Running title: Deficit Spending

DEFICIT SPENDING IN THE NAZI RECOVERY, 1933-1938:
A CRITICAL REASSESSMENT*ALBRECHT RITSCHL

University of Zurich and CEPR

Dept. of Economics
University of Zurich
Raemistrasse 64
8001 Zurich/Switzerland
ritschl@iew.unizh.ch*

This research was funded generously by the German Research Foundation (DFG). Financial support from
Universitat Pompeu Fabra and the Spanish Education Ministry’s DGICYT program, Project PB94-1101, isalso gratefully acknowledged. Data details and worksheets are available from the author on request.

Abstract

This paper examines the effects of deficits spending and work-creation on the Nazi recovery. Although
deficits were substantial and full employment was reached within four years, archival data on public deficits suggest that their fiscal impulse was too small to account for the speed of recovery. VAR forecasts of
output using fiscal and monetary policy instruments also suggest only a minor role for active policy during the recovery. Nazi policies deliberately crowded out private demand to ensure high rates of rearmament. Military spending dominated civilian work-creation already in 1934. Investment in autobahn construction was minimal during the recovery and gained momentum only in 1936 when full employment
was approaching. Continued fiscal and monetary expansion after that date may have prevented the economy from sliding back into recession. We find some effects of the Four Years Plan of late 1936, which
boosted government spending further and tightened public control over the economy.

Keywords: Nazi recovery, deficit spending, work-creation, war preparation, VAR forecasts

JEL classification codes: N44, N14, E52, E47, E65, E27

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I. INTRODUCTION
Assessing the course of the Nazi recovery and identifying its driving forces has long presented a
puzzle to researchers. Policies underlying the recovery it have been deemed everything from wildly
capitalist to near-communist, from totalitarian to near-liberal1; and some even claimed that recovery
was almost non-existent, being largely a statistical artifact produced by accounting tricks. The early
follower of Keynes, Joan Robinson, stated with perplexity that “Hitler had found a cure against unemployment before Keynes was finished explaining it” (Garvy, 1975), and contributed in this way
to establishing a Keynesian orthodoxy on the fiscal policies of recovery in Germany. Later critics,
however, insisted that the Nazi recovery was merely part of an international upswing that had set inautonomously (see James, 1986, Bernanke/James, 1991).
In international perspective, there is little evidence of fiscal policy having played a majorrole in the recovery of the 1930s. Brown’s (1956) seminal paper for the US and Middleton’s (1971)
analysis for Britain concluded that in neither country, active fiscal policy had been tried. Althoughboth papers met with criticism (see Peppers, 1973, for the US, and Broadberry, 1984, for Britain),
their main conclusions appear to be robust. For Germany, however, there is a Keynesian orthodoxy
which still maintains that recovery resulted from a dramatic swing in fiscal policy in 1933.
Whereas the during the slump, government had applied strict deflationary policies, the Nazis soonran budget deficits, suspended the gold standard, and eased money supply. Thus, the argument
goes, fiscal policy was indeed tried in Germany, and its results were obvious2.
However, the Keynesian interpretation was never fully accepted. Erbe (1958) argued thateven though there is clear evidence of fiscal pump-priming in the Nazi recovery, large multipliers
were absent due to high marginal tax rates and the crowding-out effects of capital market controls.
James (1986) is equally skeptical about a Keynesian interpretation, despite the high public deficit
figures he produces. Borchardt/Ritschl (1992) and Tilly/Hueck (1994) re-estimated small models of
the German economy under Keynesian assumptions and also obtained low multiplier effects. On
the other hand, Cohn (1992) calculated full-employment budget surpluses to arrive at the conclusion that fiscal policy was the key to the German recovery of the 1930s. In a similar vein, Overy(1975, 1982) looked into work-creation programs and public investment in highways, arguing thatthese had important effects on the pace of recovery in its early phase.
The present paper sets out to reconsider the Keynesian interpretation of the recovery froman improved database on the public sector. It draws extensively on the official central government
accounts for the years of 1934-1938 that remained classified under Nazi rule but survived in theministerial collections of German archives3. I combine these with archival information on work-2

creation and armament spending to obtain a full picture of central government expenditure anddeficits and its effects on the economy. In a second step, I look into disaggregate data on public andprivate investment to evaluate the effects of work-creation on the German economy of the early
1930s.
The rest of this paper proceeds as follows. The next section briefly looks at the aggregate
evidence and places German recovery in an international perspective. Section III deals with thecentral government budget and asks if fiscal policies can be identified that help sustain a Keynesianinterpretation. Section IV turns to investment in order to evaluate the role of state intervention inreal capital formation. Section V examines monetary indicators to see if there is a role for deficit
monetization and suppressed inflation in explaining the recovery. Section VI employs multivariate
time-series forecasts to evaluate the expectational effects of fiscal and monetary policy. Section VII
presents concluding remarks and avenues for further research.

II. THE INTERNATIONAL PERSPECTIVE
Unlike the other major economies of Europe, Germany had experienced as deep a slump as theUnited States. Like in the U.S., the 1928 level of German GNP was surpassed only in 1936
(Figure 1).

(Figure 1 about here)

Figure 1 shows that by international comparison, Germany’s recovery was clearly not out of line up
to the mid-1930s4. Still in 1936, Britain was doing better relative to pre-depression levels than theGerman economy.
These conclusions from Figure 1 are themselves partly the result of a data revision. The
GNP series for Germany employed here originates from the official national income statistics5.
These data suggest a markedly less rapid recovery from the depression than the more commonlyused estimates of Hoffmann (1965). The latter series estimates aggregate expenditure from its individual components. As the Nazi administration had classified data on key components of aggregate
spending from 1934 on, Hoffmann’s data involve a considerable amount of guesswork for that period. Replacing these estimates with the then classified statistics from archival sources, Hoffmann’s
figures yield essentially the same results as the official national income statistics (Ritschl, 1998).
Drawing the results of this section together, Germany’s recovery up to 1936-37 lies well within thebounds of the international upswing, provided only we measure German GNP at the time properly.

3III. CENTRAL GOVERNMENT BUDGETS AND FISCAL POLICY
1. DataIssues of data quality have long obsfucated the precise timing and magnitude of deficit
spending in Germany during the 1930s. From 1934 onwards, central government accounts werelargely kept confidential. The information that transpired through official statistics and semiofficial publications did not suffice to obtain a full picture of the magnitudes involved. Moreover,large parts of the deficit were channeled through an elaborate system of shadow budgets, using theservices of public banks and setting up other money-laundering devices6. The clandestine nature ofthese spending programs has made it notoriously difficult to calculate their volume7.
Naturally, the estimates obtained under these conditions differ widely. This is due to several reasons. First, there are the data uncertainties mentioned above: some sources do try to include
the shadow budgets, others do not. Second, even disregarding shadow budgets, German publicbudget accounting rules at the time were opaque: long-term “funded” borrowing was accounted foras regular revenues, while short-term borrowing was counted as debt8. Debt service was booked as
regular expenditure, and a breakdown between interest and repayment of the principal was published only once, namely in a remote bulletin of the Statistical Office. Moreover, a distinction wasmade between regular and extraordinary budgets. Worst of all, budget laws permitted transferring
expenditures and revenues back and forth between regular budgets and sinking funds as well as
across fiscal years, to the effect that actual deficits are impossible to find out from published material without heavy recalculation9.
Obfuscating Germany’s central government accounts had been an industry already in the
1920s, largely in an attempt to hide deficits away from the Reparation Agent’s monitoring staff in
Berlin (James, 1985). Lueke (1958), Netzband/Widmaier (1964), Andic/Veverka (1963), and Witt
(1982) made attempts to correct the worst defects in the data for the 1920s. However, they did notconvert the data from the German accounting system to an SNA-compatible classification. Also, no
serious attempt was made to adjust the data from fiscal years to calendar years, although data on
public budgets - always according to the standards then in use - is available at a quarterly frequency. These remaining defects also carry over to the data of James (1986), which are partly usedby Cohn (1992). For the Nazi years, Cohn (1992) followed Andic/Veverka (1963) whose data suffer from the same problems. To this he added estimates of the circulation of Mefo bills, taken from
Overy (1979).

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Rather than following the aforementioned estimates, results of the present paper are basedon the full information from the central government accounts that were kept secret at the time but
survived in the ministerial collections of Germany's archives. These accounts permitted recalculation of central government consumption, investment, and transfers according to the SNA methodology. Data on the flotation and circulation of work-creation and Mefo bills could be recoveredfrom the files of the Reich’s Labor Ministry and the Reichsbank. Taking these sources together, afull picture of central government spending and budget deficits throughout the period to 1938
emerged. Data and methods are documented in Ritschl (1997).

2. Full-Employment Surpluses
An obvious first exercise is to look into the time series of public deficits and calculate Full
Employment Budget Surpluses (FEBS). In Figure 2, both the actual deficit and the FEBS are given(presented here as full employment deficits)10. As usual, calculation of the full-employment surplus
or deficit involves splicing the data to a base period of high employment, which in this case is taken
to be the year of 1928. Actual and full-employment tax returns are then calculated, assuming theincome elasticity of tax revenues to be unity.

(Figures 2a and 2b about here)

In Figure 2, both the deficit and its full-employment equivalent exhibit a jump from 1933 to 1934
and then remain virtually stagnant until 1936, when they take off sharply. This pause between 1934
and 1936 was not visible in previous research and data estimates (like Cohn’s, 1992, whose estimate is included in Figure 2), which instead painted a picture of much more steady growth in central government budgets and deficits.
To highlight the timing of fiscal policy, Figure 2b looks at the fiscal impulse. In the version
employed here, it is equal to the year-to-year change in the full-employment budget deficit, indicating fiscal expansion if the full employment deficit widens and vice versa. As Figure 2b bears
out, the years from 1933 to 1936 witnessed what might be termed a full Keynesian policy cycle:
deficits built up rapidly in 1934 and stagnated thereafter, and the fiscal impulse petered out as full
employment was approached in 1936. After 1936, a remarkable switch to a new policy regime isvisible. This is consistent with the renewed fiscal boost generated by the Four-Years Plan for intensified war preparation of late 1936 (Petzina, 1968). Apparently, this effect is not captured by theestimates of Cohn (1992).

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In passing, we note the behavior of deficits before and during the Great Depression. During
the depression, the budget was more or less in balance up until 1932 and showed only very moderate deficits in 193311. Data on the fiscal impulse reveal that recessionary pressures from the budget
reached their maximum already in 1931, when the Hoover moratorium on German reparations
averted debt default in the last minute (James, 1986; Schuker, 1988).

3. Fiscal Policy and Income Fluctuations
The mere emergence of public budget deficits at the end of the depression is not yet sufficient evidence of a Keynesian upswing. In order to have an effect on income, there need to be plausible quantitative relationships between the fiscal impulse and the observed change in output. Under Keynesian primitives, changes in the Full Employment Budget Surplus (or deficit) should induce a one-to-one change in GDP. If the ratio is consistently higher, changes in the public deficit
are too small to account for the fluctuations of national income (Figure 3).

(Figure 3 about here)

As Figure 3 shows, the relation of GNP growth to changes in (full employment) budget deficits
fluctuated violently. Generally, the ratios are far too high to be explained by the Keynesian income/expenditure mechanism. Still the best candidate seems to be the year of 1934 where the“multiplier” generated by our simple exercise takes on more realistic values. In 1933 as well as in1935 and 1936, however, other forces of recovery must have been at work. Note also the very highvalues of the ratio between income and fiscal change during the Great Depression. Although budget
policy was clearly restrictive then, its effects are far from being big enough to explain the slump of
GNP.
If fiscal impulses were so small, it would have taken large multipliers under a Keynesian
income-expenditure mechanism to transmit these into a demand-led upswing. Conceptually, taxschedules with low income elasticity might combine with highly income-elastic consumer demand
to invalidate the assumptions underlying the FEBS concept and generate large income responses tosmall fiscal shocks. To account for this possibility, Figure 4 relates the increase in private consumption to the growth of disposable income during the 1930s.

(Figure 4 about here)

6Figure 4 shows that throughout the inter-war period, the relation between consumer spending anddisposable income was highly erratic. Apparently, German consumers in the inter-war period were
not exactly Keynesian: the marginal ratio of consumption to income fluctuates wildly and repeatedly exceeds the range permitted by Keynesian doctrine. This seems to suggest that the old-time
consumption function relating consumption to fluctuations in disposable income was highly unstable. Moreover, the marginal ratio of consumption to income in the 1930s was far too small to becompatible with a Keynesian income-expenditure mechanism that could have generated demandled recovery. Studies of the Keynesian consumption function for inter-war Germany have usuallyfound pathologically low coefficients on the income term. In one of the very first international
studies on the consumption function, Stone/Stone (1937) noticed that while in most other countries,
the term was between .6 and .8, in inter-war Germany it would hardly exceed a value of .3. Similarly low parameter values were obtained by Erbe (1958), Borchardt/Ritschl (1992), and Tilly/Huck(1994).
Consumer spending continued to fall through mid-1933 and grew only timidly up to the endof 1934. When consumption finally picked up in 1935, authorities reacted quickly in order to prevent buoyant private spending from conflicting with military demands. Foreign exchange allocations to imports of food and textiles were frozen and often reduced. “Guns, not butter” was the infamous slogan coined in 1935 by the propaganda ministry to explain to the public what the tradeoffs were and why recovery should not be followed by a corresponding increase in living standards(see James, 1986, on the restrictions adopted). As the figures for 1936 to 1938 bear out, consumer
demand indeed rose slower than disposable income in subsequent years.
In sum, the results of this section suggest that Keynesian fiscal impulses were present in the
1930s but remained too small to account for the Nazi recovery. In contrast to what research has
shown for the U.S. and Britain, we do observe a Keynesian policy cycle in the German data. However, the magnitudes remain doubtful. In order to be consistent with Keynesian assumptions, public
deficits between 1933 and 1935 would have had to be two to five times larger than they actually
were. In addition, the sluggish response of private consumption to fluctuations in disposable income suggests that there is little of a Keynesian textbook-style income-expenditure mechanism
being operative in Germany at the time. Apparently, fiscal policy was not the instrument that engineered the Nazi recovery.

IV. PUBLIC INVESTMENT, WORK CREATION, AND THE AUTOBAHN

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If fiscal policy was not the means to bring about recovery, investment might have been. Public administration notoriously intervened, not only in the capital market but also in private investment.
Studies in the relationship between big business and the Nazi administration used to argue for tightlinks that were held to have created a near-planned economy (Schweitzer, 1963). In the wake ofTurner’s (1979) criticism, these views have been revised thoroughly. The emerging picture is oneof far less than perfect state control of investment activity, if not of outright policy failure. Firms
did react to incentives such as tax breaks, subsidies and import protection but remained highly evasive when asked to meet specific investment demands12. As a response, the Four Years Plan of1936 was pushed through, and the government began establishing its own state enterprises to accomplish what private business was unwilling to do13.
This section focuses on the possible effects of direct public investment on the pace of recovery. Up to 1936, much of this activity took place in work-creation and autobahn construction.
Overy (1975, 1982, 1994) affirmed that these projects indeed had their significance in gearing theGerman economy to higher output and employment in the 1930s. Others, like Mason (1977), Silverman (1988), and Hachtmann (1989), pointed to inconsistencies in German labor market statistics to argue that Nazi work creation programs were more of a statistical artifact than a reality.
However, as Silverman (1998) acknowledges, the discrepancies were minimal by comparison.
But so was the contribution of these programs to investment. To assess the importance ofroad construction and the autobahn, Table 1 summarizes evidence from various government
sources on investment in transportation in Nazi Germany.

(Table 1 about here)

Table 1 lists public-sector investment in the transportation sector. Block I gives investment in roads
and autobahns, which according to Overy (1975) were pivotal in the managed recovery of the
1930s. Block II includes other public investment in transport, notably in the state railway systemand the post office. As can be seen from the last line of the table, investment in roads and the autobahn network gained a major share in total investment of that sector only from 1935 on. In the crucial years before, their role is much less important. In 1933 and 1934, combined expenditure on
roads and the autobahn amounted to 972.8 million RM, which is half the size of the estimate madeby Overy (1975, 1994)14. Autobahn construction, in particular, is entirely insignificant in 1934 andgains momentum only in 1936, when the German economy already approached full employment.
Therefore, if anything, investment in the infrastructure of motorization had pro-cyclical effects, as

8they gained importance only when recovery was already accomplished: the autobahn-led recovery
was merely a myth, never a fact15. But work-creation was not just limited to the autobahn. As e.g.
Silverman (1998) has laid out, work creation was mostly a financing device for a plethora of regional and local programs, of which autobahns were only the most visible part. To make a fair assessment of the effects of work-creation, we therefore need to look at its shares in public and aggregate investment. Once again, there exist notorious data problems, as restricting information on
precisely this issue was a political goal at the time.
Most of the available estimates of investment (in particular, Ehrlicher, 1954, and Gehrig,
1961) are based on two sources, the statistics of construction activity and the semi-official publications of Reichskreditgesellschaft, a state-owned bank that continued publishing data on the composition of investment through 193816. Ritschl (1992) evaluates the existing estimates against thesources and shows that these are consistent with archival evidence from the ministry of economics.
Table 2 summarizes the available evidence.

(Table 2 about here)
Table 2 provides a sectoral breakdown of investment in Germany along with two different estimates of public investment. As opposed to Table 1, public investment is defined here in a narrow
sense which excludes the state railway and the post office. The first of these estimates (“Public
Sector I”) is obtained from the total and the other sectoral entries as a residual. The second series(“Public Sector II”) is taken from the reports of Reichskreditgesellschaft.
What stands out from these figures is an increase in the share of public investment from
one quarter of total fixed investment to around 40%. All of this increase took place up until 1935,
when a ceiling was reached. No counter-cyclical tendencies are visible in these figures; apparently,
deficit spending served merely as a transitory device to finance a permanently higher public sharein investment . Work-creation deficits in relation to public investment are provided in Table 3.

(Table 3 about here)

The idea behind the issue of work-creation bills had been to make credit available to the
public budget while the long-term capital market was in disarray (Grotkopp, 1954, Kroll, 1958).
This appears to be reflected in Table 3 quite clearly. Work-creation bills played a major role in
1933, when they provided the lion’s share of financing public investment. New legislation in 1934
reopened the capital market for more regular public loans, however by using draconian means. Pri9

vate emissions of equity and bonds were severely restricted, and financial intermediaries were
obliged to invest their loanable funds in government bonds. To limit the obvious crowding-out effects, tax breaks on investment were conceded at the same time, and the private sector had to resort
mainly on internal finance for its investment activity (see Spoerer, 1996). The effects of this on thecomposition of central government borrowing are visible in Table 4.

(Table 4 about here)

Table 4 includes the net issue of work-creation and Mefo bills along with budget deficits. During
1932 and 1932, the budgeted data exhibit small surpluses, and a deficit appears only in 1934. Thus,
all government deficit in 1933 came in through the shadow budgets, whose importance declined
steadily thereafter. Issuing work-creation and armament bills was thus not a pump-priming effort
but served to bridge the government’s credit needs while credit from the long-term capital market
was not forthcoming. That is, their importance is not so much in Keynesian demand creation per se
but rather in alleviating credit restrictions on the public budget that prevailed at the end of the depression in Germany (on these, see Borchardt, 1979).
Note again the discrepancy with the deficit estimates in Cohn (1992). Had central government deficits indeed been as large as his data suggested, the case for Keynesian demand creation in
the 1930s would be considerably stronger. In contrast, the overall fit of Erbe’s (1958) deficit estimates with the actual data is quite good. The only major exception is the year of 1934, in which heappears to have underestimated the deficit by one half.
We also note that in contrast to received wisdom (e.g., Overy, 1979), the issue of Mefo armament bills clearly exceeded work creation bills already in 1934. Increasing military spending had
been set as a priority already in the first cabinet meeting of the Nazi government in early 1933
(James, 1986) and gained importance very quickly thereafter.
(Table 5 about here)

As Table 5 shows, the military spending accounts for half of government expenditure already in
1934/35. In the fiscal years from 1933-4 to 1935-6, military spending totaled some 11.2 billion RM,
as opposed to the 8-9 billion RM assumed by Overy (1994). From 1933 to 1934, the expansion of
the public budget also led to an increase in non-military spending. For the next two years, however,non-military expenditure fell again to a level below 1933. Thus, there is no question that already by

101934, central government expenditure was dominated by war preparation. This further substantiates
the claim made above that, except for 1933, there is little role for motorization-led public expenditure à la Overy (1975): if anything, it was possibly the motorization of the Wehrmacht that drove
public deficit spending at the time.
This notwithstanding, we do agree with Overy (1975) that motorization of the German
economy did have visible effects during the 1930s. Regulations from the Weimar Republic that had
restricted long-distance road transport were lifted. At the same time, taxes on registering cars,
which had been prohibitively high, were brought down to more popular levels. There is little doubtthat the Nazi government was committed to promoting automobile production and car ownershipon a wide scale. However, as Spoerer (1998, Fig. 2) shows, the stock of motorcars in Nazi Germany did not grow beyond the trends set by the Weimar Republic before the Great Depression:much of the spectacular growth rate in auto production during the early recovery was a rebound effect. In any case, Nazi policy in that sector consisted more in supply-side measures and deregulation in the transport market than anything else.

V. REPRESSED INFLATION? FISCAL POLICY AND MONETARY INDICATORSThe lack of sufficiently strong fiscal impulses in the early phase of recovery in Germany suggests arole for monetary policy. Indeed, the monetary regime in Germany changed swiftly in 1933, with
the Reichsbank selling off its gold reserves, freezing foreign accounts, and blocking convertibility(Klug, 1993). One of the most traditional claims (echoed in James, 1986) is that Germany's monetary policies in the 1930s were inherently inflationary and would necessarily have collapsed even
without a war.
Surprisingly, this does not seem to be so obvious. As a first check, I calculate the ratios of
public debt and M1 to nominal GNP.

(Figure 5 about here)
As Figure 5 shows, the debt/income ratio rose quickly already during the depression. This was somainly because GNP declined dramatically, driving the ratio upward. Note that the ratio remained
stationary between 1932 and 1936 in spite of the deficit spending analyzed above. The obvious reason why inital debt/income ratios were so low is of course the German hyperinflation that had
wiped out most domestic-currency debt. Note that the debt figures underlying the series in Figure 5
include both the extra-budget bills and the foreign part of the public debt, valued at par. The remarkable stability of the debt/income ratio during the 1930s is once again an indication that fiscal

11

impulses are unlikely to have generated the Nazi recovery. Had deficit spending been the majordemand impulse, the increase in debts should have been higher than GNP growth.
Looking at the ratio of M1 to GNP, it also seems difficult to find a big role for monetary
impulses in the Nazi recovery: the money/income ratio began to decline in 1930, signaling strong
monetary contraction. Interestingly, the decline continued through most of the recovery. The
Reichsbank did monetize work-creation and Mefo bills at its discount window but neverthelessmanaged to keep the quantity of money in line with GNP. Monetary growth was apparently not adriving force of the Nazi recovery.
Nor was money growth much of a problem in the late 1930s, which is equally surprising.
Conventional wisdom has it that the introduction of price controls in the year of 1936 marked the
beginning of repressed inflation. The evidence in Figure 5 does not lend much support to this hypothesis, except for the year of 193817. The money/income ratio did later skyrocket during WorldWar II, ultimately lerading to West Germany’s currency reform of 1948, which reduced savings toabout 15% of their nominal value. In the pre-war monetary data, however, there is only scant indication of repressed inflation.

VI. EXPECTATIONAL EFFECTS OF FISCAL AND MONETARY POLICYThe observation that fiscal and monetary policies apparently did not operate traditional expenditureand monetary multipliers obviously does not rule out other channels of transmission. This section
adopts an expectational perspective in the search of other transmission effects. A natural way to doso is to employ a reduced-form time series approach, in which (Granger-) causation and effects canbe traced without the need for a structural model. In order for policy variables to have an effect, thetime series of their realizations should in some way have predictive power for the policy target
variable. The following implements specification, estimation and prediction in a Bayesian vector
autoregression (VAR) framework (see Appendix A for data sources and specification details). I
obtain both "unconditional" forecasts, i.e. out-of-sample predictions in historical time, and conditional forecasts or impulse-response functions, i.e. in-sample predictions in logical time18. To account for time-varying coefficients, I re-estimate the system and obtain updated forecasts and impulse responses at various critical points in time.
In a framework of unconditional VAR forecasts, policy efficiency translates itself into
gains in predictive power. If policy works through surprises, including the policy instrument in a
VAR forecast of the target variable should improve its predictive power. At the same time, a VAR
forecast excluding the policy instrument would fail to predict the relevant economic variables ade-12quately. If policy follows a pre-assigned rule and works systematically, the effects of policy would
be fully factored into the expectations of the public, and both output and policy should be predictable with and without the policy instrument in the VAR. (Such a case might occur e.g. if the private
sector is inherently unstable and requires continuing intervention by the public sector, as moreradical versions of Keynesianism would maintain). Appendix B provides details on the identification of these policies and their effectiveness.
Conditional forecasts or impulse responses impose more structure on the variancecovariance matrix. I adhere to the conventional Cholesky triangularization, which imposes restrictions on the number of admissible contemporaneous correlations of the residuals. This restriction
allows to distinguish surprise, or "exogenous" policy, from rule-bound policies. Shocks to an exogenous policy instrument would not be contemporaneously correlated with shocks to other economic variables, and the policy shock would only be propagated through the economic systemthrough the dynamic multipliers of the VAR. Conversely, policy is said to follow a feedback rule ifshocks to the other economic variables affect the policy instrument contemporaneously. These differing characterizations of policy thus translate into a different ordering of variables in the Cholesky decomposition (see Appendix C).
These above forecasts will be obtained at various critical junctures. Obvious candidates forthese are, in turn, the end of 1932, before the Nazis came to power, late 1934 when civilian workcreation programs ended, and late 1936 when the Four Years Plan was adopted and turned Germany into a wartime command economy.

1. Fiscal Policy
This paragraph examines fiscal policy and its effects on output. Figure 6 (a) shows forecasts ofgovernment spending under an output-oriented feedback rule. These forecasts are obtained from a
VAR that includes output, private consumption, and a consumer price index. If policy operated
through surprises, its realizations should deviate from the prediction significantly. For most of thebenchmarks this is indeed the case, however with the notable exception of the first one, taken for
the end of 1932. Actual fiscal policy exceeded the confidence bands from this forecast only by
early 1935. During the year of 1935, government spending underwent a series of upward surprises.
By the end of the year, expectations of a gradual reversion to the historical mean had been broken,
and the policy forecast now correctly predicts the rapid expansion of government spending during
the Four Years Plan. Previously, however, fiscal policy did not present a major departure from the13forecast: during the year of 1933 and into 1934, actual spending even remained mostly below theforecast mean.

(Figure 6 about here)

For policy to have major effects on output, a forecast of output from a VAR including thepolicy instrument should provide satisfactory predictive power. Figure 6 (b) presents results fromsuch forecasts at critical benchmarks. Two features stand out from these results: first, a major recovery is predicted by late 1932, before the Nazis came to power and long before they had a coherent concept for fiscal policy. Although the algorithm slightly underpredicts the speed of recovery, it
correctly predicts its magnitude to levels higher than the pre-depression peak. Second, the later
forecasts unanimously predict another recession to occur during 1937 – which indeed was to become the turning point of the international business cycle. This warrants the conclusion that theforecast as of late 1932 picks up quantitatively important properties from the inherent dynamics ofthe German business cycle. Note that the policy surprises from fiscal policy that occurred after
1934 did not affect the forecasts of output until 1936, when full employment was reached. Fiscal
policy had no apparent effects during the crucial phase of the Nazi recovery.
The impression of rather small effects of fiscal policy is confirmed by looking into the output forecasts from the same VAR in Figure 6 (c), where now the fiscal policy variable has been excluded. Results are essentially undistinguishable from the VAR including policy, except possibly
for the last two forecasts. As outlined in Appendix B, this would be consistent with systematic (i.e.,
rule-bound) policy that stabilizes an inherently unstable private sector and is fully factored into the
expectations of the public. However, as Figure 6 (a) showed, policy could be termed systematic
only during the first year of recovery and again after 1935. Hence, the policy surprises of 1934 and1935 probably had only very limited effects.
An even more surprising conclusion arises from the prediction as of late 1932: even if thepolicy instrument is not included, the forecast correctly predicts full recovery to the levels reachedaround 1935. Fiscal policy during the early years of the Nazi recovery was apparently immaterial
for the upswing. When Hitler came to power, recovery was already around the corner. This confirms research that has found signs of recovery in the German economy being present already in thesecond half of 1932 (James, 1985, Buchheim, 1994).
Last in this section, Figures 7a and 7b examine the dynamic multipliers of fiscal policy
through the impulse-response functions from the same VAR over eight quarters. The graphs pro-14

vide the dynamic responses of output and government spending to an orthogonalized shock in government spending (see Appendix C). Under the assumption of exogenous fiscal policy, i.e. ordering
government spending first, the dynamic responses of output all are negative, violating the Keynesian sign restriction on the expenditure multiplier (Figure 7a). Ordering policy last, i.e. assuming
endogenous government spending, the dynamic multipliers on output have the right sign during
four quarters but tend to violate sign restrictions subsequently. Still, even where signs are positive
the size of the responses is minimal (Figure 7b)19. This corroborates the results from Section IV
above, in which fiscal impulses had been found to have been too small to account for a demandmanaged recovery. Note also that there is little temporal variation of the impulse responses acrosstime: the overall multipliers of government spending remained essentially unchanged as recovery
progressed. This would imply that the fluctuations in the fiscal impulses obtained in Section IV
above do not reflect changes in the efficacy of fiscal policy but rather exogenous movements of
output.
2. Monetary Policy
Section VI further above had argued that money supply was not obviously inflationary until 1938.
Yet the transition to an inconvertible currency, Germany's external debt default, and the introduction of capital market controls should have left their marks on expectation formation. The first issue to analyze is whether these regime changes resulted in shocks to monetary policy, i.e. deviations from a feedback rule. Figure 6 (d) presents forecasts of money from a VAR in money demand
under a feedback rule. A significant departure of money supply from the policy rule becomes visible only in 1935. A second, quantitatively much more important policy shock occurred in 1938. As
in the case of fiscal policy, a monetary forecast predicts sustained recovery into 1937 already by
the end of 1932, see Figure 6 (e). Again, predictive power does not worsen visibly if the policy instrument is left out, as in Figure 6 (f). This would suggest that monetary policy played only a minor
role: during the early recovery, policy continued to be systematic, and recovery was only slightly
faster than an economic agent running VARs could have predicted in later 1932. The upward
shocks to money supply in 1935 did not affect the economy very much: factoring money supply
into a forecast of output does not improve its quality, although it should if the policy shock had aneffect. A really big shock to money supply occurred only in 1938, reflecting the monetary effects of
the annexation, or “Anschluss”, of Austria, and the transition to openly inflationary war finance.

(Figure 7 about here)

15

The impulse response functions (in Figure 7) again reveal very minor effects of monetary
policy. Now, if the policy instrument, money, is considered endogenous (Figure 7d), the responsesof output have the wrong sign. Assuming policy to be exogenous, signs are positive (Figure 7c).
However, the dynamic multipliers of money on output are again minimal. Money supply may havebeen exogenous to pre-assigned rules but clearly had only very little impact on output. Again, theefficiency of macroeconomic policies does not appear to have improved during the 1930s, Hjalmar
Schacht not withstanding.

VIII. CONCLUDING REMARKS
A critical reassessment of deficit spending during the Nazi recovery reveals a surprisingly smallrole for macroeconomic policy. Both the descriptive evidence and the results from multivariate
time series forecasts suggest that recovery from the Great Depression was mainly driven by a rebound effect that was visible in the data already by late 1932. Up to around 1936, the German recovery was no more advanced than that of Britain or the United States, where far less expansionary
fiscal policies were followed. However, even in Germany the fiscal impulse generated by thebudget deficit was too small to be consistent with Keynesian demand stimulation under an income/expenditure mechanism. In order to explain the very high, at times two-digit growth rates of
GNP during the recovery, deficits would have had to be two to five times higher than they actually
were. Apparently, recovery was due to forces other than fiscal and monetary policy, just as in thecases of Britain and the United States.
Much of the uncertainty about the nature of the Nazi recovery was connected with measurement problems. The results of this paper rest to some extent on extensive data revisions, relying
on unpublished data that had been classified during the Nazi years but survived in ministerial andcentral bank files and other archival collections in Germany. These include the full central government accounts which previously had not been available completely. Use of these data from archival
sources made it possible to convert the budget figures from German accounting concepts to modern
national accounting standards. Based on these data, a detailed, new picture emerges in which the
Nazi recovery appears less spectacular than was hitherto believed.
Our results also indicate that government spending was dominated by war preparation already in a very early phase of the Nazi recovery. I find little justification for the popular interpretation that recovery was sparked off by non-military work-creation and the construction of the autobahn network. Investment in the autobahn reached sizable magnitudes only in 1936. All these projects pale in comparison with the rapid build-up of military expenditure, except for the year of 193316

when rearmament had not yet really begun. To secure the desired high speed of war preparation,
the Nazi administration took early, often draconian steps to crowd out private demand. The growthin consumer spending fell short of the increase in national product, and the contribution of private
investment to the recovery remained unimpressive.
Strict control of private expenditure was partly achieved by maintaining taxation at the highlevels reached during the depression years. Thus, public deficits did not grow faster than GNP until
1937. Monetary growth was actually even slower than the expansion of national product. The
popular claim that the Nazi recovery resulted in repressed inflation must therefore be taken withcare. Only as late as 1938 do we observe a reversion in the downward trend of the money/GNP ratio. Examining feedback rules in predicting monetary and fiscal policy, I find that during the firsttwo years of recovery, neither of these policy variables deviated significantly from the predictions
that an informed agent could make by the end of 1932. Surprise shocks to policy became visible
only during 1935, when recovery had already progressed significantly. Still, I find little or no evidence for these policy shocks to have had much effect on the economy.
The results of this paper indicate that the deeper reasons why recovery went smoothly must
probably be sought elsewhere. The persistence of low wages is one factor that has been highlighted
in several studies (see, most recently, Fisher and Hornstein, 2000). More research is also needed on
the restructuring of the banking system that accompanied the introduction of capital-market controls, a theme that has been treated in some institutional detail by Barkai (1990).
We conclude that the Nazi recovery was not a textbook exercise in Keynesian demand
stimulation, although the state absorbed an ever-growing share of the idle resources for its own use.
Economic recovery in Germany in the 1930s remains the paradox case of public demand expansion
without Keynesian demand creation.

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18

Sargent, T. (1999), The Conquest of American Inflation, Princeton: Princeton University Press.
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19

LEGENDS TO THE FIGURES
Legend to Figure 1:
Sources: US:

Kendrick (1961, Table A-III)

Britain:Feinstein (1971, T16/Table 5, (10));

Germany:

Ritschl/Spoerer (1997, Table A.1-IX)

Legend to Figure 4:
Source:Ritschl (1997), Appendix B.

Legend to Figure 5:
Source:

GNP:
Public debt, M1:

Ritschl/Spoerer (1997).
Deutsche Bundesbank (1976)

Legend to Figure 6:
Data Sources and Specification: Appendix A
Identification:
Appendix B

Legend to Figure 7:
Data Sources:
Identification:

Appendix A
Appendix C

20

APPENDIX A: Data Sources, VAR Specification and Estimation

Data: Data are quarterly from 1925:1 to 1938:4. All interpolations by Chow/Lin method.
Output: GDP at 1913 prices from Ritschl/Spoerer (1997, Table A.1.VIII), interpolated with estimates ofquarterly value added from Wagemann (1936) and Vierteljahrshefte zur Konjunkturforschung,various issues.
Consumption: Private consumption at 1913 prices, Ritschl/Spoerer (1997, Table 3.III/IV)), interpolatedwith quarterly estimates of consumer goods output from Wagemann (1936) and Vierteljahrshefte
zur Konjunkturforschung, various issues.
Government Spending: Ritschl (1997, Tables A.8-A.10). Deflated by CPI.
CPI, Reichsbank Rate, Money Circulation: Deutsche Bundesbank (1976), Statistisches Jahrbuch fuer
das deutsche Reich, various issues.
Specification and Estimation:
Figures 6 a,b: 4th order BVAR in logs of output, private consumption, government spending, consumer
prices.
Figure 6c: excludes government spending from the above specification.
Figures 6d,e: 4th order BVAR in Reichsbank rate and logs of money, output, and consumer prices.
Figure 6f: excludes money from the above specification.
Choice of prior:
Bayesian vector autoregression employing a Litterman prior. The prior for the mean was set to the near-unit
root of 0.9. All other parameters were set to the defaults suggested e.g. in Doan (1992, Section 8.8). As
promised by Uhlig (1993), results were robust to variations of the parameters about their default, notably tochanging the AR(1) term. Experiments with an alternative specification allowing for cointegration produced
generally higher mean-squared errors with no apparent change in the fundamental results.

APPENDIX B: Characterization and Identification of Policy
An out-of-sample method to assess policy effectiveness is to examine its contribution to an out-of-sample
forecasts of the economic target variable y. Letyˆ t = Et −1 ( yt | I t-1 )(B.1)

be the expectation of yt conditional on the information It-1 available to private agents at time t-1. Rational useof past information should result in a mean squared error (MSE) of this forecast:2
MSE (y t | I t-1 ) = Et −1[( yt − yˆ t ) | I t −1 ](B.2)

which is minimal among all forecasts conditional on this information set.
Economic policy surprises would distort yt away from the expectation in (1), as the choice of policy
variables, Xt-1 , is not included in the information set available to private agents, It-1 . Then, knowledge of theactual realizations of the policy shock (available to the researcher ex post and possibly to the policy maker but
not to private decision makers in t-1 ) should help improve the forecast. Such an augmented forecast would
add the realization of policy in the information set alongside the information available to private agents:~yˆ t = Et −1 ( yt | I t-1 , X t −1 )

21

(B.3)

The left hand side of eq. (3) is the expectation of yt , conditional on the union of information set It-1 and (byslight abuse of notation) the policy realization at t-1, Xt-1 . Augmenting the information set as in (3) would reduce the MSE of a forecast if the additional series Granger-causes the target variable or else leave the MSE
unaffected:
MSE ( yt | I t −1 , X t −1 ) ≤ MSE ( yt | I t −1 )(B.4)

Under pre-assigned "feedback rules", policy follows a regular pattern, depending on its own past realizations
and on the history of the target variables:

X t = φ ( yt −1 K y t − p ; X t −1 K X t − p )(B.5)

Policy surprises would occur whenever the realizations of the policy instrument deviate significantly from thepolicy forecast based on (5).
The framework provided by (1), (3), and (5) identifies policy shocks, rule-bound policy, and policy
effectiveness. The resulting identification scheme can be represented as follows:

Systematic policy,
effective
Systematic policy,
ineffective
Surprise policy,
effective
Surprise policy,
ineffective

Feedback Rule, eq. (5)Augmented Forecast, eq. (3)Simple Forecast, eq. (1)X, y together predict X

X, y together predict yy alone predicts y

Yes

Yes

No

2a.

Yes

Yes

Yes

2b.

Yes

No

No

3.

No

Yes

No

4a.

No

Yes

Yes

4b.

No

No

No

1.

APPENDIX C: Cholesky Orderings in Impulse Response Functions in Descending Degree of Exogeneity
Figure 7a. Government Spending - Private Consumption - CPI - Output
Figure 7b. Output - Private Consumption - CPI - Government Spending
Figure 7c. Money- Reichsbank Rate-CPI-Output
Figure 7d: Output-Reichsbank Rate-CPI-Money

NOTES
1

The first view goes probably back to contemporary discussions but is still reflected in Temin (1989). For the second
view, see e.g. James (1986).
2
Garvy (1975) documents that proto-Keynesian ideas circulated in German academic circles during the depression. Barkai(1990) and others have argued that these ideas indeed shaped policy-making during the Nazi recovery. Detailed accountsof these contemporary debates and their influence on Nazi economic policy are given by Grotkopp (1954) and Kroll(1958).
3
Institut für Zeitgeschichte Munich, Da 03.03. This includes the complete ex-post central government accounts from1934 through 1940. The history of these records is documented in the files of the finance ministry in Germany’s nationalarchive, Bundesarchiv R2 Anhang. The ex-ante budgets survived in the former East German Potsdam archives.
4
The evidence in Figure 1 would be consistent with a heavily contested claim of Temin (1971) who argued for a beginning of the Great Depression in Germany in 1927. For a criticism, see Falkus (1975) and Balderston (1977).
5
Conversion to GNP was first undertaken by the West German Statistical Office, (see Wirtschaft und Statistik, 1954).
Refined versions of this series are in Hoffmann/Mueller (1959). Further adjustments and a refined deflator are provided
by Ritschl/Spoerer (1997).

22

6

The most notorious of these was Mefo, an enterprise set up by the central bank in cooperation with a number of majorarms suppliers. See e.g. Barkai (1990).
7
Existing data are often based on estimates by Erbe (1958) or on data made available during the Nuremberg war crime
trials (Stuebel, 1951).
8
More precisely, debt was considered revenue and inserted above the line if it was budgeted, else it counted as deficit
which later would have to be funded.
9
A more rational system of budgeting was introduced only in 1969 (see e.g. Kitterer, 1998, which includes a brief overview of German budgeting procedures).
10
All relevant studies restrict their attention to central government deficit, as net borrowing of states and municipalities
became negative from 1934 on (see e.g., Statistisches Handbuch von Deutschland, 1949). Hence, the deficit data in Figure 2 are slightly upward biased, suggesting an excessively strong Keynesian demand effect.
11
The motivation of these austerity policies has been controversial. See e.g. the contributions in Von Kruedener (1990).
12
See e.g. Birkenfeld (1964) on synthetic fuel, Hayes (1987) and Plumpe (1990) on chemical industry, Mollin (1988) oniron and steel, and Gregor (1996) on Daimler-Benz.
13
The most notable examples are the Reichswerke steel trust and the Volkswagen works. See Mollin (1988) on the former
and Mommsen (1996) on the latter.
14
The source from which Overy (1994, Table 2.7) is working seems to be adding up data from the investment statistics
plus work-creation. That would result in double-counting, as the investment statistics underlying Table 1 above are consistent with the volume of construction activity.
15
There is hardly a better way of combining popular beliefs about the Nazi recovery than the cover of Silverman’s (1998)
recent book. Under the title: “Hitler’s Economy. Nazi Work Creation Programs, 1993-1936”, it shows an advertisment
for a beetle car. No visual message could convey the fictitious character of the motorization-led recovery more clearly,
as it displays the centerpiece of Nazi iconology : the ad shown on the cover is actually not for the car itself but rather fora savings scheme. A beetle drives on an empty road in front of a hugely magnified 5-reichsmark coin of 1936 (which
was the weekly contribution the driver was supposed to make in order to eventually get his own beetle). In 1936, workcreation was already running out. Of the brave subscribers, no one ever got a beetle in return, as the Nazi labor organization administering the scheme went under in 1945. Deliveries of beetle cars to the market did not start until the late
1940s. See e.g. Siegfried (1986).
16
The same data are also used by Hoffmann (1965). For unknown reasons, Hoffmann’s data on public investment arenevertheless upward biased against his source data. The various different data sources are evaluated against each otherand checked for consistency in Ritschl (1992), where also supporting archival evidence from the economics ministry is
discussed.
17
Results did not change when repeating the exercise with the wider money aggregate M 2.
18
As Sargent (1999) notes, the terms "unconditional" and "conditional" forecasts are misnomers, as the former are obviously conditional on the information set at the start of the forecasting period.
19
Figure 7 provides the impusles responses, scaled by the respective standard deviations. To make magnitudes strictly
comparable, I also obtained the unscaled impulse responbse functions. Measured on the same scale as government
spending, the responses of output in Figures 7a and b became almost invisible. The same holds for the output responses
to monetary shocks in Figures 7c and d.

23

Figure 1: Indices of Real GNP
140
120

Germany
Britain
USA

80
60
40
20
1938

1937

1936

1935

1934

1933

1932

1931

1930

1929

1928

1927

1926

0
1925

1928=100100

Figure 2a: Central Government
Deficits (bn RM)

Figure 2b: The Fiscal Impulse(bn RM 1913)

12

5

10

4

8

3

6

2

4

Deficit

FEBD

FEBD Cohn

d Deficit

Fiscal Impulse

1937

1935

1933

1931

1929

1927

1938

1936

1934

1932

-2
1930

-4
1928

-2
1926

0
-1
1924

0

1925

1

2

FI CohnFigure 3: The Instability of the Keynesian Expenditure Multiplier
40

31,39

2,89

1,75

1934

6,46

1933

5,04

1931

1,22

1930

10

15,70

12,74
5,89

2,20

1,48

1938

20

1937

30

0
-2,11

-10
-20

d Y/d FEBD

1936

1935

1932

1929

1928

1926

1927

-18,98-30- - - Theoretical Value of FEBS MultiplierFigure 4: The Instability of the Keynesian Consumption Function
2,5
1,84

2

1,47
0,71

0,32

0,50

0,46

0,34

1938

0,72

1937

0,5

1,13

0,99

1

1936

1,5

0,18

0
-0,01

-0,5

dC (priv) / dY (disp)

1935

1934

1932

1931

1930

1929

1928

1927

1926

1933

-0,60

-1

Figure 5: Ratios of Money and Public Debt to GNP
0,6
0,5
0,4

M1 / GNP

0,3

Debt / GNP

0,2
0,1

37
19

35
19

33
19

31
19

29
19

27
19

19

25

0,0

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1933:01(c) Forecast of Output from Full VAR Excluding Fiscal Policy Instrument

1932:01

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1925:01(b) Forecast of Output from Full VAR Including Fiscal Policy Instrument

1932:01

1931:01

1930:01

1929:01

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1933:01

1932:01

1931:01

1930:01

1929:01

1928:01

1927:01

1926:01

1925:01

Figure 6: Out-of-Sample Forecasts of Output and Macroeconomic Policy(a) Forecast of Government Spending Under a Feedback Rule

1925:01
1926:01
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1930:01

1929:01

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1926:01

1925:01

1939:01(f) Output Forecast From VAR Excluding Money Supply

1939:01

1938:01

1937:01

1936:01

1935:01

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1926:01

1925:01(d) Forecast of Monetary Policy Under a Feedback Rule(e) Output Forecast From Money Demand Function

Figure 7: Impulse Response Analysis of Macroeconomic Policy(a) Dynamic Responses to Shock in Exogenous Government Spending
1932:04

1934:04

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6

1936:04

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6
1

2

3

4

5

OUTPUT

6

7

8

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6
1

2

GOVSPEND

3

4

5

OUTPUT

6

7

8

1

2

GOVSPEND

3

4

5

GOVSPEND

6

7

8

7

8

7

8

OUTPUT(b)Dynamic Responses to Shock in Endogenous Government Spending
1932:04

1934:04

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6

1936:04

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6
1

2

3

4

5

OUTPUT

6

7

8

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6
1

2

GOVSPEND

3

4

5

OUTPUT

6

7

8

1

2

GOVSPEND

3

4

5

OUTPUT

6

GOVSPEND(c) Dynamic Responses to Shock in Exogenous Money Supply
1932:04

1934:04

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6

1936:04

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6
1

2

3

4

5

OUTPUT

6

7

8

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6
1

MONEY

2

3

4

5

OUTPUT

6

7

8

1

MONEY

2

3

4

5

OUTPUT

6
MONEY(d) Dynamic Responses to Shock in Endogenous Money Supply
1932:04

1934:04

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6
1925:01

1936:04

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6
1925:03
OUTPUT

1926:01

1926:03

MONEY

1925:01

1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6
1925:03
OUTPUT

1926:01
MONEY

1926:03

1925:01

1925:03
OUTPUT

1926:01

1926:03

MONEY

Table 1: Public Investment in Transport andMotorization, 1932-1938- mill. reichsmarks 1932

1933

1934

1935

1936

1937

1938

Roads
autobahns
I. total motorization:

150.8-150.8

360.1
3.1
363.2

431.3
178.3
609.6

437.1
464.7
901.8

471.5
692.2
1163.7559.1
679.2
1238.3

867.6
916.4
1784

II. Other transport

703.2

952.0

1191.21213.51278.31511.32016.6

III. Grand total:

854.0

1315.21800.82115.32442.02749.63800.6% Share of motorization:

17.7

27.6

33.9

42.6

47.8

45.0

47.0

Source:Statistisches Jahrbuch fuer das deutsche Reich, various issues

Table 2:
The Composition of Aggregate Investment, 1932-1938(bn reichsmarks)
1932

1933

1934

1935

1936

1937

1938

Total fixed investment
Manufacturing
Public utilities
Housing
Transportationof which public::
Agriculture
Miscellaneous

4.247
0.449
0.218
0.764
0.854
0.232
0.554
0.545

5.104
0.52
0.2
0.929
1.315
0.522
0.596
0.650

8.253
0.95
0.225
1.494
1.770
0.636
0.727
0.78

11.6
1.636
0.556
1.563
2.115
1.078
0.775
0.75

13.8
2.159
0.657
2.207
2.442
1.323
0.85
0.85

16
2.843
0.936
2.12
2.750
1.425
0.981
1.0

19
3.691
1.148
2.15
3.861
2.031
1.029
1.2

Public sector (I)Public sector (II)

1.095
1.095

1.416
1.7

2.943
3.5

5.3
4.9

6
5.4

6.8
6.1

7.9
7.9

% Share of public sector (I)% Share of public sector (II)

25.8
25.8

27.7
33.3

35.7
42.4

45.7
42.2

43.5
39.1

42.5
38.1

41.6
41.6

Sources and Methods:
Investment 1932-1934:
Investment 1935-1938:“Public Sector I”:“Public Sector II”:

Konjunkturstatistisches Handbuch 1936, p. 61
Reichskreditgesellschaft (1938), Statistisches Handbuch von Deutschland (1949), pp.
604-607, Ehrlicher (1954), Gehrig (1961).
Calculated as a residual.
Reichskreditgesellschaft (1939)

TABLE 3
The Emission of Work-Creation Billsbn reichsmarks, by fiscal years (April-March)
1932-3

1933-41934-51935-6

1936-7

1937-8

1938-9Autobahn
Other
Buybacks (-) before
maturity
Total:--0.154-----1.111
---

0.346
0.959
-0.1200.149
0.458- 0.718-0.045-1.495-0.267---0.007-0.060-0.160-0.433+1.045

0.154

1.111

0.839

-0.260-1.762

0.053

0.612

As percent of public investment (II)

14.6

65.4

24.0

-5.3

-32.6

0.8

7.7

Sources:

Hauptarchiv der Deutschen Bundesbank, Rbk 1/7; Bundesarchiv Potsdam,
R25.01/6514-18, 6638-41; Bundesarchiv Koblenz, R2/3846,18656,18701.
Methods of calculation in Ritschl (1997), Table A.8.

TABLE 4
The Composition of Central Government Borrowing, 1932-1938
bn reichsmarks, by fiscal years (April-March)

I: Shadow Budgets
Work-creation bills
Mefo bills:
Total:% Share of work creation inshadow budgets:
II. Regular Budget
Reich Budget Deficit
III. Grand Total
Total Deficit:
for comparison:
Erbe (1958)
for comparison:
Cohn (1992)% Share of shadow budgets
in total deficit:
Sources and Methods:

1932/3

1933/4

1934/5

1935/6

1936/7

1937/8

1938/9

0.154
0.154
100.0

1.111
0.166
1.277
87.0

0.839
1.979
2.818
29.8

-0.260
2.715
2.455
-0.1

-1.762
4.646
2.884
-61.1

0.053
2.494
2.441
0.21

0.612
-0.0670.545
112.3-0.205-0.033

1.113

1.715

2.125

3.267

9.638

-0.051

1.244
1.567

3.931
2.027

4.170
4.200

5.009
5.707

5.814
5.393

10.81310.503

.986

2.166

5.314

6.130

8.207

8.862

9.728

-301.9

102.7

71.7

58.9

57.6

42.0

0.5

Mefo and work-creation bills: See previous table. Reich deficit: Haushaltsrechnungen desDeutschen Reiches, various issues, IfZ Munich, Da 03.03.
Methods of calculation in Ritschl (1997), Appendix Tables A1-A.5.

TABLE 5
The Share of Military Spending in Central Government Expenditure
bn reichsmarks, by fiscal years (April-March)

Budgeted military expenditure
Mefo bills
total military expenditureof which:: Mefo bills
Total central government
spending on goods andservicesof which:: military spending
Total non-military spending
on goods and services
Sources:

1932-3 1933-4 1934-5 1935-6
0.4
0.4
1.9
4.0

1936-7
5.8

1937-88.2

1938-9
18.4

--0.4
---

0.166
0.6
30%

1.979
3.9
50%

2.715
6.7
33%

4.646
10.2
43%

2.494
10.8
23%

-0.067
19.4
-5%

1.950

3.367

7.681

9.154

12.60915.77124.154

20%

17%

51%

73%

81%

68%

80%

1.550

2.767

3.781

2.454

2.409

4.971

4.754

1932-3, 1933-4:

Statistisches Jahrbuch fuer das Deutsche Reich, various isses

1934-5 to 1938-9:

Haushaltsrechnungen des Deutschen Reiches, IfZ Munich, Da 03.03.
Mefo bills etc.: see previous tables