The economic miracle that killed millions

In 1933, Germany faced severe unemployment due to the Great Depression. By 1939, unemployment was near 0%, and Hitler's army was modern and massive, built from almost nothing in six years. This 'economic miracle,' despite limited raw materials, was engineered by Hjalmar Schacht, nicknamed 'the Dark Wizard of International Finance' for his unorthodox methods. This video explores how he achieved this, its global impact, the economic reasons for war, and Schacht's eventual fate.

To understand the Nazi economic miracle, we trace back to Imperial Germany, World War I, and the Weimar Republic. After WWI, Germany faced a severe balance of payments crisis due to the Treaty of Versailles, which reduced exports, increased import needs, and demanded reparations in foreign currency. This, combined with massive war debt, led the Weimar government to print money, resulting in hyperinflation in 1923, which destroyed savings but kept unemployment low and inflated away war debt. Hjalmar Schacht was brought in to fix this.

Schacht tackled hyperinflation by preparing a new currency and negotiating the Dawes Plan to reduce reparation payments. With reduced debt and no immediate reparation threat, printing money stopped, and inflation fell. Germany became attractive to foreign investors, leading to a 'Golden Age of Weimar.' However, this prosperity was fragile.

The 1929 US stock market crash severely impacted Germany. Wall Street loans ended, and exports collapsed due to protectionism, leading to another balance of payments crisis. With hyperinflation memories fresh, printing money was not an option. The government resorted to harsh austerity, deliberately crashing the economy to reduce imports, leading to mass unemployment and poverty. This economic distress fueled the rise of radical parties like the Nazis, paving the way for Hitler to appoint Schacht again in 1933.

As Reichsbank president and Economy Minister under the Nazis, Schacht faced three challenges: getting Germans back to work, building a massive army, and solving the balance of payments problem. By 1939, he succeeded, achieving near full employment, a strong economy, and a modern army, all without inflation or a balance of payments crisis. This was an 'economic miracle' given Germany's limited resources and history of crises.

Schacht used eight unconventional tools. First, the 'Neuer Plan,' similar to Roosevelt's New Deal, used government borrowing and spending to activate idle resources and reduce unemployment. However, most of this spending was secretly directed towards military rearmament, hidden through a shell company called Metallurgical Gesellschaft, which issued 'Myefo Bills' that were guaranteed by the Reichsbank, effectively massive hidden deficit spending.

As unemployment fell, wage and price controls were implemented to prevent inflation. The Nazi's German Labor Front suppressed wage increases, meaning most Germans did not benefit from the economic growth. Price controls were introduced gradually for categories with high price hikes, leading to shortages in certain sectors as demand outstripped supply without price adjustments.

For strategic sectors like steel and coal, Schacht used quotas, with bureaucrats determining resource allocation. He also tackled the balance of payments by largely defaulting on Germany's debts to the US, UK, Netherlands, and Switzerland in 1934. While this initially backfired through sanctions, he made deals with some nations, but not the US, exploiting its protectionist policies which limited its leverage.

Schacht implemented capital controls, requiring importers to justify foreign exchange needs to his bureaucracy. To boost exports, which were uncompetitive due to currency devaluations by other nations, he subsidized exporters. A significant threat to the balance of payments was the Nazis' brutal treatment of Jews. Schacht's final tool was 'personal capital controls,' restricting the assets Jews could take when emigrating to prevent a massive drain on foreign reserves, tragically keeping many in Germany.

Initially, Schacht believed his tools were a necessary evil. In 1934, he could boost both military and civilian sectors. However, once the economy was fully activated, resource scarcity (steel, labor, foreign exchange) became the constraint. From 1935 onwards, Schacht increasingly squeezed the civilian sector (e.g., textiles, construction) to favor military production, leading to shortages and worsening issues like housing. This centralized control, resembling communism but maintaining private ownership, came at the cost of freedom for German businesses.

Schacht's influence waned after 1935 when Germany officially rearmed, making his secretive financial tricks less critical. More importantly, Hitler's ambitions for total war against the US, and his need for Eastern resources, diverged from Schacht's goal of restoring Germany's pre-war status. Hitler's 1936 'Four-Year Plan' aimed for military strength and self-sufficiency, undermining Schacht's authority by giving Hermann Göring broad economic control. Schacht, fearing overheating the economy, resigned as Economy Minister in 1937, though he remained Reichsbank president for a time.

Schacht continued to ease balance of payments issues by pressuring Eastern European nations for resources and securing Austrian foreign exchange reserves after the Anschluss in 1938. However, this plunder mentality and increasing state control became the Nazi template post-Schacht. He was relieved from his Reichsbank presidency in 1939 and later arrested by the Gestapo in 1944 for alleged involvement in a plot against Hitler, spending the rest of the war in a concentration camp. After the war, he was acquitted of war crimes at Nuremberg but sentenced by a German denazification court. He was released early, started his own bank, consulted for countries, and died in 1970. The Nazi war economy continued with forced labor and resource capture but was outproduced by the Allies. The video concludes by highlighting the tragic reality that this 'economic miracle' enabled the killing of millions and warns against similar policies in an increasingly hostile world.