The Great Inflation
In late-1922 the German government were forced to ask the Allies for a
moratorium on reparations payments; this was refused, and she then
defaulted on shipments of both coal and timber to France. By January of
the following year, French and Belgian troops had entered and occupied the
Ruhr. The German people, perhaps for the first time since 1914, united
behind their government, and passive resistance to the occupying troops
was ordered. A government-funded strike began as thousands of workers
marched out of their factories and steel works. The German economy,
already under massive pressure, gave way. The huge cost of funding the
strike in the Ruhr and the costs of imports to meet basic ...
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the
effectively worthless, banknotes in exchange for grain, and food quickly
began to run short in the cities. Prices rose one trillion-fold from their
pre-war level. More importantly, for the long-term political future of
Germany, the middle and working classes saw their savings wiped out.
These were, in essence, the people who were later to become the hard-core
of the Nazi vote.
Economists will argue that runaway hyperinflation has two sources. Firstly,
it arises through a fall in the foreign exchange value of a currency, when
an adverse balance of payments reduces foreign investors demand for the
currency. A falling exchange rate increases the cost of imports and,
therefore, the cost of living. Wages rise as workers try to maintain their
standard of living, especially if previous institutional arrangements have
linked wages to living costs. Firms paying higher wages raise the price of
the goods they sell, prices rise still further, the foreign exchange value
of the currency ...
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finance minister or a link
to the gold standard is implemented, and reform can be successful. It was
at this point that some sanity was injected into the German economy by the
election of Gustav Stresemann. He called a halt to resistance in the Ruhr,
and set out to stabilise the mark. Luther, StresemannÆs Finance Minister,
introduced the rentenmark the value of which was based on GermanyÆs staple,
rye, rather than gold. In fact the rentenmark represented a mortgage on
GermanyÆs land and industry, which could never be redeemed. It did not
matter. The point was that the currency was stabilised and became
exchangeable at a rate of one billion old marks to one new mark, and at
the pre-war ...
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The Great Inflation. (2006, June 2). Retrieved December 23, 2024, from http://www.essayworld.com/essays/The-Great-Inflation/46908
"The Great Inflation." Essayworld.com. Essayworld.com, 2 Jun. 2006. Web. 23 Dec. 2024. <http://www.essayworld.com/essays/The-Great-Inflation/46908>
"The Great Inflation." Essayworld.com. June 2, 2006. Accessed December 23, 2024. http://www.essayworld.com/essays/The-Great-Inflation/46908.
"The Great Inflation." Essayworld.com. June 2, 2006. Accessed December 23, 2024. http://www.essayworld.com/essays/The-Great-Inflation/46908.
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