The Nazi Peacetime Economy: Shortages, Monomania and Plunder

Far Right ideologies, to and including fascism, are not only resurgent, they have gained open endorsement and respectability from some quarters, and tolerance in others. An example of endorsement is U.S. President Donald Trump’s statement on the August 2017 ‘Unite the Right’ march in Charlottesville, Virigina that “You also had some very fine people on both sides ” at a march where torch carrying fascists yelled “Blood and Soil!”

There has been tolerance for fascism in respectable liberal and conservative quarters when it comes to Eastern Europe. The celebration and veneration of fascists is ignored, downplayed, or dismissed in countries such as Latvia and the Ukraine because those countries are anti-Russian. This permissive attitude has even involved, more or less, turning a blind eye to attempts by those countries to prosecute WWII veterans for killing fascists in Lithuania and Ukraine. It is also no accident that the authorities in both these countries have chosen to hound two Jewish veterans.

It can therefore, unfortunately, be said that the Third Reich and its supporters are enjoying a resurgence. A fact all too alarmingly underlined by the electoral rise of the Far Right in Germany and Austria.

It is therefore, for anti-fascists, all the more necessary to reaffirm not just the crimes of the Third Reich but also how even the supposed achievements of the Third Reich in the area of the economy are largely the construction of inordinate propaganda. This is illuminated very clearly by Adam Tooze in The Wages of Destruction: The Making and Breaking of the Nazi Economy about the economic history of the Third Reich and by Richard J Evans in The Third Reich in Power the second in his trilogy on the Third Reich.

Tooze starts out with a controversial, if verifiable, assertion in his book that the German economy in the early 20th century was not nearly as strong as it is often supposed. He points out that, according to the available statistical evidence, on a per capita basis Germany was not only poorer than the United Kingdom. It was poorer than France – often derided for being an ostensibly languid economy in the early 20th century. This was mostly due to the weakness of the German agricultural sector which was characterized by inefficiency and grinding poverty and also contributed to the extent of German dependence on food imports. This sense of weakness and vulnerability was something that German policy elites of all stripes felt acutely. The Nazis therefore sought to eliminate this vulnerability through the conquest of ‘the means of existence.’ Land for food and raw materials for industry were the goal of German expansionism. To make that reality, however, would require extensive rearmament due to the limits imposed on Germany by the Versailles Treaty and advancing military technology. Rearmament required industrial might and to make industrial might a reality, inputs were needed, inputs that needed to be imported from abroad. Germany needed foreign currency reserves and substantial exports to make these imports for rearmament possible.

As Tooze demonstrates, Hitler was dealt a weak economic hand when he was handed power on 30 January 1933. This was the result of three factors: the world economic crisis started by the Wall Street Crash of 1929, the deflationary economic policy of Chancellor Heinrich Bruning, and the aggressive foreign policy of Bruning and his successors. Germany was heavily indebted to the outside world and ran considerable trade deficits under the Weimar Republic. To service these debts Germany could either export or stay on Gold to be able to turn over an acceptable asset to its foreign creditors. In a Depression, exports were out of the question, so to stay on the Gold Standard Bruning launched several rounds of deflationary price and wage cuts. Still capital flight continued in 1930. In 1931 with the Depression gathering pace the French government offered to extend Germany gold loans to help it meet its debt servicing costs. In effect the French were offering the Germans the money with which to pay war reparations to the French. It was nearly free money. Bruning responded by “slamming shut the door to Franco-German cooperation” and a few months later with his second deflationary decree loudly demanding an end to reparations. This provoked a run on the German banks and increasing capital flight. The banking crisis of 1931 drained the Reichsbank currency reserves to such an extent that Bruning had to enact an import quota system, thereby ending any kind of free trade, to stop further hemorrhage of foreign currency. In 1932 the Germans defaulted on war reparations payments and provoked a further run on their banking system, draining the Reichsbank’s reserves further. By the time Hitler came to power imports had been very substantially forced downward from their 1928 levels. Given Germany’s import dependence, this gives a good idea of how squeezed overall welfare was. It was only to get worse.

Hitler and the German political elites wanted to rearm. But to rearm they needed to import substantial raw materials. To import raw materials they needed to export to earn foreign currency, and to be able to export they needed access to foreign markets. They could only get access to foreign markets if they serviced Germany’s debts to its major trading partners. But servicing Germany’s debts meant foreign currency and Gold that could import more inputs necessary for rearmament was instead spent on debt service, on debts the Germans had no intention of honouring in the long term. German elites thought an aggressive export drive would result in other countries putting up tariffs and quotas – so they faced a dilemma. It was one they could have gotten out of had they chosen to be reconciliatory and dropped their revisionist foreign policy, but the latter was never an option for the German political Right.

Instead they opted to squeeze imports even further while promoting exports as much as they could and servicing debts only to the extent that Germany did not completely lose access to overseas markets.

Bruning’s policies had alienated Germany’s major trading partners, and while Germany had gone off Gold the others -except France, had gone off Gold and devalued. The Reichsmark therefore remained overvalued compared to other currencies. A situation that only worsened throughout the period. Devaluation would have increased both debt servicing costs and the costs to import raw materials for rearmament. Hitler’s economic Tsar of 1933-1938, Hjalmar Schacht, used various export bounties to support exports. This was a kind of stealth devaluation done at the expense of the Treasury. Generous Reichsmark bounties were also offered to companies that used their foreign held assets as collateral to assist with importing raw materials for rearmament. It also served the autarchy drive as it was designed to make companies focus more on the domestic German market. However, brash statements about not intending to service debts in the long term – often made by the ostensibly respectable Schacht himself – meant that furious creditor countries refused to overlook export subsidies and often imposed either increasing tariffs or ever stricter quotas on German exports. German persecution of Jews and other minority groups also provoked an ever increasing outcry against buying German goods. Rather than scale back the anti-Semitism, the Germans – of course – blamed the Jews for the economic difficulties Germany was facing that the Germans had themselves created through their own policy choices. Part of the reason for the Nazis tormenting German Jews during their peacetime six years in power was so that they could get their hands on Jewish assets, as it was assumed Jews had substantial assets. In fact this was not the case as most Jews were either poor or modestly middle class, and so were hounded for money and assets they did not have. Theft of assets and financial fraud to service the trade elements needed for the rearmament drive characterized German policy in the 1933-1939 period.

Financial fraud was by no means confined to German treatment of foreign creditors and sleights of hand to promote exports. Rearmament itself was paid for by financial fraud. Unlike in Fascist Italy where taxes were raised and put into sinking funds to service debt issued to pay for Fascist Italy’s military campaigns and rearmament, taxes were not substantially raised in Germany. Despite Tooze saying that taxes rose and the Reich government was reluctant to squeeze Germans even further, Germany’s income tax remained lower than the UK’s. Partly this can be offset against the relative poverty of Germany but even so, there was clearly some room to raise revenue. Instead, to put much of the expenditure on rearmament off budget, Schacht had some of the largest German industrial firms set up a shell company. The Metallurgical Research Corporation (Metallurgische Forschungsgesellschaft in German) with a capital of 1 million reichsmarks. This ‘research corporation’ then issued on the back of this capital, debt instruments called ‘mefo bills’ which were accepted by the Reichsbank and often bought by the Reichsbank. These mefo bills often were commercial paper with very low or even no interest rate payments on them. Essentially German private savings were confiscated instead of taxed to pay for rearmament. It is true that many of the entities buying Mefo bills benefited far more from armaments contracts than they lost through purchasing Mefo bills, nonetheless, the Mefo bills were an astounding form of confiscation and financial fraud.

The ever increasing demands of rearmament badly affected other areas of the economy. While industry as a whole boomed due to rearmament orders, textiles, which made up a significant portion of total industrial employment, was squeezed as it was mostly cut off from cotton imports and had to make due with synthetic materials and domestic wool. Often these were also directed to military output too, meaning that certain kinds of clothing were hard to come by in the Third Reich, even during peacetime. Agriculture provides an excellent point of reference for the economic costs of rearmament, particularly as self-sufficiency in agriculture was a long term Nazi policy goal, and also of military necessity to avoid a repeat of the hunger and sometimes starvation that afflicted Germany in World War I.

The priorities of needing to squeeze imports while rearming and still feeding the German people could only be met if more resources were scrounged up from within Germany itself. It was to this end, promoting the use of German made resources to minimize the dependence on trade, that huge synthetic fuel and rubber plants were financed by the Reich and which went to the company capable of producing them – IG Farben. German agricultural policy was undercut by repeated bad harvests due to bad weather and the rearmament drive’s priority meaning resources that could have been used to promote further efficiency in German agriculture were simply not available. Although overall food production in Germany increased respectably between 1933-1938 it was more than offset by rising demand both from a growing and more employed population which wanted to convert its wages into better food on its table. This meant that some foodstuffs simply were not available for long periods in the shops as demand outstripped supply. By the end of the period there were classes for housewives on how to make ‘Hungarian fish Goulash’ because beef was often in short supply, and because the regime refused to spend limited foreign currency on importing fruit, households often had to make due with dried fruit throughout much of the year as fresh fruit simply was not available. Worse for Agriculture Minister Darre, the lure of higher wages drew a lot of farm labour from the countryside to the cities, and because almost all metallurgical production went to the rearmament drive, Darre’s requests for more agricultural machinery to replace lost workers was outright refused. In the end, often to make up labour deficits, Polish migrant labour was employed to pick the harvests and the German farmers – often women – who were not employed in the factories and left behind on the fields were more than happy to wield the whip to make sure the harvests were collected.

The fate of agriculture was the fate of almost every sector of the German economy in the face of the Nazi war machine demands. Whereas before Germany had imported wheat from France, the British Empire, the United States and Argentina, to squeeze imports and as an agreed presaging of the conquest of lebensraum im dem osten the Germans purchased as many raw materials as they could from impoverished European countries and squeezed imports for everything else that was not necessary for the rearmament drive. As rearmament consumed more and more of the economy, despite the economic boom in Germany military expenditure consumed more and more of the economy every single year, even German metallurgical production was stretched thin. It could not satisfy civilian and military needs. This was part of the reason why Goering’s ‘Four Year Plan’ was introduced, to set up an administrative system to implement steel rationing. In large part also because of the rearmament drive housing construction was substantially below Weimar levels in the peacetime years of the Third Reich and such construction as there was relied more on private finance, and tenants were expected to pick up the tab, in contrast to more generous support and rights tenants had under Weimar.

Finally, while most people suffered under increasing shortages and restrictions, the paladins of the Nazi regime lived lives of ever increasing luxury and impunity. The Nazi German Labour Front, was infamously corrupt due to Nazi Party officials siphoning off the Labour Front dues for their own use, in particular its head Robert Ley. Goering’s extravagance was well known. Even relatively ‘honest’ members of the regime such as Goebbels enjoyed huge, often untaxed incomes. In Goebbels case it was a figure of 200,000 Reichsmarks. Almost always this was paid for at either taxpayer expense or by compelled private donations. Hitler exempted himself from taxes and charged a royalty fee on each use of his image, amassing himself a considerable fortune that he used to pamper himself and to shower members of the regime with gifts to bind them ever more to himself. Meanwhile in Munich at Easter in 1938, due to high demand, there were no eggs to be had in the shops and many consumers had to do without.

As Germany ran pell mell towards a war that was entirely of its own choosing in 1939, rather than any kind of ‘happy volksgemeinschaft’ even if we ignore the horrible plight of the persecuted, the Third Reich was a country characterized less by plenty and more by shortages. It had a wartime economy with military expenditure equalling 21% of the economy. To put that in perspective when Mikhail Gorbachev announced in 1988 that the Soviet Union was spending 16% of GDP on military expenditure, the Soviet High Command was stunned – they had no idea they had been consuming that much of the economy and agreed – albeit too late – to cut back on military size and expenditure. By contrast in 1939 policymakers in Germany wanted to push military expenditure even higher, even without a war. Even worse, German rearmament plans had no relation to any kind of reality. The Navy wanted six full on battleships, and the fuel demands of these alone would have required a substantial increase in German fuel production that was far beyond the capacity of Germany to undertake in 1939. The Air Force wanted a fleet of 20,000 planes. It was not just that such a figure required obscene quantities of metal and fuel but that, even at the height of armament production, German air fleet strength never exceeded 7,000 aircraft. Even the Soviet Air Force at its wartime height only managed to field 17,000 aircraft. A fleet of 20,000 aircraft was therefore utter fantasy. And while the Germans felt pressured due to military buildup in France, the United Kingdom and above all the United States, these buildups had begun precisely because of German rearmament and German non-cooperation on defense policy. German hostile intentions had provoked the very thing that made them feel pressured. And once again rather than blame themselves they blamed the Jews.

The Third Reich, even before the outbreak of war, was therefore a highly constrained society in every way, characterized not just by increasing regimentation, but increasing shortages. It was, even for those not persecuted by the regime, a grim place to live.

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