Sunday, December 2, 2018

The German Economy During the Interwar Period

The interwar period was the period between the end of World War I in November, 1918 and the beginning of World War II in September, 1939.

World War I was very economically costly for all countries involved. Countries went into a state of total war and sacrificed all available resources for the war. When the war ended, Article 231 of the Treaty of Versailles, also known as the War Guilt clause, held Germany responsible for the war. Germany was required to make several territorial concessions and pay war reparations; these reparations are roughly equivalent to $442 billion USD in 2018.


On November 9, 1918, Kaiser Wilhelm II abdicated the German and Prussian thrones with no designated successor, and in February, 1919, a new democratic government known as the Weimar Republic was formed. Between 1921 and 1923, the German Papiermark, which was the currency of the Weimar Republic, underwent hyperinflation.

Germany had suspended the gold standard when war broke out and had financed the war entirely on borrowed money. The government had believed that it would be able to pay off the debt by winning the war, annexing territories abundant in resources, and imposing large reparations on the defeated Allies. However, this strategy failed when Germany lost the war; the Weimar Republic had a massive war debt that it could not afford, and its situation was only worsened by the previously mentioned war reparations imposed on them by the Allies.

In order to pay off its debts, Germany began printing more money, but since Germany did not have the economic resources to back its currency, the value of the Papiermark decreased. This caused the prices of goods to rise rapidly and increased the cost of operating the government, which could not be financed by raising taxes because those taxes would be payable in the ever-falling German currency. When the German people realized that their money was rapidly losing value, they tried to spend it quickly; this increased monetary velocity and caused prices to rise even faster, creating a vicious cycle. However, if the government and banks had stopped inflation, there would have been immediate bankruptcies, unemployment, strikes, hunger, violence, and possibly even revolution. 

Before World War I, the exchange rate of the Papiermark against the US dollar was valued at 4.2 marks per dollar. However, by November, 1923, one US dollar was worth 4,210,500,000,000 German marks.



In 1929, the American stock market crashed, which had a very large effect on the European economy. The United States stopped lending money to Europe, which hurt European businesses and caused a drastic rise in unemployment. The German economy was on the brink of collapse, and with most of the produce and profit being sent to the Allies in the form of war reparations, recovery was almost impossible. By 1932, almost 6 million Germans were unemployed.

The suffering economy greatly attributed to the rise in popularity of Hitler and the Nazi Party. When Adolf Hitler became Chancellor in 1933, he introduced numerous policies aimed at both improving the economy and rearming Germany for war. Through exploitation, such as the forced slave labor of non-Germans, the Nazi Regime brought about a rapid economic recovery in the 1930’s.


Sources:
https://mises.org/library/hyperinflation-germany-1914-1923
https://en.wikipedia.org/wiki/European_interwar_economy
https://www.britannica.com/place/Weimar-Republic
https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic
https://www.measuringworth.com/datasets/exchangeglobal/
https://en.wikipedia.org/wiki/Economy_of_Nazi_Germany
http://www.caseyresearch.com/kkcImages/1258143033-PaperMark_NEW.JPG

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