Inflation

   While Germany's inflation became catastrophic only in 1923, the deterioration of the mark began early in World War I. For political, patriotic, and technical reasons, the Kaiserreich failed to cover its war expenditures through taxation (see Helfferich, Karl), yet it increased the money supply from 12.5 to 63.5 billion marks during 1914-1918. The Versailles Treaty* accelerated Germany's financial dilemma by imposing a reparations* burden (yet undefined) upon the weakened economy. The political disorders and fiscal policies of 1919-1923 made recovery more difficult, and the 1923 Ruhr occupation* finally in-duced the currency s collapse. In July 1914 the American dollar had been worth 4.2 marks. The rate was 8.9 marks in January 1919, 192 marks in January 1922, 17,972 marks in January 1923, and 353,000 marks by July 1923. At the point of the controversial currency stabilization of 15 November (see Rentenbank), the exchange rate was 4.2 trillion marks to the dollar. It was estimated that by August 1923, 70 trillion counterfeit marks were in circulation. When the Ren-tenmark was introduced via an Enabling Act,* it was assigned a value of 1 trillion old marks, thereby reestablishing the prewar exchange rate of 4.2 marks to the dollar.

   The damage caused by the inflation has been categorized under three head-ings. First, it destroyed savings, devalued rents, and enriched borrowers at the expense of creditors. Consequently, it harmed property owners. Second, because wages and salaries lagged behind spiraling living costs, it penalized employees and aided employers. Finally, losses were incurred during routine business trans-actions unless foreign currency or another stable standard was involved. While the inflation might strengthen entrepreneurial and managerial elites, it devastated the oldest segments of the traditional Mittelstand*: rentiers, professionals, offi-cials, and academics on the one hand, and artisans, shopkeepers, and petty clerks on the other. Germans with paper assets (savings accounts, mortgages, or gov-ernment bonds), worth more than 200 billion marks in 1918, found those assets obliterated in late 1923, when 200 billion marks equaled about one American cent.

   Such damage must be translated into political fallout. Creditors asked why, if the regime could end inflation in November 1923, it had failed to do so earlier. Their middle-class standing eroded, and faced in 1924 with a revalorization of private debt at 15 percent of its 1921 value, they became disillusioned with traditional capitalism. Conversely, through the regime s sharp restriction of credit and its dramatic hike in taxes and interest rates, debtors—especially farm-ers* and small businessmen—were often ruined by stabilization: more bank-ruptcies occurred in the first quarter of 1924 than had been experienced in the prior four years. Although five years passed before large numbers turned to the NSDAP, disillusionment with the middle-class parties (DDP and DVP) was immediate, producing a corresponding evolution of special-interest parties. The depression* completed the realignment initiated by the inflation.

   REFERENCES:Feldman, Great Disorder; Feldman et al., Deutsche Inflation; Larry Jones, "Inflation"; Fritz Ringer, German Inflation of 1923; Webb, Hyperinflation and Stabilization.