3 - Economic and social problems in Germany, 1919-24

Question 1

How did wartime governments in Germany decide to finance the war?

Answer 1

Increased borrowing and printing more money

Question 2

What did this cause?

Answer 2

Government debt grew, value of currency fell

Question 3

Why did they choose to do this?

Answer 3

They believed they would win the war and would be able to recoup losses through annexing industrial areas of enemies and high reparations bills

Question 4

What was the debt faced by the government of the Weimar Republic in 1919?

Answer 4

1.44 billion marks

Question 5

What are the options for governments where national debt needs to be reduced?

Answer 5

They can raise taxes, reduce spending, or both

Question 6

Why did both of these options pose a risk to the Weimar Republic?

Answer 6

A rise in taxation could alienate support as anti-republican parties would claim they were doing this to pay the reparations bill, and military expenditure was reduced but civil servants still needed to be paid

Question 7

Why was high inflation allowed to happen?

Answer 7

The 1920 coalition government was dominated by the Centre Party which was supported by many German industrialists whose businesses were benefiting from inflation because they could take out short term loans that by the time they needed to be repaid had a significantly lower value

Question 8

How was inflation beneficial?

Answer 8

By 1921 unemployment was only 1.8% compared to nearly 17% in Britain.
It encouraged investment, especially from the USA

Question 9

Why was the Reparations Commission set up?

Answer 9

To determine the scale of damage caused by German armed forces in Allied countries

Question 10

What did the Reparations Commission conclude?

Answer 10

That Germany should pay 132 billion gold marks or £6.6 billion, to be paid in annual installments

Question 11

How was this presented to Germany and what did it lead to?

Answer 11

Presented to German government in 1921 with ultimatum to accept terms within 6 days, causing political crisis in Germany.
Cabinet of Fehrenbach resigned in protest, replaced by cabinet of Chancellor Joseph Wirth, signed unwillingly with no other options

Question 12

What happened in January 1922?

Answer 12

Germany was in such economic difficulties so Reparations Commission granted a postponement of the January and February installments

Question 13

What else did Germany ask that year?

Answer 13

In July asked for further suspension of payments due that year.
In November asked for a loan of 500 millions gold marks and to be released from obligations for three to four years to stabilise its currency

Question 14

What did these requests lead to?

Answer 14

French were suspicious that this was an excuse so refused to agree.
This led to major clash over reparations in 1923 during which French and Belgian forces occupied the Ruhr in attempt to extract payment by force.

Question 15

What was the economic impact of the reparations?

Answer 15

Allies were forcing Germany to pay but were making it very difficult for them to get the money to do so, in many ways.
For example they had inadequate gold reserves, lost a major part of their coal reserves, couldn’t use manufactured goods for reparations, couldn’t increase exports.
Response was to print more money which made inflation even worse.

Question 16

What did English economist John Maynard Keynes calculate?

Answer 16

That £2 billion was ‘a safe maximum figure of Germany’s capacity to pay’.
He predicted that the burden of reparations would damage the German economy and the economies of Allied countries

Question 17

What did modern history Peukert argue?

Answer 17

That the final figure for reparations was manageable for Germany as it only amounted to 2% of its gross national product, and that the effects of reparations have been exaggerated

Question 18

What did Germany falling behind in reparations to France in the form of coal (end of 1922) lead to?

Answer 18

French and Belgium to send a military force of 60,000 men to occupy the Ruhr in January 1923 to try and force Germans to comply

Question 19

What did France and Belgium do in the Ruhr?

Answer 19

Aim was to seize coal, steel, and manufactured goods as reparations
Troops occupied the whole Ruhr and over 1923 the forces grew to 100,000
Took control of mines, factories, steelworks and railways, demanded food from shops, set up machine-gun posts in the streets

Question 20

What was the German response to the invasion of the Ruhr?

Answer 20

Government of Chancellor Wilhelm Cuno knew the Germans couldn’t fight back - treaty had reduced German army and demilitarised the Rhineland (that the Ruhr was part of)
So stopped all reparations payments and ordered a policy of ‘passive resistance’ - everyone in the area to go on strike, promised that their wages would continue
While paramilitary troops working with the German army sabotaged the French effort

Question 21

What did the French do in response to the strike?

Answer 21

Scale of operation increased
Around 150,000 Germans expelled from the area
Some miners shot after clashes with police
Overall 132 Germans shot in the eight months of the occupation
Brought in their own workers to get the coal but wasn’t very effective
May 1923 deliveries only a third of the average monthly deliveries in 1922, output of the Ruhr fallen to a fifth of its pre-occupation output

Question 22

What were the economic effects of the occupation?

Answer 22

Paying the wages or providing goods for striking workers was a drain on government finance
Tax lost from closed businesses and unemployed workers
Shortage of goods pushed up prices
And reparations payments
Government refused to raise taxes so printed more money

Question 23

What triggered the hyperinflation crisis?

Answer 23

the government printing more money

Question 24

What was the hyperinflation crisis?

Answer 24

Money lost its meaning and prices soared

People tried to spend money immediately before it lost even more value

Question 25

An example of the hyperinflation crisis

Answer 25

January 1923 a kilo of bread cost 163 marks
October - 9 million marks
November - 233 billion marks

Question 26

What reforms were made in social welfare?

Answer 26

1919: working day limited to eight hours
1919: health insurance system extended to wives, daughters, and the disabled
1919: aid for war veterans incapable of working became governments responsibility, aid for war widows and orphans increased
1922: National Youth Welfare Act - all local authorities to set up youth offices with responsibility for child protection, decreed all children had right to education

Question 27

Who benefited from the hyperinflation crisis?

Answer 27

Black-marketeers - bought up food and sold at inflated prices
Those with debts, mortgages, loans - easily paid off
Enterprising business people - took out loans and repaid when devalued
Those leasing property on fixed rent - real value decreased
Farmers - food in demand

Question 28

Who didn’t benefit from the hyperinflation crisis?

Answer 28

Pensioners
Those who had patriotically lent money to government in wartime
Landlords reliant on fixed rents
Artisans and small business owners
Sick

Question 29

Key example of a winner in the hyperinflation crisis

Answer 29

Hugo Stinnes
Owner of substantial businesses before 1923 and deputy of DVP
With his businesses providing security and political contacts he raised large bank loans in 1923 and purchased whole forests to supply lumber to his mines
Built an empire that included 150 newspapers and magazines, and interests in railways, banks, and more