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Public choice and the Nazis
On average, family members of German soldiers had 72.8 percent of peacetime household income at their disposal. That is nearly double what families of American (36.7) and British soldiers (38.1) received.
Götz Aly's new and noteworthy Hitler's Beneficiaries: Plunder, Racial War, and the Nazi Welfare State tells us how. The sad answer is that the Nazi regime lived off the resources it stole from conquered nations, forced labor, Jews, and refugees.
The magnitude of the theft was much larger than I had thought. In the fiscal year 1938-9, "Aryanization" increased government revenue by 9 percent. At its peak, Nazi theft was able to finance 70 percent of war revenues, noting that "war revenues" is a flow but the concept does not measure the real resource costs of fighting the war. See the book's appendix for a response to some not totally unjustified criticisms of the author and his methods (the author's claims seem to be correct as worded but the wording has narrower meaning than might strike an ordinary reader at first glance).
The good news, if you could call it that, is simply that the wartime Nazi regime was less stable than believed and it would have encountered very serious economic and military difficulties once the full plunder was extracted from abroad. If you are looking for a context where the long-run Laffer Curve holds, you'll find it here.
Posted by Tyler Cowen on October 4, 2006 at 08:13 AM in Books, History | Permalink
Comments
The really striking part is that war revenues (looting conquered areas, stealing from the bodies of murdered people in the death camps) were surely subject to a lot of theft before they were handed over to the government. So whatever loot made it to the Nazi treasury, a lot more stuck to the hands of the death camp guards, soldiers, etc.
This whole topic just makes you want to go take a bath.
Posted by: albatross at Oct 4, 2006 8:42:02 AM
I still wonder why the National SOCIALIST (Nazi) regime has been usually labelled "extreme right-wing" when its real economic nature was massive redistribution and welfare state. History is full of paradoxes.
Posted by: Pavel at Oct 4, 2006 8:50:38 AM
Pavel: no, its rather that the "right-left" and "conservative-liberal" labels have become so mixed up as to be almost useless.
Posted by: A Tykhyy at Oct 4, 2006 9:36:38 AM
Alternatively, if you think of this as a giant, involuntary Ponzi scheme. If it hadn't
been stopped, the Nazi regime would have had to continue conquering to keep itself
going. End result would still be exhaustion of new victims and collapse, but the
process would have involved an even greater Reich at peak.
Posted by: Acad Ronin at Oct 4, 2006 9:38:54 AM
Likewise it has been argued that absent the conquering of eastern Europe at the end of world war 2, the Soviet Union would have collapsed some decades before it did.
Sorry, no references.
Posted by: doctorpat at Oct 4, 2006 9:59:16 AM
Absolutely correct Acad. Taking this into account the invasion of the USSR is perfectly rational. They needed to continue the plunder train to keep the economy propped up.
With that kind of economic structure, prob no amount of appeasement, short of tribute would have ended the Nazi need for expansion.
Posted by: elambend at Oct 4, 2006 9:59:51 AM
A. Tikhyy -
I am not fully convinced that the labels "right-left" are totally meaningless. Yes, there is lot of confusion. Many socialist governments embrace concepts such as privatization, free trade or even income tax cuts. Analogically, conservatives have adopted the concept of welfare state. However, at the bottom line, a voter still may choose between two paths: one leading to less government interventionism and another one leading to more government interventionism. Except for you live in Hungary, where there are left-wing parties only, which probably explains the country's fiscal morass.
Posted by: Pavel at Oct 4, 2006 10:09:37 AM
One question I have in regard of the German Nazi economy is whether the war really hampered their military economy. I mean, when I look at charts of German (or Russian) productions, I see that civilian productions dropped during the war and brought suffering to the masses. Meanwhile, the military production still rose and rose (especially in Russia, when they finally got their central-planning fixed on military production). How come that productivity goes up in a planned economy when it comes to weapons and military equipment, but not when in peace-time mode?
I mean at the beginning of the Russian campaign by the Nazis, Russia had only infantry and some old tanks. But only two years later, they had surpassed German production (which did not declined, but just couldn't keep the pace of the Russian industry) and produced more tanks than their opponents.
Posted by: Max at Oct 4, 2006 11:53:15 AM
Taking this into account the invasion of the USSR is perfectly rational.
Was re-reading Liddell Hart last night on the war in Russia, and Hitler kept reiterating that "my generals know nothing of economics." The loot incentive explains a lot of the fatal detours to snap up the Ukraine and push towards Baku.
Liddell Hart acidly notes that, while the excuse was that the Nazis couldn't fight without Baku's oil, they never took Baku and yet kept fighting for 3 years anyway.
Posted by: Anderson at Oct 4, 2006 12:20:33 PM
"The good news, if you could call it that, is simply that the wartime Nazi regime was less stable than believed and it would have encountered very serious economic and military difficulties once the full plunder was extracted from abroad."
How do you ever extract "full plunder," unless you kill everyone, and no one is left to produce more goods? If they had retained control of conquered lands they could have extracted tribute indefinitely.
Posted by: Doug at Oct 4, 2006 1:53:45 PM
William L. Shier's "Rise and Fall of the Third Reich" contains a lot of informaton about the outrageous financial shenanigans of the Nazi regime.
One example from the book which particularly struck me was the case of the Volkswagen, a Hitler-Porsche collaboration. Prepayments for "KdF-Wagen" were accepted as part of a well-publicized financing program, but the cars that were initially produced were all sent off to the Russian campaign.
The folks who paid didn't get their wagon.
Posted by: Jamie Pitts at Oct 4, 2006 2:13:37 PM
Actually, German war production during the first few years of the war was quite smaller than many in the allied countries thought then and still believe today. The Nazis learnt the lessons of WW1 where Germans scavenged the streets for food by 1917. Until 1943 (or maybe 1944) when Albert Speer took over as minister of the "economy," war goods production was limited due to lack of raw materials and grossly inefficient production processes. I havent read the book, but the summary I read is fundamentally correct, but doesnt tell the whole story. See Alan Milward's book on this subject for further detail.
Posted by: Ben at Oct 4, 2006 2:47:50 PM
Max,
How come that productivity goes up in a planned economy when it comes to weapons and military equipment, but not when in peace-time mode?
Maybe its because it is much easier to motivate somebody to work hard at their job in a socialist economy when you are working to "defend the homeland" than when you are just working to make everybody else better off. Working for the war effort is a much better incentive than just working for the peace effort.
Also, its much easier for a government to know what type of goods they are going to need for a war than it is for them to guess what the demands of consumers are.
Posted by: Kevin Nowell at Oct 4, 2006 3:03:14 PM
Kevin, I think your second sentence hits the nail on the head. The fully-planned war economy gets to reward itself with "high productivity" when it orders ten million widgets, produces them, sells them to itself, ships them to Prokhorovka, and blows them up. Assigning a "value" to the consumed widgets is pretty arbitrary---you'd label this economy just as productive whether it had produced 10 million artillery shells or 10 million Tickle-Me-Elmo dolls---and (though the commanders might complain) there's no market corrections to optimize such things.
Posted by: Ben M at Oct 4, 2006 3:30:19 PM
Also, its much easier for a government to know what type of goods they are going to need for a war than it is for them to guess what the demands of consumers are.
I think that is the key. Simple defined goals are quite amenable to central planning. Understanding the trade offs between myriad desires and the real cost of those is pretty close to impossible.
Posted by: Lance at Oct 4, 2006 3:36:35 PM
Pavel,
The nazis were capitalist in that they
did not nationalize any industry. It is
also inaccurate to describe what they ran
as a "welfare state." Germany had become
somewhat of a welfare state prior to their
taking over, partly due to policies by the
Social Democrats in the 1920s and partly
due to policies dating from the conservative
Bismarck period in the late 1800s, such as
introducing the world's first social security
system, the model for the one adopted in the US.
Indeed, the first faction of the Nazi party
that Hitler purged after he came to power was
the actually socialist one, the one that wanted
to nationalize the means of production and
outlaw the payment of interest. Hitler had
not been initially supported strongly by big
business, but once in power, he sought their
support and got it by and large.
Also, "right wing" is often identified with
extreme nationalism and racism, although these
are not libertarian or classically liberal
positions. The nazis certainly filled the
bill on those characteristics.
Where they were arguably "socialist" was in
their adoption of command central planning.
However, even more capitalist nations than
Germany tend to do so during wartime. The
US did so during this period as well.
Posted by: Barkley Rosser at Oct 4, 2006 4:20:37 PM
All militaries are run like a command economies. Just look at our defense department. The Russians might even have an advantage because they had more experience.
Both Russia and Nazis were authoritarian, but their views were different on economic policy: right=pro business or left=pro labor. This was the hot topic in the 1930’s. A pro business government can and often do have social welfare programs.
Posted by: joan at Oct 4, 2006 5:44:10 PM
With regards to Nazi Germany's view of property rights, it is inaccurate to say that it was a pro-business
regime and that private property was not nationalized. First, the seizure of property from persecuted groups
such as Jews belies a 'pro-business' nature. It is impossible for the private sector to flourish on a
macro basis if there is a lot of sunk capital due to property seizures, never mind the disincentives to
investment posed by such uncertain property rights- what happens if you run afoul of the dictator? Second,
privately owned Jewish property was handed over to supporters of the Nazi regime that could be counted on to manage it in the "public interest", i.e, to manufacture war materiel. Such actions constituted a de facto nationalization.
Posted by: Abdul-Rahman Muaranah at Oct 4, 2006 9:03:51 PM
Herr Cowen,
Jews were (are?) an unpopular minority in Europe who also happened to have substantial wealth.
Was Germany’s/Hitler’s decision to enslave and exterminate this group of people based on racism/nationalism? Or, was it an economic decision to transfer wealth to the treasury and provide cheap/free labor to fuel the German war machine?
Would the resources eventually run out? Possibly, but so would German ambition. It is doubtful that they intended to rule more than they could handle.
Posted by: Chairman Mao at Oct 4, 2006 9:07:43 PM
Abdul-Rahman,
I find these efforts by various people to deny that
Hitler supported private property simply ridiculous.
Yes, he expropriated Jewish properties, but he handed
them over to new private owners. Of course they did
what he wanted because it was a command economy. But
all this talk of "de facto nationalization" is just
nonsense. Does the fact that GM and Ford did what the
US government wanted in WW II mean that they were "de
facto nationalized"? This is just wishful thinking
by people who just so much want the nazis to be socialists
and not the pro-command capitalists that they were.
Posted by: Barkley Rosser at Oct 4, 2006 10:05:20 PM
@Kevin:
Well motivation with strict discipline is one thing, but it wouldn't boost it this far. The inefficiency of central planning and coordination would still affect the production (especially the allocation of resources). Even the top notch German engineers can be only part of the story, in designing efficient production lines.
I think it is the speciality of fascism that gave Germany's economy the way to operate. Private companies existed on paper, they were relatively independent as long as they stuck to the party line.
Also, the war was big business for the military industrial complex!
Then there was the clever trick of lending money, to be returned after the war, via the Mefo-Wechsel (Metalurgisches Forschungs-Wechselgeld = metalurgic research certificate), which practically could produce an unlimited credit-line on behalf of the government.
The prime idea of the Nazi regime was to have a culture of private (aryan) companies working for the good of the nation, while regulating these companies only on a macro-scale. Or to rephrase it, they did what the European Union is doing today (or for that matter all the Nations in Europe)...
Posted by: Max at Oct 5, 2006 12:06:19 PM
There is an essential difference between a corporatist regime by policy, with the aim of expanding and looting and corporatist reaction to war that was abandoned as soon as the war was over.
The fact that the U.S. government faced a dock strike during the war (deferred by making a deal with the mob) should indicate that there was some difference in the participation in the economy by the two different governments.
Posted by: ElamBend at Oct 5, 2006 12:20:33 PM
Barkely, the previous poster made most of my point for me. The people who received expropriated property
were usually industrialists with either close ties to the Nazis, or those developing these close ties.
The point is not to tag the National Socialists as Socialists, but rather to make clear that they were not
capitalists if for no other reason than their lack of respect for private property and private sector production
and consumption. The industrialists were given the properties to gain their support and to ensure that the
properties would be used productively for the needs of the state, not for private economic activity.
Posted by: Abdul-Rahman Muaranah at Oct 5, 2006 3:09:30 PM
The term "capitalist" is not a helpful concept is this context. In fact, it may be not be useful concept in any context. Arguing whether the southern states on the eve of the Civil War were capitalist is equally pointless: the key point is that in both societies, groups of humans were dehumanized, deprived of their own property rights, and converted into a form of property (state property in Nazi Germany, private propety in the plantation economy). The key empirical issue here is whether this dehumanization benefited the dominant group in the longer term. I would suggest it didn't. By time the EEC was formed, people in West Germany already had pretty good standards of living, partially because they were trading so much with (roughly) equally wealthy people in France, Belgium, etc. Compare these living standards with the counterfactual of conquest and plunder. The benefits of plunder are mainly short-term. This is why I find counterfactual histories such as Robert Harris's Fatherland so implausible: they show a Nazi Germany in the 1960s enjoying income levels in line with West Germany in the same period.
Posted by: andrew smith at Oct 6, 2006 12:51:47 PM
I recommend people read J. Adam Tooze's critique of Goetz Aly's Hitlers Volksstaat at: http://www.hist.cam.ac.uk/academic_staff/further_details/tooze-aly.pdf
Tooze is Lecturer in Modern European History at the University of Cambridge. He is the author of Statistics and the German State 1900-1945: The Making of Modern Economic Knowledge (Cambridge University Press, 2001) and The Wages of Destruction: The Making and Breaking of the Nazi Economy (London: Penguin, 2006; New York: Viking, 2007). Both have received very good reviews. Also read the interview with Tooze at: http://www.penguin.co.uk/nf/Author/AuthorPage/0,,1000070082,00.html?sym=QUE
Posted by: Mark Brady at Oct 6, 2006 10:14:28 PM
