What caused the hyperinflation in Weimar Germany?

The immediate cause was monetary: Germany's central bank, the Reichsbank, bought government debt and discounted private bills, so the printing press funded persistent deficits. The deeper cause was political, since a fragile democracy could not impose the taxes needed to cover war debts, reparations and subsidies. From the end of World War I until 1924 the price level rose almost one trillionfold, according to a Richmond Fed history. In November 1923 in Berlin, a loaf of bread cost 428 billion marks. [1]

Germany financed World War I almost entirely by issuing debt, expecting a short war and a defeated enemy that would pay. After the war the Reich's debt amounted to half of national wealth, and interest on it was four times the Reich's 1913 revenues. The government ran deficits above 50 percent of its expenditures from 1919 through 1923. The New York Fed likewise points to deficit-financed war spending, reparations, and political unwillingness to raise taxes or cut spending, and says the central bank did not respond proactively. [1] [2]

The Versailles treaty required Germany to pay for war damage, and in May 1921 the Allies set a total of 132 billion gold marks. Uncertainty about the final burden may have weighed as heavily as its size, because it discouraged running surpluses and made foreign lenders unsure of Germany's creditworthiness. The New York Fed divides the inflation into two phases: a substantial rise from November 1918 to June 1922, then hyperinflation from July 1922 to November 1923, beginning after turmoil over reparations and the assassination of foreign minister Walther Rathenau. [1] [2]

In January 1923 France occupied the Ruhr after Germany failed to deliver coal. The government backed a strike of Ruhr workers, called passive resistance. Output fell, coal had to be imported, and the state paid the strikers. The deficit widened to 22 percent of net national product and the money stock soared. BBC Bitesize summarizes this as the government printing more money to pay striking workers. [1] [3]

Researchers agree that deficits and money creation were central, but they stress different mechanisms. One account holds that expectations about future fiscal balance determined the timing: when the public believed the government could run future surpluses, it bought new debt, and when it did not, debt flowed to the Reichsbank, the mark fell and prices rose. A Journal of Economic History study argues that reparations demands, the Ruhr occupation and domestic revolts were negative fiscal news that raised inflation, while tax reforms and an end to deficits brought stability. [1] [4]

Another study describes the money supply as partly endogenous: the Reichsbank freely issued money for any government or corporate debt the private sector would not hold, and worsening expectations led people to hold less and monetize more debt. It calls the Reichsbank's policy essential to the inflation but passive. At the time, officials argued the reverse direction of causation. Reichsbank head Rudolf von Havenstein said that while the reparations burden remained, discounting Treasury notes was the only way to supply the Reich with funds, and the argument was that reparations drove mark depreciation and so domestic prices. The sources here do not settle how much weight reparations deserve compared with domestic fiscal and monetary choices. [5] [1]