Debunking the idea that interwar hyperinflation in Germany led to the rise of the Nazi party

How much hyperinflation in interwar Germany contributed to the rise of the Nazis to political power is still, nearly a century later, a topic of debate. Gregori Galofré-Vilà explores the political and social consequences of hyperinflation in over 500 cities using prices and election returns for the seven federal elections held between 1924 and 1933 and find no connection between the traumatic experience of hyperinflation and the electoral success of the Nazis nearly a decade later.

In recent years, Germany has been leading the European Union and its institutions in a tight and conservative monetary policy. A focal point has been the European Central Bank’s purchases of government debt, and Draghi’s famous commitment in July 2012 to do “whatever it takes” to save the euro. Now, in response to the Covid-19 crisis, the debate is moving toward the creation of Eurobonds to resume the path of growth. For nearly a century, Germans have been scarred by the traumatic experience of inflation in the 1920s, placing price stability at the top of its list of economic priorities, due to fears of economic collapse and political extremism. Back then, in the span of only a few months, prices increased by up to nearly one trillionfold. In January 1923, a US dollar was worth 17,000 marks (24,000 marks in April and 353,000 marks in July). By November, a dollar was worth 2,193 trillion marks, and, by December, 4,200 trillion marks.

Despite the fact that the origins and the economic consequences of hyperinflation are well studied (linked to the agreements reached at Versailles at the end of World War I), there is little clarity about its political legacy. Indeed, its contribution to the rise of the Nazis to political power is still, nearly a century later, a topic of considerable debate. Media outlets like The Economist have repeatedly argued that “Germany’s interwar experience with hyperinflation famously created a political climate amenable to the rise of Adolph Hitler” (see also the BBC). In academia, some economists like Acemoglu opined that hyperinflation “set the stage for the ascent of the Nazi party”, but others, like Krugman, pointed out that “No, the 1923 hyperinflation didn’t bring Hitler to power; it was the Brüning deflation and depression”. Historians like Feldman also contend that, at most, “its connection to the events surrounding the Republic’s demise and Nazism’s triumph are complicated and indirect.” Despite this controversy, I am not aware of any direct quantitative assessment of this issue.

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