Hostname: page-component-8448b6f56d-dnltx Total loading time: 0 Render date: 2024-04-24T20:23:08.468Z Has data issue: false hasContentIssue false
  • English
  • Français

The Supply of Money and Reichsbank Financing of Government and Corporate Debt in Germany, 1919–1923

Published online by Cambridge University Press:  03 March 2009

Steven B. Webb
Steven B. Webb
Affiliation:
Assistant Professor of Economics, University of Michigan, Ann Arbor, Michigan 48109
Get access Rights & Permissions [Opens in a new window]

Abstract

During the five years of inflation, price stability, and hyperinflation in Germany after World War I, three factors determined the growth of the money supply. First, the Reichsbank freely issued money in exchange for whatever government or corporate debt the private sector did not wish to hold at the official discount rate. Second, the government persistently ran large deficits. Political instability and the inflation itself prevented taxation adequate to pay for social programs, subsidies to the railroad and businesses, and reparations to the Allies. The third factor was expectations of inflation, which, as they became more pessimistic, led people to hold less and monetize more of the outstanding stock of debt. Thus, the money supply was partly endogenous and partly dependent on government fiscal policy. The monetary policy of the Reichsbank, although essential to the inflation process, was a constant and passive one until stabilization at the end of 1923.

Type
Papers Presented at the Forty-Third Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 44 , Issue 2 , June 1984 , pp. 499 - 507
Copyright
Copyright © The Economic History Association 1984

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1 Author's translation. Germany, Reichskanzelei, , Aklen der Reichskanzlei, Weimarer Republik: Kabinett Bauer (Boppard am Rhein, 1980), pp. 40–47.Google Scholar

2 Reichskanzlei: Kabinett Stresemann, pp. 37–42.Google Scholar

3 Jones, Larry E., “Inflation, Revaluation, and the Crisis of Middle-Class Politics. A Study of the Dissolution of the German Party System, 1923–1928,” in Central European History, 12 (1979), 148–52;CrossRefGoogle ScholarChilders, Thomas, “Inflation, Stabilization, and Political Realignment in Germany 1919–1928,” in Feldman, Gerald D. et al. eds., The German Inflation: A Preliminary Balance (Berlin, 1982), pp. 385–408;Google ScholarHughes, Michael S., ”Economic Interest, Social Attitudes, and Creditor Ideology: Popular Responses to Inflation,” in Feldman, et al. , eds., The German Inflation, pp. 409–31;Google ScholarJames, Harold, “Did the Reichsbank Draw the Right Conclusions from the Great Inflation?” (Cambridge, 1983), mimeo.Google Scholar

4 Feldman, Gerald D., “The Political Economy of Germany's Relative Stabilization during the 1920/21-Depression,” in Feldman, et al. eds., The German Inflation, pp. 180–206;Google ScholarWitt, Peter-Christian, “Tax Policies, Tax Assessment and Inflation: Toward a Sociology of Public Finance in the German Inflation, 1914–1923,” in Schmukler, Nathan and Marcus, Edward H., eds., Inflation Through the Ages (New York, 1983), pp. 450–72;Google ScholarWitt, , “Staatliche Wirtschaftspolitik in Deutschland 1918–1923: Entwicklung und Zerstorung einer modernen wirtschaftspolitischen Strategic” in Feldman, et al. , eds., The German Inflation, pp. 151–79.Google Scholar

5 Henning, Friedrich-Wilhelm, Das industrialisierte Deutschland 1914 bis 1972 (Paderborn, 1974), pp. 67–70;Google ScholarHaller, Heinz, “Die Rolle der Staatsfinanzen für den Inflationsprozess,” in Bundesbank, Deutsche, ed., Wahrung und Wirtschaft in Deutschland 1876–1975 (Frankfurt am Main, 1976), pp. 142–50;Google ScholarHardach, Karl puts primary blame on the deficits, but does not totally reject the importance of the balance of payments, The Political Economy of Germany in the Twentieth Century (Berkeley, 1980), pp. 16–23;Google ScholarNussbaum, Manfred, Wirtschaft und Staat in Deutschland während der Weimarer Republik, Nussbaum, H. and Zumpe, L., eds., Wirtschaft und Staat in Deutschland (Vaduz/Lichtenstein, 1978), Vol. 2, pp. 18–22;Google ScholarHoltfrerich, Carl-Ludwig, Die deutsche Inflation, 1914–1923: Ursachen und Folgen in internationaler Perspektive (Berlin, 1980), pp. 115–35;CrossRefGoogle ScholarHabedank, Heinz, Die Reichsbank in der Weimarer Republik: Zur Rolle der Zentralbank in der Politik des deutschen Imperialismus 1919–1933 (Berlin, 1981), pp. 37, 65–67.Google Scholar

6 Cagan, Phillip, “The Monetary Dynamics of Hyperinflation,” in Friedman, Milton, ed., Studies in the Quantity Theory of Money (Chicago, 1956), pp. 25–117;Google ScholarBarro, Robert J., “Inflation, the Payments Period, and the Demand for Money,” Journal of Political Economy, 78 (11/12 1970), 1228–63;CrossRefGoogle ScholarSargent, Thomas J. and Wallace, Neil, “Rational Expectations and the Dynamics of Hyperinflations,” International Economic Review, 14 (06 1973), 328–50;CrossRefGoogle ScholarFrenkel, Jacob A., “Inflation and the Formation of Expectations,” Journal of Monetary Economics, 1 (10 1975), 403–21;CrossRefGoogle ScholarFlood, Robert P. and Garber, Peter M., “An Economic Theory of Monetary Reform,” Journal of Political Economy, 88 (02 1980), 24–58;CrossRefGoogle ScholarFlood, and Garber, , “Market Fundamentals versus Price-Level Bubbles: The First Tests,” Journal of Political Economy, 88 (08 1980), 745–70;CrossRefGoogle ScholarFlood, and Garber, , “Process Consistency and Monetary Reform: Some Further Evidence,” Journal of Monetary Economics, 12 (1983), 279–95;CrossRefGoogle Scholar see also Webb, “Money Demand and Expectations in the German Hyperinflation: A Survey of the Models,” in Schmukler and Marcus, eds., Inflation Through the Ages, pp. 435–49.Google Scholar

7 Mussa, Michael, “Adaptive and Regressive Expectations in a Rational Model of the Inflationary Process,” Journal of Monetary Economics, I (10 1975), 423–42;Google Scholar Flood and Garber, “Market Fundamentals”; Burmeister, Edwin and Wall, Kent D., “Kalman Filtering Estimation of Unobserved Rational Expectations with an Application to the German Hyperinflation,” Journal of Econometrics, 20 (11 1982), 255–84.CrossRefGoogle Scholar

8 Sargent and Wallace, “Rational Expectations”;Google ScholarJacobs, Rodney L., “Hyperinflation and the Supply of Money,” Journal of Money, Credit and Banking, 9 (05 1977), 287–303;CrossRefGoogle ScholarSargent, “The Ends of Four Big Inflations,” Federal Reserve Bank of Minneapolis Working Paper No. 158, 1981; Hans Jiirgen Jaksch, “Ein einfaches okonometrisches Modell fur die deutsche Hyperinflation von 1923,” in Feldman et al., eds., Die deutsche Inflation, pp. 107–31.Google Scholar

9 Webb, , “The Supply of Money in the German Inflation, 1919–1923: Some Models in a Horserace,” mimeo (Ann Arbor, 1982).Google Scholar

10 Cf. James, “Did the Reichsbank Draw the Right Conclusions?”Google Scholar

11 Holtfrerich, Die deutsche Inflation, p. 125.Google Scholar

12 Webb, “Government Debt and Inflationary Expectations as Determinants of the Supply of Money in Germany, 1919 to 1923,” Journal of Money, Credit, and Banking, forthcoming.Google Scholar

13 The Reichsbank raised the discount rate from 5 to 6 percent on 28 July 1922, to 7 percent on 15 August 1922, to 8 percent on 21 September 1922, to 10 percent on 13 November 1922, to 12 percent on 18 January 1923, to 18 percent on 23 April 1923, to 30 percent on 2 August 1923, and to 90 percent on 15 September 1923 (Wirtschaft und Statistik, 1922–1923).Google Scholar

14 Holtfrerich, Die deulsche Inflation, p. 63.Google Scholar

15 Gutehoffnungshütte Historisches Archiv, 300070/6, 300070/7, 3001935/0; Westfälisches Wirtschaftsarchiv, Dortmund, F11 (Delius) Nr. 45g; Siemens Historisches Archiv, SAA 20/Ld 366, SAA 15/La 340; Krupp Historisches Archiv, WA IV 2560, WA 1403.Google Scholar

16 Bundesarchiv R2/1894, R43 1/630.Google Scholar

17 Renell, Erich, “Der Warenwechsel in Deutschland in der Geldentwertungszeit 1919–1923,” Ph.D dissertation (Berlin, 1926), pp. 26–56;Google ScholarConstantino Bresciani-Turroni, The Economics of Inflation: A Study of Currency Depreciation in Post-War Germany (New York, 1931, 1937), p. 33;Google ScholarGraham, Frank D., Exchange, Prices, and Production in Hyperinflation: Germany 1920–1923 (Princeton, 1930), pp. 62–66;Google ScholarFeldman, , Iron and Steel in the German Inflation: 1916–1923 (Princeton, 1977), pp. 316–19;Google ScholarHabedank, Die Reichsbank, pp. 74–75.Google Scholar

18 The ratio of high-powered money to debt, reported in Table 1, is biased downward for the last two or three months in the sense that value of the debt people were asked to hold was not the face value, but only the discounted value. In August and September the discount rate rose high enough to make this difference non-trivial.Google Scholar

19 ReichskanzJtei: Kabinetl Stresemann, pp. 37–42.Google Scholar

20 For example, Feldman, “T h e Political Economy of Germany's Relative Stabilization.”Google Scholar