A Period of Relative Stability - The Dawes Plan and the Creation of Economic Stability.

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A Period of Relative Stability

The Dawes Plan and the Creation of Economic Stability

The Ending of Hyperinflation

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.

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.  

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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 ...

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