Weimar Early Econ Problems Flashcards
Legacy of the War
The Republic was burdened with a terrible financial legacy. Between 1913 and 1919 Germany’s national debt had risen from 5,000 million marks to 144,000 million marks. Rather than increase taxation, the German government had financed the war through short-term loans and by printing money. Between 1914 and 1919 the value of the mark against the US dollar had fallen from 4.20 marks to 14.00 marks. The situation only grew worse with the coming of peace. Bringing about the control of inflation could only be achieved by increasing taxation and/or cutting government expenditure. Neither option was politically attractive.
Problem of Versailles settlement
• As a result of the First World War, Germany lost most of its merchant shipping and all of its property in Allied territories.
• The Allied blockade, which did not end until the signing of the Versailles Treaty, worsened an already dire food supply situation.
• By the terms of Versailles, Germany lost nearly 15 per cent of its arable land, 75 per cent of its iron ore and 25 per cent of its coal production.
Not surprisingly German manufacturing output was 30 per cent lower in 1919 than in 1914. Moreover, the country had a large trade deficit.
Problem of reparations de
6.6 billion / 18 billion gold marks
Demanded payment of 2 billion gm a year and threatened to occupy Ruhr unless Germany did.
Reparations strategy of G
Despite bitter opposition, a new government led by Joseph Wirth accepted the demands under a policy that became known as fulfilment. By seeking to full the terms, Wirth and his Minister of Reconstruction,
cial Walther Rathenau, sought to demonstrate that the al debt reparation obligations were impossible. They hoped that illion
this would lead to revision of the Allied demands.
Positives of inflation
By printing money, the Republic was able to maintain economic growth.
• The mark’s devaluation against all other currencies meant that German goods were cheap abroad.
Consequently, Germany recovered some of its lost markets overseas.
• The high demand for German goods meant that there was little unemployment. In 1921 only 1.8 per cent of Germans were unemployed: Britain, by contrast, had an unemployment rate of 17 per cent.
• German industrial activity acted as a stimulus for foreign investment.
• Any kind of retrenchment policy would have had dire socio-economic and political consequences.
However, G’s finances were in mess
• The so-called ‘good inflation’ up to 1923 simply led to the ‘bad inflation’ of 1923 (see page 18). Essentially, Germany was living on borrowed time.
• By December 1922 Germany’s national debt had reached 469,000 million marks.
• German efforts to suspend reparation payments in 1922 were rejected by the Allies.
Situation in 23
In 1923 the Republic’s problems reached crisis point with the invasion of the Ruhr, hyperinflation and the
establishment and early years of Weimar
Munich Putsch.
Ruhr crisis
When Germany failed to deliver reparation payments in January 1923, French and Belgium troops occupied the Ruhr, Germany’s industrial heart. The Weimar government ordered the suspension of reparations and supported ‘passive resistance, urging workers in the Ruhr to strike.
Impact of Ruhr crisis
The cost of the Ruhr occupation was huge. The government issued vast quantities of paper banknotes - with the result that the value of the mark collapsed.
• By November 1923 the exchange rate stood at 4.2 billion marks to the dollar.
• Some 200 factories worked full time to produce bank notes.
• In 1919 a loaf of bread cost 1 mark: by late 1923 a loaf cost 100 billion marks.
Winners of hyperinflation
Some groups - landowners, businessmen and homeowners - were able to pay off their debts, mortgages and loans with inflated/worthless money.
Losers of hyperinflation
The losers were:
• the savers, particularly those who had purchased war bonds which became worthless
those living on fixed incomes or welfare support ordinary workers: wage increases did not keep pace with the rate of inflation.
Who were the losers of hyperinflation and econ catastrophe?
The losers were:
• the savers, particularly those who had purchased war bonds which became worthless
those living on fixed incomes or welfare support ordinary workers: wage increases did not keep pace with the rate of inflation.
