¶ … inflation that occurred in Germany in the early 1920s has been well documented and discussed. It has been blamed for the rise of the Nazi Party and the downfall of the Weimar Republic; yet, few understand how inflation in Germany developed so rapidly and how it was ultimately brought under control. The purpose of this paper will be to examine both the cause of this inflation and its eventual resolution. In the year leading up to the hyperinflation that occurred there were some mild signs that the German economy may be trouble but the signs were mixed. Although food prices were increasing the price of purchasing American dollars was dropping as was the price of purchasing American products. This was seen as a stabilizing situation by most economic experts and there was minimal concern. This situation, however, changed dramatically as prices in Germany began to increase between mid-1921 and mid-1922. During this period, prices began to rise rapidly and there is actually evidence that they increased by as much as 600% but this was only a small sign of what was to happen in the coming months.

During the period from mid-summer 1922 and the following year, the price of food in Germany increased by 100 times which was only a prelude for the increases that occurred in the following year. In the following year inflation in Germany saw prices increase completely out of control as they rose faster than anyone could possibly measure. Some estimate that prices increased over a million times from July, 1922 to November, 1923 (Hall, 1982, p.73).

Germany was not alone in its inflationary plight. Several other nations in Europe, including Austria, Hungary, and Poland were suffering similar problems but Germany's was the most spectacular and crippling....

Because Germany had undergone such remarkable changes following the end of the Second World War, its government was not prepared to address the economic problems that the nation was facing. The government was too engaged in attempting to remain stable. There were threats from all political sides, such as the Communists, Socialist, and National Socialists (Nazis) that were interested in toppling the young republican government and, as a result, the Weimar government was slow to respond to the inflationary conditions. It was afraid to take any affirmative action that might work to stall the inflationary in fear of its not working and opening the door for one of the aforementioned radical groups to assume control of the government. The result was that it did virtually nothing and inflation spiraled out of control.
Theories abound as to the primary cause of the hyperinflation that occurred in Germany in the early 1920s but there can be no doubt that the reparation payments required of Germany to be paid to the victorious Allied forces were a major cause. During the period of 1920-1921, the German government had total revenues of 11, 265 gold marks. Its expenditures in the same period were virtually the same and the budget was balanced but in the following two-year period, 1921-1922, the reparations' payments had begun and the situation was entirely different. The reparations payments caused the German budget to become badly out of balance. The payments placed an unbearable burden on the government which was unreasonable. The amount of the payments was far more than the government could possibly afford. Complicating the matter further and adding to the inflationary conditions was the uncertainty of the amount of the total payments and the payment schedule. Even as late…