How did Hitler bring Germany out of inflation?
It wasn't the Nazis who resolved the inflation crisis; it was actually Gustav Stresemann and Hjalmar Schacht who achieved it. Their approach was brilliant and often overlooked due to the horrific events that followed. Let's take a closer look.
After the Treaty of Versailles, Germany was required to pay $33 billion in reparations to the Allies. Given that Germany's capacity to pay without causing global trade disruptions was estimated at $6 billion, the $33 billion figure was exceptionally high. The situation worsened when the German coalition government not only committed to servicing this enormous debt but also took on substantial social obligations, further deepening the fiscal crisis.
So, how could they meet these payments? Rudolf von Havenstein, president of the Reichsbank, had two options:
- Sharply raise interest rates, which risked increasing unemployment, instability, and even revolution.
- Print vast amounts of money.
He chose the second option, a decision with disastrous consequences. The monthly inflation rate surged to 29,500 percent. Unemployment soared, life savings were wiped out, and civil servants saw their incomes severely eroded. Despite the economic catastrophe, von Havenstein neither resigned nor adjusted his policies. Adding to the chaos, the British insisted on the Reichsbank Autonomy Law in 1922, which made the Reichsbank independent of government control and left von Havenstein in power. This was intended to curb inflation, but instead, inflation spiraled out of control. With no immediate solution in sight, Chancellor Gustav Stresemann stepped in, leading to the decision to create a second central bank to counter von Havenstein’s policies. Enter Hjalmar Schacht.
On November 12, Schacht was appointed Currency Commissioner. His plan was to introduce a new currency, the Rentenmark, backed not by gold but by the value of agricultural and industrial land. The issuing bank had the authority to levy a 5% annual tax on these properties, effectively placing a mortgage on them. This tax provided revenue to stabilize the Rentenmark and helped restore economic confidence during the crisis.
A "currency war" followed, as both the Rentenmark and the original Reichsmark circulated. The Rentenmark, being more stable, naturally gained favor. As public demand grew for a fixed exchange rate between the two currencies, Schacht deliberately delayed setting one, allowing the Reichsmark to devalue further. Over time, the Reichsmark plummeted from 1.3 trillion to 4.2 trillion to the dollar. When it had depreciated enough, Schacht established the conversion rate: 1 trillion Reichsmarks would equal 1 Rentenmark. This timing proved brilliant. The government, having allowed the Reichsmark to fall so drastically, was able to buy back its trillion in debt (originally valued at $30 billion) for just 190 Rentenmarks (roughly $45 million). Thanks to these fiscal measures from Stresemann's cabinet, the currency stabilized—at least temporarily, as reparations were still due, and Schacht knew the respite would not last.
