Military history

THE ECONOMY OF THE THIRD REICH

The foundation of Hitler’s success in the first years rested not only on his triumphs in foreign affairs, which brought so many bloodless conquests, but on Germany’s economic recovery, which in party circles and even among some economists abroad was hailed as a miracle. And indeed it might have seemed so to a good many people. Unemployment, the curse of the Twenties and early Thirties, was reduced, as we have seen, from six million in 1932 to less than a million four years later. National production rose 102 per cent from 1932 to 1937 and the national income was doubled. To an observer, Germany in the mid-Thirties seemed like one vast beehive. The wheels of industry were humming and everyone was as busy as a bee.

For the first year Nazi economic policies, which were largely determined by Dr. Schacht—for Hitler was bored with economics, of which he had an almost total ignorance—were devoted largely to putting the unemployed back to work by means of greatly expanded public works and the stimulation of private enterprise. Government credit was furnished by the creation of special unemployment bills, and tax relief was generously given to firms which raised their capital expenditures and increased employment.

But the real basis of Germany’s recovery was rearmament, to which the Nazi regime directed the energies of business and labor—as well as of the generals—from 1934 on. The whole German economy came to be known in Nazi parlance as Wehrwirtschaft, or war economy, and it was deliberately designed to function not only in time of war but during the peace that led to war. General Ludendorff, in his book Total War (Der Totale Krieg) whose title was mistranslated into English as The Nation at War, published in Germany in 1935, had stressed the necessity of mobilizing the economy of the nation on the same totalitarian basis as everything else in order to properly prepare for total war. It was not exactly a new idea among the Germans, for in Prussia during the eighteenth and nineteenth centuries some five sevenths of the government’s revenue, as we have seen, was spent on the Army and that nation’s whole economy was always regarded as primarily an instrument not of the people’s welfare but of military policy.

It was left to the Nazi regime to adapt Wehrwirtschaft to the third decade of the twentieth century. The results were truthfully summed up by Major General Georg Thomas, chief of the Military Economic Staff: “History will know only a few examples of cases where a country has directed, even in peacetime, all its economic forces deliberately and systematically toward the requirements of war, as Germany was compelled to do in the period between the two World Wars.”12

Germany, of course, was not “compelled” to prepare on such a scale for war—that was a deliberate decision taken by Hitler. In the secret Defense Law of May 21, 1935, he appointed Schacht Plenipotentiary-General for War Economy, ordering him to “begin his work already in peacetime” and giving him the authority to “direct the economic preparations for war.” The inimitable Dr. Schacht had not waited until the spring of 1935 to start building up the German economy for war. On September 30, 1934, less than two months after he had become Minister of Economics, he submitted a report to the Fuehrer entitled “Report on the State of Work for War-Economic Mobilization as of September 30, 1934,” in which he proudly stressed that his ministry “has been charged with the economic preparation for war.” On May 3, 1935, four weeks before he was made Plenipotentiary for War Economy, Schacht submitted a personal memorandum to Hitler which began with the statement that “the accomplishment of the armament program with speed and in quantity is the [italics his] problem of German politics; everything else therefore should be subordinate to this purpose …” Schacht explained to Hitler that since “armament had to be camouflaged completely until March 16, 1935 [when Hitler announced conscription for an army of thirty-six divisions], it was necessary to use the printing press” to finance the first stages. He also pointed out with some glee that the funds confiscated from the enemies of the State (mostly Jews) and others taken from blocked foreign accounts had helped pay for Hitler’s guns. “Thus,” he cracked, “our armaments are partially financed with the credits of our political enemies.”13

Though at his trial at Nuremberg he protested in all innocence against the accusations that he had participated in the Nazi conspiracy to make aggressive war—he had done just the contrary, he proclaimed—the fact remains that no single person was as responsible as Schacht for Germany’seconomic preparation for the war which Hitler provoked in 1939. This was freely acknowledged by the Army. On the occasion of Schacht’s sixtieth birthday the Army publication Militaer-Wochenblatt in its issue of January 22, 1937, hailed him as “the man who made the reconstruction of the Wehrmacht economically possible.” And it added: “The Defense Force owes it to Schacht’s skill and great ability that, in defiance of all currency difficulties, it has been able to grow up to its present strength from an army of 100,000 men.”

All of Schacht’s admitted wizardry in finance was put to work to pay for getting the Third Reich ready for war. Printing banknotes was merely one of his devices. He manipulated the currency with such legerdemain that at one time it was estimated by foreign economists to have 237 different values. He negotiated amazingly profitable (for Germany) barter deals with dozens of countries and to the astonishment of orthodox economists successfully demonstrated that the more you owed a country the more business you did with it. His creation of credit in a country that had little liquid capital and almost no financial reserves was the work of genius, or—as some said—of a master manipulator. His invention of the so-called “Mefo” bills was a good example. These were simply bills created by the Reichsbank and guaranteed by the State and used to pay armament manufacturers. The bills were accepted by all German banks and ultimately discounted by the Reichsbank. Since they appeared neither in the published statements of the national bank nor in the government’s budget they helped maintain secrecy as to the extent of Germany’s rearmament. From 1935 to 1938 they were used exclusively to finance rearmament and amounted to a total of twelve billion marks. In explaining them once to Hitler, Count Schwerin von Krosigk, the harassed Minister of Finance, remarked that they were merely a way of “printing money.”14

In September 1936, with the inauguration of the Four-Year Plan under the iron control of Goering, who replaced Schacht as economic dictator though he was almost as ignorant of business as was Hitler, Germany went over to a total war economy. The purpose of the plan was to make Germany self-sufficient in four years, so that a wartime blockade would not stifle it. Imports were reduced to a bare minimum, severe price and wage controls were introduced, dividends restricted to 6 per cent, great factories set up to make synthetic rubber, textiles, fuel and other products from Germany’s own sources of raw materials, and a giant Hermann Goering Works established to make steel out of the local low-grade ore. In short, the German economy was mobilized for war, and businessmen, though their profits soared, became mere cogs in a war machine, their work circumscribed by so many restrictions, by so many forms to fill out, that Dr. Funk, who succeeded Schacht in 1937 as Minister of Economics and in 1939 as president of the Reichsbank, was forced to admit ruefully that “official communications now make up more than one half of a German manufacturer’s entire correspondence” and that “Germany’s export trade involves 40,000 separate transactions daily; yet for a single transaction as many as forty different forms must be filled out.”

Buried under mountains of red tape, directed by the State as to what they could produce, how much and at what price, burdened by increasing taxation and milked by steep and never ending “special contributions” to the party, the businessmen, who had welcomed Hitler’s regime so enthusiastically because they expected it to destroy organized labor and allow an entrepreneur to practice untrammeled free enterprise, became greatly disillusioned. One of them was Fritz Thyssen, one of the earliest and biggest contributors to the party. Fleeing Germany at the outbreak of the war, he recognized that the “Nazi regime has ruined German industry.” And to all he met abroad he proclaimed, “What a fool [Dummkopf] I was!”15

In the beginning, however, the businessmen fooled themselves into believing that Nazi rule was the answer to all their prayers. To be sure, the “inalterable” party program had sounded ominous to them with its promises of nationalization of trusts, profit sharing in the wholesale trade, “communalization of department stores and their lease at a cheap rate to small traders” (as Point 16 read), land reform and the abolition of interest on mortgages. But the men of industry and finance soon learned that Hitler had not the slightest intention of honoring a single economic plank in the party program—the radical promises had been thrown in merely to attract votes. For the first few months in 1933, a few party radicals tried to get control of the business associations, take over the department stores and institute a corporate state on lines which Mussolini was attempting to establish. But they were quickly thrown out by Hitler and replaced by conservative businessmen. Gottfried Feder, Hitler’s early mentor in economics, the crank who wanted to abolish “interest slavery,” was given a post as undersecretary in the Ministry of Economics, but his superior, Dr. Karl Schmitt, the insurance magnate, who had spent his life lending money and collecting interest, gave him nothing to do, and when Schacht took over the ministry he dispensed with Feder’s services.

The little businessmen, who had been one of the party’s chief supports and who expected great things from Chancellor Hitler, soon found themselves, many of them, being exterminated and forced back into the ranks of wage earners. Laws decreed in October 1937 simply dissolved all corporations with a capital under $40,000 and forbade the establishment of new ones with a capital less than $200,000. This quickly disposed of one fifth of all small business firms. On the other hand the great cartels, which even the Republic had favored, were further strengthened by the Nazis. In fact, under a law of July 15, 1933, they were made compulsory. The Ministry of Economics was empowered to organize new compulsory cartels or order firms to join existing ones.

The system of myriad business and trade associations organized during the Republic was maintained by the Nazis, though under the basic law of February 27, 1934, they were reorganized on the streamlined leadership principle and put under the control of the State. All businesses were forced to become members. At the head of an incredibly complex structure was the Reich Economic Chamber, whose leader was appointed by the State, and which controlled seven national economic, groups, twenty-three economic chambers, one hundred chambers of industry and commerce and the seventy chambers of handicrafts. Amidst this labyrinthine organization and all the multitude of offices and agencies of the Ministry of Economics and the Four-Year Plan and the Niagara of thousands of special decrees and laws even the most astute businessman was often lost, and special lawyers had to be employed to enable a firm to function. The graft involved in finding one’s way to key officials who could make decisions on which orders depended or in circumventing the endless rules and regulations of the government and the trade associations became in the late Thirties astronomical. “An economic necessity,” one businessman termed it to this writer.

Despite his harassed life, however, the businessman made good profits. The heavy industries, chief beneficiaries of rearmament, increased theirs from 2 per cent in the boom year of 1926 to 6½ per cent in 1938, the last full year of peace. Even the law limiting dividends to 6 per cent worked no hardship on the companies themselves. Just the opposite. In theory, according to the law, any amount above that had to be invested in government bonds—there was no thought of confiscation. Actually most firms reinvested in their own businesses the undistributed profits, which rose from 175 million marks in 1932 to five billion marks in 1938, a year in which the total savings in the savings banks amounted to only two billions, or less than half the undistributed profits, and in which the distributed profits in form of dividends totaled only 1,200,000,000 marks. Besides his pleasant profits, the businessman was also cheered by the way the workers had been put in their place under Hitler. There were no more unreasonable wage demands. Actually, wages were reduced a little despite a 25 per cent rise in the cost of living. And above all, there were no costly strikes. In fact, there were no strikes at all. Such manifestations of unruliness were verboten in the Third Reich.

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