by Bill Bonner: How
the Feds Feed the Rich
a British historian, has written a marvelous book on the Nazi economy,
Wages of Destruction. He shows that, far from illustrating
the success of intelligent central planning, the German economy
of the Third Reich was a disaster. The National Socialists
or Nazis had their plans for Germany. They were
determined to put them into practice, regardless of what the Germans
may have wanted for themselves. They fiddled with one sector after
another. When one fix failed to produce the desired results, actually
bringing unintended and undesired consequences, they tried to fix
the fix with a new fix. Most of these fixes involved spending money
if not on actual output, then on bureaucracies that regulated
output. And most of them were directed towards a goal that only
a demagogue politician or a lame economist would find attractive
making Germany self-sufficient. Imports cost money, they
reasoned. Besides, trade forced a nation to behave. Neither was
attractive to the Nazis.
in the 2000s, by the mid-1930s Germany had already spent too much
money with the military as its biggest single expense. It
faced enemies much more real and dangerous than Americas terrorist
adversaries. And under Adolph Hitlers leadership it had decided
to invest heavily in armaments. This created a sense of purpose
for many people and a source of demand that got people
working again. Germany was still a relatively poor country, with
a standard of living only about half the US equivalent. An autoworker
in Munich, for example, could not expect anywhere near the same
lifestyle as one in Detroit. Henry Ford paid his workers so well
they were able to afford large houses with hot and cold running
water and electricity. They could buy automobiles too
gave a huge boost to Americas heavy industry. When war began,
the US could fairly quickly convert its auto factories to production
of jeeps, tanks and trucks. Germany could not.
automobiles were still a luxury item. Few people owned them; certainly
not the people who made them. Military orders made up for the lack
of demand from the civilian population.
In this regard,
many economists looked at Germany and labeled the rearmament program
from an economic standpoint as a central planning
success story. It put people back to work. It got
the economy moving again. More stuff was being produced. More
worked! From all over Europe, people came to admire the revival
in Germany. American Congressmen praised Hitler. So did many magazine
editors and other leaders in France and Britain too.
to what was going on in Russia, Japan and Italy
positively benign, if not a perfect role model. Stalin was purging
or starving his enemies millions of them. Benito Mussolini
had invaded Abyssinia and was busily massacring the locals. The
Japanese were beginning their bloody war against the Chinese. Hitler
may have sounded mad from time to time, and he may have murdered
many of his rivals on the night of the long knives,
but now by 1935 he was beginning to sound reasonable,
at least in comparison.
But vast spending
on the military brought problems for the Nazi leadership. The German
economy was still recovering from the destruction of WWI, the loss
of the Ruhr heavy industrial area, the Great Depression and the
reparations payments. Germany. While other economies had been forced
off the gold standard, Germany held to its strong mark policies.
It lacked the raw materials needed to build heavy military equipment
and the fuel needed to power a modern economy and modern war machine.
Those could only be bought with foreign currencies, which it could
earn by trade, or by drawing down its own hard currency reserves
By 1936, it
was clear that the government would run out of money in just a few
months. The Nazi leadership had already fixed the farm
sector with various jury rigs and many unintended consequences.
The market system had largely been replaced by a system of bureaucratic
meddles and price controls which, naturally and predictably, led
to shortages that had to be reconciled by rationing.
Now, this same
sort of meddling was causing shortages in the manufacturing sector
too. If something were not done, the whole rearmament effort could
come to a halt. Germany was not rich enough to be able to afford
guns and butter at least not on the scale promised by the
Nazi Party. And with their spreading system of bureaucratic management,
neither the guns nor butter were likely to last long.
At the time,
Mr. Hitler was lucky to have at least one economist with a clearer
head than most of his other advisors and henchmen. Carl Friedrich
Goerdeler came from a tough, conservative Prussian family. He was
smart. He was a good organizer. He was persuasive. Goerdeler seemed
like a decent sort, too. After all, in 1933, as mayor of Leipzig,
he refused to enforce the national boycott against Jewish businesses
and ordered the police to release several Jews who had been taken
hostage by the S.A.
not have been impressed with Adolf Hitler in every respect. Still,
as late as 1936 he believed the Fuhrer was an enlightened
dictator and that if he could only explain to him what was
going on, he might be led to make the right choice. He saw readily
that you cant continue to spend more than you earn; Germany
would have to adjust its priorities. More would no longer
While he knew
Hitler was dead-set on military expansion, Goerdeler urged the Fuhrer
to forget the whole thing. Germany could not afford both guns and
butter, he argued, and the German people would be better off with
butter. Devalue the mark, he urged. Abandon the program of breakneck
re-militarization. Come to terms with England, France and America.
Drop the hard-line anti-Jewish claptrap. In short, become a civilized
nation with a market economy, rather than a centrally-planned war
He wanted to
take this message to Hitler personally, to talk to him, to try to
persuade him. But his friends talked him out of it. Hitler had put
Hermann Goring into a position as his chief economic advisor. But
Goring was very unlike Helmut Schacht at the central bank, who was
also calling for a more normal free market economy.
Goring was a central planner
and a Nazi
through and through.
So, Goerdeler prepared a memo for Hitler and passed it to Goring.
The latter annotated it before passing it to the Fuhrer, marking
critical passages nonsense!
embracing Goerdelers plan, Hitler came up with his own 4-Year
Plan, released in 1936. It rejected a free-market economy altogether.
Instead, Germany would have a war economy, in which all economic
and financial decisions were subordinate to the interests of the
neo-cons, Hitler told his followers that Germany was in a fight
for its very survival. Therefore, the laws that applied to normal
societies including the laws of economics no longer
applied to Germany:
nation does not live for the economy, for economic leaders, or
for economic or financial theories; on the contrary, it is finance
and the economy, economic leaders and theories, which all owe
unqualified service in this struggle for the self-assertion of
In the age-old
battle between force and persuasion
civilization and barbarianism
market and politics
central planning and individual planning
winner was clear. Germany had gone over to the dark side. Hitler
had chosen more military spending
more central planning
triumphant. War was inevitable. And Carl Goedeler was soon history.
He began to conspire against Adolph Hitler
including the attempt
to kill him in 1944. For his trouble, Goedeler was hung in 1945.
Bonner is the author, with Addison Wiggin, of Financial
Reckoning Day: Surviving the Soft Depression of The 21st
The New Empire of Debt: The Rise Of An Epic Financial Crisis
and the co-author with Lila Rajiva of Mobs,
Messiahs and Markets (Wiley, 2007). His
latest book is Dice
Have No Memory.
Since 1999, Bill has been a daily contributor and the driving force
behind The Daily Reckoning.
© 2012 Daily Reckoning
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