The years following the Great War saw Germany in economic and political crisis. The country was plunged into a period of hyperinflation and high unemployment, while the government struggled to maintain order and stability. However, through the policies of Chancellor Gustav Stresemann, the economy was rejuvenated, bringing about the ‘Golden Age’ of prosperity in Germany. Stresemann’s most influential policy, the Dawes Plan, set up systems that facilitated direct aid from the United States, playing a significant role in the revival of the German economy. Yet, despite its initial success, the Dawes Plan left the nation dependent upon America’s economic health. Consequently, the 1929 Wall Street Crash devastated the German economy and the structures created by Stresemann, plunging the country into one of the worst economic crises in history.
Following the devastation of the First World War, and the abdication of Kaiser Wilhelm II, the Weimar Republic was proclaimed on 9 November 1918. Germany’s defeat in WWI left many citizens feeling disenfranchised and humiliated, and the following years saw the country fall into a seemingly insoluble economic crisis and political disrepair. It was these conditions that Stresemann was tasked to resolve in 1923.
The Treaty of Versailles (1919) and the London Schedule of Payments (1921) declared that Germany was entirely responsible for the war and had to pay 132 billion gold marks in reparations to cover the civilian damage caused. These reparations devastated the German economy by submerging the country into unaffordable debt without a clear plan of payment structure. Furthermore, many Germans were furious with the Weimar government’s acceptance of full war guilt leading to political tensions and instability.
The main issue by 1923 was that the country faced hyperinflation, meaning that the Deutsche Mark became effectively worthless. Political instability and the prospect of paying back the costly reparations only furthered the depreciation of the Deutsche Mark and reduced confidence in the Weimar government.
Then, on 9 January 1923, France and Belgium invaded the Ruhr, Germany’s industrial heartland, in response to a failure to pay reparation instalments. The foreign forces seized commodities and factories to make up for the missed reparation instalments. This invasive occupation left Germany without a core part of its economy and contributed greatly to the crisis.
The first issue which Stresemann addressed was hyperinflation. The Deutsche Mark had lost substantial value due to the reparations and loss of political confidence, as, in order to pay off its immense debts, the German government printed trillions of marks. This printing increased the supply of cash, which consequently drove up prices to the point of hyperinflation, destroying the living conditions of millions of Germans. This hyperinflation peaked in November 1923, when the exchange rate reached 4.2 trillion marks to one US dollar. Realising that the Deutsche Mark was irreparable, Stresemann introduced a new currency, the Rentenmark, in an action of significant government intervention.
The Rentenmark was backed by the gold reserves of Germany, industrial real estate, and agricultural plots, giving the currency tangible value and, therefore, consumer and investor confidence. These assets allowed Germans to place more trust in this new currency, since they acted as an insurance policy were the currency to fail. This increased the value of the Rentenmark and ensured reasonable stability. Moreover, in September 1923, Stresemann founded the Reichsbank; this state-owned organisation was responsible for issuing the Rentenmark and limiting the supply of the new currency. The Reichsbank acted much like a modern central bank and offered stability to the new currency because the bank’s policies prevented printing cash to pay off debts. Finance Minister Hans Luther’s responsible fiscal policy also strengthened the new currency. This, coupled with Germany’s newfound access to international credit, added to the immense strength of Stresemann’s Rentenmark, bringing inflation under control and largely ending the economic crisis.
However, despite the success of the Rentenmark, it was the Dawes Plan of 1924 that contributed most greatly to the economic prosperity of the ‘Golden Age’. Charles Dawes was a US banker sent to Germany in 1923 to help solve its economic issues. In conjunction with Stresemann, he set up the Dawes Plan, significantly relieving the economic pressures on Germany following the First World War. Germany had been suffering from the reparations imposed by the Treaty of Versailles; an issue addressed by the Dawes Plan. The plan reduced reparations by 132 billion marks, while also introducing the opportunity of future negotiation about the reparations, meaning that if the German economy was underperforming, it would pay fewer reparations. This clarity and financial flexibility alleviated the pressures of the reparations.
The Dawes Plan also successfully ordered that France and Belgium end their occupation of the Ruhr and pledge not to unilaterally invade Germany as a result of missed reparation payments again. This promise offered economic stability, and the regained industrial capital strengthened the German economy. The most significant policy of the Dawes Plan was the substantial uptake in foreign investment and loans to Germany by the United States, mostly from the US government and private banks. The initial loan of 800 million marks was largely spent on developing German infrastructure and industrial capital, including many factories, creating thousands of jobs across Germany. Under the Dawes Plan, Germany received over 133 long-term loans from the US and many more short-term loans which had to be instantly repaid in full if requested. These loans, facilitated under the Dawes Plan, funded the recovery of the German economy and pulled it out of the crisis of 1923, yet, this economic prosperity came at the cost of making Germany dependent upon commercial debt and the US loans. This left the country vulnerable and dependent upon the health of the US economy, which would severely punish Germany in 1929 following the Wall Street Crash.
Stresemann not only faced Germany’s economic crisis but also undertook the monumental task of restoring its political reputation and international credibility. The Great War had besmirched Germany’s reputation considerably; the full acceptance of War Guilt and evident political instability left Germany with very little international credibility. However, Stresemann was able to restore Germany’s credibility through a series of agreements with the Allied Powers.
The signing of the Locarno Pact in 1925 marked the first formal recognition of Germany as a country operating on equal terms with the allied European powers. This evidenced the material shift in Germany’s political reputation, as it put into writing that Germany was an equal diplomatic partner again. The Locarno Pact also opened discussions for Germany to join the League of Nations, the first worldwide intergovernmental organisation whose principal mission was to maintain world peace. Under the pact, Germany accepted its new borders, which cultivated further reputational repair. The Locarno Pact’s international recognition of German equality garnered support for the Weimar Republic and further recovered the country’s political credibility.
The final policy of Stresemann’s foreign agenda, the Kellogg-Briand Pact (1928), saw Germany and 61 other countries denounce warfare as a means of achieving foreign policy aims. This was another pact Germany signed on equal grounds to other countries, which, combined with the political promises of the pact, further repaired Germany’s political outlook.
As demonstrated, Stresemann had repaired Germany both politically and economically. The Kellogg-Briand Pact and the Locarno Pact re-established the country as a leading power, and his introduction of the Rentenmark ended the hyperinflation from which Germany had suffered for years. Being recognised for his success, Stresemann received a Nobel Peace Prize for his contributions to Germany in 1926. However, the chancellor died in 1929 of a heart attack just months before the Wall Street Crash. Whilst the Dawes Plan had brought immense economic prosperity to Germany, it had made Germany’s economy dependent upon short-term loans from US banks and left it vulnerable to external factors. The global depression caused by the Wall Street Crash led foreign investors to withdraw their interest in the Weimar economy, and the recall of US short-term debt crashed the German economy into a period of depression.
Stresemann may have saved Germany’s political reputation, but the Dawes Plan left the nation heavily dependent upon the fragile state of the world economy. Subsequently, it suffered heavily from the Wall Street Crash and returned Germany to economic depression. This relapse into economic suffering and poor living conditions led many Germans to shift towards extremism and facilitated the rise in power of the Nazi party. Thus, in spite of his successes, Stresemann’s policies left Germany overly-reliant in US loans, leading to its economic collapse in 1929.
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Balderston, T., 2002. Economics and politics in the Weimar Republic. Cambridge: Cambridge University Press.
Gustav Stresemann – the man who almost saved the world 2022 Engelsberg ideas. https://engelsbergideas.com/portraits/gustav-stresemann-the-man-who-almost-saved-the-world
Schuker, S.A., 1976. The end of French predominance in Europe: The financial crisis of 1924 and the adoption of the Dawes Plan. Chapel Hill: University of North Carolina Press.