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The word inflation comes from the Latin inflare. Inflation is understood to be a general increase in prices over a period of time. Deflation is the opposite. During inflation money starts to lose its value and during a deflation money increases its purchasing power. Therefore it is very important to control a currency’s fluctuations in value since contracts, salaries and pensions are tied to fixed amounts

With inflation, saving money makes little practical sense, and with deflation those with liquid assets benefit the most. For this reason, Ludwig Erhard, who was appointed German Chancellor after World War II, declared “An unstable currency destroys the foundations of a free society.”

Between 1914 and 1948, Germany experienced two inflations and one deflation. The first hyperinflation almost ended in a civil war, the deflation brought about democracy, and the second hyperinflation resulted in the division of Germany.

Abandoning the gold standard in 1914 allowed the German government to spend three times its 1913 GDP during the war. The war was financed almost exclusively on a credit basis; two-thirds came from war bonds purchased by companies and citizens and the other third from the Reichsbank.

During the war, the Reich’s debt increased thirtyfold and Germany was effectively bankrupt. In 1919, 126% of the Reich’s revenue went to paying off its debt and the interest it had accummulated.

The new government had no other option than to continue printing more money to cover the debt. At first, inflation increased slowly, but in 1922 it began to accelerate. By the end of 1923 the price of a newspaper had increased to thousands of millions of Marks.

Citizens who had saved their money in banknotes or fixed interest state bonds resorted to standing in line for aid. Farmers refused to sell their produce for Marks and separatist groups arose all over the country. In October 1923 an economic reform was brought in and in August of 1924 the Reichsmark, backed by gold and foreign exchange, was reintroduced.

During the Weimar hyperinflation, those who suffered the most were the state bondholders, those with checking accounts denominated in Marks and mortgage creditors. The victors were debtors, and above all, the German Reich.