German Hyperinflation

10.11.2021

Hyperinflation in the Weimar Republic #

Finally, a brief word on a favorite example of advocates of private control over money issuance, the German hyperinflation of 1923, which was supposedly caused by excessive government money printing. The Reichsbank president at the time, Hjalmar Schacht, putthe record straight on the real causes of that episode in Schacht (1967). Specifically, in May 1922 the Allies insisted on granting total private control over the Reichsbank. Thisprivate institution then allowed private banks to issue massive amounts of currency, until half the money in circulation was private bank money that the Reichsbank readily exchanged for Reichsmarks on demand. The private Reichsbank also enabled speculators short-sell the currency, which was already under severe pressure due to the transfer problem of the reparations payments pointed out by Keynes (1929).21It did so by granting lavish Reichsmark loans to speculators on demand, which they could exchange for foreign currency when forward sales of Reichsmarks matured. When Schacht was appointed, in late 1923, he stopped converting private monies to Reichsmark on demand,he stopped granting Reichsmark loans on demand, and furthermore he made the new Rentenmark non-convertible against foreign currencies. The result was that speculators were crushed and the hyperinflation was stopped. Further support for the currency came from the Dawes plan that significantly reduced unrealistically high reparations payments.This episode can therefore clearly not be blamed on excessive money printing by a government-run central bank, but rather on a combination of excessive reparations claims and of massive money creation by private speculators, aided and abetted by a private central bank.

sources #

The Chicago Plan Revisited, Jaromir Benes and Michael Kumhof; page 16,