Great Depression Economic Policies: A Comparison of Germany and the United States, Research Paper Example

The Great Depression was a tremendously disruptive global economic phenomenon. The financial crash began in October of 1929 on Wall Street and initiated a decade of poverty, unemployment, deflation and lost economic growth. Although the root cause of the crisis remains debatable, the problems generated can be defined as lack of consumer confidence, loss of growing industry and lowered production. How countries tackled these issues also varied tremendously. This paper will explore and contrast the economic policies of Germany and the United States as they bought struggled to emerge from the Great Depression and their efficacy.

Before delving into country specifics, it is critical that a proper understanding of the economic crisis be achieved. The industries most heavily affected by the crisis were agricultural, mining, construction as well as durable goods due to a collapse of the capital market. This lack of available capital and consequent economic paralysis hit rock bottom in the winter of 1932. Things began to improve economically in Germany with the appointment of Adolph Hitler to the position of Chancellor in January 1933 and in America with the presidential inauguration of Franklin Delano Roosevelt in March 1933. Both leaders would implement novel economic policies designed to increased production, reduce unemployment and increase the pool of capital available to industry. Though their plans and political ideologies differed significantly it is important to realize that both leaders had similar goals in turning their respective national economies around and on a road to increased stability.

To understand the political and economic reality of the Great Depression’s impact on Germany, it is critical that one understand the political issues facing the country prior to the crisis. Germany had been defeated by the Allies in World War One and under the Treaty of Versailles it’s unstable and fractious Weimar government was forced to pay tremendous war reparations (Lee, 1996; Bendersky, 2000). These payments caused tremendous economic problems prior to the Great Depression. With the advent of the crisis, Germany’s currency collapsed and it became clear that they would default on their obligatory payments (Tooze, 2006). This economic disaster coupled with political instability opened the door for the demagogue Adolf Hitler to come to power and tackle Germany’s financial problems (Braun, 1990). When Hitler became secure in his political position, there were several key economic priorities. He sought to lower unemployment, stabilize the currency and increase productivity. Critically, he also ordered a stop to the Versailles Treaty reparations program which had significant effects on the Allied economies and helped key vast sums of money in the Germany economy (Kallis, 2000). These economic goals were reached through the unsavory political practices of the Nazis and through direct violations of the Versailles Treaty.

One of Hitler’s and the Nazi Party’s central political goals was to restore Germany’s military which was significantly reduced under the Versailles Treaty ending World War One. In effect, this massive government investment in military rearmament was a huge Keynesian stimulus to the German economy (Messerschmidt, 1990). With these new manufacturing goals came increased naval construction and weapon investment that created numerous high-paying jobs throughout the country. Alongside, these direct military jobs Hitler ordered the creation of the autobahn (motorway) system with military transportation goals in mind (Kershaw, 1992). However, this large-scale infrastructure investment program also helped put workers back to work while promoting the civilian economy. Lastly, the German regime adopted a focused importation program which was predicated on buying materials from “third world” countries and paying in kind rather than in currency (Turner, 1985). All of these practices were German policies with direct economic benefits.

Beyond these direct economic policies, a variety of Nazi policies also had indirect benefits to the Germany economy. Hitler’s aggressive expansionist policies designed to establish a greater Germany led to the occupation of the Ruhr Valley, the Rhineland, Austria and parts of Czechoslovakia which put enhanced raw materials and industry under German control. Following these conquests, the invasion of Poland could be seen as placing tremendous cheap labor and space into the German economic sphere (Tooze, 2006). In addition, Nazi policies were severely anti-worker and the destruction or placement of labor unions under government control can be seen as promoting German industrial concerns (Turner, 1985). Even more unsavory, the German policies towards the Jews can also be interpreted as having economic benefits. The seizure of large amounts of Jewish capital throughout Europe by the regime allowed for these resources to be channeled into military expansion and infrastructure (Dean, 2008). In short, the German recovery from the Great Depression was multifaceted and influenced by numerous non-economic variables.

Across the Atlantic, the United States under the presidency of Franklin Delano Roosevelt and a Democratic Congress was also enacting radical new economic policies. Roosevelt argued that the “the nation needed immediate relief, recovery from economic collapse, and reform to avoid future depressions.” Within Roosevelt’s first 100 days, Congress passed a variety of new bills targeted towards increasing employment and restoring confidence in banks. Notable bills included the National Recovery Administration, the Wagner Act, and the Fair Labor Standards Act (Brinkley, 1988). The NRA sought to increased salaries and decrease hours worked. Though initially successful this bill was overturned by the Supreme Court for being unconstitutional in limiting the right to work. Another major bill was the Wagner Act which established the first right for labor unions to negotiate with directly with their employers. Lastly the Fair Labor Standards Act created a 44 hour work week and for the first time established a minimum wage (Lichtenstein, 2003).

In the end however, it was only the massive military spending and infrastructure investment brought on by the Second World War which brought the American economy out of the crisis of the Great Depression. The outbreak of the war led to the mobilization of millions and significantly reduced employment and increased labor value (Flynn, 1993). Massive military spending doubled economic growth and increased industrial output numerous times over despite heavier tax burdens and national debt (Ferguson, 2005). Furthermore, military training also consisted of free training in various skills such as electricity, plumbing, machinery, radio and numerous other fields. This investment in people culminating in the GI Bill, which sent numerous veterans to college, would payoff in the decade following the conflict. Beyond military spending and investing in human capital, the was led to dramatic decreases in structural and cultural barriers were eliminated in the American economy as women (Campbell, 1984) and minorities (Garfinkel, 1969) entered the workforce. Similar to Germany, labor unions worked more and more with the regime and strikes by labor unions were reduced. In short, federal military expenses went from 2.2 billion dollars in 1940 to 13.7 billion dollars the next year. Within the end of the first year of the conflict, the American GDP had doubled and increased by 25 billion dollars (Koistinen, 2004). Defense spending and military mobilization had spurred one of the greatest booms in American history during the war, thus, ending the depression. Moreover, the Second World War offered the female population unprecedented opportunities. For many women the Second World War consisted not only of sacrifices, but also new experiences, jobs, skills and opportunities. In contrast to Germany, which did not use women in the work force America’s use of women dramatically increased the size of the labor force (Miller and Cornford, 1995). In summary, the United States was only successful in ending the Great Depression through World War Two.

So what economic policies were more effective in combating the Great Depression? This is not a simple answer and requires one to consider at what moral and political is economic prosperity is worth in society. While both Germany and America implemented new economic policies designed to increased production, reduce unemployment and increase the pool of capital available to industry there existed profound differences in each country’s political ideologies. The German policies based on ending the burdensome payment regime and military restriction enacted under the Versailles Treaty were rational and helped the German government in keeping money in the German economy and investing in its own society through rearmament and infrastructure projects (Lee, 1996). However, the Nazi policies of military expansion across Europe, the Anti-Semitic racial policies which seized Jewish capital and the efforts to crush labor unions and other forms of political expression outside the Nazi Party cannot be defended even if they benefited the overall Germany economy emerge from the Great Depression.

In general, the American response to the Great Depression prior to World War Two can be seen as being less effective than the German economic policies. America had a higher unemployment rate, lower per capita production and less economic stability for years longer than Germany. However, while the American response was politically controversial and saw tension between the Executive and Judicial branches of government it never reached the level of political violence and sheer brutality which the Nazi regime used regularly in achieving prosperity for the German people. In the long run, the case can be made that the direct and immoral policies which the Nazi regimes used were less successful in the long run as it put the country on the path towards complete devastation in World War Two (Vatter, 1985). The American reaction while taking longer helped result in the tremendous American prosperity which manifested in the 1950s and can be understood as continuing into the present day.

In conclusion, the Great Depression was an unprecedented global economic catastrophe. Nations around the world were forced to respond in various ways to secure their population’s economic well-being. Both Germany and America suffered from a lack of consumer confidence, loss of growing industry and lowered production. Though these countries had profoundly different political regimes, both the Hitler and FDR administration implemented novel economic policies designed to increased production, reduce unemployment and increase the pool of capital available to industry. However, while Germany exited the Depression earlier than the United States it employment social and political policies of military expansion and ethnic cleansing which cannot be defended. America only recovered with the coming of the Second World War and eventually laid the foundation for the American prosperity of subsequent decades.

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