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Hyperinflation in France After the Revolution
The Inflation in the Confederate States of America 1861-1865
The German Hyperinflation of the Early 1920's
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Hyperinflation in France After the Revolution


In the spring of 1789 the French Assemblee decreed the issuance of 400 million livres of notes, called assignats, secured by the properties which had been confiscated from the Church during the revolution. By the fall of 1789 the Assemblee approved the issuance of 800 million of noninterest-bearing notes and decreed that the limit on such notes was to be 1.2 billion livres. Despite this stated limit, nine months later another 600 million livres was approved and in September 1791 another 300 million. In April of 1791 another 300 million was approved.

Prices rose, but wages didn't keep up and in 1793 a mob plundered 200 stores in Paris. Price controls were imposed (Law of the Maximum). Output decreased and rationing had to be implemented. To force acceptance of its money the French government imposed a 20 year prison sentence on anyone selling its notes at a discount and dictated a death sentence for anyone differentiating between paper livres and gold or silver livres in setting prices.

By 1794 there were 7 billion livres (assignats) in circulation. In May 1795 this total reached 10 billion livres and by July 1795 it had gone up to 14 billion livres.

When the total reached 40 billion livres the printing plates for assignats were publically destroyed. A new type of note, called a mandat, was issued, but within two years these also lost 97 percent of their value. The printing plates for mandats were also publically destroyed. In 1797 both assignats and mandats were repudiated and a new monetary system based upon gold was instituted.

The Inflation in the Confederate States of America 1861-1865


From October of 1861 to March of 1864 the commodity price index rose an average rate of 10 percent per month. When the Civil War ended in April 1865 the cost of living in the South was 92 times what it was before the war started. This inflation was obviously caused by the expansion of the money supply. The role of the money supply in establishing the price level is confirmed even more strongly by the results of an attempt to curb the growth of the money supply in 1864.

In February the Confederate Congress decreed a currency reform. All bills greater than five dollars were to be converted into bonds paying 4 percent interest. All bills not converted by April 1 would be exchanged for a new issue at a ratio of 2 for 3. Prior to the reform people spent wildly and drove prices up 23 percent in one month. But, by May 1864, the reform had been completed and the stock of money was reduced by one third. The general price index declined. Eugene Lerner, an economist who studied this inflation, commented on this result:

This price decline took place in spite of invading Union armies, the impending military defeat, the reduction of foreign trade, the disorganized government, and the low morale of the Confederate army. Reducing the stocks of money had a more significant effect on prices than these powerful forces.

The increase in the money supply came as a result of the Confederacy inability to collect funds through taxes. Only 5 percent of its expenditures were covered by taxes. Initially the Confederate government tried to borrow extensively. This failed because the planters had funds only after the fall harvest, but the war started in April. The war interferred with the harvest and export of the cotton crop so the planters were asking the government for help instead of loaning it funds. Consequently less than 30 percent of the funds for the Confederacy came from bonds. Thus, the Confederate government saw printing money as an unavoidable method for financing the war. The Confederate Congress was reluctant to use this measure and stated in the act which authorized the printing of money that it was "not to exceed at any one time one million of dollars." Actually 1500 times this amount was printed.

The printing of such large sums created a major problem. Paper, engravers and printers were hard to find. In desperation, the Secretary of the Treasury recommended that counterfeit money be utilized. Anyone holding a counterfeit bill was supposed to exchange it for a government bond and the government would stamp it "valid" and spend it.

The stock of money and the general price index are shown in Tables 1 and 2.

When the Union army captured sections of the Confederacy people took or sent their Confederate money to the areas where it still could be used. Thus the effect of the capture of Confederate territory was like an increase in the money stock in the remaining Confederate territory. The disruptions of the war also decreased production so it was a matter of more and more money chasing fewer and fewer goods.


The German Hyperinflation of the Early 1920's


Some say the German hyperinflation started when Germany entered World War I in 1914. At that time Germany opted to finance the war by borrowing rather than increasing taxes. The German policy makers chose borrowing because they expected to win the war and intended to force the losers to pay for the cost of the war. It was thus logical to the policy makers to use borrowing rather than taxation.

But Germany lost the war and the victors imposed heavy reparation payments upon her. The reparation payments were perceived as unfair in Germany and the social democratic government was reluctant to impose the burden of their payment upon the German population. In retaliation for the nonpayment France and the other allies occupied the industrial area of the Ruhr on the western border of Germany. Germany was forced to buy more using foreign currencies, while at the same time the occupation of the Ruhr area made it impossible to collect tariff on imported goods. The government, strapped for funds, resorted to printing money. The value of the mark relative to other currencies fell thereby increasing the cost of imported goods. Prices rose increasing the cost of running the government. This necessitated the printing of even more money. Prices rose further and the exchange rates for the mark dropped even more. The result was hyperinflation.

At first, Germans reacted to the higher prices by economizing and reducing their consumption. But when they realized that it was not just a matter of some things being more expensive but instead that the mark was losing value they reacted by spending their marks as fast as possible. This meant that there was little constraint on prices.

There were winners as well as losers in this hyperinflation. Those on fixed incomes and who were owed a specific amount of money found that the real value of their holdings reduced to zero. But those who owed money found their debt effectively wiped out.