Adjust the brakes out until they lock down and back them off just a little. You probably don't have them tight enough. If you haven't worked on old VW brakes before, trust me, you will think they TOO tight way before you get them tight enough.
The Godfather can probably shed some light on the inner workings of the master cylinder . . . It might be possible that the front brake half of the circuit has gone bad and the back half is still working and you just have the rear brake shoes too far from the drum. The disc brakes are "self adjusting" if everything is working right.
Can you pump the brakes up and get a good firm pedal? If not, and you don't see fluid leaking anywhere, I'd go ahead and replace the master cylinder. If you have to keep adding fluid, but can't find any leaks, it's probably leaking out the back side of the master cylinder and into the hollow area where the master cylinder bolts on.
If you are not sure of the age or condition of the flexible hoses, I'd recommend you go ahead and replace them. I've had one bust under pressure before. I've also seen lots of them go bad from the inside . . . they looked good from the outside, but had swollen up inside and started to act like a check valve . . . the fluid will get through them under the pressure you create at the master cylinder, but the little springs that pull the shoes back can't generate enough pressure to move the fluid backwards through the hose . . . so the brakes lock against the drums and won't back off.
