American assistance to Weimar Germany

american assistance
A nationalist and anti-Semitic perspective of the Dawes Plan, 1924

Foreign support in the mid-1920s, particularly American assistance in the form of loans and investment, was essential to the economic recovery of the Weimar Republic. Bookended by the Dawes Plan (1924) and the Young Plan (1929), this support helped haul the republic back from the brink of economic and social collapse and kick-started what is often called the ‘Golden Age of Weimar‘.

This assistance came with risks and dangers, however. Rather than becoming self-sufficient, the economy of the Weimar Republic became too reliant on foreign capital and loans. When the United States economy began to fail in late 1929, the effects in Germany were particularly severe.

Background

By the end of 1923, Weimar Germany was in a parlous state both politically and economically. Germans had suffered through one of the worst currency inflations in human history and many did not expect Friedrich Ebert or the government to last another year.

Washington watched these developments with an anxious eye. It was highly concerned about the German economy, which seemed beyond hope of recovery. The Treaty of Versailles had stripped Germany of 13 per cent of its territory, 15 per cent of its farmlands, a quarter of its coal mines and three-quarters of its iron production.

The Allied commission had imposed a staggering reparations debt so large that even quarterly instalments seemed impossible. The hyperinflation crisis had gutted the German financial sector and wiped out the savings of the Mittelstand (middle classes).

Fears of communist revolution

As the German economy approached meltdown, the prospects of a communist revolution or a militaristic coup loomed large. The National Socialists’ failed Munich putsch in November 1923 seemed an omen of things to come.

The United States was also concerned that the collapse of the German economy might cause shockwaves across Europe. If Germany could not meet her reparations obligations, the French could possibly instigate another war. If Germany was to fall to communism, a powerful alliance with Soviet Russia might develop that could threaten the rest of Europe.

The Americans also had their own interests in mind. The US was itself owed large sums by Paris and London. Repayment of these war loans hinged on the French and British taking receipt of German reparations.

The Dawes Committee

In 1924, Washington organised a ten-man international committee to investigate the situation in Germany and consider the problem of reparations.

At the head of this committee, they placed Charles G. Dawes, a wealthy Chicago banker, a veteran of World War I and former brigadier-general. A no-nonsense man who spoke as he thought, Dawes told delegates to the committee that the heavy-handedness of Versailles placed Europe in a dangerous position. He called for more practical approaches to the treatment of Germany:

“What is the question today? Upon what does the success of this committee depend? Upon its powers of persuasion? Primarily, no. Upon its honesty and ability? Primarily, no. It depends upon whether, in the public mind and the conscience of the Allies and of the world, there is an adequate understanding of the great disaster that faces Europe unless ‘common sense’ is crowned king.”

The Dawes Plan

In April 1924, the committee submitted its proposed solution to the German question. It formed the basis of what became known as the Dawes Plan. It was accepted by the German government, then ratified by the Reichstag and Allied governments in August the same year.

Among the contents of the Dawes Plan were the following points:

  • A raft of reform measures to the German economy, including new taxes and the introduction of the gold standard to stabilise currency values. The Reichsbank was to be reorganised and modernised, with British and American assistance.
  • A new, more affordable schedule for annual reparations payments to ease the strain on German reserves. Annual amounts were reduced and scaled (1 billion marks in 1924 increasing to 2.5 billion marks in 1929), to allow the German economy breathing space for recovery.
  • Importantly, the Dawes Plan facilitated a series of massive loans to Germany. The first, totalling 800 million marks, was pumped into Germany’s industrial sector to restore production. Half of this amount was provided by American bankers.
  • France agreed to withdraw its troops from the industrial Ruhr region, allowing German production there to recommence and recover.

Reviving the economy

Though it was only intended as an interim or temporary measure, the Dawes Plan had an immediate effect. It allowed the German economy to recover from its post-war malaise and kick-started a brief period of growth and prosperity.

Vast amounts of money poured into Germany, most of it from the United States. The impact of these loans was most visible in the industrial sector. New factories and infrastructure projects were initiated, leading to job creation and a sharp fall in unemployment.

The living standards of many Germans began to increase for the first time since before World War I. There were improvements to German cities, including the construction of new houses and facilities such as shops and cinemas. Germany’s share of world trade increased and by 1929, her exports were 34 per cent higher than in 1913.

Nationalist objections

Not everyone supported or accepted the Dawes Plan. German communists condemned this American assistance as economic imperialism, an attempt by the United States to exert political and economic influence over Germany. They also criticised the plan for encouraging capitalist profit and greed.

The National Socialists (NSDAP), themselves greatly weakened by the events of November 1923 and the imprisonment of Adolf Hitler, dismissed the Dawes Plan as a stunt. NSDAP leaders believed Germany should refuse to make any reparations payments and described the Dawes Plan as the work of self-serving Jewish bankers.

A superficial measure

The Dawes Plan allowed for the recovery of German industry, the restoration of a stable currency and a better way of life for millions of Germans. For the most part, however, these positive outcomes were superficial or occurred in the short-term.

The consensus among most historians and economists is that the Dawes Plan placed too much emphasis on loans and not enough on internal restructuring or reforms. The German economy became too reliant on foreign money, capital and trade instead of generating these things domestically. Any economic recession abroad, particularly in the United States, would have immediate knock-on effects in Germany.

The Dawes Plan also failed to solve the reparations dilemma. Despite the reduction in quarterly instalments, Germany met some of its obligations but continued to default on others.

The Young Plan

These ongoing problems and concerns led to the formulation of a new agreement called the Young Plan (1929). This spread Germany’s annual reparations payments over a 59-year period, with the final payment to be made in 1988.

Under the Young Plan, Germany’s annual payments were pegged at a maximum of two billion gold marks – but Berlin had an option to defer up to two-thirds of this amount if economic circumstances made paying the full instalment impossible.

American assistance continued in the late 1920s with the finalisation of the Young Plan. The committee chairman, Owen D. Young, was named Time magazine’s Man of the Year (1929) for his leadership of the committee.

A historian’s view:
“In 1924, the Dawes Plan seemed brilliant. It was no deed of vague kindness but a vigorous piece of financial manipulation. It was the work of a clever man who had succeeded in everything he had tried. Dawes was taken for a wizard. It was concluded that he had found a cure when he had only discovered a palliative… Tinkering only created large problems for the future, but tinkering was the style tolerated in the government of 1924.”
Elizabeth Stevenson

1. By the end of 1923, Germany was confronted by the risk of economic collapse and the danger of a militarist coup or communist revolution,

2. The United States was concerned about the political and economic ramifications of the Germany economic collapsing and the effects of this in Europe.

3. In 1924, a committee led by Charles Dawes submitted an interim plan for reviving the German economy, including revised reparations payments and US loans.

4. Though unpopular with German nationalists, the Dawes Plan was effective, allowing Germany’s economy to recover and grow, at least in the short term.

5. Germany became reliant on foreign loans and failed to meet all her reparations obligations, however, leading to the development of the Young Plan in 1929.

Citation information
Title: “American assistance to Weimar Germany”
Authors: Jennifer Llewellyn, Steve Thompson
Publisher: Alpha History
URL: https://alphahistory.com/weimarrepublic/american-assistance/
Date published: September 30, 2019
Date accessed: Today’s date
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