Hitler’s Economic Program (1)

IMG_0258One of the many common misconceptions about Adolf Hitler is that he knew next to nothing about economics. In reality, he knew enough to (a) understand the “Mussolini Blueprint” – successful economic reforms implemented by Il Duce; (2) figure out how to adapt this blueprint to very different situation in Germany; (3) hire the best individual to the position of the “economic Führer” of the Third Reich; (4) control the latter and provide him with the necessary support; and (5) replace him with the more appropriate one once the initial Mission was accomplished.

Eliminating unemployment (i.e. bringing the German workforce to the state of full employment) was the most fundamental need and demand of German citizens. And, therefore, it became Hitler’s top priority, his job #1.

One did not have to have a Ph. D. in economics (facts, logic and common sense were enough) to figure out that the only way to quickly reduce (and subsequently eliminate) unemployment in Germany in 1933 was by massive government spending. Primarily on civilian projects.

For a very simple reason – although radical expansion of German armed forces and of the armaments industry were (obviously) highly efficient ways to radically reduce unemployment, in spring of 1933 Hitler (and Germany) were still not strong enough politically and economically to openly violate the terms of the Treaty of Versailles.

Hence the bulk of massive government spending had to go into construction (expansion of public and residential building), transportation (building roads and increasing production of motor vehicles), land reclamation (creating additional agricultural land) and reforestation.

As the Reich government did not have (and will not have) the financial resources needed to underwrite such a massive public spending program, it had to take the road of deficit financing.

The hyperinflation of 1921-23 was still fresh in German (and Hitler’s) memories so covering the budget deficit by printing money was, obviously, out of the question. So was borrowing abroad.

German economic recovery (the so-called “Golden Era” of the Weimar Republic) in 1924-29 was financed by loans provided by American banks through the Dawes Plan (adopted in 1924) and the Young Plan (adopted in August of 1929).

However, after these banks have been hurt (and hurt severely) by the Wall Street Crash of October 24th, 1929 and subsequent Great Depression, they predictably withdrew their loans to German companies (and to Germany in general). Which immediately sent German economy into a tailspin creating severe problems that Adolf Hitler now had to fix.

Hence, the Nazi government had to restrict itself only to domestic sources of funds for covering the inevitably massive budget deficits. The other three were (obviously) borrowing from banks, corporations and individuals. Ideally in a form of government bonds (interest-bearing securities) that could be used as “parallel currencies” until they mature and will be repaid in full from the state budget.

There was no need to create a specific incentive for German businesses to invest in these government bonds – the budget will simply pay them with the latter for the jobs done for the government.

Because these bonds were designed as the essentially “industrial currency” (a very common instrument to finance rapid economic growth), the business in question will be able to pay its suppliers or creditors with this “currency” and so on.

Borrowing from individuals was a different matter entirely. To motivate Germans to invest into government bonds, Hitler had to first make them trust the German government with their money. Not a small feat after hyperinflation, Great Depression and other economic calamities.

And then to carefully managing consumption, making sure that (a) German households consume enough goods and services for a comfortable lifestyle; and (b) still have enough disposable income to invest into government bonds.

The latter essentially meant making certain items simply inaccessible to the majority of Germans so that they had nothing to spend a certain share of their income on other than investing into government bonds (i.e. on savings). And, of course, conducting a massive propaganda campaign promoting savings and investments.

Obviously, managing consumption required tight control over wages and prices (making Nazi Germany not exactly a market economy). This control was needed anyway – to avoid inflation (the word that scared Germans more than Count Dracula and Frankenstein monster combined).

Now the trillion-Reichsmark (literally) question was how on Earth Hitler’s government would be able to pay off these gargantuan debts once they come due (and sooner or later they obviously will).

 

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