlin has now conducted a representative survey to determine how Germans view their history. Specifically, they asked how they imagine the economic situation during the global economic crisis. Result: Almost 40 percent associated terms such as "currency devaluation" or "hyperinflation" with this period. When asked about the level of the inflation rate at the height of the crisis in 1932, more than half of the participants answered that it was over ten percent. Around 15 percent stated a value of 100 percent or more.

The answers are remarkable, because during the Great Depression there was deflation, not inflation. Consumer prices fell because companies could no longer get rid of their goods due to high unemployment and responded with discounts. According to the survey, only four percent of those surveyed knew this. "A large majority of Germans associate the fall of the Weimar Republic in the 1930s with rising prices. In fact, this period was marked by falling prices and high unemployment," says Redeker.

Redeker attributes this to the fact that the Germans are aware that the two major crises of the interwar period - hyperinflation and the global economic crisis - seem to merge into a single crisis, even though, from an economic point of view, they were completely different crises. The study also shows: This misjudgment is particularly pronounced among well-educated and politically interested Germans.

The expert's conclusion is that Germans' sensitivity to inflation also has something to do with a distorted understanding of history. It tends to overestimate the risks of inflation and underestimate the risks of deflation.