#papiermark

[victusinveritas]

1923. A woman uses banknotes to light her stove during hyperinflation in Weimar Germany

[deadbling]

The Weimar Republic's "Papiermark" (1919-1923) - The currency of the German Empire became known as the "Papiermark" in 1914 when the Reichsbank closed gold conversion for the duration of the First World War. When Kaiser Wilhelm II was deposed, the Weimar Republic took over the "Papiermark" along with the reparations from the Versailles Peace Treaty.

The attempt by the new republic to pay for the national debt/reparations through monetary expansion while also bolstering the resulting fall in purchasing power by irresponsibly increasing wages pushed the national economy into a vicious cycle - the "Papiermark" rapidly lost value relative to foreign currencies and the government raced to bolster the workers' purchasing power by printing more money.   

In order to fully appreciate the hyperinflation of 1923, the long scale numerical designations on the bills require some explaining:

milliard: one thousand million

billion: million times million

billiard: thousand times long-scale billion

trillion: million cubed 

Before the war, the highest-denomination banknote was 1000 marks. By January 1922, 10,000 mark banknotes began circulating. In February 1923, 1 million mark notes were issued followed by 50 million mark notes in July and 10 milliard mark notes in September. The next month, the Reichsbank began issuing 100 billion mark notes (equivalent to USD 24) 

The Weimar Republic finally resolved to rein in the inflation and issued the Rentenmark in October of 1923, exchanging 1,000,000,000 Papiermark for 1 Rentenmark (USD 1 = 4.2 Rentenmark).

The story of the Weimar Republic's "Papiermark" has been retold in countless textbooks as a cautionary tale in deficit spending and monetary expansion.

As Adam Ferguson noted in When Money Dies (1975)

This is, I believe, a moral tale. It goes far to prove the revolutionary axiom that if you wish to destroy a nation you must first corrupt its currency. Thus must sound money be the first bastion of a society's defense. 

Many modern policymakers (especially after experiencing the era of stagflation in the 1970s) have taken this lesson to heart. In particular, the legacy of Weimar Republic's hyperinflation continues to influence Germany's current outlook on the Eurozone Crisis - perhaps not all for the best.