Nazi Economic Crisis?

After reading up a bit on Germany's economic 'miracle' in the 1930s, I quickly found out its shaky foundations. A heavy reliance on financial I.O.U.s fed much of the military build-up under Hitler and during WW2 and the aftermath, circumstance overshadowed it.

Let's say WW2 doesn't happen (Hitler is humiliated over the Rhineland or a united Stresa Front stops his expansion in Austria and the Sudetenland, or he's overthrown by the Generals), what effect would it have on the economy? Would Germany suffer a crisis due to the fragile nature of its coffers or would this Keynsian-for-Dummies system feed itself into real strength in a peaceful 1940s?

I ask this as a ballpark question, I lack any true economic knowledge and it merely strikes me as a very sketchy system in the long-run, or am I wrong?
 
It depends who you ask.

Germany will be hit pretty hard for sure, but the main problem is that as economic conditions improve, nobody will trade with it unless they get cash. So Germany might have to try shifting to exports, but with little in the way of an economic base.

I think the regime could hold on, but it won't be pretty.
 
I was always under the impression that Germany's economic plan was pretty dependent on a new war. Barring a new war, there is a massive economic downturn. The thing is, b/c the economey was almost totally needed war, the question is did Hitler always intend to start of war of expanison? I think yes, but I guess the general's coup POD would do away with that.
 
Can someone explain to me exactly why Germany's economy needed a war to sustain itself?

I hear it mentioned, but I dont understand why.

Lots of reasons. But to put it simply:

-Nazi's economy was built upon a self-sustaining rearmament, to a large extent. Basically, the government created money which it promised to return to people at a later date.

The problem was that the money was then used to build tanks and bombers, rather than anything that could produce a profit. (Indeed, German workers were no better off in 1939 than 1929).

Meanwhile, Germany was basically trading abroad using a similar system; it set up a series of bilateral trading agreements, where it gave a nation 800 marks worth of German products, say, for 800 marks of a nation's raw materials. Grain, copper, etc. The problem was that Germany was falling behind on its shipments and payments, and other nations were beginning to stop trading with Germany as the world economy improved.

By 1939, Germany had no gold and no foreign currency reserves left, with shortages of basic commodities like eggs in major cities. Put it all together, and things were getting messy.
 
The Nazi economy didn't sustain itself with a war. However, I belive the main problem with a non-war economy was that they where supposed to repay loans.
 
I was always under the impression that Germany's economic plan was pretty dependent on a new war. Barring a new war, there is a massive economic downturn. The thing is, b/c the economey was almost totally needed war, the question is did Hitler always intend to start of war of expanison?

Interesting. Do you believe strong opposition to German expansion (the Rhineland, Austria, Czechoslovakia) would have seen Hitler jump into war regardless? He's hardly the most level-headed man in town.

Could the Nazis last into the 1940s with such a system? Would the loss of trade see "social-nationalist" ataurky be used, or would conservatives push for a more consumerist society. I doubt Hitler would side with the left-wing after the Night of the Long Knives, but it seems unlikely he backed down on the military either. Perhaps a Soviet-style 'rot' would set in, with virtual rationing and vast military and see a relatively bloodless end by the 1950s (Hitler's death would be a major trigger).
 
Jape said:
Interesting. Do you believe strong opposition to German expansion (the Rhineland, Austria, Czechoslovakia) would have seen Hitler jump into war regardless?

That's a difficult question - but I'd probably say 'yes' myself. By 1939, Hitler is absolutely convinced that some form of war between the great powers is inevitable (even if he doesn't necessarily desire war with Britain - yet).

Stronger diplomatic opposition from those powers, maybe preventing him from achieving some of his aims of creating a 'Greater Germany' in the 30s, would perhaps just confirm this viewpoint - they won't let him 'have' what he wants - so he'll take it instead.

Hitler is 'forced' into war in 1939 by two factors - one) his own demented assumption that war is inevitable and two) the fact that by 1939 Germany has NOTHING to gain by delaying that war. Combined British and French industrial capacity not only exceeded that of Germany in 1939, but what’s more they both had massive and accelerating rearmament programmes that German industry couldn’t match. By delaying the war, Hitler slowly sacrifices the military lead on the ground and in the air that he has painstakingly built up over the previous four years. So why wait?

With greater opposition from the western powers to his expansion plans - and perhaps earlier and larger rearmament initiatives in France and (especially) Britain - maybe Hitler reaches that 'armaments plateau' in his mind earlier. Germany's military lead begins to dwindle earlier than the projected 39/40 of OTL. So maybe, with a degree of opposition to his policies (although, not enough to cripple Germany - just humiliate it), perhaps Hitler decides to strike earlier?

Random idea there.

A good general look at the German war economy is ’The Wages of Destruction’ by Adam Tooze. Kind of the source of that idea, as well.
 
Lots of reasons. But to put it simply:

-Nazi's economy was built upon a self-sustaining rearmament, to a large extent. Basically, the government created money which it promised to return to people at a later date.

The problem was that the money was then used to build tanks and bombers, rather than anything that could produce a profit. (Indeed, German workers were no better off in 1939 than 1929).

Meanwhile, Germany was basically trading abroad using a similar system; it set up a series of bilateral trading agreements, where it gave a nation 800 marks worth of German products, say, for 800 marks of a nation's raw materials. Grain, copper, etc. The problem was that Germany was falling behind on its shipments and payments, and other nations were beginning to stop trading with Germany as the world economy improved.

By 1939, Germany had no gold and no foreign currency reserves left, with shortages of basic commodities like eggs in major cities. Put it all together, and things were getting messy.

Not quite there in the first bit. Regarding internal finance the Germans use debt rather than taxation to ramp up government spending and to shift resources away from the consumer to government and big business (the latter for the purpose of rearmament rather than any real political conviction.)

Also the advantage of an economy that is growing anyway is that you can move all the new production into the areas you want with a lot less fuss and fallout - people don't notice losing money that never reached them.

The problem is not that the economy will "collapse," not any time soon, the problem is that armaments programmes will have to be curtalied
(as indeed they were anyway.) Private consumption was so low that reducing consumption can, if the political will is there, be done relatively smoothly through government diktat.

The plunder from the conquests is of course useful but that's not the real advantage of the war starting, which was political, enabling the Nazis to go to the next level in reducing private consumption and enhancing military spending. Also of course the filip provided by the economic gains of the Nazi-Soviet Pact.

Overall though the Nazi external debt situation is not too bad - international debts had halved, and even with Soviet resources 39-41 the Nazi war effort was less external resource dependent than the British. The problem is the sheer scale of Nazi ambition more than anything else.
 
Not quite there in the first bit. Regarding internal finance the Germans use debt rather than taxation to ramp up government spending and to shift resources away from the consumer to government and big business (the latter for the purpose of rearmament rather than any real political conviction.)

The problem was that the debt still had to be paid. I also think you're underestimating the potential of economic collapse. Germany was running on fumes, with shortages of major consumer goods and signs of discontent within Germany. I agree that the regime won't collapse, but a party that came to power on a pledge to restore prosperity will have problems when the Berlin Stock market tanks. Again.

Overall though the Nazi external debt situation is not too bad - international debts had halved, and even with Soviet resources 39-41 the Nazi war effort was less external resource dependent than the British. The problem is the sheer scale of Nazi ambition more than anything else.

It's not clear to me how the external debt situation is relevant; it's the internal debt situation that seems to be the one that matters, since Germany was trying to seal itself off from the world economy as much as possible.
 
The problem was that the debt still had to be paid. I also think you're underestimating the potential of economic collapse. Germany was running on fumes, with shortages of major consumer goods and signs of discontent within Germany. I agree that the regime won't collapse, but a party that came to power on a pledge to restore prosperity will have problems when the Berlin Stock market tanks. Again.

Was there serious discontent? No-one seems to have produced any serious evidence of any unusual levels? It's all very well to talk of consumer goods shortages (and were these worse than normal?) but when the solution to it was to declare war and half the production of consumer goods you have to question how much of a problem this was.

Also there is so much room for cutting military spending that things can be turned around quite quickly - they managed with the early '39 export drive after all/

It's not clear to me how the external debt situation is relevant; it's the internal debt situation that seems to be the one that matters, since Germany was trying to seal itself off from the world economy as much as possible.

The internal debt was just money moved around the country, you can just levy extra corporate profit taxes to get round it. You can devalue it by printing (risky obviously in post-23 Germany but Schacht basically did that and hid it,) or you can introduce compulsory saving and borrow that. It's just a question of government extraction - internal debt can be taxed, or filched, back.

Internal debt is about running out of money, but war economies run out of resources first, and this was the potential Nazi problem in 1939.
 

General Zod

Banned
That's a difficult question - but I'd probably say 'yes' myself. By 1939, Hitler is absolutely convinced that some form of war between the great powers is inevitable (even if he doesn't necessarily desire war with Britain - yet).

Actually, he is not. He is absolutely convinced he must swiftly proceed on his timetable to bring rump Czechoslovakia and Poland under his control, and establish a sphere of influence over Eastern Europe in 1939-40, as the proper springboard for Barbarossa in 1941. War with Britain and France was contemplated, if ever, in 1942-43, after the Russians were subdued (albeit he always hoped to be able and convince Britain to become an ally). War with Britain and France in 1939-40 about his expansion in Central and Eastern Europe was something he contemplated and was prepared to accept, rather than giving up his expansionist schedule, but did not actively and purposefully seek it, as he did for war with the USSR.

Hitler is 'forced' into war in 1939 by two factors - one) his own demented assumption that war is inevitable and two) the fact that by 1939 Germany has NOTHING to gain by delaying that war. Combined British and French industrial capacity not only exceeded that of Germany in 1939, but what’s more they both had massive and accelerating rearmament programmes that German industry couldn’t match. By delaying the war, Hitler slowly sacrifices the military lead on the ground and in the air that he has painstakingly built up over the previous four years. So why wait?

Hitler is "forced" into war into war in 1939 by his unwillingness to compromise on his Barbarossa plans, which require him to control Cezchoslovakia, Poland, and Romania (Hungary is already in his pocket) one way or the other, since the Soviets are rearming at a breakneck pace, and the German advantage shall close after 1941-42, his failure to acknowledge that post-Munich rump Czechoslovakia might be made a satellite by other, less brutal means and invading it shall completely wreck his international credibility, and his complete inability to set up a decent casus belli with Poland.

According to his original plans, he would, if Britain cannot be persuaded to become a partner, turn on the Western Democracies after Russia has been conquered and its resources made available for the Reich economy. The issue in 1939 from Hitler's PoV was Britain's unwillingness, after the invasion of Czechia, to continue the strategy of appeasement towards German expansion in Central and Eastern Europe, and in perspective, friendly neutrality in Germany's struggle with the USSR. If Britain turns hostile, indeed better to fight them in 1939 than later. If not, he is not going to pick a major fight that only delays the main objective, Barbarossa. Hitler knows that 1930s-1940s France shall never backstab him without British support, the French just don't have that much will to fight.
 
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Was there serious discontent? No-one seems to have produced any serious evidence of any unusual levels? It's all very well to talk of consumer goods shortages (and were these worse than normal?)

Yes, they were; so you had graffiti in Berlin like "No eggs, no butter, but a new Reich Chancellery".

Also there is so much room for cutting military spending that things can be turned around quite quickly - they managed with the early '39 export drive after all/

There's an argumetnt the drive wasn't really working. The best book, which comprehensively goes into these issues, is A Low Dishonest Decade, which is basically on the Nazi Economic Crisis. I highly reccommend it, because it does a better job explaining it than I can.
 
The internal debt was just money moved around the country, you can just levy extra corporate profit taxes to get round it. You can devalue it by printing (risky obviously in post-23 Germany but Schacht basically did that and hid it,) or you can introduce compulsory saving and borrow that. It's just a question of government extraction - internal debt can be taxed, or filched, back.

I'm not so sure it's such a small problem.

Consider the MeFo bills of exchange. These were issued to the tune of 12 billion RMs – by a front company whose paltry capital was 250,000 RMs! The only reason why this system did not come crashing down was that the Reichsbank was of course an accomplice, discounting the bills when asked, and shaving a 4% interest on the operation. But the majority of the holders of such bills decided to keep them until maturity – and not coincidentally, a batch that was coming due in 1939 got procrastinated to 3 years later.
Now suppose there is some economic shake-up in early 1939 and a sizable number of MeFo bill holders – mostly intermediate companies that supplied the big armaments producers – simultaneously decide to give up that 4% to the state, but to cash some actual money immediately? The Reichsbank may very well not have enough money.
Sure they can print more – and you don't need to be told the risk of that, considering that the MeFo bills were exactly the "hidden" print runs.

Alternatively, the state can borrow more from its own citizens. But if there has been some such event, that might well be a perfectly casual one, such as a private or semi-private banking institution going bust, that has shaken the investors' confidence… well, maybe the small investors decide to keep their banknotes under the mattress, instead of buying some state securities. Remember, the state securities saw the same delaying trick as the MeFo bills, an issue of 1935, for instance, suddenly doubled its duration. In OTL, the holder was happy because he still got yearly dividends – bu the fact was that the state was barely able to give him those, and would never have been able to give him the principal back. If a sizable number of citizen decide that they will give up those interests, but will keep their money rather than seeing it back in 1945 or 1950?

OK, a dictatorship can make savings compulsory. This is possible – but my assessment is that it will destroy what remains of the investors' confidence (the consumers', too, but let's say that is less important considered the small size of the consumer market at the time). The usual list of woes will ensue.

Foreign investors (and there still were) will in all likelihood stop buying German state securities. Those (both foreigners and citizens) who have them, will try to negotiate them. More MeFo bills will be taken to discount, aggravating the cash flow problems of the Reichsbank, and at the same time, companies will start refusing those bills still around as a form of payment. The suspect nature of those bills will taint other, perfectly legitimate bills of exchange and similar forms of transaction. Companies will start defaulting, and banks too. As you know, all of these effects have a tendency to snowball.

Now let's look at a comfortable self-employed professional. He owns some state securities whose reliability is plummeting, and he's been told he'll have to wait until 1947 to get his money back. He has invested in one of those accumulation programs to buy a Volkswagen and he has just been told that while he should be entitled to his car now, there have been unforeseen delays in the deliveries. His brother is an employee who has just been laid off by a firm that's gone bankrupt. His wife complains she can't find good meat any more. A friend has told him that he's going to clean his bank account because he fears the bank will go legs up.
Now his government tells him that a certain percentage of his income _must_ be invested in more state securities. His taxes are already quite hefty. What do you think he'll do?



Internal debt is about running out of money, but war economies run out of resources first, and this was the potential Nazi problem in 1939.

That too, of course.
 
There's an argumetnt the drive wasn't really working.

There is an interesting connection with the diplomatic history here; it was the German overtures (read threats) to Romania wrt yet another bilateral agreement that spurred Tilea to basically ask for British help, which in turn gave way to, you guessed it, a British guarantee.
 
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