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After World War I, Germany suffered severe economic damage. Germany was asked to make horrendous war reparations, suffered hyperinflation, social chaos .... In addition, world economic conditions were not helpful given that the 1930s was the period of the Great Depression.

Yet the amazing thing was that Germany rebounded so strong and so quickly that it was able to score major victories against its former enemies during the beginning of World War II. What government German policies gave Germany such a quick economic and military rebound? This may give insights to policy makers in some parts of Europe today suffering high unemployment and the pains of austerity.

Did Hitler rebuild Germany, or were earlier governments responsible?

MCW
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curious
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    The premise of your question is wrong. Hitler took power in 1933, 15 years after the end of the first world war. WW II was not started until another six years later. The rebuilding of Germany was accomplished by the hardworking people of Germany and especially by her technologists and businesspeople. Hitler was not a genius economist. Put simply, he put more people to work by printing money to employ them in public works projects and in the armaments industry. In addition, a significant source of funds came from the stolen assets of dispossessed Jews. I nominate this question to be closed. – Eugene Seidel Sep 29 '13 at 05:02
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    This question appears to be off-topic because the premise of the question is wrong. – Eugene Seidel Sep 29 '13 at 05:03
  • Question fixed, by removing Hitler. – Lennart Regebro Sep 29 '13 at 05:38
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    @MonsterTruck The purpose of History.SE is not supposed to be debate, but giving answers to questions. When a premise is wrong, it is enough to point out that it is wrong. I actually did more than that in my comment above, I also explained why it is wrong. – Eugene Seidel Sep 29 '13 at 05:41
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    @LennartRegebro You did not "fix" the question, you turned it into a different question. I disapprove. – Eugene Seidel Sep 29 '13 at 05:42
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    @EugeneSeidel: Not at all. I just removed the assumption that Germany's inter-war rebuilding was made by Hitler. If it was Hitler (it wasn't) it's actually exactly the same question. If it wasn't Hitler (and it wasn't) the question can now be answered. It seems more constructive to have answerable (and soon answered) questions instead of closing them because of a misunderstanding. – Lennart Regebro Sep 29 '13 at 05:50
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    @MonsterTruck: That's definitely not better. It's better to have good questions, answered with good answers, than have bad questions, refuted. – Lennart Regebro Sep 29 '13 at 05:51
  • @MonsterTruck Isn't making the question a good question and hence bringing upvotes "justice" enough? :-) If the question of how Germany rebuilt itself has been asked before, then this question (also in it's original form) is a duplicate. – Lennart Regebro Sep 29 '13 at 06:43
  • let us continue this discussion in chat – Apoorv Sep 29 '13 at 10:56
  • Hitler was certainly not a "genius economist". See here. – Felix Goldberg Sep 29 '13 at 05:03
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    " a significant source of funds came from the stolen assets of dispossessed Jews" - while intuitively plausible, [citation needed] – DVK Sep 30 '13 at 19:59
  • Based on the chat with @MonsterTruck I added a sentence as "search engine optimization". – Lennart Regebro Oct 01 '13 at 09:55
  • @DVK See the book by Götz Aly referenced by Felix Goldberg in an answer to an earlier question. – Eugene Seidel Oct 01 '13 at 10:18

1 Answers1

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Germany's economic rebuilding came mostly between 1924 to 1929. The economic policies that made this happen was the following:

A return to the gold standard

Up to 1924 the German government would simply print more money to pay its debts and this led to hyperinflation. A return to the gold-standard stopped this.

Welfare capitalism

A liberal business-friendly market economy made industry prosper, and a liberal tax-financed social security prevented the worst forms of poverty.

Foreign loans

Since the German economy had collapsed, the Dawes Plan was put into place to save Germany and lessen the impact of the war reparations. As a part of this Germany would borrow quite large amounts of money from American banks.

These three parts worked together to stop the German economic collapse and rebuild it during what has been called "The Golden Era".

Hitler continued the last policy of borrowing large amounts of money after 1933 as well and used it to finance the German re-armament.

What can current governments learn from this?

Having a gold standard has other drawbacks, but it's better than hyper-inflation. However, an even better policy is to not have a gold standard, but have a politically independent central bank whose job it is to keep inflation within reasonable limits. The Euro already has this, so nothing can be learnt from that.

A liberal capitalist welfare state is a good idea, and this is also indeed the most common type of economic policy in Europe, so this lesson has been learnt as well.

The current crisis simply has its basis in related but slightly different problems. Many states in Europe have paid their debts by borrowing money instead of printing more.

Borrowing large amounts of money to kick-start your economy is a common political policy and inter-war Germany is a good example of this, so this lesson has been learned. The lesson that has not been learned is that you need to pay it back.

When the depression hit the United States in 1929, the banks would retract the money from Germany, making Germany one of the worst hit countries in Europe (arguably paving the way for Hitler). Hitler never paid back his loans (it has even been argued that the massive loans he took was one major reason for him to start WWII as Germany couldn't actually pay them back).

The basic idea behind this Keynesian policy is to borrow when times are tough and pay it back during better times. However, many European countries have instead continued to borrow during prosperous times as well, to be able to implement popular policies as lower taxes or higher welfare. This is the fundamental root to the current European crisis. And that means that although they learned the lesson that you can't pay your costs by printing money, they did not learn the lesson that there's no such thing as a free lunch.

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Lennart Regebro
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    I wish I could upvote your answer but my points are too low at the moment. I particularly like your comment on the current problems of European countries. When times were good, Greeks borrowed instead of stockpiling savings. When times turned bad, Greeks are finished. Today, Greece cannot print money because they do not have their own currency. UK is in the same position but thanks to George Soros, the British were kicked out of EU and has the freedom to print money today. I think US is no better. Having the US dollar as the world's reserve currency was a life-saver for the Federal Reserve. – curious Sep 29 '13 at 08:23
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    @user1709088: As evidenced by Germany (and Hungary, and Zimbabwe, and many other countries who has experienced hyperinflation), the freedom to print money is not a solution. – Lennart Regebro Sep 29 '13 at 08:26
  • I think the freedom to print money is not exactly bad. However, it introduces the risk of hyper-inflation due to printing too much money. It is hard to say that it will be good for America that Bernanke did not print any money at all. The critical part is printing how much money but not so much that the inflationary forces become uncontrollable. Some money printing to add some inflation when the economy is suffering deflationary forces (consumers deleveraging) may not be a bad thing. Printing money of course is never a long-term solution. But it can at least reduce the short-term social pains. – curious Sep 29 '13 at 08:34
  • @user1709088 The freedom to print money is good compared to a gold-standard, sure. But the EU (and hence Greece) has that freedom, and it can not be used to help the Greek problem, and it can not be used to reduce short-term social pains. It can only be used to counter deflation. – Lennart Regebro Sep 29 '13 at 14:14
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    I've removed my previous comments, as they did not add to the post. – Kobunite Oct 01 '13 at 15:54
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    I would argue that heading #1 is not "return to the gold standard", but "a functional monetary policy. I dislike the gold standard, but even the gold standard is better than a monetary policy of intentional hyperinflation. It is possible this discussion should be moved to a new question. – MCW Mar 20 '14 at 13:47
  • @curious printing money is not the only way to start hiperinflation, to explain, printing money is more like a symptom of the hyperinflation. If a government - or government related sector - has a big deficit and debt, it would raise for forever due they can't pay back. This has two ways out, none of them are good for the economy: hyperinflate the currency (steal value from those who gave loan) or default the debt. Hyperinflation comes from high deficit and debt level. Money printing follows these trends. I like the answer, but disagree with the answer in this point in relation with EUR. – CsBalazsHungary Mar 20 '14 at 14:12
  • @CsBalazsHungary You also steal all value from your people, and you ruin the economy. Defaulting is not a good option to a bad situation, but it's clearly the better one here. And yes, hyperinflation is in practice only created by printing money. – Lennart Regebro Mar 21 '14 at 10:10
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    @MarkC.Wallace It's quite possible they could have stopped hyperinflation without returning to the gold standard. But returning to the gold standard is what they did. I certainly do not recommend it a s a policy if you don't have hyperinflation. :-) – Lennart Regebro Mar 21 '14 at 10:12
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    @LennartRegebro We agree, defaulting is just a bad option. I am certain and I know, that defaulting a debt is more straight and honest option than printing money, and cheating with money supply. – CsBalazsHungary Mar 21 '14 at 10:13
  • Enjoyed the factual part of the answer. The part about what we can learn is simply a compilation is your opinion. – Philip Kirkbride Apr 29 '16 at 17:55