Economy of a Defeated Nation

There is clearly a relationship between economic policy and the social and political landscape of a nation. Often viewed as one of the economic powerhouses of Europe today, Germany has its roots firmly embedded in the Weimar Republic. From 1918 to 1933 the Weimar Republic, the governing body of Germany, embarked on a mission of economic development, employing empirical, policy-oriented economic research on a scale that was unprecedented in the history of Germany and, at that time, without parallel in Europe.

Importance of Statistics in the Development of Economic Policy

German history at the beginning of the Weimar Era was already grounded in over one hundred years of German statistical bureaucracy, beginning with the Prussian Statistical Bureau in 1805 and continuing with the Imperial Statistical Office in 1872. The Reich’s Ministry for Economic Affairs (Reichswirtschaftsministerium, RMW) and the Reich’s Statistical Office (Statistisches Reichsamt, SRA) worked together within the Weimar Republic. At the helm of these two ministries were Robert Schmidt, Dr Julius Hirsch and Ernst Wagemann, all of whom had gained economic experience prior to and during the First World War.

These men, amongst their colleagues, utilised two new approaches to monitoring the economy and developing fiscal policy. Akin to today’s familiar concept of breaking down economics into macro- and microeconomics, one method focused on a universal approach to the economy. This method relied on equations of exchange and circular flows of goods and services. In contrast the other method focused on the organisations and firms themselves which were viewed as the ‘building blocks’ of the economy. Armed with new and innovative economic theory, the Weimar Republic was able to adopt a policy of substantial interventionism in regards to economic policy.

1918-1923: Treaty of Versailles, hyperinflation, the Ruhr Crisis and Hirsch’s Productivism

At the conclusion of World War I in 1918, after over four years of brutal conflict throughout Europe, Germany was defeated. The Leader of Germany for over thirty years, Kaiser Wilhelm II, abdicated, and with him his dynasty ended. For the first time in German history Germany was ruled by a completely democratic republic. There are three factors which directly influenced the economic policies of the Government at this time: The Treaty of Versailles, Hyperinflation and the Ruhr Crisis.

Employee protection, social insurance, labour market policy, and social and welfare assistance were emphasised and revolutionised within Germany at this time through socio-economic legislation and Hirsch combined this with a policy of productivitism within which the RMW prioritized output, employment and consumption, especially over price stability, through forms of direct regulation and high state spending. Pushing the economy towards hyperinflation, this economic policy led to the increase in prices, a greater rise in the exchange rate than in domestic prices, a socially perceived shortage of money and finally a huge growth in real balances after stabilisation bringing inflation to an end.

By the time the economic policies of the Weimar Republic responded and quelled the hyperinflation, the majority of the middle class and below had watched their savings and pensions disappear. On the political front the inflationary economic policies discredited the free market, constitutional law and parliament as an institution,

1924-1929: Stabilisation

The period of 1924 to 1929 saw the stabilisation of the economy, which acted as a catalyst serving to stabilise the social and political landscape of Germany. Relying on a constant flow of foreign investment and loans to compensate for the lack of domestic capital, 1924 saw immense economic growth. The Republic continued to emphasise socio-economic improvements through legislation within parliament. Employee protection, social insurance, labour market policy, social welfare and social assistance were again at the forefront of this.

Whilst improving the footing on which the German Government could negotiate political changes within the Treaty of Versailles, these new policies advanced foreign political changes at the expense of the middle to low socio-economic classes within Germany. Even though these economic policies advanced German foreign interests far more than socio-economic interests, by 1928 improvements began to take hold for the German people. There were many signs that Germany was on the right track to returning to its standing before 1914. However, October 1929 saw a monumental crash in the US stock market, instigating the Great Depression.

1930-1933: Depression and the Demise of the Republic

In the face of the Great Depression, Chancellor Brüning attempted to institute economic policies that would undermine the ability of Germany to continue paying reparations in accordance with the Treaty of Versailles. The economic depression and political fragmentation caused by Brüning’s policies saw what little faith the German populace had in the Weimar Republic slowly and indefinitely being destroyed. The economic policies of the Weimar Republic during its final years were deliberately deflationary in an attempt to drive the German economy into the ground and strengthen Brüning’s own domestic and foreign political goals.

Conclusion

Born from the aftermath of the First World War the social and political landscape of Germany was transformed from the foundation of an Autocratic Monarchy to a Democratic Republic. Aided by key figures such as Julius Hirsch and Ernst Wagemann, the Weimar Republic forged a tie between statistics and economic theory, giving birth to an era of unprecedented research, resulting in an institution that utilised the economy as a tool of government in a revolutionary manner. The economic policies of the Weimar Republic were both a reaction to and catalyst for social and political change. This cyclical nature is evident in such policies as Hirsch’s productivism and Brüning’s deflation.

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One comment on “Economy of a Defeated Nation

  1. stubba12 says:

    Great post. Let me start by saying that economic matters are somewhat foreign to me and are not at the forefront of my interest but I remembered seeing your presentation during our tutorial and I was looking forward to learning more about your topic.
    The wording and structure of your post made this topic extreme accessible to a person with minimal knowledge on economic matters. I think that the relationship between economic policy and the social and political landscape of a nation is unmistakable. It was interesting to see how German economic policy was to develop over the period that you explored.
    As The economic policy of European nations has been a hot topic of late and this may give a small window into why Germany is a current day economic powerhouse.
    I found this post easy to understand and rather enjoyable to read.
    Once again great work

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