An old blog post caused a stir on twitter on 22nd June by bringing up the hoary old chestnut of praising Nazi economic management. An ironic re-emergence on the anniversary of the Nazi invasion of the USSR of course.
The piece points out that something doesn’t become bad just because the Nazis liked it, and unoriginally cites vegetarianism as evidence. The piece also makes two claims worthy of rebutting for their inaccuracy: that Nazis were good for the German standard of living, and that the Nazis practiced a form of Keynesianism. Despite its age I thought I would explore this.
The first point is easily rebutted. Nazi economics from 193-39 was driven overwhelmingly by two factors – Aryanisation, i.e. seizing property from Jews, and preparing for war. War on a massive scale, definitely against the Soviets, and probably against Britain and France. The result was that resources were poured into weapons, not domestic consumption. Living standards during Nazi peacetime rule recovered from the Weimar nadir of 1932 but was never the same level as the late 20s, and in fact private consumption declined as a share of national income – from 71% in 1928 to 59% of national income. International comparisons are instructive, real wages in Germany in 1939 were 9% higher than in 1913, in Britain and France there were over 50% higher. In practical terms this meant that, for example, German meat consumption was only three-quarters that of the average British meat consumption. Vegetarianism is indeed a bad thing when it is not a choice, and indeed, a tactic to conserve resources for aggressive war.
The resources went on preparing for war instead. In 1939 23% of German economic output went on the military. To put this into perspective, NATO members currently have a 2% share of GDP for defence target.
The second point is more complex: were the Nazis Keynesian? This is worth exploring, both because it reveals some technical points about the Nazi war economy but also highlights some common misconceptions of Keynesianism.
First of all the semantic/ anachronistic points. Keynesianism here I take as the broad belief that there can be too much saving, hence declining return on investment, and that this needs to be countered by government spending to create inflation and increase consumption. (Perceptive people may note that Keynes belief that the rate of return on investment is always moving towards 0 is the exact opposite of the arguments of Thomas Piketty, but that is another story.)
The key point though is that Keynesianism is not, as often reported, by for example Will Hutton, a drive to increase investment. It is in fact an attempt to decrease investment and drive up consumption in the short-term.
In terms of deficit fuelled consumption – consumption of weapons that is – the Nazis were the masters. They borrowed, stole and bartered all they could in the quest for weapons. Every dodgy deficit wheeze their bankers could come up with – the ‘Mefo Bills’ for example where used to manipulate credit. At first glance this is a kind of demented Keynesianism on drugs.
On closer inspection though this summary does not add up. Firstly because weapons are a deadweight consumption – they cannot drive up further activity, even if not being used. However, the result was that there was no output gap – unused capacity in the Nazi economy after 1936. At this point Nazi policy was to move in the exact opposite direction of Keynesian, pumping resources not into any form of consumption but directly into new factories and mines to expand war-making potential, including synthetic rubber and fuel, iron ore, chemicals and non-ferrous metals. Much of this was unfinished when war started, but it was in fact such a scale that in 1945 German “capital stock,” accumulated investment in factories and facilities was in fact higher than at the start of the war. Despite the massive destruction at the end of the war.
So no the Nazis weren’t Keynesians, because they invested too much.