Hyperinflation in Germany after World War I - Essay Example

Why such a phenomenon happened in Germany, a nation with a long history of political, economic, psychological, social and academic knowledge and experience, shows the destructive power of policy mistakes caused by weakness and incompetence (Solomon 28-30). Understanding the hyperinflation that raged from June 1922 to December 1923 requires a good knowledge of German history. Inflation is only one of the external manifestations of a number of decisions regarding the supply and demand in the markets for goods and currencies that are made in the minds of politicians, economic policy-makers, businessmen and consumers.

A gradual inflation rate is acceptable, but when these decision makers make wrong decisions at the same time, the market breaks down. Hyperinflation, like a bodily fever that is a sign of infection or a virus causing destruction within the body, is a sign of sickness in economic markets. Anyone familiar with Germany's political and national history would know why so many wrong decisions were made in the minds of so many Germans and their foreign business and political partners during this period, what led to these mistakes and, more importantly, why.

The fusing of the German nation was a process that took centuries beginning with the widely held belief that in the year 9 A.D., Arminius, a prince of the Germanic tribe called the Cherusci, defeated three Roman legions in the Teutoburg Forest. With each conquest, the tribe grew into the Holy Roman Empire that reached its peak during the reign of Charlemagne in the 9th century. After his death in 814 A.D., the empire of Germanic and Romance speaking people then fell apart, breaking up into eastern and western realms according to the law of inheritance (PIO 106-108).

This brief detail is important to understand the events directly related to the study of hyperinflation, because the collective aspiration of a formerly glorious nation that spanned from east to west to wherever territories German settlements were found became one of the arguments used by politicians to justify their actions, no matter how mistaken these may be. By defining the German Fatherland this way - territory that belonged to ancient Germanic tribes by conquest, settlement, or inheritance - the dreams and actions of several generations of German peoples were shaped by their ambitious efforts to expand, reclaim, or retain what they think is justly theirs by historical right.

Germany in the early 19th century became a confederation of 39 German kingdoms and political alliances with constantly shifting internal boundaries, not including the Germans in Bohemia (present Czech Republic) and Austria. Each kingdom had its own identity and was not willing to surrender it. This division and the political infighting among the different rulers of the kingdom affected the unity of the government and became one of the sparks that ignited hyperinflation in the 1920s. Acting as stimulus that created tensions in the pre-War politics and economy, intellectuals like Karl Stein, Prince Karl August von Hardenberg and Wilhelm von Humboldt called for the abolition of serfdom, freedom of trade, municipal self-administration, equality before the law, and general conscription into the