Economic Issues Flashcards
When does inflation become hyperinflation?
When prices of services and goods rise more than 50% each month
What was Germany’s miscalculated wartime strategy with money?
• Increased borrowing - debt grew
• Printed more money - value of currency fell
Why did Germany have a miscalculated wartime strategy with money?
They believed they would win the war and simply gain all money back by annexing the industrial areas of defeated enemies and reparations
How much debt was the new government in?
1.44 billion marks
What are the two ways to solve debt?
• Rise in taxes
• Cut down spending
Why would a rise in taxation be a problem?
It would risk alienating support for the new Republic and anti-republican parties could claim that taxes were being raised to pay reparations to Allies
Why would cutting down on spending be a problem?
It would be difficult as there were civil servants to be paid and social welfare increased due to war and constitution
What were 3 benefits for the government of the inflation?
• Had the effect of lessening the Government’s burden of debt
• Unemployment lowered
• Investment increased
How long did the German Government have to agree to the terms of reparations?
6 days
Which cabinet resigned and why? Which cabinet replaced and signed the terms?
• Cabinet of Fehrenbach resigned in protest
• Replaced by Cabinet of Joseph Wirth, signed unwillingly due to no alternative
What was the issue with part of reparations being expected in coal?
The Treaty took away most of Germany’s coal reserves
What was the issues with paying with foreign currency?
• Needed to pay for the foreign currency to then pay with it for reparations
• The Treaty confiscated Germany’s merchant fleet
Why was Germany not allowed to pay with manufactored goods?
Workers and manufactorers in other countries viewed it as a threat to their jobs/business
What did the Reparations commission do in January 1922 due to Germany’s economic difficulties?
Granted a postponement of January and February installments of the reparations
What happened in July 1922
The German government requested another suspension of payments due that year
What happened in November 1922?
• Germany asked for a loan of 500 million gold marks + a release from obligations for 3-4 years in order to stabilise economy
• France was suspicious and refused
What happened by the end of 1922?
Germany had fallen far behind in its payments of reparations to the French in the form of coal
What happened in January 1923?
France and Belgium sent military to occupy the Ruhr (60 000 men which increased to 100 000 through 1923)
What was the unemployment rate in Germany, what did this mean for social welfare?
1.8% - meant less benefits needed to be paid
Why did the new government not make unpopular decisions that would solve debt?
Lacked political capital
What Treaty did Germany charge Russia harsh reparations within and what year was it signed?
Treaty of Brest-Litovsk, 1918
What was Chancellor Cuno’s passive resistance response to the Franco-Belgium invasion of the Ruhr?
Workers of the Ruhr to go on strike with pay
What were the negatives of Cuno’s passive resistance plan?
• Have to pay welfare to strikers
• Strikers not producing anything to sell or use
• Damage relations with France and Belgium further
• Tensions high between occupants and German people of the Ruhr
How did France respond to Chancellor Cuno’s passive resistance in the Ruhr?
• 130 civillians killed by French army due to trying to sabotage the factories
• France brought its own workers to work in factories
• France sent 70 000 soldiers into the Ruhr
What was the economic impact on Germany due to the Ruhr invasion?
• All mines, factories, steelworks and railways occupied in the Ruhr -unable to trade or sell
• French troops demanded free food from the shops
• Paying wages and providing goods for striking workers
• Tax revenue was lost from the businesses that were closed and workers became unemployed
• Import coal and pay for importing coal
• Shortage of goods pushed prices up further
What did speculators do at the beginning of hyperinflation?
Bought it in bulk and hoarded it in anticipation
How did hyperinflation lead to a breakdown in Law and Order?
• Food shortage
• Food riots where crowds looted shops
• Gangs travelled to countrysides to take food from farms
• Large increase in convictions of theft
How much was a loaf of bread worth before hyperinflation and during?
Before: 0.5 marks
In November 1923: 201 billion marks
How did pensioners and war widows lose out during hyperinflation?
They were living on state pensions which had been reduced
How did the Mittelstand (Artisians and small business owners) lose out during hyperinflation?
• Their costs rose (unable to buy more stock/supplies)
• Prices they charged could not keep up with inflation
• Paid a disproportionate share of taxes
How did the sick lose out in hyperinflation?
•Cost of medical care increased
•Rapid rise in food prices led to widespread malnutrition
•Death rates in large cities increased
•Suicide rate increased
How did children suffer in hyperinflation?
•Malnutrition
•Cases of tuberculosis and rickets increased
How did workers suffer in hyperinflation?
•Unskilled workers and those not in trade unions got hit worst
•Wage increases did not keep up with rising prices - standards of living declined
•Increase in unemployment and short time working
By the end of 1923, how much of Germany’s workforce was fully employed?
29.3%
How did black marketers win in hyperinflation?
•Bought up food stocks and sold them at a vastly increasing price
Who was Hugo Stinnes?
•He was the owner of substantial businesses (German-Luxemburg mining company and the Rhine-Westphalian Electric company)
•Deputy of the DVP (German people’s party) in Reichstag
How did Hugo Stinnes win during hyperinflation?
•Able to raise large bank loans in 1923
- Bought whole forrests to supply lumber to his mines
•Built an empire of 150 newspapers and magazines and interests in railways and banks
