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Deficit Spending in the Nazi Recovery, 1933-1938: A Critical Reassessment

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  • Albrecht Ritschl

Abstract

This paper examines the effects of deficits spending and work-creation on the Nazi recovery. Although deficits were substantial and full employment was reached within four years, archival data on public deficits suggest that their fiscal impulse was too small to account for the speed of recovery. VAR forecasts of output using fiscal and monetary policy instruments also suggest only a minor role for active policy during the recovery. Nazi policies deliberately crowded out private demand to ensure high rates of rearmament. Military spending dominated civilian work-creation already in 1934. Investment in autobahn construction was minimal during the recovery and gained momentum only in 1936 when full employment was approaching. Continued fiscal and monetary expansion after that date may have prevented the economy from sliding back into recession. We find some effects of the Four Years Plan of late 1936, which boosted government spending further and tightened public control over the economy.

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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 068.

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Handle: RePEc:zur:iewwpx:068

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Keywords: Nazi recovery; deficit spending; work-creation; war preparation; VAR forecasts;

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  1. Cohn, Raymond L., 1992. "Fiscal policy in Germany during the Great Depression," Explorations in Economic History, Elsevier, vol. 29(3), pages 318-342, July.
  2. Garvy, George, 1975. "Keynes and the Economic Activists of Pre-Hitler Germany," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 391-405, April.
  3. Harold L. Cole & Lee E. Ohanian, 2001. "New Deal policies and the persistence of the Great Depression: a general equilibrium analysis," Working Papers 597, Federal Reserve Bank of Minneapolis.
  4. Ritschl Albrecht & Spoerer Mark, 1997. "Das Bruttosozialprodukt in Deutschland nach den amtlichen Volkseinkommens- und Sozialproduktsstatistiken 1901-1995," Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook, De Gruyter, vol. 38(2), pages 27-54, December.
  5. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, December.
  6. R. J. Overy, 1979. "The German Motorisierung and Rearmament: A Reply," Economic History Review, Economic History Society, vol. 32(1), pages 107-113, 02.
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Cited by:
  1. Nicolas-Guillaume Martineau & Gregor W. Smith, 2014. "Identifying Fiscal Policy (In)effectiveness from the Differential Counter-Cyclicality of Government Spending in the Interwar Period," Working Papers 1290, Queen's University, Department of Economics.
  2. Pfeffer, Claus-Peter, 2011. "Resolving economic deadlock," MPRA Paper 32221, University Library of Munich, Germany.

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