Breaking the Balance

In 1925 a recession gripped the Weimar Republic and ignited a debate over unemployment benefits. In order to meet the growing needs of the jobless, the German government had to confront its traditional belief in budget surpluses. The political parties of the left fought those of the right and centre; the state governments fought the central government, and bureaucratic agencies fought each other. In January 1926, this debate came to a head as Chancellor Hans Luther reversed his previous stand, dropped an ultraconservative fiscal policy, and embraced the policy advocated by the left, the states and the Labour Ministry. The German National People's Party (DNVP or Nationalists), which had belonged to the previous government, found itself isolated. The trend was confirmed in March 1926, when the minority government struck a budget deal with the Social Democrats. The breaking of the balanced budget in 1926 had profound implications. The debt was financed at first from reserves, but within a year the government had to float a bond issue. The state governments followed the lead of the national government and covered their debts with foreign loans. The Reich's financial structure grew increasingly precarious until it had to stop payment on the debt during the Depression. Most debate has focused on economic grounds: did productivity gains justify the public and private salary increases which swelled the debt?' If a major disparity existed between wages and productivity, as Knut Borchardt has argued, then wages would have to fall sooner or later and unleash political turmoil. By the same token, if government benefits were too generous, then the Republic would go bankrupt or have to find means of alternative financing. However, these benefits were enacted for good reasons. This article will examine the

Debt · Economic growth · Economic policy · Economics · Government (linguistics · Keynesian economics · Political economy · Political science · Politics · Recession · Unemployment · Weimar Republic · European Monetary and Fiscal Policies · Finance · Law

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