Courtesy Reuters

The "Miracle" of German Recovery

BOTH in Germany and outside there are many who find justification for the Hitler régime in the extensive rise of German industrial production and even more in the considerable decline in unemployment which has taken place in the last three years. Official German statements refer to an "economic miracle" and they attribute it to the daring spirit of the Nazi leaders who did not hesitate to violate the principles of orthodox finance. The economic upswing in Germany was most conspicuous in the first two years of the Nazi régime; but in 1935 the high rate of production was maintained, chiefly due to rearmament. However, a high price had to be paid for the beneficial effects of the work promotion program: First, rising imports and falling exports, which in turn led to the loss of nearly the entire German gold reserves, thus necessitating severe import restrictions and resort to substitutes. Second, a considerable expansion of the credit volume, offsetting entirely the deflation process of the previous depression years.

A year ago there was no way of evaluating the inflation in Germany and the writer then had to conclude that it was impossible to say where was the danger zone of the Reichsbank policy[i]. At that time, it was the scarcity of foreign raw materials which seemed the most harassing outcome of the artificial recovery. In the meantime, by restricting the consumption of the thoroughly disciplined German people, the German Government has been able to avert the danger of an immediate economic collapse as a result of a shortage of raw materials and food. What in fact became more pressing was the problem of creating the means to finance public works and rearmament through the same inflationist credit policy again and again. This problem of an economic perpetuum mobile is the paramount problem in Germany today.

Credit inflation has, of course, not been the only basis of recovery. During the last three years public works have been financed to the extent of

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