Causes and Consequences Of Of The German inflation (should be under Weimar) Flashcards
Long term causes of inflation
Germany had no provision for a long, drawn-out war. Also for political reasons, the Kaiser and the government had opposed increased taxation. Instead it borrowed massively by selling ‘war bonds’. When this proved insufficient, they simply let the national debt get bigger and bigger.
Long term - what were the results of Imperial Germany’s financial policies?
By the end of 1918 only 16% of war expenditure had been raised by increased taxation, 84% had been borrowed
Long term cause - production of military supply
Economy had concentrated on the production of military weapons. But this did not satisfy the requirements of civilian consumers. Consequently, the high demand for, and the shortage of, consumers goods began to push prices up.
Medium term causes
Increased taxation and cutting government spending would not be popular and would cause social and political difficulties. Consequently, Erzberger in 1919 extensively increased taxation on profits, wealth and income.
Medium term causes - deficit financing
Planning to increase the nation’s debt by reducing taxation in order to give people more money to spend and so increase demand for goods and thereby create work. The government believed that this would enable Germany to overcome the problems of demobilisation as returning soldiers would have a job. But an essential part of this policy was that inflation was allowed to continue.
Medium term causes - hard currency
The reparations payments had to be in hard currency like dollars and gold. In order to pay their reparations the government proceeded to print larger quantities of marks and sell them to obtain the stronger currencies of other countries.
Short term causes - passive resistance
Wilhelm Cuno embarked on a policy of ‘passive resistance’ against French and Belgian occupation of the Ruhr. The German workers refused to cooperate with the French authorities. The Germans were still being paid but Germany could not collect taxes from the Ruhr and the French prevented coal going to Germany thus fuel had to be imported. This led to the German currency essentially being worthless.
Long term, medium term and short term
Long term - military demands of the first world war led to an enormous increase in financial costs.
Mid term - the costs of introducing social reforms and welfare and the pressure to satisfy the demands of the reparation payments.
short term - French occupation of the Ruhr in 1923 resulted in crisis and Cuno’s government encouraged ‘passive resistance’.
Human consequences - peasants
Peasants coped reasonably well as food remained in demand. They depended less on money for necessities of life as they were more self-sufficient.
Human consequences - Mittelstand
Shopkeepers and craftsmen also seemed to have done reasonably good business, especially if they were prepared to exploit the demands of the market.
Human consequences - Industrial workers
Worker’s wages and standards of living improved until 1922. It was in the chaos of 1923 that, when the trade unions were unable to negotiate wage settlements for their members, wages could not keep pace with inflation and a decline took place. However as they had fewer savings, they lost proportionally less than those living on saved income.
Human consequences - civil servants
Income fell sharply between 1914-1920, but they made real gains in 1921-1922. They suffered again in the chaos of 1923 because they depended on fixed salaries which fell in value.
Human consequences - businessman
Generally did will because they bought up property with worthless money and they paid of mortgages. They also benefitted if they made sales to foreign countries, as the rate of exchange was very attractive.
