Politics, Economics 13 min read

The Plight of Starving Billionaires

From 1921 to 1923 the German government printed money to balance its budget and used inflation to control unemployment. This is what happened.
A Hundred Billion Mark note (100,000,000,000,000ℳ—i.e. 100 trillion), issued 15 Feb, 1924—the highest denomination printed in the Weimar Republic.

Shoppers had to carry their money in baskets and suitcases—billions and billions of marks. Sometimes these would get stolen, but, as the stacks of money inside were worthless, they would be thrown out onto the ground. People bartered. A piano could get you a sack of wheat flower. A gold watch: four sacks of potatoes. A shoe factory paid its workers in shoe bonds, which they could use to buy bread. Paper clothes were being sold. Americans who found themselves in Berlin couldn’t exchange a five dollar bill—nobody had enough marks to give them, the exchange rate being astronomical. Inflation was soaring at such a rate that the price of a cup of coffee would rise by 60% by the time it was drunk.

In When Money Dies, Adam Fergusson tells the story of the hyperinflation of 1921–1923 in Weimar Republic Germany. The story is interesting for a few reasons. First, this wasn’t a tragedy that the government tried and failed to control. This was a tragedy that the government not only caused but blindly kept going through its disastrous monetary policy. Second, not everyone suffered. Some, primarily the capitalists, the exporters, and the farmers, did just fine, and even prospered. Indeed, the stabilization of the currency would bring with it many terrible consequences, such as mass unemployment, which was partly why it was put off for so long. And third, it is interesting for its “miraculous” resolution.


The primary cause of the malaise was, of course, the First World War. After suffering defeat, Germany was dealt a further blow in the form of massive reparations. Not only did she lose territory and manpower (1.6 million dead, 3.5 million casualties), she now had to make regular payments to the Allies, and especially to France, who was determined to get her revenge. As Sir Eric Geddes famously described it, France was intent on getting “everything out of Germany that you can get out of a lemon and a bit more,” to “squeeze her until you can hear the pips squeak.”

The German economy was particularly affected by the war for one important reason. The way the government sponsored the war was not through taxation, which “was to play not the smallest part in meeting the costs of war before 1916,” but by borrowing. First, to protect its gold reserves, the government suspended the redemption of Reichsbank marks in gold. Second, to finance the war the government set up loan banks “whose funds were to be provided simply by printing them.” As the Vossische Zeitung explained in August 1921:

In as much as the country issued milliards in the form of extraordinary levies, War Loans, Treasury bills, and so on, without withdrawing from circulation corresponding amounts in the shape of taxes, it created new paper income and wealth incessantly, while the real national wealth was steadily being diminished by the war.

Hjalmar Schacht, who would become President of the Reichsbank, explained why the same thing didn’t happen to the Allies:

Our enemies, especially Britain, took another line. They met the cost of war with taxes aimed primarily at those industries and groups to whom the war spelled prosperity. Britain’s policy of taxation proved socially more equitable than Germany’s policy of War Loans which lost their value after the war was over.

Ruined by war and overburdened by reparations, the German government had another problem to deal with: the rise of far left and far right factions who were ready to take to the streets. In the midst of a crisis, communists and fascists were fighting for control. The authorities managed to fend off the Spartakists (German Bolsheviks, who would be transformed into the German Communist Party) and quashed the “Kapp Putsch” of March 1920 (which was supported by parts of the army, monarchists and nationalists), but its centrist position, which accepted the reparations burden and the defeat of the war, made it unpopular.

This presented a major problem. To continue to function it had to balance its budget, but it couldn’t do so because of its inefficient tax system. Taxes owed weren’t being collected in full, and any further tax increases would have led to an uprising. In 1920, to meet reparation payments, tax revenue would have had to be doubled. This, in the words of Lord D’Abernon, British Ambassador to Germany, was simply impossible “without producing a revolution.” D’Abernon further noted that “there is a very great timidity in putting a stop to doles and subventions.” The government was simultaneously not collecting enough taxes and refusing to cut back its spending. To be able to carry on this way, it did what it had already been doing to finance the war: it printed more money. And when this wasn’t enough, it printed more.


The inevitable depreciation of the mark followed. Prices rose. The exchange rate of the mark against the dollar soared. And still the authorities continued to print more money. This caused the cycle to spin even faster, escalating inflation at an ever more rapid rate. And still they printed more, and would continue to print more until the economy was obliterated, the paper money becoming so worthless that it was no longer useful as a medium of exchange.

As more money was printed, the denominations rose. If the value of a gold mark in 1918 was just over 1 paper mark, in 2023 it would reach 1,000,000,000,000 (1 trillion) paper marks. In material terms, in 1918 the price of a loaf of bread was around 0.5 marks. In 2023 it would be 201,000,000,000 marks. Here is a chart showing the value of 1 gold mark in paper marks from 1918 to 1923 (note the logarithmic scale):

Value of 1 gold mark in paper marks, 1918-1923

Why didn’t they stop the presses? The incredible answer is that they didn’t actually think that the flood of paper money was depreciating the mark. Almost nobody in Germany saw any relationship between printing money and the depreciation of the currency, and indeed, even considered suggestions to the effect as “dangerously wrong.” All the “experts” agreed that the causes of their malaise were other factors, such as the rate of exchange against the dollar. For example, here is the Vossische Zeitung (August 1921):

… the opinion that the flood of paper is the real origin of depreciation is not only wrong but dangerously wrong … Both private and public statistics have long shown that for the last two years the interior depreciation of the mark is due to the depreciation of the rate of exchange … We have no “dangerous flood of paper” but, on the contrary, our total circulation is at least three or four times as small as in peace times.

And here’s more of the same from the Berliner Börsen Courier (August 1921):

It has long been realized that the printing of notes is the result and not the cause of depreciation … A point has now been reached where the lack of money has a worse effect than the depreciation itself … Even should the quantity of paper money be three times its present size, it would constitute no real obstacle to stabilization.

Until such a time, therefore, let us print notes!

D’Abernon lamented on the difficulty of convincing the government about the need to stop the presses, writing that “it will require a surgical operation to get this into the heads of authorities here: nothing short of trepanning will do it.”


As the value of the mark fell, it was not the lower working classes, the proletariat, who suffered most, but the middle classes. The reason for this is that the proletariat had the protection of the unions, which could compel their employers to continue raising their salaries to match inflation. On the other end of the wealth hierarchy, the rich capitalists had means of either converting their depreciating marks into foreign currency or investing them into their businesses and real estate. The unfortunate middle classes had neither the unions to protect them, nor the businesses or real estate to sustain the fall of the mark. As the currency depreciated, so too did their salaries, and whatever savings they had were completely wiped out. The middle classes were forced to sell all their possessions to obtain enough food to survive, and once those were gone they began to starve.

Yet there were others who didn’t suffer badly, or even benefitted from the fall of the mark. The proletariat was better off than the middle classes, but not by much. The farmers, however, could live off their land, and even began hoarding food, finding it unprofitable to exchange it for marks that lost their value by the hour. Instead, they would exchange food for something of more stable value, like a sack of flour for a piano, and soon found themselves in possession of many small luxuries.

Others did even better. One really strange sight at the time was the rapid growth of industry. Industrialists were building new plants and making massive expansions and improvements to their capital. The reason for this is that since the mark was worthless, the only rational thing for them to do was to convert it at once into capital. As Sir Basil Blackett, Controller of Finance at the British Treasury, wrote on November 1921:

The big industrialists are attempting to save something from the wreck by turning all the paper marks they can into foreign currencies or, failing that, into real things—land, machinery, and so on, which have an independent value…

Industrialists couldn’t build up liquid reserves, since they would instantly lose their value, so any cash they had was at once converted into capital. This had the effect of actually making them more fearful of stabilization, when the mark would become more valuable and everyone would rush to sell their assets. The falling value of the mark thus acted as a catalyst for the expansion of industry.

There was another curious thing about the depreciation of the mark. As Fergusson writes, “… in comparing the number of bankruptcies during the various months of the year it could be shown that a falling mark was associated with a decline in bankruptcies, and vice-versa.” The reason for this is that the amount owed in taxes or loans decreased as the value of the mark declined. If the reverse happens and the currency gains value, the amount owed becomes higher in proportion to the value of the paper money you own. For example, a 1,000 mark loan becomes meaningless when your salary rises to billions of marks. If, however, at the height of hyperinflation you take out a loan for trillions of marks, and then the currency deflates, you’ll be stuck repaying an impossibly large sum. Once the inflation cycle really starts going, it becomes difficult for the government to stop it without triggering bankruptcies and unemployment. “Inflation is like a drug in more ways than one,” D’Abernon remarked, “It is fatal in the end, but it gets its votaries over many difficult moments.”


Despite the growing hardships, especially for the middle class, there was an illusion of prosperity as restaurants and cafes were daily packed. But this was a misleading sight. The value of today’s money was bound to disappear overnight, so unless you’ve invested it into something valuable, it made sense to at least turn it into food. “As money saved diminished like a lump of ice on a summer’s day, there was in any case every incentive to eat it, drink it or be merry on it.”

This, combined with industrial expansion, made the German economy appear very different from the outside. Since the German government claimed that it was unable to pay reparations, observers in the Allied countries felt that a great fraud was being carried out before their very eyes. The Times wrote this on April 18, 1922:

The greatest fraudulent conspiracy in the history of the world is now being enacted in Germany with the full concurrence and active support of its 60 or 70 millions of people. … Germany is teeming with wealth. She is humming like a beehive. … And yet this is the country that is determined she will not pay her debts … If it wasn’t for the fact that the German is guiltless of humor, one might imagine the whole nation was bent on perpetrating an elaborately laborious practical joke.

France appeared to share this sentiment. Unable to extract reparations form Germany, France took matters into her own hands and in January 1923 invaded the Ruhr region of Germany—her industrial heartland. If Germans weren’t going to cooperate, France was going to collect the payment herself. In response, the Germans went on strike.

A sudden absence of class hatred was a remarkable feature, helped by the willingness of some of the industrialists—notably some mine-owners and directors—to be arrested and imprisoned for non-cooperation along with their employees. They became national heroes.

The occupation wasn’t bloodless. 376 Germans were killed, 2,000 were wounded, and 147,000 were expelled by General Degoutte. The Germans made every attempt to stop the French from making use of their newly acquired assets:

Sabotage of the railways became a popular pastime, and bridges, points and junctions were dynamited at regular intervals … French military trains were derailed and ships sunk in the canal; and no coal flowed westward except at sporadic intervals.

Her industrial heartland frozen, Germany’s economy took a massive hit, turning her already terrible rates of inflation into hyperinflation, for the Reichsbank never ceased printing notes. It was “now carrying out a program of unlimited printing of notes,” with the amount issued limited only “by the capacity of the presses and the physical fatigue of the printers.” In fact, to further speed up the rate of printing, the Reichsbank authorized banknotes called Notgeld, or “emergency money,” which were printed by local banks and municipalities. At one point in 1922, the printers strike interrupted the printing of the notes. This was immediately resolved by bringing in strike-breakers to restart the torrent. 1923 saw the value of 1 gold mark jump from 10,000 to 1,000,000,000,000 paper marks. By the end of year, the “officers of the Ministry of Finance itself were being paid partly in potatoes.”


Stabilization finally arrived at the end of 1923 in the form of the Rentenmark. Lacking gold reserves, this “mortgage mark” was backed by bonds indexed to the market price of gold. The government waited until the middle of November to introduce the new currency, for it was at this moment that the mark reached a round number. A million million paper marks equalled one gold mark. And one gold mark equalled one Rentenmark. Strike off twelve zeros from an amount in marks and you get the same in Rentenmarks or gold marks. You couldn’t actually convert a Rentenmark to gold, but it could be converted to a bond with the same nominal value in gold. And it worked, prices stabilized and farmers began to finally sell their goods… despite the fact that the presses still kept going:

The “miracle of the Rentenmark” was that from November 20 onwards the price of the paper mark remained steady while the number in circulation did not stop growing. Depreciation stopped, in other words, but the inflation of the money supply went on.

The authorities were now printing Rentenmarks in addition to paper marks. The end of the month saw 500 million Rentenmarks in circulation. This increased to 1,800 million by the following July. During the same period, paper mark circulation rose from 400 quintillion (18 zeros) to 1,211 quintillion. What changed? The government finally decided to balance its budget and stopped relying on the printing press as a source of money:

The immediate basis of stabilization, therefore, was not the closing down of the printing presses so much as the rigorous disciplining of State expenditure by the refusal of further credit to the government and by a return from a floating mark to a fixed parity against gold and the dollar.

In February 1924, Dr Kuczynski, a leading statistical authority, said that the difference to a couple of months prior was astounding. Back then everyone awaited a catastrophe—now confidence reigned. And yet…

There is no adequate physical or economic reason for this—the change is mainly psychological. You may say it is based upon the Rentenmark, but that is more or less a fraud, and it would be more correct to say that it is due to the moral effect of the mere cessation of printing banknotes, or more correctly to the belief by the public that the printing has at last stopped. [emphasis mine]

But stabilization came at a price. As Schacht warned in January 1924, “stability can only be regained at the cost of a severe crisis.” As wages fell, so did demand, and those capitalists who expanded too far found themselves stuck with useless assets. The unemployment rate exploded. It was estimated that by the end of 1923 there were more than 5,600,000 unemployed. The government could no longer support them, and any subsidies it could provide ranged from “the insulting to the disgraceful.” The following year saw the misery of the population transformed into corruption, with law abiding Germans turning to bribery, tax-evasion, food-hoarding, currency speculation and illegal transactions. The German government, tempted into balancing its budget by means of the printing press, had simply been putting off the inevitable, and, in the end, the mounting bill still had to be paid in full.