Economic upheaval: Rationalization and Inflation (1920-25) HIST2133. The Weimar Republic through Documents, 1918-1933 Economic upheaval: Rationalization and Inflation (1920-25) Lecture 5 21 February 2012

Election to National Assembly, Jan 1919: A two-third majority for SPD, (Catholic) Centre Party, and (left-liberal) DDP = ‘Weimar Coalition’ of pro-democratic & pro-republican 3 parties

1920 Reichstag elections: A disaster for ‘Weimar Coalition’ (SPD, Centre Party, DDP): New government of (Catholic) Centre Party, (left-liberal) DDP and (right-liberal) DVP under Chancellor Fehrenbach: Begin of a long period of instable minority governments in Weimar Republic

Post-war economy (1) Losses through Versailles Peace Treaty: 13% territory with 10% population All colonies: Mandates of League of Nations 9/10 of merchant fleet Armed forces reduced to 100,000 men Prewar export

Post-war economy (2) Pre-war exports markets disappeared Industrial production at all-time low (1919) Millions of demobilized soldiers back on labour market (their jobs kept open) Relatively low unemployment Trend towards larger firms Decline of self-employed

Post-war economy (3) General inflation through war financing Large reparations sums to pay: ↓ Option 1: Raising taxation level But: Economically impossible + socially unacceptable Option 2: Inflating the mark ☺ Dual advantage of overcoming economic crisis + getting rid of old & future debts

Mark inflation (1) → Positive effects for German economy But: Infuriated Allies who insisted on proper pays Ruined wealth of war bonds holders + people with savings or fixed incomes (esp. middle-class civil servants) Caused bankruptcies of professionals + self- employed Left little pensions to masses of professional soldiers who were superfluous in smaller army

Mark inflation (2) ☼ 1914: 1 US$ = 4,20 marks 1919: 14 marks 1922: 191.90 ☻ Hyperinflation propelled by Ruhr Occupation: Jan 1923: 17,972.00 marks Nov 1923: 4,420,000,000,000

Domestic prices are exploding ! Inflation 1914-23 164 billion war debts: War bonds cannot not be paid back Gold needed for war costs: Expansion of bank notes Extremely high debts of German government More bank notes in circulation + equal volume of products = Rise of prices Huge reparation payments to Allied countries Welfare payments to war victims and family members Domestic prices are exploding !

Mark inflation (3) Boom in investment activity due to acquisition of new plants and equipment without any costs → Great fortunes made, for example: Hugo Stinnes († 1924) = Expanded and diversified his coal-mining & shipping industries into Stinnes Concern ► Became most powerful man in German economy + politics → A leader of German People’s Party (DVP) + founder of Deutsche Allgemeine Zeitung

Occupation of the Ruhr (1) Chancellor Cuno’s reparation policy: Reparations only when economically possible for German economy Demanded temporary halts of payments (moratoriums) Asked for large foreign bank loans to stabilize German economy French government Poincarè policy: Demanded ‘No moratoriums without pawns: ‘Politics of productive pawns’ Ruhr regarded as very important economic and military- strategic pawn → Long-term plan of F. to occupy the Ruhr to weaken G. economically and militarily

Occupation of the Ruhr (2) Inter-Allied Reparation Commission declares against resistance of GB members “a delay in German provisions of coal & wood” (9 Jan 1923): → Invasion of 60,000 Fr/B troops into Ruhr area → Call for passive resistance in Ruhr by Chancellor Cuno but partly an active resistance struggle by extreme-Rightists = Huge financial & material supports from German government to the Ruhr (40 million gold marks daily) = Falling tax revenues for G. government = Need to purchase expensive foreign coal

Occupation of the Ruhr (3) Consequences: High inflation and strong drop of mark, 1923 = Socially disastrous counter effects Resistance unsuccessful: Cuno stepped back Passive resistance stopped by ‘Cabinet of the Great Coalition’ (DVP, Centre Party, DDP, SPD) of Chancellor Stresemann Start of fresh negotiations with Allied Powers to save the Ruhr from permanent French occupation

Dawes Plan (1) US initiative named after General Charles C. Dawes (Apr 1924) Hoped for outlet for US excessive gold reserves + new markets for US products Recommend a temporary solution to reparation problem = ☼ Offered a loan of 800 million gold marks + realistic schedule for annual payments

Dawes Plan (2) Germany accepted: a) Railways + Reichsbank removed from own control b) Reparations Commission as controller over G’s financial policy = Begin of ease of tensions between German + Allied Powers = Stronger US engagement in Europe = Temporarily economic relief for German economy = End of Ruhr occupation by F + B ► Start of G’s economic recovery & expansion !

Characteristics of German industry in 1920s Willingness to learn from US experience Introduction of rationalisation of industry Foreign investments (70% from US banks) Founding of big concerns (I.G. Farben: chemical & dyestuff, 1925; Vereinigte Stahlwerke A.G.: steel, 1926)

Germany’s Production 1913-29 Year Hard coal in mill. tons Brown coal in mill. tons Raw steel in mill. tons Electricity in mil. kWh. 1913 190.1 87.2 20.8 - 1923 62.3 118.8 6.3 1926 145.3 139.2 12.3 21,218 1929 163.4 174.5 16.1 30,660