A Period of Relative Stability – The Dawes Plan and the Creation of Economic Stability - Assignment Example

In November of 1923, months of chaos for the German people was ended with the introduction of the Rentenmark. The Rentenmark was issued with an exchange rate of 4.2RM to the Dollar, making each Rentenmark worth 50,000 Million Marks effectively putting an end to hyperinflation.

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The Rentenmark was the brainchild of Chancellor Gustav Stresemann’s finance minister Hans Luther. To avoid a repeat of the hyperinflation crisis, Luther only allowed a very limited amount of the new currency to be printed as well as introducing a policy of deflation. Luther’s deflation policy revolved around the reduction of Government expenditure via the mass redundancies in the civil service and vast reductions in welfare payments.

In addition to the creation of the new currency, Luther also created a new state bank, the Rentenbank (Reichbank after 1924) and appointed the conservative economist Hjalmar Schacht as the currency commissioner.

Schacht, the former head of the National Bank of Germany, was in charge of instigating the Rentenmark and introducing the new, gold based Reichmark. He was well known for his pro-monarchy and anti-democratic stances, and later played a major role in Hitler’s Third Reich.

One of the major effects that hyperinflation had on the Germany economy was that all fixed rate bank and savings accounts lost nearly all of their value. The majority of these accounts had been held by the middle-classes, who consequently lost their life savings. These sometimes massive losses led to demands for compensation being issued and the creation of a special interest party to champion the cause.

The Government accepted the need for some compensation, but claimed that it was impossible to pay claims in full. In order to deal with the claims, a lottery was established to decide the order of repayments, and the maximum amount of compensation that could be paid was limited to 15% of the original value. Under this system, many were left unhappy, keeping the bitterness over the hyperinflation alive.

The Dawes Plan

Under the Treaty of Versailles, Germany was forced to pay 20,000 Million Marks to the Allied governments. This value could not be paid in currency, but had to be paid “in kind”, with coal, iron, steel and timber.

In 1921, a committee set up by the Treaty to deal with the issue decided that the final value of the reparations would be 132,000 Million Marks to be paid in kind over a thirty-year period. (4,400 Million Marks per year)

Following the Hyperinflation crisis, a committee was set up to organise the payment of reparations and to prevent a repeat of either the hyperinflation or the Ruhr invasion by France. This committee, led by the American banker Charles Dawes, set up a system whereby Germany would make payment of 1,000 Million Marks increasing to 2,500 Million Marks over a five year period. In addition to this the Allied Governments took control of the Reichbank, the Reichbahn (Railway network) and the German customs. It was also agreed that sanctions could only be taken under bilateral agreement. As in 1919, Germany was excluded from the committee meetings, and her main demand, the removal of French troops from the Rhineland, was ignored.

Subsequent to the implementation of the Dawes Plan, America issued loans of over 800 Million Marks to help pay reparations and to aid in the rebuilding of the German economy. These loans played a significant part in the rebuilding of the Weimar economy, allowing more money to be invested resulting in growth in the German economy for the first time since the declaration of the Republic. However, the loans also contributed to the long term instability of the Weimar economy, as they led to an entire economic system based on foreign loans, which was to prove critical following the Wall Street Crash of 1930.

Many Germans were unhappy that they were still forced to pay reparations, hence acknowledging Versailles and the War Guilt Clause, however business benefited greatly from increased investment and better economic conditions for production and trade.

Overall, the Dawes Plan eliminated many of the factors that caused the social and political unrest during the first four years of Weimar. The reparations payments had been reorganised and the French had withdrawn from the Ruhr, however the American loans created a highly volatile basis for the economy while the continuance of the reparations payments was seen as an admission of war guilt by many Germans.

Political and Social Conflicts During the Golden Years

The Golden Age of Weimar or a Loaded Pause?

Between 1924 and 1928 the political scene in Weimar Germany did not stabilise to any great extent, despite the fact that both the KPD and the NSDAP gave up non-democratic methods in their fights against Weimar, other factors acted to counterbalance this stability.

The Golden Age proved to be an interesting time for the major coalition parties in Germany. Following the death of President Ebert and the election of Paul von Hindenburg as President, the SPD, Germany’s largest political party, refused to participate in any coalition believing that they could serve the interests of the working classes more effectively when in opposition. President Hindenburg evidently agreed with this sentiment, refusing to sanction a coalition containing the SPD (the two exceptions being Stesemann’s Government in 1923 and Muller’s in 1928).

The attitude of the SPD led to a total of six governments out of the eight formed between 1923 and 1930 being implemented without a majority in the Reichstag creating a vast instability. The fact that the Government in power did not have a majority meant that they Government had no guarantee that a piece of policy legislation would pass. The marginal nature of the majorities also resulted in smaller parties such as the NSDAP, the BVP, the KPD and, of course, the SPD being able to swing legislation in their favour. Overall, the combination of the limited coalitions and the minority governments contributed to the instability of the Weimar Republic during the so-called “Golden Age”.

In contrast to the SPD’s approach to coalition politics, the DDP and the DNVP both embraced their new places in the political structure of Weimar. The rapidly declining DDP joined all but one of the governments formed between 1924 and 1930, while the increasingly right-wing DNVP participated in government in 1925 and between 1927 and 1928.

During the Golden Age, the use of proportional representation produced a by-product in the form of single interest parties. These bodies, which represented groups like the ultra-extreme nationalist right and those seeking compensation for money lost during the hyperinflation crisis, showed both the benefit of PR with specific issues having voices and it’s disadvantages with the instabilities introduced by it.

During the so-called Golden Age, there was also an increase in paramilitary violence, despite the adoption of democratic tactics by the two main exponents of paramilitary barbarity the NSDAP’s SA and the KPD’s Red Fighting League. In addition to these other groups such as the Stalhelm, the Reichsbanner and the Red Front Soldier’s League became more common. The vast majority of the violence revolved around the main cities, including Berlin and Frankfurt, as well as in extremist strongholds such as Nuremberg, Munich and the Ruhr.

While the overall number of political associated killings decreased after 1923, the existence and popularity of paramilitary groups created yet more instability in Weimar.

The growth of the left-wing paramilitary organisations was, in some part, contributed to by the increased tension between employers and workers.

In 1919 workers had been granted extensive social welfare and wage rights in the German Constitution and the Stinnes-Leginen agreement. By the early ’20s the employers had come to regret allowing these rights as they saw their profits decrease to pay unemployment insurance and health care costs.

These feelings came to a head in 1928 following the passing of the Unemployment Insurance Act, when the iron and steel industry in the Ruhr locked out 260,000 workers in a protest against compulsory arbitration in wage disputes. This highlighted the vast gap between workers and employers in Germany, and consequently many workers joined the KPD or the SPD, while industry gave increased support to the DNVP, questioning the levels of support for democracy in Weimar.

Between 1919 and the Golden Age, there was little change in the attitudes of the intelligentsia, the elite and the Reichswehr. The industrialists and businessmen, most of whom were already deeply conservative, tended even more towards the right with many supporting the DNVP and a few supporting the NSDAP, mainly as a result of the unsuccessful Ruhr lockout and the welfare legislation. The leaders of the Reichswehr and the landowners, in particular the Prussian Junkers, all of whom were traditionally right-wing became even more so in response to the loss of influence and lack of authoritarianism. The civil servants, judges and some teachers especially in Universities also moved towards the right.

To counter this exodus, a number of teachers, churchmen and newspaper editors and writers attempted to stir up a pro-democratic attitude in the general populace.

The overall move to the right in the pillars of Weimar society showed clearly that the German Republic was failing many of it’s most influential inhabitants, undermining the arguments for the Golden Age.