After Germany’s loss in World War 1, they fell into a depression, as they owed money to most of the countries in accordance to the treaty of Versailles. Most of the other countries around the world were also having economic problems because of the repercussions of the war. Then in the 1930’s due to a huge stock market crash, the world flung into ‘The Great Depression.’ This depression caused most of the world’s economies to decline however; Germany’s economy started taking an upward turn.
Germany went through a lot of ups and downs in their economic cycles in the Interwar years. There were a lot of economic crashes and booms in these twenty odd years. There were many factors that contributed towards these economic instabilities. Through this report we take a look at how the German economy pulled through in some of its toughest times and managed to stabilize its economy. To observe how the German economy worked through the pre-war years, we have to take a look at it through its different stages. Firstly there was the period between the First World War all the way up to the Great Depression in 1929; from there we look at Germany from the 1930’s to World War 2 and Adolf Hitler’s contribution to their economy. Finally the German economy must be compared to the world during this time period.
Germany’s defeat in World War 1 left the country in shambles. The Treaty of Versailles was a major contributor to the collapse of the German economy. The Paris Peace Conference was a meeting to decide the fate of Germany; thirty-two states representing 75% of the world’s population attended this one-year conference (Versa, par. 1). The five major powers that attended this meeting were the United States, Britain, France, Italy and Japan; each of them came out with a treaty for Germany. These were combined and came to be known as ‘The Treaty of Versailles.’ This harsh treaty put many restrictions on Germany: Germany was forced to surrender all its colonies, the Rhineland a huge source of German income was to be demilitarized, The Ruhr a major economic sector was to be placed under control of the League of Nations for 15 years, Germany had to pay reparations of ?6,600 million, Germany and Austria were not allowed to merge, Germany had to accept full guilt for war, their army was limited to 100,000 men with very strong military restrictions, and the German navy was limited to vessels under a 100,000 tons with no submarines (Versa, par. 3). The treaty caused an enormous burden on the German economy. The total cost of the war to Germany was calculated to be about 164 billion marks. This consisted of about 93 billion marks in war loans and 29 billion marks from the Treasury Bills. Four years after the end of the war, Germany had failed to come up with even one reparation payment to France. By January 1923, Germany was behind in its reparation payments by 24 million gold marks. In late 1922 when the German Government asked the Allies for a monatarium on reparation payments, they were refused. Because of this Germany stopped all shipments of coal and timber to France. The French with their economy also in turmoil was in great need of these reparations. Read also Economics essay samples.
In January 1923, French and Belgian troops occupied Ruhr. The Ruhr was a major economic sector in Germany; it produced 80-85% of Germany’s coal, 80% of Germany’s steel and pig iron and 70% of Germany’s goods and minerals (Germ, “Interwar”, par. 1). Enraged by this attack, the German government funded a strike in the Ruhr causing thousands of workers to protest (The Great, par. 1). All this excess spending by the German government caused the already instable economy to collapse.
There was a great increase in the circulation of currency and by November 1923 it reached almost 92 trillion marks. The economy was so dire that one U.S dollar was equivalent to 4 billion German marks (The Great, par. 1). Even with an amazing food harvest that year, there was a lot of starvation. The devastated currency forced shops to use the barter system. Banks were closed down and many middle working class people lost their life savings. Economists believed in two reasons for this fall in the currency; the fall in the foreign exchange value of a currency and a large budget deficit (The Great, par. 2). A falling exchange rate increases the costs of imports and through that the cost of living; this in turn causes higher wages and therefore more expensive goods. A large budget deficit is caused when the government is in so much debt they can no longer obtain more loans, they are required to print more currency. Workers present their old bank notes in exchange for the new ones (The Great, par. 2). The scale at which the currency was being circulated caused prices to be very unstable and constantly rising.
There was a sharp turn for the better in the German economy when Gustav Stressemann was elected from the Republican Party. He called for a halt in the resistance within Ruhr. The rentenmark was introduced; it based the German currency on the staple rye, rather than Gold (The Great, par. 3). This new economy replaced the old and was exchangeable at one billion old marks to one new mark and a U.S dollar was now worth 4.2 marks (The Great, par. 3). The market was slowly taking a leap for the better. The government now had control over its budget and the economy now become dependant on Wall Street.
Another factor that helped strengthen the economy was the Dawes plan. In April 1924, Charles G Dawe published a report that proposed a plan for instituting annual payments of reparations on a fixed scale. It recommended the reorganization of the German State Bank and increased foreign loans (Dawes, par. 2). This plan stabilized the economy and decreased unemployment. It allowed Germany to borrow $39 billion in the next 5 years. Several politicians though did not like this plan as it gave other countries more control over the German economy and it did not decrease the total reparations.
Since Germany’s economy was dependant on the stock market, it along with most of the world fell into the Great Depression in 1929 when the stock market crashed. Most countries wanted to be reimbursed with all the money they lent out to other countries. As the US output fell by half in just two years, the German economy, previously dependent on US credits, slumped until a full third of the population were unemployed. There was huge turmoil and the government lost control. Owen D. Young was sent by the Allies to investigate the stock market crash on the German economy. He came up with the Young Plan suggesting that: the total amount of reparations should be cut by three quarters and that Germany should make annual payments on a sliding scale up to 1988 (Young, par. 2). The right wing politicians in Germany such as Adolf Hitler opposed this plan.
As the German economy had just improved itself, the Great Depression in 1929 caused a huge plunge in economies around the world. In 1931, Germany was forced to stop payments of reparation because of their rising unemployment; by this time, Germany had only paid one eighth of the amount they owed.
At a time of economic turmoil and poverty it was easy for a man like Adolf Hitler to take power. This evil dictator brought stability into the German economy during troubled times. Due to the state of the economy, the German people were annoyed and frustrated. They were tired of the way democracy was running in the country and wanted a change. The democratic government at the time was greatly influenced by the Allied powers. All this made it easier for Hitler to take control. Although very powerful, Hitler had an unsuccessful revolt that caused his imprisonment for 5 years (The Rise, par. 2). He was a member of a strong right wing party known as ‘The National Sozialistiche Duetsche Arbeitpartei’ or more commonly known as the Nazi Party (The Rise, par. 1). In 1921 he became the leader of this party; he then created a group of soldiers known as the Storm trooper who were like his personal bodyguards. In 1929 after the stock market crash, Hitler saw his chance to seize control. He lost the 1932 elections but was named Chancellor of Germany on 3rd December 1932 by Hindenburg (The elected Chancellor) (The Rise, par. 5). He banned all political parties and made people swear oaths of loyalty to him.
As the Chancellor of Germany, Hitler made most of his intentions very clear. He started rearmament of Germany and paid for it through a series of loans. In a year he increased the military budget so much so that it could not all be spent on military alone. The excess money was spent on building highways across Germany. He built factories to produces weapons and machinery (Case, par. 4). Although this money went against the treaty of Versailles and strengthened the German military, it almost wiped out unemployment. The money being put into Germany strengthened the economy. He was preparing for war and making it very obvious, he broke the treaty of Versailles again by putting troops into the Rhineland; he also made alliances with other countries such as Japan.
The German economy during the interwar years went through many ups and downs. The state of Germany and its economy could be compared to that of France and the United States. Since most of World War 1 was fought over France, when the German troops retreated they burned and flooded most of the French industries. Therefore after the war, Germany’s factories were all left intact, yet France had lost a lot of its industries. This caused France to fall into an economic depression. Most of the reparations Germany paid were directed to the rebuilding of France. France was forced to take many loans from different countries.
The United States had a booming economy most of the while between World War 1 and World War 2. They made most of their money by giving loans to other countries and supplying them with arms and ammunitions. After the Great Depression, the U. S government put forward many steps to control the economy and revive it. It was easier for farmers and public workers to get loans. New acts were passed to have tighter inspections on banks and regulate their progress.
The interwar years were a troubled time for Germany. Its economy went through many fluctuations. With proper leadership though, Germany was able to pull through and stabilize its economy overcoming all its obstacles. They overcame their troubles after World War 1 and the treaty of Versailles and managed to stabilize their economy up to the Great Depression. How the economy was re-stabilized between the Great Depression and World War. We must also look at the German economy and compare it to other countries at the time to see how it fared. Germany an oppressed country between the interwar years managed to persistently stabilize its economy and outcome the damage from the treaty of Versailles.