The Great Inflation

.. of the German people. The Republic was built on weakness: the idea that the fledgling Republic had stabbed Germany in the back by surrendering was widespread, and therefore led to the perceived necessity of avoiding reparations. This policy was doomed to failure, particularly in the face of French belligerence. More short-sightedness was to blame for the passive resistance in the Ruhr. Whilst clearly wishing to prevent German production from falling into French hands, it is clear that the government could not afford to finance the resistance for long and, as we have seen, this was the proverbial straw which broke the camels back.

There were, of course, external influences: the manipulation of the mark by foreign speculators was a side effect, as was Allied insistence on reparations. These were, however, merely a side-show to the main event. The fault of the inflation rests firmly in the hands of the government. In terms of the consequences of the inflation, the signposts to the future were in place. It was clear that a relatively well-off middle and upper middle class had little of no interest in anything other that centrist democracy.

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The swing towards extremism in 1924 was an indicator of what was to come in 1930. This is demonstrated by the gains made by the Nazis and Communists in May 1924, but also reflected in their poor performances in the golden years of late-1924 to 1928. Following the second collapse of the mark in 1929, both these parties made huge gains at the expense of the centre. Voters do have memories, and those memories of two financial disasters in less than a decade were extremely strong. Finally, the fate of Germany, which since 1918 had been held in the hands of foreign governments, was essentially transferred into the hands of international financial institutions.

The same people who structured the loans which helped to end the Great Inflation were the very same as those who speculated Germany – and, to be fair, the rest of the world – into the financial collapse of 1929. Germany, kept militarily weak by the allies, financially weak by her government and her industrialists was waiting in the wings for her moment to come. When that moment came, the twenty year truce was ended by Adolf Hitler. That isperhaps the most damning indictment of both Republican mismanagement and world indecision that can be made. John Maynard Keynes, The Economic Consequences of the Peace, (London: 1920), p.64. William R.

Keylor, The Twentieth Century World, (Oxford: 1984)., pp. 84-85. William Gutteman and Patricia Meehan, The Great Inflation: Germany 1918 – 1923, (London: 1976), p.71. Eberhard Kolb, The Weimar Republic, (London: 1995), pp. 39 – 41. William L.

Shirer, The Rise and Fall of the Third Reich, (New York: 1980), pp. 58-61. David Hackett Fischer, The Great Wave, (Oxford: 1996), pp. 192- 193. Erik Achorn, European Civilization and Politics since 1815, (London: 1935), pp.

561 – 562. Kolb, op. cit., pp. 40 – 41. Shirer, op. cit., p.

63. David Fischer, op. cit., p. 193 The argument in this paragraph is drawn from David Fischer, op. cit., pp193 -194, Paul Kennedy, The Rise and Fall of the Great Powers, (London: 1989, pp.

357 – 373, and D. H. Aldcroft, From Versailles to Wall Street, (New York: 1977), chs. 1 & 2. David Blackman, European Inflationary Trends: 1815 – 1945, (London: 1954), pp. 321 -322.

David Fischer, op. cit., pp. 194 – 5. Kolb, op. cit., pp.

194 -195. Shirer, op. cit., p. 61. PAGE PAGE 1 Footnote Text iy, the provisions of the Treaty of Versaillesflation profiteering.

Successive German governments failed to implement anti-inflationary policies and, it has been argued, this represented the cynical use of inflation as a reason for reducing, or not meeting, reparations payments. This is not to say that the reparations clauses did not have an effect on the German economy – of course they did. The Allies, however, failed to set a final reparations figure until the London Ultimatum of 1921; this long delay produced, as William Keylor argues: widespread economic uncertaintyForeign and domestic investors were understandably reluctant to commit their savings to an economic system that was saddled with an uncertain, and potentially enormous, claim on its productive resources. In terms of the broader consequences of the Great Inflation, it is easily argued that the control of Germanys fiscal affairs ultimately passed into the hands of the international banking community, which was to have disastrous long-term effects on Germany. It is also arguable that, as the foster-child of the Great Inflation, Adolf Hitler would come to power as a long term effect. The total cost of the First World War to Germany was, it has been calculated, in excess of 164 billion marks.

This massive cost was met by raising some 93 billion marks in war loans, 29 billion from discounted Treasury Bills and the balance by the simple – if potentially disastrous – expedient of printing paper money. By late-1918 over 35 billion paper marks were in circulation, and more paper money was used to invest in yet more Bills. There was little fear that inflation – already beginning in Germany – would have a serious long-term effect on the economy. This financial mismanagement was justified by the belief, in both financial and government circles, that the defeated enemy would pay for the cost of the war. Germany had already indicated her willingness to fund her wars in this way, as can be seen in the terms of the Treaty of Brest-Litovsk and her treaty with France in 1871. Karl Helfferich, Reich Secretary to the Treasury, had said in a wartime speech to the Reichstag: After the war we shall not forego our claim that our enemies shall make restitution for all the material damage they have caused by the irresponsible launching of this war against us. However, because of the inflationary means by which the imperial government had financed the war, the German mark in 1919 was worth less than 20 per cent of its pre-war value.

After the formation of the Republic in 1919that can be made. John Maynard Keynes, The Economic Consequences of the Peace, (London: 1920), p.64. William R. Keylor, The Twentieth Century World, (Oxford: 1984)., pp. 84-85. William Gutteman and Patricia Meehan, The Great Inflation: Germany 1918 – 1923, (London: 1976), p.71. Eberhard Kolb, The Weimar Republic, (London: 1995), pp.

39 – 41. William L. Shirer, The Rise and Fall of the Third Reich, (New York: 1980), pp. 58-61. David Hackett Fischer, The Great Wave, (Oxford: 1996), pp. 192- 193.

Erik Achorn, European Civilization and Politics since 1815, (London: 1935), pp. 561 – 562. Kolb, op. cit., pp. 40 – 41. Shirer, op.

cit., p. 63. David Fischer, op. cit., p. 193 The argument in this paragraph is drawn from David Fischer, op.

cit., pp193 -194, Paul Kennedy, The Rise and Fall of the Great Powers, (London: 1989, pp. 357 – 373, and D. H. Aldcroft, From Versailles to Wall Street, (New York: 1977), chs. 1 & 2. David Blackman, European Inflationary Trends: 1815 – 1945, (London: 1954), pp.

321 -322. David Fischer, op. cit., pp. 194 – 5. Kolb, op.

cit., pp. 194 -195. Shirer, op. cit., p. 61.

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