Lord D'Abernon, the British ambassador to Berlin, warned the Allies that Germany would not be able to repay, but France insisted, and then occupied German ports:. The figures that came out of Paris for German consideration, although nowhere near what the French had demanded, provoked shock in Germany To avoid high taxes, the rich instead spent as much money that they could.
However, it highlighted the class divide in Germany, where lower income earners were having trouble getting by:. The extravagance of the rich one hears of is very sad, but it is said to be largely due to high taxation, as they feel that unless they spend it the government will get most of it Unfortunately the persons from whom it is most difficult to collect taxes are those who most should pay, that is to say war profiteers and particularly traders in contraband goods who in many cases have not kept accounts.
Matthias Erzberger, a Socialist leader who was a big proponent of taxation, was assassinated in August The murder of Erzberger The mark, at to the pound in mid-August, had sped downwards to over by mid-September, and was still going down. Germans everywhere were doing everything they could to convert their marks into other currencies. A councillor at the British embassy in Berlin wrote:.
Millions of persons in this country are, I think accurately, reported to be buying foreign currencies in anticipation of fresh tax burdens, and to be hoarding foreign bank notes I hardly know a single German of either sex who is not speculating in foreign currencies, such as Austrian crowns, Polish marks and even Kerensky roubles.
In as much also as a fall in the value of the mark is inevitably accompanied by a rise in the quotation of industrial shares, speculators are supposed to be operating systematically to depreciate the mark with a view to reaping the benefit of higher quotations in the share market. In the inevitable event that Germany was not able to make good on the reparations to the Allies by the end of February, , France would occupy a major economic region of Germany:.
Germany now needed to find million gold marks before the end of February to pay the Allies, and knew that she faced sanctions by France — the occupation of the Ruhr — in case of default. Default would come unless London helped. The London bankers, however, refused to give the necessary credits unless Germany put her financial house in order and unless French demands became more reasonable. Since no condition could apparently be met without the fulfilment of the others as its preconditions, German bankers now began to fear that the mark might fall to Austrian levels.
Many shops declare themselves to be sold out. Others close from one to four in the afternoon, and most of them refuse to sell more than one article of the same kind to each customer.
The rush to buy is now practically over as prices on the whole have been raised to meet the new level of exchange. In almost every camera shop, however, the sight of a Japanese eagerly purchasing is still a common feature. But on the whole, as far as Berlin is concerned, it is the Germans themselves who are doing most of the retail buying and laying in stores for fear of a further rise in prices or a total depletion of stocks.
It appeared at a conference in December that the Allied powers finally were realizing that holding Germany to the following year's reparation payments were unrealistic.
This led to a surge in the mark:. This consideration sent a wave of confidence crashing dangerously back through the exchanges — confidence that at last the intolerable blight on the financial system would be removed. On December 1, , the mark soared upwards, regaining a quarter of its November value. By the time it reached to the pound against its November average of 1, the paper-mark prices of many stocks and shares, although still well above the levels of December , had declined by half or more By the end of , workers had lost so much faith in the government that many just stopped voting.
The economic hardships brought about by inflation were evident in everyday prices:. In the eight years since , the price of rye bread had risen by 13 times; of beef by Those were the commodities which had fared best. Sugar, milk at 4. These were only the official prices — real prices were often a third higher — and all these prices were roughly half as much again as in October, only two months before.
When the mark was strong, companies went bankrupt as share prices plummeted. Thus, an inverse correlation was established:. The figures were the most indicative; for in comparing the number of bankruptcies during the various months of the year it could be shown that a falling mark was associated with a decline in bankruptcies, and vice-versa.
The largest number, , was in the spring when the mark stood highest; but after it reached its lowest in November the number was The Frankfurter Zeitung commented: 'It gives some inkling of the awful debacle which may be expected if a rapid and permanent improvement of the mark actually takes place.
Owners of large industrial conglomerates benefitted from the inflation, so they constantly reminded the populace that amid the economic chaos, employment was still very high:. Hugo Stinnes himself, the richest and most powerful industrialist in Germany, whose empire of over one-sixth of the country's industry had been largely built on the advantageous foundation of an inflationary economy, paraded a social conscience shamelessly.
He justified inflation as the means of guaranteeing full employment, not as something desirable but simply as the only course open to a benevolent government. It was, he maintained, the only way whereby the life of the people could be sustained In the summer of the small businessman saw his enemy in the big businessman, personified by Herr Stinnes, 'the greatest obstacle to currency reform', as Lord D'Abernon described him.
Walter Rathenau was a the German foreign minister, and he was often linked to the unpopular stance that Germany should find a way to pay its reparations. He was not trusted by the right-wingers in government. Rathenau, a Jew like Erzberger, had just undergone, like Erzberger, a vitriolic attack in the Reichstag from the Rightist leader Dr Helfferich.
A few hours later, as Rathenau was driven from his home to the Foreign Office, the path of his car was blocked deliberately by another, while two assassins in a third car which had been following riddled him with bullets at close range.
A bomb, thrown into his car for good measure, nearly cut his body in two. It is no exaggeration to say that cultured German men and women of high social standing openly advocate the political murder of Jews as a legitimate weapon of defence. They admit, it is true, that the murder of Rathenau was of doubtful advantage Even in Frankfort, with a prepondering Jewish population, the movement is so strong that Jews of social standing are being asked to resign their appointments on the boards of companies A confidential memorandum prepared for the Chancellor of Germany regarding the incident indicated suspicion that someone behind the scenes was trying to impede the government's ability to print money:.
An extraordinary amount of paper money had been needed in June, causing the Reichsbank to issue 11, milliard marks in new notes. Owing to strikes, the usual inflow of these notes back into the bank had not happened, so that there were none in reserve In spite of the readiness of the trade unions to go ahead with the new paper, the printers themselves suddenly withdrew their consent.
It seemed probable that hidden and illicit leaders were trying to seize the State by the throat. In a strange move, the German government decided to go on holiday, which destroyed confidence and exacerbated the crisis:. At what might otherwise have been the height of the immediate crisis at the end of July , the Reparations Commission decided to take its summer holidays, effectively postponing any settlement of the exchange turmoil until mid-August; and [French prime minister] M. Poincare, bent as ever it was believed on Germany's destruction, sent a Note to Berlin accusing the government of wilful default on its debts, and threatening 'retortion'.
The effect on the financial situation was calamitous. The rise in prices intensified the demand for currency, both by the State and by other employers The panic spread to the working classes when they realised that their wages were simply not available.
The disadvantaged middle class was the class that maintained communication with the outside world, so foreigners' view of the domestic situation in Germany was especially downbeat:. Since these were fixed according to the average rate paid to [a chauffeur's] class of worker, [the chauffeur] was not suffering unduly except in so far as wage rises, a monthly occurrence by this time, always lagged a little behind price rises which took place weekly, if not daily.
This was the case for the vast mass of artisans and workmen, but of course It was from this latter group Inflation was soaring by Autumn of , and the working class began to lose their edge:. Already, however, a new element had joined the economic crisis. For the first time the wages paid for labour began to lag behind the rise in prices, noticeably and seriously, in spite of everything the monopoly of the unions could do about it.
President Ebert, pleading Basic staples were becoming increasingly out of reach as the mark plunged and German consumers lost an extraordinary amount of purchasing power:. A litre of milk, which had cost 7 marks in April and 16 in August, by mid-September cost 26 marks. The war was expected to be short, so it was financed by government borrowing, not by savings and taxation. In Germany prices doubled between and After four disastrous years Germany had lost the war.
Under the Treaty of Versailles it was forced to make a reparations payment in gold-backed Marks, and it was due to lose part of the production of the Ruhr and of the province of Upper Silesia. The Weimar Republic was politically fragile.
But the bourgeois habits were very strong. Ordinary citizens worked at their jobs, sent their children to school and worried about their grades, maneuvered for promotions and rejoiced when they got them, and generally expected things to get better.
But the prices that had doubled from to doubled again during just five months in Milk went from 7 Marks per liter to 16; beer from 5. There were complaints about the high cost of living. Professors and civil servants complained of getting squeezed. Factory workers pressed for wage increases.
An underground economy developed, aided by a desire to beat the tax collector. On June 24, , right-wing fanatics assassinated Walter Rathenau, the moderate, able foreign minister. Rathenau was a charismatic figure, and the idea that a popular, wealthy, and glamorous government minister could be shot in a law-abiding society shattered the faith of the Germans, who wanted to believe that things were going to be all right.
Rathenau's state funeral was a national trauma. The nervous citizens of the Ruhr were already getting their money out of the currency and into real goods -- diamonds, works of art, safe real estate. Now ordinary Germans began to get out of Marks and into real goods. Pianos, wrote the British historian Adam Fergusson, were bought even by unmusical families. Sellers held back because the Mark was worth less every day.
As prices went up, the amounts of currency demanded were greater, and the German Central Bank responded to the demands. Yet the ruling authorities did not see anything wrong. A leading financial newspaper said that the amounts of money in circulation were not excessively high. Rudolf Havenstein, the president of the Reichsbank equivalent to the Federal Reserve told an economics professor that he needed a new suit but wasn't going to buy one until prices came down.
Why did the German government not act to halt the inflation? It was a shaky, fragile government, especially after the assassination. The vengeful French sent their army into the Ruhr to enforce their demands for reparations, and the Germans were powerless to resist.
More than inflation, the Germans feared unemployment. In Communists had tried to take over, and severe unemployment might give the Communists another chance.
The great German industrial combines -- Krupp, Thyssen, Farben, Stinnes -- condoned the inflation and survived it well.
A cheaper Mark, they reasoned, would make German goods cheap and easy to export, and they needed the export earnings to buy raw materials abroad. Inflation kept everyone working. So the printing presses ran, and once they began to run, they were hard to stop. To maintain stability in government, many of the old civil servants and military leaders stayed in similar positions of power, and therefore still had enormous influence.
The new Proportional Representation system of voting in the Weimar Republic caused political instability. Whilst the new system intended to reduce political conflicts, it in fact resulted in many different parties gaining a small amount of seats in the Reichstag.
This meant that no one party had overall an overall majority, and parties joined together to rule in coalitions. In these coalitions, each party had different aims which often led to disagreements on policy. These disagreements made it difficult for the Reichstag to govern.
In addition to this difficulty, the unpopular reparations payments, which Germany were forced to pay through the Treaty of Versailles , put a huge amount of economic pressure on the government.
These tough economic and political circumstances made people susceptible to extreme political views. In order to keep control and peace in the early s, Friedrich Ebert relied heavily on the traditionally right-wing army and Freikorps.
Throughout the war, the value of the German currency, the Reichsmark, fell considerably. In , one British pound was equal to twenty German marks. In , one British pound was equal to marks.
To try and meet the requirements of government spending and alleviate the post-war situation, the government had little choice but to print more money.
This in fact made the inflationary situation worse and again reduced the value of the Reichsmark. Meanwhile, in the midst of this economic crisis, Germany continued to attempt to pay the reparations as dictated by the Treaty of Versailles.
The reparations had to be paid in gold marks, which maintained its value, whilst the German currency declined. This made it more and more expensive to pay. In , Germany requested permission to suspend their payments whilst their economy recovered. This was refused by the Allies. By , Germany reached breaking point as inflation started to run out of control. They were unable to continue paying reparations. On the 9 January , in response to the lack of payment of reparations, France and Belgium invaded the Ruhr.
The Ruhr was a region of Germany which contained resources such as factories. The French and Belgians intended to use these resources to make up for the unpaid reparations.
German factory workers refused to co-operate with the occupying French and Belgian armies. With the German governments support, the workers went on strike. 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.
With the French and Belgian occupation of the Ruhr, goods in Germany became even more difficult to obtain, and therefore very expensive. To fix this problem and pay the striking Ruhr workers, the government again printed more money. This led to hyperinflation.
By the autumn of a loaf of bread cost ,,, marks. Workers paid by the hour found their wages were worthless, because prices had risen since they began their shifts. The situation was critical. It was at this moment of crisis that Gustav Stresemann was elected as chancellor in September These improved relationships would then in turn help him to secure a reasonable revision to the treaty. Following this policy, Stresemann made the unpopular decision to start repaying the reparations and order the striking workers of the Ruhr to return to work.
Stresemann also appointed Hjalmar Schacht , a banker, to tackle the issue of hyperinflation. In November , Schacht introduced a new German currency, the Rentenmark, based on land values and foreign loans. One Rentenmark was worth 10,,,, of the old currency. This was called the Dawes Plan. Under this plan, the reparations were reduced to 50 million marks a year for the next five years, and then million marks a year following that. The plan also recommended that the German National Bank was reorganised, and that Germany receive an international loan.
This loan was for million gold marks, financed primarily by America. These measures eased the economic pressure on Germany, and relations with other countries began to improve and then stabilise. In , Germany was accepted into the League of Nations. The Dawes Plan, alongside a sudden injection of foreign loans, helped the German economy to stabilise and prosper. This situation allowed the German government to invest in new public facilities, such as hospitals and schools.
Those in work saw real improvements in working conditions as wages increased and working hours decreased. Culture in Germany also flourished, as previously established thoughts and beliefs were thrown aside for new ideas.
The German art school Bauhaus is a key example of this, promoting experimental modernist art and architecture. Unemployment was still very high with two million people unemployed in The farming industry was also slow to recover from the wartime pressures, and agricultural and rural wages were much lower than those in big towns and cities.
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