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To: Bearcatbob who wrote (35252)	6/13/1999 3:00:00 PM
From: Alex	Read Replies (1) \| Respond to of 116752

How Hitler won against inflation COMMENT by ROSS GITTINS, Economics Editor I've written on some weird and wonderful topics in my time, but this is a first: Nazi economics. A reader who'd been watching a documentary series on Hitler e-mailed me with some questions. He'd seen that, in the years leading up to the outbreak of war in 1939, the Fuhrer brought Germany from extreme poverty to a position of wealth and power by spending untold billions of marks on re-armament. How was he able to achieve the massive government spending without wrecking the economy? Where did the money come from - was it just printed? How come inflation didn't become rampant as in earlier times? Those earlier times got a mention in our public debate last year, as you recall, when the conservative politicians were pouring scorn on One Nation's plan to solve farmers' problems by printing money. Any fool knew that only caused inflation. Let's start there. Germany's inflation problem began soon after World War I. Its origins lay in the Kaiser's decision to finance the war by printing money rather than raising taxes, though it was exacerbated by the heavy reparations the Allies imposed. In January 1919, one US dollar bought nine marks. By July 1922, it bought almost 500. A year later, it bought 350,000. By September - two months later - it was 100 million. And by November 15, 1923, one US dollar bought 4.2 trillion marks. (Though this hyper-inflation decimated the savings of the middle class and caused hardship to ordinary folk, some people waxed fat by borrowing heavily to buy appreciating assets - businesses and real estate - and by shifting their savings into foreign currencies.) The hyper-inflation ended in 1923 after the appointment of a financial wizard, Dr Hjalmar Schacht, as president of the Reichsbank. He imposed rigid limits on the printing of notes, cut off new lending to industry and compelled the speculators to sell the foreign currency they had accumulated to the central bank. With order restored, the economy grew sluggishly until it was hit by the Depression in the early 1930s. By early 1933, unemployment had reached six million, a rate of about 30 per cent. That was when Hitler came to power. He re-appointed Dr Schacht to the Reichsbank, then also made him Minister of Economics. By 1936, GDP had doubled and unemployment had fallen below a million - without much inflation. How was it done? By a kind of militaristic Keynesianism. Schacht started with a big public works program (including building the autobahns) and subsidies to industry, but Hitler soon began re-arming in a big way. The growth in government spending was indeed massive. Was it financed by printing money? Partly, yes. Then why didn't inflation return? Because, though any fool knows that printing money only causes inflation, the less foolish know this depends on the extent of idle resources in the economy at the time. If there are plenty of unemployed workers and much unused production capacity, they can be taken up without causing inflation. In Hitler's time, there were idle resources aplenty, thanks to the Depression. Re-armament merely lifted Germany out of the slump. Remember, too, the "circular flow of money" - the multiplier effect. With more people employed and spending, tax collections grew. Hitler also kept the rates of tax high. So, before long, much of the higher government spending was covered by higher revenue. And he took the precaution of suppressing unions and banning strikes. Wage rates were actually cut a little. Later, after the return to full employment had restored the threat of inflation, wage and price controls were imposed (as they were by all the Allies during the war). It wasn't a great life for the workers. The introduction of the "work book" in 1935 - a kind of labour passport, held by your employer - meant you did the job you were told to do. But workers were grateful to have a job. They had bread - and circuses: the Strength through Joy program, which organised cheap holidays, theatre and concert performances, exhibitions, sports and hiking activities. Germany became a command economy. Industries were cartelised - to the benefit of the big industrialists and the cost of small businesses - and told what to produce. It was hugely bureaucratic. The country had little foreign exchange and the former Allies wouldn't trade with it. So Schacht organised barter deals with countries in the Balkans and South America. In any case, Hitler wanted to make Germany self-sufficient. In 1936 Schacht was replaced by Hermann Goering, who ran the Four Year Plan under which much money was wasted pursuing Hitler's enthusiasm for substitute ("ersatz") rubber, fuels, metals and textiles. So what became of the Old Wizard, Dr Schacht? Though an early recruiter for Hitler among the industrialists, he was among the first to become disillusioned and was one of the ineffective plotters. At the Nuremberg trails, he was one of only three to be acquitted. smh.com.au