Chapter 5 Flashcards
Takeover of Stresseman and priorities
In August 1923, at the height of the hyperinflation crisis, the government of Cuno collapsed and was replaced by a new coalition led by Gustav Stresemann. Stresemann’s coalition - the so-called ‘great coalition’ - was the first in the short history of the Weimar Republic to include parties from both the left and the right. Stresemann’s own party, the DVP, shared power with the Centre Party, the Socialists and the DDP. Stresemann, who was Chancellor for a mere 103 days, took office at a time when the Weimar Republic was in serious political and economic difficulty. By the time he left office in November, the currency had been stabilised, inflation had been brought under control and attempts to overthrow the republic from both the left and the right had ended in failure.
Stresemann’s priority was to bring inflation under control. This involved three key steps.
Three steps by Stresseman to keep inflation under control
The end of passive resistance
The issuing of a new currency
Balancing the budget
The end of passive resistance
Passive resistance against the occupation of the Ruhr was called off in
September. This was a highly unpopular and risky move, which led to serious unrest and the attempted Beer Hall Putsch in Munich. Stresemann calculated, however, that he had no alternative. Germany’s economy was beginning to grind to a halt and inflation was completely out of control. Ending passive resistance, which meant that the government stopped paying workers who refused to work for the French, was an essential first step towards reducing government expenditure.
The issuing of a new currency
In November, a new currency called the Rentenmark was introduced to replace the old and worthless Reichsmark. The new currency was exchanged for the old on the basis of one Rentenmark for one trillion old marks. Since Germany did not have sufficient gold reserves to back the new currency, it was supported by a mortgage on all industrial and agricultural land. Once the new currency was successfully launched, the government kept tight control over the amount of money in circulation in order to prevent inflation reappearing.
The old inflated marks were gradually cashed in and, in August 1924, the Rentenmark became the Reichsmark, backed by the German gold reserve, which had to be maintained at 30 per cent of the value of the Reichsmarks in circulation. Inflation ceased to be a problem and the value of the new currency was established at home and abroad. All this happened under the direction of Hialmar Schacht.
Effect of Stresseman’s measures
These changes made a considerable difference to the way that the German
KEY PROFILE
economy operated. Well-managed companies that were run prudently and were careful not to build up excessive debt continued to prosper. Weaker companies that were heavily reliant on credit crumbled. The number of companies that went bankrupt in Germany rose from 233 in 1923 to over 6000 in 1924. Moreover, those who had lost their savings in the collapse of the old currency did not gain anything from the introduction of a new currency.
Stat on increased bankruptcies
The number of companies that went bankrupt in Germany rose from 233 in 1923 to over 6000 in 1924.
Who was Hjalmar Schact?
Hjalmar Schacht (1877-1970) had been director of the National Bank from 1916 and was a co-founder of the DDP party in November
1918. He has been described as a financial genius for his role in the stabilisation of the German currency. In 1923, he became Reich Currency Commissioner and head of the Reichsbank, and introduced the Rentenmark. He then went on to help negotiate the Dawes and Young Plans, which modified Germany’s reparations payments. He later became Economics Minister under the Nazis (1934-37) but lost favour and was removed from the Reichsbank in 1939.
Background to Dawes Plan
The stabilisation of Germany’s economy was as much dependent on settling the reparations dispute as it was on domestic issues. In November 1923, Stresemann asked the Allies’ Reparations Committee to set up a committee of financial experts to address Germany’s repayment concerns. The USA had a vested interest in getting Germany back to a position where reparations could be made to France, because much of this money was then passed on to the USA to repay loans. Therefore, the American banker Charles Dawes acted as the new committee’s chairman. By the time the Dawes Plan was finalised in April 1924, Stresemann’s government had fallen, but he remained as foreign secretary and took credit for much of what was achieved. Although the Dawes Plan confirmed the original figure of a total reparations payment of £6.6 billion (132,000 million gold marks), it made the payments more manageable.
What did the Dawes Plan recommend?
It recommended that:
• The amount paid each year by Germany should be reduced until 1929, when the situation would be reappraised. It proposed that Germany should re-start reparations by paying 1000 million marks (a fraction of what had been expected before and that this sum should be raised by annual increments over five years by 2500 million marks per year. After this, the sum paid should be related to German industrial performance.
• Germany should receive a large loan of 800 million marks from the USA to help get the plan started and to allow for heavy investment in German infrastructure.
Allies to take control of German banks and railways
Who was Charles Dawes?
Charles Dawes (1865-1951) was an American banker and politician. He became the US Vice-President in 1924. For his work with Stresemann to resolve the reparations issue, the two men were jointly awarded the Nobel Peace Prize in 1925.
Reichstag reaction to Dawes Plan
There was a heated debate in the Reichstag over the Dawes Plan. Stresemann himself did not actually believe in the plan, privately referring to it as no more than an economic armistice, but he agreed to it as a way of securing foreign loans. The so-called ‘national opposition’ (mainly the DNVP, but also smaller right-wing groups like the Nazi movement) bitterly attacked this policy of compromise, since they believed Germany should defy the unjust Versailles Treaty and refuse to pay reparations altogether. However, the Dawes Plan was eventually agreed and accepted by both Germany and the Allies in July 1924
Benefits of Dawes Plan to Reichstag
It brought several benefits to Germany:
• The Allies accepted that Germany’s problems with the payment of reparations were real.
• Loans were granted, with which new machinery, factories, houses and jobs could be provided and the German economy rebuilt.
The French gradually left the Ruhr during 1924-25, once it became clear that Germany was going to restart paying reparations and the occupation could no longer be justified. Such measures contributed to German optimism that their country was once again its own master.
Extent of general industrial recovery
BY 1925, Germany appeared more stable and prosperous. The combination of the new currency, the Dawes Plan and Schacht’s work at the Reichsbank (where interest rates were kept high to attract foreign investment), helped improve Germany’s situation enormously. American loans helped stimulate the economy. Industrial output grew after 1924 but did not reach 1913 levels until 1929. The extent of this boom should not be exaggerated. Growth rates were unsteady. The years 1924-25 and 1927 were good years, but the economy shrank in 1928 and 1929. Investment in new machinery and factories was falling by 1929.
Rationalisation of German industry
German industry underwent extensive ‘rationalisation’ as new management and production techniques were introduced
Coal produ
and antiquated equipment was replaced with new machinery.
The fact that Germany had to hand over many of its materials as reparations at the end of the war opened the way for this new start and, with American finance, the big industrialists began to buy out or make cooperative agreements with smaller firms to form cartels.
By 1925, there were around 3000 such cartel arrangements in operation, including 90 per cent of Germany’s coal and steel production. After 1925, Germany was allowed, under the terms of the Versailles Treaty, to protect its industries by introducing tariffs
on imported foreign goods. Many firms also received state subsidies to enable them to survive. All of these practices reduced competition and propped up inefficient enterprises.
Rise in living standards
Advances were made in the chemical industry, such as the large-scale production of artificial fertilisers. The car and aeroplane industries also developed, although cars were still too expensive for the average German. The inflation rate was close to zero and living standards rose as wages began to increase from 1924. Loans helped to finance the building of housing, schools, municipal buildings, road and public works. Massive population growth had created an acute housing shortage in Germany by the early twentieth century, and the overcrowding and insanitary conditions of working-class city accommodation had been linked to political instability. Consequently, state initiatives to provide affordable homes were of great importance for future stability. In 1925, 178,930 dwellings were built - over 70,000 more than in the previous year - and, in 1926, there were to be 205,793 more new homes.
Money was spent on welfare payments and health improvements and, in 1924 new schemes of relief were launched.
