GERMAN ECONOMY DURING

THE INTERWAR PERIOD

(1918 - 1939)
 War Economy
In 1914 the German economy was not ready for a protracted
war. 

The German government had no large

stocks of guns, steel, raw materials
or ammunition and was forced to
employ chemists to find
replacements for substances that
were made scarce by the war. 

• Food shortage.
• The armed forces took all the hired
labor out of the economy. 
 Government Control
The German economy was one of the most centralized
during the First World War – it was practically a new
economic model

• Raw Materials Department - established with the aim

to direct production and supply of raw materials.
• Hindenburg Program 1916 – introduced a new kind of
planning to increase war production, mostly in strategic
“heavy industries” ; total mobilization of labor.
• The Supreme war Office was established in November
1916 with the authority to close down ineffective
industrial firms .
• War financing – printing of money – inflation.
 The Turnip Winter 1916-1917

• British Navy stopped all supplies to Germany

• Shortage of almost everything – 1918 Germany was
producing 50% of the milk it had done before WWI etc.
• More than 750 000 died of a combination of Spanish flu
and starvation.
 Germany after WWI

• More than 1 800 000 – military casualties.

• 900 000 – died from war-caused diseases.
• 1 500 000 – invalids of war.
• Riots and political disorders
Socialists in power – economic and welfare reforms.
Results – inflation, flight of capital etc.
Treaty of Versailles 1919

Germany lost:
• 13 % of its territory and
11% of its population (1/3
of its coal deposits; ¾ of its
iron ores etc.)
• Alsace and Lorraine –
returned to France; West
Prussia and Upper Silesia –
given to newly
independent Poland.
• German colonies – divided
among the victors.
• 5 000 locomotives, 5 000
motor trucks etc.
REPARATIONS - the Entente argued that Germany and its
allies had started the war and were thus responsible for all of
their enemies' costs and damages (Article 231 of the Treaty
of Versailles).
• $33 Billion (roughly
equivalent to $400 billion
US Dollars as of 2010).
• John M. Keynes said that
the harsh terms of the
treaty would result in
collapse of Germany, a
revolution and followed
by a later war involving
Germany that would
destroy that “civilization
and progress of our
generation.”
 Weimar constitution 1919 – rights and duties
inscribed on paper do not always hold out against the
intrusions of economic crises.

German monetary system – brought to catastrophe.

Until 1922 industrial production continuously decreased.
Agriculture – after the war it went through a heavy crisis.
 Ruhr Occupation
In 1923 France and
Belgium occupied Ruhr.
Passive resistance.
• Unemployment 23 per
cent.
• Prices rose out of
control.
Hyperinflation
The rise in prices hit the
middle classes and those
on fixed income very
hard.

Table
Year Month Marks needed to buy one
US dollar

1919 April 12
1921 November 47
1922 July 493
December 7000
1923 January 17 000
April 24 000
July 353 000
August 4 621 000
September 98 860 000
October 2 193 600 000 000
November 4 200 000 000 000
 RENTENMARK

The worthless German currency was replaced by new

currency – Rentenmark. The issue of the Rentenmark
was strictly limited and backed by the security of an
international loan on the basis of real assets (land and
buildings).
THE DAWES PLAN - left unchanged the total sum to
be paid but gave important concessions to Germany in
regards to reparations.
• Allowed Germany a two
years' moratorium.
• Laid down the principle
of graded installments.
• International loans would
be advanced to speed up
German recovery and
make possible speedy
resumption of payment.
• Foreign financial control.
• The Ruhr area –
evacuated.
The Dawes Plan and the International Financial
System 1924-1930

$2.5 billion in loans

USA Germany

$2.6 $2 billions
billions in in reparation
war debt Allies payments
payments
 Modernization and Industrial Growth
By 1929 the German industrial production surpassed the pre-
war level by 8 per cent. Progress – in heavy capital goods
sector and in science-based industries.
• 1925 – I. G. Farbenindustry
• 1926 – The Steel Trust
• 1928 – BMW produced its first automobile.
Germany overcame UK and France in respect of industrial
production volume.
 “Germany is dancing on a volcano”
Stresemann 1928

       Foreign loans, mostly from the United States, provided

most of the working capital. They might be withdrawn at
any moment.
       German economic prosperity depended upon export
trade and not on an expansion of the home market. Any
contraction of the overseas market might lead to
industrial slump in Germany.
       Unemployment in Germany never fell below a million.
 The Great Depression (1)
The US Smoot-Hawley Tariff of 1930 prevented German
industries from selling their goods on foreign markets.

Before the Depression

American German German

banks banks companies

During the Depression

American German German

banks banks companies

Laid off workers Bankruptcy

 The Great Depression (2)

At the end of 1929 and the beginning of 1930 Germany was

heavily affected by the Great Depression.
• The industrial production decreased by 40.2 %.
• The export trade diminished by 60 %.
• In one year (1931) 17 000 enterprises closed down.
• Unemployment – 25-30 % of the active population.
• The prices of agricultural products fell by app. 53 %.

The Dawes Plan was replaced by the Young Plan.

The German reparations were reduced.
The Great Depression in Germany
A Comparative Perspective
 The German Fight Against the Depression
The German government pursued a policy of austerity,
cutting government expenses and hoping for economic
forces to bring about a recovery. At the beginning of
1933 the power was taken by the National Socialist
German Workers Party.
Hitler turned Germany into totalitarian one-party state.
Adolf Hitler

• Born 1889 Austria

• Unsuccessful academic
career
• Volunteer WW1
• Enters policy after WW1
• 1923 attempted coup
• Mein Kampf (My
Struggle)
Nazi Economic Program

• “ … all unearned income, and

income that not arise from
work, be abolished.”
• “…the nationalization of all
trusts.”
• “profit-sharing in large
industries.”
• “…immediate
communalization of large
stores…”
• Job-creation programmes and
self-sufficiency
The Nazi Economic System

National Socialism
The German government
exercised all the
substantive powers of
ownership.
Under the Nazism there is
collective ownership de
facto.
Common good comes before
private good.
Economic Policy

H. Schacht
• Large public works
programs supported by
deficit spending – such as
the construction of
Autobahns.
• Housing program.
• Rearmament consumed
only between 2 and 5 per
cent of government
expenditure during the
first years.
New Plan

Intended to reduce imports,

reduce unemployment,
channel government
spending into a wide
range of industries and
make trade agreements
with other nations.
Between 1933 and 1936 the
German Gross National
Product increased by an
average annual rate of
9.5% .
 In 1936 Hermann Goering introduced a Four
Year Plan
Its aim was to make
Germany industrially and
economically, ready for
war within four years.
This was to be achieved
by making the economy
self-sufficient in industry
and agriculture.
• Wages and prices –
controlled.
• Dividends – restricted.
• The free labor market -
eliminated.
 UNEMPLOYMENT

7000000

6000000

5000000

4000000

3000000

2000000

1000000

0
1 2 3 4 5 6 7

Series 1 1933 1934 1935 1936 1937 1938 1939

Series 2 6,014,000 3,773,000 2,974,000 2,520,000 1,853,000 1,052,000 302,000

Military spending as a proportion of national income rose

from 3 per cent in 1933 to 23 percent in 1939.
 Hitler`s Welfare Policy

• 1936 – 40-hours working week

• Family allowance for children
• Interest-free marriage loans
• People`s car – Ferdinand Porsche
The social base of the Nazi Party – broadened.
 Agriculture
1933 – The Hereditary Farm law transformed all farms of
less than 300 acres into hereditary estates that must be
passed down undivided to the next male heir.
Obligatory state deliveries.
The state purchased app. 30% of agricultural production on
prices 2-3 times higher than the market ones.
In 1939 German economy was ready for the war.
 Glossary:

Autarky - a policy of national self-sufficiency and

nonreliance on imports or economic aid.
Reparations - compensation in money, material, labor, etc.,
payable by a defeated country to another country or to an
individual for loss suffered during or as a result of war.
Concern- a German type of business group. It results from
the merger of several legally independent companies an
economic entity under unified management.
Installment- One of a number of successive payments in
settlement of a debt.
GNP - the market value of all goods and services produced
in one year by labor and property supplied by the
residents of a country.