Economical Condition of Germany from 1919 to 1929

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How accurate is it to say that the years 1919 to 1929 were a period of economic disruption followed a period of stability and consolidation?

To some extent it is accurate to say that the years 1919 to 1929 were a period of economic disruption riddled with debt and hyperinflation as a result from government printing more money and a period of stability and consolidation from relief by loans given to Germany by the USA. Some key events that occurred between the years 1919-1929 is proof that Germany had a myriad of monetary problems before experiencing stability.

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The invasion of the Ruhr in 1923, as a consequence for the Weimar Republic’s failure to pay reparations forced France and Belgium to initiate the invasion of the Ruhr- it was Germany’s most important region as it contained an abundance of natural resources such as coal, iron ore and limestone which enabled the iron and steel industry to develop in the Ruhr. Thus, as a failure to pay reparations in money, some of the payments were in industrial raw materials such as coal and timber. German factories were unable to function, and the German economy suffered, further damaging the country’s ability to pay.

Moreover, the occupation of the Ruhr led to a collapse of the German economy. There was massive inflation and large increase in unemployment. Germany was now unable to pay any reparations. Passive resistance by the Ruhr workers meant that Germany had to rely on printing more money to pay them, resulting in hyperinflation and a near economic collapse of Germany In early 1923 German workers embarked on a prolonged general strike, a protest against the Ruhr occupation. The Weimar government decided to subsidise this strike, a decision that had a devastating impact on Germany’s already depleted economy. The ministry ordered increased print runs of banknotes, hoping to stimulate the economy and pay striking industrial workers in the Ruhr. Government economists understood the dangers of flooding the economy with paper money; it was intended as a temporary measure rather than a long-term policy. But as the French occupation continued into the summer and autumn of 1923, the government could find no alternative way to address the crisis. Berlin continued to pump paper money into the German economy, an approach that devalued banknotes and gave rise to the hyperinflation of late 1923. The effects of hyperinflation on German economy were disruptive for many and utterly disastrous for some.

The Wall Street crash in 1929 and the impact of the Great Depression was economically severe in Germany, which had enjoyed five years of artificial prosperity, propped up by American loans and goodwill. Unemployment hit millions of Germans, as companies shut down or downsized. Others lost their savings as banks folded. Economic disorder was enormous. Germans were not so much reliant on production or exports as they were on American loans, which had sustained the Weimar economy since 1924. These loans ceased in late 1929, while many American financiers began to call in outstanding foreign loans. The German economy was not resilient enough to withstand significant withdrawals of cash and capital. Banks struggled to provide money and credit, and consumers lost confidence in them.

German industrialists had enjoyed prosperous times in the mid- to late-1920s, thanks to foreign loans and investment. But by the early 1930s there was little demand for their products, while capital and credit were almost impossible to obtain. To compound the problem, the United States – at that point the largest purchaser of German industrial exports – put up tariff barriers to protect its own companies. German manufacturers consequently endured a sharp downturn in export sales. Many factories and industries either closed or downsized dramatically. By 1932, German industrial production had fallen to just 58 per cent of its 1928 levels. The effect of this decline was growing unemployment. By the end of 1929 around 1.5 million Germans were without a job; within a year this figure had more than doubled; and by early 1933 a staggering 6 million (26 per cent) were out of work.

However, it may not be accurate to say that Germany experienced many economic problems before a brief period of stability and consolidation could also be untrue because the abolition of the paper mark and introduction of the rentenmark restored confidence in the German economy. They called off the strike, persuaded the French to leave the Ruhr and even got the rest of the world to allow Germany to join the League of Nations in 1926 which would help Germany economically as other countries would establish good trade relationships.

In 1923, Gustav Stressman had gotten rid of the worthless old deutschmark and introduced the rentenmark, a temporary currency, which had stabilised the economic situation of Germany. Furthermore, He also persuaded the French to pull back from the Ruhr in return for a promise that reparations payments would resume. This was part of his larger strategy of “fulfilment.” He had come to believe that as harsh as the Treaty of Versailles was, Germany would never win relief from its terms unless it made a good-faith effort to fulfil them. To his mind, this would convince the Allies that the reparations bill was truly beyond Germany’s capacity. The effort paid off; the Allies began to take a look at reforming the reparations scheme. And the financial situation in Germany had improved but hadn’t stabilised completely.

The Dawes and Young plan had further brought a period of stability in 1924-29, also referred to as the golden years of Weimar Germany; the 1924 Dawes Plan re-structured the 1919 reparations figure and the Young Plan reduced payments further.

The Dawes plan had some main points of in their effort to re-float Weimar Germany’s economy.

The first major decision was that the Ruhr was to be returned to the full control of the Germans and that French and Belgian troops would pull out of the region as soon as was possible. The whole industrial zone had been wracked by passive resistance, which had led to Germany’s most important economic zone simply not working and producing the money it should have been producing. By removing French and Belgian troops from the Ruhr, the Dawes Plan had at a stroke removed the most grievous issue in the area.

Secondly, reparation payments were restructured to make them more ‘German friendly’. In the first year of repayment after the Dawes Plan, the maximum expected to be paid by the Allies was 1 billion marks. During this time, it was hoped and expected that Germany’s economy would pick up. Therefore it was decided that subsequent payments after the first year would be 2.5 billion marks.

A third decision to come out of the Dawes Plan was the restructuring of Weimar’s national bank, the Reichsbank, which would be supervised by the Allies. While this may have been interpreted as direct interference by outside powers, it was not an issue and the Weimar government accepted the terms of the Dawes Plan in September 1924.

The Dawes plan had helped Germany to recover economically; the Dawes plan had resolved all of their issues on hyperinflation caused by the worthless currency, the Ruhr back to Germany and though the financial situation may have been dire in 1923and early 1924, it improved and Germany’s economic position steadily rose. In 1924, the Dawes Plan had been introduced to bring Weimar out of hyperinflation and to stabilise its economy. It appeared to have succeeded as 1924 to mid-1929 are viewed by historians as Weimar’s ‘golden years’.

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