Copyright © 2015, American-Eurasian
Network for Scientific Information publisher
Research Journal of Social Sciences
ISSN: 1815-9125
EISSN: 2309-9631
JOURNAL home page: http://www.aensiweb.com/RJSS
2015 September; 8(7): pages 18-23.
Published Online 30 June 2015.
Research Article
Economic outcomes of Peace of Versailles on Germany
1Rasoul
1
2
Akhgar and 2Zahra Hamedi
Department of History, Darab Branch, Islamic Azad University, Darab,Iran.
Assistant professor, Department of history, Darab Branch, Islamic Azad University, Darab,Iran.
Received: 23 April 2015; Revised: 28 May 2015; Accepted: 18 June 2015
Copyright © 2015 by authors and American-Eurasian Network for Scientific Information.
This work is licensed under the Creative Commons Attribution International License (CC BY).
http://creativecommons.org/licenses/by/4.0/
ABSTRACT
The present study has investigated the economic outcomes of Versailles Peace Conference in Germany during interwar period.
Followed by World War I and its outcomes, Europe faced new conditions in terms of economic status. Victorious nations gathered
together at Versailles and made an attempt to agree on peace. The issues including Germany's humiliation in the treaty of Versailles,
the disarmament of The Weimar Republic followed by collapse of this republic, undermining the foundations of democracy and
economic problems as well as the effects of the factors such as Locarno agreement in the process of peace within Europe followed by
Germany's dissatisfaction as the outcomes of the World War I caused rise of queuing and exposure with great powers. The economic
crisis after World War I in Germany continued till one decade paved the way for formation of Nazi party under leadership of Hitler.
This caused the party using the existing conditions in their favor and imposing their thought of extremism on Germany regarding the
risk of expansion of communism. Violation of the treaty of Versailles by Hitler and und weakening the Europe caused empowerment
of Hitler, whereby Hitler's actions could cause World War II.
Key words: World War I, Germany, Peace of Versailles, Hitler
INTRODUCTION
This research with a different approach from
other researches has arranged its main subject on
investigation of the economic status between two
world wars. Followed by imposing the Treaty of
Versailles on Germany, weakening the Weimar
Republic and falling this republic as the political
dimensions and empowering Hitler in Germany and
Benito Mussolini in Italy as well as expansion of the
phenomenon of Nazism and Fascism, the world
entered into a new stage of transformations.
Followed by fall of the Treaty of Versailles by Halter
and weakening Democratic treaties such as the
Locarno and spreading the totalitarian as well as
subjecting Germany to invasion raised the
exposure of European countries. The main objective
of the present study is to give an answer to this
question that what effects have Economic outcomes
of Versailles Peace Conference had on Germany
during World War I and World War II?
Devaluing the German mark:
Before considering economic issue, it is
necessary to look into the status of value of currency
Corresponding Author: Rasoul Akhgar, Department of history, Darab Branch, Islamic Azad University, Darab, Iran.
E-mail: [email protected]
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Rasoul Akhgar and Zahra Hamedi, 2015 / Research Journal of Social Sciences 8(7), September, Pages: 18-23
in Germany. Devaluing brand in Germany caused
severe economic crisis, so that such a thing has never
occurred in history of economy of Germany.
Pointless effort to pay reparations and war debts
disturbed the political space and caused problem in
process of international economy. Occupied Ruhr
region by France and Belgium in 1923 resulted in
collapse of German mark [15].
Owners of industry sought their benefits, for
which they made huge attempts to expand their
products, so that from 1918 to 1920 extraction of
coal reached from 107 million ton to 131 million ton
and devaluation of mark became beneficial in the
industries. The result was that mark value, which was
about 4.2 mark in 1914, reached to 84 mark in 1920
and life cost reached from 10 to 20, yet cost of
products were also increased. Hence, exporting
industrial products was developed and the authorities
of government sought to resolve the financial crisis
by assistance of financial reforms and saving.
Great
powers'
approach
concerning
Germany's obligation to pay reparation:
Article 231 of the treaty has called Germany and
the allies in Germany in charge for all the losses on
the allied powers that they were obliged to pay the
heavy burden of war reparations fixed the sum at 132
thousand million gold marks or roughly $33
thousand million. Total amount of reparations was
later determined; although Germany had to pay five
billion dollars gold during 1919 AD to 1921 AD as
an installment agreement to pay reparation and
deliver certain products such as coal, ship, wood and
so forth as the monetary fines. To determine the
exact amount of war reparations, a commission was
developed by participation of representatives of U.S,
U.K, France, Italy and Japan under the reparation
commission. This commission was in charge for
monitoring how the reparations were paid by
Germany, so that it should have been come to be
realized during 30 years [24]. According to article
232, the commission under peace of Versailles must
specify the time and how to perform all obligations
by Germany to pay reparations for war damages
regarding articles 231, 232 and 233. In early 1921
May, this commission submitted the final agenda as
an ultimatum to Germany, in which 132 billion gold
marks in addition to its interest were determined and
a complicated timetable was represented to pay this
amount during an uncertain period, considering
doubts on how to evaluate nonmonetary assets
delivered by the commission. However, what had
suffered German people more than everything was
lied on this fact that peace of Versailles practically
disarmed Germany, under which the way to gain
success and superiority had been interrupted in
Europe. Peace of Versailles caused bankruptcy in
Germany. Till 1921, Germany failed to repay its
debts, i.e. neither Germany sought to pay nor was
enabled to pay. To avoid international crisis,
European powers made German people to accept a
new pay table. The banks in London funded
Germany for about 1 billion mark to let it for paying
its reparations. This loan helped German people at
their early reparations; although they failed to pay
their reparations by the next years. At the early 1923,
German government stopped transferring coal to
Belgium and France as assigned in the articles of
Peace of Versailles on Germany. When German
people
failed
to
pay
their
reparations for war damages, Belgium and France
occupied Ruhr region using their military forces [27].
Inflation in Germany in 1923:
The status governing Germany has been better
than the existing status in other countries around the
collapsed Europe followed by war; although inflation
was prevailed in Germany [14]. Occupation of
the Ruhr by France and Belgium in 1923 caused a
severe hyperinflation in Germany. During war time,
mark was devalued in a large extent. The crisis
resulted from inflation of 1923 in Germany caused
economic problems in Germany. The governments
faced increase in debts, for which they were attended
in publishing more notes to pay their debts. Germany
acted similarly and increased the amount of marks in
circulation, whereby this increase in mark caused
hyperinflation in Germany. Inflation was inhibited in
1923 that new government left the policy to support
the negative resistance in Ruhr and faced the
necessity to interrupt monetary pressures, under
which a unique monetary term ‘mark’ as a new way
was developed for exchange. In this regard, the
support by industrial and agricultural property was
given. After stabilization of mark, Gustav
Stresemann assigned leading the cabinet to the
Catholic Party leader ’Marx’, who developed
socialists without involvement in new government
and ruled out the affairs in foreign ministry. Marx set
principles of parliamentary on 1924 February, at
which Reichstag’s regime was established. An
attempt was made to return order to Germany’s
economy through several international agreements.
Value of mark in Germany was determined about 4.2
mark versus one dollar. United States announced its
agreement to develop a commission to resolve the
problem for reparations for war damages. These
agreements were resulted in crisis of hyperinflation.
Dawes Plan and its economic impacts on Germany:
Based on Dawes plan, Germany was not allowed
to diminish its currency value and no policy could
diminish the price of export at Germany to an extent
that Germany could be enbaled to increase its sale
extent at foreign markets [15]. According to Dawes
Plan, in 1924 Germany agreed to pay one billion and
increase this amount to 1929, whereby European
countries negotiated in 1929 on final agreement.
In this regard, economic crisis was annihilated in
Germany and the economic status was balanced in
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Rasoul Akhgar and Zahra Hamedi, 2015 / Research Journal of Social Sciences 8(7), September, Pages: 18-23
Germany by dissemination of new currency. Hence,
economic crisis in Germany was removed and
economic status of the government became balanced
after distribution of new wave of money.
After signing Dawes Plan and Locarno treaty,
political conflict was diminished between France and
Germany.
Modifications
about
reparations for war damages hoped that France pay a
part of reparations for war damages due to
destructions and losses appeared under war and
helped Germany to stabilize and balance the
economic status governing the country. Hence,
comfort and reform of international relations resulted
in implementing the regulations in Dawes plan.
Economic impacts of Young Plan on Germany:
Dawes plan did not help resolving the problems
pertaining to the reparations for war damages, under
which another commission was developed under
supervision of Young (an American economist) to
find the ultimate solution for the problem. Young
committee organized a plan, which was accepted by
two parties including allies and Germany [24]. To
monitor performing young plan, a commission was
developed from neutral powers and allies under
supervision of an American expert (Young) and this
commission was responsible for leading the taxes,
bank shares, bonds pertaining to railway and other
benefits, which had been determined as a guarantee
to perform the contract. Another committee under
supervision of Parker Gilbert has been in charge to
pay installments. At the beginning of the process, the
situation went true and Germany regularly paid for
installments and monitoring commissions did not
involve in the processes of internal policy of
Germany. In December of 1927, Parker Gilbert
notified that economic status in Germany was
developed as a result of high volume of foreign
investments in Germany and heavy expenditures
were raised in the government that could go beyond
ordinary income levels. Henri Poincaré, who was
engaged in domestic monetary policy, agreed on
Young plan by suggestion of a commission
developed by financial experts. This commission was
developed in Paris, in which Germany was involved.
As a result, after performing Young plan, all the
allies were forced to remove Germany on June 30th
of1930. International bank was established in Berlin
to fund the reparations for war damages, whereby the
reparations in Germany were centralized in private
bank as the capital, to which saving through
investment by other states helped it going well.
Nothing was mentioned about funding the
reparations for war damages. Young plan was
practically being used since May 1930. The allies
were occupied Rhineland evacuated there, whereby
an international bank was developed. Germany began
to pay for the reparations for war damages using
loans received from U.K and U.S. However; effects
of economic recession, which had been started since
1929, prevailed all around the world. Since the
impact on Germany was to the same extent, this
country failed to continue paying reparations to the
allies and the allies failed to return the debts received
from America to that country [24]. Public hate and
opposition in Germany to the Treaty of Versailles did
not help forgiveness by the allies. The main reason
for this was lied on concern on Germany’s invoke to
negate Treaty of Versailles that German people did
not accept their new limitations in eastern Europe
and believed in a revision in that problem. Despite
delay at paying the reparations at war by Germany,
the economic conditions were not improved in this
country. Consequently, the World Bank announced
that Germany would fail to pay for reparations at
war. In June 1932, representatives in Germany, Italy,
France, U.K, Belgium and Japan gathered together in
Lausanne to share their ideas about the world
economic recession and financial crisis in Germany.
However, by 1937 Hitler avoided paying the
reparations for war, whereby this process was ended
[24].
Impacts of Crisis 1929 on Germany:
The time of comfort during five years in Europe
was started by Locarno agreement and reached to
evolution by Brian Kellogg and was ended by
starting economic crises during 1929-1933.
Crisis in Germany was more than other countries
effective in changes of political regime. In Germany,
in regard with baleful cries of huge population of
unemployed people, communist red banner was
again being was risen again without barrier in streets
and uprisings of people was begun. Since 1918,
Germans used to face economic crises resulted from
war; although crises of 1929 used to affect them
more than before. By those days, Nazi Party used the
conditions in its favor and advertised prosperity of
Germany in previous times and imposed warning of
communism risk on political system of Germany.
Sense of lack of economic safety covered whole
Europe and was increasing day by day. People knew
that they were not able to be satisfied with their
deposits in bank or against the government, since
banks were exposed to bankruptcy because of
inflation and war. This could cause decrease in value
of money and Germans could found their money
practically invaluable after 1920 [24]. Years after
economic crisis of 1929 were years of hard economic
inflation, which European countries and especially
Germany, France and England used to be waved with
it [13]. In early days, worldwide economic crisis
spread its frightening shadow on Central Europe and
not only other foreign investments could not enter
Germany, but also Americans were attempting to
return their investments. German industries were
surprised and had to close factories and number of
unemployed people from 1930 to 1933 achieved 3
and later to 5million people. Bruning informed
confederates in January of 1931 that because of
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Rasoul Akhgar and Zahra Hamedi, 2015 / Research Journal of Social Sciences 8(7), September, Pages: 18-23
world crisis, Germany Government is not able to pay
compensation and as a result, Handenburg send a
telegraph to Howur and asked him for help. Howur
also offered to Germany under pressure of different
banks of the US to delay all payments to 1 year. As
former Motafeghin had no opposition to decision of
Howur, they were forced to deference. Germany had
about 4billion marks out of borders of Germany and
could protect its real property from destruction
through this. Hence, world crisis could create no bad
and negative impact on economy of Germany, except
for destroying arrangement of affairs and made
Germany able to avoid paying loan payments using
tricks. Even in a conference held in January of 1931
in London, they loaned again 100 million to
Germany, so that it can sustain its economy.
However, the predictions were not effective and
banks were bankrupting one after another. Hence, the
government interfered and gain control of banks and
made all of them national. Since then, Pruning gain
help of legal approvals and gained control of
economy of Germany and made new regulations. By
that time, number of unemployed people in Germany
increased to more than 5million. In Germany,
classics were responsible for leadership of German's
economy till 1933 under leadership of Bruning.
However, economic status of Germany was so bad
that classic economists could not do anything. As a
result, political regime of Germany became victim of
black dictator as a result of fear of red dictator. By
1933, nationalism socialism party gained the power
generally [13].
The Lausanne Conference and war reparation in
Germany:
Although economic crisis of 1929 was so bad for
Germany, it had the benefit that could persuade
political authorities of other governments to avoid
paying war compensation. Identifying minister of
financial affairs of Germany in a trip to the US could
persuade officials of the US that the only way of
treating bad economic situation of Germany was
neglecting war compensations. Finally, in June 1932,
financial conference of Lozan decided to omit war
compensation and Germany Government decided to
publish 3billion marks bills and transfer received
money to the account of international bank. The
decision was never operationalized. a big problem
that politicians and economists were faced to it was
to pay compensations in cash. If so, it was required
for them to give freedom to Germany to increase its
productions and export its goods freely i.e. free
transactions can be applied between authorized
governments. Also, they had to force Germany to
flourish destroyed regions and compensate war
damages. In Lozan Conference, orientation of
negotiation and agreement of Motafeghin was on
stopping payment of loans of losses by Germany.
Hence, it was decided to negate paying war debts to
the US and it was decided to hold financial
conference in London on 1933. However, the US
congress announced since December of 19322 that it
is opposed to any kind of discount in amount of debts
of former Motafeghin and hence, London conference
was not established. All of the mentioned events in
Germany were regarded as an additional success. On
one hand, financial compensations and commitments
of Versailles Treaty were destroyed and on the other
hand, deep failure was created in train of former
Motafeghin, which had made it failed in battlefield.
Results of the disputes were so negative. There is no
doubt that abdication of the US from line of
Motafeghin caused empowerment of dictator system.
The results could be observed in Germany and even
the first stage was passed that could violate all
financial commitments. The way was paved for rise
of Hitler regime.
Economic crises and The Rise of the Nazi Party:
Economic crises paved the way for more
reputation of Nazi party in Germany. Great financial
crisis (1929) started in New York exchange market
affected economy of Germany widely in 1923 and
paved the way for desires of Nazi party. Victory of
anti-revolutionary force of Nazi was performed in
March of 1933. Labor classes of Germany were
organized in powerful labor unions, which could
maintain the wages in high range, although the value
of mark was declined. When the time of crisis was
began and the inflation was developed and banks
were bankrupted, unemployment was increased.
Again a lot of people were attached to Hitler and his
organization became a shelter for all opponents. the
issue of compensation weakened Weimar Republic
severely and unstable status of compensations, debts
of war and short-term loans of the US caused at last
World War II [15]. Nazi party selected an order
system in its economic plans and presented the
slogan of labor front in the industry and agriculture
[5]. The factor caused supporting Nazi party was
clear success of Nazi Government in regard with
reducing unemployment. By 1933, Germany had
about 6million unemployed people and the value
reached 4million by 1934 and achieved 2million and
800thousand people in 1935. By 1936, there was no
unemployment in Germany as a result of
development of military industries. By September of
1936, Hitler selected Herman Goring as the
missioner for 4-year plan of economic preparation of
Germany for war. Objectives of the plan included
having supervision on imports and exports of
agricultural products and making Germany selfmanaged and authorized in regard with required raw
materials like metals, oil, leather and textiles [5].
Conclusion:
Failure of authorities in European countries and
creation of a long peace ultimately caused Europe
and the world be involved in World War. Under
World War I and Germany's failure, Europe faced
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new political conditions. Versailles Peace
Conference and provisions of the Versailles Peace
Conference imposed on Germany and allies paved
the way for severe dissatisfaction among these
countries. The final humiliation for the Germans,
disarmament and undermining the military in this
country led to collapse of Weimar Republic.
Authorities' failure in European countries and
creation of a long peace followed by World War I led
to undermining democracy foundations in European
countries, especially Germany. Under such
conditions, economic problems including inflation,
unemployment and crisis 1929 were raised. Lack of
proper planning as well as adoption of wrong
economic policies by European governments caused
intensification of this crisis and its influence in
European countries. From social perspective, the
crisis intensified people’s dissatisfaction with the
existing conditions, whereby excessive thought by
Nazism was emerged by starting their activities. In
fact, this thought was derived from political, social
and economic conditions governing Germany
followed by World War I. Hitler managed to take
benefit of people's dissatisfaction by development of
such thought and pave the area for strengthening its
position. Spread of the thoughts such as fame of
Germany before war, warning of communism,
providing new political and economic programs by
Nazi party on one hand, and negation of Versailles
Peace by Halter as well as undermining the European
countries due to economic crises after war on the
other hand, paved the way for rise of Nazi party and
Hitler in Germany. One of the most important actions
by Hitler was development of such thought among
Germans, which German possessions should be
returned to the state existing before war. All of these
thoughts, which have been followed by political,
social and cultural advertisements of Nazi party,
resulted in a war with severe outcomes at the
political, economic and cultural domains.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
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