Ideology and the Economy, Implemented Policies, 1933-1936 (Part C)
Source: Avraham Barkai, Nazi Economics - Ideology, Theory, and Policy (London, 1990), 158-172, 183-196, 225-235.
The official explanation for the wage freeze was that it would prevent inflation. It was accompanied by a commitment to price control in order to preserve the value of wages. Labour trustees were instructed to deviate from existing wage rates only in very special cases. Nevertheless, the wage freeze was not absolute even under the law, which permitted certain branches or enterprises to be released from existing agreements. Price control, which will be discussed below, was conceived as a necessary complement to the wage freeze. However as certain prices, in particular those of agricultural produce rose nevertheless, the level of real wages sank. The level of real wages reached its lowest point in January 1934 and rose only slightly later. According to one assessment the level of real wages per work hour, using 1932, the worst year of the depression, as a base, rose only to 107.2 in 1936; however, even German economists admitted that the cost of living index that served as a basis for this assessment was deliberately set low. In addition, this calculation was based on the wage index before the deduction of taxes and other obligatory payments, which under the Nazis rose considerably, to as much as 15 percent of gross income 89 . It is therefore reasonable to assess that in 1933-34 net real wages per week dropped by 6 to 7 percent and returned to the 1932 level only at the end of 1936. On the other hand, the increase in work hours per employee and the expansions of employment raised the total amount of wages paid and, thus, the overall income of workers 90 .
Labour trustees were aware of the drop in real wages and even tried to neutralise it by preventing the rise of prices, especially for food. At a meeting with Backe, the Staatssekretaer for agriculture, the Ministry of Labour representative also complained about the drop in real wages. He demanded that agricultural prices be lowered because under prevailing circumstances 'current nominal wages are unbearable.' Nevertheless, at this stage workers' demands 'to share in the achievements of agriculture and those branches of the economy that have been favoured by works projects' could not be met: 'The battle against unemployment and the rearmament of the German people have priority and require preservation of current wage levels.' But this could be achieved only by the lowering of food prices 91 .
The argument that the wage freeze was still necessary because of employment and rearmament policies recurs in all press publications of the period. As the achievement of full employment drew nearer, demands for higher wages increased; at times even party organs voiced these demands. An article of September 1936 begins by admitting that, 'the question of higher wages is closely bound up with our shortage of foodstuffs and raw materials.... It is therefore not yet time to attack the problem energetically.' At the same time the article sharply attacks employers in heavy industry, who refuse to raise wages because doing so would influence prices: 'Is it truly necessary for every rise in production costs to be shifted to prices? In the light of the large profits and high liquidity of the industry in question here ... the iron and metal industry, this appears to us rather questionable.' The paper concludes that wages could be raised without raising prices and that a highly profitable industry could even 'afford to lower prices! This does not refute the tendency to strengthen purchasing power. This wage rise is not unjust, but for the good of the community.' 92
Price control was always presented as a complement of to wage freezing in order to preserve the real standard of living. Like administrative wage freezing, price control was in fact unnecessary as long as the economy operated under conditions of partial unemployment and the fear of inflationary pressures was largely imaginary. What motivated both measures, besides this fear, was the same anti liberalist economic philosophy that included the objection to free-market price setting and the search for just prices as a matter of principle. The Nazis created a control mechanism, frequently utilising previous laws and decrees, because it was a component of their preliminary plans. When it became obvious that under current conditions this mechanism was in fact superfluous, they activated it only sporadically and in sectors in which external factors created upward pressures on prices; at the same time, they retained the legal and institutional framework of the control mechanism with an eye to future needs.
The Bruening government had already established a price-control agency. In 1931 the mayor of Leipzig, Karl Goerdeler, was appointed national price supervisor. The office was abolished in July 1933, but was re-established in November 1934 and once again given to Goerdeler. It is noteworthy that after Goerdeler's resignation in the fall of 1935 a whole year passed before a new supervisor was appointed, at a time when full employment had already been achieved. The new appointee was Joseph Wagner, the influential Nazi Gauleiter of Silesia, and his office was redefined as Reich commissioner for price formation ( Preisbildung ) instead of price supervision ( Preisueberwachung ), that is, not merely price control but the setting of prices by the government 93 .
Until November 1934 agricultural prices were in fact raised administratively, both because this sector was severely hit by sharp price slumps during the depression and because of its ideologically preferred status. Steps intended to stabilise and/or raise prices were also taken with regard to some weak industrial branches, mainly through a law of July 15, 1933 that introduced compulsory cartels 94 . It appears that these measures were primarily introduced in branches in which thousands of small, middle-class enterprises fought each other in cut-throat competition, thus endangering their viability as businesses. The cartelisation law compelled these enterprises to collaborate on marketing and price agreements, the result of which was, of course, higher consumer prices 95 . It follows that during this period administrative price controls were rarely employed to prevent price increases. The only exception was for some imported raw materials, which were allocated to each branch or enterprise according to precisely calculated quotas at fixed minimum prices, accompanied by strict administrative supervision 96 .
In spite of lax price controls, prices rose very little in 1935-36. The index of wholesale prices (based on 1925-27) rose between the first quarters of 1933 and 1937 from 66.1 to 76.6, that is, by 10.5 points, from 81.0 to 86.7. The difference between the rise of wholesale prices and cost of living indexes derived from reduced marketing margins, in particular in agriculture. This sector enjoyed a considerable increase in producer prices, which for certain products rose by up to 30 percent over 1932 prices 97 .
The tendency to raise prices was not limited to agriculture. It appears that certain industries had already tried to obtain increases in 1933, after the first signs of economic recovery, justifying their demands by citing the rising cost of raw materials, and so forth. At a closed meeting of the RDI in December 1933, Schmitt, the minister of economics, was sharply criticised for not permitting price increases in spite of rising production costs. According to the minutes of this meeting, Schmitt was accused of being more radical than Gottfried Feder and other Nazis and of demanding that enterprises operate on the brink of profitability in order not to raise prices; in the opinion of these industrialists, his position could only be explained by political considerations. Association officials suggested that enterprise owners avoid, as far as possible, involving the authorities whenever their suppliers raised prices and try to arrange matters within their own agencies instead of 'running at once to consult the attorney.' 98 It seems that they sought to avoid providing pretexts for the state to intervene in their affairs since they still thought in terms of corporate self-management. A confidential internal circular of the Association of Chemical Industries also contains evidence of Schmitt's determination to keep prices stable: the circular warned members not to ignore the minister of economics because the government was determined 'to use its authority in order to dismantle associations, syndicates, and groupings that defy its regulations.' 99
The more unemployment receded and private income rose, the stronger the tendency to raise prices became. The NSDAP also regarded the preservation of price stability as one of its duties. In November 1934 it was decided (probably by Bernhard Koehler's committee in Munich) to conduct a national price survey. The decision attracted criticism from members of the business community, who claimed that the source for price rises was mainly agriculture, which enjoyed party support. They resented the party's tendency to turn public opinion against them by publishing figures and random comparisons of price lists that the layman did not really understand. 'To bring them together in a survey like the projected one is in any case difficult, but requires above all expert knowledge and a cautious hand.... In individual cases it remains to be seen whether what is not always correctly understood should at all cost be denigrated before everyone's eyes.' 100
The concern felt within the business community was not unfounded. Complaints by and municipal bodies increased at the time, generating a series of appeals to Hitler, the Ministry of Economics, and the RNS. In July 1934 the minister of interior informed the chancellor's office of a number of Gestapo reports ( Lageberichte der Staatspolizei ) from various regions that told of unrest following the rise in food prices. As we saw in the previous chapter, in August of the same year the Gauleiters met with Staatssekretaer Backe to discuss the same matter, just a few days after Backe's meeting with labour Trustees 101 . There was also press criticism of agricultural policy. In November 1934 the Frankfurter Zeitung devoted an editorial to Goerdeler's appointment as price commissioner. It praised the government for its wage-freeze policy but emphasised that this demanded price stability, which had not been sufficiently preserved. Once again the blame was put mainly on agriculture as well as on wholesale and retail trade in agricultural produce, which had caused a rise of about 24 percent compared to the low level of prices in the spring of 1933: 'The price commissioner will no doubt extend his supervisory activity in this direction, but it appears that the price policy of agricultural corporations also requires re-examination.' 102
It soon became obvious that Goerdeler was the loser in the contest with Darre and party officials entrenched in agriculture. He held office for less than a year and was continuously embroiled in arguments, not only about the level of agricultural prices but also about the whole method of authorising the RNS to determine prices. Hitler ultimately ruled in favour of Darre and agriculture, and not even industrial circles supported Goerdeler. It seems that the industrialists had meanwhile come round to the view that cartelisation and administrative fixing of prices for government orders served their interests better than a return to free-market rules.
In 1931, when Goerdeler was appointed supervisor of prices for the first time, the lowering of prices was part of Bruening's overall policy of the Great Depression and unemployment. In 1934 the situation was different; he had to cope with a tendency for prices to rise within an expanding economy. Goerdeler held traditional liberal views on economics, believing that exaggerated cartelisation, particularly in agriculture, made prices rise. However, his efforts to lead the economy back to free-market competition clashed with the Nazis' basic economic principles and were therefore doomed from the outset.
In a press interview of February 1935 Goerdeler explained that he approved of fixed prices for basic agricultural produce, but that one should seek 'to keep the market regulation of food-processing industries and the accompanying trade free from damaging cartelisation.' 103 In March another interviewer from Chemische Industrie received the impression that Goerdeler's objections were not limited to agriculture and that he refused 'to dictate prices or the set maximum and minimum prices; his only measure was an appeal to voluntary price discipline in the economy.' 104 In January, Goerdeler had written in the same paper that although it was impossible to abolish price controls immediately, an effort had to be made to moderate price supervision and eventually abolish controls altogether 105 . In February Goerdeler tried to reintroduce free price setting into construction work through a method of tenders, granting work contracts to the cheapest bidder. He soon found that in this matter industrialists were not prepared to follow his lead; they preferred the cost plus method (which they called 'fair prices') in their relations with public authorities. At a meeting at the Berlin office of the Association of Industrialist on June 4, 1935, the industrialists decided to protest against Goerdeler's proposal, arguing that it would attract questionable elements to their branch, which had just then been heavily burdened by the export levy. They claimed that, having been promised compensation for the levy through profitable prices on the domestic market, Goerdeler's decree constituted a breach of this promise. Goerdeler's representative did not budge from his position and even refused to let association officials participate in later consultations. It is of interest that the circular distributed by the association after this meeting was addressed not only to their own members and the Ministry of Economics, but also to the Nazi leadership's Committee for Economic Policy in Munich and to the Gauleiters 106 . It appears that industrialists considered the issue a matter of principle that the party was certain to support, as indeed it did.
The matter of the export levy on domestic production reappeared in all discussions on price levels from June to September 1935, ultimately leading to Goerdeler's resignation. In his interrogation by the Gestapo following the assassination plot against Hitler of June 20, 1944, Goerdeler explained in detail what difficulties he had to cope with as price commissioner. His evidence shows beyond any doubt that his approach was diametrically opposed to the entire economic system prevailing at the time, including credit expansion by deficit spending and export levies:
'Scarcity of goods [exists] only in a few spheres. The interference comes from the direction of money (artificial creation of money!). Very different methods [are] therefore necessary: 1. To stop the artificial creation of money. To raise output without raising wages through longer working time. 2. To liquidate gaps in the supply of goods. 3. To examine prices and release from price controls....
Report on a controversy with Ley and interest groups that demand compulsory measures (already known):
As to paragraph 1, Schacht could be won over only very late. He is bound by his promise to the Fuehrer to create money, a fact that became known to Goerdeler only in 1937.... There follows an exam of price controls. International obligations also have to be checked. Also on this with the minister of economy.... Fight against the inclination of business since 33, to demand directive measures. But the abuse of competition (dumping) is also to be fought.... All this was accomplished by May 1935. Now the money issued had to be regulated [point 1]. Here Goerdeler lacks adequate authority. Schacht cautiously refuses to stop the forwarding of further credit. The massive printing of paper money pushes prices upward, a situation Goerdeler tries to brake by an abundance of decrees. He thus arrives at the limits of what he can do; does not want a system of maximum prices.... Goerdeler makes stoppage of credit expansion a condition for continuing in office. Demands abolition of the export levy, which pushes prices up. A meeting with the Fuehrer because the president of the Reichsbank and minister of economy [Schacht] rejected his demand at the end of July. No ruling, the Fuehrer refuses to give it, but asks him to continue working. Goerdeler agrees provided that he is to receive additional authority. Talks that this may happen, but it does not because, as Goerdeler learned, some of the ministers opposed it' 107 .
Goerdeler's account to his Gestapo interrogators on the eve of his execution following the assassination plot is fully confirmed by the correspondence on this issue from June to September 1935 kept in the files of the chancellor's office. The sharpest objections to enhanced authority for Goerdeler came from Darre, who insisted on RNS independence in the matter of prices. He claimed that he had supervised the lowering of bread and beef prices, while Goerdeler had agreed to raise them. In addition, he accused Goerdeler of the inclination to ignore the ministers concerned and make arrangements over their heads 108 . Three days later a letter whose contents were almost identical to these complaints reached the Reich chancellery (at Darre's request, according to various sources), signed by Martin Bormann in the name of Rudolf Hess. The letter conveyed the party's full support for Darre and opposed Goerdeler and his demand for more authority 109 . But a letter by Schacht expresses somewhat qualified support for the proposed law granting far-reaching authority to the price commissioner, on the explicit condition that a preliminary agreement with the minister concerned be achieved for every issue or that the issue be submitted to the Fuehrer for a final ruling 110 . Goerdeler rejected this condition out of hand and resigned 111 .
I have described this affair in detail because it clear demonstrates: 1) that the regime favoured the method of price control as an inherent component of a comprehensive economic system that combined ideological motivations with immediate political goals; 2) that business circles supported this method from 1933 on and opposed Goerdeler's attempts to return to a competitive market economy; and 3) that a policy of credit expansion and state-regulated foreign trade were part of this system, so that Schacht opted with Hitler against Goerdeler. Given the condition of the German economy in 1935, when about 2.5 million people were still unemployed, purely economic considerations were on their side; Goerdeler's proposals for a longer work day and reduction of government credit were not to the point. For the same reason the government had no difficulty in accepting the price commissioner's resignation and could afford not to appoint a new one as long as there was partial unemployment and the danger of inflationary pressures was imaginary. Prices did indeed rise in certain sectors where shortages were caused by external pressures like rising prices on the international market or lack of foreign currency. But these were controlled through existing cartel agencies and the fixed prices for government orders on which these agencies depended. Acute inflationary pressures did not appear as long as production increased and most enterprises still had reserves of unemployed capacity. In economic terms this enabled these enterprises to expand their output at a lower average cost per unit. During the initial years these reserves were sufficiently large to set off opposing pressures, mainly from international trade 112 .
The wage freeze to which price control was tied, on the other hand, had political significance and was designed 'to win the confidence of property-owning classes.' 113 There is no doubt that in 1933 as well as during the subsequent period Hitler still needed that group's support and voluntary co-operation; it is reasonable to assume that a proclaimed policy of wage freezing was part of this effort. The preservation of stable prices and, therefore, or real wages was emphasised as a balancing factor, aimed at public opinion and in particular at workers, who found themselves exposed and without legal protection after the abolition of trade unions. It follows from a political angle as well. One should also remember that price control as an instrument for social justice was an ideological focal point of all early Nazi plans and platforms. An economist from the Othmar Spann circle who adjusted rapidly to the new regime from the start stressed the ideological approach to the matter of price policies: 'A view of pricing which is causal-mechanistic is rejected by National Socialism for there should be no domination by the vagaries of the market. The economic fate of the individual must not be abandoned to the free interplay of supply and demand. This means that price policy has priority over price theory and that price regulation by the state or by the estates is superimposed upon the price mechanisms that result from the movement of the market. The demand for just or fair prices was voiced from the very beginning.' 114 Dietrich Klagges had already made a similar claim in withdrawing the decision making on interest rates, prices, and wages from the sphere of economic power and transferring it to the sphere of justice and legal authority.... 'But in economic matters the sense of justice is not all the same in both spheres, especially when particular interests are involved, which always happens with questions of prices and wages. Ultimately the regulation of wages and prices will therefore always become a matter for state decision.' 115 This argument was the basis for Klagge's strange demand for a mathematical calculation of social justice and the common good.
It was thus no accident that in 1936, when the economy achieved full employment and the question of price control became economically acute, the office of price commissioner was given to a Nazi Gauleiter and not to an economist. The Voelkischer Beobachter greeted the appointment with an editorial written by its economic editor, who celebrated the occasion as a victory for the party, which would from this point onward change 'the whole structure of the economy.... When the Fuehrer said, The party commands the state,' every National Socialist knew that in [the area of] economic policy also the movement and its spirit would be mobilised. We have awaited this, convinced that the call would, indeed, come.' The author regarded the news of the appointment of Joseph Wagner as Reich commissioner for price formation and the appointee's announcement that he would call on party agencies not only for educational purposes, but also take part in day-to-day control activities, as the final realisation of the Fuehrer's promise 116 .
References:
89.Guillebaud, Economic Recovery , pp. 186f.; Kroll, Weltwirtschaftskrise , p. 583.
90.J. Kuczinski, Die Geschichte der Lage der Arbeiter in Deutschland von 1789 bis in die Gegenwart , vol. 2, pt, 1, 3d ed. (Berlin [East], 1953), p. 184.
91.BA, R 43/II, 318.
92. Westdeutscher Beobachter , Sept. 4, 1936.
93.Kroll, Weltwirtschaftskrise , pp. 55f.
94.Gesetz ueber die Errichtung von Zwangskartellen, RGB1. I, p. 480.
95.Schweitzer, Big Business , p. 272.
96.Mandelbaum, 'Full Employment,' p. 191.
97.Guillebaud, Economic Recovery , p. 166; Kroll, Weltwirtschaftskrise , p. 538.
98.BA R 13/I, 625, Meeting of Nov. 11, 1933.
99.NA, TΓÇô71, roll 139, fr. 653359f.
100. Deutsche Fuehrerbriefe , Nov. 2, 1934.
101.BA, R 43/II, 317/18.
102. Frankfurter Zeitung , Nov. 7, 1934.
103. Berliner Boersen Courier , Feb. 7, 1935.
104. Chemische Industrie , Mar. 16, 1935.
105.Ibid., Jan. 12, 1935.
106.BA, R 13/I, 238, pp. 50ff.
107.BA, Nachlass Goerdeler, no. 25.
108.BA R 43/II, 315a, DarrÉ an Lammers vom 6.7.1935.
109.Ibid., Bormann an Lammers vom 9.7.1935.
110.Ibid., Schacht and Lammers vom 15.7.1935.
111.Ibid., Goerdeler an Lammers vom 27.7.1935.
112.Schweitzer, Big Business , p. 186; H. Stuebel, 'Die Finanzierung der Aufruestung im Dritten Reich,' Europa-Archiv 6 (1951): 4134; Mandelbaum, 'Full Employment,' p. 189.
113.Mandelbaum, 'Full Employment,' p. 191.
114.Buelow, Staendestaat , p. 51.
115.D. Klagges, 'Soziale Gerechtigkeit durch Organisation und Berechnung,' Nationalsozialistische Briefe 5 (1929ΓÇô30): 29f.
