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ally than neighbouring france and belgium 8 9 the first payment of one billion gold marks was made when it came due in june 1921 10 at this point customs posts in the west of germany were occupied by allied officials so that the schedule of payments could be enforced however following the first payment the allied officials were withdrawn from everywhere but düsseldorf and whilst some payments in kind continued only small cash payments were subsequently made for the remainder of 1921 22 5 237 from august 1921 the president of the reichsbank rudolf havenstein began a strategy of buying foreign currency with marks at any price without any regard for inflation and it only increased the speed of the collapse in value of the mark 11 german officials claimed this was in order to make cash payments owed to the allies using foreign currency british and french experts stated that this was in an effort to ruin the german currency and as well as escaping the need for budgetary reform avoid paying reparations altogether a claim supported by reich chancellery records showing that delaying the currency and budgetary reform that could have addressed hyperinflation was seen as advantageous whilst ruinous to the economy and politically destabilising hyperinflation had advantageous aspects for the german government as although the war reparations were not listed in paper currency domestic debts owed from the war were listed meaning that inflation greatly reduced this debt relative to revenues 5 239 in the first half of 1922 the mark stabilized at about 320 marks per dollar 4 international conferences were held one in june 1922 was organized by us investment banker j p morgan jr 12 the meetings produced no workable solution further the well respected recent head of the reich ministry for reconstruction and then present german foreign minister walther rathenau was assassinated 22 june 1922 causing widespread national distress and protest 13 inflation erupted into hyperinflation the mark falling to 7 400 marks per us dollar by december 1922 4 the cost of living index was 41 in june 1922 and 685 in december a nearly 17 fold increase 14 after germany failed for the thirty fourth time in thirty six months to pay an installment of in kind reparations of coal in january 1923 french and belgian troops occupied the ruhr valley germany s main industrial region 900 million gold marks of reparations were ultimately secured this way 5 245 the german government s response was to order a policy of passive resistance in the ruhr with workers being told to do nothing which helped the french and belgians in any way while this policy in practice amounted to a general strike to protest the occupation the striking workers still had to be given financial support the government paid these workers by printing more and more banknotes with germany soon being swamped with paper money exacerbating the hyperinflation even further 15 16 hyperinflation edit weimar republic hyperinflation from one to a trillion paper marks per gold mark values on logarithmic scale a loaf of bread in berlin that cost around 160 marks at the end of 1922 cost 200 billion marks by late 1923 15 by november 1923 one us dollar was worth 4 2105 trillion german marks 17 50 000 marks aachen 1923 500 000 marks leipzig 1923 a 5 million mark coin westphalia 1923 5 000 000 marks overprint of 50 000 marks danzig 1923 50 000 000 marks trier 1923 500 000 000 marks dresden 1923 5 billion 5 milliarden marks berlin 1923 50 billion 50 milliarden marks plauen 1923 500 billion 500 milliarden marks berlin 1923 5 trillion 5 billionen marks stuttgart 1923 50 trillion 50 billionen marks eschweiler 1923 aachen 1 000 000 mark сounterstamp on 5 mark coin stabilization edit german monetary economics was at that time heavily influenced by chartalism and the german historical school which conditioned the way the hyperinflation was analysed 18 the hyperinflation crisis led prominent economists and politicians to seek a means to stabilize german currency in august 1923 an economist karl helfferich proposed a plan to issue a new currency the roggenmark rye mark to be backed by mortgage bonds indexed to the market price of rye grain the plan was rejected because of the greatly fluctuating price of rye in paper marks 19 agriculture minister hans luther proposed a plan that substituted gold for rye and led to the issuance of the rentenmark mortgage mark backed by bonds indexed to the market price of gold 20 the gold bonds were indexed at the rate of 2 790 gold marks per kilogram of gold the same as the pre war gold marks rentenmarks were not redeemable in gold but only indexed to the gold bonds the plan was adopted in monetary reform decrees on 13 15 october 1923 21 a new bank the rentenbank was set up by hans luther when he became finance minister 22 during the final stages of hyperinflation widespread loss of confidence in the mark led people to use alternative forms of exchange among these were commodity based monies such as a cigarette based currency 23 cigarettes due to being easily divisible and internationally acceptable bought goods that paper marks could not although never formally declared as legal tender cigarettes became widely accepted as a medium of exchange 23 cigarettes began to be widely viewed as good money while the depreciating reichsmark was seen as bad money partially reversing gresham s law 23 people also held coins and other tangible goods in anticipation of a currency reform citation needed two rentenmark note issued in line with the decree of 15 october 1923 after 12 november 1923 when hjalmar schacht became currency commissioner germany s central bank the reichsbank was not allowed to discount any further government treasury bills which meant the corresponding issue of paper marks also ceased 24 the discounting of commercial trade bills was allowed and the amount of rentenmarks expanded but the issue was strictly controlled to conform to current commercial and government transactions the rentenbank refused credit to the government and to speculators who were not able to borrow rentenmarks because rentenmarks were not legal tender 25 on 16 november 1923 the new rentenmark was introduced to replace the worthless paper marks issued by the reichsbank twelve zeros were cut from prices and the prices quoted in the new currency remained stable 26 when the president of the reichsbank rudolf havenstein died on 20 november 1923 schacht was appointed to replace him by 30 november 1923 there were 500 000 000 rentenmarks in circulation which increased to 1 000 000 000 by 1 january 1924 and to 1 800 000 000 rentenmarks by july 1924 meanwhile the old paper marks continued in circulation the total paper marks increased to 1 2 sextillion 1 200 000 000 000 000 000 000 in july 1924 and continued to fall in value to a third of their conversion value in rentenmarks 25 on 30 august 1924 a monetary law permitted the exchange of a 1 trillion paper mark note to a new reichsmark worth the same as a rentenmark 27 by 1924 one dollar was equivalent to 4 2 rentenmark 28 revaluation edit conversion table eventually some debts were reinstated to compensate creditors partially for the catastrophic reduction in the value of debts that had been quoted in paper marks before the hyperinflation a decree of 1925 reinstated some mortgages at 25 of face value in the new currency effectively 25 000 000 000 times their value in the old paper marks if they had been held for at least five years similarly some government bonds were reinstated at 2 5 of face value to be paid after reparations were paid 29 mortgage debt was reinstated at much higher rates than government bonds were the reinstatement of some debts and a resumption of effective taxation in a still devastated economy triggered a wave of corporate bankruptcies citation needed one of the important issues of the stabilization of a hyperinflation is the revaluation the term normally refers to the raising of the exchange rate of one national currency against other currencies as well it can mean revalorization the restoration of the value of a currency depreciated by inflation the german government had the choice of a revaluation law to finish the hyperinflation quickly or of allowing sprawling and the political and violent disturbances on the streets the government argued in detail that the interests of creditors and debtors had to be fair and balanced neither the living standard price index nor the share price index was judged as relevant citation needed the calculation of the conversion relation clarification needed was considerably judged to the dollar index as well as to the wholesale price index in principle the german government followed the line of market oriented reasoning that the dollar index and the wholesale price index would roughly indicate the true price level in general over the period of high inflation and hyperinflation in addition the revaluation was bound on the exchange rate mark and united states dollar to obtain the value of the goldmark 30 finally the law on the revaluation of mortgages and other claims of 16 july 1925 gesetz über die aufwertung von hypotheken und anderen ansprüchen or aufwertungsgesetze included only the ratio of the paper mark to the gold mark for the period from 1 january 1918 to 30 november 1923 and the following days 31 the galloping inflation thus caused the end of a principle a mark is worth a mark which had been recognized the nominal value principle 32 the law was challenged in the supreme court of the german reich reichsgericht but its 5th senate ruled on 4 november 1925 that the law was constitutional even according to the bill of rights and duties of germans articles 109 134 152 and 153 of the constitution 33 34 35 the case set a precedent for judicial review in german jurisprudence 36 causes edit historians and economists differ over the causes of the german hyperinflation particularly on the subject of whether it was caused by reparations payments the treaty of versailles had imposed an undefined debt on germany which the london schedule of payments agreed in may 1921 had determined to be essentially 50 billion marks in a and b bonds payable partly in kind with goods like coal and timber and partly in gold and hard cash from june 1921 when a single payment of 1 billion gold marks was paid roughly 1 4 of germany s nominal 1925 gnp until the agreement of the dawes plan in late 1924 only relatively small cash payments were made by germany though partial in kind payments continued for example of the 300 million gold marks due under a variable annuity in november 1921 only 13 million was paid and of the roughly 3 billion gold marks total due under payments in 1922 only 435 million were paid in cash 5 238 germany s leadership claimed that with its gold depleted inflation resulted during 1921 23 due to attempts to buy foreign currency with german currency in an effort to make cash payments as reparations this would be equivalent to selling german currency in exchange for payment in foreign currency but the resulting increase in the supply of german marks on the market caused the german mark to fall rapidly in value 11 5 238 however very little in the way of cash payments were actually made during the period of hyperinflation 5 238 british and french experts claimed that the german leadership were purposefully stoking inflation as a way of avoiding paying reparations as well as a way of avoiding budgetary reforms a view later supported by analysis of reich chancellery record showing that tax reform and currency stabilisation was delayed in 1922 23 in the hope of reductions in reparations particularly allied analysis of german statistics showed that printing of paper currency was being used to maintain tax rates much lower than in allied countries to fund relatively high levels of state expenditure and that this effect was being worsened by unrestricted capital flight from germany reparations payments continued more or less in full from 1924 to 1931 without a return of hyperinflation and after 1930 germany protested that reparations payments were deflationary 5 239 inflation also enabled the german government to pay off its substantial domestic debts particularly war debts in devalued marks 5 245 one point on which historians tend to agree is that the printing of cash by the german government to make payments to striking workers in the ruhr who were refusing to make reparations deliveries to the allies contributed to hyperinflation 5 245 11 the occupation of the ruhr also caused german output to fall 6 regardless of the reason for the declining value of the german currency the decline caused prices of goods to rise rapidly increasing the cost of operating the german government which could not be financed by raising taxes because those taxes would be payable in the ever falling german currency the resulting deficit was financed by some combination of issuing bonds and simply creating more money both increasing the supply of german mark denominated financial assets on the market and so further reducing the currency s price when the german people realized that their money was rapidly losing value they tried to spend it quickly that increased monetary velocity and caused an ever faster increase in prices creating a vicious cycle 37 the government and the banks had two unacceptable alternatives if they stopped inflation there would be immediate bankruptcies unemployment strikes hunger violence collapse of civil order insurrection and possibly even revolution 38 if they continued the inflation they would default on their foreign debt however attempting to avoid both unemployment and insolvency ultimately failed when germany had both 38 aftermath and legacy edit germany 1923 banknotes had lost so much value that they were used as wallpaper the hyperinflation episode in the weimar republic in the early 1920s was not the first or even the most severe instance of inflation in history 39 40 however it has been the subject of the most scholarly economic analysis and debate the hyperinflation drew significant interest as many of the dramatic and unusual economic behaviors now associated with hyperinflation were first documented systematically exponential increases in prices and interest rates redenomination of the currency consumer flight from cash to hard assets and the rapid expansion of industries that produced those assets since the hyperinflation german monetary policy has retained a central concern with the maintenance of a sound currency a concern that had an effect on the euro area crisis 41 according to one study many germans conflate hyperinflation in the weimar republic with the great depression seeing the two separate events as one big economic crisis that encompassed both rapidly rising prices and mass unemployment 42 the hyperinflated worthless marks became widely collected abroad the los angeles times estimated in 1924 that more of...