Problems in Germany in the 1920s

• The Treaty of Versailles had imposed reparations (fines) on Germany

• The reparations amount was set in April 1921 at 6,600 million pounds (a HUGE amount)

• The German government had borrowed money from industry to pay for the war.

• The German government was unwilling to raise taxes to pay the reparations (you can imagine how the German people would have reacted to that!!!)

• The French and British had borrowed heavily from the United States to pay for the war.

• In 1921 Germany paid the first instalment of 50 million pounds in gold, wood and coal.

• In 1922 nothing was paid……

Map of the Ruhr

French occupationTractors being sent directly to

France

German Reaction

Inflation

• An ongoing increase in the general level of prices.

• If there is a high rate of inflation it means that prices are rising quickly.

• It will also mean that savings become less valuable and that fixed incomes become a problem.

Money is valuable because it is SCARCE

• Imagine if money grew on trees!

• You would be rich for a little while…

• That is, until everyone started carrying armfuls of leaves into stores!

• Businesses will charge the prices they can (a lot more money around will lead to businesses putting their prices up)

The price index (measures inflation)

July 1914 1.0

Jan 1919 2.6

July 1919 3.4

Jan 1920 12.6

Jan 1921 14.4

July 1921 14.3

Jan 1922 36.7

July 1922 100.6

Jan 1923 RUHR 2,785

July 1923 194,000

Nov 1923 726,000,000,000

German children playing with bricks of money

Burning money – it is less valuable than firewood

Collecting a day’s wages

From a 50 Mark note to (three years later) a 20

Trillion Mark note.

The Treaty of Versailles responsible for economic

problems?

• Anger at the Treaty terms made it impossible to raise taxes to pay for reparations.

• Germany had lost colonies so it had to buy everything they had once supplied

• Germany had lost valuable industrial land to Czechoslovakia!