Wurdy Writes

What if countries could just print more money to solve all problems?

Once upon a time, for a short while at least, an entire sackful of banknotes were required to buy a loaf of bread in Germany. Not kidding. That is what today's tale is about.

It all began with the first world war. The war touted to be the war to end all wars.

It didn't end sh*t. It was only the first of two world wars, which were followed by the decades-long cold war, wars in Afghanistan, Yugoslavia, and Afghanistan again. Yeah, didn't work out well.

The one thing it did end, however, was the Paper mark, Germany's currency at that time.

Fact: Wars are a costly business. Nations usually do not have enough in their coffers to carry out an entire war without borrowing. The same happened during this one. Germany borrowed heavily.

Their game plan was to defeat the enemy nations, occupy their resource-rich land and impose cash payments to Germany.

Sounds harsh? Overconfident? Germany had already done it in 1870 when they defeated France.

France, on the other hand, knew the consequences of borrowed money in the event of a defeat. So, they imposed an income tax on the citizens for the first time.

France figured that in case things go sideways again, at least there won't be any debt to repay. Smart.

The rest is, quite literally, history. France and the gang won the war, and Germany tasted dirt.

Before we get any further, we need to discuss just how bad Germany's debt situation was.

By the end of the war, the Weimar Republic, which is what Germany was known as then, had 132 billion marks in war debts. Troublesome, extremely so. But okay, could have been worse.

...Then France and Belgium demanded another 132 billion as reparations in the Treaty of Versailles.

Why? Well, the war was fought mostly in France and Belgium. So although Germany lost the war, it was France and Belgium whose infrastructure had been destroyed.

This meant that Germany broke into their house, started a fight, and then lost. Naturally, they had to cough up some money in the form of reparations.

Germany's plan to impose cash payments had backfired on them. Literally. It was France and Belgium who imposed the cash payments on them.

At least Germany's territory wasn't annexed.

Germany's response?

Well, Germany had started to print more money even before the war had ended (countries can print as much of their currency as they wish), to repay some debts till the war was won. Hmm.

This increase in the number of banknotes in the economy reduced the value of the currency with respect to foreign currencies and the Paper Mark devalued from 4.2 marks for one dollar to 7.9 marks for one dollar.

The war ended in 1918 and it became clear that Germany would have to repay the war debts by itself. So, Germany just printed more notes.

After all, loans are to be paid in a specific amount of money. Germany paid what it could and just created the rest.

I just said that the marks to dollar ratio went from 1: 4.2 to 1: 7.9, didn't I?

By the end of 1919, this ratio was 1: 48. The Paper mark fell to just one-sixth of its value within a year after the war.

Let's continue.

In the first half of 1921, the value of marks was stable at 90 units for 1 dollar (it had halved again in the meantime).