Monday, December 05, 2011

HOW GERMANY GOT OUT OF THE DEPRESSION


How about a serious post for a change?

If I were an economist the area I'd focus on would be the quest for a market driven method of providing full employment, which I define as voluntary employment at a living wage for everybody who is willing and able to work. That doesn't sound like it would be too difficult to achieve but, believe it or not, no modern economic system, including our own, has ever pulled it off. Even communist countries which call themselves "workers' states" haven't been able to do it. There's plenty of unemployment in those countries, they just don't report it.



Oddly enough, the only country which is widely believed to have achieved it was Germany in the 1930s. But is that true? And if it is true, how did they manage to do it? How did they get out of the Depression so quickly and then create full employment besides? I know nothing about economics, but I just read a book on the subject, and I'll pass along the opinions of the author.



The book is "The Nazi Economic Recovery 1932-1938" by R. J. Overy (1982). Overy believes the recovery was a fake. Unemployed people were simply drafted into The Labor Service, where they were forced to work for an extremely low wage, usually on farms. Once they were in the service they weren't classified as unemployed anymore. According to Overy the real German economic miracle occurred in the 50s, and had nothing to do with Nazi policy.



The Nazis were said by some to be Keynesians because they also believed in big government spending to handle unemployment. The author, who's a Keynesian himself, was revolted by the idea. He says Keynes strongly believed that big government spending had to be accompanied by low taxes. The Nazis believed in high taxes. They didn't want consumers to spend money on things, they wanted them to save their money in banks where the Nazi's could make use of it.



Apparently the Nazis inherited what today we might call a "progressive" agenda from the Wiemar Republic. In Wiemar the government owned or controlled some big industries and when the Nazis took over they simply amplified that policy, gradually expanding it til even small business came under their control.

Add that to fact that Germany didn't try to export or import much during this period and was concerned mainly with self sufficiency wherever possible. Overy says this was disastrous for the country because it cut them off from foreign competition which, if they had engaged in it, would have forced the country to increase efficiency and to modernize. No wonder wartime Germany used slave labor. They were too inefficient to produce enough goods by normal methods.



Overy's book left me feeling sad for the Germans. They had a cruel leadership to be sure, but they were also an energetic, educated people handicapped by a system that just didn't work.

14 comments:

zillustration said...

I like the characterizations of the unemployed by country - the Brit is smoking a pipe on the golf course! Also, isn't that Klaus Kinsky in the last illustration?

dragonpaws said...

My understanding is that Germany was able to mask their debts with some heavy duty currency manipulation, see "MEFO bills". The economic minister who engineered this policy was sort of an interesting guy. He wasn't a Nazi party member and he was more or less forced out by the time of the war.

Germany was able to say above water because they were literally sucking the life out of Europe. Ironically, by the end of the war the proportion of german workers in the workforce actually decreased in Germany itself!

http://en.wikipedia.org/wiki/Bank_Emisyjny_w_Polsce

I like the way Walt Kelly put it: the key verb in Fascism is "bound". I think its corruption and top-heavy nature might have been more obvious if it had survived.

Anonymous said...

Serious can be good. It works because you can interject something topical yet avoid heavy-handed politicizing. Heck, you even managed to avoid mentioning Hitler by name even once!

The handful of WWII-era Germans I know were relatively socially isolated and didn't grasp the magnitude of Nazi insanity. The oldest Germans I knew said they felt worldweary and discouraged in the 1920s and 30s but once Hitler rose to power he seemed like a breath of fresh air! They trusted Hitler. He symbolized much-needed power and strength, a message communicated through the papers and radio (plus newsreels I suppose). There was a great deal of sadness in the population once Hitler and his atrocities were exposed. It's probably hard for many today in this era of instant-communication to understand how such a snowjob of facts were easily communicated, undisputed and accepted over 70 years ago.

The groups I knew/know personally can't represent Germans as a whole but I found their memories interesting.

Regards,
Brian O.

Eddie Fitzgerald said...

Brian: I didn't mention Hitler because he didn't seem very interested in economics. He believed in a command economy and left the particulars to other more interesting people, which is what a lot of authoritarians do.

About Keynes, I'm not a Keynesian but I respect what he was trying to do. His plan for big government spending combined with low taxes was meant to stimulate an ailing economy and not to be a permanent feature. He was trying to save capitalism, not replace it.

Unfortunately modern Keynesians remember only the part about big government spending and aren't interested in the low tax part, which they regard as unsustainable. But of course it's unsustainable...it was never meant to be more than a temporary adjustment.

It's kind of funny that the ideas of economists are often simplified to the point that the originator doesn't recognize them anymore.

Regarding the generation of Germans who supported Hitler: I'm not surprised that Germans first liked Hitler, then felt used by him. German academics, who had the benefit of the world's best education, should have rang the alarm bell early, but they were as vulnerable to trends as everyone else.

John S. said...

If you're interested in economics, I'm currently reading Economics In One Lesson by Henry Hazlitt. This book is short, sweet, and easy for the layman. Actually, you can read the book online if you google the title; it's one of the first results.

And if you're interested in the ideas that shaped Germany going through the Weimar Republic and on into the Nazi days, I strongly recommend The Ominous Parallels by Leonard Peikoff.

Eddie Fitzgerald said...

Dragon: Thanks for the interesting link about Poland's banks. Boy, the Nazis sure sucked that country dry, as did Stalin.

It's hard to imagine how a civilized Christian country could have produced such cruel leaders. I try not to think about that when talking about economics, but sometimes the issues are inseperable.

John S: I read both of those books! Well, actually I only read half of the Hazlitt book. I'll have to read it all the way through one of these days. I agreed with what Hazlitt was saying, but I think the book would have benefited from an author's revision.

Shawn Luke said...

Fascinating post, Eddie. If you ever feel like writing about the German economic miracle in the 50s, I bet that would be a fascinating post too.

The Aardvark said...

Great post, Unk!

Eddie sez: "It's hard to imagine how a civilized Christian country could have produced such cruel leaders."

Bonhoeffer gives a clue:

“First they came for the Communists, but I was not a Communist so I did not speak out. Then they came for the Socialists and the Trade Unionists, but I was neither, so I did not speak out. Then they came for the Jews, but I was not a Jew so I did not speak out. And when they came for me, there was no one left to speak out for me.”

Gradualism is a key, as well as obfuscation. He Who Must Not Be Named lest Godwin's Law be invoked made Christian-ey, church-ey kinds of noise early on, while personally involved in cultic folk religion. He lulled the Man in the Pew with such talk 'til it was too late. Nationalism, too, covers a multitude of sins, or at least turns them into Civic Virtues.

Eddie Fitzgerald said...

Aardvark: What is Godwin's Law?

Eddie Fitzgerald said...

Shawn: I don't know anything about the German economy in the 50s, and the Overy book doesn't give us details. I'd also like to know more about it.

Lately I've been reading and spotreading current leftwing books about economics. I'm not convinced by the arguments, but some of them are interesting. My favorite so far is one called "Were You Born on the Wrong Continent?"

It was written by an American labor lawyer and had the unusual premise that current German socialist-influenced programs actually make that country more productive and competitive. It would be a great subject for debate.

Shawn Luke said...

Thanks, Eddie, I was always a fan of socialism, but then I read Atlas Shrugged and it was so convincing in it's argument for Capitalism that I would like to read some books on just how socialist influenced programs actually could improve production and competitiveness.

pappy d said...

In China they put their bailout funds into shovel-ready infrastructure projects. It has made for a quicker recovery without short-circuiting Main St. in the process.

But even in the best times they have had 20% unemployment. That's about as many jobless Chinese as there are American workers on the job.

Eddie Fitzgerald said...

Anon: Thanks for the Godwin article! I'm glad that defect has a name!

Shawn, Pappy: I wish the Chinese economy was more studied here. I don't think it's a model we should follow, but I'm curious to know how it works.

I saw an American CEO on TV who's delt with China for years and he says they're successful partly because they're more capitalist than we are...that in spite of the fact that they have a repressive government.

Aardvark: True, so true.

Eddie Fitzgerald said...

For the commenter whose comment was accidentally deleted: My computer filed your comment under spam and I deleted it. I'm sorry.