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2021 | OriginalPaper | Buchkapitel

6. Risk Sharing Macroeconomic Policies

verfasst von : Putri Swastika, Prof. Abbas Mirakhor

Erschienen in: Applying Risk-Sharing Finance for Economic Development

Verlag: Springer International Publishing

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Abstract

This chapter presents important dimensions of Germany’s macroeconomic policy during the first three years of the Third Reich and analyzes its underlying principles. The reason for the choice of this timeframe is that policies implemented during this period allowed the German economy to recover from its deep depression at a startling rate as unemployment declined significantly to permit the resumption of high rate of economic growth.

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Vorheriges Kapitel The Foundation of the German Economy: Concept and Practices

The Government undertook a deflationary policy. It attempted to reduce the operational budget by reshaping their organizations and laying off staff. The remaining officials received reduced salaries by 6% (1930), then, by 1931, up to the total of 21%. The Government also increased taxes on wages from 1 to 5%, and other taxes such as sugar and profit. Unemployed insurance was cut off; wages, rents, and interest rates were also reduced. These measures lowered the living cost, but stressed the crisis condition. As a result, the government increased expenditure on unemployment relief (or Erwerbslosenfürsorge) from 1.8 billion RM in 1929 to 2.7 billion in 1930 and to 3.2 billion in 1931. This policy was summed in Brüning’s “Emergency Decree”.

Guillebaud (1939, p. 30), Schmidt (1934, p. 57), stated that the lowest level of general industrial and economic activity was reached in August 1932, but without the monthly or quarterly statistical data to support the argument. Guillebaud (1939, p. 30, ft. 1) pointed to the similarities in the country’s condition in 1919 and 1932, “the factories were idle, the streets full of beggars; and unemployment, poverty and decline everywhere apparent.".

Guillebaud (1939, pp. 20–21) stated that in September 1930, the Reichsbank lost 700 million RM in gold and foreign reserves. From end-May to the mid-July 1931, the Reichsbank lost nearly 2 billion RM in gold and foreign exchange. Despite the Hoover moratorium, capital withdrawals continued. By summer 1931, reserves dwindled to less than 1 billion RM.

“Es dürfen nur solche Arbeiten gefördert werden, die volkswirtschaftlich wertvoll sind und die der Eigentümer aus eigener finanzieller Kraft in absehbarer Zeit nicht würde ausführen können.” (Vossische Zeitung, 1933) (Only work may be promoted that is economically valuable and that the owner would be unable to carry out from his own financial capacity in the foreseeable future.).

The minimum redemption fund was supplied from the collection of grants of the State- and local-government and other public entities, and voluntary donation from the revenue of government’s interest-bearing lending.

“Die Freiwillige Spende zur Förderung der nationalen Arbeit kann geleistet werden durch: 1.Zahlung an ein Finanzamt, Hauptzollamt oder Zollamt; 2. Hingabe von Schatzanweisungen oder Schuldverschreibungen des Deutschen Reiches, der deutschen Länder, Gemeinden und Gemeindeverbände. Mit Schuldverschreibungen sind Zins- und Erneuerungsscheine hinzugaben. Mit der Hingabe gehen die Schatzanweisungen und Schuldverschreibungen (nebst Zins- und Erneuerungsscheinen) in das Eigentum des Arbeitschatzanweisung-Tilgungsstocks über; 3. Abtretung von Forderungen, die in das Schuldbuch des Deutschen Reichs, eines deutschen Landes, einer deutschen Gemeinde oder eines deutschen Gemeindeverbandes eingetragen sind. Die Abtretung ist zugunsten des Arbeitsschatzanweisungs-Tilgungsstocks zu erklären” (Vossische Zeitung, 1933).

(“The voluntary donation for the promotion of national work can be made by: 1. Payment to a financial office, main customs office or customs office 2. Surrendering treasury notes or debts of the German Reich, the German lands, municipalities and municipal associations. With this surrender, the redeeming certificates, treasury notes and bonds (together with interest and renewal certificates) become part of the eradication and repayment sum to the treasury. 3. assignment of claims placed in the debt register of the German Reich, German country, German municipality or German municipal council, and the assignment is to be declared in favour of the repayment of the treasury (Vossische Zeitung, 1933)).

The donated amount could be used to deduct either income tax, corporation tax, property tax, or taxes on sales.

Apart from the work-creation programs was the marriage loan. Marriage loan was a non-interest lending given to new wedding couples to encourage marriage, aiming to increase population after the War. The mechanism for the loan was simple. New couple might apply for up to one thousand Reichsmark loan before marriage, but the amount could only be disbursed after marriage. The repayment was to be made on date ten of every month, and amount of installment was as low as one percent of the total loan. For each child of the marriage born, the couple received 25% remittance of the loan. But there was one condition for the application that the woman was a current worker and had been working for a stipulated duration. Accordingly, the government had disbursed 523.000 loans or a total sum of 300 million Reichsmark at the end of 1935 (Grebler, 1937, p. 334).

The Speech of Hitler to the Reichstag in March 23, 1933. Hitler, EntgegennahmeeinerErklärung der Reichsregierung, 1933 (Acceptance of a Declaration by the Reich Government, 1933) Source: http://www.reichstagsprotokolle.de/Blatt2_w8_bsb00000141_00036.html.

This definition was introduced by Grebler, in a report prepared for International Labour Conference, entitled: Work-Creation Policy I, 1937, p. 345.

This was under the scheme of the Second Reinhardt Program. Details on the program are explained in later discussion.

One of the items on motorization plan was the roads construction. Numerous studies have concluded that the Weimar Republic started the road construction earlier than the Third Reich. The Weimar government constructed Cologne-Bonn toll (Autobahnstrecke) and was open for traffic in August 1932. The regime also initiated a large scale toll-ways from Hannover to Frankfurt am Main and to Basel (HAFRABA line), but never succeeded to complete it due to financing problem.

The construction projects of roads, canals, and bridges (or Tiefbau) had already taken place since the late 1932. However, the project Autobahn was only launched under the Third Reich.

As for initial capital, RAB received 50 million Reichsmark from the Reichsbahn. This 50 million Reichsmark was later converted to non-interest bearing loan to the parent company in 1938.

Nur diedarlehenweise Verausgabung sollte geschehen zur Förderung solcher Arbeiten, “die volkswirtschaftlich wertvoll sind und die der Träger der Arbeit in absehbarer Zeit nicht würde ausführen können.” (The only loan to disburse should be to promote such work “which are of economic value and which the worker cannot fulfil in the foreseeable future”).

The subsidy was granted to house-owners who “spent from two to four times the amount of the subsidy out of his own or borrowed resources ” (Guillebaud, 1939, p. 40). The Reich also allocated 360 million Reichsmarks for interest-subsidy for the home-owners who borrowed money to spend on the construction, in the amount of 4% of the borrowed money for six years (to be redeemed by the Reich between 1934 and 1939) (Schiller, 1936, p. 56).

“They have proceeded along the common-sense lines that work and production alone constitute the real source of the wealth of a community, and have relegated money to the subordinate though very important role of financing investment in all its forms, including output of every kind -but chiefly output in the production goods industries; and they have left it to the investment and employment thus created to produce incomes and savings” (Guillebaud, 1939, p. 214).

Schiller (1936, p. 132) stated slightly different data. According to Schiller, two thirds of 2600 million Reichsmark of the circulated bills were discounted at the Reichsbank and one third of the bills were absorbed by the banks (as liquid asset) and in the market.

“Because the Reichsbank’s legitimate function was to finance the real requirements of trade, commerce, and industry, the 1924 law placed no limit on the Reichsbank’s discounting of commercial paper. Under the 1924 law, the Reichsbank could participate in the financing of public work-creation programs only by invoking the Reichsbank’s unlimited authority to rediscount commercial paper” (Silverman, 1998, p. 31).

“In the process they have adopted what, in appearance at least, has been a purely inflationary policy, in as much as the money… has been created by the Reichsbank and the banking system in advance of the production of wealth-though not, be it noted, in advance of the orders to produce wealth” (Guillebaud, 1939, p. 214). Because of direct involvement of financial institutions to the pre-financing, therefore, the work-creation bills were “the most conservative, responsible, temporary means of financing the creation of jobs for Germany’s six million unemployed” (Silverman, 1998, p. 31).

“The Reichsbank’s leading role in financing public work creation programs between 1932 and 1935 took the form of offering rediscount privileges for several types of work-creation bills. The Reichsbank’s offer, however, did not necessarily mean that every outstanding bill would be presented to the Reichsbank. It was hoped and expected that, as the economy recovered, banks would view these bills as first-class securities—that is, as securities worth holding in their own portfolios” (Silverman, 1998, p. 31).

Hoover moratorium, named after US President Herbert Hoover, declared to postpone all payments, both interest and principal, of reparations and war debts for one year period, from December 1931 to 1932. This proposal was intended to ease debtor countries in the midst of the global financial crisis.

The bills were redeemed if the government viewed that conditions for redemption were satisfied (Army Service Forces Manual M356-5 Civil Affairs, 1944; Guillebaud, 1939, p. 35;).

“If there is in existence a large stock of surplus resources that are not very inferior to the worst of those that are being employed, the elasticity of supply is likely to be very large indeed up to the level of output at which this surplus would be becoming inappreciable. If output is no carried above this level, an expansion of employment bears with it only a very small rise of prices. The greater the depth of the depression, the greater is the expansion of employment that is associated with a given rise in prices. And the greater the expansion of employment that has already been secured by a policy of road-building, the greater is the rise in prices that accompanies a given further expansion of employment; for the short-period supply curve is concave upwards” (Kahn, 1931, p. 182).

Hitler explained to the Reichstag on the general principle of the law for Removing the Distress of Volk and Reich (Das Gesetz zur Behebung der Not von Volk und Reich). He stated: “The proposed reform of our tax system must result in a simplification in assessment and thus to a decrease in costs and charges. In principle, the tax mill should be built downstream and not at the source. Because of these measures, the simplification of the administration will certainly result in a decrease in the tax burden...” (Hitler, Entgegennahmeeiner Erklärung der Reichsregierung, 23 March 1933, http://www.reichstagsprotokolle.de/Blatt2_w8_bsb00000141_00036.html). This tax-remission certificate, among others, was one of the economic policies that were kept by the NSDAP government because it aligned with the regime mission to simplify tax system and decrease costs and charges.

Guillebaud (1939, p. 210) wrote: “The Germans are fond of the slogan ‘MengenkonjunkturstattPreiskonjunktur’, by which they mean that their objective is a boom expressed in volume of output and not in value due to price rises”.

Army Services Forces Manual M356-5 Civil Affairs. (1944). Military government handbook: Germany.

Baerwald, F. (1934). How Germany reduced unemployment. The American Economic Review, 24(4), 617–630.

Board of Governors of the Federal Reserve System. (1936, May). Federal Reserve Bulletin.

Cole, H.L., & Kocherlakota, N. (1998). Zero nominal interest rates: Why they’re good and how to get them. Federal Reserve Bank of Minneapolis Quarterly Review, 22(2), 2–10.

Deutsche Bundesbank (2005). Deutsches Geld-und Bankwesen 1876 bis 1945. GESIS Datenarchiv, Köln. ZA8222 Datenfile Version 1.0.0. https://doi.org/10.4232/1.8222.

Feinstein, C. H., Temin, P., & Toniolo, G. (2008). The world economy between the world wars. Oxford University Press, Inc.

Grebler, L. (1937). Work creation policy in Germany, 1932–1935 : I. International Labour Review, 35, 329.

Guillebaud, C. W. (1939). The economic recovery of Germany from 1933 to the incorporation of Austria in March 1938. Macmillan.

Hetzel, R. L. (2002). German monetary history in the first half of the twentieth century. Federal Reserve Bank of Richmond Economic Quarterly, 88(1), 1–35.

Hitler, A. (1933a). Aufruf an das Deutsche Volk.

Hitler, A. (1933b, March 23). Entgegennahmeeiner Erklärung der Reichsregierung. http://www.reichstagsprotokolle.de/Blatt2_w8_bsb00000141_00036.html.

Katona, G. M. (1934). How real is the German recovery? Foreign Affairs, 13(1), 26–44.

Katona, G. M. (1936). The “Miracle” of German recovery. Foreign Affairs, 14(2), 348–350.

Overy, R. J. (1975). German economic recovery. Clarendon Press.

Schiller, K. (1936). Arbeitsbeschaffung und Finanzordnung in Deutschland. Zum Wirtschaftlichen Schicksal Europas: Arbeiten zur deutschen Problematik.

Schmidt, C. T. (1934). German business cycles 1924–1933. National Bureau of Economic Research No. 25.

Silverman, D. P. (1998). Hitler’s economy: Nazi work creation programs, 1933–1936. Harvard University Press.

Teutul, C. (1962). Die Funktion der deutschen Notenbank bei der Staatsverschuldung, Deutsches Reich 1914 bis 1945.

Vossische Zeitung. (1933, June 2). Das Gesetz Gegen Arbeitslosigkeit. Vossische Zeitung-Morgen Ausgabe. Berlin.

Wolfe, M. (1955). The development of Nazi monetary policy. Journal of Economic History, 15(4), 392–402.

Titel: Risk Sharing Macroeconomic Policies
verfasst von: Putri Swastika
Prof. Abbas Mirakhor
Verlag: Springer International Publishing
Buch: Applying Risk-Sharing Finance for Economic Development
Print ISBN: 978-3-030-82641-3

Electronic ISBN: 978-3-030-82642-0

Copyright-Jahr: 2021
DOI: https://doi.org/10.1007/978-3-030-82642-0_6

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