Ideology and the Economy, Implemented Policies, 1933-1936 (Part D)
Source: Avraham Barkai, Nazi Economics - Ideology, Theory, and Policy (London, 1990), 158-172, 183-196, 225-235.
Chapter 5
The Economy of War and Conquest, 1937-1945
In August 1936 Hitler composed a confidential memorandum requesting the army and all government branches in Germany to prepare the armed forces and the economy for war within four years 1 . Full employment had already been achieved, and there were signs of shortages in skilled labour and raw materials, primarily imported ones. German exports, reduced partly because of conditions on the international market and partly by deliberate government policy, were incapable of providing the necessary foreign currency. Hitler demanded that these difficulties be met by allocating top priority to rearmament and by co-ordinating the activity of all involved authorities. He also specified particular, immediate objectives: an increase in synthetic fuel and rubber production as well as the output of iron and coal mining, irrespective of production costs.
In September 1936 Goering was made responsible for the execution of these tasks. In addition to the offices he already held, he was appointed plenipotentiary for the execution of the Four-Year Plan ( Beauftragter zur Durchfuehrung des Vierjahresplans ). Goering thus arrived at the peak of his power in the Nazi hierarchy, though his appointment did not cause substantial changes in the economy and its management 2 . A number of branches were pinpointed within the Four-Year Plan administration in order to award them the priority outlined in Hitler's memorandum. Another directive agency with wide-ranging but unspecified authority was added to the existing control mechanism. The appointment of Joseph Wagner, Gauleiter for Silesia, as price commissioner was among the first measures taken to tighten price administering. Goering also appointed a number of authorised general deputies for various production branches like the steel, iron, chemicals, construction-work, and automobile industries. At the top of the pyramid stood the General Four-Year Plan Council headed by Goering himself and composed of the Staatssekretaere for economy, agriculture, labour, and transport. On the face of it these officials were appointed to the council with the aim of facilitating co-ordination between government departments, but at the same time they encroached on the authority of their respective ministers. Schacht was replaced as minister of economics in November 1937, first by Goering himself and later, at the beginning of 1938, by Walter Funk, who in January 1939 also took over Schacht's position at the Reichsbank. Prior to this time Funk was already a member of Goering's entourage, but he had much less experience, authority, and effective drive than his predecessor in this office.
In spite of its apparently powerful status, the Four-Year Plan administration never reached the level of a comprehensive planning agency 3 ; its activity centred mainly on a few strategically important sectors plagued by shortages. Special attention was paid to the production of substitutes for rubber, fuel, and fibres for textile industries. Karl Krauch, an experienced chemist/industrialist and a board member of I.G. Farben, the leading chemical industry group in Germany, was put at the head of the department for chemical industries. Krauch had already served as Goering's adviser at the Air Force Ministry in 1933; in 1934 he was instrumental in the establishment of an industrial combine for the extraction of gasoline from coal. Now he was assigned as well to the development of synthetic rubber ( Buna ). His close co-operation with the I.G. Farben group facilitated participation of the group's administrative machinery in activities of the Four-Year Plan administration. Similar co-operative arrangements were established with other industrial branches connected to rearmament or production for its infrastructure, and these were progressively expanded during the war. Goering also established new state-owned enterprises directly managed by his administration. Outstanding among these was the Hermann Goering Werke, which started production in 1937 at Salzgitter near Braunschweig and processed iron ore whose quantitative and qualitative inferiority made it unattractive to private industry. Paul Pleiger, an industrialist from Westphalia and a friend of Goering's, headed this group of enterprises. During the war years he succeeded in establishing new plants and in annexing existing ones in Austria and in occupied countries. In the course of time the Hermann Goering Werke became a giant industrial complex involved in the production of machinery, mining of various kinds, and even shipping, its functions extending far beyond its assignments within the framework of the Four-Year Plan 4 .
From the beginning of 1937 Goering, in his capacity as head of this plan, played a major role in hastening the ousting of Jews from the few economic activities in which they were still engaged. Following the pogrom of November 1938, he directed all expropriation and seizure of Jewish property. It was Goering who ordered compulsory Aryanization and payment of the 'indemnity' of one billion reichsmarks imposed on German Jewry. This indemnity was collected as a personal levy of 20 to 25 percent payable by every Jew whose registered property exceeded 5,000 reichsmarks. After the invasion of Poland, it was only a natural sequel for the Four-Year Plan administration to authorise establishment of the Haupttreuhandstell-Ost (Head Trusteeship East), empowered to manage all Jewish and Polish industrial enterprises in occupied territories 5 .
Strategy and Rearmament, 1936-1940
Post war research has tended to depreciate the success in planning and performance of Germany's rearmament industries. The basis for these evaluations was a survey conducted by the U.S. Strategic Air Command in the fall of 1945. Two economists who took part in this survey (parts of which remain restricted even today) used it in works they published on this subject. Thus, for instance, N. Kaldo claims that 'although everything was "controlled" (on paper) right from the beginning of the war, the actual administration of controls was often clumsy and amateurish in the extreme.' 6 Burton Klein, in the study mentioned above, went even further, claiming that the planning itself was not geared to a lengthy war. According to Klein, although the production of consumer goods had reached pre-depression level, that is, the level of 1928, in 1937, it continued to expand right up to the outbreak of war. His conclusion was that 'in the pre-war period the German economy produced both "butter and guns" - much more of the former and much less of the latter than has been commonly assumed.' 7
Klein explained this surprising phenomenon by a distinction between 'rearmament in depth' and 'rearmament in width.' The former bases arms production on a firm industrial infrastructure and stable raw material supply, which insure continuous production for war purposes and the renewal of reserves over lengthy periods. In contrast, rearmament in width calls for the production of a wide range of war equipment in large quantities in order to achieve an immediate advantage at the initial stage of war. In Klein's opinion the Nazis considered the creation of a large-scale infrastructure for long-term armament production unnecessary because their military and strategic planning was aimed at one short blitzkrieg or a consecutive series of 'lightning wars.' They planned to insure quick victories by conducting rapidly moving campaigns based on the grouping of quantitatively and qualitatively superior forces and armament supplies, thus overpowering the enemy within a short span of time. They did not exclude the possibility that decisive victory would not be achieved in a single, rapid campaign and the war would therefore have to move to additional fronts. However, their planning for such an eventuality relied on the exploitation of the raw-material resources and industrial capacity of occupied territories. These territories were also to supply food for Germany's population in order to avoid the hardship of shortages of the type still recalled from World War I. As it turned out, such expectations were not exaggerated.
We have already shown that Klein's calculations were too low with regard to the proportion of rearmament costs to the GNP and total government expenditure until the war. We have now to examine the performance of the German economy at the stage of accelerated war preparations (1936-39) and subsequently during the war itself. First, Klein and Kaldor underrated Nazi successes at these stages. Multiple competing authorities as well as individual or group rivalries were indeed characteristic of the Nazi regime; at all levels of the administration decision making did not always adhere to obligatory and permanent managerial nor. The surprising fact is that the system nevertheless worked efficiently and achieved its objectives in this as well as in other spheres. The confusion of authority and the existence of parallel or competing agencies represented conflicted economic and social interests, which the totalitarian regime did not permit to contend with each other in any other arena. This infighting generated friction, which damaged efficiency and no doubt also caused economic losses. It is possible, on the other hand, that this method of ad hoc decision making also provided a greater measure of flexibility and adaptability to rapidly changing conditions in the course of the war.
Surplus demand for skilled labour, in particular in branches working for rearmament, emerged on the labour market even before full employment was achieved. The existing law permitted labour trustees enhanced productivity. Plants working for rearmament, especially in metal-processing industries, had already utilised this permit in 1934 to attract skilled workers from other enterprises. In this manner they even succeeded in recruiting workers from other districts, in particular from those to the west of the Rhine, where arms production was prohibited until the German army occupied those areas in March 1936. At the same time the construction and building industries, which played a leading role during the initial stage of unemployment relief, recruited thousands of agricultural workers in spite of the authorities' efforts to restrict migration from villages. In response to these pressures, an obligatory, personal Arbeitsbuch (work book) was introduced in which every change of workplace hat to be confirmed by the local labour exchange. Nevertheless, freedom of movement between workplaces was not yet restricted, even after the proclamation of compulsory military service in March 1935. The nearer the economy drew to full employment, the more the signs of labour shortages increased; these were exacerbated by the Nazi policy of returning women to their 'natural role,' that is, housekeeping.
Beginning in 1936 this state of affairs generated upward pressures on wages, thus also imperilling price policies. Nevertheless, an absolute prohibition against wage increases was postponed until 1938, probably in order not to deter highly skilled workers from moving to rearmament industries. Even after this date competition among enterprises over such workers continued, though by different means: enterprises granted various fringe benefits, officially or somehow disguised - improved working conditions, aid in housekeeping, permanent use of light vehicles (usually motorcycles) owned by the firm, higher wages for overtime, and so forth. These benefits yielded considerable added income in spite of the total wage freeze officially in effect.
The fever of war preparations reached its first peak in the summer of 1938, when about four hundred thousand workers were enlisted to build fortification works on the western frontier, the famous Western Wall. The method of recruitment, legalised by special decree, called for the issuing of individual summonses for a restricted period of time. From March 1939 the law forbade a worker to leave his workplace without permission from the labour exchange; thus militarisation of the labour force within the framework of the Four-Year Plan was completed.
A shortage of imported raw materials had already appeared during the first years of Nazi rule. In 1928 Germany imported 95 percent of the raw materials for its textile industry and 60 percent of all mineral ores for heavy industry. Supervision Bureaux for the allocation of scarce raw materials had already been established in 1934. The Four-Year Plan accorded top priority to the production of raw materials and/or substitutes and united the Supervision Bureaux under a central authority. The use of certain raw materials like nickel, copper, and other non-iron metals was altogether prohibited in industries producing consumer goods. In addition, a massive scrap-metal collection was launched with the aid of party agencies, including women's associations, youth associations, and schools. (The refuse dumps of 150 towns yielded 55,000 tons of discarded tin cans between September 1937 and July 1938. 8 )
The efforts invested in the Four-Year Plan were of course not limited to rationing existing raw materials. They were aimed also at increasing the output of key industrial branches through the establishment of new enterprises and investment in the expansion of existing ones. The data in the following table show that these efforts yielded results in a number of spheres 9 .
Production of Strategic Raw Materials (In Thousands of Tons)
1936
1939
Growth in percent
Iron ores
2,259
3,928
73.9
Aluminium
95
194
104.2
Buna (synthetic rubber)
1
22
Synthetic fibres
43
192
346.5
Aircraft gasoline
43
302
602.3
Regular gasoline
1,214
1,633
34.5
Labour shortages became increasingly apparent in agriculture, where between 1933 and 1939 the number of employed fell from 9.3 to 9.0 million, or from 28.9 percent to 25.9 percent of the total number of employed 10 . It appears that, its ideological commitment notwithstanding, the regime had resigned itself to the flight of workers from agriculture to the armament industries and tried to offset the losses in the labour force in various ways. Once the administration for the Four-Year Plan was established, the Staatssekretaer at the Ministry of Agriculture also became an affiliated general plenipotentiary in order to 'insure the sustenance of the German people.' In March 1937 a special law authorised the RNS to determine what crops were to be grown in order to increase the output of scarce produce, in particular vegetable fats. In July of the same year peasants were ordered to hand over all wheat and rye harvests to official purchase agencies, while the feeding of these grains to livestock was strictly forbidden. From August 1938 grains were stockpiled in specially requisitioned gymnasiums and dance halls; up to 35 percent of the construction costs for the building of granaries was subsidised.
To counter labour shortages students were recruited at harvest time and girls were committed to a year of duty in agriculture after graduating from school. The Labour Service, from 1935 on a compulsory year of pre-military training, was also partially utilised at harvest time. Peasants received considerable aid for mechanisation and the purchase of chemicals like fertilisers and pesticides. Jointly, these efforts yielded an increase in the output of some vital crops and the almost complete independence from bread-grain imports as early as 1938 11 . However, the shortage in animal and vegetable fats remained acute; it generated a propaganda campaign against the consumption of butter even before the war and was responsible for the familiar cliche of 'guns instead of butter.' The output of beef and pork, on the other hand, grew between 1936 and 1939 by 25 percent and 10 percent respectively, reflecting the rise in living standards resulting from increased employment and income 12 .
The shortage of raw materials was quite prominent in the textile industries. To meet rising consumer demand, synthetic fibres of poor quality were added to fabrics, thus diminishing the product's quality and shortening its life span. Consumer complaints were met with decrees and restrictions for the producer: quality specifications like 'pure wool' were prohibited, as were cleaning instructions that were liable to reveal the poor quality of the product.
It is interesting that in spite of these restrictions, caused mainly by the state of foreign trade, the output of consumer goods grew throughout these years and declined only slightly even after the outbreak of war. The per capita production index for consumer goods returned in 1936 to the level of 1928 and rose by 8 percent until 1939; by the beginning of 1942 it had returned to the 1936 level and only in 1944, when what was left of the German economy made its final rearmament efforts, did the index drop by 18 percent. The production of capital goods grew at a much faster pace over the same period: their per capita production index, which in 1936 also stood at 110 compared to 1928, rose in 1939 to 121 and to 150 in the middle of 1944 13 . There is therefore no doubt that industrial production directly or indirectly connected to rearmament enjoyed preference even before the war, but only to a small extent at the expense of current civil consumption, although the growth of the latter was slowed down.
Even without going into details with regard to specific products, it is clear that the situation described above arose from deliberate government policy. The Nazis did not scorn public opinion and followed with concern every sign of public dissatisfaction, even when their success in foreign and economic policy resulted in widespread and sometimes enthusiastic support among the majority of the German people. This attitude left its mark on the sphere of consumer goods: the production of certain goods, at the time classified all over the world as luxury items, was explicitly encouraged. Thus, for example, a considerable effort was invested in the production and sale of a cheap, uniform model radio receiver. Awareness of its propaganda value caused production to continue even during the war. A popular refrigerator was also produced and sold in considerable quantities as part of a propaganda drive against the waste of perishable food products.
Another campaign, accompanied by a clamorous propaganda drive, pursued an entirely different aim. In May 1938, with a great deal of publicity, Hitler laid the cornerstone for the plant that was to produce the popular Volkswagen. Even before the ceremony numerous Germans had begun to pay savings-installments toward future purchase of such a car. It is reasonable to assume that at the time, with accelerating war preparations, no one seriously intended to begin production of such cars in the foreseeable future. Instead, it was a measure directed toward the withdrawal of disposable income from the public, whose earnings had grown throughout the period of prosperity, wage restrictions notwithstanding. Hitler himself mentioned the issue in his foundation ceremony speech: 'If the German people spend all their wages on consumer goods, we cannot ... produce without limits, it will cause disaster. It is therefore vital to guide the purchasing power of the German people in other directions.' 14 In this case the direction was toward recruiting savings for armaments, with an additional incentive to work overtime in order to realise the dream of owning a car. By the end of March 170,000 savers had deposited the sum of 110 million reichsmarks in the Volkswagen account for the popular model. However, when the plant began operating, it produced military vehicles and aircraft parts exclusively 15 . Ferdinand Porsche's clever invention, the horizontal 'boxer engine,' achieved recognition and was mass-produced only some years after the war had ended.
Can we conclude from all this that Nazi Germany did indeed not prepare for war and that the nation produced more butter than guns? We know today that such an evaluation is mistaken. Actually, from 1936 to 1937 on Germany pursued a regimen of covert austerity with regard to numerous consumer goods, with the explicit purpose of directing its scarce production resources to rearmament. There seems to be some justification for Blaich's view that during these years Germany produced not 'guns as well as butter,' but 'guns and jam' instead of butter and bunkers and fortifications instead of residences. Blaich is also right to claim that confusion and rivalries within the Four-Year Plan administration 'should by no means obscure the fact that by September 1, 1939, the foundations for centralised planning and the direction of the economy, based of private business initiative and private capital, had already been laid.' 16 Autarky was only partial; given the prevailing conditions it is doubtful whether it could have been expanded. Yet achievement on the road to self-sufficiency were still impressive, and the hope of compensating for shortages quickly by rapid conquests in Europe and the exertion of pressure on neutral countries like Sweden were not groundless, as it turned out.
At the outbreak of war, rationing was at once expanded to additional products, though this was explicitly proclaimed to be a temporary measure and the rations fixed were only slightly smaller than the average consumption 17 . Jews still living in Germany generally received much smaller rations or, for certain products, none at all. They were forbidden to buy clothing or footwear and received no rations for meat, fish, white bread, fruit, sweets, and cigarettes 18 . In the initial stages of war, the general population's consumption was much less restricted than it had been during World War I; later on the Germans even enjoyed abundance when the spoils of war were removed from the occupied territories.
Economic activity during the war was clearly divided into two periods. The first until the end of 1941, was still dominated by blitzkrieg strategy, that is, industrial production directed toward the short-term goals described above. On the face of it, military successes in Poland, France, the Netherlands, and Scandinavia justified Hitler's reasoning that an in-depth infrastructure for long-term war production was not necessary for the next stage of the blitzkrieg was sufficient to achieve a decisive power advantage and quick victory 19 . The Germans immediately seized all stocks of raw materials, such as mineral ores, in occupied countries and transferred large quantities of them to Germany even before they harnessed local production capacity to their own requirements. Substantial quantities of some materials gained in this manner were instrumental in relieving severe shortages in Germany's war industry. In Poland and France alone, 355,000 tons of non iron metals plus 272,000 tons of iron ore, along with substantial quantities of aircraft and other kinds of fuel as well as various chemical products vital in armament industries, fell into the hands of the Germans 20 . These, combined with the regular supply of high-quality iron ore from Sweden, enabled Germany to increase steel production by 26 percent between the end of 1939 and the end of 1940, almost without detracting from civil production; 40.8 percent of its industrial output was still directed to civil consumption, as compared to 41.5 percent in the last quarter of 1939.
These data imply not merely stagnation but even a certain drop in the production of armaments in the summer of 1940 following the surrender of France. Loyal to their blitzkrieg strategy, German planners made substantial changes in their production plans in accordance with the specific requirements of the next campaign. In the summer of 1940, while the invasion of the British Isles was still on the agenda, production was directed to aircraft and shipping. At the end of that year and during the beginning of 1941, when the Barbarossa decision - to invade the USSR - had been made, production was shifted to tanks, guns, ammunition, and infantry equipment. It turned out that it was precisely the absence of rigid preliminary planning that provided the military and industrial system with a considerable measure of flexibility - as long as war objectives and the manner in which the war was conducted were almost exclusively determined by Germany 21 .
References:
1. Treue, 'Hitlers Denkschrift,' pp. 184ΓÇô210.
2. Broszat, Der Staat Hitlers , pp. 349, 370ff.
3. Petzina, Autarkiepolitik.
4. Broszat, Der Staat Hitlers , pp. 374f.
5. 5Ibid., p. 376.
6. N. Kaldor, 'The German War Economy,' The Review of Economic Studies 13 (1945ΓÇô46).
7. Klein, Germany's Preparations for War , p. 76.
8. F. Blaich, 'Wirtschaft und Ruestung in Deutschland, 1933ΓÇô1939,' in K.D. Bracher, M. Funke, and H.A. Jacobsen, eds., Nationalsozialistische Diktatur, 1933ΓÇô1945: Eine Bilanz (Bonn, 1983), pp. 292ff.; Fischer, Deutsche Wirtschaftspolitik , pp. 83ff.; H. Aubin and W. Zorn, Handbuch der deutschen Wirtschafts- und Sozialgeschichte , vol. 2 (Stuttgart, 1976), relevant chapters.
9. R. Wagenfuehr, Die deutsche Industrie im Kriege, 1939ΓÇô1945 (Berlin, 1963), p. 18.
10.D. Petzina, W. Abelshauser, and A. Faust, Sozialgeschichtliches Arbeitsbuch, III: Materialien zur Statistik des Deutschen Reiches, 1914ΓÇô1945 (Munich, 1978), pp. 55ff.
11.Petzina, Autarkiepolitik , p. 95.
12.M. Rolfes in Aubin and Zorn, Handbuch , p. 771.
13.W. Fischer in Aubin and Zorn, Handbuch , p. 807.
14.M. Domarus, Hitler-Reden und Proklamationen (Wuerzburg, 1962ΓÇô63), pp. 867f.
15.P. Kluke, 'Hitler und das Volkswagenprojekt,' Vierteljahreshefte fuer Zeitgeschichte 8 (1960): 341f.
16.Blaich, 'Wirtschaft und Ruestung,' p. 315.
17.H. Kellenbenz, Deutsche Wirtschaftsgeschichte , vol. 2 (Munich 1981), p. 458.
18.W. Scheffler, Judenverfolgung im Dritten Reich (Berlin, 1964), p. 42.
19.Milward, The German Economy at War , pp. 30ff.
20.Ibid.; Kellenbenz, Deutsche Wirtschaftsgeschichte , p. 460.
