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Section: How did the Nazis gain power?

Economic issues in the 1920s

German banknotes being baled as waste paper
German banknotes being baled as waste paper

Before the start of the First World War, Germany was the most economically advanced nation in Europe. It was second only in the world to the USA. The war and its aftermath left Germany economically broken.

How did Germany deal with its economic problems? How did these difficulties affect the German people? How successful was Germany in dealing with these problems?

1919-1933: an economic overview

By 1914 Germany had become Europe’s most powerful economic and military power, and was second only to the United States in the world. Four long, terrible years of warfare meant that, by 1918, Germany’s economy was in ruins.

The effects of defeat

Warfare meant that Germany could not import or export industrial goods and severely limited trade. Resources and food were diverted to the war. The terms of the Treaty of Versailles ordered that Germany had to pay huge sums in reparations to the Allies. In 1921, as Germany could not pay, French and Belgian troops invaded and occupied the Ruhr to take goods and raw materials. During 1923 Germany printed more money to pay striking workers. Hyperinflation resulted, wiping out the value of savings.

The ‘Golden Years’?

The years 1924 to 1929 became known as the ‘Golden Years’ – Germany became increasingly prosperous and peaceful. The USA lent Germany huge sums of money. The economy was rebuilt, unemployment was reduced and people began to feel secure.

Collapse

The collapse of the American economy after the Wall Street Crash during the autumn of 1929 had terrible consequences all over Europe. Between 1929 and 1933 there was high unemployment and severe poverty in Germany.

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The German economy c.1919-1929

A Poor Family in Berlin during the 1920s.
A Poor Family in Berlin during the 1920s.

During the First World War Germany could not import or export industrial goods, which severely limited trade. Food and other resources were diverted to the war effort.

To pay for the war, rather than raise taxes, the Kaiser borrowed massive amounts of money by selling ‘war bonds’ to the public. By the end of the war the country was heavily in debt.As a result, by 1919 Germany was no longer the second most economically advanced nation in the world.The immediate economic consequences of the terms of the Treaty of Versailles were a significant concern and added to Germany’s humiliation. Under the terms of the treaty Germany had to pay huge sums in reparations. In 1921, this amount was set at £6.6 billion; a sum that Germany could not pay.By December 1922, because the German government could not pay French and Belgian troops invaded and occupied the Ruhr to take goods and raw materials in lieu of money.

Economic effects of the Treaty of Versailles

French troops had invaded the industrial land around the River Ruhr. They tried to control the German workers and public.
French troops had invaded the industrial land around the River Ruhr. They tried to control the German workers and public.

During the First World War Germany could not import or export industrial goods, which severely limited trade. Food and other resources were diverted to the war effort.

To pay for the war, rather than raise taxes, the Kaiser borrowed massive amounts of money by selling ‘war bonds’ to the public. By the end of the war the country was heavily in debt.

The immediate economic consequences of the terms of the Treaty of Versailles were a significant concern and added to Germany’s humiliation. Under the terms of the treaty Germany had to pay huge sums in reparations. In 1921, this amount was set at £6.6 billion; a sum that Germany could not pay. By December 1922, because the German government could not pay, French and Belgian troops invaded and occupied the Ruhr to take goods and raw materials in lieu of money.

Why did invasion lead to hyperinflation?

With all the economic and social problems Germany faced, it soon became impossible for her to keep paying reparations to the Allies. These payments had been set at an extremely high level, more than Germany, crippled by war, could afford.

In January 1923 France and Belgium invaded the Ruhr, an industrial area of German bordering their own countries. This region, full of factories and coalmines, contained resources the French and Belgians intended to use to make up for the unpaid reparations.

German workers refused to co-operate with the French and Belgian armies, and went on strike. The German government supported them. The French sent in their own workers, and arrested the leaders of the German strikers and the German police. This led to violence on both sides.

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Hyper-inflation

With the economy in ruins, and the Allies claiming reparations and taking control of industry, goods became difficult to obtain and therefore very expensive.

The government tried to solve the problem by printing more money. Money became very easy to get hold of, but things to buy were just as scarce as ever. This led to hyperinflation.

By the autumn of 1923 a loaf of bread cost 200,000,000,000 marks. Workers paid by the hour found their wages were worthless, because prices had risen since they began their shifts. People who had saved money for years saw the value of those savings wiped out.

 

French troops invaded the Ruhr

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Was the economy doomed to fail?

Members of the German middle classes enjoying the economic recovery during the late 1920s. However, with so much depending on foreign loans the German economy had imported problems for the future.
Members of the German middle classes enjoying the economic recovery during the late 1920s. However, with so much depending on foreign loans the German economy had imported problems for the future.

During the First World War, rather than raise taxes, the Kaiser had borrowed massive amounts of money by selling ‘war bonds’ to the public. By the end of the war the country was heavily in debt.The economic terms of the Treaty of Versailles involved Germany paying huge sums in reparations to the allies. Once again loans were used to prop up Germany’s economy and government spending. Whilst the Dawes Plan restructured the payments Germany had to pay, it did not reduce the total amount Germany owed to the Allies.

In addition, the Dawes Plan gave the German government access to American loans to support the German economy. This money was used to support the building of roads, railways, housing and to pay for social security payments. Private companies also took advantage of these American loans. However, with so much depending on foreign loans the German economy was storing up problems for the future. Should the American economy have difficulties these would also be experienced with Germany.

1924-1929: Problems solved?

Gustav Stresemann, the German Chancellor addresses the League of Nations after Germany’s acceptance into the organisation in 1926. Stressemann’s use of diplomacy supported the rebuilding of Germany’s economy during the second half of the 1920s.
Gustav Stresemann, the German Chancellor addresses the League of Nations after Germany’s acceptance into the organisation in 1926. Stressemann’s use of diplomacy supported the rebuilding of Germany’s economy during the second half of the 1920s.

Gustav Stresemann, leader of the German Peoples’ Party, planned to solve Germany’s economic problems through international diplomacy and investment. Stresemann became Chancellor in 1923, supported by the Social Democrats.

Stresemann wanted to deal with the problem of Germany’s reparations. Negotiations with the USA led to Charles G. Dawes, an American banker, recommending a plan which became known as the Dawes Plan. Germany would pay less money in reparations every year to make the payments easier. In addition, the USA would lend Germany money to help put the country back on her feet. Stresemann used this plan to stabilise the economy, introducing a new currency based on the value of all German land and assets. This new currency became known as the Rentenmark. By limiting the amount of credit and the amount of money in circulation, the economy was brought under control. Stresemann’s government did not last long. The Social Democrats withdrew support when Adolf Hitler was given a light sentence for attempting to seize control of the government of the region of Bavaria (known as the Beer Hall Putsch). Stresemann became foreign minister and attempted to improve relations with France and Belgium.

His agreement with them was known as the Treaty of Locarno and it said that Germany, France and Belgium would respect each others’ borders, and that Germany would not send troops into the area bordering France known as the Rhineland. The treaty was signed in October 1925 and Germany was then allowed into the League of Nations. These steps increased Germany’s international trade.

From boom to bust

Flow chart demonstrating how the Wall Street Crash affected the German economy
Flow chart demonstrating how the Wall Street Crash affected the German economy

During the 1920s, the economy of the United States was booming. It was the largest and richest economy in the world. People made fortunes by buyingStocks and Shares on the United States’ stockmarket. Many borrowed money so that they could invest. Prices kept going up, making people richer. But, too much money was chasing too few stocks resulting in the market becoming over-heated. On 3 September 1929, stock prices reached an all-time high. Shortly, prices began to drop, leading to panic and mass-selling. By October 1929, the value of the market had nearly halved. This is known as the Wall Street Crash. Suddenly everyone wanted to get their money out. Banks did not have enough money to repay everyone or to lend to businesses. As a result businesses went bust, leading to high unemployment across America.

As economies were linked together, the rest of the world suffered too. During the 1920s, the German economy had been supported by loans from American banks. After the Wall Street Crash, the Americans wanted their money back and called in the loans. America gave Germany just 90 days to start repayment. Germany could not pay. As in America, German businesses failed.

Unemployment reached more than four million in 1931, and Germany suspended payment of reparations to the Allies. By 1932 unemployment in Germany was more than six million. Despite the partial recovery following the end of the First World War, the collapse of the economy brought Germany back into crisis.

Effects of the crash

The Wall Street Crash during the autumn of 1929 had terrible consequences. Between 1929 and 1933, high unemployment led to severe poverty in Germany.
The Wall Street Crash during the autumn of 1929 had terrible consequences. Between 1929 and 1933, high unemployment led to severe poverty in Germany.

By 1932 unemployment had reached over six million. Many more were unemployed, but were not allowed to register. The real total was more like nine million. People all over Germany were desperate for money with which to feed, clothe and house their families. Consequently, it is estimated that German unemployment affected over 20 million people. As some were evicted for not paying their rent, they became homeless. Many of the homeless camped out in the parks of Berlin. Those who were in work endured low wages and poor conditions, as getting another job would be difficult. Richer people lost their savings and investments as banks failed.

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Life in Nazi-controlled Europe

Life in Nazi-controlled Europe

What happened in February