You Know Who Else Favored Monetary Expansion?

by Jonathan Chait | August 19, 2011

Nazi monetary policy fan Matthew Yglesias reviews the exploits of Hjalmar Schacht:

FDR’s first move was to devalue the dollar relative to gold. Hitler’s parallel move was devised by the very clever Hjalmar Schacht who (as you can read in his Nuremberg Trials indictment) essentially introduced a parallel currency called “Mefo bills” by setting up a government-backed shell company that issued scrip. FDR’s second move was to have people panic that Hitler was going to conquer them and shift their gold to the USA. Hitler’s second move, by contrast, was to conquer Austria and the modern-day Czech Republic and take their gold.
Then came the actual war, during which period all participating governments adopted what amounts to large-scale central planning of the economy. Centrally planned economies have a lot of problems, but since military supplies are always a case of monopsony purchasing by the government, if military supplies are the only thing you care about, this is what you do. Centrally planned economies have the useful side effect of essentially eliminating unemployment, because you’d have to be an extremely sloppy planner to simply not notice that 9 percent of your labor force isn’t doing anything.

Right-wingers spent much of 2009 infrequently comparing President Obama's agenda with fascism. The usual liberal response was to hand-wring over the comparisons, but I kind of like the way Yglesias just charges ahead and dares the critics to trigger Godwin's Law.

If you're looking for a different view of Schacht, the late supply-side guru Jude Wanniski provided it in his seminal tome "The Way The World Works." Supply-side ideology revolves around ascribing fantastical powers to marginal tax rates, and thus arguing that even minor tax changes can so change the incentive structure of the economy as to trigger recessions or booms. Wanniski's book was the first real attempt to flesh out this theory, using it not only to the polemical end of arguing for lower taxes on the rich in the United States but applying it to the entire history of the world. Here's the explanation of how World War II started:

When Hitler came to power in 1933, fascinated with Mussolini’s syndicalist style, he—like Roosevelt—left the tax rates where he found them. There was no way, then, for the private economy to expand as it had in Italy. There was, however, immediate economic relief from the mere fact that the cloud of war reparations disappeared with Hitler’s ascendancy. The Lausanne agreement of July 9, 1932, was the last try by the allies to arrange payment of at least a part of the war debts, and Hitler immediately announced that within months the agreement would not be worth three marks.
Although he left the explicit tax rates high, Schacht did chip away at the domestic and international wedges. The economy expanded, but in so distorted a fashion that it compressed the tension between agriculture and industry into an explosive problem that Hitler sough to solve through Lebensraum, or conquest.

This may sound completely deranged. But Wanniski was a deeply influential figure within American conservatism.

Source URL: http://www.newrepublic.com//blog/jonathan-chait/93900/you-know-who-else-favored-monetary-expansion