Schacht's policies: More harmful than helpful?

Discussions on the economic history of the nations taking part in WW2, from the recovery after the depression until the economy at war.
TheMarcksPlan
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Re: Schacht's policies: More harmful than helpful?

Post by TheMarcksPlan » 22 Jan 2020 04:40

HistoryGeek2019 wrote:There was no need for Georg Thomas to be controlling steel allocations. That's what the price system is for.
Well I agree that Thomas was a bad allocator - Generals typically don't understand economics - but the price system doesn't really work in a war. Even in the theocratically-capitalist U.S., the government allocated steel and other strategic inputs.
Funk's policies at the Ministry for the Economy, which sought to retain as much production of consumer goods as possible.
Funk, the Gauleiters, and anybody who had authority on a case-by-case basis to waive the generally-promulgated mobilization edicts (as Hitler did himself on many occasions). Accounts like Tooze that take at face value the Nazi rhetoric - and even national policy - of total mobilization founder on the complexity of the Nazi state.

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Re: Schacht's policies: More harmful than helpful?

Post by HistoryGeek2019 » 22 Jan 2020 12:09

The price system always works. People are always going to maximize their revenues and minimize their costs. Rationing is only advocated by those with a stake in maximizing the power of the government bureaucracy - politicians, think-tanks and politically connected businesses. On the other hand, people who criticize government rationing and argue in favor of free markets are denounced as idealistic libertarians or greedy war profiteers. Rationing is only ever necessary to make sure people with less income can get a needed amount of a specified input. But during war the government, through its expenditures, decides how much income everyone gets, so there is no need for rationing.

https://scholar.harvard.edu/files/weitz ... ioning.pdf

The policies of the War Production Board in the United States don't receive much criticism because they were good enough - American arms output was enormous and we won the war easily. But that doesn't tell us that it was the most efficient possible system.

In any event, I doubt the armaments regulatory apparatus in the United States was as cumbersome as that in Thomas' and Fromm's Germany, but that might be worth a research paper too.

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Re: Schacht's policies: More harmful than helpful?

Post by TheMarcksPlan » 24 Jan 2020 02:38

HistoryGeek2019 wrote:The price system always works
Argh you're triggering PTSD symptoms. I used to be a free market fundamentalist, spent 4 years as an acolyte in the High Sanctum of the faith's most radical sect. Over many years I escaped, it's a long process though.

So instead of coming at it from first principles, I'll use a right-leaning frame:
People are always going to maximize their revenues and minimize their costs.
This is pretty much true of firms, leaving people aside for now (and leaving aside whether firms are people).
A rational firm trying to maximize its profit doesn't care whether it gets paid to build good weapons or slingshots. It's economically irrational to care about something like the well-being of soldiers, no matter how patriotic the firm's principals are. They can be sued, actually, for being patriotic instead of greedy. That's how we get a nightmare like the F-35: corporations may be people but they're sociopaths.

There is no price system for efficient allocation of military resources. It's not like soldiers get to bid on whether they have good or bad weapons. Even were such bidding possible, the price system wouldn't be militarily efficient: rational soldiers would bid on things that kept them safe rather than things that killed the enemy.

That's why things like steel allocations are a good idea in a war economy. Decisions are best made with the most information, later decisions have more information. If the military signs contracts for 50 X's and 10 Y's at time A, but later realize that Y is way more useful than X, steel allocations are a good way for the military to squirm out of the bad contract that specified more of X than Y.

Germany's war economy - for all its red tape - was certainly more price-responsive and capitalist than SU's. Yet the SU's was clearly more efficient during the war.

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Re: Schacht's policies: More harmful than helpful?

Post by HistoryGeek2019 » 24 Jan 2020 16:04

I'm not a libertarian either, but I can acknowledge what the free-market is good at: efficiently directing economic activity toward those with the most money. And in war, the government will be spending more money than anyone else.

Firms don't care about the well-being of soldiers, but the government does (to a certain minimum extent anyway - the soldiers have to be somewhat effective before they are discarded). In war the government is the one deciding what quality of product is acceptable to meet its wartime objectives. The firms then find the most efficient way to manufacture the product with the level of quality required by the government.

Soldiers don't bid on anything, I don't know where you got that from. The government decides what equipment is needed and then receives bids. The government is a monopsony - it has a monopoly on the purchase of military equipment during war. The government decides what military equipment is needed in what proportions and then it is best to allow firms to bid and find the most efficient way to make that equipment.

Decisions are best made with the most information, and the millions of people working at private businesses around the country (and the globe) have far more information than a few thousand government bureaucrats trying to centrally control everything. The price system coordinates the information available to all the private contractors around the world and results in the most efficient delivery of products that humans are capable of.

Centrally mandated allocations don't help with any of this. Not even with "squirming out of contracts". I don't know where you got that from. Allocations would just add one more layer of bureaucratic tape to cut through if the government needed to cancel a contract. The most efficient and flexible system is the one that has the least level of bureaucratic oversight, i.e., the government should just decide what equipment it needs and contract with the private sector to produce it.

The Soviet Union didn't have the tension and red tape created by an army of government bureaucrats trying to regulate private firms who were in turn trying to maximize their own profits. The government was the manufacturing firm in the Soviet Union. It simply decided what to produce and produced it itself. There were no armaments inspectors making sure firms weren't making more profits than their government contract allowed. And Soviet industry was built by private American industrialists during the 1920s and 1930s. The Soviet government was just using what private industry had created.

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