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
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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
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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
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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
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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
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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
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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
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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
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Economics of the Peace Economic History of Weimar
• Result, of course, was massive inflation
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Economics of the Peace Economic History of Weimar
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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
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Economic History of Weimar
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Economic History of Weimar
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Economics of the Peace
French Soldier in the Ruhr 1923
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Stabilization in Weimar
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Economics of the Peace
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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
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Economic History of Weimar Economic History of Weimar
HISTORY DEPARTMENT HISTORY DEPARTMENT
Economics of the Peace Economics of the Peace
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Economic History of Weimar
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Economics of the Peace
• Effected a social revolution in Germany – Destroyed the wealth of a broad spectrum of the middle class
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Economics of the Peace Economics of the Peace
• Currency reform on November 1923 stabilized mark • Allies referred reparations to committee led by American – Through fiction of Rentenmark, collateralized by profits of land and General Charles C. Dawes; report of April 1924, adopted industry taxes, old Reichsmark replaced by new August, effective September: Dawes Plan – Rate of 1 trillion old Reichsmark to 1 new Reichsmark – 2-year moratorium on payments – Question of reparations unsolved – Return of Ruhr to Germany – Foreign loan of 800,000,000 RM ($200,000,000) – New payments to start at 1 billion gold marks, rising to 2.5 billion in 1929 – Extended payout period – Reparations Agency created in Berlin to oversee collection – No reduction in total amount of reparations
HISTORY DEPARTMENT HISTORY DEPARTMENT
Economics of the Peace Economics of the Peace
• Question of reparations unresolved – British and Americans insisted, and French agreed, to refer the issue to a Committee headed by U.S. General (later Vice-President) Charles C. Dawes – Dawes Committee reported in April 1924, adopted in August, effective September: Dawes Plan • Two year moratorium on payments • Return of Ruhr to Germans • Foreign loan to Germany of 800 million marks ($200 million) • New payment schedule • Reparations Agency in Berlin to supervise • No change in total amount of reparations Charles G. Dawes (VP 1925-29)
HISTORY DEPARTMENT HISTORY DEPARTMENT
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Economics of the Peace Economics of the Peace
• Dawes Plan a huge success • Dawes Plan a huge success – Large amounts of capital poured into Germany – Large amounts of capital poured into Germany – Reparations payments ran smoothly – Reparations ran smoothly – Ruhr evacuated by August 1925 – Ruhr evacuated by French and Belgians by August 1925 – British evacuated their occupation zone of Rhineland early at end of – British evacuated their Rhineland occupation zone early, at end of 1926 1926
HISTORY DEPARTMENT HISTORY DEPARTMENT
Economics of the Peace Economics of the Peace
• But in early 1929, U.S. banks began to curtail their lending • Young Plan 1929 – Short-term U.S. loans to Germany which had financed its recovery – Owen D. Young were called due – Payment schedule of 59 years beginning April 1930, ending 1988 – Germany proved unable to keep up reparations payment schedule – Reduced total amount of reparations – New attempt to solve reparations issue, led by U.S. businessman – Set sliding scale of annual payments rising from 1.65 billion marks to (founder of RCA) Owen D. Young 2.3 billion – Young Plan of 1929 – New loan for Germany of $300,000,000 – Reparation Agency abolished – Accepted by Reichstag and ratified in hard-fought referendum
HISTORY DEPARTMENT HISTORY DEPARTMENT
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Economics of the Peace Economics of the Peace
• Young Plan – To begin April 1930 – Payment schedule lasting 59 years, ending in 1988 with last French war debt repayment to U.S. – Created Bank for International Settlements – Reduced total amount of reparations due, creating a sliding scale of payments – Provided a new loan to Germany of 1.2 billion marks ($300 million) – Abolished Reparations Agency – Depression made this a dead letter Owen D. Young
HISTORY DEPARTMENT HISTORY DEPARTMENT
Economics of the Peace Economics of the Peace
Owen D. Young Owen D. Young
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Economics of the Peace
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Economic History of Weimar
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Economics of the Peace Economics of the Peace
• By 1931, Germany unable to meet the Young Plan schedule – President Herbert Hoover of the United States proposed a one-year moratorium on all international payments, both war debt and reparations, to begin July 1, 1931 – Lausanne Conference in July 1932, European creditors finally recognized German inability to pay • Agreed to wipe the slate clean for payment of 3 billion marks • Did not address war debts • Even this lump sum never arrived
Herbert Hoover
HISTORY DEPARTMENT HISTORY DEPARTMENT
Economics of the Peace Economics of the Peace
• Germany agreed in June 1953 to be responsible for all pre- • Key correlate were inter-allied war debts 1933 obligations – Reparations relief always tied to Allied debt relief • This included the loans that Germany had made to pay – Mostly owed to U.S. reparations in the 1920s • Made final loan repayment of $94 million on October 3, 2010 • 20th anniversary of German Unification in 1990
HISTORY DEPARTMENT HISTORY DEPARTMENT
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Economics of the Peace Economics of the Peace
• Reparations were always tied with interallied war debt • France insisted on reparations payments from Germany – U.S. largest net creditor ($12 billion), France largest net debtor ($3.5 because U.S. insisted on war debt payments from France billion) – French and British believed huge debt owed to U.S. represented an unfair distribution of the war effort – Germans wanted to use war debts to offset reparations to deal directly with the Americans instead of with the British or French – U. S. rejected both offset and forgiveness – In 1922, the U.S. set up World War Debts Funding Commission and made payment plans with debtors
HISTORY DEPARTMENT HISTORY DEPARTMENT
Economic History of Weimar Economic History of Weimar
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Economics of the Peace
• Triangular Flow of Capital – U.S. lent money to Germany – Germany used this to pay reparations to Allies – Allies used this to pay war debts to U.S. – By 1931, U.S. had received $2.6 billion of the original $12 billion lent – Reparations from Germany 1924-31 more than covered Allied debt payments to U.S. – Only Britain wound up with a negative balance
HISTORY DEPARTMENT HISTORY DEPARTMENT
Economics of the Peace
• Modern Alternatives – Hufeisensiedlung, 1925-33
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HISTORY DEPARTMENT HISTORY DEPARTMENT
Crisis of Capitalism Crisis of Capitalism
• End of war saw crisis and starvation in Central Europe • Boom followed by sharp, deep depression in 1920 • But economic boom to supply pent-up demand occurred in – Production, exports, and prices fell far and fast U.S. and Britain – Unemployment rose dramatically – Led to inflation – Governments returned to restrictive fiscal and monetary policies – Compounded inflation of war years – 1921 worst year on record
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Crisis of Capitalism Crisis of Capitalism
• Years 1921-25 years of recovery and reconstruction – Except in Germany, where recovery began only in 1924 – Worst of inflations over, prices stabilized – Currencies stabilized and gold standard returned – Three patters of stabilization and growth 1925-28 • Britain: Orthodoxy and export • Germany: Massive foreign borrowing, often short term • France: Industrial modernization • All prosperity was precarious and vulnerable
Gustav Stresemann
HISTORY DEPARTMENT HISTORY DEPARTMENT
Crisis of Capitalism Crisis of Capitalism
• Chronic problems and dangerous signs • Catastrophic stock market crash of October 1929 devastated – Agriculture depressed financial sector of U.S. economy • Severe in eastern Europe – Withdrew short-term credit from Europe, hurting Germany • Falling prices everywhere – World trade contracted dramatically • Production boomed but prices fell • Agriculture in chronic depression by mid-1920s – Settlement in gold broke down as it all flowed to U.S. – Banks began to collapse, beginning with the Kreditanstalt in Vienna in May 1931
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Economics of the Peace Crisis of Capitalism
• Governments reactions in three ways: – Assumed more drastic powers to control currency and exchange, imposed tariffs and quotas to shield economies – Sought regional or sectional arrangements, such as “Commonwealth Preference” – Pursued comprehensive collective action • Lausanne Convention of July 1932 ending reparations • World Economic Conference in London June 1933
HISTORY DEPARTMENT HISTORY DEPARTMENT
Crisis of Capitalism Crisis of Capitalism
• Stringent austerity and deflationary policies in Germany and the U.S. only made things worse • World trading system broke down behind wall of individual and group tariffs – U.S. Hawley-Smoot Tariff of April 1930
Hawley and Smoot
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Crisis of Capitalism Crisis of Capitalism
• Stringent austerity and deflationary policies in Germany and the U.S. only made things worse • World trading system broke down behind wall of individual and group tariffs – “Imperial Preference” of Ottawa Agreements of 1932 for British Commonwealth of Nations • World economy disintegrated into fiercely competing national economic systems, each seeking autarky
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