What were the factors that caused the world to move away from the Gold Standard in the 20th century?

What were the factors that caused the world to move away from the Gold Standard in the 20th century?

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For most of the world's history for thousands of years, gold was used as the medium of exchange for money. The world gradually moved off the gold standard in the 20th century.

What were the factors that caused the Gold Standard to be less workable in the 20th century than historically?

I'll take a stab at this, although it really does deserve an economics This Site

Short reason: Population growth relative to gold supply.

Long reason:

A gold standard is another way of saying that your money supply is inelastic. Each bank note is linked to a fixed amount of gold and in theory should allow you buy that amount of gold. As gold is produced by supernova nucleosynthesis, the gold is "created" only in so far as it is mined from crust deposits and the rate of newly mined gold isn't nearly enough for the level of global economic activity.

New gold is about 4% of what's needed each year (if ~135 billion USD of new gold/year and 3.9% of ~85 trillion USD of gross world product *); and most of this gold doesn't circulate as it's required to absorb commodity shocks such as oil and secure the currencies of many central banks.

As the world population grows, the money needed to reflect transactional IOUs between people increases. Eventually the gold backing the bank notes is so small and abstract as to be effectively irrelevant (no gold in your pocket), except as a concept of redeemability that still lingers in the popular imagination today.

The break away from the gold standard (i.e. that you could in theory buy a fixed amount of gold invariant of market demand for each bank note) occurred because of the need to rapidly expand war-time debt. Which is to say, compressed and time-shifted future tax revenue ("debt") resulting in a massive spike in money supply to reflect the real world massive spike in material effort involved in war activities (i.e. people do more in a total war, at least as so far trapped liquidity is concerned).

After each world war, the money supply couldn't be contracted to a fixed ratio of gold (each note's supposed "real" value in gold) without causing deadly deflation**. The Bretton Woods agreement was not actually a gold standard but rather a lip-service to one, as only central banks had access to a fixed gold exchange (i.e. not the higher volatile market rate).

Expensive proxy wars and a rising global standard of living eventually grew the money supply beyond the ability of even central banks to meaningfully exchange gold-backed promissory notes. Hence the final vestiges were broken in the "Nixon Shock" to order to allow free floating fiat currency. The shock itself is somewhat overstated considering that alternative would have required a complete re-evaluation of the role of money and a move towards a post-growth global economy which we were not and are probably still not ready for.

The core long term driver of economic growth (money supply) is population growth; as productivity growth is trapped in an upward siphon and hence barely drives the economy relative to population growth***.

Even longer reason:

Read http://en.wikipedia.org/wiki/Gold_standard

* Despite the importance of money supply statistics, no one actually has anything more than a rough estimate of global M0 or MZM. Which should scare the shit out you.
* * Inflation makes a gold standard seem sexy, but deflation is far worse in our current economic paradigm of resource distribution; and at least hyperinflation is politically self limiting.
* * * Speculation and debt can also expand the money supply, but they eventually have to "latch onto" someone's actual production of work if they are to have any meaning in the first place. Hence their expansion of the money supply is closely related to the available global labour pool as influenced by population growth.

Historically, the supply of gold has grown at the rate of 2% a year (through mining, new discoveries, etc.). That is too low a rate of growth to allow the world to grow at its desired pace of 3% or higher, and still maintain the price of goods at stable, to rising. (If gold, your "money supply" is growing at 2% a year, and goods at 3%, the price of goods would need to fall 1% a year on average, to compensate. This is known as "deflation," and scares most bankers and economists.) Historically, economic growth had been held hostage to new gold discoveries; e.g. with boom and bust cycles for countries like Spain.

During the 20th century, economic thinkers such as John Maynard Keynes and Milton Friedman showed that without the gold standard, it was possible to expand the money supply at a 3%-4% annual rate, in line with, and thereby supporting, global growth. This knowledge caused the United States to "overexpand" in the 1960s to finance the Vietnam War. By 1971, the U.S. could no longer keep its pledge, made in 1944 at Bretton Woods, to redeem its dollars for gold. So the U.S. let the dollar "float" against gold (find a "natural" price different from the historical $35 an ounce), thereby going off the gold standard. With the notable exception of Japan and Germany most developed world countries such as Britain and Italy were in similar straits, and went off the gold standard, along with the U.S.

The gold standard was a simple, straightforward way of managing the world's money supply. Like most simple, straightforward ideas, it is utterly inadquate when confronted with a complicated real world problem.

The best answer to the question is The Atlantic summary of the problem in two graphs . Although the proponents of the gold standard praise it as a way of averting inflation, the gold standard actually condemns the economies in question to violent business cycles that result in higher inflation. As the economist article suggests, the discussion should stop here.

But there are other problems with the gold standard.

  • The gold standard outsources monetary management to a countries that are lucky enough to have gold. The money supply grows in response to arbitrary discoveries of gold, and those countries get the benefit of expanding the money supply without any obligation to expand production or value. This was particularly silly during the era when the countries most likely to discover new gold were Russia and South Africa - countries that were founded on policies that were anathema to most of the world (Communism and apartheid). Take for example the unlikely to be repeated but very real example of the Spanish economic collapse; Spains possessions in the new world resulted in Spain possessing an unbelievalble amount of the world's specie. Spain managed to drive up inflation all over the world, but didn't invest the resulting wealth in any way that deepened capital. The result was a complete catastrophe for Spain, and a lot of pain for the rest of the world.

    • The gold standard might have made sense when the Bank of England used a worldwide empire to manage the global money supply according to the principles of mercantilism. I think most of the modern world rejects both mercantilism and worldwide empire. Towards teh end of the BoE's management of the gold standard, there were a number of cases where private investors were able to make astonishing profits by predicting the actions that the BoE would need to take to maintain the gold standard and betting against those actions. Those bets also increased substantially the cost of managing the gold standard, and did not benefit anyone other than the investors in question. I'm not a huge proponent of the common good, but when investors profit by acting contrary to the common good, that is a non-sustainable situation.

Commentators have made some very good points that I'd like to answer

  1. My answer was not civil, and I apologize for my lack of civility; given how often I critize others, I should hold myself to a higher standard, and I failed to do so.
  2. Fiat currencies can be inflated. Specie based currences will be inflated when new deposits are found. In the case of fiat based curriences, we trust that the technocrats can be insulated from populist demands. In the case of specie backed currencies, we trust that fortune and fate will cause inflation to occur at times when it will not harm the economy and in places that will be beneficial.
  3. Inflation is not intrinscially bad. Inflation is a strategy can be used to excape from economic doldrums. Inflation can be used to increase employment, which is absolutely vital to a consumer based economy. Specie backed economies remove that option from the arsenal. Certainly monetary supply can be managed very badly and result in hyperinflation, but that is not an intrinsic property.
  4. @Lennart Regebro points out that my answer missed a major point; that specie backed currency wasn't stupid at the time. It was the best they had.
  5. @LateralFractal points out that it is possible to base the currency on things other than specie or gold. He points out the ancient sex backed currency of the temples of Ishtar. I acknowledge his point, but I refuse to discuss the inflationary/deflationary implications of sex backed currency. (Just for the record, that wasn't intended to be a pun when I typed it; I realized the implications as I was revising the sentence). There are other ways to back a currency; historical examples include spearpoints, cowrie shells, giant Iron or Sandstone slabs, etc. I think discussion of these examples is outside the scope of the question and cannot be discussed briefly. Some of these are discussed in Jack Weatherford's History of Money (I have reservations about the book as a whole, but the discussion of various currencies is in the early part of the book which is more historical), and I believe that the wikipedia page on money touches competently on some of the criteria needed for a commodity to back the cultural artifact of "money".
  6. Nobody made the comment, but I feel obliged to point out that there is a currency that is not subject to inflation bitcoin. Bitcoin is not subject to inflation or deflation, but is the victim of wild swings in value. If we were serious about adopting a monetary standard that was immune from technocratic management, bitcoin would be a good alternative. But in doing so we would abandon the opportunities of money management.

It is mistake to see gold as some kind of bygone historical artifact or "barbarous relic" of the past as Keynes put it.

Throughout history states have variously adopted more public or less public standards of gold depending on political factors.

For example, early in the Roman Republic the aureus was an important standard of commerce, but later in the empire, under governments like that of Diocletian, gold was completely removed and replaced with paper credits and debased coinage made out of copper and other base metals.

In general, the more comprehensive and overarching the government, the more hidden the gold is.

Just because the use of gold is hidden, does not mean it is not used. Gold is always the standard of wealth, no matter how much paper and copper you use. Just because you personally do not see that use, does not mean it is not the standard. Below JFK airport in New York and below the Zurich airport are gigantic vaults filled with billions in gold that is moved back and forth to settle accounts, no different than when the gold ships used to sail back in 1900, only now the gold is moved in 747 aircraft instead of clipper ships. What has changed is the visibility of this trade, not its importance.

The long decline of the Great British Pound

It’s the GBP/USD exchange rate from 1915 to the present day. Accompanying this chart on Twitter was the comment “quite shocking though how much the pound has been devalued since 1945”.

This is a fine example of the way in which economic indicators can be misinterpreted when the historical narrative underlying them is ignored. What this chart shows is indeed shocking, but not because the value of the pound has fallen. It is shocking because it graphically depicts the decline of British global influence. And it charts the desperate attempts of British politicians to maintain global dominance by propping up the value of the currency.

The start point of this graph – 1915 – was during the First World War and immediately after the failure of the classical gold standard in 1914. Britain borrowed heavily and suffered high inflation during the First World War, and was forced to devalue the pound considerably towards the end of the war. You can see that drop clearly. But instead of accepting devaluation of the pound as part of the cost of fighting a ruinous war, British politicians decided to try to restore the pound to its pre-war value. They imposed severe fiscal and monetary austerity upon the war-damaged British economy, causing a depression that lasted for much of the 1920s. The pound did indeed recover most of its pre-war value, and Britain returned to the gold standard at the 1915 rate in 1925. You can see that the graph flatlines from 1925 to 1932. That was the last time Britain was on a gold standard.

But if Murray Rothbard is to be believed, the price the world paid for Britain’s determination to restore its former glory was the Wall Street Crash and the Great Depression. Rothbard claims that the Fed loosened monetary policy at Britain’s behest, and in so doing caused a credit bubble that burst in 1929. I think blaming the Wall Street Crash entirely on Britain’s need for loose monetary policy is rather far-fetched: Rothbard seems to have a bit of a chip on his shoulder. But Britain’s ill-judged return to the gold standard was almost certainly a contributory factor.

The onset of the Great Depression following the Wall Street Crash placed the British economy, like everyone else’s, under great pressure. Like everyone else, initially Britain tightened monetary policy to preserve the value of the pound. But eventually it was forced to devalue. It came off the gold standard in 1931 and the pound promptly dropped considerably. Barry Eichengreen has documented the role of the gold standard in the Great Depression: it seems clear that those countries that came off the gold standard early, such as Britain, fared much better than countries that remained on it for longer, such as the US. The lesson from this is that a fixed currency regime after a financial crisis and recession is economically disastrous. Sadly we don’t seem to have learned from this. The Euro area is busy repeating exactly the same mistake – it isn’t called a gold standard, but it behaves much like one.

The pound did recover its value as Britain came out of the Depression. But it’s worth remembering at this point that there are two sides to any exchange rate. This is GBP versus USD. The strength of the pound in the later 1930s was due to the weakness of the US dollar as the US first reflated (FDR’s New Deal) and then dipped back into recession again.

Not surprisingly, the value of the pound fell sharply on the outbreak of World War 2. It is quite normal for currencies to devalue in wars: the currency itself becomes riskier because of the uncertainty around the outcome of the war, and economic fundamentals in the countries concerned usually worsen considerably despite the fiscal stimulus caused by the war effort. Wars are expensive: GDP collapses, inflation rises and countries become highly indebted. Britain was no exception. It ended the war heavily in debt to the United States and with a massive balance of payments deficit. This was ON TOP OF the outstanding debt it was still carrying from WW1, which it had never managed to unload. Two world wars and a depression had caused enormous damage to the British economy. It was in pretty poor shape.

In 1944, Britain entered into the Bretton Woods managed exchange rate system. This fixed the pound’s exchange value to the dollar, which in turn was linked to gold. Once again, British politicians were determined to show that Britain was still a force to be reckoned with, so the exchange rate was set too high for such a damaged economy. Britain was forced to devalue the pound by 30% in 1949. But even that was not enough. The next 18 years were characterised by persistent balance of payments problems and sterling crises: Britain was forced to seek assistance from the IMF more than once. Wilson finally devalued the pound again in 1967. But by this time, inflation was already rising and was made worse by the devaluation. The next 15 years were to be a period of high inflation and dismal economic performance.

In 1971, Nixon suspended convertibility of the dollar to gold, effectively ending the Bretton Woods system. But even after this, Britain continued to prop up the pound against a market that clearly wished it to be lower. The currency simply did not warrant the value that Britain wished it to have, yet successive Chancellors* refused to allow it to float freely, fearing a sterling collapse. In 1976, the Chancellor of the Exchequer called in the IMF to help arrest persistent runs on sterling. On the advice of the IMF, the Chancellor imposed austerity measures, which reduced inflation and improved economic performance. The IMF’s loan was never fully drawn. The pound recovered – but only temporarily. Against a background of rising unemployment, the famous “Winter of Discontent” in 1978 sounded the death knell for the Labour government. In 1979, the Conservatives under Margaret Thatcher won the election.

1979 was a turning point for the pound. Exchange controls were lifted, and for the first time it was allowed to float. And it promptly fell. It takes a great deal of nerve for a Chancellor to allow a previously managed currency to fall freely, but Geoffrey Howe allowed it to do so. But again, we should be mindful that there are two sides to any exchange rate. The fall of sterling in the 1980s was due to the growing strength of the dollar, which climbed steadily against all currencies (not just the pound) until 1985. But in 1985, currency management started again. The Plaza Accord of 1985 introduced active depreciation of the dollar against all major currencies including the pound, a strategy which only ended with the Louvre Accord of 1987.

Howe’s successor, Lawson, was – and remains – a fan of managed exchange rates. From 1987 onwards he unofficially pegged the pound to the German Deutschmark. This caused inflation, a credit bubble and a property market boom which eventually crashed in 1990, followed by a recession. Despite this, Lawson’s successor, John Major, continued to shadow the Deutschmark and eventually joined the European Exchange Rate Mechanism (ERM) at what it soon became clear was too high a rate.

But it didn’t last. Britain’s brief membership of the ERM ended ignominiously when the pound was forced out by sustained speculative attacks. Major’s successor, Norman Lamont, reportedly said he was “singing in the bath” after the pound crashed out of the ERM. It promptly sank to an exchange rate more appropriate for the state of the economy. The independence of the Bank of England in 1997 removed the value of the pound – both its domestic value (inflation) and its external value (exchange rate) – from direct political control. The Bank of England now primarily manages the domestic value of the pound and allows the international value to adjust to domestic economic conditions.

What is perhaps most surprising is how little evidence there is of long-term decline in the value of the pound since exchange controls were lifted in 1979. It looks very much as if most of the needed devaluation had already happened (painfully) by then. In which case the IMF’s intervention in 1976 to halt the slide of the pound was ill-judged. The pound should have been allowed to fall. It would have found its own level eventually.

For me, what this chart proves is that provided monetary authorities are credible, a free float is far and away the best way of managing a currency. What is shocking about this chart is not how much the pound has devalued. It is how long it took to do it, and the economic cost of trying to prevent its fall.

But the real story behind this chart is the end of the British empire and the loss of the pound’s reserve currency status. Prior to WW1 Britain was the dominant economy in the world, controlling the largest empire in recorded history, and the pound was the global reserve currency. The empire gradually disintegrated over the course of the 20th Century, and the pound was supplanted by the US dollar as global reserve currency. The pound had to devalue, and substantially, because of Britain’s diminishing status in the world and the US’s growing dominance. But politicians were unwilling to accept this.

Britain’s history is one of constantly trying to punch above its weight internationally, even at the cost of wrecking its domestic economy. The Geddes axe and ensuing depression of the 1920s, the refusal to devalue throughout the 1950s and 60s, the attempt to prop up the exchange rate in the 1970s, and finally the disastrous entry to the ERM at too high a rate: all of these failed, some disastrously. And all of them had ghastly consequences for the economy. Even today, Britain still tries to act like a larger and more dominant player than it really is.

Britain is no longer a superpower. Indeed it hasn’t been one for a long time, though it doesn’t know it. It is time people recognised this, and stopped hankering after past glories. The value of the pound in 1945 was too high even for Britain as it was then, let alone now. It is time to put the past behind us, and move on.

* Until the independence of the Bank of England in 1997, monetary policy was under the control of the Chancellor, not the Bank.

Stock Market Crash of 1929

Remembered today as "Black Tuesday," the stock market crash of October 29, 1929 was neither the sole cause of the Great Depression nor the first crash that month, but it's typically remembered as the most obvious marker of the Depression beginning. The market, which had reached record highs that very summer, had begun to decline in September.

On Thursday, October 24, the market plunged at the opening bell, causing a panic. Though investors managed to halt the slide, just five days later on "Black Tuesday" the market crashed, losing 12% of its value and wiping out $14 billion of investments. By two months later, stockholders had lost more than $40 billion dollars. Even though the stock market regained some of its losses by the end of 1930, the economy was devastated. America truly entered what is called the Great Depression.


113 See Adam P. Plant, “Selective Service Act of 1917,” in Major Acts of Congress, vol. 3, ed. Brian K. Landsberg (New York: Macmillan Reference/Thompson Gale, 2004): 178–181 see also Robert W. Mullen, Blacks in America’s War: The Shift in Attitudes From the Revolutionary War to Vietnam (New York: Monad Press, 1973).

114 Ibid., 366–374. Among these, the 15th New York Regiment of the 369th U.S. Infantry stood out. It was the first Allied unit to reach the German border on the Rhine River, and never yielded a trench or lost a member to capture. The French awarded the entire regiment the Croix de Guerre.

115 Franklin and Moss, From Slavery to Freedom: 361–362.

116 For more on black migrations in the post-Reconstruction period and the 20th century, see Nicholas Lemann’s The Promised Land: The Great Black Migration and How It Changed America (New York: Knopf, 1991) Nell Irvin Painter, Exodusters: Black Migrants to Kansas After Reconstruction (Lawrence: University Press of Kansas, 1986) Douglas Flamming, Bound for Freedom: Black Los Angeles in Jim Crow America (Berkeley: University of California Press, 2005). For a concise essay on the historical literature on this topic, see Joe William Trotter, “Great Migration: An Interpretation,” in Africana: The Encyclopedia of the African and African American Experience, vol. 3, ed. Kwame Appiah and Henry Louis Gates Jr. (New York: Oxford University Press, 2005): 53–60.

117 Migration was a long and vexing question in the South and among African-American communities generally. In 1822 the American Colonization Society (ACS) acquired a small tract of land in the British colony of Sierra Leone in sub-Saharan Africa and named it “Liberia”—a settlement of people “made free.” Approximately 15,000 free blacks from the United States migrated to Liberia over the next 20 years. Though the ACS initially received support from several prominent politicians, vocal objectors and an economic depression in Liberia killed the project by the 1830s. After Reconstruction, the issue of African migration was rekindled however, many African-American leaders, among them John Langston, opposed foreign emigration. “Abuse us as you will, gentlemen,” Langston told Democrats. “There is no way to get rid of us. This is our native country.” Congressional Record, House, 51st Cong., 2nd sess. (16 January 1891): 1480–1482 see also William Cohen, At Freedom’s Edge: Black Mobility and the Southern White Quest for Racial Control, 1861–1915 (Baton Rouge: Louisiana State University Press, 1991).

118 “Sees No Hope in South,” 26 August 1900, Chicago Daily Tribune: 7 “Southern Negro’s Complaint,” 26 August 1900, New York Times: 8. White lived in Washington and Philadelphia for the rest of his life. He was among eight black Congressmen in the 19th century who left the South after their service in Washington.

119 See Hahn’s discussion in A Nation Under Our Feet: 465–476 quotations on pages 465, 466.

120 Edmund David Cronon, Black Moses: The Story of Marcus Garvey and the Universal Negro Improvement Association (Madison: University of Wisconsin Press, 1955): especially pages 204–207, 212–220.

What Were the Causes of Germany's Hyperinflation of 1921-1923?

Among the defining features of early twentieth-century Europe and one of the contributing factors to World War II, was the economic maelstrom known as “hyperinflation” that ravaged Germany from 1921 until 1923. Although the short period is often overlooked in popular histories of the period, there is no denying the impacts that the process had on Germany, Europe, and the world. Because of the hyperinflation of the 1920s, the effects of the later worldwide Great Depression were accentuated in Germany, which ultimately undermined the legitimacy – at least in the eyes of the German people – of the Weimar government.

As the Weimar government attempted to fix the economy that was seemingly spiraling out of control, the German people turned to organizations on the far right and left wings of the political spectrum for answers. Despite eventually being able to end the crippling process of hyperinflation by 1923, the damage had already been done to Weimar government, which was living on borrowed time at that point.

In the nearly full century since Germany’s bout with hyperinflation, historians and economists have examined Weimar government records, private business reports, and anecdotal sources such as letters, in order to determine the extent of the process and ultimately how it began. Scholars have learned that Germany’s hyperinflation was actually quite a complicated process and there have been a number of factors identified as contributing to its origin. Essentially, all of the ingredients that went into creating Germany’s hyperinflation can be grouped into three categories: the excessive printing of paper money the inability of the Weimar government to repay debts and reparations incurred from World War I and political problems, both domestic and foreign.

Inflation and Hyperinflation

In order for one to understand the causes of Germany’s hyperinflation during the early 1920s, one must first understand how the process is related to and also different from a standard inflationary cycle. Simply stated, inflation is when the prices of goods rises, causing an imbalance in the money supply if it happens too quickly.

During an inflationary cycle, there is too much money in circulation, which causes the currency to devalue and the prices of commodities to increase in proportion. Although the reasons for a typical inflationary cycle are complicated, most economists point toward excessive printing of money or other currency manipulation by the central banks – “Quantitative Easing” during the last recession would be an example of this – as the primary factor.

Basic goods such as food and fuel are affected first, but eventually the process will influence the prices on everything. As troubling as inflation can be to an individual’s pocket book, or even an entire nation’s economy, it is nothing compared to the process of hyperinflation. The process of hyperinflation is when inflation continues to increase unabated until there is a 1000% in prices over the course of a year. [1] When the German economy transitioned from an inflationary to a hyperinflationary cycle in 1921, it was an extremely difficult burden for the average German to bear.

As the prices of goods soared at what were until then unimaginable levels, Germans increasingly found it difficult to purchase even the most basic items. For example, one loaf of bread coast twenty-nine pfenning when World War I began in 1914, but by the summer of 1923 that same loaf of bread cost 1,200 Reischsmarks and just a few months later, in November, the price had soared to an astronomical 428 billion Reichsmarks! [2] Because of the steep price increases Germans were forced to improvise in a number of different ways. Many would pay for meals as they ordered because the prices would increase significantly in the time it took to eat while others used the virtually worthless bills to heat their homes. All Germans, no matter their income level, had to devise ways to deal with the new economic reality.

The Causes of Germany’s Hyperinflation

As the average German struggled to survive during the crippling period of hyperinflation during the early 1920s, government leaders and economists searched for its cause in order to rectify the situation. They quickly found that there was not one single cause, but instead the cycle was brought forth by a number of contributing factors that combined to form a perfect storm of economic collapse. As noted above, the first place to look during any inflationary cycle is the amount of currency in circulation. In Germany’s case, one must first understand the historical context of the cycle. Before World War I, Germany was on the “Classical Gold Standard” system, which meant that all of its currency in circulation had to be backed by physical gold. Nations that were part of the Gold Standard – which included nearly every industrialized nation-state and their colonies in the nineteenth and early twentieth centuries – generally saw very little inflation because the requirement to back all currency with gold placed restraint on the printing of money. Once the world entered World War I, though, the Gold Standard was quickly scrapped by countries that needed funds to pay for their war efforts. Germany was one such nation.

To fund its war effort, the Imperial German government incurred a 150 billion mark debt. It also began a policy of excessive currency printing so that by the end of the war there was six times more money in circulation than when the war began. [3] Once the war was over, the new German government – commonly referred to as the “Weimar” government for the capital it chose – continued the policy of excessive printing in a move to manipulate its currency in order to help the struggling economy. Weimar economists theorized that devaluing their currency would help Germany’s industrial sector rebuild because the prices of its exports would be more attractive to foreign investors. Foreign investors could simply buy more German exports with their own currency, which was worth much more than the Reichsmark. [4] The economists were correct in that German exports temporarily increased, but they failed to consider the plethora of other factors that were driving the inflationary cycle.

As one of the “losers” in World War I, Germany was forced to pay exorbitant reparations to the “winners,” primarily France and Belgium, for the damage done to those countries. The reparations payments, which were putative more than anything, resulted in an adverse balance of payments in Germany. The Weimar government, as well as German corporations, had difficulties obtaining credit abroad to fund industries that could inject money into the economy needed to make the payments, which combined with a loss of territory under the Treaty of Versailles, meant that Germany needed to import more raw materials to keep its industry going. The result was a further devaluation of the Reichsmark. As with the domestic debts it incurred from the war, the German government saw devaluation of the currency as a viable option, but the reality was that it gave itself little room for economic maneuvering. [5]

The fiscal corner that the Weimar government found itself in as the result of wartime debts incurred by and reparations forced upon the previous government, was further exacerbated by its own leaders’ inability to grasp the complexity of the situation that was rapidly unfolding. The Weimar government became extremely myopic and was plagued with what seemed to be eternal gridlock in the halls of the Reichstag (the German parliament). The left and right wing parties were nearly equal in the Reichstag in 1921. To many people today, this may seem like the optimal form of “checks and balances,” but in early 1920s Germany it resulted in political stalemate where neither side was willingly to give ground. Among some of the most fundamental issues that neither side could agree upon was the need to raise taxes for social services, such as the payment of military pensions for veterans.

In order to rectify the situation, the government decided to print more money, which in turn devalued the already plummeting Reichsmark. The inability to provide for basic social services with non-inflated currency stemmed from the Weimar government’s inability to grasp the scope of the situation. Officials and economists in the Weimar government viewed Germany’s economic woes through the lens of the nineteenth century instead of seeing it as it really was – an economic process taking place within a complex system that was integrated with the economies of the other industrialized nations. [6]

The final nail in the German economy’s coffin of the early 1920s was actually two unforeseen events that took place both inside and outside of Germany’s borders. The first event was the assassination of German foreign minister Walther Rathenau in June 1922. The assassination caused political panic in the increasingly unstable Germany and set off a speculation crisis that saw the Reichsmark plunge in value on world currency markets. Rathenau’s assassination was followed by the occupation of the Ruhr Valley by French and Belgian military forces in January 1923. The French and Belgian governments hoped that by occupying the mineral and industrially rich Ruhr Valley they could force the Germans to make reparations payments but the occupation had the opposite effect. The occupation of the Ruhr further crippled industrial output, which in turn devalued the German currency even more. By November 1923, the Reichsmark was worth only one-trillionth of its pre-World War I value. [7]

The End of the Cycle and Its Results

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Although Germany’s bout with hyperinflation was a gradual process and took a while to peak, it ended rather quickly. After numerous failed attempts to alleviate the process, the Weimar government introduced a new currency known as the Rentenmark in 1923. Unlike the Reichsmark, which was not backed by gold or any other tangible asset, the Rentenmark was back by real estate. When the Rentenmark was first introduced in October 1923, one bill was worth an astonishing one trillion Reichsmarks! [8] Although the Weimar government was able to effectively end the hyperinflation by the end of the year, the damage had already been done to the German economy, political system, and greater society.

Among the many different groups who suffered due to the hyperinflation and never were really able to get back on their feet, were members of the German middle class. Middle class workers and small business owners were especially hit hard when they saw their savings evaporate overnight. [9] Many middle class retirees found themselves back at work and many others had to rely on the goodwill of friends and family just to make ends meet. All of this resulted in a loss of confidence in the Weimar government, which was further exposed as being weak and ineffective when Germany had a brief economic Depression in 1925-26. Despite the hardships that hyperinflation caused in Germany, there were some who were able to profit from it.

There are always people who prosper during times of economic distress, even during a near collapse. In the case of Germany’s hyperinflation, people who were in debt came out ahead since the amount owed on any debt only increases due to interest rates debtors were able to use inflated currency to quickly pay off their debts. Those with a keen sense of business acumen quickly picked up on this and took out loans to buy items of real value – real estate, gold, and artworks for instance – which they were then able to quickly turn into profit. Stock market speculators and exporters of German goods also came out ahead financially once the smoke of the hyperinflation cleared in 1923. [10]

Perhaps the biggest beneficiaries of Germany’s hyperinflation, though, were the far rightwing and leftwing political parties and paramilitary organizations. As the Weimar government appeared to be unable to deal with the economic problems of the 1920s, more and more Germans began turning to extreme organizations for answers. Rightwing paramilitary groups such as the Freikorps engaged in armed battles with communist organizations like the Spartacus League on the streets of nearly every major German city during the 1920s, which left hundreds dead by the end of the decade. [11] Eventually, the National Socialist German Worker’s Party presented itself as a viable alternative to what it described as a weak and degenerate Weimar government.


The period after World War I was an extremely critical juncture in world history where the stage was set for World War II. Among the most important factors that led to World War II, albeit indirectly, was the hyperinflationary cycle Germany experienced from 1921 through 1923. During that period, the Weimar government watched as prices soared over 1000% and sat helplessly as its currency essentially lost all of its value. The factors that contributed to that short but devastating cycle can be attributed to excessive printing of currency, the inability to pay off wartime debts and reparations, and a couple of major political events. Although the Weimar government was eventually able to quell the hyperinflationary cycle, the German people lost confidence in the government and so began looking elsewhere for political answers.

German Expressionism

German Expressionism refers to a number of related creative movements beginning before WWI and peaking in Berlin during the 1920s.

Learning Objectives

Discuss the importance of the group Die Brücke and artists such as Kirchner, Kollwitze, Schiele, and Modersohn-Becker in the development of German Expressionism

Key Takeaways

Key Points

  • Kathe Kollwitz, Egon Schiele, and Paula Modersohn-Becker are among the independent German Expressionists who were unaffiliated with other Expressionist groups but nonetheless successful.
  • Kollwitz is best remembered for her compassionate series, The Weavers.
  • Many of Egon Schiele’s contemporaries found the explicit sexual themes of his work disturbing.
  • Paula Modersohn-Becker is among the first recognized female artists to create nude self-portraits.

Key Terms

  • Weimar Republic: The democratic regime of Germany from 1919 to the assumption of power by Adolf Hitler in 1933.
  • expressionism: A movement in the arts in which the artist does not depict objective reality, but rather a subjective expression of inner experience.
  • Fauvism: An artistic movement of the last part of the 19th century that emphasized spontaneity and the use of extremely bright colors.


Expressionism was a modernist movement, beginning with poetry and painting, that originated in Germany at the start of the 20th century. It emphasized subjective experience, manipulating perspective for emotional effect in order to evoke moods or ideas. Expressionist artists sought to express meaning or emotional experience rather than physical reality.

Expressionism was developed as an avant-garde style before the First World War and remained popular during the Weimar Republic, particularly in Berlin. The style extended to a wide range of the arts, including painting, literature, theatre, dance, film, architecture, and music.

Expressionist painters had many influences, among them Edvard Munch, Vincent van Gogh, and several African artists. They were also aware of the Fauvist movement in Paris, which influenced Expressionism’s tendency toward arbitrary colors and jarring compositions.

Die Brücke

In 1905, a group of four German artists, led by Ernst Ludwig Kirchner, formed Die Brücke (the Bridge) in the city of Dresden. Later members were Emil Nolde, Max Pechstein, and Otto Mueller. The group aimed to eschew the prevalent traditional academic style and find a new mode of artistic expression, which would form a bridge (hence the name) between the past and the present. They responded both to past artists such as Albrecht Dürer, Matthias Grünewald, and Lucas Cranach the Elder, as well as contemporary international avant-garde movements. As part of the affirmation of their national heritage, they revived older media, particularly woodcut prints. Die Brücke is considered to be a key group of the German Expressionist movement, though they did not use the word itself. The group is often compared to both Primitivism and Fauvism due to their use of high-keyed, non-naturalistic color to express extreme emotion like the Fauvists and a crude drawing technique that eschewed complete abstraction, like the Primitivists.

Der Blaue Reiter

A few years later, in 1911, a like-minded group of young artists formed Der Blaue Reiter (The Blue Rider) in Munich. The group was founded by a number of Russian emigrants, including Wassily Kandinsky, Alexej von Jawlensky, Marianne von Werefkin, and native German artists, such as Franz Marc, August Macke, and Gabriele Münter. Like Die Brücke, Der Blaue Reiter is considered a major feature of the German Expressionist movement.

Within the group, artistic approaches and aims varied from artist to artist, however, there was a shared desire to express spiritual truths through their art. Der Blaue Reiter as a group believed in the promotion of modern art, the connection between visual art and music, the spiritual and symbolic associations of color, and a spontaneous, intuitive approach to painting. Members were interested in European medieval art and Primitivism, as well as the contemporary, non-figurative art scene in France. As a result of their encounters with Cubist, Fauvist and Rayonist ideas, they moved towards abstract art.

Kathe Kollwitz

Käthe Kollwitz (1867–1945) was a German painter, printmaker, and sculptor whose work offered an eloquent and often searing account of the human condition, and the tragedy of war, in the first half of the 20th century. Initially her work was grounded in Naturalism, and later took on Expressionistic qualities. Inspired by a performance of Gerhart Hauptmann’s The Weavers, which dramatized the oppression of the Silesian weavers in Langembielau and their failed revolt in 1842, Kollwitz produced a cycle of six works on the Weavers theme. Rather than a literal illustration of the drama, the works were a free and naturalistic expression of the workers’ misery, hope, courage, and, eventually, doom. The Weavers became Kollwitz’ most widely acclaimed work.

Mother with her Dead Son by Käthe Kollwitz: This Kollwitz sculpture is a WWII war memorial.

Egon Schiele

Egon Schiele (1890–1918) was an Austrian painter. A protégé of Gustav Klimt, Schiele was a major figurative painter in the early 20th century. His work is noted for its intensity, as well as for the many self-portraits he produced. The twisted body shapes and expressive line that characterize Schiele’s paintings and drawings mark the artist as an early exponent of Expressionism. Schiele was influenced by his mentor, Klimt, as well as by Edvard Munch, Jan Toorop, and Vincent van Gogh. Schiele explored themes not only of the human form, but also of human sexuality. Many viewed Schiele’s work as being grotesque, erotic, pornographic, or disturbing, focusing on sex, death, and discovery.

Sitzender weiblicher Akt mit aufgestützen Ellbogen by Egon Schiele: Schiele’s depiction of female nudes scandalized his contemporaries.

Paula Mendersohn-Becker

Paula Modersohn-Becker (1876–1907) was a German painter and one of the most important representatives of early Expressionism. In a brief career, cut short by her death at the age of 31, she created a number of groundbreaking images of great intensity. Modersohn-Becker studied briefly at the École des Beaux-Arts in Paris and was influenced by French post impressionists Paul Cézanne, Vincent van Gogh, and Paul Gauguin. On her last trip to Paris in 1906, she produced a series of paintings about which she felt great excitement and satisfaction. During this period of painting, she produced her initial nude self-portraits—something unprecedented by a female painter—and portraits of friends such as Rainer Maria Rilke and Werner Sombart.

Selbstporträt by Paula Modersohn-Becker, 1906: Female nude self-portraits were uncommon subjects in this era.

The Battle of Versailles

It’s 1973, and the wunderkind is now the establishment. Along with four other French juggernauts – Hubert de Givenchy, Pierre Cardin, Emanuel Ungaro and Marc Bohan of Christian Dior – Yves Saint Laurent is about to have his reign rivalled by five American designers in the fashion competition of the century.

Oscar de la Renta, Bill Blass, Anne Klein, Halston and Stephen Burrows arrive at Versailles with an entourage including Liza Minnelli, Broadway dancers and 36 models (10 of whom were Black, in unprecedented diversity). The Battle of Versailles, the brainchild of PR whizz Eleanor Lambert, is designed to fund the restoration of the namesake palace it has celebrities and high society in a tailspin to grab tickets. The DIY dynamism of the American designers and their coterie (namely high-energy Black models such as Pat Cleveland) forces France to relinquish its crown – at least temporarily.

How Epidemics of the Past Changed the Way Americans Lived

At the end of the 19th century, one in seven people around the world had died of tuberculosis, and the disease ranked as the third leading cause of death in the United States. While physicians had begun to accept German physician Robert Koch’s scientific confirmation that TB was caused by bacteria, this understanding was slow to catch on among the general public, and most people gave little attention to the behaviors that contributed to disease transmission. They didn’t understand that things they did could make them sick. In his book, Pulmonary Tuberculosis: Its Modern Prophylaxis and the Treatment in Special Institutions and at Home, S. Adolphus Knopf, an early TB specialist who practiced medicine in New York, wrote that he had once observed several of his patients sipping from the same glass as other passengers on a train, even as “they coughed and expectorated a good deal.” It was common for family members, or even strangers, to share a drinking cup.

With Knopf’s guidance, in the 1890s the New York City Health Department launched a massive campaign to educate the public and reduce transmission. The “War on Tuberculosis” public health campaign discouraged cup-sharing and prompted states to ban spitting inside public buildings and transit and on sidewalks and other outdoor spaces—instead encouraging the use of special spittoons, to be carefully cleaned on a regular basis. Before long, spitting in public spaces came to be considered uncouth, and swigging from shared bottles was frowned upon as well. These changes in public behavior helped successfully reduce the prevalence of tuberculosis.

A view of Broadway, in New York, in 1858. Nineteenth-century Manhattanites didn’t understand that actions like spitting in the streets and leaving horse waste out to rot contributed to high levels of disease. (Public domain / Wikimedia Commons)

In the 19th century, city streets in the U.S. overflowed with filth. People tossed their discarded newspapers, food scraps, and other trash out their windows onto the streets below. The plentiful horses pulling streetcars and delivery carts contributed to the squalor, as each one dropped over a quart of urine and pounds of manure every day. When a horse died, it became a different kind of hazard. In “Portrait of an Unhealthy City,” Columbia University professor David Rosner writes that since horses are so heavy, when one died in New York City, “its carcass would be left to rot until it had disintegrated enough for someone to pick up the pieces. Children would play with dead horses lying on the streets.” More than 15,000 horse carcasses were collected and removed from New York streets in 1880. Human waste was a problem, too. Many people emptied chamber pots out their windows. Those in tenement housing did not have their own facilities, but had 25 to 30 people sharing a single outhouse. These privies frequently overflowed until workers known as “night soil men” arrived to haul away the dripping barrels of feces, only to dump them into the nearby harbor.

As civic and health leaders began to understand that the frequent outbreaks of tuberculosis, typhoid and cholera that ravaged their cities were connected to the garbage, cities began setting up organized systems for disposing of human urine and feces. Improvements in technology helped the process along. Officials began introducing sand filtration and chlorination systems to clean up municipal water supplies. Indoor toilets were slow to catch on, due to cost, issues with controlling the stench, and the need for a plumbing system. Following Thomas Crapper’s improved model in 1891, water closets became popular, first among the wealthy, and then among the middle-class. Plumbing and sewage systems, paired with tenement house reform, helped remove excrement from the public streets.

Disease radically improved aspects of American culture, too. As physicians came to believe that good ventilation and fresh air could combat illness, builders started adding porches and windows to houses. Real estate investors used the trend to market migration to the West, prompting Eastern physicians to convince consumptives and their families to move thousands of miles from crowded, muggy Eastern cities to the dry air and sunshine in places like Los Angeles and Colorado Springs. The ploy was so influential that in 1872, approximately one-third of Colorado’s population had tuberculosis, having moved to the territory seeking better health.

Some of this sentiment continues today. While we know that sunshine doesn’t kill bacteria, good ventilation and time spent outside does benefit children and adults by promoting physical activity and improving spirits—and access to outdoor spaces and parks still entices homebuyers. This fresh-air “cure” also eventually incited the study of climate as a formal science, as people began to chart temperature, barometric pressure and other weather patterns in hopes of identifying the “ideal” conditions for treating disease.

Epidemics of the past established an ethos of altruism in the U.S. During the 1793 yellow fever epidemic, Philadelphians selflessly stepped up to save their city. With no formal crisis plan, Mayor Matthew Clarkson turned to volunteers collect clothing, food and monetary donations to pitch a makeshift hospital and to build a home for 191 children temporarily or permanently orphaned by the epidemic. Members of the Free African Society, an institution run by and for the city’s black population, were particularly altruistic, providing two-thirds of the hospital staff, transporting and burying the dead and performing numerous other medical tasks.

By the mid 20th century, public health experts began to think exposure to sunlight would ward off TB—and they promoted their theories through poster campaigns. (Library of Congress)

A 20th-century diphtheria outbreak in a small region in the Alaska Territory inspired a national rally of support—and created the Iditarod, the famous dog sled race. When cases of “the children’s disease” began to mount in Nome, Alaska, in January 1925, the town was in trouble. Diphtheria bacteria produces a toxin, making it especially deadly, unless the antitoxin serum is administered. This serum had been readily available for decades, but Nome’s supply had run short, and the town was inaccessible by road or sea in the winter. Leaping into action, 20 of the area’s finest dogsled teams and mushers carried a supply of the serum all the way from Fairbanks� miles—in record time, facing temperatures of more than 60 degrees below zero. Their delivery on February 2nd, plus a second shipment a week later, successfully halted the epidemic, saving Nome’s children from suffocation. Newspapers across the country covered the rescue. It was also memorialized in movies (including the animated Balto), with a Central Park statue—and, most notably, with the annual Iditarod race. The significant challenges of delivery by dogsled also sparked investigation into the possibilities of medical transport by airplane, which takes place all the time in remote areas today but was still in its infancy at the time.

Diseases fueled the growth of fundraising strategies. The polio epidemic of 1952 sickened more than 57,000 people across the United States, causing 21,269 cases of paralysis. The situation became so dire that at one point, the Sister Kenny Institute in Minneapolis, a premier polio treatment facility, temporarily ran out of cribs for babies with the disease. In response, the National Foundation of Infantile Paralysis (NFIP), which had been founded in 1938 by President Franklin D. Roosevelt and later came to be known as the March of Dimes, distributed around $25 million through its local chapters. It provided iron lungs, rocking chairs, beds and other equipment to medical facilities, and assigned physicians, nurses, physical therapists, and medical social workers where they were needed. The March of Dimes success has served as the gold standard in public health education and fundraising since its heyday in the 1940s and 1950s.

Public health emergencies have inspired innovations in education. Starting in 1910, Thomas Edison’s lab, which had invented one of the first motion picture devices in the 1890s, partnered with anti-TB activists to produce short films on tuberculosis prevention and transmission—some of the first educational movies. Screened in public places in rural areas, the TB movies were also the first films—of any type—that viewers had ever seen. The anti-tuberculosis crusade was also a model for later NFIP efforts to combat polio that relentlessly put that disease at the front of public agenda until an effective vaccination was developed and implemented, and set a standard for future public health campaigns.

Rules of the New System

A compromise of fixed-but-adjustable rates was finally settled upon. Member nations would peg their currencies to the U.S. dollar, and to ensure the rest of the world that its currency was dependable, the U.S. would peg the dollar to gold, at a price of $35 an ounce. Member nations would buy or sell dollars in order to keep within a 1% band of the fixed-rate and could adjust this rate only in the case of a “fundamental disequilibrium” in the balance of payments.  

In order to ensure compliance with the new rules, two international institutions were created: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD later known as the World Bank). The new rules were officially outlined in the IMF Articles of Agreement.   Further provisions of the Articles stipulated that current account restrictions would be lifted while capital controls were allowed, in order to avoid destabilizing capital flows.  

What the Articles failed to provide, however, were effective sanctions on chronic balance-of-payments surplus countries, a concise definition of “fundamental disequilibrium,” and a new international currency (a Keynes proposal) to augment the supply of gold as an extra source of liquidity.   Further, there was no definitive timeline for implementing the new rules, so it would be close to 15 years before the Bretton Woods system was actually in full operation.   By this time, the system was already showing signs of instability.

People lost their jobs, had no money, could not pay for the rent, they had to live in the shanty areas. Some people didn’t have even something to eat, to wear. A competition in a job market was huge, the market was full of highly experienced specialists who didn’t have any work. The discrimination grew that’s why African Americans could not get a job in many cases. Racism became a strong issue as well. People became more aggressive against the background of hunger, lack of money and despair.

The Great Depression became a huge blow to the economies of many countries. In a conclusion of the Great Depression essay we should notice that a lot of people, companies, and businesses suffered from this economic crisis. Everybody experienced big losses. And although the USA and other counties experienced different significant economic downturns after it, nothing could be compared with the severity of the Great Depression.

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