Transcript Topic B – Part 1

Topic B – Part 3
Crisis and Survival, 1919 – 1924
Hyperinflation
German economy in 1914
• Possibly most powerful economy in Europe
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Natural resources – coal, iron ore
Industrial base – engineering, chemicals
Well-educated population
Strong banking system
By 1919 – Economic Problems
• Loss of resources – Saar, Alsace-Lorraine, Silesia (16% less
coal, 48% less iron ore)
• Reparations
• Increase in prices
• 1914 - DM 4.2 = $
• 1918 - DM 8.9 = $
• Increased national debt
• 1914 – 5000 million marks
• 1918 – 144,000 million marks
• Reduced exports worldwide
• Collapsed in WW1
• Not recovered by 1919
Causes of hyperinflation
• Perceived causes
• Treaty of Versailles and reparations
• Financial greed
• Corruption of the Jews
• Actual causes
• Huge amount of paper money in circulation – printed by
government
• Three phases
• Long term
• Medium term
• Short term
Long term causes – pre 1919
• Economic policies in war
• Not prepared for long war
• Kaiser did not want to increase taxation
• Instead borrowed money by selling ‘war bonds’
• By 1916 – not sufficient – debt grew
• By end of 1918 – 16% of war expenditure from taxes. 84% was
borrowed
• Lack of consumer goods
• Full employment in war but based on military needs
• Shortage and demand for consumer goods pushed prices up
• If they had won, could have paid debt back in reparations, but instead finances
were ‘an unholy mess’ by 1919 (Volker Berghahn)
Medium term causes – 1919 - 1922
• Defecit financing
• Erzberger (Finance Minister) did not aim to balance the budget
(although he did increase taxation on profits, wealth and income)
• Why defecit?
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Maintain demand – keep jobs
Overcome problems of returning troops - jobs
Cover cost of public spending (welfare)
Reduce real value of debt
• However – allowed inflation to continue
• Reparations
• Contributory factor – not main cause
• Had to be paid in hard currency – government printed more
money – inflation continued
Short term causes – 1922 - 1923
• Germany avoiding paying reparations
• By 1922, had already missed payments
• Genoa Economic Conference – July 1922
• Germany asked for a ‘holiday’ from reparations
• French occupation of the Ruhr
• December 1922 – Reparations Commission declared Germany in
default
• Poincaré ordered French and Belgian troops to occupy the Ruhr
French and Belgian troops entering
the Ruhr
Short term causes – 1922 - 1923
• ‘Passive resistance’
• Cuno – chancellor - urged workers to go on strike and not
cooperate with French authorities
• He continued to pay wages – printed money
• Government lost taxes from Ruhr
• French prevented delivery of coal – relied on imports
• Finances collapsed – more expensive to print a bank note than
the note was worth
Summary of Main Causes
• Mismanagement of German finances from 1914
• Inflation did not increase evenly (slight recovery in spring 1920
and winter 1920 – 21) but the governments were never willing to
reduce spending and borrowing
• Until 1918
• Cost of war – excuse
• 1914 – 1922
• Some argue inflation was modest and acceptable
• Reparations in 1921 added to an already desperate situation
• More convenient to print money than tackle problems
Summary of Main Causes
• End 1922
• Hyperinflation in place – Cuno’s government did not try to fix it
• He possibly even exaccerbated it playing on nationalism by
encouraging ‘passive resistance’
Winners of hyperinflation
• Businessmen and homeowners
• Pay debt, mortgages, loans etc. with inflated an worthless money
• Bought up property
• Made gains from buying from financially desparate
• Borrowed cheaply and invested in industrial enterprises
• Eg. Hugo Stinnes – by end of 1923 – controlled 20% of German
industry
• Exporters
• Sales to foreign countries attractive
• German state
• Large parts of debt paid off in valueless money
Losers of hyperinflation
• Middle class
• Traditionally seen as most damaged
• 1927 – Stresemann mentioned it
• 1930s – voted for Nazis because of it
• Recent historians
• Complex view – effects on society in general
• People with savings
• Those with bank accounts with interest rates found value eroded
• Millions who invested in war bonds lost their money
• Fixed incomes
• Pensioners – lost value – increase wiped out by inflation
• Recipients of welfare
• Depended on charity or state. Payments behind inflation rate.
Human Consequences
• Not as straight forward as previously thought – broad categories. Eg. Region,
age. Some people from same class were affected differently depending on
circumstances
• Peasants
• Coped quite well – food still in demand
• Self-sufficient so less reliant on money
• ‘Mittelstand’
• Shopkeepers and craftsmen – good business
• Exploited market
• Industrial workers
• Real wages and living standards improved until 1922
• 1923 – trade unions could not negotiate – wages did not keep up with inflation –
decline
• Fewer savings – not so bad
• Unemployment up to 4.1% in 1923 (pretty low)
Human Consequences
• Civil servants
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Income fell in 1914 – 1920
Gains in 1921 – 1922
Suffered in 1923 – fixed salaries
Gained if buying property or mortgage
Many had bought ‘war bonds’
• Retired
• Suffered badly
• Depended on savings and pensions
• Businessmen
• Did quite well – bought up property and paid off mortgages
• Benefitted if made sales to foreign countries – exchange rate
good
Social Effects of hyperinflation
• Health problems
• Mortality rate fell in 1920 – 21, rose again in 1921 – 22, from 12.6
to 13.4 per thousand
• Oedema reappearing
• ‘war dropsey’ – result of bad and overly watery diet
• Stomach disorders and food poisoning – spoiled foods
• Scurvy – unbalanced and improper diet
• Death from ‘old age’ or ‘weakness’ – same as hunger
• Behavioural problems
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Decline in law and order
Increase in crime
Decline in ‘morality’ – eg. More prostitution
Growth in suicides
Increase in prejudice – find scapegoats (eg. Jews)
Social effects of hyperinflation
• Lack of faith in republican system
• Due to social problems
• Difficult to judge, but may have casued psychological damage
that continued to affect Republic for years
Problems facing Weimar Republic in
1923
• German currency collapsed – hyperinflation
• French and Belgian troops occupying Ruhr
• German government no clear policy on occupation except
‘passive resistance’
• Left-wing disturbances
• Saxony – creation of SPD/KPD regional state government –
attempted Communist uprising
• Ultra-conservative state government in Bavaria defying
national government – result – Munich putsch
• BUT – calm returned just a few months later
• Peukert – 1923 shows ‘there are no entirely hopeless situations in
history’
Stresemann
• Stresemann was appointed in August 1923
• Cuno (chancellor in summer 1923) let things slide
• Prepared to make difficult decisions
• Coalition of DVP, DDP, ZP and SPD
What Stresemann did
• ‘passive resistance’
• He called it off
• Promised to resume reparations payments
• Needed sympathy from France
• Cut expenditure
• Finance Minister – Hans Luther
• Cut sharply to cover defecit – over 700,000 public employees
sacked
• Appointed new financial expert
• Hjalmar Schacht – to oversee introduction of new currency
• December 1923 – trillions of gold marks replaced by Rentenmark
What Stresemann did
• Sympathy from Allies
• Due to ‘miracle of the Reichsmark and concilliatory policies
• Dawes Committee established
• Dawes Plan written up in Aprul 1924 – did not reduce overall
reparations but fixed payments for next five years so Germany
could afford to pay
• Defeated extremists of left and right
• Munich putsch etc.
The survival of Weimar
• Why did the republic not collapse as it would in the early 30s?
• Popular anger towards French and Allies, rather than republic
itself
• Workers did not suffer from mass unemployment as in the 1930s
• Employers showed less hostility to republic than at the beginning
of depression in 1930s
• Some businessmen did very well out of inflation – tolerant of
republic
• No obvious political alternative to Weimar
• Extreme left still divided
• Extreme right not yet strong enough
• Kapp putsch showed dangers of taking hasty action