Library of Congress

By Daniel P . Munson

Hyperinflation — i . e ., inflation running at or over 40 – 50 % per month — is not an uncommon event in the modern world . It has occurred recently in places as remote from one another as Argentina , Zimbabwe , Turkey and Venezuela . These countries all slid into hyperinflation in their own unique ways , yet they all ended up in the same monetary and financial difficulty .

For purposes of extracting general principles and interesting historical parallels , however , one such event stands out . The hyperinflation that racked Germany , Austria and Hungary in the years leading up to the trillion-to-one devaluation of the German mark in November 1923 is instructive not only because those events are documented with Teutonic thoroughness , but also because the economies of those countries were diversified and similar in many ways to the United States today .

“ In a Berlin Bank ,” 1923 .

This is not a journal of lay opinion , so let us begin by exploding a few half-truths that haunt simplistic discussions concerning the German-Austrian hyperinflation of the early 1920s .

Many believe that the hyperinflation ushered the Nazis and Adolf Hitler to power . This is not completely wrong in that the hyperinflation set to low heat trends that would boil over years later , but it is not really accurate . The Nazis were a small , regional political force in the years of the hyperinflation and remained so for years afterwards . It was the worldwide depression of the early 1930s that finally vaulted them to national political power , not the hyperinflation .

Others believe it was caused by the reparation payments required of Germany by the Versailles Treaty , and of Austria and Hungary by the parallel treaties of St . Germain and Trianon . Those payments certainly made things worse , but Germany and Austria-Hungary were on the road to financial trouble long before those payments began . Germany ’ s World War I costs had run to 165 billion marks , but the war profits and transport taxes instituted to “ pay ” for the war raised only about 10 % those costs . Fiscal deficits financed the German war effort , deficits papered over with patriotic war bond appeals —“ I gave gold for iron ”— bonds whose values were destined to plummet . The obligation to redeem notes in gold had been suspended in 1914 and foreign exchange quotations went unpublished during the war , so the value of the German mark was a bit of a mystery when the war ended . During the chaotic post-war year of 1919 , as German deficits became known , but before the Versailles Treaty terms kicked in , the mark declined in value from 10 to 40 to the US dollar .

In Austria , a similar war funding deficit caused monetary events to spin out of control even faster than in Germany . The empire centered in Vienna was reduced in size by roughly two thirds by the armistice , and with it went any hope for the Austrian currency .

The Austrian government ’ s attempts to mitigate the disastrous effects of these post-war events upon the citizenry is captured in grisly detail in the diary of

32 FINANCIAL HISTORY | Summer 2022 | www . MoAF . org