The United States developed a plan to assist Germany in recovering from World War I.

In the aftermath of World War I, it appeared that the Treaty of Versailles Versailles, Treaty of (1919);German reparations had raised more problems than it solved. Among the more pressing and complicated issues were the interrelated problems of German reparations and Allied war debts. The terms of the peace treaty had forced Germany to accept blame for the war and to promise to pay damages suffered by the Allies. A special Reparations Commission fixed the sum owed by Germany at 132 million gold marks, about $33 million in gold. Even some members of the commission recognized that Germany would be unable to pay this staggering sum. The Allied governments, especially those of Great Britain and France, expressed a willingness to scale down German reparations if the United States would forgo war debts owed to it by the Allies. [kw]Dawes Plan (Sept. 1, 1924)
Dawes Plan
Germany;hyperinflation
Hyperinflation, Germany
World War I (1914-1918)[World War 01];postwar period
[g]England;Sept. 1, 1924: Dawes Plan[06120]
[g]France;Sept. 1, 1924: Dawes Plan[06120]
[g]Germany;Sept. 1, 1924: Dawes Plan[06120]
[g]United States;Sept. 1, 1924: Dawes Plan[06120]
[c]Diplomacy and international relations;Sept. 1, 1924: Dawes Plan[06120]
[c]Economics;Sept. 1, 1924: Dawes Plan[06120]
Dawes, Charles G.
Hughes, Charles Evans
Lloyd George, David
Robinson, Henry M.
Young, Owen D.
Stresemann, Gustav

Charles G. Dawes.

(Library of Congress)

The U.S. government had lent more than $10 billion to twenty nations before and after the armistice, and it refused to forget these debts or to link them with the problem of German reparations. Moreover, while European countries could repay their debts only by selling goods and services in the United States, the latter embarked in the immediate postwar period on a tariff program that represented aggressive economic nationalism and crushed any hope that European goods would be able to compete in the U.S. market. Consequently, the Allies had to press Germany for reparations in order to repay their own debts. The German government made a few token payments, but when faced with catastrophic inflation, it defaulted. In 1923, France occupied the Ruhr, Ruhr Valley;French occupation Germany’s principal industrial region, and took other steps to coerce the Weimar Republic into resuming payments. The Germans replied with a policy of passive resistance. The crisis was so serious that Europe appeared to be on the verge of financial and political disintegration.

It was to avoid economic disaster in Europe that the United States intervened. Although most people in the United States supported the government’s insistence on repayment of the Allied war debts and refused to accept the Anglo-French argument that reparations and war debts were interdependent, some also saw that European trade was essential to U.S. prosperity. Something had to be done to ensure that trade and financial intercourse returned to normal channels. Secretary of State Charles Evans Hughes was one of those deeply concerned about the problem, even though he was a tariff protectionist. He could not propose direct U.S. involvement in European financial affairs because of congressional and public opposition; however, he might be able to help Europe through unofficial action while avoiding serious objections at home.

In a speech before the American Historical Association in December, 1922, Secretary Hughes proposed the creation of a commission of financial experts to investigate Germany’s financial situation and to make recommendations concerning how and to what extent reparations should be paid. He did not say that the United States would participate directly in these negotiations, although he did admit, “I have no doubt that distinguished Americans would be willing to serve in such a commission.”

Hughes apparently hoped this public proposal would cause the French to postpone occupation of the Ruhr, but the French went ahead with this act in January, 1923, and it appeared that Secretary Hughes’s scheme was dead. In the fall of 1923, however, after it had become clear that the Ruhr operation was a failure, David Lloyd George, former prime minister of Great Britain, urged the French government to reconsider the U.S. secretary of state’s idea. After further discussion, France agreed to a restricted version of the Hughes proposal. The Reparations Commission in late November created two special commissions: one to attempt to balance the budget and stabilize the currency of Germany and the other to deal with German holdings abroad. The next step was to appoint a battery of experts. Not surprisingly, the Reparations Commission wanted several U.S. representatives to participate in this work. Apparently, the U.S. State Department was asked unofficially to recommend candidates. The names of Charles G. Dawes, Owen D. Young, and Henry M. Robinson, all noted financial experts, were put forward.

Dawes was appointed chairman of the first committee, and subsequent agreements were called the Dawes Plan. Credit must have gone equally to Hughes. After several months of deliberation, Dawes announced the committee’s recommendations on April 9, 1924. The report recognized two distinct problems: the need for Germany to return to economic solvency and the need for an acceptable method of transferring surplus revenue to the Allies. The Dawes Committee proposed the reorganization of the Reichsbank Reichsbank under Allied supervision, a loan of $200 million in gold, and the creation of a new monetary unit, the Reichsmark. No precise figure was set for total reparations, but the Dawes Plan posited a sliding scale of payments based on expected German financial prospects. For 1924-1925, the payment was set at $250 million, and it was to rise over a period of five years to $625 million. The German government was committed to making these payments, but provisions were made to ensure that the payments would not threaten the stability of the German currency. One such provision was the appointment of an agent general for reparations payments to supervise and coordinate financial relations.

The Dawes Plan went into effect on September 1, 1924. Gustav Stresemann, the German foreign minister, persuaded his government that the Dawes Plan presented Germany with an opportunity to rebuild its economy. Despite criticism from extreme nationalists, he convinced the German people that the plan offered Germany many advantages, freeing the nation from French occupation of the Ruhr and attracting needed foreign investments.

In terms of its limited goals, the Dawes Plan worked amazingly well. The international loan was oversubscribed, mostly by U.S. investors. An officer of the banking House of Morgan was appointed agent general. From 1925 to 1927, all went well, and the revival of the German economy seemed assured; only later was the Dawes Plan seen to be a stopgap measure. Germany able to meet its obligatory reparations only by borrowing from outside. U.S. loans to Germany under the Dawes Plan and the subsequent Young Plan exceeded $3 billion, while a total of only $2.6 billion was paid by the Allies to the United States during the same period. Despite the obvious connection between German reparations and Allied war debts, the United States continued to repudiate such a relationship. Dawes Plan
Germany;hyperinflation
Hyperinflation, Germany
World War I (1914-1918)[World War 01];postwar period

• Adler, Selig. The Uncertain Giant, 1921-1941: American Foreign Policy Between the Wars. New York: Harper & Row, 1965. A popular survey of the role of the United States in Europe between World Wars I and II.
• Craig, Gordon. Germany: 1866-1945. New York: Oxford University Press, 1978. Presents a useful discussion of Germany’s economic and social problems in the 1920’s and an assessment of the impact of the Dawes Plan.
• Dawes, Charles Gates. A Journal of Reparations. London: Macmillan, 1939. Dawes reviews his role in the investigation of Germany’s financial fight.
• Feldman, Gerald D. The Great Disorder: Politics, Economics, and Society in the German Inflation, 1914-1924. New York: Oxford University Press, 1997. In-depth examination of the economic crisis in Germany during and after World War I. Includes discussion of the Dawes Plan. Features illustrations, tables, bibliography, and index.
• Hoff, Joan. American Business and Foreign Policy, 1920-1933. Lexington: University Press of Kentucky, 1971. Describes the role of the Dawes Plan in the economic rebuilding of Germany.
• Schuker, Stephen A. The End of French Predominance in Europe: The Financial Crisis of 1924 and the Adoption of the Dawes Plan. 1976. Reprint. Chapel Hill: University of North Carolina Press, 1988. An interpretation of the writing of the plan, with a useful discussion of the role of the United States in the negotiations.
• Wueschner, Silvano A. Charting Twentieth-Century Monetary Policy: Herbert Hoover and Benjamin Strong, 1917-1927. Westport, Conn.: Greenwood Press, 1999. Examination of the influence of Hoover, as secretary of commerce, and Strong, as governor of the Federal Reserve Bank of New York, on U.S. monetary policy, both domestic and international, in the period when the Dawes Plan was formulated. Chapters 2 and 3 include discussion of the Dawes Plan.

Germans Barter for Goods in Response to Hyperinflation

France Occupies the Ruhr

Germany Attempts to Restructure the Versailles Treaty