German Economy After World War I

[Csargo]

I am currently reading The Rise and Fall of the Third Reich, A History of Nazi Germany by William L. Shirer. I was wondering why the German mark plummeted in value. I understand that because of the Versailles treaty that the German government had to pay billions of marks in war reparations to the Allied powers. I just can't figure out why the value of the mark dropped so dramatically over the course of one year. If anyone could explain this to me I'd greatly appreciate it.

[Evil_Maniac From Mars]

Essentially, to meet the demands of the Allied forces, which required a certain amount of marks to be paid off, the German government simply printed off more money, causing massive inflation.

Spoiler Alert, click show to read: 

That's how I understood it, at least.

[Csargo]

I figured it would be more complex than that.

[Evil_Maniac From Mars]

I'm sure there are people here who can give you a long and complex explanation, but I'm not good enough with economics to do that.

[Csargo]

I'm sure there are people here who can give you a long and complex explanation, but I'm not good enough with economics to do that.

Maybe a general discussion over the state of Germany from 1919-1933? I would be interested in that

[Franconicus]

Excellent topic. I had to have a look:

Reasons go back to 1914, when the war started. The government ended the coupling of the money to gold. Until the end of the war, the money lost about 50% of its value.

This was done to finance the war by reducing the fortune of the people with money (mainly middle class) and the wages of the workers. Buying power went down and most of the production went into war efforts.

Additionally, they sold war loans. They promised that after the victory the defeated enemies would have to pay for the war they had started. Furthermore the government collected precious metal and food.

However, the war was longer than expected and I the end it was lost. Now the war loans were worth nothing. Further more it was Germany that had to pay reparations. Not only money; for example, Germany had to give almost the complete trade marine. Exports went down!

The years 1921/22 did not look too bad. Due to inflation the wages in Germany were extremely low and therefore German industry grew faster than in the countries of the winners.

However, the government kept inflation on a high level. They feared that a stable currency would end the growth and lead to unemployment, sinking wages and social riots. Then, everybody feared the raise of communism in Germany, even the former Entende members. On July 3rd 1922 the Mark was worth 1/100 of the value it had had at August 1914, at October 3rd1922 it was on 1/1000.

The value collapsed completely during the Ruhrkampf. The German government claimed that it could not fulfil the demands of Versailles. France occupied the Ruhr (one of the most important industrial areas), Germany reacted with strike. The strike was paid with money, fresh printed. The result was a hyperinflation.

http://de.wikipedia.org/wiki/Deutsch..._1914_bis_1923

The hyperinflation made German’s economy break down. Unemployment rate increased, wages dropped without an end, communist party had more and more followers. The unions were broke and government had to fund them. At September 26 the government had to end the ‚Ruhr-Kampf’.

Afterwards there was a monetary reform and a new agreement about the reparations.

Due to the inflation, the costs of the war were paid by the employees and those that had their fortune in money. It took until 1928 before the wages reached the level of 1913. The majority of the middleclass, used to live without support from the state or even enemies of the welfare state found them in poverty, dependant on warfare now.