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World War I victors imposed severe war reparations on Germany. When Germany defaulted, France invaded the Ruhr which was the most heavily industrialized area in Germany to force reparations themselves. If Germany persists in default, it risks further invasion. The easy way out was to print money and inflate the debt away. One can argue that Germany had really no choice but to print money. Because the war reparations were so huge, the money printing was excessive. This created the conditions for hyperinflation to happen later.

Were the heavy war reparations after World War I the main cause of hyperinflation in Germany in 1923?

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Don't have time for a full answer now, but it wasn't only the reparations. Germany had supported all its war effort through loans, and thus the Mark was declining even before the end of the war. – Yannis Nov 6 '13 at 14:20
"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output" - the choice to print more money may have been constrained by the reparations, and might hvae been further constrained by the fact that Keynes hadn't yet published macroeconomic theory. – Mark C. Wallace Nov 6 '13 at 14:33
up vote 6 down vote accepted

The WWI reparations were set in gold marks, and the level of the reparations therefore was actually equivalent to a fixed amount of gold. It wasn't payable in paper marks, the actual currency at the time. It was only payable in currencies that had a fixed exchange rate to gold.

The reason for the hyperinflation is that Germany decided to start printing money to buy foreign currency to pay the reparations with. Essentially, they attempted to buy gold from foreign countries with worthless paper and then give the gold back. This, of course, did not work, but only resulted in hyperinflation and a slow-down of the German economy, therefore making it harder for them to pay the reparations.

Therefore, it is not the reparations that cause the inflation, but the Wiemar republics decision to try and get money for nothing.

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One could argue that had it not been for the heavy reparations, the Weimar republic would not have made the decision to print money to buy foreign currency to pay the reparations. The root cause was still the very heavy war reparations. – curious Nov 6 '13 at 14:48
+1, although as Yannis mentioned, the need to repay internal war debt as well was also a factor. About the only way the inflation could have been avoided was to win WWI (or better yet, not start the stupid war in the first place). – T.E.D. Nov 6 '13 at 14:48
@T.E.D. and Yannis: There were certainly other factors. However, the question centres on whether the severe war reparations was the main cause. After all, other World War I participants also had heavy internal war debts but they did not suffer hyperinflation. It is quite possible that if Germany did not have to carry the extra burden of super heavy war reparations, they might have escaped hyperinflation like the rest. – curious Nov 6 '13 at 14:56
@curious Ah, but other countries didn't resort to borrowing (at least not as much as Germany did). France, for example, supported its war effort through taxation (creating war time taxes, etc). – Yannis Nov 6 '13 at 15:33
@Lennart Regebro : I realized my question is flawed because the reparations were not denominated in paper marks. So, printing money was not a solution anyway. But money printing does help in reducing other debts which were denominated in paper marks. Using paper money to exchange for foreign currencies helped too (at least in the beginning), as you have pointed out. Hyperinflation and Ruhr occupation did help Germany in some ways. It helped Germany gain sympathy among the war creditors and paved the way for debt forgiveness. – curious Nov 7 '13 at 8:12

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