After the chaos and violence of the last few years, the period from 1924 through 1929 was relatively stable and was known in Germany as “The Golden Twenties.” However it was rather like a house of cards, which would begin to collapse in 1929.
The Mark Is Stabilized
The Dawes Plan
Reichstag Elections Of 1924
The Locarno Treaties
Cultural Reflections Of The Times
Reichstag Elections Of 1928
TheYoung Plan
The “Liberty Law”
The Ruhr Iron Strike
The Mark Is Stabilized
In August, 1923, Chancellor Cuno’s cabinet fell. The new Chancellor was Gustav Stresemann. He would be enormously influential in Weimar Germany until his untimely death in 1929. The most pressing problem facing him was the ongoing hyperinflation of the PM, which could not be saved. In late September, President Ebert, using his authority under Article 48, suspended seven articles of the Weimar constitution and declared a State Of Emergency. Germany became in effect, a dictatorship. The Finance Minister, Hans Luther, and banker Hjalmar Schacht, whose advice had been ignored nine years earlier, were given the task of finding a solution to hyperinflation. On October 15, 1923, the Rentenmark Ordinance was published.
This ordinance allowed for a new currency to be issued by a new institution, the Rentenbank. The currency was called the Rentenmark. (“Rente” is the German word for “mortgage.”) A survey of German business and agricultural property in 1913 had determined its value to be GM 3.2 billion. This was still true. In other words, this was the property’s value expressed in terms of gold. (It is unclear how much actual gold Germany still possessed, but it was probably little or none.)
Under German law, Goldmarks required 30% of their value be backed by gold. The new currency would be backed to the same degree by business and agricultural property. This allowed the issuance of 10.7 billion Rentenmarks. An individual Rentenmark would have the same value that the Goldmark had prior to WWI (Rentenmark 4.2 = US $1.) In effect, Germany used the equity in this property used it to pay for the new currency. The property owners would be required to pay taxes twice a year to support the Rentenmark. Another effect of the Rentenmark Ordinance was that Germany was, in effect, back on the Gold Standard, which would be a requirement for the Dawes Plan. (See below.)
This was quite a jolt after nine years of easy money. The government went from printing currency to keep the economy going to sharp austerity. However, after all the suffering caused by hyperinflation and the collapse of the Mark, the public was ready for any measure that would restore stability. Technically, the Rentenmark wasn’t legal tender – there was no legal requirement to accept it as payment – but the public did so, gratefully. The period of hyperinflation was over, but the Ruhr was still occupied. And reparations still had to be paid.
The Dawes Plan
Germany’s default and the occupation of the Rhine presented a real problem for the allies. The issue was whether Germany’s economy should be allowed to collapse entirely or whether the allies should take action to prevent this. There was widespread popular feeling in Belgium and France that Germany deserved whatever suffering it got, but their governments realized this must not happen. Also the French Franc was losing value, because occupation was expensive and reparations from Germany had stopped.
There was a new enemy – Bolshevism. The successful Russian Revolution in 1917 had scared everyone. Russia was far away to the east, but Germany was in the center of Europe. If Germany was reduced to a state of total poverty there was a very real possibility of a communist revolution. It had almost happened in 1919, and there was no more Freikorps
The Allied Reparations Commission organized a committee to find ways to help Germany to recover from near collapse and to resume reparation payments. The committee was made up of ten members, two each from the five allied countries. It was chaired by American banker and politician Charles Dawes, and was known informally as the Dawes Committee.
The committed finished its work in August, 1924 and issued an agreement which was known as the Dawes Plan. It had five major parts.
- Foreign troops would evacuate the Ruhr (they did this in July and August, 1925, wrecking or stealing a fair amount of German property in the process.)
- The Reichbank would be reorganized under allied supervision. Germany would also officially go back under the gold standard. The Rentenmark was a first step toward this.
- Reparation payments resume, at RM 1 billion the first year, increasing to RM 2.5 billion in the fifth year. Beyond that was left open to future negotiations after the German economy improved.
- Sources for the reparation money would include transportation, excise, and customs taxes
- Germany would be loaned RM 800 million from a US consortium of American investment banks, led by J.P. Morgan & Co.
Germany accepted the plan, and it took effect in September. A new currency, the Reichmark, was issued to replace the Rentenmark, which had always been intended as an interim currency. The Reichmark was essentially identical to the 1914 Mark. It was backed by gold at 30% and was worth RM 4.2 = US $1. Rentenmarks were withdrawn from circulation.
On the surface, the German economy began to improve right away and remained relatively stable for most of the decade. The currency remained stable. Business rebounded. Germany was able to make prompt reparation payments at the reduced amount. The improved economy brought in foreign investments and loans. This brought with it a new danger.
The problem was that Germany was back on the gold standard. This limited the amount of RM, based on German reserves, that could be in circulation to a finite, specified amount. The foreign money coming in was extra money. It allowed the government to pay for its social policies, such as unemployment benefits, health coverage, and old age pensions, as well as the reparation payments, which were increasing on schedule. They were spending beyond their means. To keep this up, Germany became more dependent on foreign money, which would have terrible consequences later.
For their part, the American investment bankers had set up a sweet deal for themselves, a sort of monetary round robin. The bankers loaned money to Germany. Germany would then owe repayments, with interest, to the bankers. Meanwhile, Germany could make reparation payments to the allies. Many of these allies had previously borrowed money from the U.S. bankers to finance their war costs. When those allies received reparation payments, they would make repayments on their outstanding war loans. The money these bankers put out, in effect, came back twice.
Reichstag Elections Of 1924
The Reichstag elected in 1920 was dissolved in March, 1924. New elections were held in May. This election was referred to in Germany as the “Inflation Election” because the far-left and far-right parties received a considerable wave of support as a result of the dire economic crisis which had just ended and the continuing feeling of insecurity.
The biggest gains were by the KPD on the far-left and and two parties on the far-right coalition. The KPD received 12.6% of the votes. Some of this increase came from members of the former USPD, whose breakup left its more leftist members nowhere else to go. The conservative-monarchist DNVP increased its share to 19.5%. A new nationalist party, the National Socialist Freedom Movement (the Nazis in disguise; the NSDAP was temporarily banned following the Beer Hall Putsch) received 6.5% of the vote. This is important to note. It was the first time a far-right party became an important influence in the Reichstag.
The parties on the center (the Weimar Coalition) lost ground. By themselves they still did not have enough seats to form a clear majority. They picked up support from the DVP, the center-right party headed by former Chancellor Gustav Stresemann. This was just enough to form a rather unsteady coalition. Chancellor Wilhelm Marx (of the Center Party) decided to call for new elections to be held in December, 1924, to attempt to bolster his coalition.
The election results were inconclusive. As first glance they looked favorable for Marx’s coalition. In the seven months since May, the public had calmed down a bit from the stress of 1923. The extremists lost strength. The KPD declined from 12.6% to 9.0%. The NSFP declined from 6.5% to 3.0%. The SPD increased sharply to 26.0%. The other centrist parties remained about the same or increased slightly. However, the conservative-monarchist DNVP also increased to 20.5%, which made it the second leading party in the Reichstag.
After the elections the parties supporting the minority Marx cabinet were unable to agree on whether the coalition should be formed including those on the left (SPD) or those on the right (DNVP.) President Ebert asked Hans Luther (who was unaffiliated with any party) to form a new government. Luther was able to form a center-right coalition which included the DNVP. This coalition lasted about a year, until the DNVP withdrew from the cabinet over the Locarno Treaties, discussed below. This caused the government to collapse and a new minority coalition formed. There would be no more elections for the Reichstag until 1928, so the existing mix of parties with the same inherent instability remained the same until then.
On February 25,1925, President Ebert died. In May, Field Marshal Paul von Hindenburg was elected President. He and General Ludendorff were Germany’s two great war heroes. During most of his first term, Hindenburg generally refused to allow himself to be drawn into the messy politics of the time. To the public he looked like a republican equivalent of a constitutional monarch. He was often referred to in the press as the “Ersatzkaiser” (imitation Emperor). Despite outward appearances and his own personal political views, Hindenburg made no effort to restore the monarchy. He treated his oath as President seriously.
The Locarno Treaties
The Locarno Treaties were seven agreements negotiated at Locarno, Switzerland, in October 1925 and formally signed in London on December 1. The signatories were Germany, the western Europe allied powers (France, Belgium, and Great Britain), and the two new states in central Europe (Poland and Czechoslovakia.) The purpose of the agreements were twofold, to secure the post-war territorial settlements made as part of the Versailles Treaty and to normalize relations between Germany and the other countries, mainly France.
The principal treaty was the Rhineland Pact between Germany and the western allies. Germany formally recognized its new western borders as established by the Versailles Treaty. France, Belgium, and Germany all agreed not to attack one another, with Britain and Italy acting as guarantors. In the event of aggression by any of the first three states against any other, the remaining three parties were to assist the country under attack.
While Germany’s borders on the west were now fixed, the borders on the east were still open to arbitration. Czechoslovakia and Poland were left essentially unprotected. They had no great power behind them to protect them from Germany if and when it made territorial demands on them. The western powers anticipated that Germany would eventually demand the Sudetenland, the area of Czechoslovakia bordering southeastern Germany, and the “Polish Corridor,” the piece of East Prussia which had been carved out and given to Poland. As it turned out, Germany did demand that Czechoslovakia cede the Sudetenland in 1938. Czechoslovakia, after appealing to the western powers and getting nowhere, did cede this territory. In 1939, the Wehrmacht (the Reichwehr’s name during the Nazi regime) invaded Poland and took back the territory they lost in 1919 (and a lot more besides.)
As a consequence of the Locarno Treaties, Germany’s relations with the rest of Europe were normalized. Germany could now join the League of Nations, which it did in 1926.
Germany’s economy continued to improve, at least on the surface. German trade increased and unemployment fell. But much of this was paid for by money still coming from America under the Dawes Plan.
Cultural Reflections Of The Time
Beginning in the early 1920s, German literature, cinema, theatre and musical works entered a phase of great creativity. Innovative street theatre brought plays to the public, and the cabaret scene and jazz music became very popular. A cliché of the time suggested that modern young German women were “Americanized,” wearing makeup, short hair, smoking, and breaking with traditional mores. Another widely used expression was “ultramodern.”
Artists in Berlin were influenced by other contemporary progressive cultural movements, such as the impressionist and expressionist painters in Paris, as well as the Cubists. Likewise, American progressive architects were admired and their style was copied in new buildings. German cinema blossomed with a unique style, called German Expressionism that ended when the Nazis came to power. Fortunately for cinema lovers, many German film makers emigrated to the US, where they made many iconic horror and melodramatic films for decades. Not everyone was happy about all this modernism. Conservatives and reactionaries feared that Germany was betraying her traditional values by adopting popular styles from abroad, particularly Hollywood films and New York fashions.
The anxiety of the time and fear of the future can be seen in the classic film “Metropolis.” The futuristic world depicted in this film is nightmarish. The rich live virtually godlike lives in the clouds, at the tops of tall buildings. The huge masses of workers have difficult, dangerous jobs in grim, hellish industrial facilities deep underground running the machines which maintain the utopia of the rich. Freder, son of Joh Fredersen, ruler of Metropolis, falls in love with Maria, who is a heroine to the workers. A colleague of Joh’s, Rotwang, a mad inventer, builds a robot and gives it Maria’s likeness in order to discredit her, corrupt the workers, and quash the impending uprising. No matter what happens, nothing must happen to the machines. The story is melodramatic, but the vivid underlying atmosphere is about technology and modernization run amok.
The image at the head of this diary is a still from “Metropolis.” It shows workers struggling with one of the great machines. When Freder sees it, he hallucinates that it has become the god Moloch, with workers in military columns marching up a great staircase into its mouth, which is full of flames.
The 1928 Election
The appearance of continuing recovery was reflected in the outcome of the election held in May, 1928. The parties near the political center were strengthened. The SPD did the best. It gained 3.8% to 29.8%. The communist KPD improved its position slightly to 10.6%. The big losers were the parties on the right. The DNVP slumped from 14.2% to 6.5%. There were about two dozen other parties, mostly on the right, which between them got 13.9%. One of these “other” parties was the Nazis, who ran a slate of candidates under their own name for the first time. They got an insignificant 2.6%. On June 28 Chancellor Müller of the SPD was finally able to form a coalition government with the other centrist parties (which had between them 28.8%). This was called the “Grand Coalition. It would prove to be a fragile coalition. It managed to govern, with some difficulty, and ultimately would collapse during the early days of the Great Depression.
The Young Plan
Since 1924, Germany had been making reparation payments under the terms of the Dawes plan. Payments under the Dawes Plan increased from RM 500 million in 1924 to RM 2.5 billion in 1928. Beyond that had not been specified. German business began to rebound right after the hyperinflation period ended and the national economy had improved. Germany had been able to keep up with its reparations payments.
In 1929, a committee was formed to finalize the reparation situation. It was headed by Owen Young, an American businessman and banker, who had been part of the original committee which had come up with the Dawes Plan. The committee included American banker J.P. Morgan and his partner Thomas W. Lamont. As we saw earlier, US banks were making a lot of money from this repayment scheme and wanted to continue it.
The Young Plan reopened the previous reparation agreements. The London Schedule of Payments had determined that Germany’s total liability was RM 132 billion. However, payment arrangements were only set up for RM 50 billion because it was felt that was all Germany could afford at the time. The Dawes Plan left this alone. But the German economy was doing better now. The Young Plan reduced the Germany’s total liability to RM 112 billion. The annual payment amount was also reduced from RM 2.5 billion to RM 1.6 billion. The annual amount would increase over time. This was a very generous amount, as German exports at the time were around RM 13.5 billion. One third of the annual payment was mandatory; the remaining two thirds were could be postponed. The postponed amount would remain part of the balance and would accrue additional interest above what was on repayment schedule, which would run until 1988 (60 years in the future.)
The plan was finalized on August 30 and formally adopted on January 30, 1930. In the end, it did not matter. In October, 1929, the Wall Street Crash occurred, which changed everything for the banks. They had to recall money from Europe and to cancel the credits which made the Young Plan possible.
The “Liberty Law”
The Young Plan with its long schedule of reparation payments was opposed by Germans on all parts of the political spectrum. The most outspoken part was the right wing, which made their opposition a major issue. A coalition was formed of various conservative groups under the leadership of Alfred Hugenberg, who was head of the DNVP. The Nazis also joined the coalition. Their derisive but powerful slogan was “Three Generations Of Forced Labor!” Their goal was enactment of a proposal called the Freiheitsgesetz (“Liberty Law”).
The Liberty Law would renounce all reparations and make it a criminal offense for any German official to cooperate in their collection. It would also renounce the German acknowledgement of "war guilt" and the occupation of German territory as imposed by the Versailles Treaty. Passage of this law would be a repudiation of the Treaty, and a direct challenge to the allied powers. There was no way such a proposal could pass in the Reichstag.
There was a way around this, which the right-wing coalition would use. Under the terms of the Weimar constitution, if ten percent of the eligible voters in the country signed a petition in favor of a proposed law, the Reichstag had to put the matter to a vote. If the Reichstag voted against the law, the proposal would automatically be put to a national referendum. If fifty percent of the people voted in favor of it, it would become a law.
The Liberty Law proposal was officially put forth on October 16, 1928. The right-wing groups held large public rallies to collect signatures. The government staged demonstrations against it. The right-wing coalition succeeded in collecting enough signatures to put the proposal before the Reichstag, which voted it down. The proposal was put up for a popular vote on December 22. It failed, receiving only 13.8% of the votes.
The campaign to pass thee Liberty Law was a major factor in bringing Hitler and the National Socialists into the political mainstream. Following the defeat, Hitler denounced Hugenberg and said the loss was a result of his (Hugenberg’s) poor leadership. Hugenberg and many other conservatives soon found themselves being eclipsed by the National Socialists.
The Ruhr Iron Strike
The Ruhreisenstreitt (“Ruhr Iron Strike”) was the largest and most influential lockout during the Weimar period. About 250,000 workers were locked out of work between November 1 through December 3, 1928.
The years since 1924 had been favorable to the large industrial firms in the Ruhr. They were making money. Their workers were well-paid, but but their wages had not increased at the same rate as their employer’s profits. This provided a good recruiting environment for the trade unions, which were becoming more influential, particularly in industrial districts such as the Ruhr. The industrialists who owned the firms, led by Krupp, vehemently opposed any union expansion or interference in what they considered their private business.
On October 31, 1928, three metalworkers unions announced that they had agreed to seek a 15 pfennig (RM 0.15) per hour wage increase for all workers over age 21. This proposed action (nothing concrete had happened yet) blew up into a massive lockout three days later. The industrialists saw their competitiveness threatened, not only by the union wage demand but also by the fear that the unions would make further demands and obtain backing from Hermann Müller’s coalition government.
After five weeks the unions backed off on their wage demands and the industrialists ended the lockout.
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