The Quantity Theory of Money in the Weimar Hyperinflation

Source: EconLog
by John Phelan

On November 15, 1923, the German Papiermark hit an exchange rate of 2.5 trillion to $1. Two weeks earlier, $1 had bought 133 billion marks; at the start of the year 17,972 marks; on the currency’s introduction in 1914, 4.19. Germany’s currency died. What killed it? We can begin to answer that question with the equation of exchange, only of the few genuinely useful equations in economics: MV=Py. This says that the money supply in an economy (M) multiplied by the number of times it is spent in a given period (velocity of circulation, V) equals the price level (P) multiplied by output (y); nominal spending (MV) equals nominal income (Py).” (11/16/23)