10/4/19 Economics of the Peace Senior Scholars: • Most obvious economic consequence was the level of Interwar Europe: devastation WorkinG Out Modernity – Huge population loss in the Midst of Crisis Fall 2019 Prof. Kenneth F. Ledford [email protected] 368-4144 DEPARTMENT OF HISTORY HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT 1 10/4/19 HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT 2 10/4/19 HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT 3 10/4/19 HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace • Most obvious economic consequence was the level of devastation – Huge population loss – Cost of war injuries and pensions HISTORY DEPARTMENT HISTORY DEPARTMENT 4 10/4/19 Economics of the Peace • Shell shock and PTSD – 80,000 British soldiers alone – Theory of etiology shifted from physical shock to emotional stress HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace • Shell shock and PTSD • Prosthetics – Limbs – Masks – Skin and tissue grafting HISTORY DEPARTMENT HISTORY DEPARTMENT 5 10/4/19 HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT 6 10/4/19 HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace • Most obvious economic consequence was the level of devastation – Huge population loss – Cost of war injuries and pensions – Physical destruction of assets – Reparations Commission calculated total destruction at • $29,960,000,000 • France and Belgium accounted for $17 billion of this – This loss was reality behind voters’, and thus politicians’, insistence on war reparations from vanquished HISTORY DEPARTMENT HISTORY DEPARTMENT 7 10/4/19 HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT 8 10/4/19 HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT 9 10/4/19 HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace • Most obvious economic consequence was the level of devastation – Huge population loss – Cost of war injuries and pensions – Physical destruction of assets – Reparations Commission calculated total destruction at • $29,960,000,000 • France and Belgium accounted for $17 billion of this – This loss was reality behind voters’, and thus politicians’, insistence on war reparations from vanquished HISTORY DEPARTMENT HISTORY DEPARTMENT 10 10/4/19 Economics of the Peace Economics of the Peace • Allies were divided on correct method of calculating • Treaties with the lesser powers included fixed sums for reparations reparations – All agreed on need to include shipping and property losses of civilian • Regarding Germany, the Allies were unable to agree to a sum citizens of victor powers – So the Treaty set up the Reparations Commission to determine the sum – France and Belgium argued for the maximum, physical war damage of reparations plus cost of conducting the war – Germany had to sign a blank check – Britain added payment for cost of veterans’ pensions, doubling the cost to Germany – U. S. argued in vain to limit reparations to physical damage caused by the war HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace Economics of the Peace • While Reparations Commission worked, reparations already • In April 1921, the Reparations Commission rendered its began accounting – To be credited against the total when it was derived – Total reparations amount set at 132 billion gold marks, $33 billion – Transitional payments in foreign exchange, gold, and in kind – Germany given credit for $8 billion already paid • Merchant fleet – A further $1 billion due by end of May 1921 • Navy and armament materiel – Remainder to be paid in fixed quarterly installments beginning January • Specific quantities of livestock, railway rolling stock, industrial equipment, coal 1922, with interest at 6 percent • Had to build 200,000 tons of shipping annually for the Allies • Forfeit all public property in ceded territories and colonies • Forfeit all foreign investments • Pay costs of occupation troops in German territory – Not credited to reparations account HISTORY DEPARTMENT HISTORY DEPARTMENT 11 10/4/19 Economics of the Peace Economics of the Peace • Germans, and John Maynard Keynes, aghast • In Germany, economic history felt in three stages: – Astronomical sum, beyond ability to pay – November 1918-November 1923 – Germans argued that transitional payments were worth far more than • Worst disorder, hyperinflation $8 billion – November 1923-October 1929 – Initial $1 billion was not paid until August 1921 • Stabilization and relative prosperity • Then only after threat to occupy Ruhr ad with proceeds of a loan from London – October 1929-January 1933 banks • Deepening crisis with disastrous results for young republic – Near end of 1921, Germany notified Reparations Commission that it would be unable to meet the 1922 installments • Asked for a reduction HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace Economics of the Peace • The Inflation • Huge, immediate reparations payments due under Treaty: – Treaty of Versailles damaged capacity of German economy – All armament materiél • Lost 13.1 percent of land – Entire navy – 14.6 percent of arable land – 74.5 percent of iron ore – All merchant ships over 1,600 tons – 68.1 percent of zinc ore – – 26 percent of coal production Half of all merchant ships between 1,000 and 1,600 tons • Lost 10 percent of population – One quarter of fishing fleet • Loss of Alsace-Lorraine and Upper Silesia disrupted system of railroad supply to – One fifth of river and lake fleet industry – 5,000 locomotives – 150,000 railway cars – 5,000 trucks – To be credited against later reparations account HISTORY DEPARTMENT HISTORY DEPARTMENT 12 10/4/19 Economics of the Peace Economics of the Peace • Allies unable to agree on sum of reparations • Germans and economists (especially John Maynard Keynes) – Germans required to sign blank check in 1919 aghast • Reparations Commission appointed under Treaty due to – Keynes estimated at 3 times Germany’s capacity to pay deliver its report on May 1, 1921 – Germans argued that transitional payments were worth more than $8 – Delivered its report, London Schedule of Payments, May 5, 1921 billion • 132 billion gold marks ($33 billion in gold) – $1 billion initial payment not forthcoming until August 1922 • Credit for $8 billion already paid • Then only after threat to occupy Ruhr • $1 billion due by December 31, 1921 • Remainder in fixed quarterly installments at 6 percent interest HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace Economics of the Peace • During 1922, German ability to pay deteriorated – Payments so far had been largely in kind, little cash – Cash needed, and used, for domestic programs – By May 1921, foreign assets exhausted, so cash and in kind were the only sources of payment left – In 1922, Germany resorted to inflationary measures • Released balance of gold and foreign exchange reserves • Sold bonds to foreigners • Sold German real estate to foreigners HISTORY DEPARTMENT HISTORY DEPARTMENT 13 10/4/19 Economics of the Peace Economic History of Weimar • Result, of course, was massive inflation HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace Economic History of Weimar HISTORY DEPARTMENT HISTORY DEPARTMENT 14 10/4/19 Economics of the Peace Economics of the Peace • Hyperinflation • At beginning of 1923, German Government announced it – January 1923: 17,972.0:1 would no longer continue payments – July 1923: 353,412.0:1 • Jan. 11, 1923, French under Raymond Poincaré and Belgians – August 1923: 4,620,455.0:1 occupied Ruhr to collect reparations themselves – September 1923: 98,860,000.0:1 • Cuno government in Germany decided to finance resistance by – October 1923 25,260,208,000.0:1 printing money to pay unemployment benefits – November 15, 1923: 4,200,000,000,000.0:1 • Conscious decision by German government to destroy the German currency to deny the French and Belgians a political victory HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace Economics of the Peace Raymond Poincaré Wilhelm Cuno HISTORY DEPARTMENT HISTORY DEPARTMENT 15 10/4/19 Economic History of Weimar HISTORY DEPARTMENT HISTORY DEPARTMENT Economic History of Weimar HISTORY DEPARTMENT HISTORY DEPARTMENT 16 10/4/19 HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT HISTORY DEPARTMENT 17 10/4/19 Economics of the Peace French Soldier in the Ruhr 1923 HISTORY DEPARTMENT HISTORY DEPARTMENT Stabilization in Weimar HISTORY DEPARTMENT HISTORY DEPARTMENT 18 10/4/19 Economics of the Peace HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace • Encouraged by the German government, workers and industrialists in the Ruhr engaged in strikes and passive resistance and stopped production – Government financed this resistance by printing money to pay unemployment and other support payments – Conscious decision to destroy the German currency in order to deny French and Belgians a political victory – A political decision and a political strategy HISTORY DEPARTMENT HISTORY DEPARTMENT 19 10/4/19 Economic History of Weimar Economic History of Weimar HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace Economics of the Peace HISTORY DEPARTMENT HISTORY DEPARTMENT 20 10/4/19 Economic History of Weimar HISTORY DEPARTMENT HISTORY DEPARTMENT Economics of the Peace • Effected a social revolution in Germany – Destroyed the wealth of a broad spectrum of the middle class HISTORY DEPARTMENT HISTORY DEPARTMENT 21 10/4/19 Economics of the Peace Economics of the Peace • Currency reform on November 1923 stabilized