Auschwitz Fashion Day

The German Economy in 1933 was facing a severe deflation in line with the majority of the planet after the Great Depression. The Great Depression, as I wrote in one of my earlier posts, was caused by a contraction of the money supply due primarily to the particular features of the Gold Standard in the United States, and to the deliberate policies of the Federal Reserve Board in the 1930s. The US money supply contracted by a full third, which devastated the world economy, and also lead indirectly to the passage of the Smoot-Hawley Tarriff, which caused global trade to decline by 50%. One of the most affected nations was Germany, which was reliant upon American loans to repay the War Reparations required by the Treaty of Versailles. Germany had, in the process of ten years, seen a massive hyperinflation (in 1922), where the Reichmark became literally worth less than paper it was printed on, and, in 1929, a massive deflation, which required deep austerity in the terms of the slashing of government programs, welfare, and civil services.
The 1933 elections were complicated as no centrist party was able to gain a constitutional majority in the Parliamentary elections. The two largest non-Centrist parties were the NSDAP, the Nazis, and the KPD, or Communist Party. Largely because of political maneuvering, NSDAP Chairman Adolf Hitler and Chancellor Franz von Papen, and de facto leader of the Catholic Zentrumspartei, agreed to form a coalition, on the Condition that Adolf Hitler would be Chancellor and von Papen would be Vice-Chancellor, with Hindenburg as president. This was agreed upon, and after winning in the 1933 elections, a Grand-Coalition of sorts was formed. Ultimately, however, Adolf Hitler out-muscled von Papen (pawning him off to write the Concordant with the Vatican, which simultaneously moving to oust him), and then fused the office of Vice-Chancellor with that of President following Hindenburg's death.
Once Hitler was in power, he initiated a number of programs. Firstly, the Versailles Treaty was to be unilaterally revoked, and the Saar Valley, which had been forcibly requisitioned by France, was to be remilitarized with the Rhineland. This was a massive gamble, but the French did nothing, and Germany was able to vastly increase its budget while virtually eliminating the financial hemorraghing that the Reparations had caused.
However, now there was the task of actually rebuilding the economy, since Germany was yet to be out of the depression. The issue with deflation is that it is a contraction of the money supply, and what that means is that its a contraction of loans, bonds, and financial instruments that can be used as leverage, collateral, or loans to fund development. Businesses typically require these loans in both the short-run, in terms of paying worker's salaries, rent, and all of the general costs necessary to keep balance sheets in the black, as well as the long-run, in terms of financing expansions, renovations, and developments of new factories. This also affects consumption, as in deflationary periods, consumers are more likely to pool their money in the banks, while fewer people are willing to take out loans, so banks make less money. Modern economics, in the form of quantitative easing, attempts to solve this problem by lower the reserve rates and interest rates of the Central Bank to near-zero levels, so the effect is opposite, there is little saving at near 0% interest, but a lot of borrowing. The downside to this is that it will create unstable bubbles.
So, the end result of this economic phenomenon is to create a scenario in which consumption dramatically decreases in all markets. Firms can't get the financing to build new factories, so resources are devoted elsewhere; they also can't finance workers in the short-run so they're more willing to lower wages or fire people, thus spiking unemployment. Then, you get in a negative feedback, as the many people who are employed are working in a race-to-the-bottom to get employed, so they offer to work for less. Moreover, even if firms get the financing for production, and can employ enough workers, there is still the problem of consumers not having enough money to purchase many finished goods.
Thus, most governments at the time adopted policies of direct government intervention (the New Deal, the Corporatists state in Italy, and the German Autobahn Project). Speaking of the Autobahn Project, the Nazis decided to turn an about face to their opposition to Autobahns (originally they opposed it as being an instrument of Jewish Capitalism, as most Germans were too poor to afford a car). Now, they desired it because artificially creating jobs for unemployed people will indirectly help alleviate the downward trend of wage depreciation amongst those already employed, and it can help unskilled laborers improve their skills, and it can possibly increase national infrastructure. Hitler's plan from the beginning was to consolidate power, rebuild the military, and prepare for war, and thus all major economic reforms were explicitly geared towards this, including the autobahn, as it would improve Germany's logistical network.
Now, towards industry. Corporatism, or the fusion of Labor and private firms into government-run cartels, was a major feature of fascism, but also of other governmental policies, such as the New Deal. Basically, private cartels, or trusts were outlawed, because they would result in private attempts to corner markets unethically and maximize profits. Here, the government would step in and corner the market through regulation, but it would do so to lower the market price to a more competitive equilibrium. That was the idea of course; however, in practice, it was done largely to favor firms at the expense of the consumer initially, and later, to benefit the government at the expense of the producer and consumers collectively. During the wartime economy, price and wage fixtures were implemented to provide the German economy with what it thought was cheap goods and materials. However, price and wage restrictions are inherently inflexible and decrease overall welfare because they cannot adjust to economic realities.
Thus, while initially successful, the corporatist policies later harmed Germany, and were undone in the late 1940s by Konrad Ardeneur, largely resulting in the West German Economic Miracle of the 1950s. They also served the policy of consolidating economic power under the German state, and quashing any potential dissenting elements.
The next phase was remilitarization. As I said before, as private consumption decreased, it needs something to compensate for the slack in the market place. Government consumption is one method of doing this, and it need not always be for peaceful means. Germany attempted to resuscitate its economy by converting it to a wartime economy. Now, in the short run of a few years, unemployment dramatically declined as many of the unemployed were either employed in government projects, or drafted into the army. It also saved many industries from going under and built new ones. However, the problem is in the long run, since this is inherently an unstable policy for two reasons: the first is simply because constantly building weapons is useless unless you are going to use them, and even then, its at the expense of other nations. The second is that you are going to need a new way to finance it.

This is where a major internal schism of Nazi Germany emerged. During the pre-war years, Germany was dominated by the Nazi party, but it was still technically in coalition with the various Centrist parties, and a number of Centrist ministers remained in influential positions. Hjalmar Schacht, the Chairman of the German Central Bank, was one of them. He implemented the policy of printed MEFO Bonds, or limited usage bonds, to finance German rearmament. MEFO bonds were a special type of currency that existed in large denominations that could only be used by approved industries in Germany, but still counted as legal tender (think of it like a $10,000,000 dollar bill that can only be used by automobile companies. If they catch a random person with it, it will be illegitimate, but if an approved industry uses it, it will be considered legal tender). This was done for two reasons: 1) to control inflation, and 2) to prevent the allies from realizing their massive deficit spending to rebuild their military.
Hjalmar Schacht later opposed German Rearmament beyond the peacetime necessity and was sidelined, along with a number of other ministers and generals in 1937, before the Anchluss and annexation of the Sudetenland. Curiously, he predicted that without free market reforms, the German economy will be unable to function properly and might default on its obligations without either 1) austerity (i.e. cutting back the military budget), 2) increased taxes (which would be politically damaging; the Nazi regime actually had incredibly modest taxes for most of the war), or 3) finding new sources of real currency to confiscate or otherwise inject into their economy.
On the last part, this follows the third German objective of achieving Lebensranum. Germany actually attacked many countries before it was ready largely out of the reality that it needed new sources of material gain to prevent financial ruin. It also used this time to exploit minorities, such as the Jews, by confiscating their assets and impressing them as slave labor. This also factored into the Anchluss and Sudetenland, as these were not only nationalist, military, and geopolitical objectives, but they were also economic objectives, as they not only incorporated industrial regions into the Reich, but also made neighboring countries economically dependent upon Germany.

TL;DR: Germany benefited from Hitlers policies in the Short-Run, but even without the war would have suffered long-term consequences.

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