The 1920s had shown that the non-productive expenditures associated with monopoly capital (marketing expenditures, advertising, speculative ventures, luxury consumption) could postpone crisis but not stop its eventual impact being greater than previously. The 1930s showed that "pump priming" by governments might produce a shortlived and limited revival of production, but could not give a new lease of life to the system either. A more profound change in the direction of state capitalism was needed.
From slump to war
It was here that the German and Japanese examples were significant. The major sections of their ruling classes accepted political options that subordinated individual capitalists to programmes of national capitalist accumulation imposed by the state while repressing the working class movement. The major capitalist groups remained intact. But from now on they were subordinated to the needs of an arms drive which they themselves supported. Armaments and the expansion of heavy industry drove the whole economy forward, providing markets and outlets for investment, as wages lagged behind rising output and profit rates were partially restored.
In Germany such methods pulled the economy right out of the slump (after two years of less effective "pump priming") and kept it booming while the American economy was slumping again in 1937. By 1939 output had climbed 30 percent above the 1929 level and unemployment had fallen from six million to 70,000, with the creation of eight million new jobs.49 Most of the new production went into arms and the heavy industries that provided military preparedness, but a tenth of increased output did go into raising private consumption. so And the economic expansion itself paid for a large percentage of the cost of fuelling the boom, with only about a fifth of government spending being covered by a budgetary deficit. In effect, the Nazi dictatorship was able to ensure that new investment took place, even though initial profit rates were low.
However, there were major problems with any such policy. Germany was not a self-contained economic unit. The forces of production internationally had long since developed to the point where they cut across national boundaries, and there was a growing need for certain strategic imports as the armaments boom took off. The only way to overcome this while keeping the German economy self-contained, and therefore immune to international recessionary pressures, was to expand the boundaries of the German Reich so as to incorporate neighbouring economies, and to subordinate their industries to the German military drive.
The Great Slump
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