Germany: Economic Developments

Question 1

Financing WWI

Answer 1

. Didn’t impose new taxes, issued treasury bills (short term) and borrowed heavily ‘war loans’ w interest
. Gov put more money in circulation to ensure supply
. Victory should let gov pay back what it borrowed

Question 2

Wartime Economy

Answer 2

. Circulation of paper money: 200mil marks worth 1923 to 45,000mil in 1919
. National Debt: 5000mil-144,000mil marks
. Value of currency fell as productivity fell: 1919 worth less than 20% of prewar value
. Price of basic foodstuffs + consumer goods tripled or more, prices of goods in short supply grew even more rapidly on Black Market

Question 3

Defeat after WWI

Answer 3

. Ended hopes of repaying debts from annexes + loans
. Land and colonies lost, reparations from Russia after March 1918 ceased, Saar coal mines given to French
. 90% of merchant fleet given to Allies
. Despite defeat gov borrowing continued
. Currency not devalued (fear political repercussions)
. Need capital to rebuild industry, re-start trade, post war demands for pensions + benefits, maintain pay

Question 4

Post-War economy

Answer 4

. Post-war inflation economically wise, stimulated
. Unemployment 1.8% 1921 vs 17% in UK
. Encouraged investment from USA 1920-22
. Prices doubled 1918-19, quadrupled 1919-20, 14 times higher than had been in 1913

Question 5

1920 Coalition

Answer 5

. Dominated by Zentrum: powerful industrialists
. Elites benefitted from inflation, took short term loans
. Could repay w inflated currency
. Seemingly generous wage agreements could be paid w worthless money
. Inflation lessened gov’s burden of debt
. Politicians had interest in allowing inflation to go on unchecked: hope it may convince Allies that reparations were too great
. Patriotic duty to avoid taxes: fuelled inflation

Question 6

Reparations

Answer 6

. May 1921: Allies estimated they’d received 2.6bil gold marks’ worth of goods (entire merchant fleet, 5000 railway locomotives, 100,000+ each of railway wagons, horses, cattle, agricultural machines)
. Saar coalfields worth 2.5bil Marks
. Germans claimed to have made payments of around 37bil Marks

Question 7

Walther Rathenau

Answer 7

. Minister of Reconstruction 1921: tried to cooperate w Allies, hoping he’d win sympathy
. Thought Allies would revise reparations
. Policy of ‘fulfilment’ encouraged politicians to leave economy alone
. Paid first instalment (£50mil) end of May 1921
. Jan ‘23: Germans fell behind so French invaded Ruhr

Question 8

Ruhr Occupation worsening Economy

Answer 8

. Paying wages of strikers further drained gov money
. Tax rev lost from business that ceased + from workers who became unemployed
. Had to import coal + pay for it w limited foreign currency reserves
. Goods shortages pushed prices up further
. International confidence in Mark value collapsed

Question 9

Impact of Ruhr - inflation

Answer 9

. Exceeded 100% for most of 1920, dropped in first half of 1921, rose sharply
. July 1922: monthly rate of inflation passed 50% for first time - hyperinflation
. By Nov 1923: currency worthless
. 300 paper mills + 2000 printers working day + night to produce enough money
. Workers paid daily/twice daily as prices rose by hr
. Serious food shortages, farmers not prepared to sell for worthless money

Question 10

Schacht

Answer 10

. Nov 1923: intro’d Rentenmark, 1 = 1tril Marks
- New currency backed by land + industrial resources
- Its supply was strictly limited, made safe
. As leader of Reichsbank adopted range of fiscal measures to reduce inflation + balance expenditure against income

Question 11

Government

Answer 11

. Stopped offering credits to industry
. Lending rates controlled
. New taxes on individuals + companies intro’d, so reducing spending power
. This enabled gov to reinvest larger proportion of nation’s wealth: eg gov-operated post office + railways formed own banks in which they built up capital needed for investment

Question 12

Result of economic changes

Answer 12

. Economy grew rapidly 1924-5
. Prudently run companies prospered, those that relied on cheap credit crumbled
. No. of bankrupt companies: 233 in ‘23 to 6000+ ‘24
. Faith in Reichsbank returned
. Old inflated marks gradually cashed in + Aug 1924: Rentenmark became Reichsmark: backed by German gold reserve, had to be maintained at 30% of value of Reichsmark in circulation
. Inflation ceased to be a problem

Question 13

Dawes Plan 1924

Answer 13

. Reparations same amount but annual payments reduced
. Germany should pay 100mil Marks immediately, then 2500mil Marks annually for 5yrs, then the sum would be related to industrial performance
. Large loan of 800mil Marks from USA to help get Plan started + invest in infrastructure
. Reorganise Reichsbank + establish new currency
. Any sanctions for non-payment of reparations would be taken after consultation between Allies

Question 14

Benefits of Dawes Plan

Answer 14

. Allies accepted Germany was struggling w payments
. 25.5bil Marks in loans from 1924-30 helped provide new machinery, factories, houses + jobs
. Evacuation of Ruhr and better relations with France
. Renewed financial confidence + optimism in Germany

Question 15

Dawes Plan - economy

Answer 15

. Inflation below 0 in 1926, but unemployment 20%+
. Growth picked up in 1927, ‘28 another poor year
. By late 1920s effectively rehabilitated in Europe + Stresemann asked Americans to re-examine reparations in Feb 1929
. USA reconsidered under chairmanship of Owen Young

Question 16

The Young Plan

Answer 16

. Aug 1929: reduced total reparations bill by 75%
. Reduced annual payments by extending period of payments to 59yrs, ended Allied supervision of German banking, + provided for deferment of payment in times of economic hardship
. Severely criticised by right wing politicians eg Hitler
. Schacht also disagreed and resigned over it
. Opposition forced referendum on it but failed

Question 17

Industrial Growth - Walther Rathenau

Answer 17

. As a leading businessman, took charge of organisation + supply as head of War Materials Section of Prussian War Office
. Cooperated w industrialists to form 200 war materials corporations, financed by gov + used to requisition or buy raw materials for making armaments + equipment

Question 18

Industrial Growth - A Central Purchasing Company

Answer 18

. Set up to maintain trade w neutral countries - although built up debt due to limited export potential
. Pre-war had relied heavily on imports, so war gave new importance to scientists + technicians, who were employed to develop ‘ersatz’/substitute materials to provide greater self-sufficiency - v successful

Question 19

Industrial Growth

Answer 19

. Creation of large industrial complexes, combining several firms, + emphasis on new technical processes provided basis for post-war industrial development
. From 1916 industry + agriculture suffered from British blockade + demands of conscription
. By 1919: industrial prod was a bit over a third of what it had been in 1913
. Loss of land, materials + plants from Treaty worsened

Question 20

Post-war Growth

Answer 20

. Rapid growth 1920-22, sharp decline in 1923
. Growth again, output was pre-war levels in 1927 + exceeded them in 1928-29
. 1924-9: ‘golden years’ of Weimar Republic
. Fall in prod. 1928-9, capital investment fell back
. 1913-29: economy grew by just 4%, US 70%
. Unemployment never fell below 1.3mil by Feb 1929

Question 21

Key Developments - Cartels

Answer 21

. To recapture lost markets + raise profits, industrialists ‘rationalised’ their plants - got rid of surplus labour, intro new tech, adopt new management + prod. techniques + forming Cartels - by 1925 around 3000 cartel arrangements in operation

Question 22

Key Developments - heavy industry

Answer 22

. Made some recovery, although loss of resources evident
. By 1927: coal prod. 79% of pre 1913 level, pig iron 68% + steel 86%
. Increase in productivity
. Output of blast furnaces trebled
. Vereinigte Stahlwerke, formed 1926, linked coal, iron + steel interests of Thyssen, Stinnes, Phoenix + Otto Wolf groups:
- Controlled 40-50% of total iron + steel prod, 36% of coal prod.

Question 23

Key Developments - Chemical industry

Answer 23

. Advances made, often result of wartime research
. Eg large scale production of artificial fertilisers at the Leuna works near Merseburg, + the formation of I G Farbenindustrie 1925 from a no. of major chemical companies that worked together during war years
. Its interests ranged from dye-stuffs + rayon to dynamite + nitrogen

Question 24

Key Developments - Electrical industry

Answer 24

. Continued its pre war expansion, with Siemens having a virtual monopoly
. They produced electric lighting and radios, the development of which had been accelerated by military demands in the war years

Question 25

Key Developments

Answer 25

. Shipping + cement expanded under Wiking Konzern, another large cartel
. Car + aeroplane industries expanded, although this was a luxury market + cars remained too expensive for average German
. Smaller industries performed less well, as they had less access to capital + restricted markets

Question 26

Agriculture - recovery

Answer 26

. Failed to make same recovery as industry post-war
. Faced challenge of foreign imports + low prices caused by worldwide over production
. Yields remained low + incomes rose only slowly
. In 1919, more than 20% of cultivated land belonged to less than 1% of landowners

Question 27

Agriculture - Reich Resettlement Law

Answer 27

. 1919: made provision for large estates to be redistributed among smaller farmers
. By 1928 only half a mil hectares had been released, due to right-wing opposition in Reichstag
. So only 3% of small-scale farmers had benefited
. Landowners struggling to maintain traditional lifestyle in face of falling prices, squeezed tenants hard
. 1927-8: farmers getting little in return on cost of running farms, yet faced high tax demands + rents or interest payments on mortgages

Question 28

German Economy by 1929

Answer 28

. Relied on foreign credit - USA loans under Dawes Plan, vulnerable to recession in world markets
. Improvements weren’t universal: erratic rate of growth, by 1920s economy slowing down. Small businesses + agriculture didn’t benefit from ‘boom’
. Welfare state developments overstrained resources + pensions burden = huge demands on state finance. Late 1920s, internal investment below pre-war levels, wages rose fast bc trade unions
. 1926: balance of trade moved into deficit