Book review:This book argues that the rise in living standards of the average German during the second World War played a major part in the passive acceptance of the evil perpetrated by the Nazis, writes Michael Casey

This is a well-researched economic history of how Hitler used the proceeds of systematic plunder to pay for the war and to buy the loyalty of his own people, whose material well-being had slumped by 65 per cent during the first World War.

By bankrupting other countries and by seizing Jewish assets, Hitler's financial experts managed to give German soldiers and their families a good standard of living during the second World War (twice the level in the UK and US). Less than one-third of the costs of the war were borne by the German people, while two-thirds were borne by other countries and ethnic groups.

Part of Götz Aly's thesis is that the rise in living standards experienced by the average German played a significant part in the passive acceptance of the evil perpetrated by the Nazi regime. At times this thesis comes close to arguing that the Holocaust was caused by economic self-interest rather than by racial hatred - this would surely be controversial.

The reality seems to be that we still do not have an adequate explanation for the mass insanity that lay behind the most egregious acts of barbarity the world has seen.

Aly points out that the Nazis , despite their hatred of Bolshevism, were in fact socialists - the name, National Socialists, is not an oxymoron after all. Hitler and his henchmen were not authoritarian with their own people - except for the richer elements of German society. The Nazis were populists and bent over backwards to help poorer families and ordinary soldiers. Generous social welfare provisions and pension schemes were provided. Yet when it came to other countries and races, the Nazis behaved in a radically different way.

Aly tells us that the Nazis were good managers, dismantling the old hierarchies and building flatter structures. In addition, the major Nazi leaders were only in their early 20s when they came to power in 1933, and they and their even younger recruits were enthusiastic and energetic.

Aly does not use the term "idealistic", but that seems to be the import of his argument. It is conceivable that the young Nazis were utopian, though with one exception. The world did not matter: only Germany mattered. But again we must ask: where did such pathological national loyalty (and xenophobia) come from?

One has to wonder whether the young Nazis were undereducated and hence more susceptible to the propaganda that was being pumped out. Is it conceivable that lack of education, if not downright stupidity, was part of the problem?

As far as plunder is concerned, the Third Reich used a variety of techniques ranging from the sophisticated to the brutal. All of them transgressed the relevant Hague conventions and for this reason the Nazis tried not to leave a paper trail.

The Jews had to pay higher "atonement" taxes and their goods and assets were seized. They were also forced to buy war bonds which, because of policies of extermination, never had to be redeemed.

Countries allied with Germany also had to make substantial contributions, while the occupied countries were forced to pay huge occupation costs. Although France managed to ship most of its gold to Swiss banks, it still had to pay massive contributions such that fiscal expenditure came to exceed revenue by a factor of three: virtual bankruptcy.

At the beginning of the war, German soldiers occupying other countries were paid in certificates called RKKs, issued by the Reichsbank. The shopkeepers of the occupied countries had no option but to accept this "currency", though it wasn't worth the paper it was written on - and did not circulate at all in Germany. The Reich also engaged in multiple currency practices in many occupied countries. The franc, for example, was devalued against the reichsmark.

After the RKK "currency" period had passed, the German soldiers occupying France had their wages calculated in reichsmarks but were paid in francs, so their wages shot up. They were discouraged from sending home devalued francs but were encouraged instead to buy French goods and send them home to their families.

An advantage of cleaning out the shelves of occupied countries was that it did not cause inflation back in Germany (selling off Jewish goods also helped keep inflation low). So much food was taken out of Russia that, according to Aly's estimates, more than 20 million Soviets starved to death.

Almost all the bureaucracies of the occupied countries collaborated with the plundering of their own treasuries and with the seizure of assets of their own Jewish populations. Belgium alone offered some resistance, but it was futile.

The forced labour of some eight to 12 million people also contributed to the war effort without costing the German people much.

Aly's conclusion is that the majority of Germans bore little of the cost of the most expensive war in history. They had a high standard of living because of the plundering of ethnic groups and treasuries of other countries. The Nazis had bought their loyalty and co-operation - and perhaps myopia.

This is a thorough and interesting analysis of the economics of the second World War from a German perspective. It more than achieves its own objectives, especially in relation to German war-time economics. But we are still left with the huge, unanswered question. What caused the collective insanity that led to the "final solution"?

Michael Casey is a former chief economist of the Central Bank and board member of the International Monetary Fund