Present discomfort within Germany with policies designed to reflate the euro-zone economy has been stoked by the assertion of a linkage between hyperinflation and the rise to power of the Nazis in the early-1930s. For example, in 2009, at the nadir of the global recession, Der Spiegel published a special issue focusing on the history of money, which explicitly linked the disaster of the early 1920s to Nazism
The hyperinflation of 1923 had both winners and losers. The losers were anyone with a savings or pension.
The winners were anyone with debts, like home mortgages.
The reality is that what ushered in Nazism wasn't in
flation, but de
flation. The economic measure that rose with Hitler's prospects wasn't the CPI, but 30% unemployment and economic depression.
The Nazis only won 32 Reichstag seats in the election of May 1924, and just 12 in 1928. Five years after the hyperinflation the Nazis were a political party without a future.
They were circling the drain of history, polling at less than 3%. They were an afterthought.
So what happened?
Germany embraced a conservative economic policy of austerity
through the finance expert Heinrich Brüning
Brüning's austerity policies were repeatedly opposed and defeated in parliament by the socialists and communists (an event that was considered a "failure of parliament" by conservatives), which led to pushing the austerity measures through by presidential decrees (Brüning called it "authoritative democracy").
These austerity measures included:
* rolling back salaries to 1927 levels
* hiking interest rates
* dramatically increasing taxes on labor
* gutting unemployment and pension benefits
Except for interest rates, this is a list of what Germany has currently imposed on southern Europe.
Most German capitalists and landowners originally supported the conservative experiment more from the belief that conservatives would best serve their interests rather than any particular liking for Brüning. As more of the working and middle classes turned against Brüning, however, more of the capitalists and landowners declared themselves in favour of his opponents Hitler and Hugenberg. By late 1931, the conservative movement was dead and Hindenburg and the Reichswehr had begun to contemplate dropping Brüning in favour of accommodating Hugenberg and Hitler.
What happened was center-right and center-left parties backed austerity measures that crushed the life out of the middle class. The Social Democrats in particular undermined their own supporters.
When workers turned to any extremist party who could stop them, one that also hated communists and socialists, the conservatives jumped on board.
As Paul Krugman has pointed out, “the 1923 hyperinflation didn’t bring Hitler to power; it was the Brüning deflation” of the early-1930s.
But the story doesn't end there.
What brought Germany's economy back from the brink under the Nazis? Government spending
In the 1930s, Germany had high unemployment, but Germans’ memories of that, and especially of how they exited from it – via a classic Keynesian fiscal expansion – is largely forgotten, as the fiscal injection was Hitler’s rearmament.
In other words, the exact opposite of the conservative economic agenda was what allowed Nazi Germany to recover from the Depression. It's also what could have stopped the Nazis from ever taking over in the first place.
A selective memory of the past may prove worse than no memory at all.
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