
Schacht, Mefo Bills and the Restoration of the German Economy 1933-39 (2013) - deven88
https://fixingtheeconomists.wordpress.com/2013/12/11/hjalmar-schacht-mefo-bills-and-the-restoration-of-the-german-economy-1933-1939/
======
sprash
Interesting tidbit: Schacht was also one of the founding members of the BIS
(Bank for International Settlement) in Switzerland along with Warburg, J.P.
Morgan and Rockefeller representatives which are coordinating the monetary
policies of all major central banks to this day since 1930.

Some people say the restoration of the German economy 1933-39 was only
possible because it was arranged by those major central banks. The actual
economic policies are rather secondary to that.

------
dvfjsdhgfv
The chart presented in the article [0] should be put in context of the
previous years. The inflation values look very nice when you compare them to
what was going on before 1923 [1].

[0]
[https://fixingtheeconomists.files.wordpress.com/2013/12/nazi...](https://fixingtheeconomists.files.wordpress.com/2013/12/nazi-
gdp-inflation.png?w=640)

[1]
[http://web.nli.org.il/sites/NLI/English/collections/personal...](http://web.nli.org.il/sites/NLI/English/collections/personalsites/Israel-
Germany/Weimar-Republic/Pages/Inflation.aspx)

------
hutzlibu
Schacht might have been a brilliant state accountant, but what he and Nazi
germany mostly did was taking a massive but hidden debt ... where the idea was
to repay it with war treasure - which failed.

~~~
atq2119
I'm not so sure about the "hidden debt" story. I have a feeling that that's a
story popularized by people who want to believe that _everything_ done under
the Nazi regime was bad.

The truth is that the rise of authoritarian extremism tends to be facilitated
by economic uncertainty (yes, racism and xenophobia tends to play a big role
as well, but immigration is always easier to stomach when jobs are plenty
etc.). Staving off anti-democratic forces should take precedence over almost
everything else, and it _certainly_ should take precedence over economic
orthodoxy. If that means learning from a Nazi supporter (who wasn't a Nazi
himself), then so be it.

So rather than hand-waving about "hidden debt", it would be important to
explain the _actual transmission mechanisms_ through which Schacht's policies
would eventually have caused problems if the war hadn't happened.

It's unclear whether you would truly be able to do so. As the article
explains, Schacht used some clever techniques both domestically (shifting
investment from private to public sectors, basically) and externally (the aski
accounts) that would seem to put a limit on the effects that the debt could
have.

Those policies are against the tastes of the economic orthodoxy, and a lot of
the "wisdom" of economic orthodoxy is stated with the hidden assumption that
such policies aren't used. So any blanket statement about the dangers of debt
made by this orthodoxy are quite suspect and probably do not apply. At the
very least, you need to look at the details to consider whether they apply.

~~~
danmaz74
If you use a lot of borrowed money, you need that money to be invested in a
way that will generate wealth that you can use to pay interests on the debt
you created.

The nazis used most of that money to build their army. If they hadn't used
that army, it would have been wasted money, which in no way could have repaid
the debt.

Democratic governments can - and should - borrow to invest if they see an
opportunity for future growth. But you can't create those opportunities out of
thin air.

~~~
atq2119
What you're saying applies to private households and companies. It doesn't
necessarily apply to a government that issues its own currency.

Just look at the debt ratio of Japan. For that matter, look at the modern day
US which _also_ uses a lot of debt to build up its army.

The point is, blanket statements such as yours have been shown again and again
to be false, at least in that generality. I can only reiterate that you have
to look more closely at the details to judge each situation.

~~~
danmaz74
As it happens, I read quite a bit about Schacht and Nazi Germany. They spent
around 15% of GDP in the army in the years before the war. And they created an
enormous external debt for that, because they needed lots of raw materials
they didn't have internally (oil, rubber and many others).

In the USA, military spending is just a little above 3%.

Japan's economy stopped growing years ago. Their debt is mostly internal. They
pay for what they import.

If you need resources from foreign countries and can't pay for them, printing
your own currency can only help for some time.

------
Svip
The first figure is a bit obfuscating. It says 1922-1939, but only shows 1926
through 1939. Which is probably a good thing, because then it doesn't include
the hyperinflation of the early 1920s, which might undermine the point of
'Nazis stabilising the economy'.

By 1933, most Western economies were moving out of the Great Depression, even
if the Netherlands - only economy compared here (wouldn't the UK or France be
more interesting comparisons?) - was a bit slow. Further, the economic boom of
1933 is probably due to the government prior to Hitler's enacted several large
scale projects, like the Autobahn, to help boost the economy.

I'm not saying Schacht wasn't brilliant at managing German finances under
severe limitations for rearmament, but the article seems to hint it was
basically Schacht alone that ensured the economic boom of 1933-39 in Germany.

~~~
realusername
> (wouldn't the UK or France be more interesting comparisons?)

France wasn't affected much by the Great Depression because it had an economy
centralised around the colonies, it affected a lot Germany but in France not
that much.

~~~
subjectHarold
No, the reason why was France pegging to gold at a very favourable rate in the
1920s. The UK, obviously, was not short of colonies but got absolutely rolled
in this period because they pegged to gold at their old rate instead of
devaluing. This led to huge unemployment issues (even before the GD). Germany
suffered because they were heavily reliant on flows of US capital causing bank
failures (there was a tremendous boom between 25-29).

------
roenxi
Such articles are fascinating in the way they expose how primitive our
conception of the economy is.

> "This is an incredible story from an economic point-of-view. After Hitler’s
> election in 1933 the Nazis were able to sustain between about 8-10% GDP for
> five years running with an inflation rate that would be the envy of the Bank
> of England and other inflation-targeters today."

It is so hard to know what to ask for to get standardised but pithy measures
of:

* 8-10% against what base? Growth is easy for the small. Was the German economy large or small at the time relative to 'comparable' 'neighbors'?

* Were these policies sustainable? Were they redirecting resources towards competent long-term managers or towards wartime industrialists who aren't really producing anything useful for the times we want to live in?

* Did any of the benefit from those rosy figures help any one in any way, given that the money all ended up funding one of the costliest and most devastating wars in the history of Europe? Can that context be untangled from the 'positives'?

I'm not convinced I see anything written here to suggest the policies used
were good or bad ideas - there isn't even a language to discuss what 'good'
means in such extreme times. I just see meaningless numbers from a different
world. I'm doubtful they even measured things the same way in Germany 100
years ago compared to today.

Possibly Schacht was an economic genius, but I would like to hear why, given
what I know of Germany, rearming wasn't simply raw materials + their world
class establishment of craftsmen, who have histories that precede and extend
beyond Schacht by generations. Give me a capable workforce and a country that
has recently been through hyperinflation, and I suspect I could find any
number of geniuses to manage it. The countries sending them raw materials
might even have been the ones with the economic problem, rather than the
Germans. I doubt they got paid back.

~~~
atq2119
Just one point to keep in mind is that Germany hadn't been through
hyperinflation _recently_. The hyperinflation was in 1923, so it had ended
almost 10 years before the Nazis came to power. That should be plenty of time
to get the economy back on track.

The first years of the Nazi boom can of course be explained as recovery from
the recent depression, but it seems that the boom went beyond that. And it's
important to keep in mind that other countries didn't recover as quickly.

As for benefits to individuals, at the very least those programs created jobs.
That is bound to have helped the living standards of _many_ people.

Indisputably it would have been better to create jobs geared towards peaceful
production. The question then is, why were democratically-oriented politicians
unwilling or unable to take similar measures?

(And I don't mean that as praise of fascism. I mean it as a challenge to all
those who consider themselves lower-case democrats: the job of democracy is to
foster the well-being of the people. Stories like this article suggest that a
lot more can be done on that front than we tend to see in contemporary
democracies.)

~~~
matt4077
The causality between any one adminstration/regime and economic development is
far weaker than than your comment implies, at least in the short and middle
term (say, a decade).

Specifically, all industrialised countries saw very similar developments, even
though their politics differed vastly:
[https://en.wikipedia.org/wiki/Great_Depression#/media/File:G...](https://en.wikipedia.org/wiki/Great_Depression#/media/File:Graph_charting_income_per_capita_throughout_the_Great_Depression.svg)

The US and United Kingdom happen to be rather close analogs to Germany. This
isn't too surprising, considering they were already economically coupled,
especially the financial sector.

In absolute terms, growth would seem to be roughly in line with making up not
just the absolute losses during the Great Depression, but also factors in some
modest growth that would have happened during that time. Population growth,
for example, continued almost unabated during the 1920s.

~~~
atq2119
I'd argue that the graph you linked to actually shows significant differences
between countries.

Yes, they all experienced the depression around the same time, and if you just
look at the signs of the slopes there's a lot of similarity.

However, the US was barely back to its pre-depression peak by 1940, while
Germany was way higher. The only country in that graph that is somewhat
comparable to Germany is the UK.

------
lispm
The view of Schacht and his relationship to the Nazi movement is way to
favorable. That he wasn't a member of the NSDAP was something he claimed, but
which wasn't true. Given his prominent role in the early days of the Nazi
government, he was quite a strong supporter of the regime. He may have helped
some Jews, but he supported the Rassegesetze, and even made personal profit
from the fate of the German jews, etc.

Fascinating how leading persons of the Nationalsozialismus were claimed to be
only 'functionaries'...

[https://www.faz.net/aktuell/feuilleton/politik/rezension-
sac...](https://www.faz.net/aktuell/feuilleton/politik/rezension-sachbuch-ein-
moderater-antisemit-11314339.html)

[http://www.spiegel.de/wirtschaft/bankier-hjalmar-schacht-
hit...](http://www.spiegel.de/wirtschaft/bankier-hjalmar-schacht-hitlers-
selbstherrlicher-helfer-a-446423.html)

~~~
mariuolo
He was fired from his ministerial job in 1937 and later sent to a
concentration camp.

By that metrics, most German citizens of that generation are guilty.

~~~
lispm
Lots of Nazis were killed or fell out of favor. From Röhm to Heß.

Schacht wasn't fired in 1937. He quit the job himself - minister for
economics. He was removed from the job as central banker in 1939 and remained
in a position as a minister until 1943.

> By that metrics, most German citizens of that generation are guilty.

Most Germans weren't Reichswirtschaftsminister (1934-1937) AND
Reichsbankpräsident (1933-1939). Schacht was one of the most prominent members
of the Nazi regime at that time and he was instrumental in directing the
financing of the build-up for the war machine. Schacht was a core member of
the Nazi regime from 1931 on.

------
ngcc_hk
Interesting. China also foreign control currency in one stage and only do
armament but go nowhere then. I suppose it is also a wonder how a totalitarian
communist country can dominate the world by being a chain in the production
then get the money and influence as a large consumer market. All bend their ip
to get in. Would be a lesson her for those under re-education.

~~~
yorwba
I wonder whether you read dang's previous warning.
[https://news.ycombinator.com/item?id=19471290](https://news.ycombinator.com/item?id=19471290)

