World War I began in July 1914 and lasted just over four years, ending with the signing of the armistice that brought fighting to a halt in November 1918. After months of negotiation, the Treaty of Versailles was finalized and formally signed in June 1919. Its terms were controversial, particularly those concerning reparations and the territorial losses imposed on Germany.
The Treaty reshaped Europe both politically and economically. The Allied powers: France, the United Kingdom, and Italy sought to rebuild their shattered nations through German reparations paid in gold, land, commodities, and industrial assets. The United States, having emerged as the world’s new financial center, chose not to seize territory or direct assets. Instead, America lent vast sums of money to Germany, enabling it to make its reparations payments to the Allies, who in turn used those funds to repay their own wartime debts to U.S. banks. This circular flow of credit temporarily stabilized Europe but tied its recovery to the foundation of borrowed American capital.
Germany lost the war to the Allied and Associated Powers, including France, the United Kingdom, Italy, and the United States. In the aftermath, the Weimar Republic, Germany’s new democratic government from 1919 to 1933, faced immense economic pressures. Post World War I reparations totaling 132 billion gold marks, mandated by the Treaty of Versailles, crippled the German economy and led to a catastrophic currency collapse with the Papiermark.
To cover its debts, the German government printed vast amounts of money, triggering hyperinflation by 1922. Confidence in the currency disintegrated as its value plunged daily. People rushed to spend their wages immediately before prices rose again, sometimes within hours. The cost of a loaf of bread, which had been about 1 mark in 1919, rose to 100 marks by mid-1922, 100,000 marks by late 1923, and eventually more than 200 billion marks.
As faith in the money evaporated, Germans began hoarding goods, bartering possessions, or demanding payment in stable foreign currencies. Black markets flourished, wages were paid twice a day, and wheelbarrows full of paper banknotes became a common sight. Government-imposed price controls and business seizures only deepened the crisis, while speculation and reliance on imports drove inflation to nearly one trillion percent. It was total economic chaos.
The financial devastation hit the lower and middle classes hardest. Their savings, held in Papiermarks, Germany’s paper fiat currency, became worthless almost overnight. Decades of hard work and prudence were erased. In contrast, the wealthy and industrial elite, who anticipated the currency’s collapse, preserved their fortunes by holding real assets such as land, factories, and machinery. This widened the wealth gap dramatically and fueled resentment that would later shape Germany’s political landscape.
Stabilization began in late 1923 with the introduction of the Rentenmark, a new currency backed by land, industrial assets, and commodities to restore trust. One trillion Papiermarks were exchanged for a single Rentenmark. The government imposed strict spending cuts, raised taxes, and secured more U.S. loans under the Dawes Plan of 1924, easing reparations. Industrial production rebounded, unemployment fell, and by 1925 the Reichsmark replaced the Rentenmark, restoring stability, at least until the Great Depression struck in 1929. The collapse of the U.S. stock market and the recall of American loans that had sustained the German economy reignited despair.
The trauma of hyperinflation left deep scars on German society. Millions lost faith in both the economy and the fragile Weimar democracy that had failed to protect them. Out of that disillusionment and anger, radical movements gained ground, paving the way for Adolf Hitler and the rise of Nazi Germany.
