Nazi Germany and Economic Growth

1200px-Flag_of_the_German_Reich_(1935–1945).svg

by Pushkar Sai Reddy

 

Could the Rapid Economic Growth in Nazi Germany be Sustained for a Prolonged Period (Barring the Intervention of External Factors that Overthrew the Government)?

 

INTRODUCTION

Nazi Germany today is most prominent for the atrocities committed by them. The Nazi party led by Adolf Hitler adopted an ideology that condoned the prosecution of certain groups of people who were considered to be inferior to the Aryan race. The government propagated a “euthanasia” program to eliminate individuals who were mentally retarded or physically handicapped. Over 200,000 handicapped people were killed between 1940 and 1945. The worst crime committed by the Nazi government was the creation of concentration camps where “undesirable elements” were forced to work and were systematically killed.

An argument often put forward to support the popularity of the Nazi government in Germany is that their economic policies led to massive prosperity. However, such prosperity was short lived considering the World War II and the defeat by the Allied powers. This paper seeks to determine whether the economic growth in Nazi Germany could have continued if no foreign nation had intervened in its policies? To do this I have intentionally ignored the foreign policy of the country and the occurrence of the war, thus, making it simpler to closely examine the economic policy of the government between 1933 to 1945.

The general rise of the Nazi government must be looked at to examine why such a government was favored by the public? Why the government had radically changed the nature of its policies from a largely state-run initiative to a rush to privatization? Did these policies have the same positive outcomes? These positive outcomes would then be examined through a Keynesian model to determine the viability of such growth in the long run. Only after all these questions are answered can the central research question receive the appropriate response.

 

RISE OF NAZI GERMANY

Germany was left in a pitiful state after the Great Depression which had led to mass scale unemployment and rampant inflation. The collapse of the American Stock Exchange in 1929 forced America to call in all its foreign loans, which destroyed the Weimar Germany. Unemployment peaked at 6 million which was 33% of the nation’s working population. Many workers began to look towards communism which frightened wealthy businessmen resulting in them financing Hitler’s campaign. These dire economic conditions offered a fertile ground for the rise of the Nazi party.

The Nazi party was quick to solve the prevalent problems in the economy. The regime was following Hjalmar Shacht’s, the President of the National Bank and the then Minister of economics, so called New Plan in 1934. It involved actively taking control of the economy by nationalization which was also done in Italy under Mussolini. They embarked on huge public- work programmes, like the construction of the autobahn and the Olympic stadium, instituted job programs to increase employment, expanded credit, brought about national health care and unemployment insurance, and vastly expanded the military. In practice the Nazi’s economic policy resembled a Quasi Keynesian program, essentially entailing heavy expenditure of the production of arms, subsidies for agriculture and a close relationships between the state and industries considered vital for a strong military, such as the iron and coal industries.

 

CHANGE FROM NATIONALISATION TO PRIVATISATION

It is evident that the Nazi party undertook a massive nationalization program to stabilize the economy that was devastated by the world financial crisis. Once the economy was stable and thriving, the Nazi government completely changed their view of the type of policies that are to be enacted for the running of the county. This sudden change was unique as Germany alone was developing a policy of privatization in the mid 1930’s.

The transfer of ownership, property or business from the government to the private sector is termed as privatization. Privatization in Chile and UK during the 1970’s and 80’s are usually considered as the first instance of privatization in modern history. However, most economic historians forget the policies enacted by the Nazi Party in Germany. In fact, the first use of the word “privatization” in English occurred in the 1930’s while trying to explain the economic policy in Germany. The English word was a translation of the German word “Reprivatisierung”, which had itself been newly created under the Third Reich. The Nazi government began selling off ownership in several firms owned by the State in the mid 1930’s. These firms belonged to a wide range of sectors like steel, mining, banking, shipyard, ship-lines and railways.

Why did Germany radically change its policies? There is no clear consensus on why the Nazi government did this. It would seem that the government was eager to raise money from privatization to fund their expenses in military expansion. Also, the privatization reveals that the reason for the German privatization was to benefit the wealthiest sectors and enhance their economic position, in order to gain their political support. Another interesting argument put forward in the book ‘The Structure of the Nazi Economy’ is that the Nazi economic policy had a particular macroeconomic policy in mind. The main objective for the privatization was to stimulate the propensity to save, since a war economy requires a low level of private consumption.

 

KEYNESIAN MODEL

Keynesian economics was developed by the British economist John Maynard Keynes to understand the Great Depression. He proposed increasing government expenditure and intervention as well as lowering taxes to stimulate demand and bring the world out of the slump of the depression. He imagined the economy to be in a constant state of flux with booms and busts, thus, the government ought to increase taxes or cut spending during an economic boom and should do the opposite during an economic bust. Keynes first gained recognition in the United Kingdom when he warned about the dangers of the harsh reparations being inflicted on Germany after World War I. His warning was almost prophetic as one of the primary reason for the rise of the Nazi party was due to the criticism of the harsh reparations that Germany had to pay.

 

KEYNESIAN OUTLOOK OF PRIVATIZATION IN GERMANY

nazi.png

Figure 1:The rate of return in Germany from 1925 to 194126

The above graph represents the rate of outputs of capital in Germany from 1925 to 1941. The slump in 1931 was due to the Great Depression. The coming of the Nazi party and their rapid state acquisition of major industries had rapidly led to an increase in productivity. The minor decline from 1936 to 1938 was due to the practice of ‘shock therapy’, or the sudden liberalization of the economy by the reduction of state control over the economy. The rate of return still manages to bounce back up till 1940 followed by a sharp decline. The question that must be answered is if this sharp decline was a result of the privatization?

In 1937, the average German working class family was eating substantially less meat, milk, eggs, vegetables and sugar than in 1927. They had little to celebrate, but for the big businesses the Nazi economy was very favorable to them. The government had suppressed wages and ignored or actively discouraged mass consumption. Conditions like these could have had extremely negative effects to the economy.

The Keynesian model would demand a greater propensity to consume from the people in the economy but seeing as this would be unlikely, the government would have to compensate for this. However, the government was attempting to reduce their intervention and provide the private sector more independence in decision making. It could be argued that the government could have easily taken back control by nationalizing the industries again. But, as mentioned earlier about the reasons for the government policy for privatization, their hands would be tied against doing so.

 

CONCLUSION

The purpose of this paper is to either support or refute the primary argument of economist who envied Nazi Germany for their economic policies. These economists have responded in this manner to defend the atrocities caused by Germany during their reign of terror. However, by separating morality from the question being asked it would provide greater benefit to this argument. By strictly looking at Nazi Germany through their economic policies it could be possible to finally lay to rest the one argument in their favor.

The rise of the Nazi party was only possible because of the economic condition in Germany at the time. Their drastic policies did prove beneficial in solving the massive unemployment and led to a sudden rise in capital returns. The solution provided by the Nazi government involved mass nationalization of the major industries in the nations, however, the government then decided to “re-privatize” the economy.

The reprivatization caused an increase in capital returns but it seems that this benefited only the upper cadre of society while the working classes benefitted very little from it. Consumption seemed to have fallen among the people and the government were only vested in the construction of the armament factories. With this neglect a Keynesian model would dictate that the sudden and rapid growth would eventually lead a crash like the one in the United States which caused the Great Depression.

Signs of the impending crash could be seen with the rationing of the consumer goods for the working class. Had the war been averted, the country would have likely seen an increase in the price of goods which would have led to a greater fall in spending. The only way this could have been postponed or avoided is if the government took an active role in the economy by increasing its marginal propensity to consume.

Thus, the Nazi economy could have only benefited the country in the short run when it quickly wiped off unemployment. However, its obligations to the wealthier section of the society for their political support and in anticipation of its military expansion would have prevented the government from taking an active part in the economy as it did during its nationalization phase.

 

References:

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Pushkar Sai Reddy is a second year law student at Jindal Global Law School.

Featured Image Source: Wikipedia

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