German Economy

In 1914, before the start of the First World War, Germany had become Europe’s most powerful economic and military power and was second only to the United States in the world. Four long terrible years of warfare meant that, by 1918, Germany’s economy was in ruins. Warfare meant that Germany could not import or export industrial goods and severely limited trade. Resources and food were diverted to the war. The terms of the Treaty of Versailles stated that Germany had to pay huge sums in reparations to the Allies.

To pay for the war, rather than raise taxes, the Kaiser borrowed massive amounts of money by selling ‘war bonds’ to the public. By the end of the war the country was heavily in debt. In 1921, this amount was set at £6.6 billion; a sum that Germany could not pay. By December 1922, because the German government could not pay, French and Belgian troops invaded and occupied the Ruhr to take goods and raw materials in lieu of money. Even with all of Germany's economic shortcomings, it could have still been possible to make reparation payments if foreign countries had not placed protective tariffs on Germany's goods. The protective tariffs made it hard for Germany to overcome its economic crisis. (Anonymous, 2015)

In the year 1923, German government took a wrong step of printing more money to solve the economic issues which later led to hyperinflation. By the autumn of 1923 a loaf of bread cost 200,000,000,000 marks (Anonymous, 2015). The wages that the workers earned were worthless as prices had raised sky high due to scarce of resources. People who had saved money for years realized the value of those savings wiped out. In the beginning, social spending was the main focus for Germany to recover from the war. Germany started creating transportation projects, modernization of power plants and gas works to tackle with the increasing unemployment rate. As the stats shows in 1913 the government was spending approximately 20.5 per resident; by 1925 it had risen to almost 65 marks per resident and finally in 1929 it reached over one hundred marks per resident.

Eventually the municipal finance collapsed in 1930 (Castillo, 2003). Further adding to Germany's economic problems, the revenue from income tax began to fall. In 1913, over fifty three percent of all tax revenues were from income, but in 1925, it dropped down to 28%. As the returns on income taxes decreased, the government began to depend much more on state trade, property tax and on profits made from municipal utilities, such as electric power plants. (Castillo, 2003).