The Economy of Nazi Germany

World War I and the subsequent Treaty of Versailles with its severe reparations imposed on Germany lead to a decade of economic woes, including hyperinflation in the mid 1920s. Following the Wall Street Crash of 1929, the German economy, like many other western nations, suffered the effects of the Great Depression with unemployment soaring to unprecedented heights of 11 million. Although Hitler did not see the economy as a top priority, he did see its importance in his consolidation of power and used it to his advantage. When he became Chancellor in 1933 new efforts were introduced to improve Germany’s economy, introducing autarky and the construction of the Autobahn.

When the Nazis came to power the most pressing issue was an unemployment rate of close to 30%. Before World War II, the Nazis placed non-Nazi professionals in charge of economic policy. Hitler appointed Hjalmar Schacht, a former member of the German Democratic Party, as Chairman of the Reichsbank in 1933 and Minister of Economics in 1934.

At first, Schacht continued the economic policies introduced by the government of Kurt von Schleicher in 1932 to combat the effects of the Great Depression. These policies were mostly Keynesian, relying on large public works programs supported by deficit spending — such as the construction of the Autobahn network — to stimulate the economy and reduce unemployment. There was major reduction in unemployment over the following years, while price controls prevented the recurrence of inflation. The economic policies of the Third Reich were in the beginning the brainchildren of Schacht, who assumed office as president of the central bank under Hitler in 1933, and became finance minister in the following year. Schacht was one of the few finance ministers to take advantage of the freedom provided by the end of the gold standard to keep interest rates low and government budget deficits high, with massive public works funded by large budget deficits. The consequence was an extremely rapid decline in unemployment—the most rapid decline in unemployment in any country during the Great Depression. Eventually this Keynesian economic policy was supplemented by the boost to demand provided by rearmament and swelling military spending.

Meanwhile, the Nazis outlawed trade unions and banned strikes. They also directed Schacht to place more emphasis on military production and rearmament. Germany slowly began to recover from the Great Depression, but this recovery was driven primarily by a military build-up. In June 1933, the “Reinhardt Program” was introduced. It was an ambitious project for the development of infrastructure; it combined indirect incentives, such as tax reductions, with direct public investment in waterways, railroads and highways. The Reinhardt Program was followed by other similar initiatives resulting in great expansion of the German construction industry between 1933 and 1936. In 1933 only 666,000 Germans worked in construction; by 1936 the number had gone up to 2,000,000. In particular, road construction was expanding at a very rapid pace. This was part of Hitler’s war preparations: Germany needed a state-of-the-art highway system in order to be able to move troops and materials quickly. Cars and other forms of motorized transport became increasingly attractive to the population. The German car industry experienced a boom in the 1930s. In 1936, military spending in Germany exceeded 10% of GNP (higher than any other European country at the time, although growing from a very low base imposed by the Versailles Treaty). Military investment also exceeded civilian investment from 1936 onwards. Armaments dominated government expenditures on goods and services.

In the spring and summer of 1936, Nazi Germany was rocked by a major economic crisis. By the spring of 1936, the demands for raw materials from abroad and the supplies of foreign currency to pay for them had reached the point where the stockpiles of raw materials were sufficient for only two months production. The extent of the German balance of payments problem could be seen in that between 1933-36 exports declined in price by 9% while imports rose in price by 9%, thus meaning that within an three-year period the Germans had to export 20% more in order to pay for the same level of imports, Dr. Schacht informed the War Minister, Field Marshal Werner von Blomberg that there was an insufficient foreign exchange reserves to pay for the increased level of lead and copper imports requested by the Wehrmacht, who would have to do without the increased production requested by Blomberg At the same time, there was increasing demands from the Nazi Party for measures to increase autarky and decrease imports Faced with the choice between one section of the government centered around Dr. Schacht and the Price Commissioner, Dr. Carl Goerdeler calling for an decreased level of military spending and an turn away from autarkic policies, and another fraction around Göring calling for increased military spending and more autarky, Hitler characteristically hesitated before siding with the latter, and more radical fraction in his “Four Year Plan” memo of August 1936. Supporting the “free-market” faction in their demands for less military spending, more free trade and less statism in the economy were some of Germany’s leading business executives, most notably Hermann Duecher of AEG, Robert Bosch of Robert Bosch GmbH, and Albert Voegeler of Vereinigte Stahlwerke AG.

In August 1936, in response to a growing crisis in the German economy caused by the strains of rearmament, Hitler issued the “Four-Year Plan Memorandum” ordering Hermann Göring to carry out the Four Year Plan to have the German economy ready for war within the next four years. During the 1936 economic crisis, the German government was divided into two fractions with one (the so-called “free market” fraction) centering around the Reichsbank President Hjalmar Schacht and the Price Commissioner Dr. Carl Friedrich Goerdeler calling for decreased military spending and a turn away from autarkic policies, and another fraction around Göring calling for the opposite. Hitler hesitated for the first half of 1936 before siding with the more radical fraction in his “Four Year Plan” memo of August. Historians such as Richard Overy have argued that the importance of the memo, which was written personally by Hitler, can be gauged by the fact that Hitler, who hardly ever wrote anything down, indicated that Hitler had something especially important to say. The “Four-Year Plan Memorandum” predicated an imminent all-out, apocalyptic struggle between “Judo-Bolshevism” and German National Socialism, which necessitated a total effort at rearmament regardless of the economic costs. In the memo, Hitler wrote:

Since the outbreak of the French Revolution, the world has been moving with ever increasing speed toward a new conflict, the most extreme solution of which is called Bolshevism, whose essence and aim, however, are solely the elimination of those strata of mankind which have hitherto provided the leadership and their replacement by worldwide Jewry. No state will be able to withdraw or even remain at a distance from this historical conflict…It is not the aim of this memorandum to prophesy the time when the untenable situation in Europe will become an open crisis. I only want, in these lines, to set down my conviction that this crisis cannot and will not fail to arrive and that it is Germany’s duty to secure her own existence by every means in face of this catastrophe, and to protect herself against it, and that from this compulsion there arises a series of conclusions relating to the most important tasks that our people have ever been set. For a victory of Bolshevism over Germany would not lead to a Versailles treaty, but to the final destruction, indeed the annihilation of the German people…I consider it necessary for the Reichstag to pass the following two laws: 1) A law providing the death penalty for economic sabotage and 2) A law making the whole of Jewry liable for all damage inflicted by individual specimens of this community of criminals upon the German economy, and thus upon the German people.

Hitler called for Germany to have the world’s “first army” in terms of fighting power within the next four years and that “the extent of the military development of our resources cannot be too large, nor its pace too swift” and the role of the economy was simply to support “Germany’s self-assertion and the extension of her Lebensraum“. Hitler went on to write that given the magnitude of the coming struggle that the concerns expressed by members of the “free market” faction like Schacht and Goerdeler that the current level of military spending was bankrupting Germany were irrelevant. Hitler wrote that: “However well balanced the general pattern of a nation’s life ought to be, there must at particular times be certain disturbances of the balance at the expense of other less vital tasks. If we do not succeed in bringing the German army as rapidly as possible to the rank of premier army in the world…then Germany will be lost!” and “The nation does not live for the economy, for economic leaders, or for economic or financial theories; on the contrary, it is finance and the economy, economic leaders and theories, which all owe unqualified service in this struggle for the self-assertion of our nation”.

Business interests eventually became subordinated to the Nazi regime. From 1936 onward, the National Socialist state assumed control in the following ways:

  • German industrialists were increasingly excluded from the decision-making process
  • The German state came to play an increasingly dominant role in the German economy both through state-owned companies and by placing increasing larger orders
  • The expansion of armament-related production supported by a highly economically interventionist state led to those capitalist enterprises not related to armaments to go into decline
  • The decline in effectiveness in economic lobbying groups in the Third Reich

The year 1936 also represented a turning point for German trade policy. Hjalmar Schacht was replaced in September 1936 by Hitler’s lieutenant Hermann Göring, with a mandate to make Germany self-sufficient to fight a war within four years. Under Göring imports were slashed. Wages and prices were controlled—under penalty of being sent to the concentration camp. Dividends were restricted to six percent on book capital. And strategic goals to be reached at all costs were declared: the construction of synthetic rubber plants, more steel plants, automatic textile factories.

World prices for raw materials (which constituted the bulk of German imports) were on the rise. At the same time, world prices for manufactured goods (Germany’s chief exports) were falling. The result was that Germany found it increasingly difficult to maintain a balance of payments. A large trade deficit seemed almost inevitable. But Hitler found this prospect unacceptable. Thus Germany, following Italy’s lead, began to move away from partially free trade in the direction of economic self-sufficiency.

Unlike Italy, however, Germany did not strive to achieve full autarky. Hitler was aware of the fact that Germany lacked reserves of raw materials, and full autarky was therefore impossible. Thus he chose a different approach. The Nazi government tried to limit the number of its trade partners, and, when possible, only trade with countries within the German sphere of influence. A number of bilateral trade agreements were signed between Germany and other European countries (mostly countries located in Southern and South-Eastern Europe) during the 1930s. The German government strongly encouraged trade with these countries but strongly discouraged trade with any others.

By the late 1930s, the aims of German trade policy were to use economic and political power to make the countries of Southern Europe and the Balkans dependent on Germany. The German economy would draw its raw materials from that region, and the countries in question would receive German manufactured goods in exchange. Already in 1938, Yugoslavia, Hungary, Romania, Bulgaria and Greece transacted 50% of all their foreign trade with Germany. Throughout the 1930s, German businesses were encouraged to form cartels, monopolies and oligopolies, whose interests were then protected by the state.

Monopolistic price fixing became the rule in most industries, and cartels were no longer confined to the heavy or large-scale industries. Cartels and quasi-cartels (whether of big business or small) set prices, engaged in limiting production, and agreed to divide markets and classify consumers in order to realize a monopoly profit.

As big business became increasingly organized, it developed an increasingly close partnership with the Nazi government. The government pursued economic policies that maximized the profits of its business allies, and, in exchange, business leaders supported the government’s political and military goals.

Trade unions were abolished, as well as collective bargaining and the right to strike. The right to quit also disappeared: Labor books were introduced in 1935, and required the consent of the previous employer in order to be hired for another job. In place of ordinary profit incentive to guide investment, investment was guided through regulation to accord with needs of the State. Government financing eventually came to dominate the investment process, which the proportion of private securities issued falling from over half of the total in 1933 and 1934 to approximately 10 percent in 1935–1938. Heavy taxes on profits limited self-financing of firms. The largest firms were mostly exempt from taxes on profits, however government control of these were extensive enough to leave “only the shell of private ownership.”


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