Hyperinflation and Weimar Germany
Weimar Germany had greeted with total horror the financial punishment of Versailles. If Germany had paid off the sum of £6,600,000,000, she would have remained in debt to the Allies until 1987 !! However, by signing the Treaty of Versailles, she had agreed in principle to the issue of reparations and in 1921, Germany just about managed to pay its first installment of 2 billion gold marks. Weimar Germany was allowed to pay in kind (actual materials) as opposed to just cash. Most of this 2 billion was paid in coal, iron and wood.
In 1922, Weimar Germany simply could not manage to pay another installment. This the Allies did not believe – especially France where anger towards Germany still ran deep – and the German government was accused of trying to get out of her reparations responsibilities. This apparent refusal was only four years after the end of the war, and the attitude of the public towards Germany was still very hostile – and not just in France.
In 1923, French and Belgium troops invaded the Ruhr; Germany’s most valuable industrial area. The French and Belgium troops took over the iron and steel factories, coal mines and railways. Those Germans who lived in the Ruhr and were considered not to be co-operating with the Germans were imprisoned. Food was taken. That this action by the French and Belgium broke the rules of the League of Nations – which both belonged to – was ignored by both countries. France was considered one of the League’s most powerful members and here she was violating its own code of conduct.
Weimar’s government responded by ordering the workers in the Ruhr to go on strike and it ordered all people in the Ruhr to passively resist the French and Belgium soldiers. This meant that they were not to openly confront the French and Belgium soldiers, simply that they were not to help them in any way whatsoever. This lead to violence and over the next 8 months of the occupation, 132 people were killed and over 150,000 Ruhr Germans expelled from their homes.
The order for workers to go on a general strike may have been patriotic but it had disastrous consequences for Germany as a whole. The Ruhr was Germany’s richest economic area and produced a great deal of wealth for the country as a whole. The huge Krupps steelworks was there. By not producing any goods whatsoever, Germany’s economy started to suffer. The striking workers had to be paid and the people expelled from their homes had to be looked after. To do this, the government did the worst thing possible – it printed money to cover the cost. This signalled to the outside world that Germany did not have enough money to pay for her day-to-day needs and whatever money may have been invested in Germany was removed by foreign investors.
Such a drop in confidence also caused a crisis in Weimar Germany itself when prices started to rise to match inflation. Very quickly, things got out of control and what is known as hyperinflation set in. Prices went up quicker than people could spend their money.
In 1922, a loaf of bread cost 163 marks.
By September 1923, this figure had reached 1,500,000 marks and at the peak of hyperinflation, November 1923, a loaf of bread cost 200,000,000,000 marks.
The impact of hyperinflation was huge :
People were paid by the hour and rushed to pass money to loved ones so that it could be spent before its value meant it was worthless.
People had to shop with wheel barrows full of money
Bartering became common – exchanging something for something else but not accepting money for it. Bartering had been common in Medieval times!
Pensioners on fixed incomes suffered as pensions became worthless.
Restaurants did not print menus as by the time food arrive…the price had gone up!
The poor became even poorer and the winter of 1923 meant that many lived in freezing conditions burning furniture to get some heat.
The very rich suffered least because they had sufficient contacts to get food etc. Most of the very rich were land owners and could produce food on their own estates.
The group that suffered a great deal – proportional to their income – was the middle class. Their hard earned savings disappeared overnight. They did not have the wealth or land to fall back on as the rich had. Many middle class families had to sell family heirlooms to survive. It is not surprising that many of those middle class who suffered in 1923, were to turn to Hitler and the Nazi Party.
Hyperinflation proved to many that the old mark was of no use. Germany needed a new currency. In September 1923, Germany had a new chancellor, the very able Gustav Stresemann. He immediately called off passive resistance and ordered the workers in the Ruhr to go back to work. He knew that this was the only common sense approach to a crisis. The mark was replaced with the Rentenmark which was backed with American gold. In 1924, the Dawes Plan was announced. This plan, created by Charles Dawes, an American, set realistic targets for German reparation payments. For example, in 1924, the figure was set at £50 million as opposed to the £2 billion of 1922. The American government also loaned Germany $200 million.
This one action stabilised Weimar Germany and over the next five years, 25 million gold marks was invested in Germany. The economy quickly got back to strength, new factories were built, employment returned and things appeared to be returning to normal. Stresemann gave Germany a sense of purpose and the problems associated with hyperinflation seemed to disappear.
1924 to 1929 is known as the Golden Age of Weimar. Berlin became the city to go to if you had money, the Nazis were a small, noisy but unimportant party. Above all, Stresemann gave Germany strong leadership.