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Were the Nazis Good Economists?

If the 1929 Wall Street market crash had not taken place and, consequently, the Great Depression, Hitler’s possibilities of rising to power would have been much lower. This is due to the fact that the German economy was in such a state of misery that the way for the Nazi leader’s dictatorship was basically paved.

The Great Depression affected Germany in devastating ways as the country was highly-dependant on short-term loans from the United States. When the crash happened, these loans were removed, making wages decrease by 39% from 1929 to 1932, leaving millions unemployed and making 10,000 businesses close down every year during this period, all of which increased poverty in Germany greatly. In addition, the economic measures taken by Heinrich Brüning, a central Party politician and chancellor of the Weimar republic from 1930 to 1932, did not help the situation. His budget cuts caused so much distress that the Allies spared Germany from having to make further reparation payments (for the First World War).


Meanwhile, popular discontent kept increasing, to the point where the possibilities of a Civil War were present. The Nazi Party took advantage of the people’s discontent with the Weimar Republic’s rule. The population was desperate for change and Hitler’s promises of restoring prosperity and creating civil order made the support for the nazis swell. After all, desperate times call for desperate measures.


Hitler and the Nazis had many things to solve when coming to power. They faced mass unemployment, a vast national debt, a bankrupt state due to the reparation payments of World War One. There was also hyperinflation (eg. of price in 1933 and after) and overall, the state of the economy and the living standards were at their worst.


The New Plan

After establishing their dictatorship, the Nazis focused on economic reconstruction. Hitler assigned this to Hjalmar Schacht, who was placed as head of the ‘New Plan’ (1933-1936), which aimed to get the economy back to a stable point, decrease unemployment, reach a state of autarky and start rearming the country. Schacht was given by complete power to re-organise the economy as he pleased in order to boost the economy.


State investment / monetary policy

Schacht expanded the policies of state investment that had been implemented under the Weimar Republic, increasing the state’s expenditure on public projects and businesses. The Nazis hoped that this would stimulate people’s living standards and demand for goods, increasing the country's GDP and therefore lifting Germany out of the depression, but this was also a two-faced method by which the state slowly enhanced its control over industry.

Anyhow, rearmament also placed a big weight on state investment. In fact, it was the biggest expenditure the Nazis had during this period. In order to pay for capital projects, Schacht designed a scheme for deficit spending which consisted mainly of a promissory note with high interest rate (4%) called MEFO bills. These served as deferred payments which the government used in its rearmament program as, with the Treaty of Versailles, they could not legally spend on military; as they were doing so, they needed a process through which they would not leave paper trails. Schacht later said that the device "enabled the Reichsbank to lend by a subterfuge to the Government which it normally or legally could not do". Nazis made great use of these MEFO bills, which seemed successful initially but eventually led to problems. The government kept stretching out the time until payment, resulting in large quantities of debt and insufficient actual Reichsmarks, leading to the printing of money, which would have normally generated inflation, but due to the nazis regulation of prices and consumerism, in this case did not.


The government also regulated the market, which meant that they transformed it into a tool to finance rearmament and with the new Banking Law, this was furthered as it allowed the Central Bank to fully supervise private banks, direct the process of unfreezing assets, prevent excess liquidity in the banks, and direct the newly available funds to the financing of rearmament. Also, there was a focus on large firms and heavy industry as the small ones could not provide the Nazis with the armament they needed and simply provided “unnecessary” consumerist products. Schacht passed laws that stated that firms could not become private unless they had a large amount of capital, leading to many private firms dissolving, becoming sole traders or having to become private partnerships. Cartels, which are agreements or mergers between large firms, were encouraged, as they avoided “wasteful” competition.


Employment, work creation schemes

Unemployment was one of the biggest problems the country faced (at least 6 million in 1933) and one of Hitler’s promises had been to solve it. As I mentioned before, the State invested in the public sector, building homes, hospitals, schools and in the famous Autobahns, which all gave employment to millions. Businesses were given contracts and lower taxes in return for hiring more people, though these worker’s wages were kept low so these businesses could afford to pay many employees.


In addition, Hitler appointed Konstantin Hierl state secretary in the Reich Ministry of Labour, responsible for the Voluntary Labour Service, a state-sponsored employment organisation moulded in the Weimar Republic, to which participation was voluntary and which provided works for land and civic improvement. Hierl converted this organisation into a service run like the army and believed service should be compulsory, a statement which went against the Treaty of Versailles’ regulations. In 1935 though, the Reich Labour Service (RAD) was established as an amalgamation of all the labour organisations formed during the Weimar Republic. Attendance became compulsory for all men between 18 and 25 years in 1935 and for women also in 1939. The RAD served to maintain the population employed but also to educate the citizens in the spirit of National Socialism and to make them develop a true working attitude. There were also programs with the same aims for the young, the Hitler Youth groups, which reached more than 30 per cent of German youth aged 10 to 18.


As a result, Schacht’s administration accomplished an impressive decrease in unemployment, from 34 per cent in January 1933 to 13.5 per cent in July 1934, the largest percentage of all countries during the Depression, though it is important to note that women were encouraged to limit themselves to domestic chores, and thus to get out of the workforce, a fact that makes the figures of employment mainly masculine and more impressive.


Trade policy

Another important factor the Nazis wanted to achieve was autarky, and therefore, Schacht created strict regulations and state control of trade, making it more difficult and appealing for Germans to import by making tariffs high. Domestic substitutes were encouraged, which, in addition, stimulated growth and created jobs.

Anyhow, there were exceptions, as, during the 1930s, prices for raw materials soared worldwide whilst, that of manufactured goods, Germany’s main export, fell, making the German balance of payment difficult to maintain. This meant the New Plan started trade alliances with poorer countries in Southern Europe and the Balkans, in which these countries supplied Germany with cheap raw materials in exchange for German cheap goods. They also traded with countries like Spain and Switzerland. These negotiations had hidden intentions as the Germans used their economic power to make these countries dependent on Germany and also to form alliances that would serve them in the future war.


The Four Year Plan

Schacht was dismissed from his post in 1936 as the Nazis, first of all, did not fully trust him as he was not a Nazi himself and, secondly, because they now wanted to fully focus on rearmament and Schacht was not completely in accord with this; he found that the amounts of money spent on the military were excessive and beyond the country’s economic capacity. In 1936, Herman Goering, a high-Party member, far from being a professional economist, was named plenipotentiary of the Four Year Plan, which aimed to be prepared for war in four years.


Employment

War was approaching and the Nazis knew it. Conscription (the RAD) had been introduced in 1935 (in 1939 it was made mandatory for women as well, involving tips on the domestic life of a good traditional woman), and most German young men had been drafted into the army. The Nazis were able to give the soldiers excellent training and test out their equipment and tactics when they helped dictator Franco in his victory in the Spanish Civil War. Millions were employed by factories creating weaponry and artillery or in public schemes as the Autobahn.


In addition to this, under Goering’s ruthless supervision slave labour began to appear; people jailed in concentration camps and those transported from the countries Hitler took over in 1938 and 1939 worked in poor conditions, labouring land and working in exchange for no wages, which benefited the Nazis.


Also, the Hitler Youth groups that lived under Schacht continued to grow, indoctrinating the youth and giving physical training to the boys. By 1936, membership had reached over 5 million members and even though it was not mandatory until 1939 (Hitler Youth Law) youngsters were pressured to join. Investing in this youth training and brainwashing was necessary as they, after all, would form a large percentage of the German soldiers fighting their war.

Trade policy + autarky

The aim to reach autarky continued and was furthered by Goering creating the ersatz goods; synthetic and domestic alternatives to goods that were not naturally found in Germany. For example, coal was used to make rubber and oil, acorns or roasted oats to manufacture coffee, clothes from recycled paper and flour to create make-up. This all did signify funding from the government which had to invest in elaborate scientific research to come up with these alternatives. These products were claimed to be as good as the originals, a fact which was far from true, but they served a role and many average-low income German people had to just accept them.


Rearmament policy + industry

In 1937, the Herman Goering Werke was founded. Developed under taxation and voluntary contributions, it had the role of exploiting Germany's low-grade iron ores, which private steel mills viewed as “uneconomical”. It employed over half a million people and quickly expanded to other fields like oil production, transportation... By 1938, with help of assessments on private industry and public resources, it increased its capital from 5 million marks to 400 million marks, ranking third among German stock companies. In the same year, the Volkswagen project, the ‘people’s car’ was established and the construction of the autobahns continued and after Austria’s annexation expanded to this new territory (work ceased in 1941 because of the war).


Though ownership was largely private, industry was largely controlled by the government through regulations and political interference. The state needed a legal instrument with which to implement the plan such as long-term contracts with private industry groups to buy their produce at fixed prices and set agreements, which in reality were unequal, favouring the Nazis, who believed that if property was not used to further their goals, it should be nationalised. Furthermore, kartells continued, closing down handicraft and small to medium businesses (90,448 out of 600,000 one man plants closed in 1936-7).


In conclusion, Hitler and the Nazis managed the German economy and were able to bring it out of the depression. Unemployment and hyperinflation fell drastically and the country seemed thoroughly stable. Initially, under Schacht, a more subtle approach was taken, focusing on rearmament but also on the German people’s needs. Under Goering, however, the emphasis on rearmament increased massively; it was the most important focus of Hitler’s economy, everyone and everything was dedicated towards preparing for war.

In my opinion, the economy under Hitler’s government advanced in many ways but towards a fatal endpoint: war. It is clearly not a sustainable model for a country because wars are morally awful and, economically, very expensive for a country. In Germany’s case, the war they started left them worse off than they had been at the beginning, after the First World War, making all the efforts of Hitler’s economic policy intended to restore Germany’s eminence and dominance a complete misspend.



Adriana S, Year 12


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