Economic & Social Problems, 1919–1924 (AQA A Level History: Component 2: Depth study): Revision Note

Summary

• The war had left Germany with enormous debts as well as many widows and disabled soldiers to support

• This situation was made even worse by the Treaty of Versailles, which required Germany to pay reparations

  • The failure to pay these reparations led to France and Belgium sending troops to the industrial Ruhr area in 1923 to seize goods and raw materials

  • The German government paid the striking workers and purchased coal from abroad as it was not being mined in the Ruhr

  • To do this, they printed more money

• The invasion of the Ruhr and the decision to print more money led to the hyperinflation crisis

  • Money lost all value, and loaves of bread that had cost a few marks soon cost many millions of marks

  • People's savings were wiped out

  • However, those with large debts, including the government, could easily clear them

The post-war economic and social legacy

• The war had been ruinously expensive for Germany

  • It had been financed by enormous loans and by printing more money

  • The hope and expectation of Germany's wartime leaders was that all this would be recouped when Germany achieved victory

• The war had also resulted in the deaths and disablement of millions of its soldiers

  • Pensions needed to be paid to the widows of the dead

  • Many wounded soldiers needed financial support, and their injuries meant they were unable to work

Reparations and the causes of inflation

• The terrible financial situation was made far worse by the imposition of reparations in the Treaty of Versailles

  • The Treaty required Germany to pay reparations

  • The Reparations Commission was set up to organise this

    • The Commission set the figure at 132 billion gold marks (£6.6 billion) at the London Conference in May 1921

    • This would be enough to bankrupt many countries

• The reparations were to be paid in instalments that the Young Plan would later extend until 1988

• The act of printing more money without the reserves to support it throughout the war had led to inflation

  • The price of goods in Germany quadrupled between 1919 and 1920

The invasion of the Ruhr, 1923

• In December 1922, France accused Germany of not sending the amount of coal required by the Treaty of Versailles

• France was already suspicious of Germany because: 

  • In November 1922, Germany requested to stop reparation payments to Britain and France for the next four years

  • In April 1922, Germany had signed the Treaty of Rapallo with Russia

    • They agreed to mutual claims renunciation and restored relations

    • Both countries mutually waived their rights to financial compensation for war expenses and damages suffered during World War I

    • All state debts built up before the war were cancelled

• French and Belgian troops entered the Ruhr in January 1923

  • The Ruhr was Germany’s most valuable industrial area

  • The soldiers seized coal, manufactured products and machinery

“The Ruhr occupation… is a grave matter from whatever point of view it is considered… All the experts whom I have consulted are unanimously of opinion that as long as the Ruhr occupation continues, there can be no reparation payments by the German government. The occupation will not only yield no payments but will render the payment of reparations impossible. While the industrial heart is severed from the body of Germany, her government cannot restore their finances and cannot even prepare to pay reparations…"

The views of Jan Smuts, the South African Prime Minister, given in a speech on 23rd October 1923

• The government urged the coal workers to use passive resistance against the French and Belgian soldiers. Passive resistance is protesting in a non-violent way.

• The workers:

  • Went on strike

  • Sabotaged machinery

• The French responded by bringing their own workers into the Ruhr

• The Weimar government could not force the soldiers out of the Ruhr because:

  • The Treaty of Versailles restricted Germany’s army to 100,000 men, whereas France had 750,000 soldiers

• The public had a poor opinion of the Weimar government. They believed that the government could do more to force the French out of the Ruhr

• The French occupation of the Ruhr damaged Germany’s economy because:

  • The Weimar government insisted on paying wages to the striking workers 

  • Germany was not producing enough coal to meet demand. The government began importing coal from other countries. This additional cost was more than they could afford

  • The government could not make essential goods because coal fuelled many factories. This caused shortages in other products

  • As Germany had fewer products to trade internationally, countries lost confidence in the mark as a currency

  • Germans experienced shortages in everyday items. This increased the prices of these products

The hyperinflation crisis of 1923

• The term inflation means the increase in prices 

  • Inflation happens in an economy over time

Hyperinflation is when prices rise rapidly and become out of control

• In hyperinflation, wages struggle to match the cost of living

• Hyperinflation can become so bad that currency loses its monetary value

• In early 1923, the invasion of the Ruhr caused inflation

  • Prices rose because there was a shortage of essential goods

• Government spending rose sharply while its income fell

  • The Weimar government continued to pay the wages of the striking Ruhr workers

  • The government purchased coal from other countries to meet Germany’s demand for coal

  • Some businesses closed down because of the drop in demand for their products or services

  • This increased the levels of unemployment and reduced the amount of money the government earned in taxes

Social welfare

• Benefits such as old age pensions had existed in Germany since the 1880s

  • But the Weimar constitution had extended benefits to all German workers who either had the right to work or the right to benefit payments

  • The huge numbers of unemployed that were now entitled to welfare payments put an enormous strain on government finances

Printing money

• The Weimar government decided to print more money to meet the increased demand

  • In 1923, there were 300 paper mills and 2,000 printing processes whose sole purpose was to print currency

  • The decision to print an excessive amount of money caused the hyperinflation crisis

• By November 1923, the German currency (mark) had become worthless

  • Some workers received pay twice a day so they could purchase essential goods before their wages lost even more value

  • People filled wheelbarrows full of money to buy a loaf of bread

The social impact of hyperinflation

“Of course all the little people who had small savings were wiped out. But the big factories and banking houses and multimillionaires didn’t seem to be affected at all. They went right on piling up their millions. Those big holdings were protected somehow from loss. But the mass of the people were completely broke.

And we asked ourselves, “How can that happen? How is it that the government can’t control an inflation which wipes out the life savings of the mass of people – yet the big capitalists can come through the whole thing unscathed?” We who lived through it never got an answer that meant anything. But after that, even those people who used to save didn’t trust money anymore – or the government. We decided to have a high-ho time whenever we had any spare money, which wasn’t often.”

An unnamed German offers his views on the Weimar government and its handling of the 1923 hyperinflation

How serious were Germany's economic problems, 1919–1924?

• The extent of the economic problems faced by Germany between 1919 and 1924 has divided historians.

• Some argue that the hyperinflation caused chaos that fundamentally damaged people's support for the republic

  • Money became completely worthless, savings were wiped out and millions suffered

• Others have argued that, although some parts of German society suffered, there were also enormous benefits for some individuals and the government

  • They believe that Germany was able to free itself from the enormous debts it had run up during the Great War