German money printing in 1921

Here's an excellent short article that explains just what the leading German economists of the day said:

http://fee.org/freeman/lessons-of-the-german-inflation/

From their quotes, it seems that they couldn't even perceive the existence of monetary inflation. Even at the height of the hyperinflation, they argued that it was the need to make reparations that caused the inflation, and that money printing was the necessary reaction to this inflation, a trailing effect, not a cause. The German government encouraged this and the jingoistic population ate it up.

German economics was strongly influenced by Chartalism, which in typically German terms held that money "is a creature of law and order," not a commodity.

They also held a rigid money view of inflation which held that monetary inflation would inevitably be proportional to the increase in currency in circulation. This was consistent with wartime experience, when the gold standard was suspended and fiat money was introduced, and prices were held in check with wartime price controls.

To pay reparations, they printed paper money (still not backed by gold) then used it to purchase foreign currency that WAS hard and used it to make reparations payments.

My guess is that the German government expected the foreign buyers of its currency to be stuck with it, outside the country where it could do little harm, and that price inflation inside Germany would continue to be manageable through price controls, much as in wartime.

When instead it began increasing exponentially instead of proportionally as demanded by rigid money views, they couldn't recognize it and thought it was a new beast that could be tamed by state dictate. Once it truly began to take off, they were afraid that countermeasures would cause mass bankruptcies, unemployment and starvation, along with hunger, social unrest and Bolshevik revolution. So they just kept doubling down and blaming those damned French and English, not only for the reparations but for sinister foreign speculation designed to destroy Germany. (There was foreign speculation, but probably even more domestically/ the Germans even had a word for these Ponzi schemes.)

How did Germany manage to sell soft paper marks for hard foreign currency with which to make reparations payments? From the article:

In the earlier stages of the inflation, foreigners could not resist the idea that the depreciated German mark was a tremendous bargain. They bought huge quantities. One German economist calculated that they probably lost seven-eights of their money, or about 5 billion gold marks, "a sum triple that paid by Germany in foreign exchange on account of reparations."

P.S. According to William L. Shirer in The Rise and Fall of the Third Reich (Chapter 3), "the destruction of the currency enabled German heavy industry to wipe out its indebtedness by refunding its obligations in worthless marks...The General Staff, disguised as the Truppenamt (Office of Troops) took notice that the fall of the mark wiped out the war debts and thus left Germany financially unencumbered for a new war."

It should be noted that the war debt refers not to reparations required by the Treaty of Versailles, but to the cost of the war itself: Germany had funded 93 billion marks worth using war loans and 29 billion in Treasury bills. (The balance of the 164 billion mark cost was monetized by suspending the gold standard and printing large quantities of paper marks, which is one reason why the idea of doing the same to pay off war reparations seemed like a good idea.)

The fact that both industrial tycoons and the army & government stood to benefit from inflation should not be ignored in analyzing the policy.