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² The interest rate and income, arguments in conventional money demand equations, fluctuated too little to noticeably affect real balances during the hyperinflations. Cagan, Phillip, “The Monetary Dynamics of Hyperinflation,” in Friedman, Milton, ed., Studies in the Quantity Theory of Money (Chicago, 1956), pp. 27–35;Google ScholarWebb, Steven B., “Money Demand and Expectations in the German Hyperinflation: A Survey of the Models,” in Schmukler, Nathan and Marcus, Edward, eds., Inflation Through the Ages (New York, 1983).Google Scholar

³ The inflationary expectations term for each future period is eliminated by recursive substitutions of an expression with the money stock and expectations one period further into the future. Sargent, Thomas J., Macroeconomic Theory (New York, 1979), pp. 268–69;Google ScholarSargent, Thomas J. and Wallace, Neil, “Rational Expectations and the Dynamics of Hyperinflations,” International Economic Review, 14 (06 1973), pp. 328–50.Google Scholar

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⁶ The Reichsbank kept the annual discount rate at 5 percent until raising it to 6 percent on 28 July 1922, to 7 percent on 15 August 1922, to 8 percent on 21 September 1922, to 10 percent on 13 November 1922, to 12 percent on 18 January 1823, to 18 percent on 23 April, to 30 percent on 2 August, and to 90 percent on 15 September 1923. Statistisches Reichsamt, Wirrschaft undStatistik, 2–3 (1922–1923), passim. Before May 1921 a law restricted the share of government debt in the Reichsbank portfolio, but creative accounting sidestepped the constraint; Webb, Steven B., “Government Debt and Inflationary Expectations as Determinants of the Money Supply in Germany, 1919 to 1923,” Journal of Money, Credit, and Banking, 17 (11 1985, part 1), pp. 479–92.CrossRefGoogle Scholar

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¹⁰ Standard errors are in parentheses. The equation is estimated with a recursive CochraneOrcutt procedure.Google Scholar

¹¹ See Tables I and 2 for sources. All variables are measured at or interpolated to the end of the month.Google Scholar

¹² See footnote 3.Google Scholar

¹³ Blanchard, Olivier J., “Current and Anticipated Deficits, Interest Rates and Economic Activity,” European Economic Review, 25 (06 1984), pp. 7–27.CrossRefGoogle Scholar

¹⁴ High-powered money equals currency plus nongovemment deposits at the Reichsbank.Google Scholar

¹⁵ Actually the nominal deficit depended on lagged rather than current prices, making the nominal deficit predetermined. Webb, Steven B., “Government Revenue and Spending in Germany, 1919–1923,” in Feldman, Gerald et al. , eds., Inflation and Reconstruction in Germany after World War I (Berlin, 1986).Google Scholar

¹⁶ The model here is not linear, and therefore there is no analytic solution for rational expectations. Equation 2 is linear in logs, but equation 5 is linear without logs. See also Blanchard, Olivier J. and Kahn, Charles M., “The Solution of Linear Difference Models under Rational Expectations,” Econometrica, 48 (07 1980), pp. 1305–11.CrossRefGoogle Scholar

¹⁷ Cagan, “The Monetary Dynamics of Hyperinflation,” pp. 80–81.Google Scholar

¹⁸ This shows up in the monthly figures from which Table I was calculated. Accelerations of inflation also lowered real revenue, but in absolute terms not by as much as spending; Webb, “Revenue and Spending.”Google Scholar

¹⁹ Frenkel, Jacob A., “The Forward Exchange Rate, Expectations, and the Demand for Money: The German Hyperinflation,” American Economic Review, 67 (09 1977), pp. 653–70.Google Scholar

²⁰ Hoffmann, Walther G., Das Wachsum der deuzschen Wirtschaft seit der Mitre des 19. Jahrhunderts (Berlin, 1965), p. 455;Google ScholarHoltfrerich, Die deutsche Inflation, p. 221. Billion equals milliard in German notation.Google Scholar

²¹ Sources to Tables 1 and 2.Google Scholar

²² Holtfrerich, Die deutsche Inflation, pp. 115–35;Google ScholarTinbergen, Jan, International Abstracts of Economic Statistics, International Conference of Economic Services, ed. (London, 1934), pp. 72, 82, 105, 210.Google Scholar

²³ Vossische Zeitung, May 1, 1919 Finanz- und Handelsblatt.Google Scholar

²⁴ The treaty required the Allies to settle on a total reparation bill by May 1921.Google Scholar

²⁵ Trachtenberg, Marc, Reparation in World Politics: France and European Economic Diplomacy, 1916–1923 (New York, 1980), pp. 116–18.Google Scholar

²⁶ Vossische Zeitung, December 4, 1919, am., p. 1 December 12, 1919, p.m., pp. 1–2.Google Scholar

²⁷ Reichskanzlei, Kabineri Bauer, pp. 389–93.Google Scholar

²⁸ Sources to Tables 1 and 2.Google Scholar

²⁹ S_{October 1919} = (D/P – H) r = (172/6.2 – 6.5) 0.038 = 0.81.Google Scholar

³⁰ S_{February 1920} = (178/17.0 – 6.5) 0.038 = 0.15.Google Scholar

³¹ Williamson, John G., Karl Helfferich, 1872–1924: Economist, Financier, Politician (Princeton, 1971), pp. 291–327.Google Scholar

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³⁴ Webb, Steven B., “The German Inflation and Foreign Business Cycles, 1920–1922,” forthcoming in Explorations in Economic History.Google Scholar

³⁵ Sources to Table 2.Google Scholar

³⁶ S = (D/P – H) r = (231/14.1 – 6.4) 0.034 = 0.31 billion.Google Scholar

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³⁸ Data from Witt, “Tax Policies, Tax Assessment,” p. 466, and Webb, “Revenue and Spending.” In 1921 and 1922 the share of income-tax revenue from assessments was higher, but this may be partly because the inflation raised people's nominal incomes faster than the Reichstag indexed the brackets.Google Scholar

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⁴¹ The goldmark was a unit of account defined by the gold value of the prewar mark. Since the United States stayed on the gold standard, 4.2 goldmarks equalled a dollar. Except for inflation in the United States and deviations from purchasing power parity, a goldmark was worth a mark in 1913 prices. Although the interest rate was specified at 5 percent, the total interest charges remained indefinite, because the Reparation Commission retained discretion to decide when interest charges would begin on a major portion of the debt–the “C-bonds.”Google Scholar

⁴² Webb, “Revenue and Spending.”Google Scholar

⁴³ See footnote 20.Google Scholar

⁴⁴ Wirth considered several plans for raising more revenue. The most specific proposal was an amendment to the corporate tax, which he estimated would bring in about 5 billion marks, in 1913 values. Laubach, Ernst, “Die Politik der Kabinette Wirth, 1921/1922,” Historische Studien, 402 (1968), p. 65.Google Scholar

⁴⁵ The actual transfer took place a year later.Google Scholar

⁴⁶ Holtfrerich, Die deutsche Inflation, p. 189.Google Scholar

⁴⁷ We must remember that Europe had no experience with hyperinflation since the French Assignats of the 1790s. As of spring 1922, Austria and the Soviet Union had each experienced only a couple of months of inflation rates over 50 percent per month, and the inflation rates there seemed headed down again. The extreme parts of their hyperinflations did not come until late summer 1922 in Austria and late 1923 in the Soviet Union.Google Scholar

⁴⁸ Trachtenberg, Reparation in World politics, pp. 243–75; Vossische Zeitung, August 1, 1922, a.m. and p.m., p. 1.Google Scholar

⁴⁹ Frankfurter Zeitung, July 4, 1922, p. 1;Google ScholarHoltfrerich, Carl-Ludwig, “U.S. Capital Exports to Germany 1919–1923 Compared to 1924–1929,” Explorations in Economic History, 23 (01 1986), pp. 1–32;Google ScholarWebb, “Determinants of the Money Supply.” By fall 1922 and thereafter, discounted corporate debt accounted for about one-third of the Reichsbank's money creation; Zahlen zur Geldentwertung, p. 52. Hence in Figure 1 the value of high-powered money exceeds the value of government debt after October 1922.Google Scholar

⁵⁰ Maier, Charles S., Recasting Bourgeois Europe: Stabilization in France, Germany, and Italy in the Decade after World War I (Princeton, 1975), pp. 293–94.Google Scholar

⁵¹ The increased deficit in the first quarter of 1923 (see Table 2) resulted from the stabilization that began in February, not from the invasion in January. Webb, “Revenue and Spending.”Google Scholar

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⁵⁴ Vossische Zeitung, February 11–15, Finanz- und Handelsblatt.Google Scholar

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⁵⁹ Flood and Garber, “Monetary Reform.”Google Scholar

⁶⁰ From July 7 to November 15, changes in Flood and Garber's index of process consistency of the currency is correlated –.19 with changes in the log of the real value of currency. This relation has the predicted sign but is statistically insignificant (R ² = 0.037 for 18 observations). The real currency value was computed with the exchange rate, because it is available for the same days as the currency stock and because it reacted swiftly to expectations. Zahien zur Geldeniwerrung, p. 47–49.Google Scholar

⁶¹ The new government was headed for the first time by someone from the relatively conservative Deutsche Volks Partei, Gustav Stresemann, and was composed of parties that, also for the first time, stretched from the Social Democrats to the Deutsche National Volks Partei. The Reichstag granted emergency powers to the new government.Google Scholar

⁶² Bundesarchiv, Koblenz (BAK), Reichskanzlei R 43 1/666, B1. 58; BAK, Finanzministerium R2/1974; ZSa, Reichswirtschaftsministerium RWM/711, B1. 55; ZSa, Reichsbank RB/ 6339, B1. 242–44.Google Scholar

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⁶⁵ Schacht, Hjalmar, The Stabilization of the Mark (London, 1927), p. 117.Google Scholar

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⁶⁷ Of the 1,200 million goldmarks, 300 were earmarked to pay off the government's debt to the Reichsbank.Google Scholar

⁶⁸ Schacht, Stabilization of the Mark, p. 118.Google Scholar

⁶⁹ Havenstein was feeble and died on November 20, 1923.Google Scholar

⁷⁰ Restnctions on foreign exchange holding by Germans made the arbitrage process sluggish and saved the Reichsbank from needing to use much of its gold reserves.Google Scholar

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