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Historical Error #27: Hitler's National Socialist Economic Policies Ended the Great Depression in Germany.

Gary North
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Ellen Brown believes that Adolf Hitler's economic theories and policies pulled Germany out of the Great Depression after 1935.

The German people were in such desperate straits that they relinquished control of the country to a dictator, and in this they obviously deviated from the "American system," which presupposed a democratically-governed Commonwealth. But autocratic authority did give Adolf Hitler something the American Greenbackers could only dream about--total control of the economy. He was able to test their theories, and he proved that they worked.

At this point, anyone with an IQ above 90 should begin to smell a rat.

The Greenbackers are big advocates of Abraham Lincoln. Why? Because he allowed the banks to suspend payments in gold in 1861. Then in 1862 and 1863, he signed into law a system of unbacked fiat money called Greenbacks. They see him as the creator -- a would-be national savior who was thwarted by the bankers, who had him assassinated.

They never discuss the fact that Lincoln was an advocate of fractional reserve banking. They never mention that in January of 1863, he signed the bill authorizing a second issue of Greenbacks, but sent Congress a letter deploring the law. He called for a national bank act. Congress gave it to him a month later.

With this as background, I return to Brown's discussion of National Socialism.

Like for Lincoln, Hitler's choices were to either submit to total debt slavery or create his own fiat money; and like Lincoln, he chose the fiat solution. He implemented a plan of public works along the lines proposed by Jacob Coxey and the Greenbackers in the 1890s. Projects earmarked for funding included flood control, repair of public buildings and private residences, and construction of new buildings, roads, bridges, canals, and port facilities. The projected cost of the various programs was fixed at 1 billion units of the national currency. One billion non-inflationary bills of exchange, called Labor Treasury Certificates, were then issued against this cost. Millions of people were put to work on these projects, and the workers were paid with the Treasury Certificates. The workers then spent the certificates on goods and services, creating more jobs for more people. . . .

Within two years, the unemployment problem had been solved and the country was back on its feet. It had a solid, stable currency and no inflation, at a time when millions of people in the United States and other Western countries were still out of work and living on welfare. [Web of Debt, p. 234.]

The German economic system was run by the central government. It preserved the illusion of private property, but it was a socialist system. The government controlled the means of production. The government issued fiat money, and it established price and wage controls. It set up a system of 1,600 cartels in 1933-36. Beginning in 1934, government officials set the prices of commodities, and this resulted in shortages of most domestic commodities. The government also expanded the power of the government over the affairs of everybody in the society.

There have been only two major studies in English of the German economy since 1939. One was called The Vampire Economy, and it described the details of this centralized economic system. It was published in 1939. You can download a copy of it free of charge here. The other is Adam Tooze's massive study, The Wages of Destruction (2006). They both tell the same story. (Oddly enough, both were published by Viking.)

Dr. David Gordon reviewed Tooze's book. Here are selections from his review.

As Adam Tooze has noted, Hitler in 1932 indicated his interest in job-creation programs, and this of course required government spending. But once in power, his interest shifted from job creation to rearmament. This required even more government spending; and armaments rapidly increased.

The Nazi party did not adopt work creation as a key part of its programme until the late spring of 1932, and it retained that status for only eighteen months, until December 1933, when civilian work creation spending was formally removed from the priority list of Hitler's government … [Work creation] was in sharp contrast to the three issues that truly united the nationalist right . . . the triple priority of rearmament, repudiating Germany's foreign debts and saving German agriculture … It was Hitler's action on these three issues not work creation that truly marked the dividing line between the Weimar Republic and the Third Reich. (Adam Tooze, The Wages of Destruction, Viking, 2006, pp. 24-5). . . .

In effect, Germany had embarked on a Keynesian policy: government spending became increasingly important in guiding the economy into the military channels that Hitler wanted. . . .

Keynes himself viewed the Nazi efforts with favor. In his preface to the German edition of The General Theory, dated September 7, 1936, Keynes indicated that the ideas of his book could more readily be carried out under an authoritarian regime:

Nevertheless the theory of output as a whole, which is what the following book purports to provide, is more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output under conditions of free competition and a large measure of laissez-faire.

Hitler was the head of a political party. In English, it was called the National Socialist German Workers Party, or "Nazi Party" for short. It was not called socialist for nothing. To imagine that this system was anything other than socialism is to parrot the Party Line of the Left ever since 1923. "No, no, no: the Nazis were not really socialists." Well, if they weren't, their policies surely resembled socialism. They believed in centralized control over the economy, and when they got into power in 1933, they established that control. This control grew even tighter after 1939, because of World War II.

GUNS, NOT BUTTER

The secret of the Nazi economy was spending on war. In a study of Nazi fiscal and monetary policy, economist Albrecht Ritschl concluded in 2000,

A critical reassessment of deficit spending during the Nazi recovery reveals a surprisingly small role for macroeconomic policy. Both the descriptive evidence and the results from multivariate time series forecasts suggest that recovery from the Great Depression was mainly driven by a rebound effect that was visible in the data already by late 1932. Up to around 1936, the German recovery was no more advanced than that of Britain or the United States, where far less expansionary fiscal policies were followed. However, even in Germany the fiscal impulse generated by the budget deficit was too small to be consistent with Keynesian demand stimulation under an income/expenditure mechanism. In order to explain the very high, at times two-digit growth rates of GNP during the recovery, deficits would have had to be two to five times higher than they actually were. Apparently, recovery was due to forces other than fiscal and monetary policy, just as in the cases of Britain and the United States. . . .

Nazi recovery appears less spectacular than was hitherto believed. Our results also indicate that government spending was dominated by war preparation already in a very early phase of the Nazi recovery. I find little justification for the popular interpretation that recovery was sparked off by non-military work-creation and the construction of the autobahn network. Investment in the autobahn reached sizable magnitudes only in 1936. All these projects pale in comparison with the rapid build-up of military expenditure, except for the year of 1933 when rearmament had not yet really begun. To secure the desired high speed of war preparation, the Nazi administration took early, often draconian steps to crowd out private demand. The growth in consumer spending fell short of the increase in national product, and the contribution of private investment to the recovery remained unimpressive.

Strict control of private expenditure was partly achieved by maintaining taxation at the high levels reached during the depression years. [Deficit Spending in the Nazi Recovery, 1933-1938: A Critical Reassessment, Institute for Empirical Research in Economics, University of Zurich, pp. 16-17.

In short, the government created jobs in factories preparing for war. Then it taxed workers so that they could not spend their income on consumer goods.

Hitler was no advocate of economic growth. He was an advocate of military expansion. Professor Tooze summarizes.

This backdrop is essential if we are to understand Hitler's refusal to accept the liberal gospel of economic progress. Economic growth could not be taken for granted and Hitler was by no means the only person to say so. As we have seen, the doctrine of economic life as a field of struggle was already fully formed in Mein Kampf and Hitler's 'Second book'. And this Darwinian outlook was only encouraged by the subsequent Depression. Given the density of Germany's population and Hitler's insistence on the inevitability of conflict arising for export-led growth, the conquest of new Lebensraum was certainly one means of raising Germany's per capita income level. Hitler could hardly have been more emphatic or consistent in his advocacy of this position. As we have seen, he made a point of reiterating this belief in the very first days of his new government in 1933. An aggressive foreign policy based on military strength was the only real foundation of economic prosperity (Wages of Destruction, pp. 145-46).

Hitler was a mercantilist who believed in expansion by military conquest.

A PACKAGE DEAL

Ellen Brown adds this:

While Hitler clearly deserved the opprobrium heaped on him for his later military and racial aggressions, he was enormously popular with the German people, at least for a time. [Web of Debt, p. 235.]

Her message: Hitler was a man of the people! She wants the United States to follow his lead . . . but only in economic policy, of course. Not the concentration camps. Not the war.

She does not draw the obvious conclusion, namely, that the centralized power of the government over money, business, and labor was basic to the power which that government imposed over the Jews and other minorities. It is almost as if his racial tyranny and military aggression were completely divorced from his economic views and the government's economic policies. It should be obvious that these policies were a package deal. Without the centralization of power over the economy, the German government could not have exercised the tyranny that it did exercise in all other areas of life. This was the argument of F. A. Hayek in The Road to Serfdom (1944). It is unfortunate that Ellen Brown does not believe in the arguments presented in that book. She dismisses all such free market arguments as "the British System" of Adam Smith.

Her happy-face and utterly mythical welfare economy of Nazi Germany, with its high employment, is the economy that Ellen Brown wants to see established in the United States. She is very clear about her intentions. Anyone who thinks that she is anything but a National Socialist in her economic outlook does not take her words seriously.

Her ignorance of National Socialist economic practice and its results -- war and concentration camps -- is monumental. It matches her ignorance of monetary theory. Her ignorance is a package deal.

For my reply to her response, click here:

http://www.garynorth.com/public/7248.cfm

For a detailed critique of Ellen Brown's economics, go here:

http://www.garynorth.com/public/department141.cfm


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