While the Constituent Assembly of 1919 approved the constitution of the nascent Weimar Republic, the victorious powers of World War I, enjoying strong economic growth in the 1920s, imposed extremely harsh and oppressive conditions on Germany in the Treaty of Versailles.
In addition to the obligation to cede parts of its territory to Allied occupation and the imposition of almost total disarmament, there was the punitive desire of many governments, especially France and, to a lesser extent, Great Britain, to impose sanctions and unsustainable war reparations on Germany, the amount of which was set in 1921 at 132 billion gold marks, or 33 billion U.S. dollars, to be paid over 60 years at 5% interest. The potential consequences of this situation were not lost on the young economist John Keynes, who was present at the negotiations as an advisor, resigned from the British delegation, and upon his return wrote a book accusing the leaders of the victorious countries of serious short-sightedness. Keynes argued that the economic and financial problems associated with reparations had been underestimated and concluded that the imposition of such heavy reparations was neither reasonable nor realistic and would ruin not only Germany but much of Europe, whose prosperity depended on trade and commerce. Faced with the victors' intransigence, German negotiators found themselves on the defensive. After further attempts to renegotiate the terms imposed, Germany chose not to cooperate and suspended the payment of reparations in kind, in the form of coal and iron from the rich mines of the Ruhr.
While these obligations and impositions strengthened German nationalism and the spirit of revenge among the most reactionary forces, German resentment was exacerbated when French troops occupied the Ruhr, the source of coal for German industry, in January 1923. Germans in the region responded with passive resistance and work stoppages. The lack of coal and the cost of the heavy expenditures to help their compatriots, finance passive resistance, or continue to pay their salaries led the German government to authorize the printing of large quantities of paper money, with the result that the mark quickly became worthless. Inflation spiraled out of control that same year, when it took 4 trillion marks to buy one dollar, leading to exponential price increases. At the most critical moments, workers received their wages daily and rushed to spend them immediately before inflation devoured their value. With such inflation, the war debt was virtually wiped out in the public finances, but millions of families saw their savings go up in smoke, with inevitable social consequences. Unemployment reached 20% of the workforce.