By: Emmanuel Akinwale
As remarked by Cicero, “History is the witness that testifies to the passing of time; it illumines reality, vitalises memory, provides guidance in daily life and brings us tidings of antiquity”.
In the historical epochs of the country’s economies, there have been moments of frailty and bloom.
However, this article seeks to focus on the failed economy of the past and measures implemented by the government to alleviate the excruciating circumstances these economic downturns would have on the people of the country they are committed to serving whilst also serving as a parable to failing economies at present.
Before I proceed, a worthy question I would like to ask conscientious readers of this article is, do you think a country with an exchange rate of 20, 000 marks(its local currency) to a dollar can become a country with the second-best economy globally in subsequent moments in history?
Well, that was the case with Germany. Following the humiliation of the First World War and belittling prescription by the Treaty of Versailles, Germany suffered severe and acute Economic downturns, a period of economic rubble.
As of 2023, Germany has the second-best economy globally and the 5th country globally in 2019, providing adequate social benefits for its citizenry, according to an article by Statista in 2021.
Amidst this silver lining that has transversed Germany’s economy, the epoch where Germany had to juggle the flaming sword of economic depression must be appraised.
EFFECTS ON GERMANY’s ECONOMY AFTER WWI
The text of the treaty signed in Versailles’ Hall of Mirrors on June 28, 1919, was 240 pages long and contained 440 separate articles. Article 231, also known as the war guilt clause, required Germany to accept responsibility for causing “all the loss and damage” inflicted on the Allies.
This provision became the basis for the Allies’ demand that Germany pay reparations, which were set by a series of conferences in 1920 at $33 billion (roughly $423 billion in 2019 dollars). Before that, however, it is noteworthy that I highlight the strict specifications in the Treaty of Versailles that exacerbated Germany’s economic situation.
Economist John Maynard Keynes stated in 1920, “I believe that the campaign for securing out of Germany the general costs of the war was one of the most serious acts of political unwisdom for which our statesmen have ever been responsible.”
Because of the past imperial regime’s tactic of printing large amounts of money and taking on large debt to pay for its war expenses, Germany was already in serious financial problems.
Due to financial difficulties brought on by debt and budget deficits, the newly formed German government was unable to make the required payments in gold-backed marks. Then, in an attempt to increase the pressure, France invaded the industrial region of the Ruhr in western Germany. This did nothing but deepen the economic upheaval in Germany and fuel the hyperinflation that rendered the nation’s currency essentially worthless in 1923.
Germany had a period of hyperinflation at the beginning of the 1920s. Bank notes, like the ones seen here from the collection of the Spurlock Museum, were produced at a breakneck pace by the government to keep up with the depreciating value of the money.
Working-class people would have carried notes worth 20,000,000, 50,000,000, 1,000,000,000, and 5,000,000,000 markups to buy staples like meat, bread, and coal to heat their homes—all of which were becoming increasingly expensive. With hindsight, the chaotic phase of hyperinflation was a predictable outcome of years of instability, debt, upheaval, and warfare.
In the years that followed the end of World War I, Germany was in trouble. Enraged by their material circumstances and demanding an end to the war, large numbers of sailors, soldiers, and labourers overran Germany’s cities and overthrew Kaiser Wilhelm II’s monarchy in the November Revolution of 1918.
Millions of German soldiers were returning home from the Western Front, adding to the nation’s growing unemployment rate. Some of them joined the counter-revolutionaries who wanted to see the monarchy restored, while others joined the far-left revolutionaries’ armed forces. At least 1.1 million Germans were unemployed by February 1919, and the figure would keep rising. In most German cities, there were waves of both revolutionary and counter-revolutionary violence on the streets during the ensuing years.
The liberal coalition administration made a valiant effort to uphold their interpretations of stability, peace, and order in the face of opposing ideas for the nation put forth by far-left communists and far-right counterrevolutionaries.
In addition to these internal issues, the newly formed republic—often referred to as the Weimar Republic—was hit with historically high levels of war debt in May 1919 as a result of the Treaty of Versailles. The victorious Allies were to get reparations worth half a trillion US dollars today. As payback, Germany started to be forced to relinquish its raw resources, including coal, iron, grain, timber, and livestock, as well as its manufactured commodities. Despite experiencing a shortage of both material and monetary resources, the Weimar government continued to produce banknotes with minimal reserves. This procedure started to depreciate the German mark.
The strain of these internal and foreign forces caused the German economy to start collapsing. An era of hyperinflation started when the German mark fell sharply in value as the first payments were made to the Allies in the early 1920s. One US dollar was worth 160 German marks at the beginning of 1922. The value of the money would decline to 4,200,000,000,000 marks to one US dollar by November 1923.
For the majority of regular Germans, who worked in factories as members of the working class, the hyperinflation made daily life difficult. Getting simple necessities like bread, meat, and coal for household heating became challenging due to the exponential price increase. One day’s pay was frequently useless the next.
Many stories exist of Germans racing to the store or bakery during their lunch breaks, fearing that if they waited until the end of the day, their money would lose so much value that they would not be able to afford the necessities. Once highly precious banknotes lost value to the point where some people started using them as wallpaper or even toilet paper, as they were only worth pennies. In his book ‘Sturm auf Essen’, the communist novelist Hans Marchwitza described the time of inflation and revolutionary violence as “a hated, cursed war followed by a hated, cursed post-war.”
A new government headed by Gustav Stresemann, who served as Foreign Minister until 1929 and as Chancellor of Germany for a brief period in 1923, put an end to the crises of 1923. Often referred to as Stresemann’s “hundred days,” his tenure as Chancellor was marked by a series of bold moves: he ended the Ruhr region’s passive resistance; he replaced the old currency with the Rentenmark, which was backed by a mortgage on all industrial and agricultural land rather than gold, which Germany lacked; and he ended hyperinflation.
When more money was needed,
Stresemann refused to print more and instead cut government spending, increased taxes and reduced salaries. He was also helped as Germany was not paying reparations at this time. Confidence at home and, importantly, abroad was brought back: hyperinflation was cured. When a new government was formed in November 1923 Stresemann remained Foreign Minister. He was determined not only to restore Germany as a major power but also to ease the burden of reparations. He did this by repairing relations with France after the occupation of the Ruhr. Britain was keen to bring stability to Europe after these events and it encouraged the USA to investigate Germany’s ability to pay reparations. The result in 1924 was the Dawes Plan which stabilised German currency and balanced Germany’s budget. Stresemann negotiated the new agreement with the USA. It was agreed that in the future Germany would not repay in reparations more than it could afford. In addition, loans, mostly from the USA, would generate economic growth in Germany and back up its currency, so that reparations could be made regularly. The French also agreed to leave the Ruhr.
ECONOMIC DEPRESSION AFTER WWII and solutions
Following this moment of economic stability. Germany was further plunged into a phase of economic depression as an aftermath of World War 2
Restoring the German economy and repairing the damage from World War II were key components of Konrad Adenauer’s policies as West German Chancellor from 1949 to 1963. These plans were impacted by two very significant factors: the Marshall Aid programme, which provided generous funding to West Germany and many other European countries to rebuild their economies, and the introduction of a new currency, the Deutschmark, in 1948, which ended postwar inflation. West Germany got $1,300,000,000.
Dr. Ludwig Erhard served as Adenauer’s economic minister, and he deserves a great deal of credit for the prosperity of West Germany’s economic recovery. The German economy grew with such success that it is frequently referred to as an “economic miracle.” The economy of West Germany was mixed, relying on both public and private resources to provide prosperity and economic growth. To guarantee that the government had sufficient funds to support social reforms and high-quality welfare services, relatively high tax rates were implemented.
The key points of Erhard’s policies in the 1950s were: • Sensible use of $1,300 million of Marshall Aid to rebuild old industries and introduce hi-tech machinery.
• Investment and research: firms which invested in research and development could reclaim tax.
• A strong central bank and new currency.
• Massive demand for goods because of the Korean War (1950–3).
• High taxation of business and the more wealthy to fund further investment and social reform. For example, from 1952 wealthier Germans were taxed at 50 per cent and the money was used to build 2 million badly needed new homes. As a result of these policies, West Germany experienced:
• the highest annual growth rate in Western Europe;
• full employment (by 1960 a low rate of 0.4 per cent unemployment);
• high productivity (between 1948 and 1964 industrial production increased by 600 per cent); • very low inflation.
From the foregoing using the case of Germany as a case study leaves much to be desired on the failing economy in a country like Nigeria.
The economic stability spearheaded by notable actors like Streseman in 1924 and Erhard, West Germany in the 1960s is a parable that it is a possibility for a deplorable economic situation to be overturned. To make this possible, round pegs must be fitted into round holes and square pegs fitted into square holes regarding administrators.
