A debate is playing out in the German-speaking media about whether inflation or deflation was behind the rise of Adolf Hitler in the 1930s. Conservative economists have been arguing that public overspending and the 1923 hyperinflation destroyed the middle class and thus paved the way for the National Socialists. Most recently, Hans Werner Sinn, a well-renowned economist and former chairman of the Ifo Institute for Economic Research, reiterated that argument in an interview with Swiss newspaper Neue Zürcher Zeitung (NZZ), saying: ‘People lost their savings and life insurances which became worthless. Ten years later, Adolf Hitler became chancellor. I don’t say that something like that will happen again, but we need policies that prevent it from the outset. We need tighter budget limitations.’
But not everyone agrees with that analysis of how Hitler came to power. In an op-ed for business newspaper Handelsblatt two weeks later, Philipp Heimberger from the Vienna Institute for International Economic Studies argued that the response of the German government under chancellor Heinrich Brüning to the Great Depression was mainly responsible for the election results in the early 1930s which saw the National Socialists winning up to 43.9 per cent of the vote.
In 1930, Brüning started increasing taxes, decreasing public spending and lowering wages in an attempt to revive Germany’s export. However, his deflation and austerity measures failed because trade partners increased tariffs and were less and less interested in importing products. Ultimately, Germany’s unemployment rate rose while working and middle-class people had no social safety net once they were out of a job. Heimberger quoted recent research that correlated votes in the fateful March 1933 elections against unemployment. ‘The analysis from data from the four elections between 1930 and 1933 show that voters in regions that were affected more strongly by budget cuts and tax increases gave the National Socialists proportionally more votes and helped Hitler to win,’ he wrote.
As so often with disputes about historic causalities, the truth lies somewhere in the middle. The hyperinflation of 1923 weakened the middle class and made many Germans more suspicious about the Weimar system. Research has shown that a significant portion never fully trusted democracy and the democratic institutions which were put in place following World War I. After a few years of relative economic upturn partly due to increased public spending, the global economic crisis hit a fragile German economy hard. Brüning’s response was one of the death nails to German democracy, though he already governed based on ‘emergency decrees’ signed by the president under article 48 of the Weimar constitution. This style of government eliminated the legislative power of the parliament and also opened a door to Hitler operating on such decrees in 1933.
Government policies were not the sole factor that crippled the economy, as Germany also had to continue carrying the heavy burden of World War I reparations. But Brüning represented a system that already seemed at its last gasp when he came into power. Hitler himself viewed Brüning’s austerity measures as a chance to gain even more votes from the lower classes, saying that these measures ‘would help us to win and end the illusions of the current system’. The study Heimberger quoted in his op-ed adds to the argument that austerity elevated the position of the National Socialists but it also doesn’t tell the entire story. Those regions that were affected by social spending cuts the most were already socially and economically weak and thus vulnerable to populistic rhetoric.
The dispute between Keynesians and small-government economists has once again gained prominence due to the current situation in Germany. Prior to the pandemic, Angela Merkel and former finance minister Wolfgang Schäuble were adamant about balancing the public budget. This year has seen a shift towards deficit-spending for the purpose of revitalising the economy through funding programmes and tax relief. Many middle-class Germans remain sceptical towards anything that could trigger a rise in inflation and threaten their savings. A survey has shown that only one in 25 Germans think austerity and deflation contributed to the crisis of the early 1930s. Almost 50 per cent believe mass unemployment and poverty were caused by hyperinflation years before Hitler’s takeover. This belief is especially prevalent among highly-educated Germans who might have more to lose in case of uncommonly high inflation rates. With the economic effects of the current pandemic set to linger for years to come, this is a fractious debate which is likely to continue in Germany and the German media.
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