Re: General Theory-- German Edition

["ÁÎ×Ó¹â Henry C.K.Liu ¹ù¤l¥ú" <hliu@xxxxxxxxxxxxxx>]

eperez wrote:

> In the same vein Joan Robinson once stated:
> "Hitler had already found how to cure unemployment before Keynes
> had finished explaining why it ocurred" (1972).

In 4 short years, Hitler's Germany was able turn a Germany ravaged by
defeat in war and by the liberal policies of the Weimar Republic, with
heavy foreign debt and the total unavailability of foreign capital, into
the strongest economy and military power in Europe.

How did Germany do it?
The centerpiece was the Germany's Work Creation Program of 1933-1936,
which preceded its rearmament program.
German economic policies between 1930 and 1932 were brutally
deflationary, and in 1933, Hitler was elected Chancellor out of the
chaos.

The financing of Nazi economic recovery programs drew upon credit
creation techniques already developed prior to Hitler's appointment as
chancellor.  What changed after 1933 was the government's willingness to
create massive short term credit and the government's firm commitment to
retire the debt created by that credit.
Hitler told German industrialists in May 1933 that economic recovery
required action by both the state and the private sector.  The
government's role was limited to encouraging private sector investment,
mainly through tax incentives.  He expressed willingness to provide
significant public funding only for highway projects.  Investment was
unlikely if consumer refused to spend their money, and Hitler understood
that potential consumers need  income to make purchases. To combat
traditional German fear of the social consequences of appearing better
off than their neighbors, Nazi propaganda would psychologically
stimulate the economy and develop a lust for life among consumers.
Hitler stressed on May 31. 1933 that the Reich budget must be balanced.
A balanced budget meant reducing expenditures on social programs,
because Hitler intended to reduce business taxes to promote needed
investment.  A large work program without deficit spending had to be
financed outside of the Reich budget.  Hitler resorted to ?prefinancing?
(Vorfinanzierung) by means of ?work creation bills?
(Arbeitsbeschaffungswechseln).
Under the scheme of ?prefinancing? with work creation bills (WCBs), the
Reich Finance Ministry distributed WCBs (3 months, renewable up to 5
years) to participating credit institutions and public agencies.
Contractors and suppliers who required cash in order to participate in
work creation projects drew bills against the agency ordering the work
or the appropriate credit institutions.  These credit institutions then
accepted (assumed liability for payment of) the bills, which, now
treated as commercial paper, could rediscount the bills at the
Reichsbank (central bank).  The entire process of drawing, accepting,
and discounting WCBs provided the cash necessary to pay the contractors
and suppliers.  The Reich Treasury undertook to redeem these bills,
one-fifth of the total every year, between 1934 and 1938, as the economy
and tax receipts recovered.  As security for the bills, the Reich
Treasury deposited with the credit institutions a corresponding amount
of tax vouchers (Steuergutscheine) or other securities.  As the Treasury
redeemed WCBs, the tax vouchers were to be returned to the Treasury.
Nazi Party economic experts believed that credit creation for purposes
of job creation posed no inflationary threat and that it would be a far
more responsible policy than the more conservative approach of tax
increases and balanced budgets.  Redeeming WCBs would burden the 1934-39
Reich budget, but the decline in Reich expenditure for welfare support
and other subsidies would more than off-set the redemption payments.
The surplus would be used to reduce public debt and reduce taxes.  There
were legal, political and institutional restrictions unique to Germany
on the scope of the Reichbank that virtually dictated resource to WCBs
as a means of putting 6 million unemployed Germans back to work.   But
the principle of WCBs can be applied to China to combat unemployment.

During 1933, Hitler sought to reassure Germany's business leadership
that Nazi rule was consistent with the preservation of the free market
system, because he needed the support of the industrialists.  He could
buy that support by keeping wages down during the recovery, but any
rigorous effort to curb prices and profits would alienate the business
community and slow down economic recovery.
Hitler sought to restore profitability to German business through
reduced unit cost achieved by increasing output and sales volume, rather
than through a general increase in prices (Mengenkonjunktur, niche
Preiskonjunktur- output boom, not price boom).
Adoption of ?performance wage? (Leistungslohn- payment on a price-rate
basis) increased labor productivity, thereby driving costs down and
profit up.  Some upward price movements were permitted to adjust price
relationships between agricultural and manufactured products and between
goods with elastic and inelastic demands, also to prevent price war and
below-cost dumping.

Hitler saved the German farmers from their heavy debt burden through
relief programs and through rising farm prices.  This policy increased
farm income at the expenses of the middlemen institutions and provided
price subsidy for the consumers.
Hitler sought price stability only in sectors critical to the national
economy and to the goal of rearmament.  Germany had no price policy
until the 1936 Four Year Plan which concentrated economic authority in
the hands of Goring and put finally an end to free market policy.
Business managers generally make investment and employment decisions
based on their judgment of the prospect for new orders.  The difference
between Germany's economic recovery under Hitler and America's relative
stagnation under Roosevelt in the early 1930s, was the relative
probability of new orders for goods.  Hitler made it clear that in the
near future after 1936, a major rearmament program would make heavy
demand on the nation's durable goods and capital goods industries.  With
that assurance German industry could expand with confidence.  Roosevelt
was unable to provide such ?confidence? to industry and had to rely on
anemic market forces.

Henry C.K. Liu