Economic Recovery and the End of Hyperinflation

This section explains the economic recovery and the end of hyperinflation in Germany from 1923-1929. By 1923, Germany’s economy was in freefall. The hyperinflation crisis had destroyed savings, businesses were collapsing, and confidence in the Weimar Republic was at an all-time low. However, under the leadership of Gustav Stresemann, Germany underwent a remarkable economic recovery between 1924 and 1929. While this period is often called Weimar’s ‘Golden Age’, the extent of this recovery remains debated by historians.

Ending Hyperinflation: Stresemann’s Immediate Actions

Stresemann’s most significant achievement as Chancellor was stabilising the German economy and ending hyperinflation. He achieved this in just three months through decisive action:

Ending Passive Resistance in the Ruhr

• The French and Belgian occupation of the Ruhr (January 1923) had led to widespread strikes (passive resistance).
• The German government supported the strikers by printing money to pay them, which caused hyperinflation.
• Stresemann called off passive resistance, meaning that:
  • Workers returned to their jobs, and production resumed, bringing in tax revenue.
  • The government stopped printing excessive money, helping stabilise the economy.

Resuming Reparations Payments

• Stresemann agreed to restart reparations payments, persuading France and Belgium to withdraw from the Ruhr by 1925.
• This improved relations with the Allies and showed that Germany was willing to cooperate.

Introducing a New Currency: The Rentenmark (1923)

• The old mark had become worthless due to hyperinflation.
• A new temporary currency, the Rentenmark, was introduced, backed by industrial and agricultural land rather than gold.
• Strict limits were placed on how much was printed, preventing inflation.
• Confidence was restored, and in 1924, the Reichsmark replaced the Rentenmark as a permanent currency.

Reducing Government Spending

• The government was overspending, contributing to economic instability.
• Stresemann cut public spending, dismissing around 700,000 government employees.
• This helped balance the budget and reduce the deficit.

Renegotiating Reparations: The Dawes Plan and Young Plan

Reparations had been a major burden on the German economy, but Stresemann’s leadership helped renegotiate the payments to make them more manageable.

Did the Weimar Economy Really Recover?

Between 1924 and 1929, Germany saw significant economic growth, but this recovery had severe limitations.

Signs of Recovery

✅ Industrial Growth:

• By 1928, industrial production was higher than in 1913 (before World War One).
• New factories and industries were established, increasing output.

✅ Exports Increased:

• Between 1925 and 1929, exports rose by 40%, strengthening Germany’s trade position.

✅ Rising Wages and Living Standards:

• Hourly wages increased every year from 1924 to 1929.
• In 1928 alone, wages rose by 10%, improving workers’ living conditions.

✅ Business Expansion:

• IG Farben, a German chemical company, became the largest industrial company in Europe, reflecting economic strength.

✅ Social Welfare Improvements:

• In 1927, Germany introduced generous pension, health, and unemployment insurance schemes, offering greater financial security to citizens.

Signs of Continued Economic Weakness

❌ Agriculture Did Not Recover:

• Farming remained weak, with low prices and falling profits.
• Many farmers went into debt and were unable to afford new machinery.

❌ Trade Deficit:

• Germany spent more on imports than it earned from exports, leading to a trade imbalance.

❌ Persistent Unemployment:

• Unemployment remained high—never falling below 1.3 million.
• In 1929, unemployment rose again to 1.9 million, showing economic instability.

❌ Dependence on US Loans:

• The entire economic recovery was built on US loans from the Dawes Plan.
• If the USA withdrew its financial support, Germany would face serious difficulties.

❌ Government Deficits:

• The government spent more than it received in taxes, running a deficit every year from 1925.
• This meant Germany was not truly self-sufficient and was vulnerable to financial crises.

Conclusion

While Stresemann’s policies brought stability and prosperity, Germany’s economic recovery was built on shaky foundations. The reliance on US loans and ongoing weaknesses meant that when the Wall Street Crash happened in 1929, the entire system collapsed.