AP® European History · Unit 8 · Topic 8.5
Hyperinflation and the Global Economic Crisis
Hyperinflation in 1923 Germany made money worthless almost overnight, and the global crash of 1929 then threw millions out of work, and both crises eroded faith in democratic governments right when extremist parties offered a way out.
Germany owed enormous reparations after Versailles, and in 1923 it also faced French and Belgian troops occupying the Ruhr, its industrial heartland, after it fell behind on payments. German workers there went on strike rather than work for the occupiers, and the government printed money to pay them and keep the state running. But Germany's economy was not producing more goods to match that new cash, so each new mark bought less than the one before. Prices did not just rise, they compounded: a loaf of bread that cost a few hundred marks in mid-1922 cost billions by late 1923. Anyone holding cash or fixed savings watched their life's work become worthless in months, while debtors paying back loans in suddenly cheap marks did fine. That gap between ruined savers and relieved debtors hollowed out the middle class's trust in the Weimar government.
The second shock came from outside. The Wall Street crash of October 1929 ended the easy American lending that had been propping up European recovery, especially short-term loans to German banks and businesses. As those loans got called in, German and Austrian banks failed, credit froze, and businesses across Europe cut production and workers. Unemployment climbed fastest in Germany, rose sharply in Britain, and rose more slowly in France, which had a more self-sufficient, agricultural economy and was hit later.
These two crises taught the same lesson twice: parliamentary governments could not protect ordinary people from economic catastrophe. That failure mattered more than the economics itself, because it is what opened the door to the Nazi party's rise, covered next.
Key terms
- Hyperinflation
- Extremely rapid, self-feeding price increases, usually caused by a government printing money far faster than the economy grows.
- Ruhr Occupation
- The 1923 French and Belgian occupation of Germany's industrial Ruhr region after Germany defaulted on reparations payments.
- Reparations
- Payments Germany was required to make to the Allied powers under the Treaty of Versailles for war damages.
- Credit loop
- The chain of short-term lending connecting American banks to European banks and businesses, which broke down after 1929.
- Weimar Republic
- Germany's democratic government from 1919 to 1933, weakened by the economic crises of this period.
Watch it explained
- Worked exampleTrace the German mark against the dollar month by month through 1922 and 1923.
- How it worksHow does a government printing money to pay strikers destroy the savings of its own middle class?
- How it worksShow me the 1929 crash spreading from Wall Street through the credit loop into European banks.
- Worked exampleTrace unemployment in Germany, Britain, and France from 1929 to 1933 as three lines.
- Ties togetherHow does the unemployment curve line up with the Nazi share of the vote in the same years?
Check yourself
End of topic.