Fighting the war required the German government to significantly increase expenditures (government spending as a share of GDP would increase 2.5x between 1914 and 1917). Financing this spending would mean either raising new revenues (i.e., taxation) or increasing government borrowing. As there was huge resistance to increasing taxation at home, and as Germany was mostly locked out of international lending markets, the war had to be financed by issuing domestic debt.5 In 1914, German government debt was insignificant. By 1918, Germany had amassed a total local currency debt stock of 100 billion
...more
