Economic Policy - Schacht, Goering & industrial elites

What positions did Schacht hold?

President of the reichsbank (1920-30), Reich minister of economics (1934-37), General plenipotentiary for the war economy (1935-37)

What did the economy need after the low point 1932-33 of the depression?

Needed revival of public investment through large scale spending to stimulate demand and raise national income

What is deficit financing?

raise and spend money to offer employment

Which areas did Schacht focus on to improve the economy before he became minister of economics?

• Banking and control of capital

• assistance for farming and small businesses

  • state investment through public works

How did Schacht help the banking system?

The state reduced interest rates, controlled wages and prices and rescheduled debts of local authorities

How did Schacht help farmers and small businesses?

Maintained tariffs to protect farmers, Reich entailed farm law reduced debts through tax concessions and lower interest rates

How did Schacht help with state investment?

In June 1933 the Law to Reduce unemployment was renewed and extended to 19-25 yr olds which involved rearmament, construction, transportation

Evidence of the success of state investment:

government spending increased by 70%

How did public expenditure on rearmament change from 1928 to 1936?

1928 = 0.7 billion reichsmark spent on rearmament but by 1936 = 10.7 billion reichsmark spent (BREACHING TREATY OF VERSAILLES)

How did unemployment change from 1928 to 1936?

1928 = 1.4 million, 1932 = 5.6 million (LOWEST POINT OF DEPRESSION), 1936 = 1.6 million

How did industrial production change between 1928 to 1936?

Industrial production in 1936 had exceeded production pre-depression

Why did industrial production improve so much?

loans and tax relief to private companies

What was so successful about Schacht’s initial economic policies?

The turnaround in investment and unemployment was a major achievement whilst still controlling the government public deficit by keeping taxes relatively high and encouraging private savings in state banks

Why wasn’t inflation a problem under Schacht?

lack of demand in the economy alongside strict controls on prices & wages controlled inflation

What were the underlying problems of Schacht’s initial policies?

TRADE DEFICIT as Germany was importing more raw materials while failing to increase exports alongside the dwindling gold and foreign currency reserves

What were the political consequences of trade deficit?

Foreign currency was needed to buy foreign goods but Schmitt who was minister of economics at the time wanted to reduce unemployment by producing consumer goods rather than increasing rearmament so Schacht replaced Schmitt as minister of economics (combining minister & president of Reichsbank)

What was Schacht’s 1934 New Plan?

Plan to control all aspects of trade including tariffs, capital and currency exchange

How did the New plan control trade?

• Trade treaties (agreements with south esastern Europe like Romania and Yugoslavia which gave Germany political and economic influence over the balkans)

• Reichsmark (Germany purchased raw materials from countries only if reichsmark was used to buy German goods)

  • Mefo bills

How did mefo bills work?

Government paid private companies for military equipment and service using credit notes in return for being able to cash these bills at any time with the Reichsbank. BUT… the gov didn’t want bills to be cashed in so they added a 4% annual income to incentivise people to keep their bills for as long as possible so… gov basically borrowing money from companies without having the actual funds

What were the benefits of mefo bills?

Gov paying with credit notes rather than printing money so prevented inflation and the scheme allowed rearmament to happen in secret as it wasn’t in official gov accounts

Pros and cons of 1934 New plan:

PROS - mid 1936 unemployment had fallen to 1.5 million, industrial production risen by 60% since 1933 and GNP rose by 40%

CONS - balance of payments still problem

When was the Four Year Plan?

1936

What was Schacht’s plan to fix trade deficit?

Increase exports to balance out level of imports by cutting rearmament and producing more industrial goods to be exported

Why did Hitler disagree with Schacht’s plan to fix trade deficit?

Wanted to go to war in 1940 so needed armed forces and economy ready so he appointed Goring as Director of the Four year plan

What did the 4 Year plan include?

Expanding rearmament programme (prioritising chemical and metal sectors for imports over agriculture, increased domestic production of steel / iron / aluminium, developing substitute products) and focus on autarky (self-sufficiency) in raw materials and food so not relying on expensive imports

What were the pros of the Four Year plan?

Production of key materials such as aluminium and explosives did expand, Germany’s reliance on imports hadn’t increased

What were the cons of the four year plan?

Rubber, oil and arms production didn’t meet targets, Germany still reliant on foreign supplies for 1/3 of raw materials so not fully autarky, Germany’s armed forces or economy NOT READY FOR LOGN WAR IN 1939!

How did the Four Year Plan affect the Industrial elites?

• The more influential companies now involved with rearmament no longer heavy industries under Schacht

• Ruhr - barons of coal, iron, steel industries lost out in power (now state owned industrial plants)

  • Elites had less contribution to economic policy as political decisions based on foreign and military policy was the main factor

Which factors proved Germany didn’t have a war economy in peacetime?

• Hitler’s limited prep as only prepared for a short war, total war economy only needed after defeat at Stalingrad

• Expansion had been to fast as shortages of raw materials, food, and consumer goods, labour shortages, negative balance of trade, gov spending grew

• Massive economic mobilisation but didn’t have the time as it was planned for total war by 1943 but war came 4 years too early and war wasn’t supposed to involve Britain & France