weimar economy

war bonds

the long-term cause of the inflation crisis was the military demands of WW1 leading to an increase in financial costs. the kaiser’s govt borrowed huge sums by selling war bonds to the public. proving insufficient by 1916, it simply allowed national debt to rise to 144,000 million by 1919 compared to 5000 million in 1914. 84% of war expenditure had been borrowed.

treaty of versailles

loss of resources; 16% decline in coal production, 13% decline in arable agricultural land and 48% loss in iron ore. the reparations committee set the amount at 6600 million pounds, a key factor for inflation as it had to be paid in hard cash or gold.

deficit financing

rather than increasing tax or cutting spending, finance minister erzberger created deficit financing which meant cutting taxes to increase spending and demand. reparations were paid by printing more money which only increased inflation and made the rouble useless.

invasion of ruhr

in december 1920 the government requested a holiday from reparations but the reparations committee denied them and stated they were in deficit. french leader raymond poincare ordered french and belgian troops to invade the ruhr valley and seize germany’s resources. the german government declared a paid passive resistance in which the workers wouldn’t cooperate with the french troops. the german government couldn’t tax the ruhr due to the french troops and had to get their fuel imported, thus sending them further into crisis and led to hyperinflation.

stresemann

• in august 1923 he was appointed chancellor and ended passive resistance, began paying reparations again and government expenditure was cut sharply and over 700,000 public servants were sacked. This helped balance the government’s budget.

• in december 1923, the rentenmark was introduced, backed by gold reserves to make it more stable

• he won foreign sympathy and by april ‘24 the dawes plan was introduced setting reparations at a price they could actually pay however they became reliant on the loans.

economic recovery

1924-29, there was an increase in production levels, greater foreign investment, rising exports and wages. by 1928 heavy industry returned to 1913 production due to more efficient production methods in coal mining, for example. social welfare benefits also improved.

in 1927 a compulsary unemployment insurance covering 17 million workers was created, largest in the world

economic weaknesses

unemployment never fell below 1.3 million from 1925-29. grain production still only ¾ of 1913 and farmers still faced falling incomes. by late 1920s income per head in agriculture was 44% below national average. in 1928 stresemann said ‘germany is dancing on a volcano’. america’s economic collapse in oct 1929 added to an already grave situation.