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