Comp. by: SSENDHAMIZHSELVAN
Stage: Proof
Chapter No.: 1
Title Name:
GEYERandTOOZE
Date:2/2/15
Time:14:35:35
Page Number: 48
terms the contribution of the occupied territories was very large. As in the case
of Lend-Lease, the sheer scale and multi-facetedness of wartime economic
integration de
fied regular national accounting. There is a bitter historic irony
in the fact that our modern techniques of national income accounting reached a
new pitch of re
finement, at the moment that slave labour returned to some of
the most advanced economies of the world. But, according to the latest
calculations, France alone may have contributed one-sixth of the Reich
’s war
expenditure between 1940 and 1944. In 1943 as the German military effort
surged to 60 per cent of domestic income, a quarter of the Reich
’s military
budget was covered by the occupied territories, by means of a current account
de
ficit amounting to 16 per cent of German GDP. However, even at the height
of the Nazi exploitation of Europe, the majority of the Third Reich
’s war effort
was covered out of Germany
’s own resources. A large part came in through
taxes, the revenues of which doubled between 1938 and 1943, as wartime
earnings and pro
fits surged. On top of that, out of the Reich’s expenditure in
1943
of 153 billion Reichsmarks, 87 billion were funded through borrowing,
equivalent to almost all the Reich
’s spending on the Wehrmacht. The vast
majority of this debt was placed directly with Germany
’s financial institutions.
These then took in deposits from savers which were recycled to the state. Much
has been made of the fact that this system of
‘silent financing’ did not involve
the popular war bond drives familiar from the First World War. It has been
alleged that Hitler
’s regime shrank from a financial referendum. But, in fact, all
of the combatants relied in varying degrees on such indirect fund-raising
mechanisms. In Britain the large wartime surpluses of the health and
unemployment insurance funds were credited to the account of the National
Debt Commissioner. In the USA, the banking system, savings banks and
insurance funds provided more than enough funds to cover the cost of Lend-
Lease. Though its mechanism of
financing may have done without fanfare,
Hitler
’s regime made no secret of the crucial role that savings played in the
mobilization of the war economy. At every turn, the Volksgenossen were
loudly called upon to save for victory. Thanks to rationing and the effective
suppression of the black market their options were, in any case, limited. Rather
than thinking of institutional funding as a
flight from ‘democratic’ bond
financing, it seems more appropriate to think of ‘silent financing’ as an organiza-
tional expression of the new macroeconomic approach to public
finance that
Keynes and others had been calling for since 1939. So long as the circuit of
wages, savings, borrowing and government expenditure was maintained, the
flow of funds provided the indispensable frame for Germany’s hybrid war
economy half way between a terroristic Stalinist dictatorship and a pro
fit-driven
a d a m t o o z e a n d j a m e s r . m a r t i n
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Comp. by: SSENDHAMIZHSELVAN
Stage: Proof
Chapter No.: 1
Title Name:
GEYERandTOOZE
Date:2/2/15
Time:14:35:35
Page Number: 49
market economy. It was after the summer of 1944, when the prospect of
imminent defeat became too obvious to ignore, that in Germany too the
financial foundation of the war economy began to disintegrate. As the money
supply bloated and price incentives lost their meaning, outright coercion
became increasingly essential to maintain production.
Across Europe, Hitler
’s war bequeathed a monetary and financial disaster. In
the chaotic two-year period following Mussolini
’s overthrow, Italy’s price level
soared by a factor of
fifteen. As France was consumed by something akin to
civil war, in 1944 its price level doubled. Plans to cement liberation with an
austere anti-in
flationary policy were abandoned in favour of monetizing gov-
ernment spending. This had the effect between 1944 and 1950 of reducing
France
’s public debt as a share of GDP from 181 to 51 per cent. To undo the
financial effects of German occupation as quickly as possible Belgium, Den-
mark and Norway, as well as Poland, Czechoslovakia and Yugoslavia, carried
out wholesale currency reforms, backed up by draconian taxes on wartime
pro
fiteers. Austria introduced a new national currency in November 1945.
Meanwhile, in post-war Germany, the Reichsmark remained in circulation
and Hitler
’s price stop decree of 1936 continued to be effectively enforced. This
worked remarkably well in holding back a vast monetary overhang, which by
1947
was estimated at ten times the volume of money in circulation in 1936.
Perhaps half of this surplus purchasing power spilled over into a restricted, but
spectacularly expensive black market, where items such as butter, sugar and
stockings went for 100 times of
ficial prices. Transactions between German
civilians and the soldiers of the occupying forces were commonly denominated
in cigarettes. Meanwhile, the bulk of economic life was reduced to a rudimen-
tary level of rationing and barter. The Nazi occupation of Europe had at least
maintained a division of labour from which many farmers and businessmen in
occupied Europe had bene
fited handsomely. The question that inescapably
posed itself with the end of the war was how Germany and Europe could be
reconstructed and reinserted into a wider international economic order.
A new order?
In August 1941 in the Atlantic Charter, Churchill and Roosevelt had commit-
ted themselves to a return to a system of multilateral trade combined with
guarantees for social security and labour protections at the national level.
29
29
Elizabeth Borgwardt, A New Deal for the World: America
’s Vision for Human Rights
(Cambridge, Mass.: The Belknap Press of Harvard University Press, 2005), pp. 42
–5.
The economics of the war with Nazi Germany
49