Question 10

Examine the Nature of Weimar Germany’s Economic Problems

Paragraph One: World economic conditions

• World situation in 1920s less favourable than pre-1914
• Germany had relied on exports as an impetus for growth
• But world manufacturing output recovered from impact of war more quickly than world trade
• Foreign trade now had smaller role in German economic life than pre-war
• 1910-13 German exports 17.5% of Net National Product (NNP)
• 1925-9 when Weimar most prosperous NNP figure was 14.9%
• Note that as Germany’s territory was smaller after the war, if her economic activity had remained at pre-war levels, her export share ought to have risen

Paragraph Two: Economic effects of Versailles

• Lost Silesian coal field, Saar Basin and phosphoric iron-ore fields of Lorraine
• German chemical and pharmaceutical business had been one of the Empire’s most important industries – it faced new competition during 1920s because the victorious powers had confiscated the German patents
• These problems limited the possibilities for German economic growth

Paragraph Three: Demographic developments

• Developments in this area meant higher unemployment
• German population, and thus overall demand, had fallen due to war casualties
• Malnutrition and epidemic disease attacked population reducing number of live births
• Fewer conceptions
• Pre-1914 population boom arrived in the labour market. Pressure eased in 1930s as smaller numbers born after 1914 reached employment age
• 1925 5 million more people in labour pool than at time of 1907 census
• During decade number of people available for work increased
• Work force up from 32.4 million in 1925 to 33.4 million in 1931
• Higher unemployment likely even without depression as labour force increased in a diminished population and with lower demand

Paragraph Four: Saving and investment

• 1910-13 investment 15.2 % of NNP at market prices
• 1925-9 it was 11.1%
• After 1930 there was net disinvestment (5.4% of NNP in 1931 & 4.1% 1932)
• Figures may be misleading even in better years of late 20s because more than 40% of total investment in industry and commerce was inventory investment as opposed to investment in new plant; there was huge restocking by business when the inflation period was over
• The cost of investment funds may have been the cause of lower investment in late 20s
• Long term funds scarce and expensive and interest rates higher than in Great Britain and USA – it was a reflection of the financial system’s reaction to post-war inflation in Germany
• Savers lost huge sums – confidence collapsed
• Savings rates fell as a result – Germany had to depend on foreign investment now
• When flow of foreign capital fell as in 1925 or after 1928, the level of German economic activity also fell
• Investment problems were not only supply side, and reduced saving after inflation, lack of funds or even the confidence of German investors
• It would not have mattered if the German economy had been sound because foreign capital would have filled the gap

Paragraph Five: Problems with foreign investment

• Foreign investors are not always good at making economic choices because they operate at a distance
• Dependence on foreign capital linked Germany to world trends in a decade when capital markets were volatile - catastrophic results
• Wall Street speculative boom made German investments seem less attractive
• If this were the case, external shocks such as the Wall Street Crash, rather than internal weaknesses that caused the first signs of depression in Germany in 1928 and 1929
• In 1928 the volume of foreign lending to Germany decreased
• Made slight recovery after the Crash had wrecked confidence in the domestic economy of America, and before international loans halted in 1931
• By 1929 many Americans saw Germany as a poor prospect
• After the Crash American activity in Germany increased but the larger and reputable houses kept out
• Finance for German business came from the Boston firm of Lee Higginson and similar houses
• 1930-1 Lee Higginson took main role in funding German government
• When Americans looked at Germany they saw economic instability and political uncertainty, so investors were sceptical

Paragraph Six: Misinvestment

• Quality and quantity of investment low
• Late 20s much discussion of US methods: assembly line production – ‘Fordismus’, and scientific management – ‘Taylorismus’
• It was believed that rationalisation destroyed jobs through new production methods
• Subordination of people to machines destroyed character
• Reality-extent of technical change was really quite limited
• Only 2 industries embraced decisive change: coal e.g. Ruhr became almost completely mechanised; automobiles – Ford and General Motors/Opel built new assembly lines
• Steel changed little in late 20s – most important developments took place earlier when there was need to economise energy in post-war coal shortage
• Textiles – hourly productivity was often below pre-war levels. Large-scale production wasn’t possible in clothing owing to the vagaries of fashion
• Electro-technical industry rationalisation meant a cult of big business no matter what the consequences
• Expansion for prestige even when companies were doing well
• Wanted monopoly and this led to unprofitable investments and acquisitions