Significance of Treaty of Versailles as a Factor in Explaining the German Hyperinflation of 1923

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Significance of Treaty of Versailles as a Factor in Explaining the German Hyperinflation of 1923

In 1923, Germany saw a rapid increase in inflation which reached

unprecedented levels. In January of that year, one US Dollar was equal

to 17,792 Marks, but by November a Dollar was equal to 200,000,000,000

Marks. This was the highest rate of inflation ever seen and had far

reaching social as well as economic consequences. The causes of this

"hyperinflation" have been widely debated.

Most people at the time placed the blame solely on the harsh terms of

the Treaty of Versailles. This was the treaty agreed by the allies and

Germany to end the First World War, although Germany had little say in

the matter. Germany was forced to pay reparations to the allies for

damage caused during the war. The final amount was set at £6,600m. In

order to pay this, and pay for post-war reconstruction in Germany, the

German government printed off more and more money, which in turn led

to hyperinflation. Also, some of Germany's key industrial zones were

occupied causing inflation to "spiral out of control".

However, the amount of reparations actually paid by Germany was

relatively small. It has been estimated that they paid roughly one

eighth of the total amount. Also, many of the required payments were

in goods and not actual currency. The government were almost certainly

over reacting by printed off excessive amounts of currency. The

occupation of the Ruhr in 1921, Germany's industrial heartland, cannot

be blamed for hyperinflation as inflation had been on the increase

since 1914. Geoff Layton believes that "the reparations issue should

be seen as only a ...

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... slow increase in inflation cannot be

attributed to the Treaty of Versailles and the issue of reparations,

as these didn't exist at that time. This was caused by incompetent

government policies and the burden of a long drawn out war. However,

it is easy to see the reparations as a trigger cause of the rapid

increase in inflation from 1921 onwards. The treaty caused the

government a major dilemma - how to find enough foreign currency to

pay the reparations without increasing taxation on the population. The

allied occupation of the Ruhr exacerbated this problem. But although

the treaty made matters worse, the government could still have tackled

the problem without resorting to the mass printing of money that

caused hyperinflation. Therefore the Weimar government must take most

of the blame for the hyperinflation of 1923.
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