In 1923, Germans would rather burn cash for heat, or even use it as wallpaper, before spending it. A suitcase filled with money couldn’t even buy a newspaper. In fact, some say that when a customer left his wheelbarrow of cash outside a store, when he returned a thief stole the wheelbarrow and left the cash behind. Why?
Before the first World War, the currencies of Germany, France, Italy, and Spain were about even in terms of their values. But entangled alliances weren’t the only thing spelling their doom. In 1914, Germany stopped backing their marks with gold, and when prices started to creep up, people started holding off on spending until they went down again. The Treaty of Versailles, which demanded reparations from Germany in gold-backed marks, didn’t help matters, either.
Germany was more afraid of unemployment for its citizens than it was of inflation, so it kept printing away until they reached what is now called “the German hyperinflation”, one of the world’s worst financial crises.
Things got so bad that, as you’ll remember from the introduction, money was used to cover walls because it was cheaper than using actual wallpaper. The value of money dropped so fast that in the time between when a customer ordered food in a restaurant and when the bill arrived, the price had gone up. This started the tradition of ordering two beers at a time to save money.
At its worst, it took one trillion marks to match the value of one dollar. The government printed a 1,000-billion mark note, for which no one ever bothered getting change.
What turned things around? Since the mark no longer had gold to back it up, Reichsbank started issuing “Rentenmarks”, which were backed by mortgages on land and bonds in factories. Germany’s currency may have been in the toilet, but they still had valuable assets.
This is more than an interesting anecdote. The “two beers” thing is now a financial “fun fact” that illustrates a point in history, but it’s important because the Reichsbank president who executed the solution to the problem, Horace Greeley Hjalmar Schacht, was deemed a financial wizard and paved the way for the Nazis to rise to power on his credit.
So, while inflation helped end the American Civil War, it helped start the Second World War.