Public choice and the Nazis

by on October 4, 2006 at 8:13 am in Books, History | Permalink

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. 

1 albatross October 4, 2006 at 8:42 am

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.

2 A Tykhyy October 4, 2006 at 9:36 am

Pavel: no, its rather that the “right-left” and “conservative-liberal” labels have become so mixed up as to be almost useless.

3 doctorpat October 4, 2006 at 9:59 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.

4 Pavel October 4, 2006 at 10:09 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.

5 Anderson October 4, 2006 at 12:20 pm

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.

6 Jamie Pitts October 4, 2006 at 2:13 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.

7 Kevin Nowell October 4, 2006 at 3:03 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.

8 Lance October 4, 2006 at 3:36 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.

9 joan October 4, 2006 at 5:44 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.

10 Chairman Mao October 4, 2006 at 9:07 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.

11 Max October 5, 2006 at 12:06 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)…

12 Abdul-Rahman Muaranah October 5, 2006 at 3:09 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.

13 Mark Brady October 6, 2006 at 10:14 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

14 Anonymous October 13, 2008 at 10:54 pm

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