Why Was Germany Leading Up To World War I?

War is expensive. When World War One was over, Germany had sunk over 37 billion US dollars (estimated) . Only 6% of this was paid for by taxes ; borrowing covered the rest. This act of borrowing put Germany in a precarious spot before the war was even underway. By the time the war was over, Germany was even worse off. Not only was their national debt at record highs, but also they were forced to pay immense war reparations, and national pride was at an all time low. Together, this caused the perfect storm leading to economic collapse and one of the worst cases of hyperinflation in history.
Leading up to World War I, Germany was an industrious country. In 1870, Germany had a population of around 40,000,000. By 1914, the population had risen
Most countries choose to finance their wars with a mix of increased taxation, controlled inflation as well as borrowing. These three tactics all have their pros and cons to them. Taxation is the most direct method of war funding. By increasing taxes, the government is able to shift private money into the public domain. Inflation works in the same way, however citizens don’t see their money physically going to the government, so they seem to prefer it to taxation. When a central bank prints money, they can then allow the government to purchase more weapons with this cash. Inflation decreases the value of everyone’s savings and investments, indirectly shifting private money into the government’s hands. Finally, borrowing is split into two categories. Domestic borrowing asks citizens to lend money to the government to be paid back (with interest) at the end of the war. The country can also take on foreign debt and borrow from other countries, with the promise of paying back later. These two options also lead to inflation or higher taxation though, as the country must payback the loan plus interest at a later
Instead, they relied heavily on foreign and domestic debt, assuming that they wouldn't have to pay back their foreign debts when they had won the war. With a mixture of domestic and foreign loans, slight increased taxation and the printing of more money, Germany was able to fund their war quite successfully. Germany was able to successfully fund their military program and “Germany’s defeat in 1918 had military, not financial, causes. ” However, the level of success is up for debate. Leading up to WWI, German financial policy had taken some extreme measures. With liquidity problems, and a general perception of weak finances, the government put new laws into place, effectively left the gold standard and greatly increased borrowing. These policies all assumed a short war, where Germany would come out victorious. By the end of the war, Germany had immense debts, and “short term debt… accounted for over 30 percent of the federal government’s total debt. This situation created the potential for serious inflation. Any short-term debt not purchased by German banks or placed in the Berlin money market had to be bought by the Reichsbank, which printed new paper money to do so. ” This printing of money created immense inflation. During the war, Germany’s amount of currency in circulation raised by almost 600 percent