Economic Situation of Germany between the Wars - Split

[MigL]

I said nothing about how Hitler or Stalin were deposed or not.

And I certainly wouldn't encourage thinking that what they did was anything but criminal.

 

However the Weimar republic in Germany in the 20s had runaway inflation. I'm sure you've seen the pictures of the weelbarrows full of Marks needed to buy a loaf of bread.

In ten years Hitler had rebuilt the economy ( through military spending among other things ) such that Germany could challenge the major powers of the world militarily again.

 

Stalin had his 5 yr plans in the late 20s with the express purpose of modernizing the Russian economy. And they succeded. The fact that 8 million Ukranians died of starvation because their wheat was sold to finance the plans, is not part of the argument , and I certainly don't approve of it.

 

The fact is that a despot, like all the ones you mentioned, can get things done because they don't give a damn who suffers, or about public opinion, or about being voted out of office.

[CharonY]

 

In ten years Hitler had rebuilt the economy ( through military spending among other things ) such that Germany could challenge the major powers of the world militarily again.

 

.

 

Make that deficit spending. Without a war he would have bankrupted Germany (See e.g. dam Tooze's Wages of Destruction: The Making and Breaking of the Nazi Economy.).

 

Sorry for getting off-topic but it is a common misconception that somehow magically under Hitler the economy was rebuilt or even vaguely stable.

 

On-topic it could also be argued that the installation of Shah junior has helped galvanizing the disenfranchised (secular) opposition (which included demands to a return to the Iranian constitution) and the religious elements, which were in the end better organized and claimed power.

Edited April 17, 2015 by CharonY

[Hans de Vries]

PS: Hitler actually came to power at the time when world economy was already recovering and a part of his apparent success can be attributed to that.

[MigL]

Not in Germany, it wasn't.

Do you know how much they owed France In reparations ( in today's dollars ) ?

[CharonY]

Can we split this into a new topic? I would like to discuss it further without derailing the thread (the impact of reparations were overplayed by the Germans to quite an extent, for obvious reasons, for example).

[overtone]

 

 

The fact is that a despot, like all the ones you mentioned, can get things done because they don't give a damn who suffers, or about public opinion, or about being voted out of office.

Not really. Stalin crippled the Russian agricultural economy so badly that not even Ukraine's mollosoils could feed it's relatively sparse population - compare Iowa. He created an economy that created so much misery the whole country eventually fell apart because - as PJ O'Rourke summarized things - no one wanted to buy or wear Bulgarian shoes.

 

At the end of the 1980s the sole water supply for many of the people living in the most prosperous areas of rural Russia was a well dug with shovels, surrounded by a curb wall and topped with a little roof, into which a bucket was lowered on a rope using a hand cranked windlass. The democratically elected Franklin Roosevelt got most of the poorer rural regions of the US reliable electiricity in a span of about ten years - they already had routinely drilled and piped wells, with windmills and/or the hand levers we now associate with rural poverty long ago.

 

And Stalin was a leftwing despot - the rightwing despots are even lower performing, on average.

 

Hitler turned the German economy around by refusing to pay the reparations, deficit spending, and robbing the Jews or the neighbors. Deficit spending does work - it's the standard remedy for economic depression. But the robbery demanded war, the war demanded deficit spending, and there was a finite supply of Jews - this was a pyramid scheme.

 

It's odd to call pyramid schemes, war, and ruin, "getting things done". None of those guys - Franco, Mussolini, or Hitler - improved the reliability of their train systems, for example - a common myth.

[Delta1212]

It's easy to get a reputation for making the trains run on time when anyone who complains about their train being late disappears.

[CharonY]

I intended to dig out some books prior to writing a response, but since it does not seem that I will find the time for a more detailed response, I will post in bits from what I remember.
The claim of reparations and Hitler implies that a) the economy of Germany was in shambles, specfically prior to Hitler's rise to power b) that reparations were a major influence and that c) dictatorial measures under Hitler finally fixed the issue.
To discuss this, we have to take a look at the German economy in the interwar period. First, hyperinflation. In order for it to be a major factor in this discussion, it has to be assumed that it happened just until Hitler "fixed" the economy.

However, the major part of hyperinflation occurred between 1921-24, way before Hitler was considered a major player. Subsequently German economy was stabilized, widely contributed to competent policies by Hjalmar Schacht (under Stresemann). Subsequently, the Germany economy saw significant rise in economic power, decrease in unemployment, which were partially co-financed with the Dawes plan. While reparations were a major factor, in the overall economic situation, it did not hinder economic growth. It should also be noted that Germany as a whole was in a pretty strong position in terms of production as WWI hardly touched its infrastructure.

Now the actually financial crisis started with the crash of Wall street and the onset of the Great Depression. In a nutshell, a bad situation was made worse by Bruening, who was appointed chancellor. His policy was severe austerity which has been recognized to lead to a severe deflation (not inflation) of German economy, leading to an increase in unemployment. The reparations here were to some extent a psychological factor. Based on letters and other documents from Bruening and his cabinet it became clear that they wanted fight depression by curbing expenditure and thereby also demonstrate their inability to pay reparations, as a basis for further negotiations. Funds that were already allocated to e.g. infrastructure, which, ironically, would have had a chance to improve Germany’s economic situation, were scrapped under these policies.

Now we have two situations of post-war Germany. One of relative growth, which was under a somewhat functional parliamentary system (the constitution had some built-in instabilities which were not recognized at that time). Then, we have one of bad fiscal policy. Interestingly Bruening was governing under a dictatorial rule using emergency powers, the same that Hitler was going to invoke after his grab to power. So in this case, the ability of dictatorial powers to “get things done” plunged Germany into a deep economic crisis.

Now for the last part, did Hitler “fix” the economy? There have been long text books describing why it was not the case as a whole. But in the short term he appointed Hjalmar Schacht as Minister of Economics and he started programmes that were stopped under Bruening to address the immediate issue of unemployment. However, he also heavily lobbied against military spending. That, arguably resulted in the eventual loss of his portfolio. Had Hitler decided to go with Schacht’s vision, potentially a sustainable economy could have emerged. Instead he went with Goering and resulting unsustainable war economy. The only way out once they walked that path was to force the expenditures to conquered areas and such can hardly be considered a fix at all. The instability once Hitler started these war-oriented policies was well-recognized even during that time.

 

To summarize, there was significant economic growth (the golden 20s) that overcame hyperinflation before the Wall street crash using parliamentary powers. Crash was initiator of economic issue (rather than reparations) and was exarcebated by emergency rulings under Bruening (i.e. non-parliamentary powers made things worse). Immediate fix after Hitler got power were plans from the same guy who managed the growth in the 20s but then converted it into unsustainable war economy.

[MigL]

Ahh, but the resentment of the German people, to the reparations imposed on them, was what Hitler exploited to advance his agenda which was, if not initially war, the retaking of all German speaking lands, and punishing the French and Russians ( not necessarily the English, whom Hitler may have actually favoured, as indicated by the Dunkirk pause or hesitation ).

The war machine then fueled the economy in the 30s.

 

Similarily with Stalin, his 5 yr plans were paid for with the lives of Ukranians, from which he took grain so that they starved to death by the millions, and used it to pay for modernization, bringing a largely agricultural nation at the beginning of his 'rule', to one that could challenge any western power in terms of technology by the end.

 

Don't get me wrong, I'm not saying I approve of the methods, or that the end justifies the means. I abhor what these people ( and Mao ) did. But the fact remains that its easier to get things done ( whether good or bad ), if you don't give a damn about people and you can't be voted out of office.

That was the only point I was trying to make.

[CharonY]

The reparation had a strong psychological role. But Hitler was certainly not the only one, pretty every German leader during Weimar had blamed or lamented the Versaille treaty as par of the course.

 

 

 

Don't get me wrong, I'm not saying I approve of the methods, or that the end justifies the means. I abhor what these people ( and Mao ) did. But the fact remains that its easier to get things done ( whether good or bad ), if you don't give a damn about people and you can't be voted out of office.
That was the only point I was trying to make.

 

But here is the thing, as I mentioned, during parliamentary process, things got done well (under Schacht) by introducing the Rentenmark and stopping hyperinflation. Use of emergency powers things got worse before Hitler appointed Schacht again.

Note that the necessary economic changes to counterbalance the deflation was done using the usual routes and would have worked the same during parliamentary process, at least as far as I know.The initial "fixing" of the economy was by appointing Schacht rather than using emergency decrees.

In other words there is little evidence that it has done the German economy any good (but certainly has made things worse, first under Bruening, then, again later under Hitler's tenure when he essentially marginalized Schacht in favor of war economy.

 

So while your general point may be true, the German economy is a very bad example.

[MigL]

I concede that Germany wasn't the best example; maybe Russia under Stalin would have been better.

Germany was originally used for familiarity reasons.

Most people know of Germany's rebuilding in a 20 year span to again threaten the major powers of the world.

Not too many are familiar with Stalin's 5yr modernization plans and their effects on the Ukraine.

[CharonY]

Well, it is a simple narrative, but unfortunately usually wrong (that is why I wanted to discuss it in the first place). Germany was economically not in a hugely bad place industrially speaking. I.e. it did not had to rebuild much physically, compared to quite a few other participants of WWI (and very unlike WWII). And the most crucial part of stabilizing the economy was done before Hitler was relevant. He is just such a dominant figure of that era that it is easy to attribute everything to him, which in this case is inaccurate.

 

Edit: one should also add that even in a dictatorship, especially for larger countries there are constraints, e.g. in the form of the administrative apparatus. Just because you do not care it does not mean that you can get things done fast. You could have everyone shot and replace it with different people but then the system may actually become even less efficient and you get less done.

 

So, depending on system, it could be faster, but it does not mean that it is necessary more efficient overall (at least not under all conditions).

Edited May 21, 2015 by CharonY

[overtone]

 

 

Don't get me wrong, I'm not saying I approve of the methods, or that the end justifies the means. I abhor what these people ( and Mao ) did. But the fact remains that its easier to get things done ( whether good or bad ), if you don't give a damn about people and you can't be voted out of office.

That was the only point I was trying to make.

Franklin Roosevelt got more done in his 10 years than Stalin, Hitler, Franco, or Mussolini, did in any comparable length of time, was my point. Mao I'm not sure about - depends on how one evaluates his handling of the Great Drought and Famine that hit China under his rule.

This conception of the effective tyrant who is effective because of his tyranny doesn't match what we find in history. The less tyranny, the more gets done, as a rule.

It seems reasonable at a quick glance to think tyrants would be efficient, but look at the details: for starters, large countries are simply too complex for one person, or even a small group, to manage well. There's an issue of competence - distant and poorly informed people are unlikely to make good decisions on the ground. Ruthlessness does not make up for error and ignorance. And second, the ability to get things done rest s largely on the ability to motivate people into acting on behalf of your desired tasks - and coercion by fear is not efficient motivation. It may work, in places, but its damn expensive.

[MigL]

Two examples...

 

Iraq under Saddam Hussein was way more stable than in today's 'democracy'.

Yugoslavia under Tito, lasted 50 yrs, and then broke up within two yrs when he died.

[overtone]

 

 

Iraq under Saddam Hussein was way more stable than in today's 'democracy'.

If by "stable" you are referring to invading Iran and nearly losing a full scale multiyear war, invading Kuwait and getting his butt kicked by the UN, years of civil war with the Kurds including multiple massacres, and a decade or more of sanctions with foreign weapons inspectors tromping all over the place and everything falling apart;

 

And if by "democracy" you mean virtual secession by the Kurds, massive unrest and taxation without representation of the former Baathists, Sharia Law and foreign military occupation, massive financial corruption and foreign power manipulations and religious conflict, and all the rest of the aftermath of W's Folly,

 

maybe you have an argument for stability. I think both Israel and Turkey got more done in that time, though, and with much less in the way of resources. So the democracy/dictator comparison still seems to favor the nearest comparable democracies.

 

Yugoslavia under Tito, lasted 50 yrs, and then broke up within two yrs when he died.

That was a leftwing dictatorship, and you have moved some goalposts - you were talking about "getting things done", not "stability". The democracies bordering Yugoslavia all got a lot more done in those 50 years than Tito managed.

[MigL]

By stability I mean lack of internal pressures that tend to tear the country apart.

But you're right, I'm confusing stability with 'getting things done'.

 

And by 'getting things done', I don't necessarily mean favorable results, just unopposed decisions.

Another example, North Korea.

A country which can't feed itself. Yet can develop nuclear weapons and long range missiles, have a disproportionately large standing army, and terrify all her neighbours.

All at the whim of its dictatorial dynasty.

[CharonY]

Actually one of the few examples where a dictatorship is faster is in military actions. But beyond that there are a lot of constraints which would limit the efficiency. The example with Germany is telling, the two financial crises (inflation, then deflation) was dealt with efficiently by having the right person for the job. In this case the same person, appointed by a parliamentary, and then an autocratic regime.

 

Things like economics take quite a bit of an infrastructure and knowledge to implement, so even a dictator would have to have a support bureaucracy to actually translate edicts into actions. So in that case I would say that in isolation it does not necessarily matter that much who is on top, but how they actually try get things done and whether they put the right people to the task. For these purposes dictatorships are not inherently more efficient.

[overtone]

The example with Germany is telling, the two financial crises (inflation, then deflation) was dealt with efficiently by having the right person for the job.

Dealt with? Hardly.

 

What the "right guy" did was remove Germany from the realm of governance and trade economics altogether, and set it to war. By analogy, one could "deal with" a family economic crisis - job loss, eviction from apartment - by stealing the work van, shooting the landlord, burning down the apartment building, and packing the family into the work van to go rob banks.

 

As for the efficiency of dictators, we have the immortal words of Czar Nicholas of Russia: "I never ruled Russia. Ten thousand clerks ruled Russia".

Edited June 10, 2015 by overtone

[CharonY]

It does

 

Dealt with? Hardly.

 

What the "right guy" did was remove Germany from the realm of governance and trade economics altogether, and set it to war. By analogy, one could "deal with" a family economic crisis - job loss, eviction from apartment - by stealing the work van, shooting the landlord, burning down the apartment building, and packing the family into the work van to go rob banks.

 

As for the efficiency of dictators, we have the immortal words of Czar Nicholas of Russia: "I never ruled Russia. Ten thousand clerks ruled Russia".

 

That is equally incorrect to the statement that Hitler fixed the financial situation. He was involved in rearmament and It eventually led to a full war economy. The latter, however, was heavily pushed by Goering and eventually led to the isolation of Schacht. The steps that were initiated included mostly infrastructure and public-works programs. You could argue that the Autobahn had also military use, though I would argue that it is a bit of a stretch. Furthermore he realized numerous trade agreements. While his policies as a whole strengthened the potential of Germany of rearmament, your analogy does not hold during the initial phases.

By 35 Schacht (and Goerdeler) actually proposed a reduction in military spending and a more free-market oriented system with reduced state control, for example.

In short, the fixes for the economy (which was deflation) were essentially Keynesian policies, and trade agreements that would limit deficits. I am pretty sure what you had in mind was something else entirely.

[overtone]

 

 

By 35 Schacht (and Goerdeler) actually proposed a reduction in military spending and a more free-market oriented system with reduced state control, for example.

Hitler did not do that, however.

 

In short, the fixes for the economy (which was deflation) were essentially Keynesian policies, and trade agreements that would limit deficits.

Preparation for war is often Keynesian stimulus.

Just extend the analogy a bit - the guy fixing his family's economic crisis has to buy the gun and the gasoline, put a lot of food and supplies on the credit card, "borrow" the work van, in general improve his family's standard of living in the process. That all this stuff is in the service of a disastrous overall agenda is typical of dictatorships, and largely unavoidable.

[CharonY]

As I said before, Hitler did not fix anything, he put people in place. And as I said, the immediate policy was not an immediate preparation of war as you assume, although aspects helped creating a war industry (and as a side note, some of the plans were already proposed under the former chancellor, but were shelved in order to reduce spending, which further contributed to the deflation crisis).

 

Schacht, however was pretty quickly opposed to a mobilization industry as he found it unsustainable. One of the reason why he eventually got marginalized. What I am trying to point out is the difference between enacting policies under a dictatorial regime and the actions of a dictator himself.

In this case it is interesting as the same guy was in charge under both, a parliamentary system as well as under an eventually dictatorial one.

 

The assertion that only the war industry was able to turn the German post-war economy around is similarly wrong as to ascertain that a dictatorship was able to do it (or at least too simplified a narrative that only has a cursory connection to actual historic events).

.

And in case it was missed, the evidence is that two major crises were met and stabilized by fiscal policies put in place by an economist (incidentally the same, put in place under different circumstances). I would be remiss not to mention that Schacht also somewhat contributed to the second crisis (post Wall Street crash) by fiercely adhering to the gold standard.

 

What is correct however that post-crisis Schacht's action helped to consolidate Hitler's rule, but again, the economic fixes that stabilized the economy were not part of the larger re-armament plan that he actually opposed (and was basically sidelined by 1937). The further economic push afterward was the unsustainable part.

 

He did stared more actively enacting war-related policies 35-37, but again, the most immediated stabilization was during his role as President of the Reichsbank starting 1933. To be fair, the MEFO bills used 1934 were part of the funding for an eventual re-armament, so he does had an eventual role (up to the point where he apparently not saw it to be sustainable anymore). But again, it was not part of stabilization per se, but rather a way to fund military in an underhanded way. As such I would separate it from the "fixing economy" part.

 

While economist will argue over it, Keynesian (some would say socialist) policies enacted as first step such as building roads and hospitals and other stimulus packages are expected to reduce the immediate effects of severe deflation by pumping money into the market. And I think it is important that while Schacht did laid a foundation that enabled a war economy, he strongly opposed the eventual expansion.

 

The main objection I have is to see history in simplified narratives that are used to support ones assertion without looking at relevant intricacies that may or may not oppose ones view.

Edited June 10, 2015 by CharonY