What did the Weimar Republic do to fight the depression?

[Sid Guttridge]

Hi Phylo,

Wiki? As a reliable source?

Cheers,

Sid.

[phylo_roadking]

Puts the Hyperinflation crisis (which seemed to have been missed out of the discussion of the 1923 crisis...) all in one short paragraph instead of trawling through my dusty tomes from school. Interestingly, I was reading the first chapter of E.R Hooton's Phoenix Triumphant again today and his is the same opinion - that there were a number of occasions BEFORE the 1923 crisis that was definitely the Weimar government trying to ease out from under other provisions of the Versailles Treaty, including one threatened invasion of all of Germany by the French that was only called off at two hours' notice - but not this time. In 1923 the Germans had no freedom of action.

[Bronsky]

Neither was the curtailment of German payments in 1923 the result of an inability to pay, but a deliberate decision to call the Allied bluff over the issue (or at least, it was wishful-thought that the Allies were bluffing).

??? From Wiki, on the subject of the 1921-23 Hyperinflation...

If you want to create a thread on the reparations issue, please do so or provide a link to one that discusses that topic, as I don't feel that the 1923 hyperinflation is germane to the discussion at hand. For the record, I disagree with the Wiki figures posted above, but the reason why I don't think it's worth considering here is that the trigger for the Franco-Belgian occupation of the Ruhr was the curtailment of coal deliveries - which fell by 20% - and the German demand for a complete stop to reparation cash payments in 1924. So there's no point discussing whether Germany could or could not pay total amounts that were never paid anyway, as opposed to its ability to continue paying what it already was.

In other words - the Weimar government didn't have the money to pay pay reparations in the medium the Allies demanded. It was a REAL crisis. For "just" a political machination, it was strange that Wirth resigned as Chancellor because he couldn't come up with a solution, and his successor Wilhelm Cuno begged for a respite...

Germany had just as much coal before than after it curtailed deliveries, also the Cuno government believed it could successfully make the Allies reduce the reparations owed. In March 1922, Foreign Minister Rathenau advocated a policy of testing the Allies to see "how far the ice is capable of bearing the load", because "a policy of fulfillment pure and simple could not lead to modification" of the treaty.

And in return the French assisted by the Belgians invaded and occupied the Rhineland and the Ruhr for the next six years!

The Ruhr was occupied for 13 months, the Rhineland wasn't occupied as opposed to the Belgians and French holding bridgeheads there, and the last ones left in 1930 so either way the 6 years figure is off.

[phylo_roadking]

In March 1922, Foreign Minister Rathenau advocated a policy of testing the Allies to see "how far the ice is capable of bearing the load", because "a policy of fulfillment pure and simple could not lead to modification" of the treaty.

Strange. Rathenau has gone down in history as insisting on the fullpayment of all reparations by the Germans, while negotiating for a reduced burden. Thus infuriating German Nationalists, and leading directly to his assasination in June 1922. His murder is regarded as one of the "crisis of confidence in the mark" triggers for the hyperinflation, the mark's value against the dollar going into freefall starting on the day of the shooting after a period of much slower, steady inflation.

but the reason why I don't think it's worth considering here is that the trigger for the Franco-Belgian occupation of the Ruhr was the curtailment of coal deliveries - which fell by 20% - and the German demand for a complete stop to reparation cash payments in 1924

Actually - the "trigger" issue wasn't coal, it was Germany's stopping a shipment of telegraph poles! But the underlying issue was still "reparations"- coal, telegraph poles, intellectual property, steel etc. all being transferred to the Allies as reparations, and the rest in gold marks BECAUSE paper money reparations were fully expected to lead to hyperinflation and economic collapse in Germany. Hence the London Ultimatum pegging reparations in kind at 26% of the payments and a total of 132 billion marks in gold, payable over 66 years, with an immediate downpayment of 50 billion gold mark bonds, and 2 billion marks in 1921 in coin. It was the Poincare government's contention that Germany was refusing to pay - but that doesn't make it correct. Germany was broke - there was universal opposition to higher taxes, and when the Wiemar government looked for loans on the capital market to allow it to pay the first demand - no takers. However - foreign observers IN Germany noted the surface effects of the first stages of inflation in temporarily revived manufacturing and export...except inflation THEN began to climb into the danger zone as 1922 brought a round of strikes everywhere as pay demands - made as the value of wages fell due to inflation - were refused. With a wages-price rise spiral resulting, the government printed paper money to increase the money supply, but this only served to trigger a wave of market speculation and then hyperinflation....which of course destroyed the value of exports, the only thing the government was making any real money from for the previous couple of years!

The Allies CLAIMED this was just the Weimar government manipulating the money supply to "cook the books" and be able to complain it was too skint to pay reparations...BUT this leaves aside the fact that the Allies were demanding payment in GOLD, not paper marks AND conveniently ignored the hundreds of thousands of starving Germans existing only by the grace of the German Red Cross, or not at all. The soup kitchen queues were hard to miss, but the French did - or just didn't care.

[Bronsky]

Strange. Rathenau has gone down in history as insisting on the fullpayment of all reparations by the Germans, while negotiating for a reduced burden. Thus infuriating German Nationalists, and leading directly to his assasination in June 1922.

He was among those who advocated complying with the Versailles obligation the better to be in a position to negotiate them away, that was enough to infuriate the far right for whom the "honorable" position was not to pay a pfennig, but could also fall well short of "full payment", something that Germany generally did not do.

Given how his murderers committed suicide, we can't tell what precisely led "directly" to his assassination. I think that on top of his being a Jew and views on Versailles, the Rapallo treaty which had just been signed probably came as the last straw to the German ultra-nationalists.

His murder is regarded as one of the "crisis of confidence in the mark" triggers for the hyperinflation, the mark's value against the dollar going into freefall starting on the day of the shooting after a period of much slower, steady inflation.

What is referred to as the period of relative stabilization lasted until mid-1921. The average value of a dollar had been 63 marks in 1920, it remained at that level until May 1921, then climbed to 70 marks and was at 200 by the end of the year, for a yearly average of 104 marks to a dollar. By the end of May, 1922 a dollar was worth 290 marks. Some stabilization...

It did plunge even more sharply afterwards, with a record high in November and December at over 7 million.

But the underlying issue was still "reparations"- coal, telegraph poles, intellectual property, steel etc. all being transferred to the Allies as reparations, and the rest in gold marks BECAUSE paper money reparations were fully expected to lead to hyperinflation and economic collapse in Germany.

The Allied governments knew full well what printing money freely meant, and had no wish for Germany to use that as a solution to default on its reparations. The German government did print money like crazy, mostly because of a political inability to impose healthier public finances on big industry even though of course the consequences of systematic budgetary deficit were always blamed on the reparations (never mind the fact that their amount kept being reduced, let alone paid). The result was a short economic boom until 1922, during which the state and various large industrial businesses used inflation to write off their debts.

Now I'm not going to claim that the Allied policy was always sensible, far from that, but your claim was that Germany stopped paying because it no longer had any cash. Are we to believe that there no longer was any coal in Germany, then, since deliveries stopped?

It was the Poincare government's contention that Germany was refusing to pay - but that doesn't make it correct. Germany was broke - there was universal opposition to higher taxes, and when the Wiemar government looked for loans on the capital market to allow it to pay the first demand - no takers.

I like that. The Weimar government didn't feel it could survive politically if it raised taxes - which may well have been true - and from that you conclude that Germany was broke? What a strange logic.

The Allies CLAIMED this was just the Weimar government manipulating the money supply to "cook the books" and be able to complain it was too skint to pay reparations...BUT this leaves aside the fact that the Allies were demanding payment in GOLD, not paper marks AND conveniently ignored the hundreds of thousands of starving Germans existing only by the grace of the German Red Cross, or not at all. The soup kitchen queues were hard to miss, but the French did - or just didn't care.

The Allies knew full well the difference between gold and paper marks :roll: - they had been the ones specifically asking for gold marks after all.
And manipulating the money supply could be an effective way to plead insolvency, of which your post is a good illustration. After all, you're using the consequences of very loose budgetary policies ("hundreds of thousands of starving Germans") as evidence that Germany was broke.

[phylo_roadking]

He was among those who advocated complying with the Versailles obligation the better to be in a position to negotiate them away

Exactly - which is a far cry from what you said originally -

Foreign Minister Rathenau advocated a policy of testing the Allies to see "how far the ice is capable of bearing the load", because "a policy of fulfillment pure and simple could not lead to modification" of the treaty

He believed a full payment of reparations COULD lead to modification.

The average value of a dollar had been 63 marks in 1920, it remained at that level until May 1921, then climbed to 70 marks and was at 200 by the end of the year, for a yearly average of 104 marks to a dollar. By the end of May, 1922 a dollar was worth 290 marks. Some stabilization...

Yes some stabilization...because by July, 1922 it had climbed to 670 - and a month later to 4500! The 18-month to two-year period of slow inflation BEFORE that Rathenau's death bolstered Germany's exports and thus government income from export duties. Because the government couldn't "grow" income from increasing the tax burden on the people, the recovery of Germany's export trade and government income from export duties was one of the few areas where its income rose.

Are we to believe that there no longer was any coal in Germany, then, since deliveries stopped?

Is there any point in sending coal and telephone poles and anything ELSE to the value of 26% of the demand for payment in kind - when it didn't have the gold - and couldn't buy it - to the value of the immediate payment of 1 billion gold marks and 2 billion by the end of the year the Allies were demanding? Sending goods in kind wasn't going to hold off the French, and would only be throwing good "money" after bad, as the saying goes. When you can't pay a bill - you don't send HALF the money if you KNOW your creditor will ONLY accept the FULL amount, not half - or 26% - of the amount owed....for they foreclose ANYWAY and that money you've sent is pointlessly lost. And let's face it - the Allies, particularly France, gave NO leeway oin this at all. With the position the Allies took on this - payments had to be 100% or nothing at all; there was no arrangement at that time for the "bill" to be credited by whatever you COULD send - neither in monetary or political terms.

P.S. given the range of strikes going on at that point...was the German coal industry actually at work???

I like that. The Weimar government didn't feel it could survive politically if it raised taxes - which may well have been true - and from that you conclude that Germany was broke? What a strange logic.

No - it was broke because inflation destroyed the value of what money it DID have prior to hyperinflation. THEN hyperinflation destroyed its few areas of decent income. You forget what I said above about export duties being the only growth area of public finances; as well as these vanishing because inflation destroyed Germany's export trade....the Allies had demanded 26% of the total of THAT income AS WELL in the London Ultimatum!

In effect, not only were they demanding reparations - they were demanding a cut of the base income from which the Weimar government was trying to pay them!

If there was any manipulating being done - THAT last certainly counts....on the part of the Allies! Not only were they choosing to misinterpret what was happening in Germany - they were intentionally depriving Germany of the means to raise the finances to pay their money demands!

[Bronsky]

Exactly - which is a far cry from what you said originally -

Foreign Minister Rathenau advocated a policy of testing the Allies to see "how far the ice is capable of bearing the load", because "a policy of fulfillment pure and simple could not lead to modification" of the treaty

1. I didn't say anything, but quoted Rathenau's own words, as found in Marc Trachtenberg's "Reparation in World Politics: France and European Diplomacy, 1916-1923".

2. It's not "a far cry": Rathenau opposed fighting the principle of reparations, as opposed to generally appearing to comply. The quote opposed "a policy of fulfillment pure and simple" because his ultimate goal was to gain a renegotiation.

3. That means Rathenau's position antagonized those - in the German far right, though the feeling was widespread in Germany - who refused the very principle of reparations, but it came well short of his"[going] down in history as insisting on the fullpayment of all reparations by the Germans" (your words, my emphasis).

We do agree that Rathenau wanted to pay some reparations in order to negotiate better terms for his country, but I believe you are mistaken in the "full payment" part, repeated in the next post: "He believed a full payment of reparations COULD lead to modification.". Note that grammar is also on my side: if reparations were being paid in full, there would be nothing left to modify

The 18-month to two-year period of slow inflation BEFORE that Rathenau's death bolstered Germany's exports and thus government income from export duties. Because the government couldn't "grow" income from increasing the tax burden on the people, the recovery of Germany's export trade and government income from export duties was one of the few areas where its income rose.

At the same time, devaluation of the paper mark made German exports more competitive. Given how prewar German trade had shown a structural deficit, that was certainly a good thing if additional resources were to be found to pay for reparations. The gold value of German exports from June 1921 to May 1922 increased by 35% while the volume exported increased by two thirds. Meanwhile, reparations only amounted to about a third of the historical trade deficit.

I'm not sure what your point here is anyway, you seem to be drawing an increasingly strong causal link between Rathenau's death and hyperinflation - which would be somewhat rash in face of the available information - and from there to... where? The Allies weren't the ones who murdered Rathenau, German fanatics did, after he signed the Rapallo treaty which had nothing to do with reparations.

Is there any point in sending coal and telephone poles and anything ELSE to the value of 26% of the demand for payment in kind - when it didn't have the gold - and couldn't buy it - to the value of the immediate payment of 1 billion gold marks and 2 billion by the end of the year the Allies were demanding?

There obviously seems to be a point in meeting obligations, as a gesture of goodwill if nothing else. As to the Germans not having the gold, the following is quoted from Niall Ferguson's "The Pity of War", p. 414 of my edition, chapter "How (not) to pay for war".
"Nor was the annual payment being demanded from Germany excessive. As we have seen, annual reparations as scheduled by the London Ultimatum implied a total annuity of around 3 billion goldmarks. At least 8 billion goldmarks and perhaps as much as 13 billion goldmarks were actually handed over in the period 1920-23: between 4 and 7 per cent of total national income. In the hardest year, 1921, the figure was just 8.3 per cent. This was far less than Keynes's guess of between 25 and 50 per cent of national income. ...
... Between 1919 and 1932 Germany paid altogether 19.1 billion goldmarks in reparations; in the same period she received 27 billion goldmarks in net capital inflows, mainly from private investors, which were never repaid as a result of her defaults in 1923 and 1932."

Note that in real terms, the German public debt in 1922 was back to what it had been in 1914 whereas the French public debt was 5 times that of 1914 and the British one ten times higher. Germany did have the ability to pay, it largely chose not to.

Sending goods in kind wasn't going to hold off the French, and would only be throwing good "money" after bad, as the saying goes. When you can't pay a bill - you don't send HALF the money if you KNOW your creditor will ONLY accept the FULL amount, not half - or 26% - of the amount owed....for they foreclose ANYWAY and that money you've sent is pointlessly lost. And let's face it - the Allies, particularly France, gave NO leeway oin this at all. With the position the Allies took on this - payments had to be 100% or nothing at all; there was no arrangement at that time for the "bill" to be credited by whatever you COULD send - neither in monetary or political terms.

You're confusing very different things.

26% is the percentage of German exports that must be paid, on top of an annual 2 billion gold marks. If paid in full, payments would amount to 3 billion annually, in order to pay off a total bill of 50 billion gold marks bearing 5% interest (of which 9 billion had already been paid by 1922, leaving 41 billion). WHEN that amount was paid, THEN an additional 82 billion gold marks would have to be paid, with that amount not bearing interest i.e. payment could be spread over decades if necessary.

So let's not claim that Germany was trying to pay 26% of what it owed, nor that it was somehow supposed to find 132 billion gold marks on short notice.

P.S. given the range of strikes going on at that point...was the German coal industry actually at work???

The LoN statistics are available on line for you to draw your own conclusions on that score.

No - it was broke because inflation destroyed the value of what money it DID have prior to hyperinflation.

The value of the gold mark wasn't affected by inflation, only the value of the paper mark was, which reparations couldn't be paid out of. In your previous post, you were the one bringing up the point that the cruel Allies had insisted on not being paid in paper marks, remember?

So gold was gold, the inflation didn't change anything in the German position to generate it (or foreign exchange, same difference). In fact, depreciation of the mark boosted German tax returns for a while, see above.

You forget what I said above about export duties being the only growth area of public finances; as well as these vanishing because inflation destroyed Germany's export trade....the Allies had demanded 26% of the total of THAT income AS WELL in the London Ultimatum!

You need to keep track of what is being posted, when, and by whom.

Regarding my forgetting "what [you] said above", how could I in my last post have "forgotten" what you had not yet written in reply? I'm good, but not that good...

Regarding inflation destroying Germany's export trade, that's simply wrong, see above. And yes, the Allies had demanded 26% of that income in the London ultimatum, as part of the reparation payments, not as well as them. In other words, the 26% of the export profits would go toward paying off the German reparation debt.

In effect, not only were they demanding reparations - they were demanding a cut of the base income from which the Weimar government was trying to pay them!

That is simply wrong, see above. They were demanding the equivalent of a 26% tax rate on that base income, and that all of it serve to pay off reparations.

[phylo_roadking]

if reparations were being paid in full, there would be nothing left to modify

No - paying in full he hoped would allow Germany to renegotiate with the Allies some time in the next few DECADES of paying reparations...

At the same time, devaluation of the paper mark made German exports more competitive. Given how prewar German trade had shown a structural deficit, that was certainly a good thing if additional resources were to be found to pay for reparations. The gold value of German exports from June 1921 to May 1922 increased by 35% while the volume exported increased by two thirds.

...and THEN collapsed - for so did german exports. Limited inflation...or rather devaluation of the mark...aided german industry; but once inflation went into freefall, exports collapsed again.

you seem to be drawing an increasingly strong causal link between Rathenau's death and hyperinflation - which would be somewhat rash in face of the available information - and from there to... where? The Allies weren't the ones who murdered Rathenau, German fanatics did, after he signed the Rapallo treaty which had nothing to do with reparations

Not a causal link - except for the factor his opinions on paying reparations likely played in the motivations of his killers; but certainly a temporal turning point, almost to the day.

HOWEVER - it would be interesting to look at German papers of the time to see what effect his death had on the population's confidence in the government's ability to be able to deal with the economy...and to resolve the reparations issue for 1922

There obviously seems to be a point in meeting obligations, as a gesture of goodwill if nothing else. As to the Germans not having the gold, the following is quoted from Niall Ferguson's "The Pity of War", p. 414 of my edition, chapter "How (not) to pay for war".
"Nor was the annual payment being demanded from Germany excessive. As we have seen, annual reparations as scheduled by the London Ultimatum implied a total annuity of around 3 billion goldmarks. At least 8 billion goldmarks and perhaps as much as 13 billion goldmarks were actually handed over in the period 1920-23: between 4 and 7 per cent of total national income. In the hardest year, 1921, the figure was just 8.3 per cent. This was far less than Keynes's guess of between 25 and 50 per cent of national income. ...

Why? There was no goodwill on the part of the Allies in any part of this...

That's an interesting paragraph. Ferguson seems to have forgotten a number of things, including the 50 billion in gold mark bonds upfront in 1921, a lien on the Germany' gold marks. "At least 8 billion goldmarks and perhaps as much as 13 billion goldmarks were actually handed over in the period 1920-23"...I note he doesn't say how much in each year... "as much as 13 billion goldmarks were actually handed over in the period 1920-23: between 4 and 7 per cent of total national income. In the hardest year, 1921, the figure was just 8.3 per cent"...he gives the gold handed over as a percentage of the national income - but he DOESN'T give us a percentage figure for how much gold marks made up of that total national income! That could be 8.3%....when gold could have made up only 8.31% of the national income

Note that in real terms, the German public debt in 1922 was back to what it had been in 1914 whereas the French public debt was 5 times that of 1914 and the British one ten times higher. Germany did have the ability to pay, it largely chose not to

Britain and France were both already carrying HUGE war debts on the Americans. Germany had the ability to pay, and did - until events early in 1922, and culmination of trends in late 1921, destroyed her ability to pay THEN.

You're confusing very different things.

26% is the percentage of German exports that must be paid, on top of an annual 2 billion gold marks. If paid in full, payments would amount to 3 billion annually, in order to pay off a total bill of 50 billion gold marks bearing 5% interest (of which 9 billion had already been paid by 1922, leaving 41 billion). WHEN that amount was paid, THEN an additional 82 billion gold marks would have to be paid, with that amount not bearing interest i.e. payment could be spread over decades if necessary.

So let's not claim that Germany was trying to pay 26% of what it owed, nor that it was somehow supposed to find 132 billion gold marks on short no

Oh dear, my bad...I SHOULD have said with scientific accuracy "When you can't pay a bill - you don't send HALF the money if you KNOW your creditor will ONLY accept the FULL amount, not half - or 26% - of the amount owed that year" I wasn't talking about the WHOLE of the bill - that specific paragraph of mine

Sending goods in kind wasn't going to hold off the French, and would only be throwing good "money" after bad, as the saying goes. When you can't pay a bill - you don't send HALF the money if you KNOW your creditor will ONLY accept the FULL amount, not half - or 26% - of the amount owed....for they foreclose ANYWAY and that money you've sent is pointlessly lost. And let's face it - the Allies, particularly France, gave NO leeway oin this at all. With the position the Allies took on this - payments had to be 100% or nothing at all; there was no arrangement at that time for the "bill" to be credited by whatever you COULD send - neither in monetary or political terms.

...was talking about the not sending of goods in 1922.

So let's not claim that Germany was trying to pay 26% of what it owed, nor that it was somehow supposed to find 132 billion gold marks on short notice

Nor was I. As I've just said I was referring to the issues in 1922.

The value of the gold mark wasn't affected by inflation, only the value of the paper mark was, which reparations couldn't be paid out of. In your previous post, you were the one bringing up the point that the cruel Allies had insisted on not being paid in paper marks, remember?

And as I had already said TOO - in 1922 noone would sell Germany gold on the markets when it tried to purchase gold to pay their reparations with. Using what gold they had to buy gold would be somewhat defeating the purpose of actually going searching for MORE of the medium the Allies mandated they would accept...

Regarding inflation destroying Germany's export trade, that's simply wrong, see above

Strangely enough - historical events prove it actually did.

And yes, the Allies had demanded 26% of that income in the London ultimatum, as part of the reparation payments, not as well as them. In other words, the 26% of the export profits would go toward paying off the German reparation debt.

phylo_roadking wrote:
In effect, not only were they demanding reparations - they were demanding a cut of the base income from which the Weimar government was trying to pay them!

That is simply wrong, see above. They were demanding the equivalent of a 26% tax rate on that base income, and that all of it serve to pay off reparations.

So you're saying that the Allies demanding 26% of German export duties - no matter where it was going to in the reparations sum - DIDN'T reduce by 26% the Weimar government's income from the one area in which they were making real money from, given that they couldn't raise the tax burden? That the Allies taking 26% of export duty profit didn't REDUCE the government's income to 74% of what it had been from those duties?

[waldzee]

Unfortunatley, the Brunning Government was fixated on tightening the freewheeling German /MittelEurope lending network at the very point where it should have eased credit restrictions.

Rathenau's death was a real tragedy , as he saw German electric generation patents & production as the way of of the 198209's crisis.

[waldzee]

Unfortunatley, the Brunning Government was fixated on tightening the freewheeling German /MittelEurope lending network at the very point where it should have eased credit restrictions.

Rathenau's death was a real tragedy , as he saw German electric generation patents & production as the way out of the 198209's crisis.

@Pylo:

Note that in real terms, the German public debt in 1922 was back to what it had been in 1914 whereas the French public debt was 5 times that of 1914 and the British one ten times higher. Germany did have the ability to pay, it largely chose not to

Britain and France were both already carrying HUGE war debts on the Americans. Germany had the ability to pay, and did - until events early in 1922, and culmination of trends in late 1921, destroyed her ability to pay THEN.
+++++++++++++++++++++++++++++++++++++++++++++++++++++
TehOil & natural rubberprice booms of the first ( pr war) decade allowed both nations to armup with lowpublic debt.

http://www.americanforeignrelations.com ... power.html

France & Germany did not have those options...
there were 'alturnatives' - for instance, a Danzig with the status of Singapore, a free state with free customs relations with both Poland & the third Reich. http://www.gmhistorian.btinternet.co.uk ... licies.htm