Central Europe in 1955
Few people today appreciate how close the German Republic came to coming apart in the winter after Black Tuesday. It is unambiguous that if the crisis of 1929 went unaddressed, it would have produced a far darker decade in Europe. What many do not understood is how many unlikely circumstances had to coincide to avert a potential disaster. In March 1930 Hermann Müller’s Grand Coalition stood on the edge of collapse, directly due to disagreements over half a percentage point of unemployment-insurance contributions. The coalition of social democrats, the Catholic center (and its Bavarian sister party), and two liberal parties, was limited in their combined governing abilities from the start. The right-liberals, speaking for heavy industry, would not raise contributions. Meanwhile, the unions, representing three million men already out of work, would not agree to cutting benefits. At the same time, nondemocratic forces sought to undermine and discredit the coalition at every turn.
Müller held the coalition together by asking his own party to swallow what it had refused for months—a controversial, bold decision. On March 27, after a bitter night session, the Social Democratic deputies accepted a compromise drafted by the Centre’s Heinrich Brüning: freeze the contributions, cover the deficit with Reich loans, and address several other minor grievances. The unions named their price: if the next winter was worse, the government would put the unemployed to work rather than merely pay them.
Naturally, the next winter was worse. By December, more than four million Germans were registered as unemployed, and the unions demanded their end of the deal be honored. Their demands were channeled by the unorthodox work of three men. Wladimir Woytinsky was a Russian émigré and the unions’ chief statistician, Fritz Tarnow led the woodworkers’ union, and Fritz Baade was an agricultural economist with a gift for talking to farmers. The “WTB Plan” as it became known, proposed two billion Reichsmarks for roads, housing, canals and rural electrification. It would be paid for not by taxes but by special public-works bills that the Reichsbank agreed to buy. Its aim was to support one million jobs and to end the spiral of falling prices and wages that had been plaguing the governing coalition and the Republic. Its premise was that a government could spend its way out of a slump was far from consensus thought. It would not receive a full theoretical treatment until Keynes published his General Theory three years later in 1934.
The fiercest resistance came from inside the Social Democratic Party itself. Rudolf Hilferding, the party’s most respected economist, had been driven from the Finance Ministry a year earlier by Schacht’s Reichsbank. He called the plan a betrayal of everything the movement understood about capitalism. Crises, he argued, could not be cured from within the system, and printing credit risked a return to the hyperinflation of 1923, which still scarred the national psyche. Tarnow answered him before the party council: Social Democrats, he said, had to decide whether to stand at capitalism’s sickbed as physicians or as vulturous heirs. Müller, personally ailing and nearing the sickbed himself, chose to side with Tarnow. This persuaded a sizeable number of party members, perhaps encouraged by Müller's earlier political victories over the past year. By a narrow margin, Hilferding could not sway enough of the party and kept his convictions until he passed away in 1948.
Persuading the rest of the coalition was another challenge itself. The People’s Party demanded that every program contract go to private firms and that the public-works bills be capped. The Center Party insisted on a regular, balanced budget and a fixed expiry date. Finally, the Democrats wanted carve outs for housing for the middle class, among other concerns. Above all, the decisive price was paid to Hindenburg himself. To that end, Baade drafted a program of debt relief for the indebted estates east of the Elbe, so that the East Prussian landowners (whom the old Field Marshal counted as his own) were rescued alongside the urban unemployed. After one month of acrimonious negotiations, Müller died.
The law that passed in March 1931 was roughly half the plan its authors had wanted. The Reichsbank, under Hans Luther, agreed to buy up to 1.2 billion marks in bills, and no more. Hindenburg turned to Brüning, who kept both the coalition and, to his admirers’ surprise, the program. It did not spare Germany from the banking panic that swept Central and Western Europe that summer, though it did put men to work while the panic passed. When Germans voted in the summer of 1932, unemployment stood just under four million. It was indeed a grim figure, but it was nearly two million below what the Statistical Office had earlier forecasted. The National Socialists, who had surged in state elections in 1930, stalled at around ten percent of the national vote two years later. After the result, Gregor Strasser drove the movement’s socialist wing out of the party. Meanwhile, the Communist share of the vote neither significantly rose nor fell.
Hindenburg was re-elected that spring with the coalition’s support, but died in August 1934. Otto Braun, the long-serving Prussian premier, won the election to succeed him as the candidate of the republican parties. The Weimar constitution, battered but intact, had outlived the Depression. Social democrats from Stockholm to London to America now pointed to what the media called “the German cure.”
Austria was the recovered Republic’s next test. Engelbert Dollfuss had suspended the Austrian parliament in 1933, and his government broke apart after the bloody February fighting of 1934. Christian Social moderates refused to govern over the bodies of Vienna’s workers, and parliament was restored. Both of Austria’s great parties then looked north. The treaties made union impossible without the unanimous consent of the League Council, which meant France and Italy each held a veto. Berlin bought their consent with what no Weimar government had ever offered: a guarantee of its borders with Poland and Czechoslovakia, and of the Brenner frontier. The Saar plebiscite of 1935 had shown what a League-supervised vote could look like. In 1938 Austrians voted overwhelmingly to join the Republic as a federal state.
Today, historians speculate about what economic recovery would have looked like if the WTB-plan never came to be. Many conclude that the Republic would have drifted towards government deadlock spanning the economic crisis until a gradual recovery at the expense of countless lives and livelihoods. Others imagine a descent into low-intensity civil war between multiple factions, along the lines of Italy in the 1940s. Though unpopular, there is a theory held by a few fringe historians. They maintain that if Müller lost the squabble about contribution rates in 1930 with the coalition, the National Socialists could have capitalized on the dispute and even enter a state government in several years' time, assuming a later public-works plan put forth by the democratic parties further on the right than the SPD.
