The German economy between the wars

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The German economy between the wars

• Lecture 2
• De-mobilization, inflation and the slide into
  hyperinflation (1918 1920).
• Dr. Cristiano Ristuccia
• car37_at_cam.ac.uk

2

• Post-war readjustment.
• Transition from war to peace economy.
• Position of Germany not totally untypical
• Negative effects on public finances
• but exacerbated by antiquated and cumbersome
  fiscal system
• Germany was also unable to liquidate her foreign
  assets or to gain access to large-scale foreign
  loans
• High human losses
• NO great physical destruction

3

• Post-war readjustment.
• Transition from war to peace economy.
• Position of Germany not totally untypical
• Negative effects on trade
• But economic dislocation (loss of substantial
  production base)
• Loss of traditional markets (economic nationalism
  in the successor states of the Austro-Hungarian
  Empire)
• Loss of transport for exports (terms of the
  Armistice)
• Blockade

4

• Post-war readjustment.
• Transition from war to peace economy.
• Position of Germany not totally untypical
• Transition from war to peace-production
• particularly problematic (effect of total war
  programme of 1916-17)
• Demobilization problems particularly arduous - no
  planning (rather unexpected acceleration of
  events)
• Politisation, unionisation, and extremism.

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Trade Union Membership
Source Feldman (1997), p. 80.
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Free TU membership
Source Feldman (1997), p. 125.
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Universal Suffrage ? Shift in policymaking
towards

• Redistributive policies
• Control over the means of production (as in
  forms of state proprietorship or regulation of
  industry, or Trade Union representation on the
  boards of companies, or direct management of
  private companies by workers)
• Work conditions
• Unemployment
• Consumption subsidies.

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Debt domestic and reparations.
Reich finances as a percentage of National Net
Product
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Debt renewal issues

• Public weary of new issues and over-invested in
  State Debt.
• ?
• Domestic and foreign deposits mobilised by banks
  to buy short-term floating Public Debt.
• ?
• Increase in the circulation of Treasury Bills
  (48 between October 1918 and June 1919).
• ?
• Increased risk of default associated with the
  shortening of debt maturities
• Monetisation of the debt as the bills bought by
  banks and rediscounted at the Reichsbank. October
  1918 to mid-June 1919 currency in circulation of
  69 .

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• StinnesLegien agreement (15 Nov. 1918)
• (1) recognition of the unions
• (2) mandatory collective bargaining (3)
  workers committees
• (4) eight-hour day (same wage)

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Unemployment in Germany November 1918 March
1920This is the unemployed members of the trade
unions as a percentage of the total members of
the TUs.
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Table 1. Consumer price indices 1918 100
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Index of real wages and salaries of blue collar
workers and civil servants
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• Dealing with the legacies of the war (1918-1920)
• Post-war readjustment. Transition from war to
  peace-economy
• Unemployment demobilization further strain on
  the Reichs finances
• Increased structural demand on the Reichs budget
  (i.e. war pensions)
• High prices - insufficient domestic production
  lowered standards of living proletarianisation
  of the middle class. Price subsidies.
• Debt domestic and reparations.
• Low real wages - Wage demands workers economic
  power
• Revolution political instability proportional
  representation in a fragmented and divided polity

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Why is the government so willing to accommodate
wage and price demands? Revolution and political
instability in a fragmented and divided polity

• 1917 Bolshevik revolution
• 1918 Revolution (Soldiers and workers councils)
• 1919 January Spartacist attempt (easily
  suppressed with the use of police, army and Free
  Corps in mid January 1919 and concluded with the
  assassination of Rosa Luxemburg and Karl
  Liebknecht)
• Jan April 1919 widespread food riots, strikes,
  and uprisings and subsequent brutal suppression
  by the army and the Free Corps (Ruhr, Berlin,
  Central Germany, Braunschweig, Bremen, Munich and
  Hamburg)
• April 1919 Munich Revolution (dictatorship of the
  Councils) Free Corps repression
• March 1920 Kapp Putsch - Ruhr uprising and
  General Strike
• July 1920 rioting, plundering, and strikes
  against the repeal of price subsidies and new
  taxation measures
• 20-31 March 1921 Communist Uprising in Central
  Germany
• Strength of TUs
• Universal suffrage (strength of the working class
  political organisation)
• Proportional Representation
• 5 governments and two General elections between 9
  Nov 1918 and 4 May 1921
• Extremism Stab in the Back and strength of
  communist organisations - Widespread political
  violence.

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• Hole in the west
• Double stalemate (see Eichengreen, Golden
  Fetters, Ch. 5)
• the extreme right had no interest in an
  effective tax program so long as the reparation
  bill was unsettled (Feldman 1996, p. 163).