History's lessons


The Telegraph announces that the Archbishop of Canterbury is claiming that we can all learn something from the Nazis.

The Archbishop of Canterbury warns today that Britain must learn the lessons of Nazi Germany in dealing with the effects of the recession.

The actual piece isn't quite that exciting: he's arguing that we should not adopt an economic policy without thinking of the morality of both the goals and the methods used to reach them. Quite right too. However, just for giggles, let's look at what the Nazis actually did do to reduce the effect of the Depression and to mop up that excess unemployment.

The previous literature has emphasized the Nazi policy of holding down real wages as a contribution to the rapid expansion of employment, the opposite of the perverse wageincreasing policies of Roosevelt’s NRA. Indeed, Barkai shows that the share of German wage income in national product declined from 64 to 59 percent between 1932 and 1936, while the increase in profits was “quite spectacular" (p. 196). Likewise, Abelshauser (p. 148) reports that the income share of the bottom half of the income distribution fell from 25 to 18 percent between 1928 and 1936.

They lowered real wages, cut labour's share of the economy and deliberately worked to increase corporate profits. Roosevelt, as is pointed out, tried the opposite track, boosting real wages. The end result was that German unemployment shrank quickly while in the US it was at 19% as late as 1938.

This shouldn't come as all that much of a surprise really. Things that are more expensive get used in smaller quantities than things which are cheap and this applies to labour just as much as it applies to anything else (no, no one at all is claiming that labour is a Giffen Good). If we try to raise the price of labour then we're going to reduce the amount of it which is used. If we lower said price then we'll increase the amount used.

Which is indeed a useful lesson for us to remember in current times. Raising the minimum wage just isn't going to help in reducing unemployment. Restricting working hours, imposing greater workers' rights, loading more regulation upon companies (all of which raise the cost of labour) similarly are not things we really want to be doing just now.