Nazi Germany's economy during the Great Depression

Miscellaneous History
1

I’ll admit, I haven’t really looked into this at all, but from what I learned in 10th grade European History, Hitler and his regime were able to steer their country away from Depression and they did quite well during the 30s.

To me, it seems kind of hard to understand. Hitler had great control of the economy, so how was it able to stay away from the Depression with huge government oversight while in the US we had the opposite? Or is this just some more of the same propaganda that school always gave me?

2

Massive military spending. As I understand it, Hitler had no choice but to go to war, as he desperately needed more resources to feed his huge budget deficit.

3

See Hoppe on The Economic Doctrine of the Nazis. He compares and contrasts the fascism of Hitler and Roosevelt perfectly.

4

This would imply Keynesian policies, not Austrian ones, are the correct ones to implement in a recession, no?

5

I suppose so, if your intention is to then pillage neighbouring countries to keep the machine running.

6

no, keynesian, hoovarian/rooseveltarian/hitlerian policies are good if you want an impoverished population, but with statistics that can lie to say that times are as good as ever.

7

Wow, I’ll look into that! I didn’t know that Hoppe had adressed that topic.

For now I just want to speak out my amateur opinion beforehand, that the key answer is that Germany had already “enjoyed” a rather fullblown depression process before Hitler took power. They had no Hoover before him to prolong the distortions (the Weimar president fieldmarshall Hindeburg had against the will of parliament nominated as dictator general Schleicher, who didn’t care about economy). Much of the prices and capital structure had thus been restored to market-like levels just before Hitler came to power. The price fixings and wage fixings and Goerings 4 year plans et cetera probably didn’t have time to give too much effect in the economy during the 6 years until war broke out and GDP statistics came to be dominated by the boosted government military expenses, while the standard of living deteriorated.

Germany didn’t militarize substantially until 1938. Until then their military spendings as a percentage of GDP were actually lower than that of the UK (about 3%). Only after the first defeat at Stalingrad in the winter of 1942/43 did they commit the entire economy to war. That’s part of the blitzkrieg doctrine: quality over quantity and “lets get it all over with before christmas”. Hitler knew that he’d have no change in attrition warfare anyway. Those last couple of years of total war were the desperate plan B of hoping to win time enough for miracle weapons to be developed.

Regarding militarization, it can of course not at all contribute to economic growth. Nor did it in the US. The depression in the US only ended thanks to deregulations after WW2 in 1945/46. Statistics showing differently are not comparable to non-war conditions. Surely living standards in the US were worse in 1943 than in 1939, considering working hours and salary buying power for those hours (and millions of women suddenly working in factories).

Now I’ve listened to Hoppes linked video. It’s great! But I think that only the first part was economically interesting: Hitler was less socialistic than Roosevelt and regulated and taxed the German economy less than the US economy was regulated and taxed in the 1930s. And Hitler had a monetaristic rather than keynesian view of money theory. Also, Hitler focused on production rather than consumption. Well, that’s hardly surprising. It couldn’t have been difficult to beat Roosevelt in that game! The rest is more ideological than economical. I lacked the part of the WW1 debt. It being written off should’ve had some significance, right? It should’ve allowed for Hitler to displace it with other debts instead, I think.

Furthermore, international trade was dismally small throughout the 1930s compared to the 1920s, wasn’t it? And Germany’s largest trade partner during Hitler was the US.

8

I don’t know the answer to this, it’s been asked quite a few times and apart from the fact mentioned below regarding Hoppe’s speech, I can’t think of anything. Granted, Hitler was less of a socialist than Roosevelt but that doesn’t explain Germany’s prosperity. It’s definately an area worth looking into.

9

I’d like to see the rest of that conference, in particular the parts about Franco and Juan Peron as they are spoken about much less. Juan Peron in particular one can see the left-right fusionism of fascism, and I would be interested to hear about his economic policies.

10

I’d like to see some information on Salazar also. The rest of the conference is in the media section by the way.

11

Ah thanks. I’ll check those out. I imagine Salazar and Franco copied each others economic policies, their regimes resembling each other so much.

12

Well, the thing is that I hear lots of my friends telling me that when their parents or grandparents lived in Salazar’s rule that the economy was very good, which strikes we as odd, especially since I’ve not looked into it.

The only explanation I can come up with is that after Salazar the communists came to power, and ever since those times Portugal has been plagued with social democracy, so the economy went from bad to worse and never recovered since, as such Salazar’s times were relatively prosperous in comparison to today’s world.

Actually, I think it would be good if libertarians devoted more study to fascism, there seems to be a lot of Austrian work on “russian style” socialism, not too much on “german style” socialism. Which is strange because in today’s world the latter would be more profitable. I doubt people would be so keen to endorse Obama’s policies if they knew that Obama is essentially a fasicst. Moreover, it would neutralize the charge levelled against libertarians of being on the same “far right” as the Nazis.

In fact, there needs to be more Austrian study of European history, a lot more. I think it’s an area that young Austrians should look into.

13

Keep this in mind: the last few years have been among the most unproductive ever in US economic history, but if you recall your memories of these golden days, most people seemed to be living quite comfortably. The reason is debt and inflation. Wealth produced by foreigners and lent to US citizens as well as artificial prosperity created by dollars. Unfortunately, this system works only for so long. As soon as markets figure out what’s going on, your house of cards crashes. A shrewd administration will cover up their unsustainable ways as effectively as possible to keep the illusion going. That’s what Hitler did.

The Reich had a legal interest rate of 4,5%, meaning the government couldn’t bid more than 4,5% interest for credit. In addition, foreign investors were still somewhat wary since the German hyperinflation had not yet been a matter of the past for too long. Thus, the Reich had to watch its balance sheet carefully. So, on the surface, it seemed like Germany had a sound economic base and that’s why credit kept flowing in even though most productive endeavors aimed at rearmament, not exactly the most profitable sector. But somehow, government statistics seemed to indicate that “it worked”.

One trick Hitler’s administration used were the infamous Mefo bills. Bills, as opposed to generic credit, had the advantage of not having to appear in the Reichshaushalt and Reichsschuldbuch which means that even though the Reich was spending money that it didn’t have, this did not negatively influence any official trade balance or debt rating.

The system worked that way: large German armaments manufacturers founded a “dummy corporation” called Metallurgische Forschungsgesellschaft. This non-governmental entity financed a substantial portion of Germany’s rearmament efforts, but German officials did not become shareholders so as to leave no tracks. When ordering new armaments, the MeFo company did not pay in Marks, but in bills of exchange. These bills were then discounted by the Reichsbank. Had arms manufacturers now demanded the bills to be paid out, the scheme would’ve blown up; but with a favorable interest rate of 4%, there was not only an incentive to “let the money work”, but the bills themselves actually became a money-like commodity among German industrialists. Since there was an artificial demand for this pseudo-money, no resistance occured when the final outpayment was prolonged from six months to a year to two years to five years; and since the whole project had started in 1934, that was all they needed. The poor guy holding this worthless paper in 1939 was the loser of the Ponzi scheme while German industrialists had made MeFo bills a second currency and earned a fortune selling them while at the same time, the fascist government could rearm.

Hjalmar Schacht, then Reichsbank president, minister of finance and inventor of this system, was, by the way, acquitted in the Nuremberg Trials due to lack of evidence. He even convinced his German prosecutors in a later German trial that he was actually an enemy of the system! That illustrates how well-hidden this whole scheme had remained even years after the fall of the Reich.

Another secret source of income for the Reich were state-incentivized “savings” projects like the KdF car. KdF (Kraft durch Freude, strength through joy) constituted an organization founded by Hitler’s administration to better integrate the general population into the system by offering leisure time activities and holiday programs. One particular offer was the KdF car. People could pay 5 Marks to a Reich-run bank every week which, in turn, got them a savings stamp. If they had enough savings stamps, they were supposed to get this KdF car. Unfortunately, similar to the MeFo situation, just when they had gathered enough stamps to claim their brand-new car, this nasty war ruined all the plans. It is estimated that this scheme gained the Reich more than 280 million Marks. I’ve also read that in the last months before the war, the Reich just took money from people’s bank accounts, but I haven’t been able to source-check that as of yet.

It should also be pointed out that in addition to all these schemes, the Reich was running up debt like mad that was never intended to be paid back, but instead used against the creditors in the ensuing war. In other words, the Reich consumed other people’s deferred consumption and that’s why “the economy” seemed to be going quite well all the time, just like the US economy seemed to be going quite well in the years after 9/11. As the Wikipedia article on the Third Reich says:

Schacht was one of the few finance ministers to take advantage of the freedom provided by the end of the gold standard to keep interest rates low and government budget deficits high, with massive public works funded by large budget deficits.

Low interest rates, budget deficits? Rings familiar, doesn’t it?

I’m sure there’s more to it, but I’m just an interested layman. And I agree with Giles, European history rocks.

14

Giles, I agree that it would be great if American historians would take a better look at European history. Today it almost seems as if there’s an ocean between the two continents (oh, well…)

That nazism successfully turned around the depression is, I think, a widely accepted belief. It is very dangerous since it is the ultimate anecdote of: “a strong leader can fix the economy, maybe it’s worthwhile after all?”. Of course it’s a touchy subject for established historians, since it was the same kind of ponzi scheme which has been practiced by all European governments ever after.

Sphairon, great posting!

Their plan seems to have been to plunder! Not only by looting domestic jews and colonizing foreign countries, but also by borrowing without intention of paying back. In the sense that it lead to enormous resources put under German control during the first three years of war, without too much of own losses, the military investments could indeed be considered very “profitable”!

But I wonder if the early rearmament of Germany isn’t often greatly exaggerated? For sure, it increased from a very low disarmed level, so the increase could’ve been substantial. Only in the fiscal year of 1937/38 did German military spending exceed those of the UK, if I remember correctly (but probably excluding the MeFo money). France alone had more tanks than Germany in 1940. And the invasion of Russia consisted of millions of conscripts with handheld rifles, walking through all of Ukraina on foot, with horses to carry their tents. Much like Napoleons army had done. The mechanized parts of the German army (vehicles, tanks, airplanes, artillery) were phantastically inferior to the Soviet dito in quantity. And precisely because the Germans hadn’t put much resources into the military, it came as such a surprice that Hitler would dare risk a war, and even more that he would become so successful in it. And basically Germany lost the war because its economy was committed to it far too late, only after Stalingrad.

Didn’t Hitler in one of his speeches at the outbrake of war say that he had spent something like “one billion” Reichsmark on the military during the previous years. How Dr. Evil doesn’t that sound today?

What about the explanation that the depression had been allowed to act out almost unhampered by the government in Germany, and that prices and capital structure therefor already had largely been readopted by the market in 1933? Is there any support for that?

15

Well, I would say that Salazar was never a true fascist, nor Franco after about 1946 as he tried to warm up to the allies. I find it amusing that Salazar won a poll for ‘The Greatest Portuguese’ a couple years ago.

I agree. It might feed the left libertarian belief that some of us are closet-monarchists, as we would show some favor toward some of the more enlightened ones.

16

That, of course, is also true. Chancellor Bruening followed a policy of fiscal sanity around 1930, raising taxes to levels that made government spending sustainable while at the same time decreasing governmental spending overall and exercising downwards pressure on wages and salaries. In short, he did exactly the opposite of what the Keynesian miracle formula prescribes: he didn’t go further into debt, let the bubble burst and waited for market recovery.

Unfortunately, there were some roadblocks that hampered the effectiveness of this strategy, such as spreading economic nationalism that resulted in global tariff and tax raises for foreign products. It seems to be general consensus among historians today that this caused Bruening’s strategy to fail, but Austrians know that while interventionism delays recovery, it cannot completely stop it. One might argue that bad trading conditions added to the severity of the recession and worsened living conditions for those dependent on their jobs, but ultimately, Bruening did the right thing. I personally believe that thanks to him, Germany weathered the 1929 crash fairly well compared to what other nations were still facing at this point. Of course, the irony of fate being that this market-based recovery would eventually aid a horrible anti-liberty tyrant in murdering millions of innocents.

Ah, and thanks for the compliment. :wink:

17

Sphairon, thanks for the information. So what your essentially saying is that the Nazi economy was a bubble that never really got to burst? Or at least, the “bursting” was covered up by a war.

18

Exactly. The amount of on-the-books debt alone was completely out of control, sort of like what the US is doing right now. Add to this their little financial Ponzi tricks and you’ll see that not only was large-scale war an option, but actually necessary to prevent the economic and political collapse of the Reich.

19

There’s definately some truth in this. I suppose up until now it’s been supposed that monarchs were bad and as such there’s not much point in covering them. On the other hand America has always been a democracy, so if only we could find out where it went wrong we’d be able to understand how it could work in the future. Erik von Kuehnelt-Leddihn’s and by extension Hoppe’s theories on monarchy have dispelled a lot of this, so hopefully there’ll be more on it in the future.

Well, American history seems to have been fairly well covered up until now. The big events in American history are all somewhat comprehensively understood. Lincoln’s war, the great depression and from then on. I suppose partly because the paleocons have covered a lot of this, and also because of Europe’s “libertarian movement” barely exists.

On the other hand there’s a wealth of information to be had in European history. Especially during the 18th and 19th century, which hasn’t really been covered. All of which provides a great deal of understanding concerning the relation between states (for obvious reaons there’s more of this to be had in European history) and simply because a lot of it is very interesting. It’s certainly an interesting area, and one I hope to look into.

20

So the bubble’s burst was “covered up” by the outbreak of war. That still doesn’t sound like an argument I’d like to use next time someone advocates a strong leader and a war as a solution to the depression…

How would war work such a wonder to cancel debt payments, and the effect of cancelled debt payments? “War” here means command economy, doesn’t it? How could that be better for the economy’s capacity to produce (now for the war demand of the government, not for the consumption demands of the people), than simply defaulting in peace time?

The debt bubble burst in the early 1940s. That’s very bad news for the German economy. War broke out at the same time (i.e. capital structure based on the assumption of continuing peace whent down the toilet). That’s even more bad news. Still their industry output increased until new year 1944/45, didn’t it? (Phantastically, only the physical occupation of industrial areas in Germany could make their weapons output fall. Bombings certainly reduced the pace of its growth, but could alone not make it shrink, before 1945 anyway).

Am I somewhat right if I say that maybe it isn’t so hard for a planned economy, for a few years at least, to increase output of the “goods” (weapons) that the dictator and generals demand, but that that doesn’t mean “economic growth” since that very concept requires the free individuals to make the valuations. And they’d actually prefer a family car over a cannon, and a vacation over conscription?