Latest / The History of Germany: Kingdoms, War, and Rebuilding Europe — Fexingo History / The Reichsbank: Germany's Gold and Hyperinflation Nightmare
Transcript
- Lucas: So, Luna, we've talked a lot about the political chaos of Weimar Germany — the street fights, the putsch attempts. But there's another kind of chaos that's harder to picture unless you've seen the numbers: hyperinflation. Luna: You mean the wheelbarrows full of cash for a loaf of bread? That's the image that always comes to mind. Lucas: Exactly. And the institution at the center of it was the Reichsbank, Germany's central bank, founded in 1876. It was supposed to be a pillar of stability, backed by gold. But after World War I, that pillar crumbled. Lucas: Before we dive deep, I should mention: if this episode helps you make sense of a complicated piece of history, the way we keep this show ad-free is through listener support. You can buy me a coffee at buy me a coffee dot com slash fexingo, all lowercase. It really does keep us going. Luna: Yeah, it's a small way to keep these conversations alive. I'm glad you brought that up. Lucas: So, let's rewind. The Reichsbank was modeled on the Bank of England, with a strict gold reserve requirement. Every paper Mark in circulation had to be backed by gold or silver. It was called the Goldmark, and it was rock solid. Luna: So what happened? How did that system collapse? Lucas: World War I. The German government needed enormous sums to fund the war, and instead of raising taxes, they borrowed and printed money. The Reichsbank effectively became a printing press for the government. The gold backing was quietly suspended. Lucas: By 1918, the money supply had quadrupled. But the war ended, and the government kept printing. Why? Because they owed huge reparations under the Treaty of Versailles, and they thought inflation would make the debt cheaper to pay. Luna: That sounds like a gamble. Did it work? Lucas: For a while, it sort of did. But by 1922, the Mark was losing value faster than they could print. In January 1923, France and Belgium occupied the Ruhr — Germany's industrial heartland — because Germany defaulted on coal deliveries. The government ordered passive resistance: workers went on strike, but they still got paid. And where did that money come from? The printing press. Lucas: That's when things went truly insane. By November 1923, one US dollar was worth 4.2 trillion Marks. You needed a wheelbarrow to carry your pay, and by the time you got to the shop, prices had already doubled. Luna: How did people survive? I mean, day to day? Lucas: Barter, hoarding goods, spending money the instant you got it. People with savings were wiped out. Pensioners, war widows, people with fixed incomes — they lost everything. And that created deep resentment, which the Nazis would later exploit. Lucas: The Reichsbank president at the time was a man named Rudolf Havenstein. He kept insisting the printing was necessary, even as the currency became worthless. He died in November 1923, and Hjalmar Schacht took over. Luna: Schacht — I've heard that name. He was kind of a financial wizard, right? Lucas: He was, but also a controversial figure. Schacht introduced the Rentenmark in November 1923. It wasn't backed by gold — it was backed by a mortgage on all German land and industry. People had faith in it, and that faith stopped the inflation literally overnight. Lucas: The Reichsbank was reformed, and a new, stable Reichsmark replaced the Rentenmark in 1924. But the damage was done. The trauma of hyperinflation made Germans terrified of any hint of inflation, which later influenced the hardline policies of the Bundesbank. Luna: So the Reichsbank went from a symbol of stability to a machine of destruction, and then back to stability — but at a huge cost. Lucas: Exactly. And Schacht went on to serve under Hitler, until he fell out of favor in 1937. But that's a story for another episode.