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The imposed gift of Versailles: the fiscal effects of restricting the size of Germany’s armed forces, 1924–1929


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  • Hantke, Max
  • Spoerer, Mark


Weimar’s politicians used to attribute the continuous budget crises after the currency stabilization of 1923–4 to the burden put on the German economy by the Treaty of Versailles, in particular the reparation payments. This argument, which is still popular, neglects the fact that the restriction of the German military to 115,000 men relieved the German central budget considerably. In a counterfactual analysis we assess the savings in additional military costs and compare them to the reparation payments. Depending on the character of the foreign policy pursued by an unrestricted Germany, we find that the net effect of the Treaty’s stipulations on the German central budgets was either much lower than hitherto thought or even positive. This finding gives support to the argument that Germany suffered from home-made political failure even in the relatively stable period from 1924 to 1929.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20054.

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Date of creation: 15 Jan 2010
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Handle: RePEc:pra:mprapa:20054

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Keywords: Treaty of Versailles; reparations; military budget; Dawes plan; Weimar Germany; peace dividend;

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  1. J. Paul Dunne & Ron Smith & Dirk Willenbockel, 2005. "Models Of Military Expenditure And Growth: A Critical Review," Defence and Peace Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(6), pages 449-461.
  2. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," NBER Working Papers 7750, National Bureau of Economic Research, Inc.
  3. Jose Luis Cardoso & Pedro Lains, 2009. "Paying for the liberal state: the rise of public finance in nineteenth century Europe," Working Papers in Economic History wp09-03, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
  4. Simon Kuznets & Elizabeth Jenks, 1961. "Capital in the American Economy: Its Formation and Financing," NBER Books, National Bureau of Economic Research, Inc, number kuzn61-1.
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Cited by:
  1. Reckendrees, Alfred, 2014. "Weimar Germany: the first open access order that failed?," Freiburg Discussion Papers on Constitutional Economics 14/05, Walter Eucken Institut e.V..
  2. Harrison, Mark, 2014. "Myths of the Great War," CAGE Online Working Paper Series, Competitive Advantage in the Global Economy (CAGE) 188, Competitive Advantage in the Global Economy (CAGE).


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