There is a common saying that war is good for the economy, I have never understood this. To me its almost an oxymoron. How can it be good for the economy to spend crazy amounts on building bombs, tanks, planes, finance an army etc etc
Hitler built the Autobahn, he lowered unemployment.He expanded the army and in other ways built the giant German war machine
Germany was of course in deep depression at the time with crazy inflation rates.
How did he finance this? Where did the money come from?
He didn’t have enough, which was obvious when he went up against Russia. Hitler had weird ideas about women working in factories and wouldn’t allow it, while in Russia, if you could fog a mirror, you were put to work.
Hitler didn’t finance the Army out of his back pocket. He ran a country, which by 1933 had mostly recovered from the Depression ahead of the rest of the world by going off the gold standard early. (Hyperinflation was of course a full decade in the past. Deflation was the big worry globally.)
Countries have taxes. Taxes can be used for many things from social programs to infrastructure to weaponry. China, today, uses about 50% of its taxes on infrastructure, which is how it can keep building cities, highways, high-speed trains, and everything else. However, there is no safety net, no social programs, which is why the Chinese need to save such a high percentage of their money rather than spend it in a consumer society.
Germany wasn’t all that different. Hitler mostly did not spend taxes on people, he spent it on things. Many of those things also helped the country, especially companies who could more easily sell their products to other countries and bring in a favorable trade balance, also like China is doing today.
The U.S. worked on a similar basis from 1942 to 1945, when the country collected higher taxes and got the population to buy record amounts of bonds to fund the war effort.
Whether such a strategy is sustainable for the long haul is questionable. But that wasn’t an issue. Germany just had to sustain it long enough to achieve its goals.
It didn’t. The U.S. did. Whether China will is the big issue of our times.
War is good for the economy because everyone is presumable working toward a common purpose and are willing to make sacrifices in that cause. I don’t know much about Hitler’s case but the infrastructure was certainly there in Germany and I suppose he used whatever state funds were available (taxes and such) to put people to work on military projects rather than social projects or supporting royalty or wherever it was going before.
Also the economic expansion and rearmament was financed by a large deficit, partly hidden in the form of Mefo bills. A gamble with the state’s finances that would only have worked out in the long term with a successful war (i.e. armed robbery writ large).
great answers! But were there also private investors? Or was it all tax-based? Taxes has to come from somewhere. Is the answer that he cut down on social well-fare (not the impression that I get)
He must have an amazing amount of money to finance this machine. If wellfare was cut down, wouldnt the people protest. My non-scholar understanding was that people in most levels of socciety were happy with this new “maverick”. (minus the minorities of course)
To boil it down how can you spend money that you do not have? The money had to come from somewhere right. Taxes? is that the answer?
Roosevelt did not lift the U.S. out of recession through the New Deal. He was able to alleviate the pain, but the economists on both sides thought deficits were the devil. Every time the economy restarted, Congress and Roosevelt would rush to cut the deficit and the economy tanked. Until the war. Look at the percentage of debt as a fraction of GDP in this chart. That killed the Depression.
Governments can fund programs in a variety of ways, but all of them essentially fall on the principle that people think that the government is a safe investment. Safer, in fact, than other types of investments. That’s how the U.S. can run deficits today. Everybody in the world trusts the U.S. government to return its money plus interest. That money, as said above, strengthens the entire economy. A strong, active economy, which the U.S. has today despite its problems, allows its people to spend money to improve their lives and to save money to better their futures.
Germany had been the strongest country in continental Europe for about a century and had vied successfully with Britain for the top spot overall since formally forming the country in 1871. It had the strongest industries and a large percentage of the brightest people. Every other country in Europe was torn, after WWI, between its desire to keep Germany militarily weak and its need to make Germany economically strong. That’s why devices like the Mefo bills were needed. Even without those, Germany’s economy had recovered by 1933. It’s not surprising that the strongest economy in Europe could out-fund others in internal infrastructure. And it’s not surprising that a dictatorship that could control what industries to promote and make a concerted effort to rearm would be successful at diverting its money to one sector of the economy.
We keep hearing today across the Arab world that people have been willing to put up with dictatorships as long as they kept the country safe and stable. It’s only after decades of corruption and abuse that the deal turns sour. Germany under Hitler didn’t last long enough to get to that stage. It was prosperous, stable, and recovering from past humiliations. The money was there. All it had to do was focus it in a way that no other country, except Japan for similar reasons, was willing to do.
True enough, but they quickly outstripped German tank and aircraft production by a wide margin. Russian tank tactics weren’t near what the Panzers had, but they were bigger and better-armored, and had wider tracks to deal with ice and snow. And of course there was the whole lend-lease thing going on.
Unless you’re narrowing the definition so much that it’s no longer meaningful, this doesn’t have a penny of truth to it.
The U.S. has more money than Zimbabwe, even when that country was in the middle of hyperinflation and a bottle of beer cost 150 billion in the local currency.
The number printed on a piece of currency isn’t real, true. But what you can buy with it is. And the amount of wealth a country has is equally real and can be compared, no matter what the local currency is denominated in.
When Germany rose in the 1930s it had real wealth because it could use the wealth to do real things in the real world. It could do more than Britain or France or Italy and the results proved it. If you call that numbers on a piece of paper, you’re missing everything of value in the total concept.
They may be the exception elsewhere, but the Mexican War, the Civil War, the Spanish-American War, WWI and WWII were all very good for the overall U.S. economy. WWII ended the Great Depression, as I said above. You would expect with that history and experience that such a saying would emerge here. In fact, I bet it came about during or after WWII, although it probably started to be used sarcastically after Viet Nam.
It is a great read, but your interpretation is kind of off. Before 1933, the Germany arms industry gave many to help the Nazis get into power. This wasn’t out of altruism, but out of good business sense: Hitler was going to renounce the Versailles treaty and rearm. But once the Nazis were in power, Krupp et al profited handsomely. Hitler certainly needed money to pay them.
If there’s one key point in that book, it’s that Krupp was in business for money, not patriotism. The most glaring example came after WWI where they tried to charge the UK for using a shell which had been licensed to them by Krupp. IIRC they came up with a figure by estimating what percentage of German troops had been killed by that kind of shell.
I’d think that wars only assist national or imperial economies under certain conditions.
An obvious way is loot. The Roman Empire gained tribute and taxes by conquest, enabling an essentially parasitic state to produce nothing in terms of goods and services. Money flowed back into the conquered provinces by the purchase of luxuries.
The other obvious way is when the economy has excessive spare capacity AND the war does not cause great destruction in the nation or empire. The obvious example here is the US and WWII, but (as I believe has already been mentioned) the American economy also rose after WWI and Korea. When the US economy was already near capacity (as was the case with the Viet Nam War, I believe) the additional demand can contribute to inflation.
I’d say that Hitler’s Germany benefited-- for a time-- from a combination of both.
Money (as in currency) and wealth aren’t the same thing. Zimbabwe did have more money than the US; it was just almost worthless. I’m reminded of Cecil’s old column on What happened to all that gold Spain got from the New World? Gold was money at the time, and money then as now isn’t wealth. Land, steel, food, productive workers and businesses; that’s wealth.