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war bonds
the long-term cause of the inflation crisis was the military demands of WW1 leading to n increase in financial costs. the kaiser’s govt borrowe huge sums by selling war bonds to the public. proving insufficient by 1916, it simply allowed national debt to rise to 144000 million by 1919 compared to 5000m 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 govt requested a holiday from reparations but the reparations committee denied them and stated they were in defecit. french leader raymond poincare ordered french and belgian troops to invade the ruhr valley and seize germany’s resources. the german govt declared a paid passive resistance in which the workers wouldn’t cooperate with the french troops. the german govt couldnt tax the ruhr due to the french 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 cut 20k workers to rebalance the budget.
in december 23 the rentesmark was introduced backed by gold reserves.
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
24-29, 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 fro 25-29. 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.
