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German Reparations?

Newspapers are reporting that Germany has just paid the last installment of its reparations for World War I, as laid down in the 1919 Treaty of Versailles and modified (that is, reduced substantially) in 1924 and again in 1929. This is not true; in fact, Germany stopped paying reparations in 1932, after having paid no more than an eighth of what was demanded, and payments never resumed. What Germany is actually paying back is the debt that it incurred from foreign bondholders in the 1920s, some (though by no means all) of which went toward reparations payments.

Why is this distinction important?  Because now we're hearing repeated the old German propaganda about the grave wrong done to Germany after World War I. The Cato Institute's blog puts it this way:

As Keynes rightly predicted, the unreasonably high French demands for financial reparations led to German economic weakness. The end result was hyperinflation, which was one of the principal causes of Hitler's rise to power and the start of the Second World War. In spite of losing two world wars, Germany did eventually become the most powerful nation in Europe -- through trade, capitalism and German ingenuity.

In fact Keynes--and my friends at Cato--have this almost completely wrong.  As a number of recent historians, most recently Niall Ferguson have pointed out, Germany was fully capable of making reparations payments, particularly after they were scaled back in the 1924 Dawes Plan.  What was lacking was the political will of the Weimar Republic to do so.  Germany was a magnet for foreign investment in the 1920s, taking in 27.1 billion marks from bond sales in the United States alone, while paying out no more than 19.1 billion marks in reparations. The rest went into lavish construction projects and--illegally under the Treaty of Versailles--the military.

The hyperinflation of 1922-23 was not the result of reparations, but rather Germany's attempt to thwart French efforts to collect them during the Ruhr Crisis.  Nor did hyperinflation have anything to do with Hitler's rise to power; true, the Nazi share of the vote increased sharply in 1923, but afterward plummeted to virtually nothing, where it remained for most of the rest of the 1920s.  Indeed, by 1928 Germany, far from having been crippled by the allegedly unjust Versailles settlement, had reestablished itself as one of the world's greatest industrial powers.  What brought an end to the Weimar Republic was when the influx of foreign capital came to a sudden end in 1928--which produced not inflation, but its exact opposite.

The claim that Germany was mistreated in 1919 popped up repeatedly during the interwar period, fostered most commonly by the Germans themselves.  It played a major role in British appeasement, which did not begin with Neville Chamberlain but was in fact consistently followed throughout the 1920s.  Again and again London winked at Germany's violations of the peace treaty (which began soon after the ink was dry), while denouncing the French for attempting to uphold the settlement.  Far from World War II having been the result of Germany's alleged mistreatment, it stemmed rather from the failure to enforce what been laid down at Versailles.

Categories > History

Discussions - 2 Comments

You got lucky... I just lost a long treatise on Keynes and Churchill disagreeing with you and setting out to explain deficit spending, the monetary system, Churchill's maxim on not criticizing contemporaries after the fact unless an objection was first registered, reperations from the first gulf war, Oil for Food and its corruption how it may have led to the second Iraq war, the German Economy. How the German economy currenly imports T-bills, Japan and its economy, the importance of Keynes in Bretton Woods, and how our current role as reserve currency changes how we should look at the deficit, and how potentially spending money you don't have might really be good, and why Keynes actually did predict a lot of what happened with Germany and why Keynes is more of a philosopher while Niall Ferguson gives an agency to numbers in a way that disrespects Keynes understanding of animal spirits and his neglected work on persuation and the perverse interactions of politics and public will.

Thankfully none of it was higher quality than a first draft, and it basically reminded me that I need to read some Keynes and go over Churchill's Gathering storm.

It just proves Patton's axiom that you have to beat the hell out of the enemy if you want to convince him he lost. WWI ended prematurely (a completely stupid and unnecessary war, but if you are going to fight it you need to really finish it). The Germans never thought they really lost, but were betrayed by their leadership; this of course left the door open for someone like Hitler.

The French (and British) mistake at Versailles was in their arrogance and assumption of victory. And they would pay for that arrogance -- without America and the USSR in WWII, who doubts who would have won that war?

America demonstrated the way you win a war after WWII - you do it graciously, and with ample help to rebuild those you have destroyed. Only this can avoid the longer-term blood feud by proving to the vanquished that you hope for a better relationship with them in the future. Those who fight often become fast friends because they have proven to one another their mettle and faithfulness.

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