Success of the Weimar Republic's Response to Economic Challenges (1918-32) - Part 1 Amy greed

A German worker carries home his daily wages in a wheelbarrow.

Economic Crises and Government Response, 1918-1923

At the end of the war in 1918, the Germany economy was badly hit with post-war problems such as hyperinflation and the Ruhr crisis, social problems such as the amount of widowers and orphans in Germany, and a downfall in national income (about 1/3 of what it was in 1913) and industrial production (about 2/3 of what it was in 1913). These economic issues caused a lot of problems for Germany.

Social Welfare

The government set up retraining schemes for those who fought in the war, and gave ex-soldiers loans until work was found. As well as this, the federal government and the Länder both provided lots of social welfare in the form of lump sum payments and pensions for different groups in German society, and the number of people receiving this support was still very high in 1924; such as 768,000 disabled veterans, 420,000 widows with 1,020,000 children, and 190,000 parents of dead soldiers. Because so many people in Germany (about 10% of the population) were being supported by federal welfare payments, and many more were on regional poor relief, the government providing these loans went further and further into debt.

Debt and Reparations

After the war, the government's heavy dependence on borrowed money during their fighting years, as well as the massive amount of reparations that they had to pay due to the Treaty of Versailles, put the government in deep debt. They tried to carry on borrowing and printing money, but by 1921 the German government had a plethora of negotiations with the Allies in terms of their loan and reparations payments - they were in such a bad position that countries such as France believed that they were trying to avoid paying their loans and reparations. Germany paid in kind (e.g. coal, wood and other goods) until 1924.

The Ruhr

When it was clear that Germany were not doing well with their payments in 1921, the London Ultimatum of the Allies was decided upon - that unless the payments were met, the Allies would occupy the Ruhr (vital to the German economy because of the natural resources and industries based there). In January 1923, when Germany failed to deliver their payments in full, French and Belgian troops quickly ran out of patience with Germany and invaded the Ruhr. The German government retaliated by halting paying off their reparations and loans to France, telling all German officials not to accept orders from any non-Germans, and pushing for passive resistance from workers in the Ruhr. The French struck back by creating an armed border to cut off the Ruhr from the rest of Germany, occupying the postal and telegraph services there and trying to bring in their own workers to solve the German passive resistance problem. Neither Frace nor Germany benefitted from this situation, and in 1923 Germany's new coalition government stopped passive resistance and began negotiations with the French.

French soliders in the Ruhr (1923).

In 1923, reports were published depicting the behaviour of the Ruhr occupiers, based on 90 testimonies made under oath and supported with photographic evidence. It showed that the French and Belgian troops treated Germans in the Ruhr extremely harshly, committing murder and rape and providing inadequate living conditions with hardly any shelter and food. This meant that German distrust was diverted from their own government towards the occupiers.

Hyperinflation

The Ruhrkampf ("Ruhr struggle") soon led to hyperinflation. Prices were flying up - for example, a newspaper that cost 1 mark on the 1 May 1922 cost 100,000 marks by 1 September 1923 and 700 billion marks by 17 November that same year - and people lost their hope in the currency, beginning instead to barter and rely on the black market. The black market became so popular that they could not provide for everyone, and so raised prices so that only the rich could afford to 'buy' on it. The black market, therefore, made huge profits. Towns, regions and businesses also began to issue their own Notgeld ("emergency money"), and the government tried to make the situation better by cutting 750,000 federal and regional government employees from their staff. Social welfare payments and other fixed payments also lost their value, which meant that widows, orphans and wounded ex-soldiers were suffering. Hyperinflation hit both rich and poor families, and people who kept their savings in banks were hit very hard, due to having lost the value of their money.

A man uses German bank notes as wallpaper due to their worthlessness (1923).

A Change of Government

After the government collapsed in August 1923 due to the heightened stress of the hyperinflation crisis, a new coalition government was formed for the Weimar Republic, with Gustav Stresemann of the DVP as chancellor. The new coalition used the Emergency Decree from 10 August 1923 to give them the power to postpone Reichstag meetings and governing by decree if necessary. This was very effective, as using decrees allowed the government to act rapidly and more decisively than other coalitions due to not having to negotiate among the various members.

Policies for Recovery, 1924-1928

Making Money Work

Stresemann withdrew the worthless mark and implemented a new temporary currency, the Rentenmark, into the economy in October 1923, and the various forms of 'emergency money' were banned. The currency settled the economy and gave hope to the German people, who exchanged their hoarded foreign currency and emergency money for the Rentenmark. The government also used emergency decrees to stabilise the currency, by controlling rents, wages and prices. The introduction of the Rentenmark was overseen by Hjalmar Schacht, who became the Reichsbank president in December 1923. In August 1924, Schacht oversaw the change from the temporary Rentenmark to the Reichsmark (RM).

The German Rentenmark, a temporary currency which stabilised the country's economy.

Foreign Policy

Foreign policy was vital to the economy's recovery. The Dawes Plan of 1924 and the Young Plan of 1929 made reparations more manageable and helped to rebuild the economy with loans. Stresemann's other foreign policy moves - such as negotiating Germany joining the League of Nations in 1926, signing the 1925 Locarno Pact in which they agreed to respect the borders set by the Treaty of Versailles and the demilitarisation of the Rhineland and signing the Kellogg-Briand Pact to outlaw war in 1928 - helped to make Germany an acceptable foreign power in Europe again. Due to this, other countries were happier to lend Germany money and make trade agreements. This meant that German economy was based on loans, especially from the USA, who were also loaning to Britain and France. If the USA wished to recall their loans, these countries would be in a very dangerous place.

The Recovery of Business

In the early 1920s, many small businesses collapsed, and in 1924 there were more bankruptcies than in the previous five years altogether. The surviving big businesses began to form cartels (groups of businesses in the same industry or retail sector that made agreements to set and control prices), which helped to stabilise the economy due to the fact that prices were not moving as much. I.G. Farben, a business cartel set up in 1925, united various chemical-based cartels, making a diverse range of products including dynamite and fertiliser. Many factories were rebuilt with the latest mass production assembly lines gripping the USA at the time. By 1925, the chemical industry was producing one-third more than in 1913, and almost two-thirds more by 1930. However, this did not mean all was well in business in the Weimar era - many workers disputed with business owners, pressing for better conditions, whilst owners tried to cut wages and extend working hours. Strikes and lockouts were common in the era, despite the government setting up state arbitration in October 1923 - however, both were less common in the prosperous years of 1926-1927.

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