INFLATION= General rise in prices across the economy. Inflation reduces the value of money and the amount we can buy with our money falls over time. A £10 note is still worth £10, it just buys less.
How can inflation be controlled?
- If prices keep rising then wages will have to rise to keep up, but this can make an economy unstable and people may begin to lose faith in the government.
- If prices keep rising then demand may have to be reduced.
HYPERINFLATION= rapid and out of control inflation.
- French and Belgium soldiers began to take what was owed to them from Germany back to France.
- The German government ordered its workers in the Ruhr to go on strike and not help the soldiers remove good from the country. This was called PASSIVE RESISTANCE
- French and Belgium soldiers were tough with the strikers. Over 100 of them well killed and 150 000 people were thrown out of their homes as a punishment.
- The German government met to discuss the crisis. They promised to continue paying the workers on strike. To make matters worse, the government was running short of money because the Ruhr wasn't producing coal, iron, and steel to sell to other nations.
- To pay their striking workers, the government printed large amounts of money- but this caused lots of problems.
- The striking workers began to spend their money - quickly. They were being paid for not working and wanted to spend, spend, spend! In response, shopkeepers began to put up their prices.
- As shops raised prices all over Germany, the government responded by printing even more money. The more money the government printed, the faster prices went up.
- The faster prices went up, the faster people spent their wages. Soon workers were being paid twice a day. They carried their wages around in wheel barrows. The price of goods could rise between joining the back of the queue and reaching the front.
- The German governemtn and the Weimar politicians lost a lot of support in 1923 as people looked for someone to blame.
How did the inflation affect people?
Pensioners: They found that their fixed pensions, or their savings were now worthless.
Employed workers: As long as they had a job, were to some extent protected, because they were simply paid higher and higher wages.
People with debts: They benefitted. They could pay the money back at a fraction of the real cost as the money went up their debts would stay the same.
The wealthy: were protected as they did not just have money but also land, possessions and foreign currency.
Businessmen: Took advantage by taking over small businesses which were going bankrupt. In the end inflation was so rapid it caued unemployment.
Middle class: The real losers. They saw their savings and businesses destroyed.
How did they deal with Hyperinflation?
- August 1923: Stresemann became Chancellor. He was willing to call off the policy of passive resistance. The policy was bankrupting Germany, but it took courage to abandon it as many felt he was giving in to France.
- In October the government scrapped the old, worthless money, and introduced a new, temporary currency, the Rentenmark. By strictly limiting the amount of this currency in circulation the value of German money was stabilised, and in the next year a new permanent currency, the Reichsmark, was bought in.
- To keep the support of the army, who were strongly right-wing, the government gave orders that left wing state governments in Saxony and Thuringia should be disposed. Once this was done it was much easier for the government to get the army to act against the much more dangerous right-wing nationalists in Bavaria.
- In November the German government agreed to resume payment of reparations. The Allies then set up a commitee under an American banker Charles Dawes to resolve the problems of how Germany was going to pay. The Dawes Plan of April 1924 made a huge loan avaliable to Germany. The idea was that the money would help rebuild German trade and industry. Money would then flow into the German government and they could pay regular reparations.