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The Supply of Money and Reichsbank Financing of Government and Corporate Debt in Germany, 1919–1923

Published online by Cambridge University Press:  03 March 2009

Steven B. Webb
Steven B. Webb
Affiliation:
Assistant Professor of Economics, University of Michigan, Ann Arbor, Michigan 48109
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Abstract

During the five years of inflation, price stability, and hyperinflation in Germany after World War I, three factors determined the growth of the money supply. First, the Reichsbank freely issued money in exchange for whatever government or corporate debt the private sector did not wish to hold at the official discount rate. Second, the government persistently ran large deficits. Political instability and the inflation itself prevented taxation adequate to pay for social programs, subsidies to the railroad and businesses, and reparations to the Allies. The third factor was expectations of inflation, which, as they became more pessimistic, led people to hold less and monetize more of the outstanding stock of debt. Thus, the money supply was partly endogenous and partly dependent on government fiscal policy. The monetary policy of the Reichsbank, although essential to the inflation process, was a constant and passive one until stabilization at the end of 1923.

Type
Papers Presented at the Forty-Third Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 44 , Issue 2 , June 1984 , pp. 499 - 507
Copyright
Copyright © The Economic History Association 1984

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