Income Expectations and Political Instability in Germany, 1918–39

Abstract

This chapter discusses the relation between income change and political instability in the period of modern German history most affected by both. This was the era of postwar revolution (November 1918—c. April 1919), of inflation and hyperinflation (1918–23), of almost unparalled depression accompanied by an explosive increase in the Nazi vote (1929–32) and of dictatorship advancing ever more probably to war (1933–9). The discussion will be guided by the following propositions: 1 The ‘income change’ which has the potential to cause political conflict is change in expected ‘lifetime’ or ‘permanent’ income, not change in actual past income. For rational political action relates to the future, not the past! Where income change has been continuous for a long period, past change may satisfactorily proxy expected long-term change. In cases of abrupt and discontinuous income change, it might not. Interwar Germany conformed to the latter case. Where, however, real income expectations do collapse, they may be expected to undermine democracy by narrowing the scope for compromise. This is because, with lower expected incomes, the margin for ‘absorbing’ adverse economic policy decisions out of future income growth is reduced. Democracy presupposes a willingness to accept the adverse decisions of the majority — as ascertained by some agreed political formula — on many economic policy choices potentially affecting future incomes. 2 Adverse change in income expectations will have political consequences only when (i) those adversely affected believe it can be remedied by different economic policies (otherwise it will be accepted passively and without political protest), and when (ii) they believe they have the political muscle to swing policy round to their own advantage. 3 Income inequality is not necessarily incompatible with political stability. In ‘traditional societies’ throughout the world it has been stably legitimated by principles of deference and of uncontested status differentiation. Changes in expected income distribution will best be able to build coalitions of protest where the ‘glue’ holding them together is not sheer self-interest, but a shared sense of distributional injustice.