Wars (like the first world war) and currency have a connection. Wars are fought primarily for economic, religious, and political reasons, but mainly to gain control of resources. People and countries require resources for their daily needs and growth. Real money like gold and silver is scarce; therefore, currencies were created to represent this value. These currencies allow individuals and governments to fulfill the requirements of the people and their countries.
Gold, Silver, and Currency
The most common currency in Europe in the 1600s was gold and silver. Hence, the size of their economies was dependent on how much gold and silver they had. Each nation aimed to acquire as much gold and silver as possible for itself without sharing with others, leading to constant economic wars among nations. This competition drove the European countries to explore and colonize areas beyond their borders as they looked for precious resources.
Every nation relied on trade because it couldn’t produce everything it needed. During trading, traders used limited amounts of gold and silver. This eventually resulted in the creation of currency in the form of coins and paper notes. This currency was backed by gold, known as the gold standard.
Nevertheless, this system had issues. Multiple suspensions of the gold standard occurred due to the large expenses incurred during the intercontinental wars. Despite these interruptions, most countries, like England, always returned to the gold standard during peacetime by replenishing their gold reserves and restricting the printing of more currency. The Gold Standard proved to be largely effective during its implementation in the 19th century, but World War I finally disrupted it.
World War One
For years before the outbreak of World War I, tensions had been rising in Europe. The triggering event was the assassination of Archduke Franz Ferdinand and his wife Sophie of Austria-Hungary in Sarajevo on June 28, 1914, by Serbian nationalist Gavrilo Princip. Austria-Hungary then declared war on Serbia on July 28, 1914. What has remained unclear is why the war went beyond being a simple European affair and ended up being a world war. Some claim it was due to the complex web of alliances that they had created before the war.
Germany, along with Bulgaria and the Ottoman Empire, aligned themselves with Austria-Hungary during the war. They were known as the Central Powers. The Allied Powers, consisting of Great Britain, France, Russia, Italy, Romania, Canada, Japan, and the U.S.A., opposed them. These countries supported Serbia in the conflict.
Outcome of WW1
World War I lasted for four years. It ended with the Allied Powers being the winners. However, it caused a lot of death and destruction. More than 16 million people perished, both soldiers and civilians. The Treaty of Versailles in 1919 blamed Germany for most of the conflict.
In times of war, one of the earliest actions a nation takes is to suspend the free convertibility of its currency into gold. The Gold Standard system collapsed because the needs of the war were too great. Many countries stopped using gold to print more currency to pay for army equipment, ammunition, and soldiers. The USA was the main supplier of these resources, and was paid in gold. Such an action made trade unstable because the amount of gold in the USA exceeded the amount of gold in Europe by a large margin. Inflation skyrocketed in Europe as more and more money was printed to fund the war effort. Once the war was over, the majority of countries were unable to get back to the Gold Standard.
Germany and the first World War
After World War I, France owed a large debt to Britain, which in turn owed a substantial amount to the US. Britain couldn’t repay its debt to the US unless France settled its debt with Britain. France couldn’t afford to pay Britain because most of the war had taken place on French territory. The only way France could pay Britain was if Germany, the defeated nation, paid for everything.
After being defeated in the war, Germany experienced severe hyperinflation. They needed to pay large reparations to France and its allies, and this caused severe economic difficulties and stopped the country from growing. This situation left Germany with the same options that all indebted countries have had to choose from in the past: they may either default on their debt or devalue their currency through increased inflation.
Defaulting was not a good move because they were poorer than their adversaries, who also had troops around them who wanted to possess their land. To pay off their debts, they decided to print more money since the currency was no longer backed by gold. This caused serious problems.
The impact of WW1 on Germany
Kings and emperors had previously ruled Germany. They were removed from power in 1918, and a new democratic republic was established. The Weimar Republic was the new government that came into being through the signing of its constitution in Weimar in 1919. The Weimar Republic was the official German government from the end of the Imperial period in 1918 until the rise of Nazi Germany in 1933. Nevertheless, the newly established administration was also faced with problems because of the consequences of World War I, like the loss of territory, the economic breakdown, and the payment of reparations.
After World War I, the German currency experienced uncontrollable inflation by 1923. This was a result of the heavy imposition of reparations on Germany following the war. Also, there was general inflation in Europe during the 1920s, which was due to the war’s impact. The hyperinflation, along with the Great Depression that started in 1929, significantly damaged the stability of the German economy. As a consequence, the savings of many middle-class Germans were lost, and there was a high rate of employment.
Hyperinflation in Germany following World War I
Before the war, Germans were not familiar with inflation. Nevertheless, there was a huge shortage of food, fuel, clothing, and other commodities that forced prices to skyrocket and demand for currency to increase. As the answer to this crisis, the government printed more money and introduced new banknotes with higher denominations. This action significantly devalued the German mark against the U.S. dollar. Some Germans had to use wheelbarrows full of Papiermarks to buy groceries due to the extreme inflation.
In January 1923, it cost 17,000 marks to buy one dollar. By April, the exchange rate had risen to 24,000 marks. The numbers kept increasing each month, reaching 353,000 in July, 4.6 million in August, 98.9 million in September, 25.3 billion in October, and 2.2 trillion in November. By the end of December, the situation was at its peak, and one dollar was worth 4.2 trillion marks.
Effects of Hyperinflation in Germany
Tensions escalated. People started looting and causing riots. A culture of stealing began to replace the traditional market economy. In cities like Hamburg, people met at docks to seize different things from ships, including bacon, flour, sugar, and coffee. Armed gangs and teenagers raided barns for livestock and fields for crops.
The crisis led to the reorganization of the prevailing social classes. The middle class was now placed on a lower scale, and the distribution of wealth was changed. People who relied on fixed incomes like pensions struggled the most and had to sell their possessions to buy food. A lot of people became unemployed because companies didn’t have enough money to keep them.
Recovery from Effects of Hyperinflation
In the last quarter of 1923, a diplomatic breakup took place that led Americans to reconsider the amount of reparations Germany owed. On November 15, Germany did away with its old currency, the Mark, and introduced a temporary currency instead, the Rentenmark. The Rentenmark was then substituted by a permanent currency known as the Reichsmark, which was tied to the gold standard. The Germans would convert their old marks to new money when they felt the need.
However, the harm had already been inflicted. The majority of Germans had either spent all their money or witnessed its worth decrease to nearly nothing. They looked for a target to blame, and the Weimar Republic became the primary scapegoat. Leaders who did not like republics and democracies used this public’s unhappiness by organizing rallies and rebellions, which set the stage for the Nazis to seize power in 1933.
The Rise of Hitler
The voters in the middle class are one of the most influential political factors in a country. In a country that is going through a currency crisis such as hyperinflation, it is the middle class that mostly feels the pain, leading to fear and insecurity. Such fear can be used by people who desire power, hence the emergence of dictators. With the emergence of a dictator, freedoms are usually lost.
Adolf Hitler exploited the public’s fear on two occasions. If it weren’t for the hyperinflation of 1923, he would never have risen to power. Hitler made a significant public appearance just prior to the end of the hyperinflation.
On November 8, 1923, Hitler and his followers overtook a beer hall called BurgerBraukeller and delivered one of the most memorable speeches in history. The people in attendance were struggling financially because of skyrocketing inflation and believed the government had taken their money. Hitler blamed a particular group for their problems and assured them he had a solution. Consequently, Hilter became more popular, and his supporters attempted to oust the government. The audience followed Hitler’s instructions in their rebellion.
Hitler was arrested, went on trial, found guilty of major crimes, and sent to prison together with his secretary, Rudolf Hess. He managed to write half of his book ‘Mein Kampf‘ while he was in confinement. Nevertheless, with the upturn of the economy, Hitler’s influence diminished, and people lost their fear.
Hilter Assumes Power
By the middle of the 1920s, he had turned into a laughingstock, and the Nazi Party’s popularity dropped . The Great Depression allowed Hitler to take advantage once again. The German people, still haunted by memories of hyperinflation, supported Nazi policies, leading to Hitler gaining power. By exploiting public fear, Hitler was able to strip away rights guaranteed in the Weimar Constitution, such as private property rights, assembly rights, and privacy in mail and telephone communications.
The Great Depression provided Hitler with another opportunity to exploit. With the memory of hyperinflation fresh in their minds, the German population voted for Nazi policies. Hitler cleverly used the public’s fear to abolish the right to own private property, assemble, or communicate in secrecy.
Conclusion
The connection between war and currency is evident throughout history. The economic state of Germany after World War I, notably during the hyperinflationary crisis in 1923, had substantial social and political effects. The breakdown of the German mark and the advent of the Weimar Republic produced a perfect environment for the coming of dictators such as Hitler. The economic pain and anger towards the government brought about by hyperinflation gave Hitler a strong case to exploit public sentiment, which culminated in the Nazi Party’s ascent to power. The currency crises of this critical period were a wake-up call that demonstrated how volatile monetary issues can influence political environments and why it is crucial to economic security to preserve democracy.
