Good topic, Zooey.
Traditionally the German economy has been structured as follows:
Germany imports food –> foreign currency flows out of Germany
Germany imports raw materials for its factories --> foreign currency flows out of Germany
Germany exports manufactured goods --> foreign currency flows into Germany
Note that without the third item on the list, it would be impossible for Germany to pay for the first two items. Paying for those first two items became considerably more difficult due to the massive reparations payments required by the Versailles Treaty. The burden of that treaty was (temporarily) eased by large loans from the American government. On the other hand, most of the reparations payments went to Britain and France, which meant that the combination of U.S. + Germany was helping fund France’s + Britain’s appetite for money.
In the late ‘20s, the U.S. government was able to convince Britain and France to cease requiring further reparations payments from Germany. In exchange, Britain and France demanded (and received) American forgiveness of those nations’ remaining debts from WWI. But by this point, Germany owed vast sums of money to the American government. Interest payments alone were a very difficult burden for it to bear.
During the '20s, Britain and France closed themselves and their empires to German imports. The United States later followed suit, with the Smoot-Hawley Tariff Act. With much of the world refusing to accept German imports, Germany could not export enough manufactured goods to even out its balance of payments. The result was an economic collapse which began in Germany, and which quickly spread throughout the Western world. The politically moderate Weimar government lost credibility because it was no longer able to feed the German people. (They didn’t have the currency necessary to pay for food imports.)
Hitler inherited an economic disaster, and immediately began taking ruthless measures to improve the situation. He stated that if any nation refused to accept German imports, Germany would default on 100% of its debt to that nation. In particular, Germany defaulted on all its debt to the United States. On the other hand, if a particular nation agreed to accept German imports, Germany would repay a large percentage of the money owed to that nation. A number of nations which had formerly refused German imports began accepting them.
These measures were ugly, and many Western politicians found them offensive. They also worked. By 1937, Germany’s economy was booming. The unemployment rate had plummeted, real wages had significantly increased, working conditions improved, the work week had been reduced to 40 hours, and workers had been given extensive vacation time. Improved clean air and clean water standards were enacted. Profits for German companies rose considerably.
I think there are at least two lessons to be learned from all this. 1) A nation should not accept narcissistic, one-sided economic/trade arrangements from other nations. The Weimar Republic allowed itself to be economically exploited by the Allies (especially Britain and France). Ending that economic exploitation was an absolutely essential part of Germany’s subsequent economic boom. In the modern world, China is engaged in currency manipulation. That currency manipulation makes it too easy for Chinese firms to export their products inexpensively; too difficult for other countries to import into China. Ending that currency manipulation would significantly improve the economies of the United States and of China’s other trading partners.
- If a large, modern government commits itself to achieving a particular economic objective, and if that government knows what it’s doing, that objective can often be achieved. But at least in the United States, running for office is very expensive. Politicians must therefore accept large sums of money from large corporations, public sector unions, wealthy individuals, and other lobbyists and special interest groups. It is necessary for these politicians to act in the best interests of those who fund their campaigns. That goal is often incompatible with the objective of growing the economy as a whole. American politicians are far more likely to be former lawyers than former economists; which means that most of them probably don’t understand the economic damage their policies create. Even if they did understand it, they might not have any choice but to inflict it anyway. There is a tendency for politicians who aren’t willing to “play the game” to get weeded out. Large media corporations have a very, very strong vested interest in preserving the importance of money in politics. If any politician attempts to reform the existing system, the media will either a) kill him with silence, or b) give him only negative press coverage.