Economic and social problems in Germany, 1919-24
Financial problems in the aftermath of the war
The impact of reparations
The hyperinflation crisis of 1923
German social welfare
WWI countries: war effort required unprecedented levels of government spending
Britain: higher taxes/ government borrowing
Germany: increased borrowing/ printing more money = debt geeks and value currency fell
Germany would win war and would be able to recoup its losses by annexing the industrial areas of defeated enemies and giving them pay heavy financial reparations
Defeat: deprived country of repayment method/ heavy burden of reparations and loss of some industrial areas
1919: debt of 1.44 billion marks
Raise taxes? Reduce spending? Both?
Rise taxation: alienating support new republic as anti-republican parties able claim taxes being raised to pay reparations to Allies
Military expenditure reduced
Civil servants paid- fragile support so avoid civil servants redundant so extended welfare benefits
Weimar Republic: raised taxes/ cutting spending
Unemployment disappeared by 1921
Recovery economic activity
Inflation:
1918-19: prices doubled
1919-20: prices quadrupled
14x higher than 1913
1920 coalition led by Konstantin Fehrenbach
Dominated by Centre Party
Support: powerful German industrialists
Benefitting inflation- short term loans Germany's central bank to expand business
Loans due repayment, real value significantly reduced by inflation
Inflation reduced governments burden of debt
1921: unemployment 1.8% (17% in Britain)- USA invest
1923: Germany’s inflation became hyperinflation
The political impact of reparations
Reparations in cash/ goods but not fixed amount
The economic impact of reparations
View on reparations
Reparations Commission: determine scale damage German armed forces Allied countries
Reparations Commission report Germany pay 132 billion golds marks or £6.6 billion (annual installments)
1921: accept in 6 days, cabinet Fehrenbach resigned replaced by Chancellor Joseph Wirth
‘Policy of fulfilment’ of Treaty of Versailles- German government calculated cooperation win sympathy Allies revision terms clear full payment reparations beyond Germany’s capacity
January 1922: Reparations Commission granted postponement January/ February instalments
November 1922: loan 500 million gold marks/ release 3-4 years stabilise currency
1923: French/ Belgian occupation Ruhr
Reparations made repayment huge government debt difficult
Germany’s gold reserves inadequate scale reparations payments that had made in gold
Coal- Germany lost coal reserves in TOV
Manufactured goods- workers and manufacturers Allied countries not agree/ regard threat to jobs and businesses
Increase reserves of foreign currency, increase exports to other nations- Allies hampered German export trade (confiscated entire merchant fleet) and high tariffs on German imports
John Maynard Keynes: £2 billion was ‘safe maximum figure of Germany’s capacity to pay’
Peukert: 2% of Germany’s gross nationalist product
The Franco-Belgian occupation of the Ruhr
End 1922: Germany behind payment coal to France
French and Belgians send 60,000 men occupy Ruhr industrial area in January 1923
Aim: seize area’s coal, steel and manufactured goods as reparations
1923: 100,000 men
Control: mines, factories, steelworks, railways, demanded food from shops and set up machine-gun posts in streets
Government of Chancellor Wilhelm Cuno: TOV reduced size German army, Rhineland demilitarised- stopped all reparations payments/ ordering policy of ‘passive resistance’ (no one area e.g. businessmen, postal workers, railwaymen, miners) cooperate with French authorities
German workers’ wages continue if went strike while paramilitary troops working German army organised acts sabotage against French
Crossed customs barrier, blew up railways, sank barges, destroyed bridges disrupt French effort
French set up military courts, punished mine owners, miners and civil servants not comply authority
150,000 Germans expelled from area, 132 German miners shot
French own workers operate railways, get coal out of Ruhr
May 1923: deliveries 1/3 average deliveries of 1922
Output Ruhr fallen 1/5 pre-occupation output
The economic effects of the occupation
Paying wages/ providing goods striking workers further drain on government finances
Tax revenue lost from businesses closed and workers became unemployed
Germany import coal and pay from limited foreign currency reserves within country
Shortages goods pushed prices further
Result: x2 annual reparations
Refuse increase taxes = print more money
The hyperinflation crisis
The hyperinflation crisis: money lost meaning prices soared
Printing presses continued keep banks supplied worthless paper money
Food riots when crowds looted shops
Gangs, city dwellers countryside take food from farms (increase convictions theft)
Battered possessions exchange vital supplies
American dollars to one German mark
American dollars to one German mark
July 1914: 4.2
January 1920: 64.8
15th November 1923: 4.2 trillion
Revolution of November 1918 supporters need support result death/ injury war
Weimar Constitution 1919: every German citizen right to work or to welfare
1919: Law limiting working day to max. 8 hours
State health insurance system introduced by Bismarck limited workers in employment, extend wives, daughters and disabled
Aid war veterans incapable working (injury responsibility national government)
Aid war widows and orphans increased
1922: National Youth Welfare Act (local authorities’ youth offices responsibility child protection, right education)
The social impact of hyperinflation
Winners
Black-marketeers bought food stocks and sold vastly inflated prices
Had debts, mortgages and loans pay money owed in worthless currency
Enterprising business people took new loans and repaid once currency devalued
Leasing property long-term fixed rents gained as real value rents paying decreased
Owners foreign exchange and foreigners living Germany benefit
Countryside: farmers well, food demand and money less important rural communities
Losers
Pensioners badly hit e.g. war widows living on state pensions
Patriotically lent money government wartime purchasing fixed interest rate ‘war bonds’ lost because interest payments decreased value
Landlords reliant fixed rents
Unskilled workers not belong trade unions- workers wage increases not rising prices so standards living declined. 1923: increase unemployment, short-time working so 29.3% workforce employed
Artisans and Mittelstand (disproportionate share taxes)
Sick: cost medical care increased with rapid rise food prices led malnutrition (death/ suicide rate increase)
Children: malnutrition, tuberculosis, rickets- dietary deficiency