Chapter 5 - the golden age 1924-28 (economic developments)

Question 1

Problems the Weimar Republic were facing in 1924

Answer 1

• Hyperinflation/financial/economic problems
• Political instability: uprisings, assassinations, and proportional representation
• Bad foreign relations: especially with France and them occupying the ruhr. Germany were also not allowed to join the league of nations

Question 2

The main obstacles to solving these problems

Answer 2

• No majority in the Reichstag which meant governments were always coalitions
• This made it very hard for coalition governments to make quick and significant decisions in times of crisis

Question 3

The stabilisation of the currency

Answer 3

• 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 (grand) 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 (SDP) and the DDP
• Stresemann, who was only chancellor for 103 days, took office at a time when the Weimar Republic was in serious political and economic difficulty
• By the time Stresemann left office in November 1923, the currency had been stabilised, inflation had been brought under control and attempts to overthrow the republic from both the left and right had ended in failure
• Stresemann’s priority was to bring inflation under control which involved 3 key elements:
  • End passive resistance
  • Introduce a new currency
  • Cut government expenditure

Question 4

The emergency decree

Answer 4

• The emergency decree was passed on the 10th august 1923 which gave the Great Coalition powers such as postponing Reichstag meetings and governing by decree if necessary

Question 5

The end of passive resistance

Answer 5

• Passive resistance against the occupation of the Ruhr was called off in September 1923
• This was a highly unpopular and risky move, which led to serious unrest and the attempted Munich Putsch
• Stresemann calculated, however, that he had no other 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

Question 6

The issuing of a new currency

Answer 6

• In November 1923, a new currency called the Rentenmark was introduce to replace the old and worthless mark
• The new currency was echanged 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 German gold reserves, which had to be maintained at 30% of the value of the Reichsmark in circulation
• Inflation ceased to be a problem and the value of the new currency was established in Germany and abroad, restoring faith in the German currency as a result of the action taken under the direction of Hjalmar Schadt
• However, people who had lost their savings due to hyperinflation were not compensated causing them to be angry and blame the Weimar government for their losses

Question 7

Balancing the budget

Answer 7

• Stresemann’s government cut expenditure and raised taxes
• The salaries of government employees were cut, some 300,000 civil servants lost their jobs and taxes were raised for both individuals and companies
• As government debt began to fall, confidence was restored

Question 8

Effects of these changes

Answer 8

• These changes made a considerable difference to the way that the German economy operated
• Well managed companies that 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 223 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 the new currency
• Some Germans did not accept the tax rises and industrial disputes and tensions between workers became common
• The government had to borrow money in order to make up for the shortfall of some citizens not accepting the tax rises

Question 9

The reparations issue and the Dawes Plan

Answer 9

• 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 great interest in getting Germany back to a position where reparations could be made to France, because a large proportion of this money was then passed onto the USA to repay loans
• As a result, American banker Charles Dawes acts 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 minister 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, it made the payments more manageable
• The plan recommended that:
  • The amount paid each year by Germany should be reduced until 1929, when the situation would be reassessed. Germany would restart by paying 1000 million marks (a much smaller amount than before) and this sum would raise by annual increments of 2500 million mark, for 5 years. After this, the sum should be paid related to Germany’s 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
• There was a heated debate in the Reichstag over the Dawes plan
• Stresemann did not actually believe in the plan, privately referring to it as “no more than an economic armistice”, but he agreed to it as it was a way of securing foreign loans
• As a result of it becoming clear that Germany were going to begin paying the reparation payments, between 1924 and 1925, the French gradually left the Ruhr as the occupation could no longer be justified
• The so called national opposition (the DNVP and Nazi movement) bitterly attacked the Dawes plan as they believed that Germany should challenge the unjust Treaty of Versailles and refuse to pay the reparations altogether
• Although the Dawes plan made the payments of the reparations much easier and the loans allowed Germany to begin rebuilding their economy, the Germany economy remained fragile and became extremely reliant on the USA and its economy
• However, the Dawes Plan was eventually agreed and accepted by both Germany and the Allies in July 1924.

Question 10

Benefits of the Dawes Plan

Answer 10

• The Dawes plan brought several benefits to Germany:
  • The allies accepted that Germany’s problems with the payment of reparations was real
  • Loans were granted, with which new machinery, factories, houses, and jobs could be provided and Germany’s economy was rebuilt
  • The French gradually left the Ruhr during 1924 and 1925, once it became clear that Germany were going to restart paying reparations and the occupation could no longer be justified
• These measures led to German optimism that their country was once again its own master

Question 11

The extent of economic recovery - industry

Answer 11

• By 1925, Germany appeared more stable and prosperous
• The combination of the new currency, the Dawes plan and Schachts’ work at the Reichsbank, helped improved Germany’s situation enormously
• Interest rates were kept high at the Reichsbank in order to attract foreign investment
• American loans helped stimulate the economy
• Industrial output grew after 1924 but did not reach 1913 levels until 1929
• Growth rates in industry 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
• After 1925, Germany was allowed, under the terms of the Treaty of Versailles, to protect its industries by introducing tariffs on imported foreign goods
• Many firms also received state subsidies to enable them to survive
• 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 0 and living standards roses as wages began to increase from 1924
• Loans helped to finance the building of housing, schools, municipal building, roads and public works
• Massive population growth had created a severe housing shortage in Germany by the early 20th century, and the overcrowding and insanitary conditions of working-class city accommodation had been linked to political instability
• As a result of these worsening living conditions being linked with political instability, 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
• The number of strikes in German industry declined in the years 1924 to 1928, partly because of a new system of compulsory arbitration for stelling industrial disputes was issued
• Compulsory arbitration meant that both sides of an industrial dispute agreed to allow an independent figure, known as an arbitrator, to decide on a solution
• However, employers felt that this system was biased in favour of unions and resented the state’s interference in their affairs
• The Weimar republic had already set a maximum of 8 hours for a working day and had given trade unions the right to be part of workers’ councils in factories and mines
• In 1928, a dispute over wages in the iron and steel industry in the Ruhr resulted in the arbitrator granting a small wages increase to the workers
• The employers then refused to pay the increased wages and stopped letting the workers do their jobs for 4 weeks
• In this dispute, the workers were backed by the government and paid by the state
• There were undoubtedly improvements in living standards for ordinary German workers, especially those who were backed by powerful trade unions
• The workers benefitted from increases in the real value of wages in each year after 1924
• In 1927, real wages increased by 9% and, in 1928, they rose by a further 12%

Question 12

limits to the economic recovery

Answer 12

• In a speech given shortly before his death in 1929, Gustav Stresemann warned, “the economic position is only flourishing on the surface. Germany is dancing on a volcano. If the short-term loans are called in, a large section of our economy would collapse”
• Unemployment was a continuing problem during the years between 1924 and 1929
• By the end of 1925, unemployment had reached 1,000,000 and by March 1926, it was over 3,000,000, however it did fall after that
• Unemployment happened due partly to there being more people seeking work, partly to public spending cuts but also to companies reducing their workforces in order to make savings
• The mining companies reduced their work forces by 136,000 between 1922 and 1925, and reduced them by another 56,000 between 1925 and 1929
• The Weimar “economic miracle” did not benefit everyone
• The mittlestand (professional middle class) gained very little from this so-called golden age
• Bankrupted by the hyperinflation of 1923, middle class managers, clerks and bureaucrats did not benefit fully from the improved economic climate
• White collar workers did not enjoy the wage rises of the industrial sector
• By the late 1920s, industrial sector wages had drawn level with those of the middle class and in some cases exceeded them

Question 13

Effects on agriculture

Answer 13

• Farmers gained very little benefit from the economic recovery of these years
• A worldwide agricultural depression kept food prices low and few farmers were able to make profit on their land
• In the late 1920s, income per head in agriculture was 44% below the national average and no one was buying grain at this time which caused farmers too make no money
• As a result of farmers making no money, they became bankrupt and no longer able to pay the mortgages on their farms causing the farmers to lose their land
• During the inflation of the early 1920s, large landowners and farmers borrowed money to buy new machinery and improve their farms however, smaller peasant farmers hoarded money and their savings were wiped out by inflation
• After 1923, the government made it easier for farmers to borrow money, but this made matters worse
• Farmers became burdened with debt at a time when prices were falling and they could not, therefore, keep up with repayments
• The increased taxes introduced to pay for the welfare benefits of the unemployed and sick were regarded as an unfair burden on farmers and landowners
• The governments of these years tried to relieve farmers’ plight by introducing high import tariffs on food products, import controls and subsidies to farmers, but these measures didn’t do enough
• The plight of German farmers worsened due to a global grain surplus and price slump in 1925 and 1926
• By the late 1920s, there was an increase in bankruptcies amongst farmers and many of them lost their lands as the banks demanded repayment loans
• In 1928, farmers initiated a series of small-scale riots, known as the farmers revenge, in protest against foreclosure (taking possession of mortgaged property due to failure to repay the loan) and low market prices
• By 1929, German agricultural production was at less than three quarters of its pre-war levels

Question 14

The reparations and the Young Plan

Answer 14

• The Dawes Plan of 1924 was only ever intended to be a temporary settlement of the reparations issue
• Although the French and Belgians left the Ruhr by 1925, Allied forces remained in occupation of Rhineland and the French would not agree to withdraw these forces until a final settlement of the reparations issue had been agreed
• Therefore, Stresemann, who had continued to serve as Foreign Minister after his own coalition government collapsed, agreed that the issue should be considered by an international committee headed by American businessman Owen Young
• This committee met in Paris in 1929, with Schact as one of Germany’s representatives, and produced a report on the final settlement of the reparations issue
• The Young Plan obliged Germany to continue paying reparations until 1988
• The total reparations bill was considerably reduced with Germany being required to pay £1.8 billion instead of the original £6.6 billion
• However, the annual payment Germany was required to make increased
• All foreign control over reparations was ended so the responsibility was placed solely on the German government
• Britain and France agreed to withdraw all their troops from the Rhineland by June 1930
• Despite containing a number of benefits for Germany, the Young Plan inflamed nationalist opinion in German
• The new leader of the right wing DNVP, Alfred Hugenberg, launched a nationwide campaign against the plan, which involved other conservative groups, including the Nazis
• Hugenberg’s campaign drew up a new law, the “freedom law”, which they demanded should be submitted to a national referendum
• The freedom law required the government to refuse to accept the war guilt clause of the Treaty of Versailles, to demand immediate evacuation if the occupied areas and declared that any minister who signed a treaty that involved acceptance of war guilt would be tried for treason
• Hugenberg’s group launched a petition in support of their “freedom law” and attracted 4,135,000 signatures
• This was enough to ensure that it would be debated by the Reichstag and put to a referendum
• In the Reichstag debate, the freedom law was decisively defeated, and it was also rejected in the referendum
• On the other hand, the fact that 5,825,000 people, 13.8% of the electorate, voted for the freedom law was an indication of the depth of support for right wing nationalism
• Moreover, Adolf Hitler’s leading role in the campaign, which was financed by Hugenberg, enabled him to make a decisive breakthrough as a national political figure