The Weimer Regime’s role
1. Explain the Weimer Regime’s role in helping Hitler to establish his economic system.
2. Explain Hitler’s logic behind establishing tight price and wage controls.
3. What were some of the weaknesses Germany faced in its price and wage control system?
4. Explain the German Banking System Collapse from what caused it to solutions proposed for it.
5. What was the significance of Hitler’s price stop being unannounced?
6. What does the presence of a black market in Hitler’s economy reveal about markets?
7. Explain the conflict between Ludwig Erhard and Germany’s Social Democratic Party regarding how to fix Germany’s economy. Who won and why?
8. What 3 factors picked up the German economy after WWII and created the so called German Economic Miracle? What effect did they have on the German economy?
Questionnaire Questions- “German Economic Miracle”
After world war 11, Adolf Hitler imposed price controls for Germans to aid his Government to attain war arsenals at lower rates. Later, Hitler’s Nazi deputy, Hermann Goering, imposed rationing. Within weeks into power, Hitler entreated Article 48 of the Weimar Constitution to suppress various civil rights and defeat the Communist party. In March 1933, Hitler launched the Enabling Act to pass laws regardless of Germany’s Parliament or president’s approval. The decision led to the most significant economic depression Germany has ever faced. The worldwide economic depression and the rising power of labour unions and communists lured many Germans into supporting the Nazi party. The Nazis thrived on bank failures and unemployment. Hitler used this to convince Germans of his proof of the democratic Government’s ineffectiveness.
To the Nazis, wage and price control were planned as part of the Reich’s usual existing collectivist economic system. Hitler used them to safeguard German’s land and give them the means to maintain coming generations.
One of the weaknesses that German faced in its price and wage control system was that it withdrew goods from the market. Germany also experienced a reduction in the quality of produced goods. Additionally, Germany witnessed the formation of a black market. Lastly, there was an emergence of bartering instead of the previous cash-only transactions.
The world economic slump of 1929 debilitated Germany’s banking system. There was a massive increase in Nazi votes in the September 1930 elections, which saw a rise in Germany’s Parliament’s representation from 12 to 107 persons. On the other hand, Australia had high foreign currency exposure. However, Australia’s industrial base that supplied the bank with liquidity suddenly slumped with the world economic depression of 1929. These two events led to substantial foreign withdrawals from German banks due to disapproval over the Nazis growing power. Consequently, there was the collapse of one of the four largest banks in Germany. The events further caused public panic. The banking crisis solution was temporary closure of banks by the Nazis to stop foreign and domestic funds withdrawals. Secondly, banks were nationalized by the Government. Thirdly, government controlled banks then started giving funds in exchange for newly issued bank equity. Lastly, new equity replaced all equity that the Nazis had written down at nominal value.
The unannounced price stops froze all prices, both free and administered to older levels. This tactic was a lesson learned from the experiences of World War 1—the tactic aimed at stopping actions spurred on by the anticipation of prices increases. Aside from freezing all prices, the price stops also included credit terms and discounts. Interestingly, different prices for similar products had their prices are frozen simultaneously, which meant froze the prices for their product at different rates than other sellers. The price stop system effectively destroyed the entire market system and price determination of product decisions. The Nazis used this system to centrally plan their economy. The price stop was followed by about seven thousand decrees directing the changes of individual prices allowing monitored increases sometimes and mandating price reductions other times. Prices were only flexible on imports that Germany was highly dependent on.
The presence of a black market in Hitler’s economy reveals that no matter how hard someone tries to remove the market it will always find its way into society. The government can only ever make the market unofficial; they cannot eradicate it.
Ludwig and Wilhelm were members of the German school. They advocated for currency reformation so that currency value could align with the number of assets and the eradication of price controls to clean up the postwar mess. They felt that both were necessary for their opinion to do away with the repressed inflation. Ludwig had composed a memo during the war setting out his concept of market economics. His memorandum asserted that he desired the Nazis defeat. On the other hand, the Social Democratic Party aspired to maintain government authority. The party claimed that decontrol of prices and currency reforms would be inefficient and instead backed central government administration through its prominent commercial ideologue. Ludwig won the debate because his anti- Nazi opinions were explicit. He had declined to become a member of the Nazi Association of University Teachers.
The three factors that picked up the German economy after World War 11 and their impact on Germany’s economy included the currency changes and the removal of price controls, both of which occurred during 1948. Moreover, there was a decrease in peripheral tax rates in 1948 and 1949. Besides, the economic rise can be attributed to Dawes Plan and Stresemann’s administration, which helped sustain the Weimar Republic and strengthen its economy. German workers called off their ‘passive resistance’ in the Ruhr, which allowed the nation’s economy in that assets were back in production, and the Government could stop printing money to compensate striking employees. Germany restored relationships with France and Belgium and was eventually acknowledged into the League of Nations, which created international trade opportunities. Generally, life improved in the Weimar Republic.
Accounting rate of return formula is average annual profits divided by average investment by the company (Al-Mutairi, Naser & Saeid, 2018).
Average annual profits= (£15,000+£25,000+£25,000+£20,000+£30,000)/5=£23,000
Average Investment= (£115,000+£25,000)/2=£70,000
Accounting rate of return=£23,000/£70,000=32.86%
Payback period is the duration taken to recover initial funds used in an investment. The shorter the payback period the better (Al-Mutairi, Naser & Saeid, 2018). The potential investment with the shorter payback period should therefore be pursued in this case.
The disadvantages of using payback period approach are that it does not take into account the time value of money, does not take into account cash flows beyond the payback period and is unrealistic as it ignores normal business scenarios (Gul, Gul & Haider, 2018).
Investment X appear more lucrative as it generates more cash flows than Investment Y over the lifetime of the investments.