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by
1929 was a pivotal year, marking the beginning of a global economic crisis known as the Great Depression. Originating in the United States, the repercussions of this severe downturn were felt across the globe. The interconnectedness of the global economy meant that the economic downturn in America had rapid and profound consequences worldwide, especially in parts of Europe. Burdened by debts to the U.S., European countries found their financial woes magnified.
Germany was one such country grappling with such challenges. The nation was already under pressure due to the reparations stipulated by the Treaty of Versailles. The treaty payments were mandated to compensate the Allied Powers for war damages. These reparations, as dictated by the treaty in 1919, placed a significant strain on Germany’s post-war economy, leading to severe financial troubles and political instability.
To meet these extensive obligations, Germany borrowed heavily from the United States, making the American economic crisis not just an external shock but a direct amplifier of Germany’s economic instability. Thus began one of the most severe economic crises in history.
As shown in Figure 1, Germany faced unprecedented levels of unemployment during the Great Depression. Between 1929 and 1933, the unemployment rate in Germany soared to over 30%, illustrating the depth of the economic hardship. The Weimar Government failed to formulate an effective strategy to counteract the depression, and poverty was at its peak.
People were desperate for stability and leadership, and it was during this tumultuous time that Adolf Hitler and the Nazi Party emerged on the scene promising a way forward. As Hitler rose to power, with him, he brought a vision for Germany that resonated with many who were disappointed and suffered due to past failures. However, little did they know the drastic measures Hitler’s regime would take to achieve its goals.
Upon assuming power in 1933, the Nazis aimed to stabilize the economy and eradicate unemployment, without initially outlining a detailed policy. A notable move to solidify business confidence was appointing Hjalmar Schacht, a respected banker, as President of the Reichsbank and later Minister for Economics.
Their main aim was to achieve Autarky (refers to the economic policy of self-sufficiency where a country aims to reduce its dependency on international trade and external resources). Their early actions focused on satisfying the business community’s fears of radical economic reforms.
Figure 2 shows that the Gross National Product of Germany was at its lowest in 1932, but slowly increased. While ethically and politically controversial, banning trade unions and imposition of wage controls were intended to stabilize labor costs and maximize the efficiency of labor input. This aligns with the concept of boosting the capital component in the Solow model, where increased capital investment within the country is expected to enhance productivity and growth.
These actions led to an increase in economic output by optimizing the use of labor and capital in production processes without the interference of labor negotiations or strikes. Labor negotiations or strikes meant straight imprisonment in the concentration camp which would in turn lead to death. However, as harsh were the methods, they did lead to a decrease in the unemployment trend. This allowed for a smoother accumulation of capital and a more predictable economic environment, tending to growth.
The economic trajectory of Nazi Germany following the Great Depression can be analyzed through the lens of capital accumulation and its subsequent impact on output and investment. Initially, the low capital stock in Germany was highly productive, resulting in significant output from the new infrastructure projects like roads and factories. the substantial investments in infrastructure and the Autobahn (high-speed highway system in Germany) significantly increased the capital stock (Tooze, 2007).
Germany’s GDP Per Capita was at its highest just before the Second World War. From 1936 to 1939, two-thirds of Germany’s industrial growth was directed towards military preparations, with an investment of up to 60% of 62 billion Reichsmark. This intense influx of capital significantly boosted employment, virtually almost wiping out the high levels of unemployment by 1938.
Nazi Germany’s initial economic revival from rearmament and expansionist policies led to notable short-term economic boosts. For instance, by focusing on infrastructure and military projects, the unemployment rate in Germany dropped from 30% in 1932 to negligible by 1939. However, the heavy emphasis on military expenditure and the neglect of consumer goods production eventually would strain the German economy, as resources were diverted away from productive investment towards war efforts.
The Nazis did not innovate new technologies but leveraged existing technologies to expand their industrial and military capacities. This approach aligns with the Solow model’s prediction that substantial investments in capital and labor can drive economic growth, however, only temporarily if not supported by technological innovation. Such growth is not sustainable in the long run without continual technological advancements, which were not a priority under the Nazi regime. The immediate economic boom thus came at the expense of future economic stability and technological progress.
With a short-term surge in GDP and a significant reduction in unemployment, Hitler aimed to pursue his central ideological objective—Lebensraum, or expansion into Eastern territories. As Figure 4 shows, most of the Nazi Budget was spent on strengthening the military as Hitler was devoted to following his key ideology of Lebensraum. In the years just before World War 2 began, Military expenses took more than 60 percent of the budget and the total debt kept increasing over the years.
Such an economic policy was inherently linked with aggressive expansionism and the takeover of occupied territories by brute force, a situation that spelled an initial surge in their economy. The partial success the Nazi economic model achieved was due to the extreme nationalist propaganda that gave the population a sense of unity under harmful ideologies. Such tactics, therefore, would not find favor in today’s open societies wherein media freedom is the norm, and access to multiple sources of information is the order of the day, without scope for any one narrative to hijack public discourse.
It is, therefore, clear as to why through weighing out each of the factors, such economic “solutions” used in the regime of the Nazis would have failed and even more so been completely rejected within the global context of today.
Bibliography
Tooze, “The Wages of Destruction,” 2007. Print.
Economists in Transition 
