The years following the Great War saw Germany in economic and political which peaked by 1923. The country was plunged into a period of hyperinflation and high unemployment, while the government struggled to maintain order and stability. However, through the policies of Chancellor Gustav Stresemann, the economy was rejuvenated, bringing about the ‘Golden Age’ of prosperity in Germany. Stresemann’s most influential policy, the Dawes Plan, set up systems that facilitated direct aid from the United States, playing a significant role in the revival of the German economy. Alongside this Stresemann introduced a new currency given the immensely depreciated value of the Deutsche Mark (the previous currency which suffered from severe hyperinflation). Yet, despite the Dawes Plan’s initial success, it left the nation economically dependent upon America’s economic health. Germany had taken on an unsustainable amount of debt to finance its quick recovery. Consequently, the 1929 Wall Street Crash devastated both the German economy and the structures created by Stresemann, plunging the country into a worse economic crisis than that which Stresemann inherited in 1923. Being recognised for his success and contributions to Germany, Stresemann received a Nobel Peace Prize in 1926. However, the chancellor died in 1929 of a heart attack just months before the Wall Street Crash.

Following the devastation of the First World War, and the abdication of Kaiser Wilhelm II, the Weimar Republic was proclaimed on 9 November 1918. Germany’s defeat in WWI left many citizens feeling disenfranchised and humiliated, and the following years saw the country fall into a seemingly inescapable economic crisis. It was these conditions that Stresemann was tasked to resolve in 1923. The Treaty of Versailles (1919) and the London Schedule of Payments (1921) declared that Germany was entirely responsible for the war and had to pay 132 billion gold marks in reparations to cover the civilian damage caused. These reparations devastated the German economy by submerging the country into unaffordable debt without a clear payment structure. The lack of clarity meant investors had little confidence in the government and its ability to pay back any loans; this uncertainty loomed over Germany and meant the country received very little foreign direct investment (FDI). Furthermore, many Germans were furious with the Weimar government’s acceptance of full war guilt leading to political tensions and instability. This only further reduced investor confidence and prevented Germany from receiving the investment required to rescue itself from its costly recession. 

The main issue by 1923 was that the country faced hyperinflation. At its worst, prices were doubling every day, rendering the currency effectively worthless. The prospect of paying back the costly reparations only furthered the depreciation of the Deutsche Mark and reduced confidence in the Weimar government.

Adding to the crisis was the French and Belgium invasion of Germany’s industrial heartland – the Ruhr – on the 9th of January 1923. This damaging invasion came in response to a failure to pay back reparation instalments. However the Germany economy was simply not equipped with the financial capital to sustainably afford the reparation payment requirements. The foreign forces seized commodities and factories to make up for the missed reparation instalments hugely degrading the capacity of German industrial capital. This invasive occupation left Germany without a core part of its industrial capital, and directly took resources which only worsened the severe crisis. 

The first issue which Stresemann addressed was the hyperinflation. The Deutsche Mark (DM) had lost substantial value due to the reparations and loss of political confidence, however the main inflationary cause was how the government printed trillions of DMs to pay off its immense debts. This short-sighted policy solved the direct issue of some debts but in the long run was hugely inflationary. The printing increased the supply of cash thereby depreciating its value, consequently prices drove up to the point of hyperinflation. The living conditions of millions of Germans were destroyed as goods and services became unaffordable. This hyperinflation peaked in November 1923, when the exchange rate reached 4.2 trillion marks to one US dollar. Realising that the Deutsche Mark was irreparable, Stresemann introduced a new currency, the Rentenmark, in an action of significant government intervention as his first step in rebuilding the economy.

Consumer Price Index measures the costs of a normal citizen’s basket of goods and shows the severe hyperinflation Germany faced by 1923

The Rentenmark was backed by the gold reserves of Germany, industrial real estate, and agricultural plots; this gave the currency tangible value and, therefore, consumer and investor confidence. These assets allowed Germans and investors alike to place trust in this new currency, since they acted as an insurance policy were the currency to fail. This increased the value of the Rentenmark and ensured reasonable stability. Moreover, in September 1923, Stresemann founded the Reichsbank (as a part of the Dawes Plan). This state-owned organisation was responsible for issuing the Rentenmark and limiting the supply of the new currency. The Reichsbank acted much like a modern central bank and offered stability to the new currency because the bank’s policies prevented printing cash to pay off debts (which had destroyed the DM). Finance Minister Hans Luther’s responsible fiscal policy also further strengthened the new currency. This, coupled with Germany’s newfound access to international credit, added to the immense strength of Stresemann’s Rentenmark, marking a new currency with low and stable inflation and an end to the economic crisis.

The Rentenmark was certainly a huge success though it was the Dawes Plan of 1924 that contributed most greatly to the economic prosperity of the ‘Golden Age’. The Reichsbank was set up under the Dawes Plan and played a key role in the stability of the Rentenmark but the plan introduced other, more significant, policy changes. Charles Dawes was a US banker sent to Germany in 1923 to help solve its economic issues. In conjunction with Stresemann, he set up the Dawes Plan, significantly relieving the economic pressures on Germany following the First World War. Germany had been suffering from the reparations imposed by the Treaty of Versailles; an issue addressed by the Dawes Plan. The plan reduced reparations by 132 billion marks, while also introducing the opportunity of future negotiation about the reparations, meaning that if the German economy was underperforming, it would pay fewer reparations. This clarity and financial flexibility alleviated the pressures of the reparations. The Dawes Plan also successfully ordered that France and Belgium end their occupation of the Ruhr and pledge not to unilaterally invade Germany as a result of missed reparation payments again. This promise offered economic stability, and the regained industrial capital strengthened the German economy.

The most significant policy of the Dawes Plan was the substantial uptake in foreign investment and loans to Germany by the United States, mostly from the US government and private banks. The initial loan of 800 million marks was largely spent on developing German infrastructure and industrial capital, including many factories, creating thousands of jobs across Germany. Under the Dawes Plan, Germany received over 133 long-term loans from the US and many more short-term loans which had to be instantly repaid in full if requested. The loans allowed Germany to pay off its reparations and rebuild infrastructure damages in the war. Industries, such as steel, chemical and electrical engineering, received substantial financial support due to the loans further adding to Germany’s output and economic growth. Overall the loans facilitated under the Dawes Plan funded the recovery of the German economy and pulled it out of the crisis of 1923.  

However, this economic prosperity came at the cost of making Germany dependent upon commercial debt and the US loans. The short-term loans had to be payed back in full where the banks who lent Germany the money to demand so. This left the country vulnerable and dependent upon the health of the US economy, which would severely punish Germany in 1929 following the Wall Street Crash. 

Whilst the Dawes Plan had brought immense economic prosperity to Germany, it had made Germany’s economy dependent upon short-term loans from US banks and left it vulnerable to external factors. The global depression caused by the Wall Street Crash led foreign investors to withdraw their interest in the Weimar economy, and the recall of US short-term debt crashed the German economy into a period of depression. The crash, primarily caused by long periods of speculation and unsustainable prices, is clearly depicted by the Dow-Jones industrial average which is a stock market index of 30 US companies. The Dow-Jones Industrial Average illustrates the severity of the stock crash and therefore also the financial burden which Germany suffered.

To conclude, Stresemann may have saved Germany’s political reputation and rescued its economy, however, the Dawes Plan left the nation heavily dependent upon the fragile state of the world economy. This vulnerability would open upon Germany to the damage of the Wall Street Crash, and subsequently returned the country to economic depression which was only exacerbated by the global economic downturn. This relapse into economic suffering and poor living conditions marks the fatal toll the Dawes Plan had on Germany. Stresemann’s policies had succeeded in reviving the economy but despite their valuable short-term benefits the policies ultimately damaged the economy leaving it in a painful financial depression.