On October 29, 1918 the sailors of the German city of Kiel mutinied. They called for an end to the First World War and the abdication of the German monarch, Kaiser Wilhelm II. Their actions precipitated a revolution that culminated in the establishment of Germany's first republic, the Weimar Republic, which would ultimately be dismantled by the Nazis. The following is an overview of that republic's economic history based on chapter four of Eric Weitz's Weimar Germany: Promise and Tragedy and the introduction to Adam Tooze's The Wages of Destruction: The Making and Breaking of the Nazi Economy.
Inflation, 1918-1923
Germany faced seemingly dire economic conditions at the end of World War One. It had long been dependent upon significant imports of food and raw materials, and the British continued their blockade of the country until summer, 1919. There were "severe shortages". Millions of soldiers were returning home seeking employment in factories that had grown dependent upon production for a war effort that was now ended. (Weitz, 131-2)
A consensus among business, unions, and government in favor of inflationary policies emerged and these policies made significant positive contributions to postwar recovery, which, "[t]o almost everyone's surprise...proceeded smoothly." If I understand correctly, the depreciated German Reichmark rendered German exports cheaper to foreign importers, which resulted in an export boom. The higher prices for goods encouraged investment in manufacturing. And demands for higher wages were able to be met with depreciated currency. (Weitz, 132)
On May 5, 1921 the Allied victors of WWI delivered to Berlin the London Ultimatum, the declaration of the reparations burden to be imposed upon Germany. "[E]ven moderate Germans were shocked." Total reparations was set at 132 billion goldmarks. "Yet another political crisis ensued in Germany." Reparations would become "entwined" with inflation. (Weitz, 132)
Soon after, "rising prices set off another round of demands for wage increases." Government and business conceded with depreciated money, and businesses again raised prices. "A galloping wage-price spiral emerged", and the government continued to increase the money supply. If I understand correctly, reparations increased the incentive to simply print more money, perhaps because reparations drained money from the economy. (Weitz, 133-4)
A year later, "in the summer of 1922", the German economy entered a period of hyperinflation, "the likes of which have been matched in only a handful of instances around the globe." France and Belgium, "[c]onvinced that Germany was deliberately undermining the reparations process" occupied "Germany's major industrial region", the Ruhr, on January 11, 1923. Berlin declared a policy of passive resistance and the Ruhr shut down. "[T]he effects of this regional collapse spread through the entire national economy." The government made massive commitments to workers and businesses that it did not have the means of genuinely meeting. "But it had printing presses, and these it used with abandon." (Weitz, 134, 135)
The consequences of hyperinflation were both comical and sad. In November 1923, the government issued a 100 trillion Reichmark note (imagine a 100 trillion dollar bill). Life became "desperate." (Weitz, 135-6)
In addition to this suffering, "[t]he crisis of hyperinflation enabled business to destroy--not totally, but to a significant degree--the social measures it had only reluctantly conceded in 1918-19." (Weitz, 143)
Living standards plummeted, the health of the population declined, and people's savings evaporated. This last phenomenon contributed to a process of "proletarianization" of the middle class. Those who had previously held high status but were reduced to a standard of living comparable or even lower than their social "inferiors" felt humiliated. The experience "became seared into the memory of these people, shaping their behavior for decades to come." The inflation turned the middle class against the Republic. (Weitz, 135-40, 145)
Stabilization, 1924-1929
In September of 1923 the government ended passive resistance to occupation of the Ruhr. The following year, in conjunction with the Dawes plan, which eased Germany's reparations payment schedule, the French and Belgians agreed to remove their troops. (141, 143)
In October the Reichstag granted the Chancellor emergency powers, enabling him to govern by decree. Such "enabling acts" were frequently resorted to during the tumultuous life of the Weimar Republic, a symptom of the divided and polarized nature of German politics as Germans confronted, among other things, "economic problems [that] were enormous and unprecedented...". "[T]his episode was the most extensive and far-ranging to date," and it lasted into the spring of 1924. The government used these powers to fend off revolutionary threats from both the Communists and the Nazis. (Weitz, 130, 141-2, 145-6)
In November the government introduced the Rentenmark to temporarily replace the Reichsmark. This quickly halted inflation. The government dramatically reduced the number of civil servants and reduced the pay of those not fired, and cut social welfare programs substantially. Facilitated by the erosion of German savings, which created positive conditions for lending, American capital poured into the country and a significant recovery followed. Germany industry would reach the production levels of 1913 in 1927 and continue growing from there. (Tooze, 6; Weitz, 142, 146)
This period was also marked by attempts at "rationalization", meaning increasing efficiency through innovations in labor organization. The epitome of rationalization was of course Henry Ford's assembly line. Germans apparently sought a more uniquely German rationalization however, which focused on "quality work" and piecework. The high-wage, high-consumption economy afforded by Ford's assembly, however, eluded Germany, and "[r]ationalization, far from bringing prosperity to workers, only made their lives more difficult." It seems that every detail of one's workday was scrutinized. "Industrial labor remained long, hard, and dirty, and now became more intense and dangerous." Rationalization apparently brought benefits, but they were minimal. (Weitz, 149-53)
White-collar workers were multiplying in Weimar Germany, and constituted a new element of the middle class, apparently antagonistic to the old middle class of embattled shopkeepers and artisans. White-collar workers spent their day in "extremely hierarchical" and anonymous offices. They may have been unionized but they did not necessarily feel a sense of camaraderie with other workers. (Weitz, 155-9)
Whereas Germans of the pre-WWI period practiced the thrift characteristic of pre-industrial peoples, during the period of stabilization and recovery--Weimar's "golden years"--"Germans went on a consumption binge", goaded on by the advertising industry, "which blossomed in this era of mass consumption." (Weitz, 146)
Agricultural was a different story. Inflation had briefly improved the lot of Germany's farmers, but by the mid-1920s German agriculture had already entered a depression. (Weitz, 145, 159-61)
Depression and Deflation, 1929-1933
In October 1929 the US stock market crashed. US banks called in their German loans precipitating a banking crisis. The Great Depression was experienced harshest by Germans, whose economy reached approximately 40 percent unemployment. (Weitz, 161)
In the spring of 1930 Heinrich Bruening ascended to the Reich Chancellorship. For the next two years he would pursue strictly deflationary policies which involved raising taxes, slashing public expenditures, and recognizing that businesses needed to cut labor costs. As prices fell, a bottom would be reached and the economy would recover. Such was the wisdom of the day, particularly after the experience of hyperinflation. Again the German political system was paralyzed by the crisis and Bruening's administration ruled by decree. (Weitz, 162, 163)
"[T]he government's very restrictive fiscal policies only worsened the impact of the combined banking and manufacturing crisis." Broken men wandered German streets aimlessly, many suicidal. Women's domestic labor "had become more intensive and oppressive" as they took on additional chores such as scrounging for food and mending tattered clothing. (Weitz, 164)
The Great Depression significantly undermined the rationale of Weimar's foreign policy. Gustav Stresemann, Germany's Foreign Minister from 1923 to 1929, had sought "to make American financial interests into the main force pushing for the revision of Germany's reparations." The hope was that borrowing heavily from US banks would create an incentive for the US to counter British and French demands for excessive reparations. This was known as the "Atlanticist Strategy". (Tooze, 6-7)
This strategy had its first success in the Dawes Plan of 1924. American industrialists had spearheaded this revision of the terms of Germany's reparations obligations. It reduced the immediate burden and also "relegated" reparations "to a second order claim on Germany's finances" by installing a Reparations Agent with the authority to postpone payments if it would jeopardize the stability of the Reichsmark. (Tooze, 5-6)
The later Young Plan proved disappointing however. Germany's reparations were only minimally reduced, the Reparations Agent was removed, and there was no explicit connection made between German reparations and Allied debts. This had been a cornerstone of the Atlanticist Strategy--apparently hoping that if there was a reduction or cancellation of British and French debts to the United States accrued during WWI, then this would be coupled with a cancellation of German reparations. (Tooze, 13-14, 19)
Compounding the disappointment of the Young Plan, the newly elected Hoover administration in the United States enacted the infamous Smoot-Hawley tariff, which set "American tariffs in excess of 44 per cent...". Being denied access to America's enormous market "made it difficult, if not impossible, for America's debtors to repay their debts, even if they had wanted to." (Tooze, 14, 28)
The Young Plan had come into effect before the stock market crash. The emergency situation of the Great Depression apparently changed Allied strategy. In July of 1931 a moratorium was put into effect on both Allied war debts and German reparations. A "Standstill Agreement" the following month enacted a moratorium on Germany's short term debt, presumably largely owed to US banks. And finally, in July of 1932 German reparations were cancelled. (Tooze, 19, 20, 27)
With the ending of reparations, the incentive to cultivate ties with the United States decreased. US protectionism did further damage. In addition, the Great Depression undermined faith in the beneficial effects of international economic interdependence. "Nationalist visions...now had far greater plausibility." This shift took place under the Chancellorships of Franz von Papen, Kurt von Schleicher, and finally Adolph Hitler. (Tooze, 23-4, 25)
Inflation, 1918-1923
Germany faced seemingly dire economic conditions at the end of World War One. It had long been dependent upon significant imports of food and raw materials, and the British continued their blockade of the country until summer, 1919. There were "severe shortages". Millions of soldiers were returning home seeking employment in factories that had grown dependent upon production for a war effort that was now ended. (Weitz, 131-2)
A consensus among business, unions, and government in favor of inflationary policies emerged and these policies made significant positive contributions to postwar recovery, which, "[t]o almost everyone's surprise...proceeded smoothly." If I understand correctly, the depreciated German Reichmark rendered German exports cheaper to foreign importers, which resulted in an export boom. The higher prices for goods encouraged investment in manufacturing. And demands for higher wages were able to be met with depreciated currency. (Weitz, 132)
On May 5, 1921 the Allied victors of WWI delivered to Berlin the London Ultimatum, the declaration of the reparations burden to be imposed upon Germany. "[E]ven moderate Germans were shocked." Total reparations was set at 132 billion goldmarks. "Yet another political crisis ensued in Germany." Reparations would become "entwined" with inflation. (Weitz, 132)
Soon after, "rising prices set off another round of demands for wage increases." Government and business conceded with depreciated money, and businesses again raised prices. "A galloping wage-price spiral emerged", and the government continued to increase the money supply. If I understand correctly, reparations increased the incentive to simply print more money, perhaps because reparations drained money from the economy. (Weitz, 133-4)
A year later, "in the summer of 1922", the German economy entered a period of hyperinflation, "the likes of which have been matched in only a handful of instances around the globe." France and Belgium, "[c]onvinced that Germany was deliberately undermining the reparations process" occupied "Germany's major industrial region", the Ruhr, on January 11, 1923. Berlin declared a policy of passive resistance and the Ruhr shut down. "[T]he effects of this regional collapse spread through the entire national economy." The government made massive commitments to workers and businesses that it did not have the means of genuinely meeting. "But it had printing presses, and these it used with abandon." (Weitz, 134, 135)
The consequences of hyperinflation were both comical and sad. In November 1923, the government issued a 100 trillion Reichmark note (imagine a 100 trillion dollar bill). Life became "desperate." (Weitz, 135-6)
In market squares, women plundered stalls and stores. The unemployed occupied municipal offices. Crowds fought with the police. Swarms of urban dwellers descended on the countryside, stealing potatoes, chickens, and whatever else they could find. Tavern owners and farmers who protested found themselves unceremoniously roughed up, sometimes stripped of their clothing. Wildcat strikes ran through all sorts of industries. By the fall, workers were being paid every two or three days, and sometimes twice a day. Firms used multipliers to calculate wages--one day, the set wage times 27 billion; a few days later, the set wage times 67 billion. Merchants did the same, or switched to a foreign-currency calculation or simply bartered. [Weitz, 136]
In addition to this suffering, "[t]he crisis of hyperinflation enabled business to destroy--not totally, but to a significant degree--the social measures it had only reluctantly conceded in 1918-19." (Weitz, 143)
Living standards plummeted, the health of the population declined, and people's savings evaporated. This last phenomenon contributed to a process of "proletarianization" of the middle class. Those who had previously held high status but were reduced to a standard of living comparable or even lower than their social "inferiors" felt humiliated. The experience "became seared into the memory of these people, shaping their behavior for decades to come." The inflation turned the middle class against the Republic. (Weitz, 135-40, 145)
Stabilization, 1924-1929
In September of 1923 the government ended passive resistance to occupation of the Ruhr. The following year, in conjunction with the Dawes plan, which eased Germany's reparations payment schedule, the French and Belgians agreed to remove their troops. (141, 143)
In October the Reichstag granted the Chancellor emergency powers, enabling him to govern by decree. Such "enabling acts" were frequently resorted to during the tumultuous life of the Weimar Republic, a symptom of the divided and polarized nature of German politics as Germans confronted, among other things, "economic problems [that] were enormous and unprecedented...". "[T]his episode was the most extensive and far-ranging to date," and it lasted into the spring of 1924. The government used these powers to fend off revolutionary threats from both the Communists and the Nazis. (Weitz, 130, 141-2, 145-6)
In November the government introduced the Rentenmark to temporarily replace the Reichsmark. This quickly halted inflation. The government dramatically reduced the number of civil servants and reduced the pay of those not fired, and cut social welfare programs substantially. Facilitated by the erosion of German savings, which created positive conditions for lending, American capital poured into the country and a significant recovery followed. Germany industry would reach the production levels of 1913 in 1927 and continue growing from there. (Tooze, 6; Weitz, 142, 146)
This period was also marked by attempts at "rationalization", meaning increasing efficiency through innovations in labor organization. The epitome of rationalization was of course Henry Ford's assembly line. Germans apparently sought a more uniquely German rationalization however, which focused on "quality work" and piecework. The high-wage, high-consumption economy afforded by Ford's assembly, however, eluded Germany, and "[r]ationalization, far from bringing prosperity to workers, only made their lives more difficult." It seems that every detail of one's workday was scrutinized. "Industrial labor remained long, hard, and dirty, and now became more intense and dangerous." Rationalization apparently brought benefits, but they were minimal. (Weitz, 149-53)
White-collar workers were multiplying in Weimar Germany, and constituted a new element of the middle class, apparently antagonistic to the old middle class of embattled shopkeepers and artisans. White-collar workers spent their day in "extremely hierarchical" and anonymous offices. They may have been unionized but they did not necessarily feel a sense of camaraderie with other workers. (Weitz, 155-9)
Whereas Germans of the pre-WWI period practiced the thrift characteristic of pre-industrial peoples, during the period of stabilization and recovery--Weimar's "golden years"--"Germans went on a consumption binge", goaded on by the advertising industry, "which blossomed in this era of mass consumption." (Weitz, 146)
Agricultural was a different story. Inflation had briefly improved the lot of Germany's farmers, but by the mid-1920s German agriculture had already entered a depression. (Weitz, 145, 159-61)
Depression and Deflation, 1929-1933
In October 1929 the US stock market crashed. US banks called in their German loans precipitating a banking crisis. The Great Depression was experienced harshest by Germans, whose economy reached approximately 40 percent unemployment. (Weitz, 161)
In the spring of 1930 Heinrich Bruening ascended to the Reich Chancellorship. For the next two years he would pursue strictly deflationary policies which involved raising taxes, slashing public expenditures, and recognizing that businesses needed to cut labor costs. As prices fell, a bottom would be reached and the economy would recover. Such was the wisdom of the day, particularly after the experience of hyperinflation. Again the German political system was paralyzed by the crisis and Bruening's administration ruled by decree. (Weitz, 162, 163)
"[T]he government's very restrictive fiscal policies only worsened the impact of the combined banking and manufacturing crisis." Broken men wandered German streets aimlessly, many suicidal. Women's domestic labor "had become more intensive and oppressive" as they took on additional chores such as scrounging for food and mending tattered clothing. (Weitz, 164)
The Great Depression significantly undermined the rationale of Weimar's foreign policy. Gustav Stresemann, Germany's Foreign Minister from 1923 to 1929, had sought "to make American financial interests into the main force pushing for the revision of Germany's reparations." The hope was that borrowing heavily from US banks would create an incentive for the US to counter British and French demands for excessive reparations. This was known as the "Atlanticist Strategy". (Tooze, 6-7)
This strategy had its first success in the Dawes Plan of 1924. American industrialists had spearheaded this revision of the terms of Germany's reparations obligations. It reduced the immediate burden and also "relegated" reparations "to a second order claim on Germany's finances" by installing a Reparations Agent with the authority to postpone payments if it would jeopardize the stability of the Reichsmark. (Tooze, 5-6)
The later Young Plan proved disappointing however. Germany's reparations were only minimally reduced, the Reparations Agent was removed, and there was no explicit connection made between German reparations and Allied debts. This had been a cornerstone of the Atlanticist Strategy--apparently hoping that if there was a reduction or cancellation of British and French debts to the United States accrued during WWI, then this would be coupled with a cancellation of German reparations. (Tooze, 13-14, 19)
Compounding the disappointment of the Young Plan, the newly elected Hoover administration in the United States enacted the infamous Smoot-Hawley tariff, which set "American tariffs in excess of 44 per cent...". Being denied access to America's enormous market "made it difficult, if not impossible, for America's debtors to repay their debts, even if they had wanted to." (Tooze, 14, 28)
The Young Plan had come into effect before the stock market crash. The emergency situation of the Great Depression apparently changed Allied strategy. In July of 1931 a moratorium was put into effect on both Allied war debts and German reparations. A "Standstill Agreement" the following month enacted a moratorium on Germany's short term debt, presumably largely owed to US banks. And finally, in July of 1932 German reparations were cancelled. (Tooze, 19, 20, 27)
With the ending of reparations, the incentive to cultivate ties with the United States decreased. US protectionism did further damage. In addition, the Great Depression undermined faith in the beneficial effects of international economic interdependence. "Nationalist visions...now had far greater plausibility." This shift took place under the Chancellorships of Franz von Papen, Kurt von Schleicher, and finally Adolph Hitler. (Tooze, 23-4, 25)
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