I’m going through Richard Evans’s book, The Third Reich In Power. Turns out that the Nazis had a very centralized economy, with basically one man running the show, Adolf Hitler. Austrian Economics predicts that such a scheme is going to fail. Since all Hitler’s economic ideas that AE considers bad are still alive and well in every major country, including the USA, it is of interest to see how successful Hitler was implementing them.
So here are my notes on Chapter 4, Prosperity and Plunder.
Section 1, The Battle For Work.
1. Hitler personally decided the country needs an ultra modern highway system, beautifully designed. And what he wants gets done. Result, “one of the Third Reich’s most striking creations.” There is just a bit of a fly in the ointment though. Nobody actually had a car to drive on those highways. “Germany was one of the least motorized societies in Europe.” This might just explain why the free market didn’t want to build those awesome highways.
2. But hey, no cars? That’s an easy problem for a centralized economy to solve. Six years after you start your highway building, make cheap cars that everyone can afford. Where will the money come from to produce those cars, you ask? Simple, have every worker kick in part of every paycheck to the manufacture of the Strength Through Joy car. It’s all so easy when you don’t have the chaos of a free market. And indeed, Hitler’s girlfriend actually got one of those cars as a gift. But for some reason, no one else ever did. “No production models came off the assembly-line during the Third Reich.”
3. Hitler saw the main problem with the German economy as being unemployment. And indeed, it was a serious issue, with about a 50% drop in employment from 1929 to 1933. In his first radio speech Hitler said he would end unemployment in four years.
An Austrian hearing a politician, any politician, making such a promise, instantly recognizes a disaster waiting to happen. Because unemployment cannot be tackled directly. The thing is, jobs are a tricky thing. When someone gets a job, you have to constantly find money to pay him his salary. Multiply that by half the work force getting your paychecks, and you have a serious problem on your hands. Where will the money come from to pay all these people?
Now, in a free market, a worker who has a job literally pays for himself. He gets hired for one reason only, that his employer expects the worker’s work will make the employer some big bucks, more than enough to pay the worker his salary. But Hitler, and all the politicians following in his footsteps, don’t hire workers based on their productivity. Most workers employed by govt jobs programs are not productive enough to pay their own way. That’s why nobody hired them in the first place to do those jobs, until the govt stepped in.
Did Hitler run into this problem? Actually, he had a “solution” ready made by the previous regime. Where will the money come from? Simple. Use paper money, and print as much as you need. What about the fact that this paper is redeemable for gold, and you don’t have the gold? No problem, just go off the gold standard. And that’s what Hitler’s predecessor did. He took the money off the gold standard, started printing tons of paper money, and used it to “create jobs”. Hitler upped the ante, printing even more money.
Evans seems to think this scheme worked. Indeed, mainstream economists to this very day see Hitler’s solution as the way to go. But an Austrian is bothered by a few pesky details. Yes, it will work in the short run, meaning as long as you have money to distribute. But what happens when you hand over the money and now it’s time for the next paycheck? How will you pay for that one? Print more? That means you’ll have to keep printing forever. Which will result, sooner or later, in the collapse of the value of the currency. Simple supply and demand. The more money there is, the lower its “price”, meaning its purchasing power. Which is exactly what happened to the Wiemar Republic and many other economies in history. There are other problems with printing money, but suffice to say that an Austrian predicts that Hitler is going to have high inflation pretty soon. We shall keep this in mind as we read on.
But printing money was not the only bright idea Hitler had. He was also going to create jobs paid for by the govt, using “public works as a means of reducing unemployment, through schemes such as draining marshes, building canals, bringing moorland under cultivation and the like.” Sound familiar? And they went at it full speed ahead. “It has been calculated that the government had placed more than 5,000 million Reichsmarks at the disposal of job-creation schemes by the end of 1933…particularly in the construction industry. And guess what? They had a stimulus program for housing. “The regime developed a scheme for subsidizing house purchases, conversions and repairs…to stimulate the construction industry.” In other words, not only did he print the money, he also decided which jobs would be created.
Austrian prediction: All that make work is going to divert resources from what people really want. Because the public didn’t really want all that stuff [otherwise the free market would have done all these projects with no help from Adolf]. I see great shortages in Nazi Germany’s future.
Hitler also reduced unemployment by a device used to this day, playing with the statistics. Redefine who is unemployed, and you won’t have so many unemployed. Hitler was very aggressive here, paying women to take themselves out of the labor force, because after all, they really belonged in the kitchen. And to make sure the economy was stimulated nice and good, he paid off these women “not in cash but in the form of vouchers for furniture and household equipment.”
Since they were no longer looking for jobs, but happily baking cookies instead, they were no longer unemployed. Brilliant. Except that it means the labor force has been permanently reduced by half a million people, meaning less potential production. Not to mention the expense of this whole scheme. it will all add up, Hitler, and you will run out of money. And insisting the money be spent a certain way is going to distort the market. You are hurting all the industries that voucher rejects. Once your vouchers stop coming, those furniture and household equipment industries will see a sharp decline, but not before they have diverted resources away from the truly popular industries. A bad idea all round, say the Austrian economists.
Not that the exit of women meant more jobs for the men. Because those women were mainly looking for womanly jobs. As Evans puts it, “no unemployed steelworker or construction labourer was likely to take up household cleaning or weaving, no matter how desperate his situation might be.”
To be continued, hopefully. Link to part two: https://smilingdavesblog.wordpress.com/2013/12/20/hitlers-economy-part-2/