The Seeds of Evil: Germany 1919 - 1933.
German Economy 1919-1923
Exchange rates: 1US$ value in German marks.
Reparations repayments led to the German economy becoming devalued. Having to pay such large sums to the Allies resulted in the German economy having a rapidly reduced capacity to purchase goods, as they were compelled to give much of their accumulated wealth and produce to the Allies in part payment towards the Reparations bill.
This had several consequences. First, it resulted in the value of the German currency falling. The table above illustrates how rapidly this happened. Second, it resulted in the cost of items within Germany rising as the relative cost of importation rose as the value of the currency declined. This is inflationary in nature and has several consequences. In situations such as this people make use of their savings, as they cannot afford to make purchases using only their weekly or monthly income. In Germany billions of dollars worth of hoarded and saved marks re-entered the economy in the period after the war. Again, this results in inflation rising and the value of the currency falling when compared to other currencies. Combined, these factors lead to a cycle of devaluation and inflation that can, and did, become hyperinflation.
It is not however the case that the economy within Germany continued to decline throughout the whole of the period 1919 – 1923. In 1920 the currency stabilised for a period of some 6 months. The price index remained almost constant and the value of the German mark remained at approximately 1US$ to 69 German marks. The Weimar Government, it has been argued, could have introduced a stable currency at this point. Instead they continued to increase the amount of money in circulation – which is inflationary. The result was hyperinflation in 1923. This had massive consequences for the economy and society in general.
http://www.usagold.com/GermanNightmare.html This link includes an outline of how peoples investments were affected during this era. It notes that in general people would have lost the value of their investments – with one or two areas that proved to be the exception: Investment in Capital (Land and Buildings) and Investment in Foreign currency.
How did the economic crisis aid the Nazi party?
The economic crisis of 1923 led to rifts in government. Coalition governments struggled to agree a suitable course of action and as a result the democratic process fell into decline. Parts of Germany were in a state of emergency and the opponents of the Weimar state used the situation to try and further destabilise the situation. In 1923 there were many strikes, fuelling a fear of Communism amongst the middle classes. They in turn looked, on an increasing level, to the right wing for support. This plays into the hands of political groups such as the NSDAP (Nazi Party). Given the climate and the apparent failings of the government to be able to respond to challenges to its authority – the Kapp Putsch had not been dealt with in a particularly convincing manner, it appears to be an ideal opportunity to challenge the government. In the case of the Nazi’s, this was to happen as part of a co-ordinated attack on democracy from Nationalist groups in Bavaria.
The Economic Recovery 1924 – 1929
A number of changes in economic policy led to economic recovery from 1924 onwards. German diplomats negotiated with the US Government in late 1923 and early 1924. They sought to gain aid from the US and establish trading links that would enable them to stabilise the currency, which would then act as a stepping stone to economic growth.
The Dawes Plan was the result of negotiations between Germany and the US Government. The plan allowed the co-ordination of reparations repayments, making these more manageable. This involved paying reduced payments until 1929, when the situation would be reappraised. The scale of the reassessment is worthy o note, reparations payments in 1922 had been some $2 billion, the figure for 1914 was set at $50million. This large reduction in reparations payments was accompanied by a loan of $200 million from the US government which would allow for heavy investment in the German infrastructure. Linked to this agreement was the introduction of the new Reichsbank and the replacement of the old German Mark with the Rentenmark. The Dawes plan also provided for the gradual removal of French and Belgian troops from the Rhineland.
The introduction of the Rentenmark was highly significant, it allowed the currency to stabilise and supported by the Dawes Plan it stood a good chance of not succumbing to inflationary pressures as had previously happened. The new Rentenmark was valued at 1 Rentenmark to One Trillion old marks (no typographical error there). The Rentenmark was exchangeable for bonds in land and industrial plant – in other words they were worth something. Inflation ceased to be a problem, the German people accepted the value of the new currency and businesses accepted it as being of worth.
The stability of the new currency couldn’t be taken for granted however and a range of new fiscal measures were implemented that would keep inflation and the exchange rate at acceptable levels. For example, the government opted to stop offering credit to industry as this had led to widespread speculation and consequently inflation. Borrowing therefore slowed and the circulation of money returned to ‘normal’ levels. Similarly the government altered the policy with regards the printing of money. Previously the government had increased the amount of money being printed as inflation had risen, this had simply led to prices rising even more rapidly. Now the government decided that the amount of money in circulation would be strictly limited to the real worth of economy.
In August of 1924 the Rentenmark was replaced by the Reichsmark, which was backed up by the German Gold Reserve, which had to be maintained at 30% of the value of all Reichsmark in circulation. This was combined with a range of new taxes that increased the tax burden of companies and individuals alike, reducing their spending power and enabling the government to reinvest a larger proportion of the nations wealth.
This constitutes quite a large change in the way that the economy was operated. Companies that were well organised, had sound business sense and were well managed would prosper. Those that had relied on credit would suffer – the number of companies going bankrupt in Germany rose from 233 in 1923 to over 6000 in 1924. This resulted in the economy being more streamlined and efficient, success was possible but relied, perhaps, on prudence and careful planning.
Source Material relating to the German Economic Recovery:
The speculators had learnt that the Reichsbank was now able, if it decided
to do so, to put an end to all speculation on the foreign exchange market. The
success of the campaign meant an immeasurable increase in the confidence of
the public in the stabilization of the mark. Schacht, writing in his autobiography.
The contraction pursued by Schacht was brutal. One-month money rates went from
30 percent to 45 percent. Overdraft charges rose from 40 percent to 80 percent!
After July 1924 they began falling. Schacht's restriction of money was so harsh
that the German government-operated post office and railways formed their own
banks and began building capital much faster than the private sector. www.wintersonnenwende.com
How successful was the German Recovery?
In terms of its impact on the political stability of Germany the moves outlined above were quite successful in the shorter term. Under the leadership of Gustav Stresemann the ‘Grand Coalition’ managed to bring the economy under control. This process, supervised by Hjalmar Schacht, the newly appointed Finance Minister, continued throughout the remainder of the 1920s until the Wall Street Crash led to further economic problems.
The political atmosphere did not change overnight though. With the economy increasingly stable and a number of extremist political groups shattered by their failings in the early 1920’s – with many of their leaders either dead or imprisoned – the opposition to the democratic government had fewer opportunities to criticise the government and less popular support. This does not mean that extremism vanished however: Hitler for example was imprisoned and writing Mein Kampf at the time. Support for parties such as the Nazi party remained and they continued to receive votes, though limited in number, in elections (statement is a general one about parties to the far right / left rather than relating just to the electoral fortunes of the NSPAD).
The ‘Grand Coalition’ did not last long. Stresemann lasted as Chancellor for only a few months before he was forced to resign as a result of protests about the way in which he had dealt with the Munich Putsch (Socialists withdrew their support for the coalition in protest at the leniency shown towards Adolf Hitler). Following this Stresemann moved to a position in the newly formed cabinet as Foreign Minister, with Hans Luther becoming Chancellor. This pattern of short lived coalitions continued throughout ‘The Golden era’ of the Weimar Republic as parties failed to find acceptable working agreements.
Society in general appears, at first glance, to have improved significantly. For example new roads, public buildings and schools were built throughout Germany in this era. Women had an increasingly important role to play in the German economy and confidence in the economy was restored.
Such was the stability of the economy by 1927 that the government felt it possible to introduce guarantees of income under welfare legislation. This image of improvements is supported by data relating to the economic recovery in general: wages rose in real terms throughout the period 1924 to 1929, the standard of living rose and the cost of living fell. All consequences of the industrial recovery triggered by the implementation of new policies and the benefits of the Dawes Plan. (Industrial output had reached its pre-war levels again by 1923 and this figure had been doubled by 1929, a useful measure of how far the economy did recover.
Negative images of this era can be found. Extremists continued to disturb meetings of opposing political groups, coalition governments were often ‘minority’ governments – meaning that the coalition itself didn’t have a majority and there were frequent changes of allegiance and political leadership during this era (by fuller). It can be argued that this is far from being a stable environment, indeed it can be seen to be a government still teetering on the brink of political extinction. Little appeared to change in terms of society – there was merely a return to the traditional elites managing the economy and dominating industry. Democracy therefore, appears to still be under threat: the election of Paul von Hindenburg as President indicates that there is still some way for the republic to go. He was no great fan of democratic principles and was a known sympathiser with the Right Wing.
Recommended links on Hyperinflation and the German Economy 1919 –1923
Recommended links on the German Economic recovery:
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The Second Reich
The Founding of the Weimar Republic
The Impact of War
The Treaty of Versailles
Germany 1919 - 1923
Germany - Economic Recovery
The Early days of the Nazi Party 1919 - 1924
Text © Schoolshistory.org.uk
Unit last updated 4th June 2004
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