Iconic Photos

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Hyperinflation (1921 – 1923)

with 14 comments

By its financial obduracy, Germany proves that it has exceedingly falling memory.

A well-known photo shows children playing with worthless Germany money. At inflation's peak, 1 dollar traded at 4.2 trillion Deutsche Marks.

While it is often said that the German attitude to fiscal responsibility could be traced back to hyperinflation of 1921-3, it appears that Berlin has missed the big picture that emerged from that national nightmare. There are many differences, of course, but the parallels are also uncanny.

War reparations saddled Germany with huge external debt, just as the Euro has done today in southern European countries. Exporting was the only way out, although Germany had to do it without its main industrial centres in the east and the west, and the southern countries without a flexible exchange rate.

Like Germany today, France was reluctant to help; in Britain, a German bailout was political unpopular. Instead, international creditors demanded public sector cuts; they directed at the military rather than the civil service, but the deflationary effect was no different. The Weimar Government’s later tax increases were as unrealistic as those imposed upon many debtor nations by Germany currently.

The percentage of government spending covered by taxes rapidly decreased from not-too-spectacular 15% in 1914 to just 0.8% in 1923. This disastrous fall had two causes, both familiar to a modern reader.

Firstly, there was a rampant tax avoidance. Germans evaded taxes in the 1920s, as much as Greeks do today. And as with America today, the war was financed not through tax hikes, but through increased borrowing from international creditors. Therefore, in Germany it almost become a patriotic duty to avoid taxes, which would have gone straight out of the country.

Secondly, successive socialist governments in Germany created a runaway welfare state. Like Greeks, Germans were paid even when they were not working. Although reparations never accounted for more than a third of Germany’s deficit, the government pointed it out as a convenient scapegoat. As always, social ills were blamed on external bogeymen: creditors, speculators and bankers, mostly foreign, mostly Jewish.

By the time the inflation was stalled in November 1923 with an introduction of a new Mark, the trends were inexorably leading to two seminal events. The German hyper-inflation and the European governments’ inability to deter it was almost a dress rehearsal for the Great Depression. And anxieties and uncertainties these twin disasters unleashed made it easier for the National Socialists to seize power.


Written by Alex Selwyn-Holmes

August 22, 2011 at 7:07 am

14 Responses

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  1. Your analysis lacks of preccision and is unfair about how the euro zone works. Keep posting about photography.


    August 22, 2011 at 10:39 am

    • Agreed. My country – Denmark – has one of the most extensive wellfare states in the world, and we’re not exactly broke😉 We are being paid for not working – otherwise the state would have to deal with a huge amount of homeless criminals instead, which would probably cost around the same, but wouldn’t make anyone happy…


      August 22, 2011 at 9:01 pm

      • perhaps i shd have been clearer first time around. what Germany did back then was that it paid people to not work — to prevent Germans from working for German companies now under the French control, the government paid them to stay at home. both this — and the Greeks paying for a 13th and a 14th month salaries — are different from unemployment benefits.


        August 24, 2011 at 4:49 pm

  2. Terrific if necessarily brief commentary as ever. Perhaps you’ve read When Money Dies. I recommend it.


    August 22, 2011 at 7:08 pm

  3. I’d suggest that there are are so many differences between today and 1921 in German that there are nearly no parells. There is little or no inflation and the “national debt” is for the most part the debt of the banks that the government has agreed to take on. Check out Iceland, for a better way to handle it without getting rid of the welfare state.


    August 24, 2011 at 12:57 pm

    • germans always say their financial prudence comes from this hyperinflation. my point in this post was that they learnt the lessons they wanted onesidedly. the underlying theme of both the current crisis and hyperinflation is governments dithering. they had a bunch of summits that yielded no results back then too — markets are a psychological construct. never helps to dither.
      also, while sovereign debt is worsened by stimulus and bailouts, national debt is NOT for the most part the debt of the banks. it is five-percent deficits that had accumulated over last 12 yrs.
      in iceland, they had to implement great many austerity measures too. ppl always get so sentimental about and it’s always argued in Carlinequse their-stuff-is-shit-but-my-shit-is-stuff way. the truth is if the downward spiral continues, the whole basis of the welfare state — in pension funds — will be undermined.
      if given a choice, i would amputate an arm to save the entire body.
      but it is just me.


      August 24, 2011 at 4:57 pm

  4. aalholmes, I’m back at the computer and I re-read your first post here. The Greeks paid people 14 times a year, but it was like teachers who work 9 months, but choose to take the money in 12 increments. The Greeks are paid for their work for 12 months, but they are paid in 14 increments. Extra money at Xmas and Easter, if I remember correctly. They are not paid 14 months payments in 12 months they are paid 12 months payments in 14 increments.

    Does that change your positon?


    August 28, 2011 at 1:55 am

    • i understand your position, but can’t take it. u r correct; 13th and 14th month salaries are christmas and fiscal year end bonuses instituted since the liberation. this becoming an issue is especially mean-spirited, given that greeks usually plan their holidays around these bonuses but i am citing them as an example of PASOK’s failed system in athens.
      by spreading annual salary over 14 months, and planning taxes and spending for 12 months, greeks can comfortably fudge their incomes to the government, and the greek government their spending to the EU. this is an altogether different motive from teachers getting paid in 12 increments because they have to pay their bills monthly.
      also, not only salaries, but pension payments are spread over 14 months — this is important to underline because then it stopped being a “bonus”. greek government’s intent was clear: 13th and 14th month salaries are merely creative fiscal instruments.


      August 30, 2011 at 6:39 pm

  5. Who took this photograph? I’m really in need of an answer to this question for a Rhetorical Analysis.

    Jordon VanderWerf

    October 18, 2011 at 10:36 pm

  6. Ah yes, I remember this iconic image from history lessons at school – thanks for posting.

    Matthew Amadeus Devereux

    February 7, 2012 at 1:17 pm

  7. Hello hello,i am deaf am sport football in club & how is your family?fine.
    dear,honourable make u upon d season.wishin happy to u,i am country nigerian frm lagos state.i am a deaf to honestly with u well cos i am still noteasy my life on how i hard tried find d job since so pls send me ur invtn for job so i need to be join with u seriously thru work.i wish u need to be regretable what i ve mail u everythin on how u must be tryin understandin.


    June 27, 2012 at 4:30 pm

  8. […] is where this classic photo comes in. No numbers, no graphics, no economic theory; instead an extremely powerful image that […]

  9. i would like to know if german marks can be traded for uros mark from 1921

    Pamela Dowda

    March 20, 2013 at 1:07 pm

  10. […] Source: Iconic Photos […]

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