Is Hyperinflation Coming? Lessons From the German Hyperinflation of 1921-1923

Is Hyperinflation Coming? Lessons From the German Hyperinflation of 1921-1923

The pain of rising prices is well-known to investors and consumers alike. There are no places where increasing costs haven't been felt: the gas station, grocery shop, or even your Amazon cart.

We've witnessed worrying amounts of inflation since the coronavirus outbreak brought the globe to a stop and after Russia invaded Ukraine just as the economy was about to recover, especially in economies that are perceived to be immune to it.

In this article, we'll talk about hyperinflation from a practical and historical perspective and how to better prepare for it.

It is best to start with asking what hyperinflation is.

What is hyperinflation?

The term "hyperinflation" refers to a sudden, extraordinarily high increase in inflation of at least 50% each month or 14,000% annually. 

When hyperinflation occurs, a cup of coffee may cost $5 on Monday and $10 on Friday. Daily hyperinflation may surpass 200% in severe circumstances.

Root Causes of Hyperinflation

Hyperinflation often results when several factors come together to create the worst-case situation. Corrupt regimes, shaky economies, and bad monetary policies are common elements. Natural occurrences like prolonged droughts impairing a nation's capacity to produce or feed itself can also impact.

Supply of money expanding

When a central bank issues excessive amounts of money, it is one of the most frequent direct causes of hyperinflation. Historically, this happened when vulnerable countries had to finance wars or pay off huge debts.

Each unit new currency's worth decreases as more money becomes accessible, but prices increase. Consumers must spend more on the same goods and services as business earnings fall. The central bank may increase output more to keep up with rising prices, fuelling the cycle.

Demand-pull inflation

When demand exceeds supply abruptly, and significantly, hyperinflation also results. Prices increase when supplies become more limited. Demand-pull hyperinflation typically occurs after extreme events that result in significant supply shortages, such as wars or prolonged droughts.


Consumer psychology may fuel hyperinflation that is already out of control. Due to rising costs, consumers may be forced to stockpile necessities like food, toilet paper, or other in-demand commodities. Demand increases as products fly off the shelves, reducing supplies and creating a dangerous feedback loop.

What was the worst hyperinflation in history?

Is Hyperinflation Coming? Lessons From the German Hyperinflation of 1921-1923

German hyperinflation in 1923 was among the worst ever recorded in modern history. It is most known for the severe devaluation of its currency and the failed measures to correct it.

Germany's Weimar Republic was then emerging from the devastating economic consequences of World War One. Banks were printing four times as many paper bills as was typical throughout the war, and by 1923, they were creating astounding sums of their own paper money too. The biggest coin ever made was worth 120 trillion Reichsmarks.

The only remedy available to the Weimar Republic was to print more money, resulting in record-high hyperinflation levels since their economy was not sufficiently strong to find alternative solutions. There were 400.3 trillion reichsmarks in circulation in Germany as of October 1923.

Scenes of normal living during this period revealed a collapsing society. Children used useless paper money as toys, people bought a loaf of bread along with wheelbarrows full of Reichsmarks, and criminals snatched suitcases full of cash only to empty the contents of the paper money before taking the bag itself. Prices were growing so quickly that, according to reports, a guy who purchased a cup of coffee discovered the price had risen by the time it reached his table.

What caused hyperinflation in Germany? 

The German government had increased the quantity of paper money it created throughout the war to pay soldiers and to buy weapons, ammunition, and other supplies instead of increasing taxes and running the risk of disturbing people.

Only roughly 15% of expenses were funded by taxes between 1914 and October 1923. Ordinary taxes hardly covered 1% of costs in the final ten days of October 1923.

When the war ended, more money was available for transactions than goods. Additionally, the French invaded the Ruhr (a German industrial area rich in coal and iron ore) after Germany refused to pay reparations to France. 

The German people reacted by going on a nationwide strike to express their displeasure at the occupation. Almost little was produced during that strike. Thus, the few remaining commodities increased in value. Prices rose, and the mark made fewer purchases overall. 

Due to the massive amount of German money in circulation and the dearth of products, necessities like milk and bread, which ordinarily cost a few marks, began to cost dozens of marks, hundreds of thousands, millions, and even more.

The Effects

Germans who had money in banks or depended on pensions or disability payments found themselves practically bankrupt due to inflation. Workers increasingly learned that they needed help to keep up with quickly rising prices, despite salary increases.

What had been enough money to begin a secure retirement fund over months was no longer sufficient to purchase a piece of bread.

Who suffered from it?

  • The value of the middle class's monetary savings was destroyed before their eyes, or "Mittelstand."

  • The general population transferred wealth to the government, issuing the money.

  • Lenders suffered losses while borrowers profited.

  • Rent ceilings in Germany did not keep up with general price levels. Therefore, tenants benefited at the expense of property owners.

  • The economy's efficiency weakened because individuals chose to barter.

  • In contrast to paper money, constantly depreciating, people chose to hang onto physical assets (such as commodities, gold, and land).

Value of German Currency, 1919–1923

                         Date                        Marks                  US Dollars

                         1918                           4.2                                1

                         1921                            75                                1

                         1922                            400                               1

                         January 1923              7,000                           1

                         July 1923                     160,000                       1

                        August 1923                1,000,000                    1

                        November 1, 1923      1,300,000,000            1

                        November 15, 1923    1,300,000,000,000    1

                        November 16, 1923    4,200,000,000,000    1

Lessons From the German Hyperinflation of 1921-1923

The German hyperinflation event is a prime example of a developed industrial economy giving in to the risks of currency depreciation promoted by incompetent central bankers.

Unfortunately, the truth is more complicated than that, especially when historical political and economic factors are considered. 

And as we shall see, there are some significant lessons to be learned from that incident that may be used to assess the success of devaluing our own currency in the twenty-first century.

Laying the Foundation

The vast empires of Central Europe were gone after World War I, and the shattered nations formed from them had to adapt to a far more modest and unreliable operation.

After the Bolsheviks seized power in Russia, a new force emerged further to the East with the audacious declaration that they would not stop there. On the opposite side of the Atlantic, America proved that it was capable of gathering the resources needed to win a significant global conflict and that it was capable of becoming a force to be dealt with.

Since the once-powerful German troops were no longer a threat, Great Britain maintained its position as the leading superpower. Since it had security, its primary priority moving forward was economic, particularly as a defense against the escalating Bolshevik threat

The fact that Germany had emerged from the war with its industrial capacity substantially intact meant that France, on the other hand, remained vulnerable to a resurgent Germany. As a result, its principal interests were political.

The British saw the two sides of Europe as separate, especially because the ongoing disputes of Eastern Europeans could once again draw the major Western powers into a regional conflict similar to 1914. 

The French believed that the peace of Eastern Europe was a primary concern of Western European states and that Germany should never be allowed to reassert itself eastward. Britain thought Germany could be convinced to preserve the peace by making compromises, but France thought Germany could only be forced to do so.

Although it wasn't understood then, these opposing viewpoints would ultimately pave the way for Germany's hyperinflation episode.

German Reparations

Reparations for the war proved to be a major disagreement among Western European nations. Particularly the French were profoundly dissatisfied with the outcomes of the Treaty of Versailles and actively sought retribution.

The beneficiaries claimed that only roughly 8 billion of the 20 billion marks in total that were intended to be handed out in the initial payments by May 1921 had been received. As a result, the victorious nations issued Germany various requests and deadlines, including the threat to occupy the Ruhr earlier that year.

After facing intense pressure, the Germans finally consented to issue bonds worth 132 billion marks as the total repayment payment. Eighty-two billion of these were put away and forgotten. In addition to a portion of German exports, the remaining 50 billion would be paid in yearly payments of 2 billion marks.

However, Germany would only be obligated to fulfill these obligations if two circumstances occurred: first, it had to have a fiscal surplus, which would give the government access to more money than what was necessary to meet its current obligations; and second, it had to have a positive balance of trade with other countries, which would allow it to amass enough gold or foreign currencies to pay the reparations.

Ultimately, neither of these circumstances materialized during the 1920s, so Germany could never make any reparations. Even though the true motivations for this strategy went beyond only reparations, money printing was the final result.

Inflation Breaks Out

The German government was exclusively to blame for the failure to achieve a fiscal surplus because it failed to lower its spending and the living standards of its citizens or impose adequate taxes.

Germany's inability to achieve a good trade balance was partially the fault of its creditors. While the Germans made little to no attempt to cut back on their foreign currency purchases, which would have similarly reduced their living level, they stubbornly refused to permit an open border for German goods because this would damage their industry.

Once more, the geopolitical leanings of the creditor in issue influenced how these failures were seen. The French thought they did not want to pay, while the British took them as evidence of Germany's incapacity to pay. In reality, both were accurate.

Due to its relatively greater per capita income levels as the decade passed, Germany could create enough products and services to cover a sizable chunk of the reparations obligations likely had it been permitted to export freely. 

The German government chose to run consecutive budget deficits rather than enact severe tax hikes and spending reductions, or "austerity" in today's terminology. Central bank lending—the counterpart of our "quantitative easing"—is the source of finance.

So, rather than the reparations themselves, the German government's measures meant to get around them led to a major increase in inflation. In understanding the causes of the acceleration of inflation during that early period, it is sometimes overlooked how much the restriction on the free movement of German products to creditors' markets worsened the issue.

And it did so more quickly. The par exchange rate of the German mark to the British pound was around 20, although it dropped from 305 in August 1921 to 1,020 by November of that same year.

The worst, though, was yet to come.

Germany Loses the Ruhr

Inflation's impacts were viewed quite unevenly throughout German society. The inflation benefited those whose assets were in real wealth, such as land or industrial facilities, as it boosted the value of their holdings and eliminated their debts. As usual, the middle class was suffering the most.

Germany sought to halt all monetary reparations payments for the following 30 months in July 1922. The French maintained that the Germans had made no meaningful attempt to pay their obligations and that, as a result, such a moratorium would only be acceptable to them if it was accompanied by reasonable assurances, even though the British were ready to concede at least some of this.

The purpose of obtaining money that could be used to pay for reparations meant that the creditors had to seize control of numerous western German mines, factories, and woods. They also had to seize control of German customs. As a result, the Reparations Commission decided in January 1923 by a vote of 3 to 1 (Britain voting against France, Belgium, and Italy). Two days later, the Ruhr was taken over by the armed forces of the three countries.

The German economy greatly depended on this region. It produced 80% of the country's coal, iron, and steel, generating 70% of its freight traffic with only 10% of the population. Germany replied by calling a local general strike, stopping all reparations payments, and implementing a passive resistance strategy. To fund the strikes, extra paper money had to be manufactured.

The region's output was reduced to one-third of its capacity by 1923. By December 1923, the value of the German mark had nearly doubled, from 80,000 to the pound in January 1923 to 20 billion.

Another important factor to remember is that the collapse of Germany's currency was sealed by the reduction in Germany's productive capacity, which was maintained with even more money printing.


Resistance in the Ruhr region caused significant financial and economic pressure on Germany and psychological strain on the French and Belgians. The occupying nations did not get the due reparations while the German mark was being destroyed.

As a result, a settlement was achieved in which the Ruhr was evacuated, and Germany agreed to another reparations package (the Dawes package).

The British emerged as the winners in this incident, proving that the French could not employ force effectively absent British consent. The years that followed would see significant geopolitical repercussions of this.

However, there were other winners as well. The radical political parties in Germany benefited from the consequent humiliation and annoyance experienced by significant portions of the populace. Within a decade, the most extreme among them would become the most powerful.

Lessons for Today

Is Hyperinflation Coming? Lessons From the German Hyperinflation of 1921-1923

This episode highlights less evident but very significant aspects of the dynamics of money printing, particularly in how they interact with economic freedom and productive potential. High inflation rates may require plenty of paper credit, but more is needed today.

Ensuing gold outflows

In an open economy, inflation may appear as a steady rise in prices or a worsening trade balance. Regarding the latter, during the era of the gold standard, the ensuing gold outflows would act as a self-correcting process. 

The central bank would then have to hike rates to reverse those outflows and reduce the domestic demand that first caused the imbalance.

These imbalances can last longer because we have monetary currencies now, which are influenced by differences in interest rates, inflation expectations, risk premiums, credit creation, and other factors. The nearly infinite manufacturing capacity is one significant advancement since the 1920s—since the late 1970s.

Quick building of manufacturing capacity of money

Capitalism and globalization have made it feasible for business owners and, in certain crucial circumstances, central planners (think China) to quickly assemble manufacturing capacity anywhere in the world. Thus, supply may expand quickly to meet demand increases, reducing long-term market price and consequences.

Through the free flow of money and products, global markets have grown extraordinarily effective at identifying and eliminating price advantage possibilities. As a result, Western economies have an essentially deflationary system, especially when combined with huge debt loads that might limit the sustainability of demand increases.

How to get ready in case of hyperinflation?

Although it may not seem like it, you should plan for hyperinflation as you would plan for retirement or a natural disaster. You need to safeguard yourself from both the likely and the unlikely.

Fortunately, there are a few things you can do to combat the hyperinflation crisis.


An investment that retains value despite a currency's diminishing value is known as an inflation hedge. Investing in precious metals like gold or silver, purchasing real estate, or acquiring your power sources, such as a generator or solar panels, to protect against rising energy prices are all common ways to hedge against inflation.

Because cryptocurrencies aren't affected by interest rates and inflation like traditional currencies, investors have recently turned to them as an inflation hedge. 


Currency is meaningless when its value is lost. Spending money on needs is one of the smartest things you can do when you sense the threat of hyperinflation. Start with investments and buy non-perishables and canned, dry, and frozen products if the situation worsens.

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