The great inflation of the 1920s - Essay Example

In the initial stages of the great inflation, German citizens did not experience its effects partly due to the stability of German’s economy before World War I. At the end of 1923, the effects of the great inflation started being felt by the German citizens. The great inflation reached its peak at the last half of 1923 when the prices of basic commodities had increased by more than five hundred times. The price continued to increase steadily putting German’s economy at the risk of collapse.

Although the inflation resulted from economic factors, it was related to German’s governance. This essay will investigate the great inflation, and its impacts on Germany and the German people. Like most other inflations, the great inflation had its source in poor monetary policies and governance issues. Germany’s involvement in World War I is believed to have been the source of its monetary crisis. At the height of World War I, the German government exhausted its monetary reserves forcing it to turn to money printing press as a quick intervention measure.

The German government needed money to pay its soldiers and officers serving in the war. The government also needed money to purchase military equipment that was required during the war. The government considered the act of printing extra money as a quick intervention strategy of winning the battle. . This measure was meant increase the amount of liquid money under government’s control. This measure could not however, guarantee the government adequate money to pay its military personnel. To contribute to the government’s efforts of increasing the amount of money in the treasury, the parliament passed policies that allowed the government to offer war bonds.

The Reich bank was to respond to this offer by printing extra money to balance the amount of money in government’s position with that in circulation. From 1914 to 1918, the amount paper money printed for both the government and private sector spending had reached 33.12 billion marks. This was a significant increase since before the war the German government and the private sector spending accounted for nearly 2.37 billion marks. Before the war, one US dollar traded for approximately 4.12 marks.

At the end of World War I, the exchange rates had changed significantly since one US dollar traded for 8.32 marks. This was however, the initial stages of the inflation. Although the effects of this inflation were not sufficient to cause an economic breakdown, they greatly influenced German’s economy. The worst phase of the monetary crisis was experienced during the first five years that followed the war. At the first quarter of 1919, the supply of paper money had reached 50.16 billion marks.

This figures changed constantly to reach 1,310.56 billion marks at the close of 1922. On the other hand, 192.3 marks traded for one US dollar at the beginning of 1919. The exchange rate increased dramatically and reached 7,589.37 in 1922 and, the worst situation occurred in November 1923 when one US dollar traded for 4,200,000,000.00 marks. This figure is absurd and it implied great