Lessons from the Past - Hyperinflation in Weimar Germany (1923)


Life was madness, nightmare, desperation, chaos.1 Extreme inflation or hyperinflation2 is in the news as price rises in Venezuela hit the stratosphere. The cataclysm of hyperinflation is both a symptom and cause of deep-rooted economic and political malaise. The example of Germany in 1923 may be an instructive historical example for investors today.


Gold no more

Before the First World War, the global monetary system was based on the gold standard with most currencies fixed to gold. Germany came off the gold standard at the outbreak of war in 1914 to provide financial flexibility at a time of crisis. Before 1914, under central bank policy, a third of bank note issuance had to be backed by gold, constraining the money supply.3 When this constraint was removed, the amount of paper money rose substantially, from 2 billion marks in 1913 to 45 billion in 1919, unleashing inflation.4 During the war years the cost of living trebled.5

Treaty of Versailles

A spirit of revenge characterised the post-war settlement. The Treaty of Versailles reduced Germany’s population and territory, while lumbering it with substantial reparations – large sums to punish it for the conflict, calculated to be £6.6bn in 1921, which had to be paid in yearly instalments of £100m.6 Raising this money was a continuous struggle for the German government and undermined the currency from the beginning of the Weimar Republic.

Political fragility

The period after the war was one of intensifying political instability in Germany. The failed Kapp Putsch attempted to overthrow the Weimar Republic and establish a military dictatorship in 1920, while 400 political murders between 1919 and 1922, including Finance Minister Mathias Erzberger and Foreign Minister Walther Rathenau, intensified political risk and contributed to surging inflation as the currency weakened.7

Inflation to hyperinflation

The journey from inflation to hyperinflation gathered pace in 1921. In the second half of that year there was a 50% increase in official food prices. The price of an egg rose 180-fold between 1914 and July 1922, while a litre of milk climbed from 7 marks in April 1922 to 16 in August and 26 by mid-September.8

In July 1922 prices rose by 50% month on month for the first time, a level now generally accepted as hyperinflation.9 During the following year inflationary pressures escalated. Ultimately prices were rising every few hours. Barter became a common form of exchange based on commodities like brass and fuel. A cinema ticket could be paid for with a lump of coal. There were stories of people ordering meals in restaurants and being charged more when the bill came.10

During these years the currency collapsed as the mark’s supply rose exponentially. It fell from 7.4 per US dollar in November 1918 to approximately 2.5 trillion per US dollar on 15 November 1923 on the eve of currency reform.11

Year of the Wheelbarrow (1923)

The French occupation of the Ruhr in January 1923 in response to non-payment of reparations resulted in further weakness of the mark. The decline in government revenue caused by the occupation put further strain on government finances and encouraged more money printing.

The hyperinflation can be followed in bank note denominations. The first 100,000 and 1-million mark notes were printed soon after the occupation of the Ruhr.12 By July 1923, a 50-million mark note was being printed and by September a 500-million mark note.

In October it was noted that the number of marks to the pound equalled the number of yards to the sun. 13

By the end of October, banknote circulation amounted to 2,496,822,909,038,000,000 marks. On 2 November 1923, close to the peak of hyperinflation, the Reichsbank issued a 100-trillion mark note.14 During the hyperinflationary period 2,000 presses printed banknotes day and night.15

Descriptions of the worthless German bank notes of these years are well known: baskets full for shopping trips, wheelbarrows full to pay workers’ wages. They were used as wallpaper or, in bundles, as children’s toy building bricks. The currency was destroyed as a means of exchange.

The madness persisted because the political will to stop it did not exist. Fear of extreme austerity causing even higher unemployment and further instability paralysed politicians.

Share prices reached a bottom in October 1922, well before the end of the hyperinflation. By then the stock market was down 97% from its 1913 level.16 Prices continued to rise in real terms during the first half of 1923, even as the hyperinflation entered its climatic phase.17

Falling apart

Germany was starting to fall apart. Riots and plundering erupted across the country with unemployment among the unionised workforce spiking to over 23% in October 1923.18 Rebellions against central authority broke out in Bavaria and Saxony, and separate currencies were launched by cities, threatening the long-term survival of the German state. The existential threat to Germany finally encouraged politicians to act.

Creating stability

An enabling law of 13 October 1923 allowed the government to legislate without Reichstag approval; Germany in effect becoming a temporary dictatorship. A new central bank, the Rentenbank, was established on 17 October and a new currency on 15 November, at an exchange rate of 1-trillion old paper marks to one new Rentenmark. The printing of old marks stopped on this day. The supply of new Rentenmarks and government expenditure were both kept in check thereafter. By the end of August 1924 Germany had a stable currency. The madness was over.


Hyperinflation inflicted severe damage on the German people, causing food shortages, rioting, looting, poverty and political instability. It intensified corruption, tax-evasion, food-hoarding, currency speculation and anti-foreign feeling.

It brought about a fundamental redistribution of wealth in the country. Those relying on fixed salaries or pensions experienced a collapse in income in real terms and those with domestic savings or war loans lost everything. Rents fell close to zero as they were usually fixed, destroying the income of landlords.

Anyone with debt benefitted as debts were inflated away to nothing under hyperinflation. For example a Pomeranian landowner took out a loan to purchase a property in February 1922 and repaid it in the autumn from the sale of less than half the crop of a potato field.19 The government also benefitted as its debts were inflated away.20

Towns starved as farmers refused to take paper currency in payment and delayed selling their produce, anticipating better prices, causing conflict between cities and the country, and encouraging the emigration of 2 million people from urban areas to the countryside during the inflationary period.21

Hyperinflation caused a huge trade in physical assets, initially foreigners taking advantage of the collapse of the mark to buy German goods in foreign currency. The middle class was forced to sell their possessions, from paintings to pianos, when incomes collapsed. Germany’s capital was no longer spread among millions but was focused on a new hated plutocracy.22

Descent into Hell

Despite the end of the hyperinflation, Germany’s nightmare had only just begun. Hyperinflation did not bring Hitler to power but provided fertile ground for extremism. The SA, the paramilitary wing of the Nazi Party, founded in November 1921, numbered 6,000 within a year. On 2 September 1923, during the peak of the hyperinflation, a hundred thousand attended a Nazi rally in Nuremburg.

It would be a decade before Hitler came to power during the global depression of the 1930s. As one historian has put it: ‘hyperinflation… nurtured the seed of Nazism. A decade later, depression… brought the toxic plant into fruit.’23

Lessons for investors

At Stewart Investors we are bottom-up investors, focusing on companies. However, this does not stop us considering important macro developments.

Hyperinflation involves the risk of complete capital wipe-out for bond and equity investors. Capital preservation is fundamental to our investment philosophy and is often forgotten by investors focused primarily on returns relative to a benchmark index.

It is always necessary to remember the risks of investing in emerging or frontier markets, where the rule of law and institutions are often fragile. The recent examples of Venezuela and Zimbabwe are a stark reminder of the dangers of hyperinflation.

At Stewart Investors, our investment philosophy remains the same whatever the economic conditions. We invest in quality companies in terms of management, franchise and financial structure which are trading at reasonable valuations. We believe this will provide positive returns for investors over the long-term.

Important information

This document has been prepared for general information purposes only and is intended to provide a summary of the subject matter covered. It does not purport to be comprehensive or to give advice. The views expressed are the views of the writer at the time of issue and may change over time. This is not an offer document, and does not constitute an offer, invitation, investment recommendation or inducement to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any matter contained in this document.

This document is confidential and must not be copied, reproduced, circulated or transmitted, in whole or in part, and in any form or by any means without our prior written consent. The information contained within this document has been obtained from sources that we believe to be reliable and accurate at the time of issue but no representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the information. We do not accept any liability for any loss arising whether directly or indirectly from any use of this document.

References to “we” or “us” are references to Stewart Investors. Stewart Investors is a trading name of First Sentier Investors (UK) Funds Limited, First Sentier Investors International IM Limited and First Sentier Investors (Ireland) Limited. First Sentier Investors entities referred to in this document are part of First Sentier Investors, a member of MUFG, a global financial group. First Sentier Investors includes a number of entities in different jurisdictions. MUFG and its subsidiaries do not guarantee the performance of any investment or entity referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk including loss of income and capital invested.

Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell. Reference to the names of any company is merely to explain the investment strategy and should not be construed as investment advice or a recommendation to invest in any of those companies.

Hong Kong and Singapore

In Hong Kong, this document is issued by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. In Singapore, this document is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. Stewart Investors is a business name of First Sentier Investors (Hong Kong) Limited. Stewart Investors (registration number 53310114W) is a business division of First Sentier Investors (Singapore).


In Australia, this document is issued by First Sentier Investors (Australia) IM Limited AFSL 289017 ABN 89 114 194 311 (FSI AIM). Stewart Investors is a trading name of FSI AIM.

United Kingdom

This document is not a financial promotion. In the United Kingdom, this document is issued by First Sentier Investors (UK) Funds Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registration number 143359). Registered office: Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB, number 2294743.

European Economic Area (“EEA”)

In the EEA, this document is issued by First Sentier Investors (Ireland) Limited which is authorised and regulated in Ireland by the Central Bank of Ireland (registered number C182306) in connection with the activity of receiving and transmitting orders. Registered office: 70 Sir John Rogerson’s Quay, Dublin 2, Ireland, number 629188.

Middle East

In certain jurisdictions the distribution of this material may be restricted. The recipient is required to inform themselves about any such restrictions and observe them. By having requested this document and by not deleting this email and attachment, you warrant and represent that you qualify under any applicable financial promotion rules that may be applicable to you to receive and consider this document, failing which you should return and delete this e-mail and all attachments pertaining thereto. In the Middle East, this material is communicated by First Sentier Investors (Singapore).


If in doubt, you are recommended to consult a party licensed by the Capital Markets Authority (“CMA”) pursuant to Law No. 7/2010 and the Executive Regulations to give you the appropriate advice. Neither this document nor any of the information contained herein is intended to and shall not lead to the conclusion of any contract whatsoever within Kuwait.

UAE - Dubai International Financial Centre (DIFC)

Within the DIFC this material is directed solely at Professional Clients as defined by the DFSA’s COB Rulebook.


By having requested this document and / or by not deleting this email and attachment, you warrant and represent that you qualify under the exemptions contained in Article 2 of the Emirates Securities and Commodities Authority Board Resolution No 37 of 2012, as amended by decision No 13 of 2012 (the “Mutual Fund Regulations”). By receiving this material you acknowledge and confirm that you fall within one or more of the exemptions contained in Article 2 of the Mutual Fund Regulations.

United States of America

In the United States, this document is issued by First Sentier Investors International IM Limited, as SEC registered investment adviser. Stewart Investors is the trading name of First Sentier Investors International IM Limited. This material is solely for the attention of institutional, professional, qualified or sophisticated investors and distributors who qualify as qualified purchasers under the Investment Company Act of 1940 (hereafter the “1940 Act”), as accredited investors under Rule 501 of SEC Regulation D under the US Securities Act of 1933 (“1933 Act), and as qualified eligible persons as defined under CFTC Regulation 4.7. It is not to be distributed to the general public, private customers or retail investors.

Other jurisdictions

In other jurisdictions where this document may lawfully be issued, this document is issued by First Sentier Investors International IM Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registration number 122512). Registered office 23 St. Andrew Square, Edinburgh, EH2 1BB number SC079063.


  1. Erna von Pustau quoted in Adam Fergusson, When Money Dies, (London, 2010).

  2. Hyperinflation is defined as an inflation rate of more than 50% per month.

  3. When Money Dies, 9.

  4. Frederick Taylor, The Downfall of Money, (London, 2014), 123.

  5. Downfall of Money, 39.

  6. When Money Dies, 36.

  7. When Money Dies, 29.

  8. When Money Dies, 72, 84, 111.

  9. Downfall of Money, 205.

  10. When Money Dies, 140.

  11. Downfall of Money, 362-70.

  12. When Money Dies, 128.

  13. When Money Dies, xii, 148.

  14. When Money Dies, 196.

  15. When Money Dies, 167.

  16. When Money Dies, 118.

  17. When Money Dies, 158.

  18. Downfall of Money, 302.

  19. When Money Dies, 109.

  20. When Money Dies, 207.

  21. Downfall of Money, 264.

  22. A plutocracy is a state governed by the wealthy in the interest of the wealthy.

  23. Downfall of Money, 343.