After World War I the Kaiser was kicked out of Germany, the German Empire was dismantled, and a new German republic was formed. The new “Weimer Republic” was certainly in a financial pickle. The government had no gold, then considered the standard of wealth for nations. After four years of war the German treasury had been emptied and replaced with tremendous debts. The new government also governed a nation in chaos, which required even more money in spending to solve. Finally Germany was forced to pay reparations to the Allied Powers, in other words Germany had to compensate her former enemies for damages which occurred during the war.
So without any gold, how was the Weimar Republic supposed to pay off its debts and fund a working, viable government? In 1919 Germany suspended the convertibility of its paper money into gold and began issuing bills which were backed by nothing. The Weimar Republic’s solution was very simple; to print all the money they needed. While the prospect of creating free money sounds tempting, there are terrible consequences. Money, just like any other good or commodity, is only valuable in its rarity. The less money in circulation, the more valuable it is, the more money in circulation, the less valuable it is. When the value of money decreases it is called inflation. Inflation is a normal occurrence when it comes to money which isn’t backed by a valuable hard commodity. Sometimes governments need to print more money to supply a growing population or expanding economy. It’s also not uncommon for governments to print money to pay for goods and services. When money decreases in value to the point of worthlessness, this is called hyperinflation.
In 1919 inflation became rampant in Germany as the Weimar Republic began to print paper bills like crazy. In 1918, around the end of World War I, one German mark could buy a loaf of bread. By 1922, 163 marks could buy a loaf of bread. As the German government printed more and more bills, the value of money fell as the price of goods and services skyrocketed. When small denomination bills became worthless, the government began to print bills of larger denominations. Ultimately the Republics attempts to print money to pay its debts was fruitless. When nations pay foreign debts, they have to pay in the currency of creditor nation. So to pay off France, the German government had to exchange it’s marks for francs. However, the more money they printed, the value of the mark fell, and the value of the franc rose. In desperation, the Weimar Republic continued to print more.
By early 1923, the cost of a loaf of bread was 1,500,000 marks. Money became so worthless that people had to lug wheelbarrows full of bricks of cash to buy groceries. Workers were paid twice daily, before lunch and at the end of the workday, so that they could buy goods before their money lost value. As money became worth the value it was printed on, people came up with creative ways to use the useless bills. Children used bricks of cash as building blocks while others used them as fuel for heating (see pics above). Some people even used money as wallpaper.
By 1923, the Weimar Republic was printing bills in ridiculous denominations. Pictured above is a bill dated November, 1923 which is denominated 10 billion marks. While a large number, it wasn’t worth much as the price of bread in late 1923 had risen to 200 billion marks per loaf.
In 1924, after suffering severe economic consequences, the Weimar Republic ceased its reckless printing of money. To reverse hyperinflation the German National Bank introduced a new currency called the “rentenmark”. The new currency was exchanged at 1 rentenmark for 1 trillion marks. As Germans exchanged their old bills for the new currency, the supply of money in Germany began to shrink and prices returned to normal. In the meantime the German government destroyed the exchanged old currency which amounted to a total of 1,200,000,000,000,000,000,000 marks.