The signing of the Versailles Peace Treaty in June 1919 marked the formal conclusion of the war between Germany and the former Entente powers. Written entirely by the victors, the treaty was universally loathed by Germans.

The treaty required Germany to relinquish the territories of Alsace, Lorraine, Poznan, West Prussia, and Upper Silesia as well as its prized colonial possessions in Africa. In addition, Germany lost control of its coal mines in the Saarland. The military provisions of the treaty removed German troops from the Rhineland, dismantled Germany's navy, and limited its army to 100,000 men. Exorbitant reparations, 132 billion gold marks (about $31 billion), were also exacted.

The most devastating feature of the treaty was the infamous "war-guilt clause." Article #231 stipulated that Germany must accept complete and total responsibility for the war, a demand that humiliated even moderate Germans who recognized Germany's obligations to make restitution.

Saddled with the burden of defeat and the humiliation of the Versailles Treaty, Germany's postwar government, the Weimar Republic, was accused by its critics of having stabbed Germany in the back. A call to overturn the treaty was the most salient feature of the Nazis' political platform before their ascension to power in 1933.

Unfortunately, the problems plaguing Germany's economy went well beyond both the debts that had accumulated during wartime and the reparations demands that were another immense price for defeat. The war had harmed Germany's industrial capacity. Its stock of raw materials and goods had been severely depleted. Then there were the high costs of converting the economy from wartime to peacetime operation, a difficulty compounded by Germany's high unemployment. That problem, in turn, was made no easier by the fact that in 1920 Germany still maintained 660,000 soldiers. To meet the provisions of the Versailles Treaty, 560,000 had to be demobilized and then, somehow, absorbed into the German labor force. That goal could scarcely be accomplished in an economy whose inflationary instability was rapidly destroying confidence in the government.