Reparations Repayments

Reparations repayments led to the German economy becoming devalued. Having to pay such large sums to the Allies resulted in the German economy having a rapidly reduced capacity to purchase goods, as they were compelled to give much of their accumulated wealth and produce to the Allies in part payment towards the Reparations bill.

This had several consequences. First, it resulted in the value of the German currency falling. The table above illustrates how rapidly this happened. Second, it resulted in the cost of items within Germany rising as the relative cost of importation rose as the value of the currency declined. This is inflationary in nature and has several consequences. In situations such as this people make use of their savings, as they cannot afford to make purchases using only their weekly or monthly income. In Germany billions of dollars worth of hoarded and saved marks re-entered the economy in the period after the war. Again, this results in inflation rising and the value of the currency falling when compared to other currencies. Combined, these factors lead to a cycle of devaluation and inflation that can, and did, become hyperinflation.

It is not however the case that the economy within Germany continued to decline throughout the whole of the period 1919 – 1923. In 1920 the currency stabilised for a period of some 6 months. The price index remained almost constant and the value of the German mark remained at approximately 1US$ to 69 German marks. The Weimar Government, it has been argued, could have introduced a stable currency at this point. Instead they continued to increase the amount of money in circulation – which is inflationary. The result was hyperinflation in 1923. This had massive consequences for the economy and society in general.

This link includes an outline of how peoples investments were affected during this era. It notes that in general people would have lost the value of their investments – with one or two areas that proved to be the exception: Investment in Capital (Land and Buildings) and Investment in Foreign currency.

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Revision Diagrams

Was the Weimar Republic Doomed from the outset?To what extent did Germany recover under Stresemann?
The Nazi Party up to 1929How did Hitler become Chancellor of Germany?
Who gained from Nazi rule?

Revision Diagrams

Was the Weimar Republic doomed from the start?|To what extent did Weimar recover under Stresemann?
How did the Nazi Party develop up to 1929?How did Hitler become Chancellor?
How did Hitler become Chancellor?How did the Nazi's create a Totalitarian State?