Germany Recovers from the Depression

Like most other economies, Germany's economy had hit bottom in 1932. Under Hitler, the strategy for recovery was largely the work of his economics minister, Hjalmar Schacht, a conservative willing to ignore free market liberalism. Schacht forbade the sending of money out of Germany. He reduced foreign trade largely to barter agreements (trade without money) and he put strict limits on imports -- all to keep wealth within the country. Under Schacht, private industry was compelled to reinvest its profits in manufacturing approved by the state. And crucial to Germany's recovery was government spending, much of it on public works, the most visible of which was a new highway system -- the autobahn -- which the army wanted for more efficient movements within Germany. There was also an electrification program, and government investment in industry. One third of Germany's income had as its source government payments and investments -- almost three times the percentage being spent by the U.S. government. And, as in Sweden, the government debt that Schacht was creating was quickly offset by the recovery in revenues that came with the rise in the economy.

Wages and the standard of living remained relatively low for Germans, but the aim of the government was increased industrial production of non-consumer goods. Unemployment was falling, and business optimism returned. In 1935 compulsory labor service was introduced, and unemployment was reduced further as tax incentives were introduced to persuade women to leave the labor force, to return to what was considered traditional for German women: cooking, children and church attending (küche, kinder und kirche).

Re-armament (in defiance of the Paris Peace Conference) helped boost Germany's economy, and without independent trade unions, Germany could keep its wages low and it prices stable. Hitler's economy remained low in productivity, as there was little incentive, and some disincentives, to innovate -- the usual incentive for innovation being high profits, which in Germany were heavily taxed. But by 1935, Germany's farmers were prospering, and industrial production was above its 1929 level and rising rapidly. [note] German workers had the right to try their employers in special courts in order to protect themselves from abuse. Although their wages were low, German workers were working and felt more secure. Some were saying that Hitler had saved them from starvation. The German people were grateful to Hitler for his having brought economic recovery.

Paul Kennedy, The Rise and Fall of the Great Powers, p. 299.