Schacht, Mefo Bills and the Restoration of the German Economy 1933-39 (2013)

https://fixingtheeconomists.wordpress.com/2013/12/11/hjalmar-schacht-mefo-bills-and-the-restoration-of-the-german-economy-1933-1939/

by deven88 • 7 years ago

38 27 7 years ago

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Svip• 7 years ago

The first figure is a bit obfuscating. It says 1922-1939, but only shows 1926 through 1939. Which is probably a good thing, because then it doesn't include the hyperinflation of the early 1920s, which might undermine the point of 'Nazis stabilising the economy'.

By 1933, most Western economies were moving out of the Great Depression, even if the Netherlands - only economy compared here (wouldn't the UK or France be more interesting comparisons?) - was a bit slow. Further, the economic boom of 1933 is probably due to the government prior to Hitler's enacted several large scale projects, like the Autobahn, to help boost the economy.

I'm not saying Schacht wasn't brilliant at managing German finances under severe limitations for rearmament, but the article seems to hint it was basically Schacht alone that ensured the economic boom of 1933-39 in Germany.

realusername• 7 years ago

(wouldn't the UK or France be more interesting comparisons?)

France wasn't affected much by the Great Depression because it had an economy centralised around the colonies, it affected a lot Germany but in France not that much.

subjectHarold3• 7 years ago

No, the reason why was France pegging to gold at a very favourable rate in the 1920s. The UK, obviously, was not short of colonies but got absolutely rolled in this period because they pegged to gold at their old rate instead of devaluing. This led to huge unemployment issues (even before the GD). Germany suffered because they were heavily reliant on flows of US capital causing bank failures (there was a tremendous boom between 25-29).

subjectHarold3• 7 years ago

The economic effect of the Autobahn is massively overstated (I would actually look to Wages of Destruction by Tooze here). Public works were important but it is as important to look at how this was all facilitated.

The reason it only shows 26-39 is that Nazis came to power in 1932. The worst year in the GD was 1931-32, other countries were not moving out by 1933, most didn't move out decisively until WW2. The UK isn't a good comparison (the UK was still way ahead of most other nations at this point, Germany wasn't particularly similar).

It is definitely possible that without Schacht, the boom wouldn't have occurred. The constraints on resources were massive and required the invention of a range of complex economic devices to manage. Even at the time, there was the same backwards thinking about this: Germany must have managed to do this because they had the resources. No, they had no resources. What they did was very unusual. The only comparison that occurs is the international monetary co-operation in the 1960s to maintain the $ peg to gold...and even then, the level of sophistication required was nowhere near and the results achieved far less significant.

ngcc_hk• 7 years ago

Interesting. China also foreign control currency in one stage and only do armament but go nowhere then. I suppose it is also a wonder how a totalitarian communist country can dominate the world by being a chain in the production then get the money and influence as a large consumer market. All bend their ip to get in. Would be a lesson her for those under re-education.

yorwba• 7 years ago

I wonder whether you read dang's previous warning. https://news.ycombinator.com/item?id=19471290

hutzlibu2• 7 years ago

Schacht might have been a brilliant state accountant, but what he and Nazi germany mostly did was taking a massive but hidden debt ... where the idea was to repay it with war treasure - which failed.

atq21194• 7 years ago

I'm not so sure about the "hidden debt" story. I have a feeling that that's a story popularized by people who want to believe that everything done under the Nazi regime was bad.

The truth is that the rise of authoritarian extremism tends to be facilitated by economic uncertainty (yes, racism and xenophobia tends to play a big role as well, but immigration is always easier to stomach when jobs are plenty etc.). Staving off anti-democratic forces should take precedence over almost everything else, and it certainly should take precedence over economic orthodoxy. If that means learning from a Nazi supporter (who wasn't a Nazi himself), then so be it.

So rather than hand-waving about "hidden debt", it would be important to explain the actual transmission mechanisms through which Schacht's policies would eventually have caused problems if the war hadn't happened.

It's unclear whether you would truly be able to do so. As the article explains, Schacht used some clever techniques both domestically (shifting investment from private to public sectors, basically) and externally (the aski accounts) that would seem to put a limit on the effects that the debt could have.

Those policies are against the tastes of the economic orthodoxy, and a lot of the "wisdom" of economic orthodoxy is stated with the hidden assumption that such policies aren't used. So any blanket statement about the dangers of debt made by this orthodoxy are quite suspect and probably do not apply. At the very least, you need to look at the details to consider whether they apply.

danmaz742• 7 years ago

If you use a lot of borrowed money, you need that money to be invested in a way that will generate wealth that you can use to pay interests on the debt you created.

The nazis used most of that money to build their army. If they hadn't used that army, it would have been wasted money, which in no way could have repaid the debt.

Democratic governments can - and should - borrow to invest if they see an opportunity for future growth. But you can't create those opportunities out of thin air.

hutzlibu2• 7 years ago

"If that means learning from a Nazi supporter (who wasn't a Nazi himself), then so be it."

I certainly do not have a problem with learning from Nazis when they did things right. I just mostly learn from them how not to do it. Regarding this example see the other reply. They invested mainly in military - which only can pay off with a succesful war.

Another important example of "how not to do it, I took from "Mein Kampf" where Hitler states how he became Antisemitic. Basically he says his instinct and feelings were allways disgusted with antisemitism, but his rational thinking convinced him more and more to the point where he made the conscious decision of being a mortal enemy to the jews. (and after that he said his intuition which he could rely on usually ... went away for a few years)

So my takeaway is, to trust more my instincts and feelings which I take for deeper thinking, and not the simple, rational thinking which is too shallow for complex things.

roenxi• 7 years ago

Such articles are fascinating in the way they expose how primitive our conception of the economy is.

"This is an incredible story from an economic point-of-view. After Hitler’s election in 1933 the Nazis were able to sustain between about 8-10% GDP for five years running with an inflation rate that would be the envy of the Bank of England and other inflation-targeters today."

It is so hard to know what to ask for to get standardised but pithy measures of:

* 8-10% against what base? Growth is easy for the small. Was the German economy large or small at the time relative to 'comparable' 'neighbors'?

* Were these policies sustainable? Were they redirecting resources towards competent long-term managers or towards wartime industrialists who aren't really producing anything useful for the times we want to live in?

* Did any of the benefit from those rosy figures help any one in any way, given that the money all ended up funding one of the costliest and most devastating wars in the history of Europe? Can that context be untangled from the 'positives'?

I'm not convinced I see anything written here to suggest the policies used were good or bad ideas - there isn't even a language to discuss what 'good' means in such extreme times. I just see meaningless numbers from a different world. I'm doubtful they even measured things the same way in Germany 100 years ago compared to today.

Possibly Schacht was an economic genius, but I would like to hear why, given what I know of Germany, rearming wasn't simply raw materials + their world class establishment of craftsmen, who have histories that precede and extend beyond Schacht by generations. Give me a capable workforce and a country that has recently been through hyperinflation, and I suspect I could find any number of geniuses to manage it. The countries sending them raw materials might even have been the ones with the economic problem, rather than the Germans. I doubt they got paid back.

atq21194• 7 years ago

Just one point to keep in mind is that Germany hadn't been through hyperinflation recently. The hyperinflation was in 1923, so it had ended almost 10 years before the Nazis came to power. That should be plenty of time to get the economy back on track.

The first years of the Nazi boom can of course be explained as recovery from the recent depression, but it seems that the boom went beyond that. And it's important to keep in mind that other countries didn't recover as quickly.

As for benefits to individuals, at the very least those programs created jobs. That is bound to have helped the living standards of many people.

Indisputably it would have been better to create jobs geared towards peaceful production. The question then is, why were democratically-oriented politicians unwilling or unable to take similar measures?

(And I don't mean that as praise of fascism. I mean it as a challenge to all those who consider themselves lower-case democrats: the job of democracy is to foster the well-being of the people. Stories like this article suggest that a lot more can be done on that front than we tend to see in contemporary democracies.)

pjc50• 7 years ago

the job of democracy is to foster the well-being of the people

The basic "social democrat" mission statement, rarely heard these days even in Europe.

why were democratically-oriented politicians unwilling or unable to take similar measures?

The short answer is that while politicians are dependent on the public for votes, they're dependent on a much smaller group of opinion formers, media organisations, and donors for everything else including winning those votes. And the small group tends to be wealthy, conservative, and not willing to have their economic freedom restricted.

matt4077• 7 years ago

The causality between any one adminstration/regime and economic development is far weaker than than your comment implies, at least in the short and middle term (say, a decade).

Specifically, all industrialised countries saw very similar developments, even though their politics differed vastly: https://en.wikipedia.org/wiki/Great_Depression#/media/File:G...

The US and United Kingdom happen to be rather close analogs to Germany. This isn't too surprising, considering they were already economically coupled, especially the financial sector.

In absolute terms, growth would seem to be roughly in line with making up not just the absolute losses during the Great Depression, but also factors in some modest growth that would have happened during that time. Population growth, for example, continued almost unabated during the 1920s.

paganel• 7 years ago

Did any of the benefit from those rosy figures help any one in any way

I guess we'd need to define what the end-game was for different regimes/governments back then. For the Nazi regime their end-game/target (or one of their main ones, in any way) was to reverse the post-WW1 Versailles humiliation against France and its allies, to gain some extra territorial space further East and to wipe out an entire populace based on its religion alone. I'd say they were quite successful in all of that up to a point, and given the limited economic resources Germany had at its disposal up to the late '20s studying how its leaders in the '30s and early '40s managed to do it can be quite interesting.

We, the people living in liberal/democratic regimes, need to be aware that the endgames/targets of different other regimes around the globe is not always aligned with our way of seeing things, i.e. they don't care all that match about the domestic consumer market the much as we do, for example (and the Nazis were pretty much in favor of physically eliminating a great part of their domestic consumer market).

wuschel• 7 years ago

Your approach to defining an endgame is interesting, but I think more thought has to be put into the deconstruction of the goals, and looking at the cost of policies long term.

IMHO,

A) Too much credit is given to the leadership when it comes to economic decisions. For instance, the plan to build Autobahns comes out of the drawer of the monarchy oriented authorities of Prussia, and was adapted to the economic situation by the NSDAP after they took power.

B) The goals for territorial gains (not "some", but substantial) and extermination and enslavement of Jewish and Slavic populace were rooted in an inhuman ideology. Of course, the restoration of Germany's power was their goal - but the communists, monarchists etc wanted the same, just in another manner.

Looking at the results, the NSDAP leadership, it's party followers, and the majority population that went along took a leading tier-1 state by scientific advances, technologic level and infrastructure, and by industrial potential, with a more or less intact culture from the historic perspective, and transformed it into a pile of rubble, and Europe along it. I think that is not really good long term leadership, but the result of a mass phenomenon that had roots in imperialism, obedience of authority, revanchism of prior wars, racism, change from an agricultural to an industrial society, poverty and misery.

I always wonder how an EU might have looked like at the time, and how much more prosperity it might have brought (partly at the cost of it's exploited colonies) - but then again, this is not a historic question.

subjectHarold3• 7 years ago

I would read the article and the source it links to again. If you do, it answers most of your questions.

Yes, the performance of the German economy was considerable. But the point with Schacht for all economic historians is that the German economy was operating under immense constraints. And what impresses is the way Schacht created endless devices to keep production growing despite these challenges.

And yes, they did measure things the same way. The way of the world today is to look at historical statistics and assume that no-one had a clue about economic policy before the 1980s (Germany was actually one of the most earliest adopters of stats in policymaking). But if you actually look at the primary sources, it is apparent that there was actually a great deal of knowledge. And, in some ways, that understanding was far more deep than today (as it was often based on practice and experience). As the article says, Schacht is an example of this.

More broadly: the job of the economic historian is not to work out whether things were "good or bad ideas". Historians realised many decades ago that the answer to these questions is subjective. You have to look at these decisions within the conditions that existed at the time.

lkrubner• 7 years ago

"a country that has recently been through hyperinflation"

I think you mean deflation. The hyperinflation was in 1923, but the period of 1929 to 1933 was one of shocking deflation, one without precedent in an industrialized country. Germany was left with 60% unemployment, which in a sense made a remarkable bounce back easier -- all of the factories were still there, and all of the workers still existed, they simply needed some money to be pumped through the system so the workers could go back to work at the factories.

lispm2• 7 years ago

The view of Schacht and his relationship to the Nazi movement is way to favorable. That he wasn't a member of the NSDAP was something he claimed, but which wasn't true. Given his prominent role in the early days of the Nazi government, he was quite a strong supporter of the regime. He may have helped some Jews, but he supported the Rassegesetze, and even made personal profit from the fate of the German jews, etc.

Fascinating how leading persons of the Nationalsozialismus were claimed to be only 'functionaries'...

https://www.faz.net/aktuell/feuilleton/politik/rezension-sac...

http://www.spiegel.de/wirtschaft/bankier-hjalmar-schacht-hit...

mariuolo• 7 years ago

He was fired from his ministerial job in 1937 and later sent to a concentration camp.

By that metrics, most German citizens of that generation are guilty.

lispm2• 7 years ago

Lots of Nazis were killed or fell out of favor. From Röhm to Heß.

Schacht wasn't fired in 1937. He quit the job himself - minister for economics. He was removed from the job as central banker in 1939 and remained in a position as a minister until 1943.

By that metrics, most German citizens of that generation are guilty.

Most Germans weren't Reichswirtschaftsminister (1934-1937) AND Reichsbankpräsident (1933-1939). Schacht was one of the most prominent members of the Nazi regime at that time and he was instrumental in directing the financing of the build-up for the war machine. Schacht was a core member of the Nazi regime from 1931 on.

sprash• 7 years ago

Interesting tidbit: Schacht was also one of the founding members of the BIS (Bank for International Settlement) in Switzerland along with Warburg, J.P. Morgan and Rockefeller representatives which are coordinating the monetary policies of all major central banks to this day since 1930.

Some people say the restoration of the German economy 1933-39 was only possible because it was arranged by those major central banks. The actual economic policies are rather secondary to that.

dvfjsdhgfv• 7 years ago

The chart presented in the article [0] should be put in context of the previous years. The inflation values look very nice when you compare them to what was going on before 1923 [1].

[0] https://fixingtheeconomists.files.wordpress.com/2013/12/nazi...

[1] http://web.nli.org.il/sites/NLI/English/collections/personal...

Schacht, Mefo Bills and the Restoration of the German Economy 1933-39 (2013)

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