German children use bundled inflationary money as blocks, 1923

Here's a little visual aid for any inflation hawks out there who're looking for just the right graphic to stick in a powerpoint decrying stimulus packages or extolling gold's virtue: a group of Weimar-era kids using bundles of devalued Deutsche marks Reichsmarks as building blocks.

German children using marks as building blocks, when Germany tried to pay its war debts by printing money, causing hyper-inflation. 1923. (via Dark Roasted Blend)


  1. And they say that fiat currency has no inherent value! Just look at all that utility. I bet it would nourish your pet termites too!

  2. Actually, hyperinflation might have been a clever strategy. If Germany’s war debt was denominated in Deutschmarks (EDIT: Reichsmarks) (which I don’t know for sure,) then inflation would make the amount they owe smaller. The same idea used to work wonders for middle-class homeowners: borrow a staggering sum, eat rice and beans for a year, and then inflation will make those payments look smaller and smaller. If only Germany had tried this trick in a less drastic way, who knows, maybe Hitler would have grown up to be an art teacher.

    1. Can we separate a hyperinflation strategy from the social problems it creates?

      Probably one of the best accounts of inflation in Weimar Germany is Stefan Zweig’s The World of Yesterday. During this period of hyperinflation, people were all trying to raise prices as quickly as possible. Zweig speaks about stores having all of their goods bought out by the entire neighbourhood because the shop owner was not raising its prices fast enough–and in this case, “not fast enough” was keeping prices fixed for ONE day.

      1. With the advent of e-ink(either the electrophoretic stuff, or very-low-power reflective B&W LCDs) electronic price tags, updated over low-speed IR signals embedded in the overhead lighting, are increasingly common…

        Between that and the portion of personal assets held as magic bits on bank computers, the logistics of adjusting prices would be much easier than it was then; but no assurance that there would be any… incentive… to adjust wages to keep pace with prices. 

      2. “Wolf Among Wolves” by Hans Fallada is also an excellent novel describing the efforts of a handful of characters coping with the inflation of 1923… trying to eat, stay housed and clothed, and determine some way to plan a life for the future. 

        It’s a brilliant book that made it easy for me to imagine what my own life and choices would have been when faced with such uncertainty amid rampant speculation.

    2.  The problem was that it wasn’t. The debt (especially the one from WWI) was denominated in Goldmarks, exactly to keep Germany from just doing what you propose. Goldmarks technically were tied to the normal Reichsmark currency, but the fact that they were made of gold made them independent of it. The allies were very careful to specify that they wanted to be paid in gold.

      1. True, but the German government *did* induce the hyperinflation as part of a strategy to avoid reparations.  The idea was not to pay in devalued Reichsmarks (which, as you point out, the treaty forbade) but to claim to both the Entente and to their own people that reparations were an intolerable burden, and must be reduced or eliminated.

        Sally Marks writes, “Those historians who have accepted the German claim that reparations were the cause of the inflation have overlooked the fact that the inflation long predated reparations … There is no doubt that the British and French suspicions late in 1922 were sound.  The Reich Chancellery archives indicate that in 1922 and 1923 German leaders chose to postpone tax reform and currency stabilization measures in hopes of obtaining substantial reductions in reparations.”

        This strategy was ultimately successful, though at the cost of destroying the German economy.

  3. An image I will rely on if I should ever repeat the talk I gave once at a seminar. The topic was a little novel that is one of the great books of the 20th century: Hesse’s Siddhartha. Hesse was writing this masterpiece right around the time that picture was taken. My point, of course, related to the dream of the singing bird’s death, the separation from the beautiful courtesan, and the return to the river (I am obviously speaking now to those who remember and love this book) — Siddhartha’s story is only ostensibly about something that might have happened 2,500 years ago. In reality, it is a story of its time, of Hesse’s time. I could fill (and have filled) an entire hour on this — for now it’s meaningful to point out what an urgent message there is in a 90 year old novel to our current moment. It takes a couple of hours to read through entirely, and is profoundly enriching. And it’s free to read.

  4. This is part of the background setting for Remarque’s The Black Obelisk –  a really good book.

    1. I read it in high school and loved it. I think it’s a sequel to All Quiet on the Western Front.

  5. I have a German airmail envelope from roughly this period with seventeen million Reichmarks worth of stamps on the front. Inflation was so out of hand the post offices were issued rubber overstamps to increase the value of existing stamps rather than printing new ones.

  6. Having read the section on it in Richard Evans’ definitive /The Rise of the Third Reich,/ I think I can say, in all confidence, that there is no single incident of the 20th century more widely misunderstood than the Great Inflation.

    The tl;dr version is that prior to the World War, Germany had re-tooled their economy around exporting machinery and importing food. Immediately after the War, the French decided (arbitrarily and with no basis in fact) to invoke the section of the Versailles Treaty that let them demand payment-in-kind instead of payment in cash, insisting that Germany pay them in coal. But German coal production was lagging because so many workers had been injured fighting in the war, so the French responded by invading /the entire industrial region of Germany/ and trying to force more people, at gunpoint, to work in the mines.

    The people of occupied Germany responded with a general strike. But that basically zeroed out Germany’s export economy, and it was too late in the year to move people back to the now-closed farms to bring in a crop for that year. What you saw, in the Great Inflation, was not inflation caused by running the printing presses but a German government, deprived by war of its export economy, trying to find some way to afford (and distribute) imported food, and failing badly. But, then, nothing else would have worked either.

    After a mere couple of months, the US, appalled by the resulting suffering, bullied the French into withdrawing from Germany. The German government then simply zeroed out every economic transaction after the French occupation began and re-issued everybody new currency equal to what they’d had before the invasion. This rebooted the economy, effortlessly and flawlessly, and the next decade and change were the most free and most prosperous decade in German history.

    Now, knowing that history, tell me what, if anything, it has to do with “destroying a country by fiat currency”?

    P.S. It wasn’t the Great Inflation that brought Hitler to power. It was every German losing his life savings to fraudulent American investments, in the Great Depression. The actual proximate cause of Nazism wasn’t fiat currency, it was economic deregulation. FYI.

    1. Wow. Thanks for that detailed, fascinating history. My grandmother was born in 1881, and used to say that her family lost everything, three times: WWI, Weimar inflation, and WWII (Note: not the Depression! She and her family were relatively unscathed by the Depression, because they were big deals in the German film industry). But she didn’t know (or care) about the history and reasons. She just had hilarious (to us, in retrospect; not to her at the time, of course) stories about money in wheelbarrows or being used as toilet paper.

    2. Yes, thank you for the comment. The entire Evans book is great, but I really wish everyone who comments at all about interwar Germany would just read one chapter of it, on the Economic management of the tail end of the weimar to Nazi regime. Evans gives a pretty good brief summary of Hjalmar Schacht in it which includes his actions in 1923 as President of the Reichbank to curtail inflation. Hyper inflation was almost entirely curbed by late 1924 and I’m getting really tired of HYPERINFLATION CAUSES NAZIS meme. It’s completely wrong. (and never mind the modern US government has almost zero risk of ever running with hyper inflation no matter how much we deficit finance). 

    3. “the French decided (arbitrarily and with no basis in fact) to invoke the section of the Versailles Treaty that let them demand payment in-kind instead of payment in cash”

      There are several problems with this statement.  

      First of all, the reparations were from the start specified as being *both* cash and in-kind, specifically: coal, timber, chemical dyes, and pharmaceutical drugs.  Of these, coal and timber were by far the largest proportion by value.  The market value of these products was deducted from the total reparations bill, and a schedule for deliveries was established.

      From the start, the deliveries of reparations goods was slow and below scheduled amounts.  By January of 1923, Germany had failed to deliver the coal quota for all but two of previous 36 months.  The failure on timber was even worse, despite the fact that the quota set at the London conference had been proposed by the Germans as what they were able and willing to deliver.  

      As we know now, the German government was looking for ways to break the reparations system.  They were not looking to work within the system to make their treaty payments, which they regarded as illegitimate.

      The facts of default were indisputable.  The problem was that the British and the French could not agree what to do about it.  The British saw a rapid German economic recovery as vital if there were to be any return to the pre-war prosperity.  The French, having sacrificed so much in the war, were determined to obtain every bit of what was owed to them by the terms of the treaty.  

      Occupation of the Ruhr as a means of extracting reparations had been discussed as early as 1920.  It was not a new idea by 1923.  It was a terrible policy that failed to achieve its economic objectives, isolated France, enraged the Germans, and proved to be the final failure of the reparations scheme.  But it is also clear that the outcome was essentially what the German government had sought all along.

      BTW, Evans (who is excellent, IMHO) is rather indulgent of Weimar on the Ruhr issue.  You should check out “The Myths of Reparations”, by Sally Marks, an economic historian.

  7. (Actually they were technically Papiermarks from 1914 to 1923, then Rentenmarks from 1923 to 1924, at a trillion to one exchange rate with the older currency, then Reichsmarks from 1924).

    Somewhere my father has a telegram that my grandfather wrote to my great-grandfather in about 1921-2:  “father received your wire stop requested ten billion marks stop not ten million stop thank you stop N”

  8. What’s really chilling, in an existential way, is the fact that the youngest child (on the left) is dead.

    1. Um, maybe, I suppose.  She looks, maybe, two or three years old?  It’s not impossible that she’s still alive if she were born in 1921.  Hell, my grandma was born in 1920, and she’s still alive and kicking.

  9. Didn’t I recently read that the banks and industrialists were doing all their transactions in a different currency?  Was it the gold marks or some other scrip entirely.  It was the regular people who got paid in worthless scraps of paper. 

  10. As a child my grandfather was given enough money for an ice cream in Switzerland, he crossed into Germany and bought a mecano set.

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