Hyperinflation in Weimar Republic - out-of-control inflation renders money basically worthless, threatening to cripple the German economy
In 1914, the exchange rate of the German mark to the American dollar was about 4.2 to one. Nine years later, it was 4.2 trillion to one. Thanks to the Treaty of Versailles, Germany’s ability to produce revenue-generating coal and iron ore decreased. As war debts and reparations drained its coffers, the German government was unable to pay its debts.
Some of the former World War I Allies didn’t buy Germany’s claim that it couldn’t afford to pay. In a blatant League of Nations breach, French and Belgian troops occupied Germany’s main industrial area, the Ruhr, determined to get their reparation payments. The Weimar government ordered German workers to passively resist the occupation and go on strike, shutting down the coal mines and iron factories. As a result, Germany’s economy quickly tanked.
In response, the Weimar government simply printed more money. The effort backfired, however, and further devalued the German Mark—and inflation increased at an astounding level. The cost of living rose rapidly and many people lost all they had.
According to Paper Money, by Adam Smith, “the law-abiding country crumbled into petty thievery.” People struggled to survive in increasingly absurd conditions, with workers bringing wheelbarrows, sacks and suitcases to work to collect their wages or to pay for goods. An underground bartering economy was established to help people meet their basic needs.
Germany elected Gustav Stresemann as their new chancellor in 1923. He ordered Ruhr workers back to the factories and replaced the Mark with a new currency, the American-backed Retenmark. Combined with the "Dawes Plan", whereby Germany would pay more reasonable reparations on a sliding scale, the Weimar Republic stabilized and its economy became more resilient for the rest of decade, at least until the global crash of 1929.
Occupation of the Ruhr - France and Belgium send troops into the economic heartland of Germany in response to frequent defaults on reparations.
In January 1923 France and Belgium invaded the Ruhr, an industrial area of German bordering their own countries. The occupation of Ruhr was in response to the Weimar Republic’s failure to continue its reparation payments in the aftermath of World War I. This region, full of factories and coalmines, contained resources the French and Belgians intended to use to make up for the unpaid reparations.
German workers refused to co-operate with the French and Belgian armies, and went on strike. The German government supported them. The French sent in their own workers, and arrested the leaders of the German strikers and the German police. This led to violence on both sides. Though the French did succeed in making their occupation of the Ruhr pay, the Germans through their passive resistance in the Ruhr and the hyperinflation that wrecked their economy, won the world’s sympathy, and under heavy Anglo-American financial pressure (the simultaneous decline in the value of the franc made the French very open to pressure from Wall Street and the City), the French were forced to agree to the Dawes Plan of April 1924, which substantially lowered German reparations payments. Under the Dawes Plan, Germany paid only 1 billion marks in 1924, and then increasing amounts for the next three years, until the total rose to 2.25 billion marks by 1927.
The Ruhr occupation of 1923-1925 marked a shift in the balance of power in Europe in Germany’s favor. Firstly, it demonstrated that the Anglo-French entente had ended as a counter-weight to German power. Secondly, France was faced with a united front of Germany-Britain-America against its invasion and was denounced as a chauvinistic, warmongering, greedy power. Politicians and the press in Britain, for example, regarded the French view that Germany was preparing to launch another war as absurd and “insane”.
Although the Ruhr occupation was profitable, the furore it caused shattered French will. As the historian Sir Denis Brogan wrote: “Germany was still open to French invasion, but the will to invade was dead”. So by the 1930s when Germany managed not only to get reparations abolished but was openly flouting the disarmament clauses of the Versailles Treaty, France did not feel able to act even when she possessed military superiority (until the late 1930s).