After Germany lost in WW1, the Weimar republic started printing money to pay of its debts. Why did print money in the first place and why didn’t the economists warn the government that this would lead to hyperinflation and advise them to stop printing money?
3 Likes
Interesting question. I don’t have any primary source for this so I confess to using Wikipedia.
I didn’t see any economists saying this will cause a disaster but what I did see was just how fast it fell apart. This the is topic I found there:
Hyperinflation in the Weimar Republic
This article is enlightening to see that even up into 1922 the economy was sliding badly but currency had only slid 17 fold (only) vs. the Dollar. Plus the currency pictures are fun.
I don’t think economists were consulted. Germany had to come up with currency for reparations and it seems they made a decision which was economically unsound. Print money to buy foreign currency to pay reparations and at the end of 1922 it fell apart when they could not make their reparations payment schedule.
Throw in a French invasion and a general strike equal collapsed economy. It was fixed before the end of 1923 though.
3 Likes
Through the last century the understanding of economic models have devoleped at lot, but I guess at that time there were also a kind of short time desperation involved.
2 Likes
how does printing money help them buy foreign currency? So they are printing money to buy foreign currency to pay reparations and then they would need to return this foreign currency… What? I don’t get it at all.
Well every reichsmark is worth part of a dollar. But you can’t pay reparations in reichsmarks only gold and hard currencies like dollars. You print a billion reichmarks and exchange them for dollars. Now your currency falls in value but you have dollars for reparations. There is usually some sucker to take your offer least till the numbers got out of hand.
I’m not saying it was a good plan but it seems to be what they tried. They were already broke and in debt at the end of the war. It could only go downhill from there
2 Likes
A century ago currencies was connected to the value of gold at a given Exchange rate. As gold is rare this princip will prevent a country for just printning more money. Money is a kind of agreement of value.
A banknote a just a piece of paper but we have agreed (in our heads) on a value backed by the gold reserves of a nations national bank. This is a system based on trust, and if you lose trust the value of the currency decrease, and thats what happend in Germany, and then you get inflation. The value of a currency are also connected to a nations balance of import and export. Read more here
https://www.investopedia.com/articles/forex/11/golds-effect-currencies.asp
3 Likes
Germany had suspended the Gold Standard at the start of WW1. They also did not raise taxes to support the war choosing to borrow to pay for it. They basically ran their economy into the ground just fighting the war.
2 Likes
So when a country moves away from the gold standard. It is usually a tell tale symbol of “they are going print more money” which is necessary in war time.
Well I would certainly think you need to be more aware of where their money is going. Nowadays debt is universal….good or bad, whole different discussion but it makes you wonder.
1 Like