The Inflation of the Early Years of the Weimar Republic

In this chapter, Pittaluga and Seghezza show how, after WWI, the widespread belief in the myth that Germany had been “stabbed in the back” prevented the public from accepting the consequences of defeat. This resulted in a “war of attrition” in which no interest group was willing to bear the burden of macroeconomic adjustment. The social conflict was temporarily resolved through an implicit alliance between the productive classes to the detriment of the rentier class. This alliance was expressed most clearly in the adoption of an expansionary fiscal policy by the Government and an accommodative monetary policy from the Reichsbank. This policy gave rise to periodic accelerations in inflation with a redistribution of resources from rentiers to the Government and the productive classes.