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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

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

9. Domestic prices are exploding !
Inflation
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 !

10. 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

11. 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

12. 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

13. 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

15. 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

16. 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 !

17. 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)

18. 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