State of German Economics during the Interwar Period
After World War I, Germany was forced to pay all of the war reparations after the Treaty of Versailles. These reparations along with the economic climate within Germany during this time period led to the fall of the Weimar Republic and the rise of Adolf Hitler and his Nazi Party. The reconstruction period was based on private investment and demand. When the stock market crashed in 1929, the investors who had been financing Germany pulled out, crippling its economy.
Employmemt
During the interwar period, the unemployment rates in Germany were estimated to be 1.7 to 1.8 million people in July 1932. This did not include those who had become discouraged and had withdrawn from the labor force completely. The sectors which were hardest hit by unemployment were those concentrating in industrial work. Nearly 50% of workers in the iron and steel industry were unemployed, the textile industry faced an unemployment rate of 40%. The building industry was one of the hardest hit, at 84%, because there was no growth in the economy, causing a lack of demand for new buildings. These unemployment issues led to a fall of 40% in industrial production from 1929 to 1933.
The Dawes Plan
The Dawes Plan was adopted in August 1924 as a result of Germany's inability to repay its war reparations as the Treaty of Versailles had previously drawn up. Germany was unable to pay reparations due to their unwillingness to raise their taxes while their Reichsmark became inflated to the point that it was almost worthless. The Dawes Plan was created to stabilize Germany's currency while reducing the payments required per period. This allowed American and British bankers to hand out loans to Germany, so its industry would be able to expand to pay off the massive debts. The new payment regulations that were enacted with the Dawes Plan were such that the first year, Germany had to pay one billion marks the first year. After the first year, the amount owed would increase until it reached 2.5 billion marks.