01:360:401 Lecture Notes - Lecture 28: John Maynard Keynes, Hyperinflation In The Weimar Republic, Little Entente

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Chapter 28: The Age of Anxiety
1. The Search for Peace and Political Stability
1. Germany and the Western Powers
1. Under the Allies’ naval blockade and threat to extend military
occupation from the Rhineland had Germany’s new
government signed the Treaty of Versailles in 1919
2. The treaty had neither broken nor reduced Germany, which
was still very strong
3. By the end of 1919, France wanted to stress the harsh
elements in the Treaty of Versailles and much of rich,
industrialized France had been devastated
1. Expected costs of reconstruction were staggering and like
Great Britain, France had also borrowed large sums from
the United States during the war
2. Betrayed by the United States, many French leaders saw
that large reparation payments could hold Germany down
indefinitely and achieve its goal of security
3. After the war a healthy, prosperous Germany appeared to
be essential to the British economy as Germany had been
Great Britain’s second-best market
4. Many English people agreed with economist John
Maynard Keynes (Economic Consequences of the Peace)
who argued that reparations and harsh economic
measures would indeed reduce Germany to the position
of a second-rate power
5. However such impoverishment would increase economic
hardship in all countries
4. The British were suspicious of France’s army (largest) and
France’s foreign policy
1. Since 1890, France had looked to Russia as an ally
against Germany, but France soon turned to the newly
formed states of eastern Europe of diplomatic support
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2. In 1921 France signed a mutual defense pact with Poland
and associated itself closely with the so-called Little
Entente, an alliance that joined Czechoslovakia, Rumania
and Yugoslavia against defeated and bitter Hungary
(League of Nations)
5.
6. The Allied reparations commission complete its work in April
1921 and announced
1. Germany had to pay the enormous sum of 132 billion gold
marks (33 billion) in annual installments of 2.5 billion bold
marks; facing possible occupation of more of its territory,
the young German republic made its first payment in 1921
2. In 1922, wracked by rapid inflation and political
assassinations and motivated by hostility, the Weimar
Republic announced its inability to pay more and
proposed a moratorium on reparations for three years
(implication that money be reduced)
7. The British were willing to accept his offer, but the French
were not and led by their legalistic prime minister, Raymond
Poincare, France decided they either had to call German’s
bluff or see the entire peace settlement dissolve to France’s
disadvantage
8. Despite strong British protests, France and ally Belgium
decided to pursue a firm policy and in 1923, French and
Belgian armies began to occupy the Ruhr district, heartland of
industrial Germany, creating a serious international crisis of
the 1920s
2. The Occupation of the Ruhr
1. The strategy of Poincare and his French supporters was
simple: since Germany was resisting to pay reparations in
hard currency or gold, France and Belgium would collect
reparations in kindcoal, steel, and machinery (used
occupation)
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2. The German government ordered the people of the Ruhr to
stop working and start passively resisting the French
occupation; 10 percent of Germany need relief
1. The French answer to passive resistance was to seal off
not only the Ruhr but also the entire Rhineland from the
rest of Germany, letting in only enough food; the French
also revived plans for a separate state to be formed in the
Rhineland
2. French armies could not collect reparations from striking
workers at gunpoint and even though French occupation
was paralyzing Germany and its economy (80 percent of
Germany’s steel and coal); occupation of the Ruhr turned
rapid German inflation into runaway inflation and the
German government began to print money to pay its bills
(Germany money rapidly lost all value)
3. Runaway inflation brought about a social revolution as
middle-class virtues of thrift, caution, and self-reliance
were mocked by catastrophic inflation and the German
middle and lower middle classes burned with resentment
4. Many hated and blamed Western governments and their
own government
3. In August 1923, Gustav Stresemann assumed leadership of
the government and adopted a compromising attitude calling
off the passive resistance in the Ruhr and in October agreed
in principle to pay reparations for asked for a re-examination
of Germany’s ability to pay; Poincare accepted (he became
increasingly unpopular)
4. In Germany and France, power was passing to the moderates
and after five years of hostility and tension culmination in a
kind of undeclared war in the Ruhr in 1923, Germany and
France decided to give compromise and cooperation a try
3. Hope in Foreign Affairs, 1924-1929
1. The reparations commission appointed an international
committee of financial experts headed by American banker
Charles G. Dawes to re-examine reparations in Germany; the
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