American assistance in the mid-1920s hauled the Weimar Republic back from the brink of collapse. By the end of 1923, the republic was in a parlous state and many observers did not expect Ebert’s government to survive 1924. The United States watched the developments in Germany with an anxious eye. Washington was highly concerned about Germany’s economy, which seemed beyond all hope of recovery. 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). As the German economy approached meltdown, the prospects of other a communist revolution or a militaristic counter-revolution loomed large. The NSDAP’s failed Munich putschin November 1923 seemed an omen of things to come.
The United States was alert to the impact such events might have in Europe. If Germany could not meet her reparations obligations, the French would respond and possibly instigate another war. The Americans also had their own interests in mind. The US was itself owed large sums by Paris and London; the repayment of these loans hinged on the French and British taking receipt of German reparations. In 1924 the Americans organised a ten-man international committee to examine 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, former brigadier-general and veteran of World War I. A no-nonsense man who spoke as he thought, Dawes told delegates to the committee that the heavy-handedness of Versailles treaty 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.
In April 1924 the committee submitted its proposal, which later became known as the Dawes Plan. It was ratified by the German Reichstag and the various Allied governments in August. The Dawes Plan contained:
- 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 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.
“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, historian
The Dawes Plan had an immediate effect. 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 they had been in 1913. Not everyone supported or accepted the Dawes Plan, however. German communists condemned it 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 NSDAP, which had been cast into obscurity by the events in Munich in 1923, dismissed the Dawes Plan as a stunt. Hitler argued that Germany should refuse to make any reparations payments; he described the Dawes Plan and the influx of American loans as the work of self-serving Jewish bankers.
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. But for the most part, these positive outcomes were superficial or occurred in the short-term. The consensus reached by most historians and economists is that the Dawes Plan placed too much emphasis on loans, rather than internal measures 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 instalment figures, Germany continued to default on them. This led to the formulation of the Young Plan (1929), which spread Germany’s annual reparations payments over a 59-year period, with the final payment to be made in 1988. 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, should economic circumstances make paying the full instalment impossible. Americans also played a leading role in the development 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.
1. By the end of 1923, Germany in danger of economic collapse and a political coup or revolution.
2. The US was concerned that Germany’s failure to pay reparations could adversely affect France’s debt repayments.
2. The Dawes Plan of 1924 provided economic reform, massive foreign loans and a revised reparations schedule.
3. Though unpopular with radicals, the Dawes Plan allowed Germany’s economy to recover in the short term.
4. Germany still struggled to pay reparations, however, which led to a further revision, the Young Plan of 1929.
This page was written by Jennifer Llewellyn, Jim Southey and Steve Thompson. To reference this page, use the following citation:
J. Llewellyn et al, “American assistance to Weimar Germany”, Alpha History, accessed [today’s date], http://alphahistory.com/weimarrepublic/american-assistance/.