I think one of the largest, if not the most important, factors in the German economic crisis was the fact that the German government gambled on a big win in WWI. They had to raise money for the war effort and they did that by selling promises (war bonds that were not upheld) to their citizens. This would have been fine if they had won, the allies would have had to pay those debts, but instead that money was lost and the Germans found themselves in an even great debt from the Treaty. So the German government printed more money to satisfy their citizens, and this move devalued the currency to the extreme. As a result of this, companies could no longer afford to keep up with the wage and resource increases, decreasing production, and peoples' life savings vanished into nothing almost overnight. I am also confused about whether this was actually a crisis or not as one article says it was, but the other says it only lasted until the new Rentenmark currency was introduced in late 1923, only months after it began.
Germany was crippled. Not only do they need to pay reparations to those cited in the Treaty, they're government is constantly subject to change. The reading mentioned how the economy couldn't maintain stability because of all the changes taking place within the populace, the way of thinking, and government. If Germany could focus all these changing entities into one idea for the future, stability could be attained.
I completely agree with Jeff. Germany had such high hopes and expectations for winning WWI, that when it actually came to the point of them realizing that they weren't going to win, it was too late. So much money had already been invested into military supplies and the German government, having power at the time, was confident that they would be victorious; however, things did not end up that way. The Treaty of Versailles left Germany in great debt, and when they tried to print more money, that sent them into great inflation, completely devaluing their currency, and leaving them in a state of panic. A citizen's earnings for one day were completely worthless the next. I see a lot of cause and effect in this. Citizen's not being able to buy certain items, and only maybe being able to buy the essentials, left companies in a bad situation. Prices were increasing, causing citizens to only purchase essentials, and as a result, hurting companies' income.
I also believe that a great factor to Germany's economic crises had to do with their confidence of WWI. Going into the war with such reassurance that they would win, led to an even greater loss. After the war, Germany was in a great struggle to repay the debts to the countries it had caused harm to. From that struggling state Germany also had to deal with the battle of reconstructing their industrial production and the value of their currency. Generally, Germany was in a mess and the war lead to a huge crises Germany had to deal with on its own.
Germany's economy in 1922-23 looks disturbingly like America's economy today, with recently rising industrial production, but stagnant workers' wages and falling savings by workers. At the same time there were sudden new fortunes for a few, and a taxation system that could not meet the heavy war related pension costs for veterans, and the widows and children of those killed in the war. Germany also had to pay war reparations, dictated in the Versailles Treaty, to France and Belgium. Also, the banking sector was overdeveloped. But some things were different -- there were too few cash reserves to keep the system going. In Germany, this led to an inflation bubble, which was short, but terrifying. It was only ended with help from outside Germany to restructure Germany's finances. And the temporary instability was damaging; Hitler's attempt to seize the government, the "Beer Hall Putsch," happened just at the height of the inflation.
I think that the primary reason for Germany's economic slump in 1922-1923 was that there were immense feelings of anticipation surrounding the possible outcome of WWI. German governmental officials strongly believed that there was no way that Germany would lose WWI. When Germany lost the war miserably, the economy went down because Germany had to pay other countries (that they had wronged) reparations. In response to this, the banking system in Germany began printing enormous amounts of currency at an unnecessarily fast rate. This only made matters worse, because the value of the German mark plummeted. People soon were carrying around worthless money. The overproduction of money simply put Germany in another heap of trouble.
For starters, Walter Rathenau was assassinated. An experienced politician, he also had a thorough understanding of Germany's economic situation. He tried for an economic merger between European countries. When he was assasinated, his solutions died with him. Germany simply did not have the leadership necessary to pull itself out of it's depression.
Germany got themselves into their financial crisis by assuming they were going to win the war. They believed other European countries would be paying them after they had been conquered. The government sold war bonds to get money for the war but when they lost, the people could not collect their bonds. The government caused great inflation by printing huge amounts of new money to repay their debts which flooded the economy. The government printed even more money to pay benefits to the staggering amount of families who lost relatives in the war.
To further inflation, the Germany peoples' values diminished with the economic situation. The public behaved differently in such a harsh circumstance. Society unraveled further because of inflation and in turn made the situation worse.
The war reparations Germany had to pay to other nations actually didn't make much of an impact on the economy.
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