Economic Development and Policies

Economic Development and Policies 1918-89

In 1918 the German economy was in lots of trouble. The government had spent all of their gold reserves on the war, and were beginning to print more money. In June 1914, there were over 6,300 million marks in circulation; by December 1918 it had increased to just over 33,000 million. Severe inflation began to emerge. Wages and savings lost value .

Trade all over Europe had been affected by the war, which meant people lost their jobs. Farm production had dropped by 20% during the war, and industrial output had almost halved. The loss of both agricultural and industrial land as a result of the Treaty of Versailles slowed the economy.

Soon after the war, with the strikes, political unrest and the changes of government, the economy spiralled out of control

1918-23 was a period of rising inflation in Germany. The cost of everything increased with alarming speed. Wages, savings and employment were also badly affected. Between 1918-23, the economic downturn, the ending of war production and soldiers leaving the army drove up the number of unemployed and many employers reduced wages. This led to pensions dropping.

The government knew they had to do something.

After the war the government set up retraining schemes for those who had fought in the war, and it provided loans to help those leaving the army until they could find work.

It also set up pension payments for the wounded, widows and orphans. The Weimar government was a liberal one and so made the effort to try and support their people.

There were a variety of social welfare programmes for different groups. By 1920 there were an estimated 1,537,000 disabled veterans and 1,945,000 survivors not classed as disabled. The government looked after them with lump sum payments and pensions.

By 1924, the government was still supporting about 768,000 disabled veterans, 420,000 war widows with 1,020,000 children and 190,000 parents of dead soldiers. Around 10% of the population were receiving federal welfare payments. All of these payments had to be made by a government that had to go into debt to make them.

The government had borrowed a lot of money during the war and by 1918, it owed about 150 billion marks. As well as this, the reparations laid down by the Treaty of Versailles pushed the government into even more debt. Germany struggled to repay everything, and the Allies felt Germany was deliberately trying to avoid any payments at all. They argued that the German economy had problems, but so did other European countries. Until 1924, Germany paid reparations in kind, for example wood and coal.

In January 1923 Germany failed to pay its full reparation payment. When Germany fell behind in 1921, the London Ultimatum of the Allies said that payments should be met or the Allies would occupy the Ruhr. The Ruhr was vital to the German economy because of its coal and industries based there. In 1923, with the help of Belgian troops, France took over the Ruhr. The German government instantly cut off all payments to France and told all German officials not to accept orders from non-Germans, and urged the workers in the Ruhr to passive resistance, for example through working slowly, strikes and sabotage.

The French retaliated by cutting the Ruhr off from the rest of Germany by setting up a border controlled by armed forces. They also took control of the postal and telegraph services. They then tried to solve the problems of worker resistance by using force or bringing in their own workers. In 1923, Germany called for a stop to passive resistance tactics and began negotiations with the French.

The crisis in the Ruhr led to hyperinflation. A newspaper that once cost one mark in May 1922 cost 700 billion marks by the November. People lost faith in money and began to rely on the black market. The government began to cut back on staff, and the only people who could afford to still buy things were the rich. All those on fixed payments suffered as these payments lost their value.

In August 1923 the crisis was at its worst. The new coalition government (with Gustav Stresemann as chancellor) benefited from the Emergancy Decree of August 10th. It gave the government powers that included postponing Reichstag meetings and governing by decree. This government only lasted until November 1923, but Stresemann was asked to serve as foreign minister in the next government.

Stresemann withdrew the almost pointless mark, and temporarily replaced it with the Rentenmark in October 1923. People who had savings objected to this as the Rentenmark had a very low value compared to the mark.

The Dawes Plan and the Young Plan made reparations more manageable and provided loans to rebuild the economy. Stresemann's other foreign policy moves made Germany an acceptable foreign power again, so other countries were more happy to lend Germany money and make trade agreements.

The government also helped businesses to make changes that made them more efficient and profitable. The surviving big businesses began to form cartels whose fixed prices helped to stabilise the economy. By 1925, the chemical industry was producing 1/3 more than in 1913. However, there were significant levels of dispute between business owners and workers all through the Weimar period, with workers pressing for better working conditions and owners trying to cut wages and extend hours. Strikes were common.

It was difficult for Germany to establish trade links, especially with Britain and France. There was a shift in trade worldwide that led to countries introducing tariffs on foreign goods. Germany suffered from heavier tariffs because of their part in the war. However, Germany was producing steel and chemicals that other countries needed. With Germany's admission to the League of Nations, German exports were 34% higher than in 1913.

About 1/4 of workers were agricultural workers. Like the businesses, the bigger farms managed better than the smaller ones as they could invest in new machinery and farming techniques. Many small farmers were heavily in debt and could not afford to pay the interest on their loans. Big landowners had political influence that enabled them to block farming reforms where they did not work in their interest. The influence of the wealthy landowners also allowed them to press for high grain subsidies that benefited those with big farms.

The new economy was built on foreign loans. As well as borrowing a lot, the government spent a lot. It subsidised industry and spent heavily on social welfare. It funded this by borrowing and taxation. In 1913, the lowest tax band was made up of 47% of taxpayers; this hit 55% in 1928. The government had to borrow money as they couldn't raise taxes. Another problem was that industrial expansion and production was damaged by by the constant disputes between businesses and workers, which affected productivity and drove wages up unti 1930.

Industrial production fell. By the end of 1932 it was about half its 1928 levels. Unemployment rose in the same period and wages fell by 20-30%. However, as prices fell wages only fell by 14%. The government failed to cope with the Depression because it could not make decisions and act quickly. The coalition collapsed and was replaced in 1930 by one led by Chancellor Brüning, who suggested cuts in government spending, wage cuts and higher tax. These policies were put into place in July 1930.

Brüning's policies brought deflation but avoided devaluing the currency. On 1st July 1931 the Hoover Moratorium suspended the need for Germany to pay back loans for a year.

The First World War brought severe shortages to Germany. Allied blockades of ports stopped supplies getting into the country. Infant mortality was high due to the poor health of mothers. The Weimar government provided benefits for the poorest, regulated pensions and tried to cope with the large number of people who had been dependent on those who died in the war. However, as inflation decreased, the standard of living dropped dramatically. Many people ended up doing badly paid jobs with long hours and women had to take home based work.

Many families were living in cramped spaces with shared washing facilities. Many skilled workers risked unemployment and so ended up spending all their savings and having to claim benefit. Many men lost their jobs. Some fairly small businesses managed to scrape by but many did not and ended up losing their businesses and sometimes houses.

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Economic Development and Policies 1918-89

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