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Germany: Nazi Economy

Germany’s economy was in turmoil when Hitler was electedChancellor in January 1933. Hitler and Nazi propaganda had playedon the population’s fear of no hope. Unemployment peaked at 6million during the final days of the Weimar Republic – nearenough 33% of the nation’s working population. Now Hitler decreedthat all should work in Nazi Germany and he constantly played onthe economic miracle Nazi Germany achieved. In the years beforehis appointment as chancellor, Hitler had been careful not tobecome tied down to the problems of an economic policy; he eventold his cabinet in February 1933 to ‘avoid all detail statementsconcerning an economic programme of the government’. However,Hitler was also politically astute enough to realize that hisposition depended on bringing Germany out of depression and so,during 1932, the Nazi leadership had begun to consider a numberof possible approaches to the management of the economy:

- First were the socio-economic aspects of the Nazi Party’soriginal aims, as outlined in the anti-capitalist sentiments ofthe 25 points programme of the Nazi party of 1920 such as:

Profit sharing in large industrial enterprises The extensive development of insurance for old age The nationalisation of all businesses

Hitler accepted these points in the early years because herecognized their popular appeal but he himself never demonstrateda real sense of commitment to such ideas. As a result, theycreated important differences within the Party, as a factionwithin it still demanded the following:

- Secondly, attention was given to the emerging idea of deficitfinancing. By spending money on public works, deficit financingwas intended to create jobs, which would then act as anartificial stimulus to demand within the economy. Indeed, thework schemes were actually started in Germany by ChancellorsPapen and Schleicher.

- Finally, there was the idea of the Wehrwirtschaft (defenceeconomy), whereby Germany’s peacetime economy was geared to thedemands of total war. This was to avoid a repetition of theproblems faced during the First World War when a long, drawn outconflict on two fronts eventually caused economic collapse.Related to this was the policy of autarky. This envisaged ascheme for the creation of a large trading area in Europe underthe dominating influence of Germany, which could be developed torival the other great economic powers. It played on the idea of

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German power and harked back to the expansionist view of FirstWorld War nationalists.

Of these three economic approaches, Hitler identified his long-term political and military aims most clearly with the defenceeconomy. However, there were important differences within theParty over economic planning so, despite the consideration givento such policies by Nazi leaders no coherent plan had emerged byJanuary 1933. Hitler had no real understanding of economics andto a large extent the implementation of economic policy wasinitially left to bankers and civil servants. From the start,then, there was a lack of real direction and elements of allthree approaches can be detected in the economic history of theThird Reich. This suggests that economic policy tended to bepragmatic. It evolved out of the demands of the situation ratherthan being the result of careful planning. As the leadinghistorian A. Schweitzer stated, “no single unified economicsystem prevailed throughout the entire period of the Naziregime”.

Germany’s economic condition in 1933

Germany had faced continuing economic problems since the end ofthe First World War. The sheer scale of the economic depressionthat began in 1929 meant that Germany undoubtedly suffered in awidely savage way, with numerous aspect of German life affected:

Trade: Germany depended heavily on its capacity to sellmanufactured goods. In the slump of global rate, the demand forGerman exports declined rapidly and its sale of manufacturedgoods, e.g. steel, machinery and chemicals, collapsed. Industry: Despite its post-war problems, Germany was an industrialpower. However, when it began to lose economic confidence from1929, demand fell;businesses cut production/collapsed.Employment: The most obvious feature of the industrial contractionwas mass long-term unemployment. The length and severity of theeconomic recession greatly increased the number of unemployed,with all the associated social problems. In 1932, the figure roseto 5.6 million. If the number of unregistered unemployed is added,the total without work was about 8m in 1932. Agriculture: Thesituation in the countryside was no better than in the towns.Agricultural depression deepened, leading to widespread rural

TOTAL WAR: a war which is unrestricted in terms of the weaponsused, the territory or combatants involved (may kill innocentcivilians), or the objectives pursued, especially one in whichthe accepted rules of war are disregarded. Utilising a nation’s

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Economic Recovery 1933 – 1936

Schacht’s economic strategy: In the early years Nazi economicpolicy was under the control of Hjalmar Schacht, President of theReichsbank (1933 – 1939) and Minister of Economics (1924 – 1947).This reflected the need of the Nazi leadership to work with thepowerful forces of big business. Schacht was already a respectedinternational financier because of his leading role in thecreation of the new currency in the wake of the 1923hyperinflation. It is evident that the economic depressionreached its low-point in the winter of 1932 – 1933 and thatafterwards the trade cycle began to improve. This undoubtedlyworked to the political and economic advantage of the Nazis.Nevertheless, there was no single, easy ‘quick fix’ solution. Theheart of economic recovery lay in the major revival of publicinvestment led, for the most part, by the state itself, whichembarked on a large-scale increase in its own spending in aneffort to stimulate demand and raise national income. So, underSchacht’s guidance and influence, deficit financing was adoptedthrough a range of economic measures.

Banking and the control of capital: Initially, because the Germanbanking system had been so fundamentally weakened, the stateincreasingly assumed greater responsibility for the control ofcapital within the economy. It then proceeded to set interestrates at a lower level and to reschedule the large-scale debts tolocal authorities.

Assistance for farming and small businesses: Particular financialbenefits were given to groups such as farmers and smallbusinesses. This not only stimulated economic growth, but alsorewarded some of the most sympathetic supporters of the Nazis inthe 1930-1933. Measures inc:

- Maintaining tariffs on imported produce in order to protectGerman farmers - The Reich Food Estate giving subsidies as part of a nationallyplanned agricultural system - The Reich Entailed Farm Law reducing debts by tax concessionsand lower interest rates in an attempt to offer more security ofland ownership to small farmers - Giving allowances to encourage the rehiring of domesticservants - Allocating grants for house repairs State investment – public works: However, of the greatestsignificance was the direct spending by the state on a range ofinvestment projects. In June 1933, the Law to Reduce Unemploymentwas renewed and expanded (from a scheme which had originally been

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started by Papen in 1932) and the RAD (Reichsarbeitsdienst, ReichLabour Service) was expanded to employ 19 – 25 year olds. For along time most historians assumed that rearmament was the mainfocus of investment, but the figures for public expenditure showthat this was initially spread among rearmament, construction andtransportation. So the investment in the immediate three yearswas directed towards creation schemes such as:

reforestation land reclamation motorisation – the policy of developing the vehicle industry

and the building of improved roads, e.g. the autobahns(motorways)

building – especially the expansion of the housing sectorand public buildings

The cumulative effect of these policies was to triple publicinvestment between 1933 and 1936 and to increase governmentexpenditure by nearly 70% over the same period. By early 1936,the economic recovery was well advanced and emphasis began tofurther turn towards rearmament.

As a result of these strategies, there was a dramatic growth injobs. From the registered peak of 5.6 million unemployed in 1932,the official figure of 1936 showed that it had declined to 1.6million. For those Germans who had been desperately out of work,it seemed as if the Nazi economic policy was to be welcomed. Evenin other democratic countries scarred by mass unemployment,observes abroad admired Germany’s achievement of job creation.Yet, even in 1936, the government public deficit certainly didnot run out of control, since Schacht maintained taxes at arelatively high level and encouraged private savings in statesavings banks. It must be remember that all this took place asthe world economy began to recover and Schacht was aided by thenatural upturn in the business cycle after its low-point inwinter 1932. Nevertheless, it is difficult to believe that such amarked turnaround in investment and employment could have beenachieved without Nazi economic policies.

The balance of payments problem

Germany made an impressive economic recovery between 1933 and1936, but two underlying worries remained:

- The fear that a rapid increase in demand would rekindleinflation - The fear that a rapid increase in demand would lead toemergence of a balance of trade deficit

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In fact, the problem of inflation never actually materialised –partly because there was a lack of demand in the economy, butalso due to the fact that the regime established strict controlsover prices and wages. This had been helped by the abolition ofthe trade unions in May 1933. On the other hand, what was to be arecurring balance of payments problem emerged for the first timein the summer of 1934. This was a consequence of Germany’simporting more raw materials while failing to increase itsexports. Its gold and foreign currency reserves were also low.The balance of payments problem was not merely an economic issue,for it carried with it large-scale political implications. IfGermany was so short of foreign currency, which sector of theeconomy was to have priority in spending the money? The earlyEconomics Minister, Schmitt, wanted to try to reduce unemploymentfurther by manufacturing more consumer goods for publicconsumption, e.g. textiles. However, powerful voices in the armedforces and businesses were already demanding more resources formajor programmes – e.g. rearmament. Hitler could not ignore suchpressure – especially as this economic problem coincided with thepolitical dilemma over the SA. Consequently, Schmitt’s policy wasrejected and he was removed, thereby allowing Schacht to combinethe offices of Minister of Economics and President of theReichsbank.

Schacht’s New Plan

By the law of 3 July, Schacht was given dictatorial powers overthe economy, which he then used to introduce the ‘New Plan’ ofSeptember 1934. This provided for a comprehensive control by thegovernment of all aspects of trade, tariffs, capital and currencyexchange in an attempt to prevent excessive imports. From thattime the government decided which imports were to be allowed ordisapproved. For example, imports of raw cotton and wool weresubstantially cut, whereas metals were permitted in order tosatisfy the demands of heavy industry. The economic prioritieswere set by a series of measures:

Bilateral trade treaties: Schacht tried to promote trade and saveforeign exchange by signing bilateral trade treaties, especiallywith the countries of southeast Europe, e.g. Romania andYugoslavia. These often took the form of straightforward barteragreements (thus avoiding the necessity of formal currencyexchange). In this way, Germany began to exert a greatlypowerful, economic influence over the Balkans long before itobtained military and political control.

The Reichsmark currency: Germany agreed to purchase raw materialsfrom all countries it traded with on the condition that

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Reichsmarks could only be used to buy back German goods (at onetime it is estimated that the German Reichsmark had 237 differentvalues depending on the country it was trading with, as well asthe different circumstances).

Mefo bills: Mefo were special government money bills (like acredit note) designed by Schacht. They were issued by theReichsbank and guaranteed by the government as payment for goods,and were then held up to five years earning 4% interest perannum. The main purpose of the Mefo bills as that theysuccessfully disguised the endless government spending.

Schacht was never a member of the Nazi party, but he was drawn into the Nazi movement and the regime. His proven economic skillsearned him respect both in and outside the Party and it was he who laid the foundation for an economic recovery. By mid-1936:

Unemployment had fallen to 1.5 million Industrial production had increased by 60% since 1933 GNP had grown over the same period by 40%

However, such successes disguised fundamental structural weaknesses that came to a head in the second half of 1936 over the future direction of the German economy.

Implementation of the Four-Year Plan: 1936

In many respects, as Schacht himself was only too aware, he hadmerely hidden the balance of payments problem by a series ofclever financial tricks. And despite his apparent sympathy for

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deficit financing, Schacht strongly believed that a combinationof a budget deficit and a balance of payments deficit could notbe maintained indefinitely. In early 1936, it became clear to himthat, as the demands for rearmament and the consumption of goodsincreased, the German balance of payments would go deeply intothe red. He therefore suggested a reduction in arms expenditurein order to increase the production of industrial goods that atleast could be exported so as to earn foreign exchange. Such asolution had its supporters, especially among industries gearedto exporting, e.g. electrics, tools. However, it was unacceptableto the armed forces and to the Nazi leadership. By the mid-1930’s, then, this debate was popularly summed up by thequestion: should the economy concentrate on producing guns orbutter?

Although those using MEFO bills thought of it in a positivelight, Schacht was aware that he had simply hidden the balance ofpayment problem through the financial trades. A combination ofbudget deficit (public spending) and a balance of payment deficit

Guns vs. Butter debate: Highlighted the controversial economic choice between rearmament and consumer goods. As an economy produces more guns (military spending) it must reduce its production of butter (food). The Nazi regime was more

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(too many imports) could continue indefinitely. By 1936, itbecame clear to him that as the demands for rearmament andconsumer goods increased, the German balance of payments wouldplunge deeply in the red! A reduction in arms expenditure wassuggested, however; this was seen as unacceptable to the armedforces and to the Nazi leadership – this was the Guns vs. Butterdebate. Schacht lost the debate. He was sidelined byGoering/Göring (who followed a course of rearmament – Four YP).

The aims and objective of the Four Year Plan

The Four Year Plan was introduced in 1936 and the results of itshowed that in many areas it failed to achieve its targets. Theplan was meant to make Nazi Germany self-sufficient in allindustrial goods so that the country was free from pressureasserted by overseas nations if they chose to curb Germany’sexpansionist policy that Hitler wanted to start as soon as waspossible. Most significantly, Hitler himself expressed hisposition in a secret memorandum in August 1936. This had beenseen as one of the most important documents of Nazi history, asit provides a clear insight into Hitler’s war aims and thedevelopment of the Nazi economy. He included:

The politico-economic crisis of 1936 was resolved by theintroduction of the Four Year Plan under the control of HermannGöring who, in October of that year, was appointed as the‘Plenipotentiary of the Four-Year Plan’. Its aims were clearly toexpand rearmament and autarky to make Germany as self-sufficientas possible in food and industrial production. In order toachieve this, the Plan highlighted a number of objectives:

* To regulate imports and exports, so as to prioritise strategicsectors, e.g. chemicals and metals at the expense of agriculturalimports. (It is evident that the Nazi regime chose guns overfood). * To control the key sectors of the labour force, so as toprevent price inflation, e.g. the creation of a Reich PriceCommissioner and increased work direction by DAF. * To increase the production of raw materials in order to reducethe financial cost of importing vital goods; including steel,iron and aluminium, etc. * To develop ersatz (substitute) products – e.g. oil (from coal),artificial rubber (buna), etc.

“There has been time enough in four years to find out what wecannot do. Now we have to carry out what we can do. I thus set

the following tasks:

(i) The German armed forces must be operational within

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* To increase agricultural productions in order to avoid importedfoodstuffs, e.g. grants for fertilisers and machinery. This wouldserve to allow them to achieve their aim of autarky.

The effects of the Four-Year Plan

The decision to implement the Four-Year Plan marked an importantturning point in the Nazi regime. Nazi control over the Germaneconomy became much tighter, which Schacht later described in hisown book written in 1949. Schacht had no real respect forGoering, who had no economic expertise and deliberately andincreasingly ignored Schacht’s advice. Schacht then recognizedthat his influence was on the wane and eventually, in November1937, he resigned. The weak Walther Funk replaced him, althoughGoering became the real economic dictator.

SUCCESSES OF THE FOUR-YEAR PLAN: The production of a number ofkey materials, including aluminium and explosives, had expandedgreatly, or at least at a reasonable rate. In addition, the Four-Year Plan had succeeded in the sense in the sense that Germany’sreliance on imports had not increased. What is more, it wascertainly evident that Germany was far more prepared for the warthan its enemies/opposition, Britain and France (Germany was onmore of a war footing)

FAILURES OF THE FOUR-YEAR PLAN: The production of a number of keymaterials fell a long way short of the targets in the essentialcommodities of rubber and oil, while arms production neverreached the levels desired by the armed forced and Hitler.Furthermore, when the war did break out, Germany was still a longway from being fully mobilized. As well as this, it was continuedto be dependent on foreign supplies for one-third of its rawmaterials (not full achieved autarky).

The Nazi economy at War: 1939 – 1945

The string of military successes, achieved by the German armedforced with their use of Blitzkrieg strategy up to December 1941,won Hitler and the Nazi regime valuable popular support.Moreover, it provided the impression of an economy that had notbeen over-strained by the demands of the war. However, this viewdid not match Nazi intentions or economic stats. Blitzkrieg:“lightning war”. The name of the military strategy developed toavoid static war. It was based on the crucial use of dive-bombers, paratroopers and motorized infantry.

The expansion of the Nazi economy

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Hitler himself was extremely determined to avoid the problemsfaced by Germany in the First World War and to fight the comingwar (WW2) with an economy thoroughly prepared for a major andperhaps extended conflict. To this end, a series of war economydecrees were issued by Hitler in December 1939 outlining vastprogrammes for every possible aspect of war production, e.g.submarines and aircraft. These plans suggest that the Nazis wentbeyond the demands of the Blitzkrieg strategy and a limited war.In real and percentage terms, Germany military expendituredoubled between 1939 and 1941 – in 1939 military expenditure was30 RM billions, and had reached a phenomenal 71 RM billions.Britain had similarly increased govern-ment expenditure,increasing from £1.1 billion in 1939 to £4.1 in 1941, however;costs were less.

Food rationing in certain items was introduced from the verystart of the war and the German labour force was rapidlymobilized for war so that, by the summer of 1941, 55% of theworkforce was involved in war-related projects – a figure whichthen merely crept up to a high point of 61% by 1944. With thesefacts in consideration, it is hardly surprising that the firsttwo years of the Second World War also witnessed a 20% decline incivilian consumption.

The limitations of economic mobilization

Despite the intent wholesale mobilisation the actual results, interms of armaments production, remained disappointingly low.Admittedly, there was a marked increase in the number ofsubmarines, but amazingly, Germany’s air force had only increasedfrom 8290 aircraft in 1939 to 10,780 in 1941 while in Britain,the number of aircraft had trebled to 20,100 over the sameperiod. Likewise, Hitler was astonished to learn when drawing upplans for the invasion of the USSR that the Germans’ armouredstrength totaled only 3500 tanks, which was just 800 more thanfor the invasion of the West. It seems that despite the Naziimage of German order and purposefulness, the actual mobilisationof the German economy was marred by inefficiency and poorcoordination. The pressures resulting from the premature outbreakof war created problems, since many of the major projects werenot due to be ready until 1942 – 3. There was undoubtedlyconfusion between the short-term needs and long-term plans ofNazi leadership.

Nevertheless, this should not have been an impossible barrier ifa clear and authoritative central control had been establishedover the economy. Instead, a host of different agencies allcontinued to function in their own way and often in a fashion

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which put them at odds with each other. Although there was aMinistry of Armaments, it existed alongside three otherinterested governmental ministries - Economics, Finance andLabour. In addition, there was a political infighting between theNazi leading figures – e.g. the Gauleiters tried to control theirlocal areas at the expense of the plans of the state and Party -financial corruption. There were a number of groups wereresponsible for armaments: the Office of the Four-Year Plan, theSS bodies and the different branches of the armed forces,Wehrmacht, Luftwaffe and navy. The armed forces, in particular,were determined to have their way over the development ofmunitions with the very best specifications possible and as aresult, the drive for quality was pursued at the expense ofquantity. The consequence of this was that (after two years ofwar) Germany’s economic mobilisation for total war had notachieved expected levels of armaments production.

Total war 1941 – 1945

By the end of 1941, Germany was at war with its enemies -Britain, the USSR and the USA - and yet its armaments productionremained inferior to that of Britain. Preparations for a newapproach had begun in the autumn o 1941 and Hitler issued a‘Rationalisation Decree’ in Dec. 41.

However, it was the appointment of Albert Speer as Minister ofArmaments in February 1942 that marked the real turning point.Speer had previously been the Führer’s personal architect and heenjoyed excellent relations with Hitler. He now used the Führer’sauthority to cut through the mass of interests and to implementhis programme of ‘industrial self-responsibility’ to provide massproduction. The controls and constraints previously placed uponbusiness, in order to fit with Nazi wishes, were relaxed. Intheir place a Central Planning Board was established in April1942, which was in turn supported by a number of committees, eachrepresenting one vital sector of the economy. This gave theindustrialists a considerable degree of freedom, while ensuringthat Speer as the director of Central Planning was able tomaintain overall control of the war economy. Speer alsoencouraged industrialists and engineers to join his ministerialteam. At the same time, wherever possible, he excluded militarypersonnel from production processes.

Speer was now what would be called a “technocrat”. He simplycoordinated and rationalized the process of war production andmore effectively exploited the potential of Germany’s resourcesand labour force. Speer was able to exert influence because ofhis friendship with Hitler and he used his personal skills tocharm or blackmail other authorities. In this way, he took a

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whole range of other personal initiatives in order to improveproduction, including:

Employing more women in the arms factories Making effective use of concentration camp prisoners as

workers Preventing skilled workers being lost to military

conscription

The successes and limitations of Speer’s economic rationalisation

In a famous speech in February 1943, following the German armysurrender at Stalingrad, Joseph Goebbels invited the crowd tosupport the ‘total war’. However, the transformation of the Nazieconomy really pre-dated Goebbel’s propagandist appeal to ‘totalwar’ and was down to the work of Speer. As a result of Speer’sfirst six months in power:

Ammunition production increased by 97% Tank production rose by 25% Total arms production increased by 59%

By the second half of 1944, when German war production peaked, itcan be noted that there had been more than a threefold increasesince early 1942. Despite Speer’s economic successes, Germanyprobably had the capacity to produce even more and could haveachieved a level of output close to that of the USSR or the USA.He was not always able to counter the power of the PartyGauleiters at a local level and the SS remained a law untothemselves, especially in the conquered lands. Indeed, althoughthe occupied territories of the Third Reich were well and trulyplundered, they were not exploited with real economic efficiency.Above all, though, from 1943 Speer could not reverse thedetrimental effects of Anglo-American bombing.

After the war, ‘blanket bombing’ by the Allies was condemned bysome on moral grounds and its effectiveness denied; indeed,critics pointed out Spper’s production figures in order to provethat the strategy had failed to break the German war economy.However, it is probably more accurate to say that the effects ofthe bombing prevented Germany from increasing its level or armsproduction even further the results of Allied bombing causedindustrial destruction and breakdown in communications. Number of German, British, US and Soviet tanks produced 1940 – 1945

YEAR GERMANY BRITAIN USA USSR1940 1,600 1,400 300 2,800

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1941 3,800 4,800 4,100 6,4001942 6,300 8,600 25,000 24,7001943 12,100 7,500 29,500 24,0001944 19,000 4,600 17,600 29,0001945 3,900 -------- 12,000 15,400

Number of German, British, US and Soviet aircraft produced 1940 –1945

YEAR GERMANY BRITAIN USA USSR1940 10,200 15,000 6,100 7,0001941 11,000 20,100 19,400 12,5001942 14,200 23,600 47,800 26,0001943 25,200 26,200 85,900 37,0001944 39,600 26,500 96,300 40,0001945 --------- 12,100 46,000 35,000

Also, Germany was forced to divert available resources towardsthe construction of anti-aircraft installations and undergroundindustrial sites. Due to this, Germany was unable to achieve atotal war economy. As it was, German arms production peaked inAugust 1944 at a level below its full potential. In the end, theNazi economy had proved incapable of rising to the demands oftotal war and the cost of that failure was all too clearly to beseen in economic collapse of 1945.

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