Ideology and the Economy, Implemented Policies, 1933-1936 (Part B) Source: Avraham Barkai, Nazi Economics - Ideology, Theory, and Policy (London, 1990), 158-172, 183-196, 225-235. It follows that neither the financial technique the Nazis employed nor their assignment of deficit spending mainly to public consumption was their own invention. At least the Schleicher government had already prepared the initial blueprints. Even the autobahn project, later hailed as a special contribution of the Fuehrer's genius, was not original. From the end of the twenties a company named Hafraba (Hamburg-Frankfurt-Basel) had conducted a propaganda campaign and designed basic blueprints for an autobahn between these cities, to serve as the initial artery of an extended road network. During the Great Depression the authors of the idea added the job-creation effect to their propaganda, closely co-operating with Draeger's research association and the circle around Gereke. The manager of this company, Willy Hof, was received by Hitler immediately after the Nazi take-over; according to Hof, Hitler praised the idea enthusiastically and promised to carry it out by means of Reichsbank financing 28 . However, I believe that the question of whether or not Nazi economic policy was original is secondary and is not relevant at the present stage of this discussion. In the preceding chapters I showed that, when the Nazis assumed power, they were not altogether unprepared with regard to an overall economic philosophy; they had even adopted proposals for immediate economic measures in order to relieve unemployment. The decisive element was the fact that they succeeded in realising these proposals on a scale that extended all forecasts. There is no doubt that this success was crucial in recruiting majority support among the German people within a relatively short period of time and in winning their admiration for the Nazis' economic achievements, a phenomenon whose traces have not yet entirely disappeared. What generated this success is to be found in the political as well as in the ideological-propagandistic sphere. I have tried to show that what made the Nazis' employment policy feasible and successful, was more than a convenient accident or the result of pragmatic intuition, and that their success also arose from their ability to integrate new concepts in economic theory with their notion of the state's role in society and the economy. The Nazis succeeded where their predecessors had failed because they were able to secure absolute political power and they were given sufficient time. The Ermaechtigungsgesetz (the law establishing plenipotentiary authority) of March 23, 1933, the subsequent dismantling of all parties that participated in the coalition government, and the purging of all government and public bodies and agencies enabled them to implement their economic policy by means of administrative decrees with minimal interference. They were not merely freed from the necessity of seeking parliamentary consent: their political power provided the means to exert sufficient pressure on various interest groups which had previously been strong enough to abort similar plans and had contributed to the toppling of the government involved in such plans. The opposition of large-scale industry to public works did not cease after January 1933. In December 1933 the chairman of the branch association of iron-producing industries, Ernst Poensgen, complained at a confidential meeting of the board that industry, like b, was up against 'ideological difficulties.' According to him, these in price policies as well as in the allocation of resources for works projects. He thought that labour-intensive public works were acceptable only as a temporary measure. The genuine solution to unemployment would be achieved only by government orders for private industry (it is quite revealing that this paragraph in Poensgen's speech was marked in pencil 'not to be copied') 29 . Industrialists were quite right to treat employment as an ideological issue that was better not tampered with. Under the slogan of the 'right to work,' the Nazis had made full employment and ideological tenet to which they were fully committed before they seized power. Given the state of Germany's economy at the time, the relief of unemployment would have received top priority treatment from any government, and public support would have depended largely on the extent of success or failure in this sphere - the more so for a party that had conducted several election campaigns (especially the 1932 campaign) under the slogan Arbeit und Brot (work and bread) and claimed to possess the only practical employment project, as presented by Gregor Strasser in the Immediate Program. However, as part of Nazi ideology the principle of full employment went beyond its then-current usefulness, whether as a slogan to be used to achieve power or as an immediate goal for economic policy when they assumed office. It headed their list of economic objectives proclaimed as permanent to the extent that it became almost synonymous with what they called German socialism. As early as 1932 Bernhard Koehler had published an article in the paper of Goebbels's propaganda department, proclaiming the Nazi commitment to full employment: 'The Nation Socialist state will guarantee that every one of our people finds work.' 30 This, however, was not just a topical demand spawned by the scope of current unemployment but was the 'Socialist Revolution' itself: 'The creation of jobs is ... more than an economic measure or restoration of the economy or better provision for those who wish to work: it is in itself the Socialist Revolution against the government of capital.' 31 The Nazis retained their propaganda along the same lines after they assumed power. Otto Dietrich, the academically trained economist who headed Hitler's press bureau, explicitly identified German socialism with the right to work: 'Our socialism is no utopia, alienated from the real world, but natural life, full of pulsating blood ... the sole egalitarian economic demand it grants all the people is the right to work.' 32 When a state of full employment was already in sight, success reinforced the propaganda effect: what could be more persuasive than the claim that German socialism was already there, fulfilling the promise of a job for everyone? Thus, an article published in 1936 by Koehler declared: 'For the German people the battle for work is the turning point from capitalism to socialism because its intention is to provide every member of the nation once again with a job.... When he [Adolf Hitler] said We will liquidate unemployment by our own strength,' capitalism received its death blow.' 33 However, the more effective this claim was as propaganda, the greater was the commitment it implied. The Nazis knew that they could in now way survive a renewed employment crisis. Unfortunately they were never put to the test, as rearmament and war preparations kept the German economy in a state of full employment until the war and certainly for its duration. This does not change the fact that full employment was from the outset and also in retrospect an ideological component of their policy and not a temporary measure introduced in order to overcome a current crisis. After their take-over this fact became prominent in economic theory, beyond the ideological-propagandist level. For instance, in 1936 Karl Brinkmann, a well-known professor of economics at Heidelberg University, wrote in a preface to a doctoral thesis by Karl Schiller: 'Job creation is ... not just the ignition of the economy by means of public money but also, as shown by its ties to transport, housing, and defence policies, the most important juncture and a precondition for the emergence of a new economic and territorial order for Germany.' 34 The author of the thesis himself (who after the war was to become West German minister of economics under the Social Democrats) argued along the same lines: 'The battle for work has extended the notion of job creation beyond the objectively restricted sphere of public relief works; it has lifted it out of the sphere of restarting the economy, which was far-reaching but limited in time to the Great Depression; it has enhanced this notion until it embraces a comprehensive effort of all forces in the state, the movement, and the people, along the entire front of economic life.' 35 If we remember that Schiller wrote this at a time when a state of full employment was already in sight, it is clear that these economists considered job creation by the state a permanent component of economic policy. This was not just an 'initial restarting,' as the economist Wilhelm Roepke called it in 1931, or 'pump priming', as present-day economists would say. The promotion of full employment was no longer a passing emergency measure, to be followed by a return to reliance on the free-market mechanism which operates most efficiently without external interference. State direction of the economy through a system of controls that could be employed in accordance with the rulers' political goals had become a matter of principle. Within this economy, employment policy served as an important and permanent guideline. Since this tallied with the Nazi concept of the state's role in the economy, economic theory after 1933 kept in step. Beyond this statement of principle, one can point to ideological influence upon specific applications of employment policy. Besides deficit spending and public works, the Nazis sought to direct employment to sectors they preferred. A special law passed in May 1934 36 limited the employment of workers from villages in a number of large cities. This measure could have been justified by the fact that these cities had an extremely high unemployment rate, but the Nazis also emphasised the need to disperse the population and to prevent migration from villages 37 . Earlier decrees awarded special grants to newly married couples with the aim of promoting childbearing. A special grant and a tax discount were also offered for the employment of female domestic servants. Fritz Reinhardt took the trouble to explain these decrees both in terms of the need to relieve the labour market and through arguments concerning the 'role of German women': since marriage loans were awarded only to women who resigned from their jobs, he expected about two million jobs to become vacant within two years, as well as 'a permanent shift in the position of our German women.' 38 In a similar vein, the minister of finance explained the measures as true examples of 'National Socialist finance policy, which together with the reconstruction of military power, was due to the personal merit of Adolf Hitler.' 39 The head of the unemployment-insurance and labour exchanges praised the 'desired changes in professional structure. They aim, on the one hand, at the expansion of a sound and stable class of agricultural workers ... at the training of girls for their natural occupations as housewives and mothers, and on the other hand, at the liquidation of the chronic surplus in clerical and academic personnel.' 40 In this context one should also mention the Labour Service (Arbeitsdienst), which operated on a voluntary basis until June 1935, when it became compulsory. That the law making it compulsory was passed relatively late, close in time to the introduction of compulsory military service, provides evidence that the Labour Service was considered a framework for paramilitary training and ideological indoctrination rather than a solution for unemployment. Nevertheless, a decree of August 1934 created a kind of negative incentive by granting workers above the age of twenty-five preference in the matter of new jobs, while directing younger ones to agriculture and the Labour Service 41 . There is no doubt that the Nazis at that time already valued the educational impact of this service. Foreign observers were also impressed by a framework that brought working youth together with high-school pupils and trained them in manual labour, while they ignored the strong emphasis on the military aspect of the Labour Service 42 . All these decrees stress the tendency to direct labour to villages or at least to prevent migration to cities. At the same time opposing tendencies were at work - for instance, the promotion of the automobile industry through the abolition of special taxes 43 . Hitler's fondness for automobiles was well known and may have influenced this policy, though military considerations were certainly of greater weight. In March 1933 Blomberg, the minister of the armed forces, had already informed the transport minister that he had a special interest in 'an efficient automobile industry for reasons of defence.' 44 From an economic point of view this confirms that right from the beginning of the regime the tendency to prefer and promote agriculture was pitted against the conflicting desire to prepare for war. What had also already surfaced by then was the fact that by definition an industrial society resists attempts to turn the clock back. Ultimately these two factors were stronger than the ideological preference for agriculture, in spite of the latter's initial successes. Tax, Wage, and Price Policies One of the arguments against devaluation was the fear of inflationary pressures, despite all the theoretical counter arguments the reformers presented to the effect that with prevailing unemployment these fears were groundless. There is a story that Lautenbach was sent in the summer of 1933 to persuade Hitler with regard to deficit spending on works projects: 'Mr. Hitler,' he allegedly said, 'you are now the most powerful man in Germany. There is only one thing you cannot do: under prevailing circumstances you cannot cause inflation, however hard you try.' 79 Yet the traumatic experience of 1922-23 was still very real in the public mind and served as a deterrent to exaggerated increases in disposable income, even when it was already clear that deficit spending could not be avoided. This explains why it was stressed time and again that any such spending should be 'productive,' namely that the government-initiated projects financed in this manner had to be covered by genuine economic assets. The Nazis' Immediate Program of 1932 also attempted to defuse possible objections through its claim that the 'creation of productive credit' would only be a complementary measure and that the amount spent in this manner would be offset by real economic gain. For the same reason Schacht and his collaborators tries from the very outset to accompany their expansive policy with a number of preventive measures intended to pre-empt any possibility of inflationary pressures. This tendency is demonstrated in taxation policies as well as in the steps taken to stabilise prices and freeze wages by means of administrative regulations. These measures were in fact implemented sporadically and inconsistently as long as economic circumstances made them unnecessary. The nearer the economy drew to full employment, the more they became active and efficacious tools. Since regulation of wages, prices, and interest rates was in principle considered part of an economic system directed by the state for the good of the community, the regime endeavoured to create a suitable operative mechanism from its very beginnings. Tax policies showed a tendency not to increase the disposable income of the population. At first the tax-credit notes of the Papen Plan as well as a few selective tax discounts introduced during the first months of 1933 were retained. However, the discounts were rapidly redirected to branches to which the regime gave preference for reasons of job creation and rearmament, for example, by cancelling the tax on motor vehicles and promoting building of and investment in new equipment for industrial enterprises to further the development of war-related heavy industries. A law of July 15, 1933 80 , granted a 10 percent discount on income and corporate taxes for building construction, a relatively labour-intensive branch. In order to boost sales of small- and medium-sized retail businesses, the law abolished taxes on that part of wages paid in purchase vouchers for clothing and household appliances. Another paragraph permitted tax authorities to grant discounts or tax exemption to enterprises that introduced innovative methods or new products 'if a persuasive need for these [new products] is evident within the whole German national economy.' 81 These regulations emphasised the wish to promote the production of substitutes for raw materials and other rearmament-oriented industries, though I believe it is an exaggeration to label them 'a law for the promotion of rearmament industries,' 82 like the tax-exemption decree for air-raid shelter construction of October 1933 83 . Tax reductions for agriculture had unmistakable ideological significance. The second Reinhardt Plan of September 21, 1933, included a one-hundred-million-reichsmark reduction of property. The same law also reduced property tax on residential buildings. For the period of 1933-35 these tax discounts amounted to 250 million reichsmarks 84 . For agriculture and other preferred branches these discounts no doubt brought substantial relief. For the economy as a whole their significance was rather marginal. The majority of the high tax rates introduced by the Bruening government as part of its deflationary policy remained at the same level. Until 1935 all tax reductions, including the discount of Papen's tax-credit notes, came 1.76 billion reichsmarks. In contrast, the accumulated increase in revenue from taxes for the same period added up to 5 billion reichsmarks more than in 1932; already in 1933 the net revenue came to 400 million reichsmarks more than in the preceding year 85 . As a result of high tax rates and the increase in the GNP, additional revenue from tax collection reached 7 billion reichsmarks by 1936. To this sum one must add another 2 billion, collected through various levies like 'donations' to the Winterhilfe (winter aid). In October 1934 a National Socialist Tax Reform was proclaimed with considerable hullabaloo, though its main corporate taxes, plus intensified tax collection and tightened penalties on tax evasion. The tax-department chief of the Association of Industrialists (Reichsgruppe Industrie) emphasised that it was useless to attempt a precise comparison between new and old tax regulations because the important issue was 'the new spirit of the reform, the spirit of National Socialism. The principle of the common good precedes the good of the individual' stands above everything else. In the interest of the whole nation, everyone has to pay the taxes he owes according to the tax law.' 86 In accordance with this principle tax authorities were instructed not to bother with too many details while assessing tax dues, that is, to 'interpret' both old and new regulations with a view to stringency, as appropriate to a National Socialist weltanschauung. Thus, for the good of the community the German citizen was asked to act out the old German saying 'Pay your taxes and shut up.' The only flexibility assessment officials were permitted to employ was to choose, in case of doubt, the more severe possibility, thus pressuring the taxpayer even beyond his obligations under the law. Even an economic yearbook of the official Nazi publishing house questioned 'whether it was desirable to restrict regulations for the taxpayer's legal protection so severely.' 87 The situation created by these measures seems, on the face of it, paradoxical: the government increasingly drew money from the public at a time of widespread unemployment, while, simultaneously introducing a policy deficit spend. We find, however, that this paradox was a result neither of mistaken economic nor of a lack of theoretical skill: it followed from an overall policy that aimed to reduce unemployment by increasing the GNP through expansion of government demand, primarily for rearmament, and explicitly not by means of an increase on disposable private income, that is, the promotion of private consumption. This fact alone already invalidates the assumption still accepted by many, mainly German scholars, that the period under discussion consisted of an initial stage of job creation, followed by a stage of state prosperity ( Staatskonjunktur ), which began only after the former had been accomplished 88 . In fact the policy of a wage and price freeze complemented tax policies quite logically, deriving as it did from the same pattern of thought. References: 28.Draeger-Materialsammlung. 29.BA, R 13/I, no. 106, pp. 34ff. 30.B. Koehler, Unser Wille und Weg 2 (1932): 132. 31.Ibid., p. 302. 32.O. Dietrich, Das Wirtschaftsdenken im Dritten Reich (Munich, 1936), p. 14. 33.A. Holtz, 'Sozialistische Wirtschaft,' Der Aufbau 4, no. 17 (1936): 6–7. 34.Introduction to K. Schiller, Arbeitsbeschaffung. 35. Ibid., p. 1. 36.Gesetz zur Regelung des Arbeitseinsatzes vom 15. Mai 1934, RGB1. I, p. 381. 37.Honigberger, 'Wirtschaftspolitische Zielsetzung,' pp. 40f. 38.Fritz Reinhardt, Generalplan gegen die Arbeitslosigkeit (Oldenburg, 1933), pp. 34f. 39.L. v. Schwerin v. Krosigk, Nationalsozialistische Finanzpolitik (Jena, 1936). 40.Moenckmeier, ed., Jahrbuch , pt. 2, p. 38. 41.Honigberger, 'Wirtschaftspolitische Zielsetzung,' p. 41. 42.For example, C. W. Guillebaud, The Social Policy of Nazi Germany (Cambridge, 1941), pp. 65ff. 43.Gesetz ueber Aenderung des Kraftfahrzeugsteuergesetzes vom 10. April 1933, RGB1. I, p. 192. 44.BA, Wi I F5/370, quoted by Ries, 'Finanzpolitik,' p. 35. 79. Tax, Wage, and Price Policies 80.Lautenbach, Zins, Kredit und Produktion , p. x. 81.Gesetz ueber Steuererleichterungen vom 15. Juli 1933, RGB1. I, p. 491. 82.Quoted by Ries, 'Finanzpolitik,' p. 38. 83.W. Sauer, in Bracher, Sauer, and Schulz, Machtergreifung , p. 800. 84.Ries, 'Finanzpolitik,' p. 39. 85.Ibid., p. 87. 86.Ibid., pp. 88f. 87.Moenckmeier, ed., Jahrbuch , pt. 2, p. 152. 88.Ibid., p. 160. 89.For example, Kroll, Weltwirtschaftskrise. 61.