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The Nazi Wehrwirtschaft: Prelude and operation

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The Nazi Wehrwirtschaft: Prelude and operation

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Content THE NAZI WEHRWIRTSCHAFT:
> )
PRELUDE AND OPERATION
by
Ronald Summers Holden
I t 4
A Thesis Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
MASTER OF ARTS
(Economics)
August 1963
UMI Number: EP44801
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UNIVERSITY O F S O U T H E R N CA LIFO RNIA
GRADUATE SCHOO L
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E c, H 7 &
This thesis, written by
..................Ronald_ .Summers . Hoi den................_ _ _ . j j
under the direction of hk§.......Thesis Committee,
and approved by all its members, has been pre
sented to and accepted by the Dean of the
Graduate School, in partial fulfillment of re
quirements for the degree of
MASTER OF ARTS
&
Dean
Date August,.. 1.963.
'HESIS COMMITTEE
6 -6 !—2M—HI
This thesis is dedicated to Mr. Kenny Johnson,
without whose personalized "Work Creation Program "
the M aster's degree would have been an impossibility.
The w riter would like to express his appreciation
to the mem bers of his thesis committee, particularly to
the chairman, Dr. Frederick E. Kottke.
TABLE OF CONTENTS
Chapter Page
I. INTRODUCTION................................................................................
The Purpose of the Study-
Basic Terms and Concepts
Literature in the Field
Methodology
Thesis Organization
II. THE WEIMAR REPU BLIC........................................................... 11
The Period of Inflation: 1918-1923
The Period of Prosperity: 1923-1929
The Period of Economic Crisis: 1929-1932
III- THE NAZI RISE TO P O W E R ..................................................... 22
The Coming of the Nazi Dictatorship
The Nazi Political and Economic Platforms
The Forces Behind the Nazi Rise
An Ideological Consideration of National
Socialism
IV. THE ORGANIZATION OF THE NAZI ECONOMY . . . 37
The Economic Repercussions of the Nazi
Political Program
The Legacy of the Weimar Republic
The Nazi Organization of Industry
"The Labor Front"
Nazi Organization of Agriculture
V. NAZI ECONOMIC POLICY........................................................... 51
The Period of Economic Recovery
The Period of Rearmament
VI. NAZI FOREIGN ECONOMIC AFFAIRS............................... 67
The Depression M easures of the Republic
Schacht's Handling of the Foreign Debt Problem
Nazi Foreign Trade Policy
iii
IV
Page .Chapter
VII. EVALUATION AND SUMMARY
Evaluation of Nazi Economic Performance
Summary
BIBLIOGRAPHY
I
CHAPTER I
INTRODUCTION
When the last shot in the F irst World War was fired most of
■mankind looked to a future characterized by permanent peace. The
general feeling of the immediate postwar period was that collective se
curity would relieve the world of future conflict by means of interna
tional arbitration. This means had been sealed with the Treaty of Ver
sailles and its foster child, the League of Nations. However, there
were those who read the treaty, contemplated its provisions, and then
leld to a much less hopeful attitude in their desires for continued
peace. In retrospect, M arshal Foch seems to have offered the best
prophecy concerning the outlook for the maintenance of the peace when
ie said, "This is not peace; it is an arm istice for twenty years."'*'
As it turned out M arshal Foch made an amazingly accurate
forecast. On June 22, 1919 the new Weimar Republic of Germany ac
cepted the Versailles Treaty, and on September 1, 1939 the Nazi
Armies began their assault on Poland; the peace was thus lost in just
over the twenty year period. The Second World War had begun.
Many of the events which led up to World War II were as much
sconomic as they were political and national in nature. When this
■*Frank P. Chambers, Christiana Phelps H arris, and Charles C.
Bayley, This Age of Conflict: A Contemporary World History, 1914 to
P resent (New York: Harcourt, Brace and Company, 1950), p. 124.
1
_ 2
theory is put to the test in the case of Germany its validity becomes
immediately apparent. This was the vanquished nation of 1919, but this
was also the nation which had garnered sufficient resources to set out
on a trail of m ilitary im perialism in 1939. The transformation in Ger
many was complete.
The Purpose of the Study
The purpose of this study is to offer an economic history of
^Germany during the interwar period. The areas of prim ary concern
are those of a totalitarian economic system and the economic and polit
ical factors which combined to create it. The focus of the study is on
the organization and operation of this totalitarian economy, together
with an evaluation of its performance.
iThe Nature of the Study
It is the nature of this study to point out the circumstances su r
rounding the collapse of a free enterprise economic system and its r e
placement by a totalitarian, directed economic system.
As the story of Germany unfolded, between 1919 and 1933, the
Weimar Republic experienced virtually every type of economic condi
tion. The Republic ran the full gauntlet from war-caused economic
■dislocation to a tremendous currency inflation, and from a period of
high prosperity to full-fledged membership in a world of depression.
This in itself was a significant epoch in Germany economic history.
In 1933 a new force took control of the national scene in Germa
ny. Behind the guise of wooing the m asses with socialism, and at the
same time obtaining the support of certain industrialists who feared the
threat of communism, Adolf Hitler became Chancellor of Germany.
Within a few weeks Hitler became the absolute dictator of Germany,
and his National Socialist German W orker's (Nazi) Party soon held
sway over German economic and political life.
By means of a propagandist approach, sometimes marked by
violence and coercion, Hitler had gained this great power over a de
pression-ridden Germany. His political program expressed itself in
the aggrandizement of the German Nation. Among its prim ary tenets
jwere the unification of all Germans in a greater Germany and the re s
toration of everything Germany had signed away under the Treaty of
I 2
Versailles. It was certain that a restored German Army would be an
■important ingredient in achieving the ends of this highly nationalistic
political program.
The Nazi plan necessarily called for expansion beyond Germa
ny's postwar frontier. The one-hundred-thousand-man-army allowed
Germany by the Versailles Treaty was therefore felt to be inadequate,
and the rebirth of the once powerful German m ilitary organization was
of prim ary importance to the Nazi leaders. In their efforts to rebuild
the German m ilitary and naval forces the Nazis organized the German
3
Economy into a Wehrwirtschaft, or an economy run on military*.lines.
It followed that the prim ary economic motives of the Nazi Government
jwere to make Germany the most powerful m ilitary nation; and, because
Heinrich Hauser, Battle Against Time: A Survey of the Ger-
rnany of 1939 from the Inside (New York: Charles Scribner's Sons,
1939), p. 45.
3
Lothrop Stoddard, Into the Darkness: Nazi Germany Today
(New York: Duell, Sloan and Pearce, Inc., 1940), p. 130.
of the disastrous World War I blockade, the Nazis were interested in
4
making Germany as self-sufficient as possible.
Because of the emphasis the Nazis placed on a powerful m ili
tary machine, a study of Nazi economic policy between 1933 and 1939 is
for the most part a study of rearm am ent. The use of m ilitary action,
either in the form of threat or actual violence, played the paramount
role in H itler's foreign policy. It has been suggested that the reason
the German People remained loyal to the Nazi Regime in the face of
growing totalitarian aggression was, above all, due to the Nazi success
pith foreign and economic policy.'’ The one instilled that type of na
tional pride the Germans were particularly susceptible to, and the
other kept food on their dinner tables.
Shortly after the Nazi rise to power the economic picture in
Germany changed, and the recovery which took place was being de
scribed as a m iracle by both foreign and German economists. Between
1932 and 1936 the unemployment rolls had shrunk from six million to
'less than one million. By 1937 national production had increased by
102 per cent, and national income was doubled. William L. Shirer has
pointed out that Germany in the m id-thirties must have seemed like a
vast beehive and that "The wheels of industry were humming and every-
Z
one was as busy as a bee." Germany, under the Nazis, had apparently
"^Gustav Stolper, German History 1870-1940: Issues and Trends
(New York: Reynal and Hitchcock, 1940), p. 257.
3Hermann Mau and Helmut Krausnick, German History 1933-45:
An Assessm ent by German Historians (London: Oswald Wolff, Ltd.,
1961), p. 70.
^William L. Shirer, The Rise and Fall of the Third Reich: A
History of Nazi Germany (Greenwich, Connecticut: Fawcett Publica-
i ' : 5
embarked upon a new period of economic prosperity.
.Objectives of the Study
The preceding section has presented the nation and the time in
•its history to which this study is devoted. Now, as indicative of pur
pose, a list of the objectives of this study is offered:
1. It is an objective of this study to acquaint the reader with the
economic life of the Weimar Republic and the factors which led to its
collapse.
2. It is an objective of this study to illustrate the economic
forces which helped to bring the Nazis to power.
3. It is an objective of this study to indicate the aims and or
ganization of the Nazi economic system.
4. It is an objective of this study to present an evaluation of
Nazi economic performance in Germany and abroad.
|The Significance of the Study
Perhaps General Georg Thomas paraphrased the significance of
a study devoted to the economic history of interwar Germany when he
said:
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 W ars?
There is some question concerning the compulsion behind the
policy Germany followed during this period, but the rest of General
tions, Inc., 1959), p. 357.
7Ibid., p. 358.
Thomas's characterization seems to be entirely accurate.
Apparently the desire to rearm burned deep in the hearts of
many segments of the German population between 1918, when the Allies
marched the K aiser's beaten arm y back to Germany, and 1935, when
blitler announced the reintroduction of conscription. With this action
ditler announced to a suspecting world Germany’s intention to rearm ,
but in actuality German rearm am ent efforts pre-dated 1935.
Douglas Miller has related an interesting personal experience
which offers some insight into early German efforts to rearm . In 1924
Vtiller visited a new German agricultural machinery factory. As he
jviewed this place Miller questioned the factory manager about the ex
trem e height of the factory's outside doors. The manager replied that
the doors were built high in order to accommodate airplanes, and he
went on to say that the potato patch beside the factory would make an
excellent landing strip. Experiences such as this prompted Miller to
infer that private German investors were ready to prepare for war long
8
before the Nazis came to power._ The Nazis therefore had some
groundwork laid for their eventual armament efforts during the era of
jthe Weimar Republic.
It is clear then that during the entire interwar period efforts
were being made to rearm Germany. During the Republic these efforts
were carried on in a secretive, subdued manner in order to feign Ger
man compliance with the Versailles Treaty, but under the Nazis they
became the objects of foremost national policy. Evidently few could
^Douglas Miller, You Can't Do Business With Hitler (Boston:
Little, Brown and Company, 1941), p. 18.
; 7
i
i
imagine the immense scope of German arm s production which took
place during and after 1935. In light of the long succession of failures
:o achieve disarmament during the interwar period, perhaps some
small part of the initial German motivation can be understood. In many
respects the situation which confronted statesmen then was not very
[different from the predicament their counterparts face today.
The economic consequences of tremendous armament expendi
tures and the resulting arm s race still harass the world today. In the
United States, arm s production has resulted in a tremendous tax bite, a
nostrum for unemployment, and a high degree of technical efficiency,
jlnterwar Germany also experienced these factors, along with the estab
lishment of a totalitarian government, the subversion of traditional free
enterprise capitalism to the "national purpose," and the coming of the
Second World War. Therefore, the political and economic repercus
sions of any large-scale arm s outlay in any period are marked with the
lint of disaster.
Basic Term s and Concepts
The most unique term of a study of Nazi economics has been
presented, that of the Wehrwirtschaft, or m ilitary economy. This was
an economic system not only devoted to the creation of m ilitary power
9
but also directed along the lines of m ilitary organizational principles.
The sole function of this system was then to the service of the state,
and private initiative could operate only so long as it was satisfactory
9Otto Nathan, The Nazi Economic System: Germany's Mobiliza-
|tion for War (Durham: Duke University P ress, 1944), p.7.
to the s ta te d
The Nazi, or National Socialist Movement, in many resp ects was
sim ilar to Italian F ascism , and in many q u arters F ascism and National
Socialism are used as synonymous characterizations of centralized,
Lutocratic rule. Their ideological bases w ere identical in m ost ways,
and their differences w ere m ainly m anifest along the plainer lines of
organizational policy. A treatm ent of Nazi, F a sc ist ideology is offered
■ in Chapter III of this study.
Literature in the Field
Many fine books, in whole or in part, have been devoted to the
Weimar Republic and Nazi Germany. However, many of these works
^are concerned more with a narrative of Germany's political past than
with her economic fortunes. This is particularly true of books that are
concerned with sketching all German History, or of those devoted to the
period since the founding of the German Empire in 1871. Nonetheless
some works are concerned with German economic history during the
interwar period.
Six references were of extreme value in the research for this
study. Bullock's Hitler; A Study in Tyranny and Shirer's Rise and Fall
of the Third Reich were helpful in learning the significant events in
purely Nazi History. Nathan's The Nazi Economic System added much
in understanding Nazi economic thinking and policy. Two books, This
Age of Conflict by Chambers, H arris, and Bayley, and Pinson's
^Raym ond T. Bye and William W. Hewett, Applied Economics:
The Application of Economic Principles to Problems of Policy (New
York: Appleton-Century-Crofts, Inc., I960), p. 555. ___________________
Modern Germany: Its History and Civilization were helpful in analyzing
j
the important economic events of Weimar Germany. Finally, Muhlen's
I
Schacht: H itler’s Magician was used as a point of departure in studying
I
Nazi economic relations with foreign countries.
Methodology
In interpreting historical research the student must be aware of
the historical method. This method of inquiry is inductive in that his
torical researchers base their conclusions on experienced or acknowl
edged fact. Therefore, historical studies are the fruit of collecting
em pirical evidence, not of abstract reasoning.^
Perhaps the foremost area of controversy among those who have
sifted the evidence presented by interwar Germany has to do with the
main force behind the Nazi rise to power. For example, Einzig readily
wrote: "It was the economic and not the political considerations that
12
drove millions of Germans into H itler's arm s." While Stolper argued
against the belief that economic events caused the Nazi rise. He al-
owed that economic arguments were a large part of Nazi.propaganda
efforts, but he could not believe Germany's economic situation was the
I 13
main force behind the Nazi rise. It is clear that even m a study based
on fact there is often times not much agreement among those who
1 1
Lewis H. Haney, History of Economic Thought: A Critical Ac
count of the Origin and Development of the Economic Theories of the
Leading Thinkers in the Leading Nations (New York: The Macmillan
Company, 1949), p. 23.
12
Paul Einzig, Germany's Default: The Economics of Hitlerism
London: Macmillan and Company, Ltd., 1934), p. 34.
1 3
Stolper, op. cit., p. 2 3.
j ' 1 * 0 '
evaluate it.
This study is prim arily based on a collection of secondary
sources. One or two prim ary sources have found their way into this
gathering, but their value is limited to a narrow field. By and large,
the degree of consistency between the various works used in research
'or this study has been employed to determine what is a good point and
what is not. Empiricism , as has been pointed out, is subject to individ
ual judgment, and in relating the conclusions drawn by others the ap
proach here has been conservative.
Thesis Organization
This study consists of seven chapters. Chapter II is devoted to
a consideration of the economic life of the Weimar Republic. Chapter
jin is concerned with the Nazi rise to power. Chapter IV describes the
^organization of the Nazi Economic System. Chapter V investigates
■Nazi economic policy. Chapter VI is devoted to a consideration of Nazi
economic affairs with foreign nations; and Chapter VII combines an
evaluation of Nazi economic performance with a summary of the entire
study.
CHAPTER II
THE WEIMAR REPUBLIC
The purpose of this chapter is to offer a brief but comprehen
sive account of the economic life of the Weimar Republic. It was during
the period of the Republic that the Nazi Party was born and nurtured
until its ascension to national power in 1933. Therefore, the failure of
the Republic does much to explain the success of the Nazis. While this
jchapter does not pretend to be a purely economic explanation the Nazi
■rise, its mood is probably best expressed by Heaton1 s observation that
jduring the Republic the Nazi appeal varied inversely with the business
curved
Pinson, in his excellent treatm ent of Weimar Germany, consid
ered the economic fortunes of the Republic in three chronological p eri
ods. The first was the period of inflation between 1913 and 1923, the
second was the period of prosperity and boom between 1923 and 1929,
and the third was the period of economic crisis between 1929 and
2
1932. This is the basic form at followed by this chapter.
The Period of Inflation: 1918-1923
At the end of World War I, Weimar Germany faced two great
Herbert Heaton, Economic History of Europe (New York: Har
p e r and Brothers Publishers, 1948), p. 710.
^Koppel S. Pinson, Modern Germany: Its History and Civiliza
tion (New York: The Macmillan Company, 1954), p. 446.
economic predicaments. On the one hand she had to own up to the A l
lied demand for reparations, and on the other hand she had to restore
Lome semblance of Germany's prewar domestic economy. Four years
Lf war had left the German coffers empty; the tremendous cost of wag
ing a modern war, coupled with wartime inflation, had reduced the
treasury from a 1914 total of 300 million marks to a 1918 debt of 145
I 3
billion m arks. The dislocation of world m arkets and the territorial
changes which took place after the war added to Germany's economic
deterioration. Germany could perhaps take solace from the fact that
she had suffered no physical damage on account of the war, but this was
■not the case with her recent foes.
By means of the famous war-guilt clause of the Versailles
Treaty, the Allied Powers placed the blame for starting World War I
on Germany and her allies. Article 231 of the treaty read as follows:
The Allied and Associated Governments affirm and Germany
accepts the responsibility of Germany and her allies for causing all
loss and damage to which the Allied and Associated Governments
and their nationals have been subjected as a consequence of the ^ a r
imposed upon them by the aggression of Germany and her allies.
From this concept of Germany's war guilt grew the Allied de
mands for reparations. Germany had caused the war and, purely and
simply, she would pay for it. The Versailles Treaty did not set forth,
neither in total amount nor duration, a solid definition of the rep ara
tions Germany was to pay. The only thing made definite was that the
Norbert Muhlen, Schacht: H itler's Magician, The Life and
Loans of Dr. Hjalmar Schacht (New York: The Alliance Book Corpora
tion, 1939), p. 94.
^ T . Walter Wallbank and A lastair M. Taylor, Civilization Past
and Present (New York: Scott, Foresm an and Company, 1955), II, 398.
first payment of twenty billion marks, plus deliveries in kind, was pay
able by May, 1921.^ Thus the problem of reparations had entered the
Lconomic life of the Weimar Republic.
Under the term s of the treaty Germany also lost certain te r r i
tory. Possibly the most critical loss, in term s of productive resources
jwas the Saar Basin. Also, the provinces of A lsace-Lorraine were re
turned to France, and the "Polish Corridor," which separated Germany
from East Prussia, came into existence. In addition, Germany lost all
ler colonial possessions, which composed an area five times the size
of Germany herself.
In total, not including the colonies, Germany lost an area of
thirty thousand square miles, which contained a population of six and
one-half million. She lost seventy-five per cent of her prewar iron ore
'supply and twenty-five per cent of her coal supply. Nearly all of Ger
many's lead and zinc resources were removed, along with her potash
and petroleum districts, and ninety per cent of the German commercial
fleet was placed under foreign flags.^
The effects of these territo rial losses and the reparations lia
bility placed a tremendous strain on the German economy. To these
problems was added the force of faulty fiscal policy. In neither the Im
perial nor the Republican Governments was there a serious effort to
m eet their huge obligations by means of taxation. Pinson has related
5
Frank P. Chambers, Christiana Phelps H arris, and Charles C.
Bayley, This Age of Conflict: A Contemporary World History 1914 to
P resen t (New York: Harcourt, Brace and Company, 1950), p. 121.
^Heinrich Hauser, Battle Against Time: A Survey of the Germa
ny of 1939 from the Inside (New York: Charles Scribner's Sons, 1939),
Ip. 32.
jthat German financial and industrial leaders were opposed to any sys
tem of direct taxation, and between 1919 and 1923 only about twenty-
five per cent of government expenditures were covered by treasury re-
7
ceipts. In order to remain sovereign the Weimar Government re-
Q
sorted to internal borrowing and the printing presses. As a result of
this policy the economy suffered from an inflationary bias.
In May of 1921 the Allied Powers fixed the total German rep ara
tions debt at 135 billion gold marks, and Germany began to pay. The
jweight of reparations payments aggravated the inflationary trend, and
the government appealed to the Allies for some relief from reparations ,
During 1922 some concessions were granted by the Allies, but in Janu
ary, 1923 the French Government pursued a policy which dealt the G er
man economy a serious blow. Because of German default on a portion
of the reparations payment to France, the French Army was ordered to
^occupy the Ruhr district of Germany. There was much controversy as
to what France wanted to accomplish by taking this action. Some felt
that P rem ier Poincare merely wanted to enforce the French claim to
■reparations; others held that he wanted to encourage the creation of a
9
separatist state in the Rhineland.
Chancellor Cuno of Germany called for a policy of passive re
sistance to the French, and a sim ilar policy was leveled against the
Belgians and Italians who had joined the French. All reparations pay
ments to France, Belgium, and Italy were suspended. A complete in
dustrial shutdown occurred in the Ruhr, and with eighty per cent of the
7 8
Pinson, op. cit., p. 448. Ibid.
g
7Chambers, H arris, and Bayley, op. cit., p. 164.
------------------------------------------
German iron and steel industries and much of the railway system thus
shut down, the effect on the German economy was staggering.
In order to maintain some semblance of meeting the reparations
payments, and to meet other obligations, the German government used
the printing press. With the economy crippled by the Ruhr occupation,
jdie inflation which resulted was literally beyond belief. The m ark sank
from twenty thousand to the dollar in January, 1923 to five million to
the dollar in August, and by November, 1923 the m ark could only be ex
pressed in term s of trillions of marks to the dollar.^ Pinson described
the inflation at its height in this manner:
The American dollar became the m easure of value in Germany,
and the prices were adjusted to the dollar rather than the mark. The
situation developed with such speed that paper mills and printing I
presses could not keep pace with the need for supplies of paper mon
ey. Over 300 paper mills and 2,000 printing establishments worked
on 24-hour shifts to supply the Reichsbank with the needed bank
note s
In August, 1923 Stresemann replaced Cuno in the Chancellery,
and the policy of passive resistance in the Ruhr was ended. The new
government began to make efforts to restore the German currency. A
policy of retrenchment was followed, and 397,000 workers were pared
I 12
from the civil service rolls. Finally, on November 12, 1923, just
three days after H itler's unsuccessful Bavarian Putsch, Dr. Hjalmar
I 13
Schacht was appointed to the task of restoring the currency. On No
vember 15, 1923 Schacht introduced the new currency unit, the Renten-
l^ Ibid. ^P inson, op. cit., p. 446.
l^Muhlen, op. cit., p. 19.
13
Alan Bullock, Hitler; A Study in Tyranny (New York: Bantam
Books, 1961), p. 102.
r e
mark. The rentenmark was issued at the par of one to one trillion of
I
the inflated marks.
Although the rentenmark was officially based on gold, it actually
nad no gold redemption privileges. Instead, the rentenmark was based
on a first mortgage on German industry, agriculture, and com m erce.^
'By the summer of 1924 Schacht had succeeded with his task, and confi
dence in Germany had been restored. The inflation was at an end.
Schacht had thus made a positive contribution to solving the economic
problems faced by the Republic, but later he was to receive more noto
riety in dictating Nazi economic policy.
Much controversy raged around the role the German government
played during the inflation. There were those who defended the govern
ment on the grounds that the Allied demand for reparations was un
reasonable. Others pointed out that government responsibility for the
■inflation was proven by the fact that when the government finally de-
15
cided to act the inflation was ended. Perhaps the best conclusion is
that both of these factors contributed to the inflation.
The policy the Reichsbank pursued during the inflation seems to
lave been quite faulty. Instead of curtailing credit in order to slow the
•inflation, the Reichsbank continued to extend credit at low rates of in-
I
terest to businessmen. The result was that businessmen bought up
goods and real property and made fortunes in the process. At the same
time the government continued to meet the installments on its vast
^ C . W. Guillebaud, The Economic Recovery of Germany: From
1933 to the Incorporation of Austria in March 1938 (London: Macmillan
f and Company, Ltd., 1939), p. 2.
^ P in s o n , op. c it., pp. 448-449.
I
internal debt with inflated m arks, and in short order this debt was v ir
tually wiped off the books. The impact of these government policies
gave rise to the subsequent allegation that during the inflation unscru-
| {
pulous enterprisers built em pires at the expense of the middle and
working clas se s
The most disastrous effects of the inflation were felt by the mid--
die class. People who belonged to the middle class lost their entire
I 17
money wealth. Particularly hard hit were those living on fixed in-
jcomes and those living on pensions and savings. When he looked back
on the inflation, Chancellor Stresemann had this to say about the plight
^f the middle class: "The intellectual and productive middle class,
jwhich was traditionally the backbone of the country, has been paid for
the utter sacrifice of itself to the state during the war by being de-
18
Drived of all its property and by being proletarianized."
Because of their great loss, members of the middle class lost
whatever illusions they held for the republican regime. They became
the fruitful hunting grounds for the Nazi Party, and after 1923 recruits
19
•from the middle class began to swell the Nazi ranks.
The Period of Prosperity: 1923-1929
After the new currency system was installed, and stabilization
achieved, Germany settled back to a much less hectic economic
1 f\
°John Li. Snell (ed.), The Nazi Revolution: Germany’s Guilt or
Germany's Fate? (Boston: D. C. Heath Company, 1959), p. 36.
17 18
- Guillebaud, op. cit., p. 1. Pinson, op. cit., p. 447.
^W illiam N. Loucks, Comparative Economic Systems (New
York: Harper and Brothers Publishers, 1957), p. 696.
, — r 8
existence. However, the inflation had decimated German stocks of liq
uid and working capital. The capital shortage expressed itself in high
interest rates, and unemployment remained at a relatively high lev el.^
P rio r to 1924, probably because of the Allied reparations policy:
among other factors, Germany had little chance of obtaining foreign
.oans. The entire picture changed in August of 1924 when negotiations
were completed on the Dawes Plan. In essence this plan contained pro
visions for lessening Germany's reparations burden by relating the
amount to be paid in a specific time period to her level of prosperity.
La order to speed German economic recovery, the plan also provided
| 21
for grants of foreign credits.
With German acceptance of the Dawes Plan, the French, Belgian,
and Italian forces evacuated the Ruhr, and foreign capital began to flow
to Germany. The entire period between 1924 and 1929 was character
ized by German receipt of foreign loans well in excess of what was be
ing paid out in reparations. One estimate has it that during this period
Germany received, principally from the United States, loans amounting
to twenty-five billion marks, while she paid out only eight billion marks
22
in reparations.
This influx of foreign capital gave the German economy a tr e
mendous stimulus. In 1923 national production in Germany stood at
fifty-five per cent of the 1913 level, but in 1927 it had increased to 122
7 0
Gustav Stolper, German Economy 1870-1940: Issues and
Trends (New York: Reynal and Hitchcock, 1940), p. 237.
21
Pinson, op. cit., p. 449.
^ E . J. Passant, A Short History of Germany: 1815-1945 (Lon
don: Cambridge University P ress, 1959), p. 170.________
per cent of the 1913 level. During 1928, for the first time since the
| 2 3
war, unemployment in Germany fell below one million. As Germany
rode the crest of prosperity, basic industries were expanded and mod
ernized. All levels of government instituted large program s devoted to
public works. During this period, and the subsequent period of depres
sion, the largest trusts and cartels in German history were form ed .^
jLater these trusts and cartels would become important ingredients in
the creation of the Nazi Wehrwirtschaft, but the prosperous years be
tween 192 3 and 1929 were lean years for Adolf Hitler and his Nazi
Party.2 ^
The wave of prosperity produced a Germany second only to the
United States in productive capacity. To all appearances the Dawes
Plan was working well, and Germany was meeting her reparations pay
ments regularly. It was not until 1929 that it became apparent that
^German borrowing had made the reparations payments possible. The
events of 1929 revealed that the prosperity enjoyed by Weimar Germany
lad been artificial.2^
The Period of Economic Crisis: 1929-1932
The influx of foreign loans had buoyed up the German economy
jand set it on a course of prosperity. By 1929» total foreign investment
in Germany stood at nearly seven billion dollars. The United States hac
^W illiam L. Shirer, The Rise and Fall of the Third Reich: A
History of Nazi Germany (Greenwich, Connecticut: Fawcett Publica
tions, 1959), pp. 167-168.
2^Snell, loc. cit. 2^Shirer, op. cit., p. 167.
2^Guillebaud, op. cit., p. 12.
20
become Germany's principal creditor. The economic fates of the two
countries were thus closely entwined. When the American crash came,
in 192 9, its effect on the German economy was disastrous.
During 1928 German capital imports still amounted to five bil
lion marks; in 1929 this figure was halved; and in 1930 Germany re-
? 7
ceived only 700 million m arks in foreign loans. Germany was thus
reeling under the diminishment of her foreign credits when, in 1929, as
the crisis deepened in the United States, her American creditors began
;o call their short-term loans. The Germans had invested the A m eri
can short-term loans with some degree of recklessness, and many were
invested in long-term projects. The result of the American callings
was therefore to shock the stability of the entire German economic sys-
l 28
tern.
German industry slowed to an almost stagnant state, and by
1932 there were seven million unemployed. This meant that out of the
total German population of sixty-five million about one-third were on
| , 29
■relief or were without support. The German government granted
[credits to business and industry in efforts to improve the situation, but
many of the grants found their way to firm s that were able to expand
[output without adding appreciably to their payrolls. The government
also limited the maximum work week to forty hours per individual, and
| . , 30
in some instances it prohibited the use of machinery.
^ P a s sa n t, op. cit., p. 76. ^ Ibid., p. 176.
^ ^Hauser, op. cit., p. 65.
30
Kinrad Heiden, P er Fuehrer: H itler's Rise to Power {Boston:
Houghton Mifflin Company, 1944), p. 662.
---------------------------------------------------------------------------------------------------------------------------------------------------- 2T
Perhaps their own problems im pressed the Allied Powers with i
the magnitude of the German depression. In 1930 the Young Plan was
introduced. This plan fixed total German reparations and established
the Bank of International Settlements. This bank was to be the instru
ment to facilitate easier and more efficient handling of the reparations
payments, but with the depression the Allied demand for reparations
evidently became less emphatic.
In 1932 the Lausanne Conference was held, and the Allies ex-
Dressed willingness to settle all reparations for a token of their earlier
iemands. Their condition was that the United States should cancel the
I
inter-Allied war debts still outstanding. The United States would not
agree to this, but the American decision was of no consequence in Ger
many. The Germans would not pay anymore, and the Allies were not
I 31
disposed to make them do so. The reparations problem had thus
Jcome to an end.
The Weimar Republic was nearing the end of its existence. For
years Hitler had forecast disaster for the Republic, and with the de
gression disaster had come. As Alan Bullock wrote: "It was the de
pression which tipped the scales against the Republic and for the first
32
time since 1923 shifted the weight of advantage to H itler's side."
■ ^ H e a t o n , o p . c i t ., p . 7 0 4 . " ^ B u l l o c k , o p . c i t ., p . 1 1 9 .
CHAPTER III
THE NAZI RISE TO POWER
Before 1929 the Nazi Party had been insignificant in the political
ife of the Weimar Republic. Its existence was apparently insured by
membership dues and gifts from businessmen.’ '' However, as the de
pression increased in severity the fortunes of the Nazis began to rise.
Many industrialists throughout the country, aroused by the threat of
2
^communism, began to support the Nazis. The famous Nazi propaganda
technique, coupled with the ominous power of the Nazi private army,
composed of the infamous S.A. and S.S. units, apparently produced
many new adherents for the party from among the distressed German
population.
During the July, 1932 elections the Nazis were able to garner
thirty-seven per cent of the total vote. This, compared to the Com
munist showing of slightly over fourteen per cent. The Nazis had thus
become the strongest party in the Reichstag (the German Parliament),
and the more democratic centerist parties could no longer shape the
3
country's destiny. With the rightist sympathy increasing among the
*John L. Snell (ed.), The Nazi Revolution: Germany's Guilt or
Germany's Fate? (Boston: D. C. Heath and Company, 1959), p. 38.
Alan Bullock, Hitler; A Study in Tyranny (New York: Bantam
Books, 1961), pp. 161-164.
^Hjalmar Schacht, Confessions of "The Old Wizard": The Auto
biography of Hjalmar Horace Greeley Schacht (Boston: Houghton
.22
2 3
German electorate, the Weimar Republic was entering the twilight of its
existence.
The Coming of the Nazi Dictatorship
On January 30, 1933 Adolf Hitler became Chancellor of the Ger
man Reich. Nineteen years after his unsuccessful Bavarian Putsch
Hitler was finally within sight of the fulfillment of his highest ambition
--to be absolute dictator of Germany. The political intrigues which
brought him to the Chancellery were riddled with many personal rival-
4
•ries. It is fair to suggest that the men involved were totally lacking in
their appreciation of democratic institutions, and in the final analysis it
seems that Hitler was at least honest in expressing his political de
mands and aspirations.
As Chancellor, Hitler did not have the absolute powers he de
sired. It was true that he led the most powerful party in the Reichstag,
but he did not have the parliam entary m ajority necessary for him to
assume dictatorial powers by means of an enabling act. The March,
1933 elections had given the Nazis only about forty-four per cent of the
5
vote. Hitler needed a three-quarters majority in the Reichstag to pass
'his enabling bill. He was obviously far short of that requirement.
Hitler overcame this shortage in two moves. First, he allied
'himself with the conservative Nationalist Party. Second, he expelled
the Communist deputies from the Reichstag.^ Hitler had successfully
Mifflin Company, 1956), p. 258.
^Bullock, op. cit., pp. 173-212.
5Ibid., p. 224. 6Ibid.
placed the blame for the Reichstag fire on the Communists, and he al-
i
'leged that this event was the beginning of a Communist revolution. So
that he might combat the "menace!1 President von Hindenburg vested
Hitler with emergency powers. In exercising those powers Hitler di
vested the Communists of their right to sit in the Reichstag, and a gen
eral policy of terro rism was instituted against the Communist and
* 7
other left-wing parties. Either of these means was sufficient to give
the Nazis a simple majority in the Reichstag.
On March 23, 1933 H itler's enabling bill, which was officially
•registered as the National Emergency Termination Bill, was voted upon
| Q
in the Reichstag. The vote was 441 for the bill, opposed to 94 against
I . 9
it. The Nazis had thus secured over eighty-two per cent of the parlia
mentary vote, and with the bill's passage the Reichstag had voted itself
out of existence as an effective parliament. Hitler was free to rule by
decree, and the era of the Weimar Republic had reached its conclusion.
The Weimar Republic was destroyed, but the Weimar Constitu
tion was never officially abrogated. The legality of H itler's rule thus
rested upon the republican constitution, but certainly republican insti
tutions no longer existed or functioned, except at H itler's will. For ex
ample, the organizations surrounding the exercise of political freedom
were rapidly swept away. In July of 1933 the Nazi Party was made the
only legal party in Germany, and any attempt to retain membership in
7Ibid., pp. 222-225.
8
Hermann Mau and Helmut Krausnick, German History 1933-45:
An A ssessm ent by German Historians (London: Oswald Wolff, Ltd.,
•1961), p. 27.
9
B u l l o c k , o p . c i t ., p . 2 2 9 -
; 25
another party or to form a new party was made a criminal offense.^
The Nazi Political and Economic Platforms
Hitler had achieved his great ambition. The Republic was de
stroyed, and the regimentation of Germany was in progress. The Nazi
Party had, like any other political organization, adopted a platform of
goals and views. This platform formed the basis of the Nazi appeal.
I
While this appeal does not seem to have been universally accepted
among Germans (the Nazis obtained forty-four per cent of the popular
vote in the March, 1933 elections), it would nonetheless be difficult to
describe Nazi political efforts as anything but successful.
iThe Nazi Political Platform
It was mentioned before that the Nazi political program was
highly nationalistic in character, and this nationalism was the very e s
sence of the political platform the Nazis employed while campaigning.
The two major themes of this platform had to do with the enlargement
of Germany and the unification of all German peoples. Specifically, the
[Nazis campaigned against the Treaty of Versailles and all the losses
'and deprivations it embodied for Germany, while they campaigned for
the return of Germany to the standing of a great power among the na
tions of the world.
As early as 1923 Hitler stressed the Nazi importance of en
larging Germany's borders. Above all, he seems to have been particu
larly concerned that Germany should expand to the East. In Mein
Kampf Hitler made frequent reference to such expansion and it
^ M a u a n d K r a u s n i c k , o p . c i t . , p . 3 3 .
2 6
possessed enough import for him to attach the term Lebeasraum, or
Living room, to it?''*' Apparently Hitler felt that if Germany was to be
come great again, and maintain her greatness, she would have to pos
sess more territo ry in eastern and central Europe. This, it would
Leem, is an important consideration in understanding the motives be
hind Nazi economic policy.
The Nazis were vehement in their attacks on the Treaty of Ver
sailles. Perhaps the statement of Dr. Paul Goebbels, who headed the
Nazi Propaganda Ministry, offers a much better view of the Nazi feel
ing toward the treaty than the interpretation of one distantly removed
from the problem. It also seems to afford a keen example of the fa
mous Nazi propaganda technique. The Nazis were in power when Goeb
bels wrote:
In a cool-headed and wholesale manner, without phrase or re s
ervation, we were forced under the knot of revengeful and greedy
.victors. There was not one among us who did not clearly understand
this. It was a peace without peace, an end to war which hid in its en
trails hatred, rebellion, revolution, and war. We all knew this:
Versailles threatens our very life; Versailles must be broken by us
or we shall break under it. It was a gaping, bleeding wound across
the body of the German Nation, and the warm, red blood of the people
was flowing from it in a broad stream . This wound had to be healed
or we should bleed to death.^
It would be fair to suggest that the nationalism displayed by the
'Nazi political platform was mainly composed of the elements of r e
venge and the prom ise of national aggrandizement. The Versailles
Treaty would be cast off to attain some degree of revenge, and the
^Bullock, op. cit., pp. 321-323.
12
Heinrich Hauser, Battle Against Time: A Survey of the Ger-
•many of 1939 from the Inside (New York: Charles Scribner's Sons,
1939), p. 33.
2 7
wealth and power of Germany thus extended would be augmented by a
policy of imperialism.
Other elements of the Nazi platform appealed to German nation
alistic tendencies by means of praising the advantages of authoritarian
■rule, and by exalting German racial superiority. H erbert Heaton has
joffered this excellent summation of the program, or platform, the Nazis
used in their efforts to gain political sovereignty over Germany:
The program on which the Nazis had risen to power was more
'national' than 'socialist'. It appealed to the hates and hopes of the
'German race', of the 'German people', whose veins were.filled with
'German blood', whose superiority over non-Aryans and Slavs was
unquestionable, and whose destiny was to be united regardless of
historical boundaries under a mighty leader.^
(The Nazi Economic Platform
The economic platform by which the Nazi Party rose to power
■ is a study of inconsistency and opportunism. The party's socialism
was used as a basis for appeal by the Nazis, while, in paradox, the Nazi
appeal was also addressed to business interests.
p.
Gottfried Feder, who has been described as an economic crank,
jcomposed the first, "unalterable" Nazi economic platform. The follow
ing is an outline of Feder's platform:
1. All forms of "unearned income" would be abolished.
2. Trade organizations would be socialized.
3. Public profit-sharing would be instituted in the profits of
all large scale enterprises.
1 3
H erbert Heaton, Economic History of Europe (New York:
'Harper and Brothers, 1948), p. 708.
14William L. Shirer, The Rise and Fall of the Third Reich: A
History of Nazi Germany (Greenwich, Connecticut: Fawcett Publica-
jtions, 1959), p. 60. ______________________________________________________
! 4. A program of land reform would be instituted.
a. Land would be expropriated for the common interest.
b. Feder stood for the abolishment of speculation and in
terest charges in land purchases.
5. All large department stores would be communalized.
6. "M aterialist" Roman law would be replaced by German
common law.
7. A general policy of the common weal before private inter
est would be adhered to.
This platform was obviously designed to gain support by means
of its stand for socialism. Certainly Hitler supported this type of plat
form when he felt conditions warranted such a stand. For example,
•Bullock has pointed out that H itler's arrival to power was accompanied
by renewed Nazi attacks on the big cap ita lists^ However, Bullock also
pointed out that H itler's views on economic considerations were entire
ly opportunist.^
Hitler was not a socialist. He appealed to the m asses with so
cialism, but actually he wanted to appease business interests, the m ili
tary, and nearly all the other conservative elements of German society.
The basis of H itler's interest was not that of carrying out a program of
■reform; rather, he was interested in the creation of his personal power.
While the socialist efforts of certain Nazis, such as Feder, may have
been quite sincere, in actuality they amounted to nothing more than
propaganda. Hitler, as Shirer has related, did not want to bankrupt
Germany and risk the existence of his regime for the sake of a popular
15
W. F. Bruck, Social and Economic History of Germany from
William II to Hitler 1888-1938: A Comparative Study (Cardiff: Oxford
University P ress, 1938), p. 207.
^ B u l l o c k , o p . c i t . , p . 2 3 9 . ^ ^ I b i d ., p . 3 5 0 .
2 9
18
'second revolution."
The Forces Behind the Nazi Rise
The preceding section has indicated the broad lines of the Nazi
appeal. In short, the appeal of the Nazi movement was nationalist and
sometimes socialist. The basis on which the Nazis expressed their ap
peal was, in large part, dictated by momentary expediency. This was
particularly true of the appeal based on the Nazi economic platform.
'Despite their inconsistencies, the Nazis were able to gain wide and
varying support and eventually come to power in Germany.
There is much disagreement among scholars who have consid
ered the main force behind the Nazi rise to power. Some held to a
purely economic interpretation. Others followed interpretations which
assigned several degrees of importance to the force of economic events
in prompting the Nazi success. Each type of interpretation contains
some element of m erit.
The Economic Interpretation of the
■Nazi Rise
Two periods of interwar German economic experience are im
portant to an investigation of the economic interpretation of the Nazi
rise to power. The first is the inflationary period of the early twenties,
the second the period of depression of the early thirties.
Previously it was pointed out that the German middle class suf
fered a tremendous loss as a result of the period of inflation. The m a
jority of this class lost their economic wealth, and with it they lost the
1 8
S h i r e r , o p . c i t . , p . 2 8 6 .
basis of their traditional mode of living. As the middle class was pro-
letarianized, its mem bers became, as Pinson has written, "The happy
■recruiting ground for all the nationalistic and racialist movements
I 19
which came to undermine the republic." The Nazis and their like
contemporaries therefore gained from the Republic's loss of a strong
middle class. This in no small way helps to justify Heaton's assertion
that the Nazi appeal varied inversely with the business curve.
The death of the Republic was certainly encouraged by the loss
of the potent middle class. The Republic was denied the stability which
made the middle classes of the United States, the United Kingdom, and
'France the backbone of democracy. Because its members flocked to
the Nazi cause in such numbers probably gave rise to the subsequent
allegation that the Nazi movement brought certain elements of the Ger-
I 20
man middle class to power.
During the inflation and its aftermath, the Nazis were also able
to gain adherents from quarters other than the middle class. The rela
tively high rate of unemployment which persisted during the republican
era insured this, but it was the depression which made this factor an
acute deterrent to the long life of the Republic.
In 1931 Gregor Strasser, who represented the left-wing of the
N T azi Party, looked out on a Germany with five million unemployed, with
ler existing middle class facing ruin, with her farm ers unable to meet
their mortgage payments, and with her government floundering in its
19
7Koppel S. Pinson, Modern Germany: Its History and Civiliza
tion (New York: The Macmillan Company, 1954), p. 447.
20
Lothrop Stoddard, Into the Darkness: Nazi Germany Today
^New York: Duell, Sloan and Pearce, Inc., 1940), p. 50.________________
. 3I
21
efforts to combat the depression. As he viewed this scene, Strasser
■remarked one day, "All that serves to precipitate the catastrophe . . .
I 22
is good, very good for us and our German revolution."
S trasser's rem ark was sound. As the depression deepened,
23
millions of Germans associated themselves with the Nazi movement.
'In order to support his contention that the depression was the main
cause of the Nazi rise, Paul Einzig argued that had Germany been
prosperous the number of those whose discontent would have prompted
them to support an extrem ist movement would have been much small -
I 24
er. The socialist Victor Schiff echoed this sentiment when he wrote:
If there is indeed a point on which there is--and which there
could be--no difference of opinion among us, it must surely be that
Hitler owes his rise and his ultimate victory to the world economic
crisis; to the despair of the unemployed proletariat; to the academi
cally trained youth for whom there is no future; to the middle-class
businessmen and craftsm en heading for bankruptcy; and to the farm
ers threatened with a fall in agricultural prices.
Other Interpretations of the Nazi Rise
Despite Schiff's optimism for the unity of opinion concerning the
•main force behind the Nazi rise, there were those who looked at the
Nazi success on different bases. These different interpretations often
times included economic circumstances, but they did not dwell on such
circumstances. As often as not the economic experience of Germany
during the Republic became a. factor instead of the factor in explaining
the Nazi rise. In Chapter I the example was offered of Gustav Stolper
^ S h ire r, op. cit., p. 210. ^ Ib id .
? %
JPaul Einzig, Germany's Default: The Economics of Hitlerism
(London: Macmillan and Company, Ltd., 1934), p. 34.
__________ ^ I b i d . __________^ S c h a c h t , o p . c i t . , p . 2 7 2 .
ydio negated the importance of Germany's economic plight in encourag-
l
ing the Nazi rise; Stolper allowed only that economic arguments were a
i 2 A
:.arge part of Nazi propaganda efforts.
As a whole, Nazi propaganda was relatively ineffectual among
he German working class. This was the case because most workers
were either unionists, Social Democrats, or Communists. Nazi propa
ganda instead hit its m ark with young men who found it difficult to gain
employment, with shop keepers who were faced with competition from
arge chain and department stores, with anti-sem ites who fell for the
STazi belief in German racial superiority, and with big businessmen who
jwanted to use the party as a shield against the leftist socialists and the
Communists.
William L. Shirer elaborated on this latter factor when he r e
lated that conservative interests felt they had found in Hitler a man
they could control while he destroyed the Republic. H itler's aims of
re-establishing authoritarianism, of throwing off the Versailles Treaty,
and of rebuilding a great army were, among others, very typical of
conservative goals, but Hitler possessed the m ass following the con
servatives lacked. They did not have sufficient power to control Hitler
before he established his dictatorship, and by then it was too late.
It has also been suggested that middle class sentiment favored
the Nazis because they seemed to offer a more peaceful means of m eet
ing working class demands than those avowed by the Communists. Ap
parently the existing m em bers of this class were trying desperately to
26
Gustav Stolper, German Economy 1870-1940: Issues and
|Trends (New York: Reynal and Hitchcock, 1940), p. 231.
, 3 3
hold on to what little they had not lost in the periods of inflation and de
pression.
Jurgen Kuczynski has offered a list of three historical circum-
2 1
stances which made National Socialism in Germany possible. Kuczyn-
ski1 s list seems to offer a good synopsis of the varying interpretations
of the main force behind the Nazi rise. In the first place, Kuczynski
considered the disunity of the German working class. It was pointed
out that the workers subscribed to several political affiliations, and
they were organized in many trade unions. The workers therefore
lacked a nearly united front. Second, Kuczynski pointed to the dem oral
ization of the German middle class and peasantry. This is the area
jwhich seems to most vitally support the economic interpretation of the
Nazi rise. The middle class was damaged severely by both the inflation
jand the depression. The fall of agricultural prices certainly gained ad
herents for the Nazi Party from the German rural population. In fact,
the party grew faster in the flat country and small towns than in the in-
dustrial centers. Third, and last, Kuczynski mentioned the feeble
ness displayed by the less reactionary elements of the big business in
terests. This contention is supported by the fact that several indus-
| 29
trialists did support Hitler, and their motive seems to have been dic
tated by their desire to break the growing power of unions and return to
27
Jurgen Kuczynski, Germany: Economic and Labor Conditions
Under Fascism (New York: International Publishers, 1945), p. 18.
28 29
Hauser, op. cit., p. 41. 'Snell, op. cit., p. 41.
3 4 ’
« • 30
the authoritarian, free-enterprise system of the Imperial Regime.
It seems therefore that the Nazi rise to power was not accom
plished by any single force. The economic experience of the Republic
was surely a paramount factor, but the Nazi rise had its political and
social supports as well.
An Ideological Consideration of National Socialism
The Nazi Regime held a unique position in German history, and
this was a uniqueness which was bound closely to the Nazi ideological
base. During no other time in German history was the German nation
jtruly unified. The Nazis brought this unity about by abolishing the sep
arate powers of the individual German states, and, in so doing, they
I • 31
abolished Germany's traditional federal character. Passant has of
fered the opinion that the drive to unify the peoples of Germany was the
32
"deepest significance" of the Nazi movement.
In term s of ideology, the Nazi accomplishment of unifying G er
many was naturally a reflection of their extreme nationalism. This na
tionalism prompted the Nazis, and their Italian Fascist cousins, to ex
tol the supremacy of the state. In accordance with this, both regimes
stressed purely national virtues. Certainly in the case of Germany this
nationalism led to an acute racial consciousness, and it also had much
to do with the sentiment for im perialism by which war and its pursuits
were glorified.
Because of the importance they assigned to the supremacy of
_________________________________________________________________________________________________________
"^Shirer, op. cit., p. 261. ^ Ibid., p. 279-
32
E . J . P a s s a n t , A S h o r t H i s t o r y o f G e r m a n y : 1 8 1 5 - 1 9 4 5 ( L o n
d o n : C a m b r i d g e U n i v e r s i t y P r e s s , 1 9 5 9 ) i P . 1 8 9 . _________________________________
the state, Nazi policy was dictated in term s of the duties rather than the
■rights of individuals. Human beings simply could not be equal, in theo
ry or in practice, under the Nazi totalitarian system. Germans instead
were mem bers of a society based prim arily on the authoritarian princi
ples of m ilitary leadership. The Nazi idea of "leadership" has been de
scribed as "the fundamental principle of national socialist govern-
I 33
ment." Hitler, as the national leader, therefore possessed the au
thority which was delegated by him to other officials. Thus the will of
the people was subordinated to the individual will of the "Reichs
'Fuehrer."
The economic implications of the Nazi dictatorship were, of
course, very grave for the continuance of a free-enterprise system.
Industrialists and lesser business interests had supported Hitler, and
in his efforts to gain their support Hitler had said, "Private enterprise
cannot be maintained in the age of democracy; it is conceivable only if
I 34
the people have a sound idea of authority and personality." However,
in practice things worked out differently. Despite national socialism ’s
call for preservation of private property, which communism menaced,
traditional liberal capitalism was virtually replaced by a type of totali
tarian capitalism. William N. Loucks has characterized the Nazi view
|
of free enterprise in this manner:
The basic principle of national socialism, as applied to the eco
nomic system, held that no group, interest, or motive might oppose
the national will expressed by the Reich. From this flowed the p rac
tical machinery of the Third Reich's economic m easures, as well as
33
William N. Loucks, Comparative Economic Systems (New
York: Harper and Brothers Publishers, 1957), p. 696.
^ S h i r e r , o p . c i t ., p . 2 6 5 .
3 6
the general principles upon which the economic system was oper
ated.
It was previously mentioned that the predominant motives of the
N Tazi Government's economic policy were to make Germany the most
ootent m ilitary nation and as independent as possible from foreign sup-
o lie s.^ With these motives in mind, the Nazis developed their Wehr-
w irtschaft. The next two chapters of this study propose to investigate
the organizational and operational policies the Nazis pursued in creat
ing their m ilitary economy.
3 5
L o u c k s , o p . c i t ., p . 6 9 8 .
3 6
S t o l p e r , o p . c i t ., p . 2 5 7 .
CHAPTER IV
THE ORGANIZATION OF THE NAZI ECONOMY
The purpose of this chapter is to examine the organizational
policies pursued by the Nazi Government in the broad economic cate
gories of industry, labor, and agriculture. It will become apparent that
Ihe Nazis were willing to go to great lengths in order to control and
guide German economic activities. In their organizational jargon the
I
•Nazis employed term s which likened sectors of the German economy to
m ilitary operations. The agricultural sector became "the battle of the
•land," the labor movement became "the labor front," and industrial ac
tivity became "the battle for production."'*' The German nation was
about to rearm on all economic fronts.
The Economic Repercussions of the
Nazi Political Program
As soon as Hitler had established and consolidated his power,
the force of his political program began to fasten itself to German eco
nomic life. Hitler had avowed a political platform of abolishing the
Versailles Treaty, and of German expansion. He rapidly set out to
achieve these ends. His energies were therefore prim arily absorbed
by considerations of foreign policy and leadership of the armed forces.
^Lothrop Stoddard, Into the Darkness: Nazi Germany Today
(New York: Duell, Sloan and Pearce, Inc., 1940), p. 30.
2
Alan Bullock, Hitler;- A Study in Tyranny (New York: Bantam
-------------------------------------------------------------3 -7 -------------------------------------------------------------
| 3~8
Before Hitler could direct his foreign policy with the aggressive fervor
it was to become famous, or infamous, for, the first and indispensable
step was to rearm Germany. Until this was achieved, H itler's foreign
policy was bound to be restricted in scope.
The m easures the Nazis employed to facilitate rearm am ent
wrought a tremendous change on the German economy. This change
manifested itself in the creation of an economic system based on a con
trolled and regimented capitalism. It was a system in which the nation
al government held the supreme hand in organizing and directing eco
nomic activity toward the attainment of national objectives. Organiza
tionally speaking, the German economy came to resemble the closed
wartime economy of 1914-1918.
The Legacy of the Weimar Republic
When the Nazis came to power in Germany, the economic condi
tion of the country was anything but satisfactory. Mass unemployment
prevailed, and nearly half the potential of German industry was laying
3
unused. H itler's government faced no small task in restoring German
economic life.
On the positive side, the Weimar Republic left behind many con
ditions which aided the Nazis with their reorganization of the German
Lconomy. For example, in its efforts to combat the depression, the
Weimar Government had devised an elaborate system for the close
Books, 1961), p. 268.
3
K o n r a d H e i d e n , P e r F u e h r e r : H i t l e r ' s R i s e t o P o w e r ( B o s t o n :
H o u g h t o n M i f f l i n C o . , 1 9 4 4 ) , p . 6 5 7 . __________________________________________________
. 39
4
control of foreign trade transactions. This, as will be explained,
greatly aided the Nazis by paving the way for their international eco
nomic policies.
It was mentioned earlier that the greatest cartels and trusts in
^German history were formed during the Weimar Era. This movement,
in no small way, prepared Germany for the establishment of the Wehr-
I 5
ydrtschaft. Another factor which contributed to the Nazi cause was the
jgreat influx of foreign capital which had created and sustained the Re
public's prosperous period. While the foreign loans had much to do
with the Republic's undoing during the depression, they also greatly ex
panded German national wealth by means of increased investment. The
'Nazis therefore inherited the gain in term s of increased productive ca
pacity.
The task the Nazis faced in constructing their m ilitary economy
was also made easier by the extension of public ownership which took
place during the Republic. Such manufacturing sectors as steel and au
tomobiles were affected by this movement, and many public utilities
were placed under public ownership. The Republic had therefore be
queathed many economic conditions which were positive to the achieve
ment of Nazi aims.
The Nazi Organization of Industry
The Nazis rapidly set about converting German production from
4
Douglas Miller, You Can't Do Business with Hitler (Boston:
Little, Brown and Company, 1941), p. 63.
5
Allen Thomas Bonnell, German Control over International
Economic Relations 1930-1940 (Urbana, Illinois: University of Illinois
|Press, 1940), p. 460.___________■ ______________________
I 40’
i
a peacetime to a wartime basis. By early 1934 plans had been approvec.
by the Working Committee of the Reich Defense Council for the mobili
zation of some 240,000 plants and factories for war o rd ers / 5 In order
to control war production closely during 1933 and 1934, an elaborate
^organizational system was devised by the Nazis. Under this system all
Lectors of the German economy were organized into thirteen groupings.
jEach group contained a number of subgroups, and they were each at
tached to a chamber of commerce. The chambers of commerce then
went to form the National Economic Chamber, and the National Chamber
jwas made directly subordinate to the Ministry of Economics. The
'Nazis thus possessed a comprehensive organizational system for the
Jclose control and direction of the German economy.
Possibly because this system of thirteen groupings proved to be
cumbersome, the Nazis subsequently abridged their system to include
O
only five economic groupings. The new groups were known as estates,
and they too were placed under the control of the Ministry of Econom
ics. The estates were: the Agricultural Estate, the Estate of Industry
and Trade, the Labor Front, the Transportation Organization, and the
'Estate of Handicrafts.9
^ William L. Shirer, The Rise and Fall of the Third Reich: A
'History of Nazi Germany (Greenwich, Connecticut: Fawcett Publica
tions, 1959), p. 398.
7
C. W. Guillebaud, The Economic Recovery of Germany: From
1933 to the Incorporation of Austria in March 1938 (London: Macmillan
and Company, Ltd., 1939b p- 55.
O
William N. Loucks, Comparative Economic Systems (New
York: Harper and Brothers Publishers, 1957), p. 699-
9 I b id .
¥ 1
Nazi Usurpation of the Entrepreneural
Function
In their efforts to gain complete control over the direction of
German industry, the Nazis organized such a multitude of offices, o r
ganizations, and groups, that it is not easy to make rhyme or reason of
them. No doubt some of the confusion inspired by this organizational
maze was prompted by the parallel structure of the Nazi Party and the
STazi State. It was not unknown for the policy of one to contradict the
policy of the other, and sometimes this element of contradiction became
an expedient device for the Nazis
Amid all their new organizations the Nazis allowed certain
throwbacks from the Republic to continue. Some of these were those
belonging to the system of trade and business associations which had
formed during the Republic. During 1934 the Nazis organized these a s
sociations under the "stream lined leadership principle," and they were
put under the control of the leader of the National Economic Chamber.^
Membership in the associations was made compulsory for non-mem-
3 ers, and the autonomy of the associations was destroyed.
During the Republic the trade and business associations had
12
jeen highly concentrated in the face of highly organized labor unions.
jTherefore, the associations were well known and an easy take-over for
the Nazis. In essence they became executive organs for the receipt and
dissemination of Nazi economic policy, and much of their activity was
^ M ille r, op. cit., pp. 30-31.
^ S h ire r, op. cit., pp. 361-362.
12
K o p p e l S . P i n s o n , M o d e r n G e r m a n y : I t s H i s t o r y a n d C i v i l i z a
t i o n ( N e w Y o r k : T h e M a c m i l l a n C o m p a n y , 1 9 5 4 ) , p . 4 5 2 .
42
! 13
directed toward increasing industrial capacity.
The degree of regulation and control of business achieved by
means of the trade associations and the maze of other organizations un
der the Ministry of Economics reached fantastic proportions. Even the
most astute businessman had to hire special lawyers in order to thread
his way through the thousands of laws and decrees put in force by the
Nazi m aze.^ In short, German businessmen became m ere cogs in the
15
Nazi war machine.
The graft which accompanied the Nazi bureaucracy became a
prominent feature in the dealings of German businessmen. Shirer ex
plained it in this manner:
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 trade a s
sociations became in the late thirties astronomical. JAn economic
necessity1 one businessman term ed it to this w riter.
Apparently the means by which the interest of the German busi
nessman had been made synonymous with the interest of the Nazi State
was not without its seamy side.
Nazi Concentration of Business and
Industry
Following the philosophy that it was easier to control a few
arge firm s rather than many small ones, the Nazi Government adopted
policies which encouraged business concentration. As a result there
was a tremendous concentration and strengthening of German banking
1 3
Otto Nathan, The Nazi Economic System: Germany's Mobiliza
tion for War (Durham, North Carolina: Duke University P ress, 1944),
p. 83.
1 4
S h x r e r , l o c . c i t . 1 5 I b i d ., p . 3 6 0 . l 6 I b i d ., p . 3 6 1 .
— ^
interests, but the greatest degree of concentration was achieved in j
17
leavy industry.
Otto Nathan has pointed out that to a m ilitary economy the abili
ty to deal with a few large organizations in possession of detailed in
formation concerning the various aspects of production and distribution
is an inestimable advantage, and this was an advantage the Nazis did not
I 1 Q
hesitate to seize. The Republic had left behind large trusts and c a r
tels which the Nazis strengthened, and in 1933 laws were promulgated
jwhich made cartels compulsory. The M inistry of Economics was given
the authority to organize new compulsory cartels or to order firm s to
join existing ones.^
On the other hand, the Nazis sought to discourage the continued
existence of sm aller business firm s. During 1937 laws were decreed
jwhich dissolved all corporations with capital less than $40,000, and no
■new firm s could be established with capital less than $2,000,000. In ef
fect, these laws disposed of one-fifth of all German small business
•firm s.^ Shirer characterized the plight of the small businessmen in
this manner:
The little businessmen, who had been one of the [Nazi] party's
chief supports and who expected great things from Chancellor Hit
ler, soon found themselves, many of them, lgein g exterminated and
forced back into the ranks of wage earners.
The effort to achieve business concentration, especially in
'heavy industry, was not a Nazi innovation. In Germany there had never
17
Hans Behrend, The Real Rulers of Germany (London: Law
rence and Wishart, Ltd., 1939), p. 162.
18
Nathan, op. cit., p. 73.
^ S h i r e r , op. c i t ., p. 361. ^ Ib id . ^ Ib id .
I
been a popular anti-monopoly movement such as in the United States.
German financial and industrial leaders looked upon trusts and cartels
Ls the highest forms of economic organizations. The Nazi innovation
was in making the cartels and trusts subservient to the government. In
essence the cartels became quasi-governmental agencies. Nathan has
offered this interesting statement concerning the change of the cartels
from private corporations to quasi-governmental agencies:
Special note should be taken of this change because it is such a
characteristic phenomenon of the Nazi economy, yet one which is
often over-looked. It was a common practice of the Reich to inherit
an institution from pre-N azi days, alter it, employ it in the new con
text of the m ilitary economy, for entirely different purposes, but
continue to call it by its old name.
Cartels and trusts became so important to Nazi economic or
ganization that at least one author has offered the opinion that Fascism ,
jor National Socialism, was not possible on any basis other than monop-
2 3
oly capitalism.
"The Labor Front"
During the Republic the German labor movement had grown to a
'large but factionalized state. A high degree of industrial democracy
had nonetheless been achieved during the Republic. Large employer
associations (the trade and business associations) had confronted the
unions, and the Weimar Government acted as the ultimate arbiter.
This system was very satisfactory until the coming of the depression.
Then the system degenerated to a power play on the part of both sides
^N athan, pp. cit., p. 74.
^^Jurgen Kuczynski, Germany; Economic and Labor Conditions
Under Fascism (New York: International Publishers, 1945), p. 15.
45
24
to gain control of the state mechanism. After the Nazis came to pow
er there was no need to continue the struggle; the concept of industrial
democracy was about to pass from the German scene.
Nazi Destruction of the German Labor
Unions
The fate of the business associations after the Nazis came to
oower has been revealed. The labor unions suffered a sim ilar, if not
jworse, fate. On May 2, 1933 Nazi storm troops seized all union head
quarters, and union officers were, in many cases, packed off to prison.
A.ny possibility of w orkers' mutual protection was thus destroyed. The
unions simply had nothing to defend; they were finished.
In the place of the labor unions the Nazis substituted their labor
front organization. Under the labor front everyone connected with in
dustry was organized into a huge vertical trust. This type of organiza
tion afforded the Nazis the control and direction system they desired.
25
During 1934 thirteen labor trustees were set up under the labor front.
jThe labor trustees were established in order to administer government
policy on work priorities, wage rates, work conditions, grievances, and
Ihe like. In general, wage rates were set by the trustees at the 1932
j 2 ^
levels, except premiums were paid in certain defense work categories.
The total membership of the labor front approached thirty m il
lion, and membership was compulsory. The payment of labor front
jdues was enforced, and while the dues were individually nominal, their
total constituted a vast fund. Apparently labor front dues supplied the
^Pinson, loc. cit. ^Stoddard, op. cit., p. 132.
Z fi
Miller, op. cit., p. 68. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
government with a certain and easily collectable source of revenue.
In theory the labor front em braced the principle of the common
weal before individual advantage. Workers and employers were fellow
comrades. The labor trustees set up labor courts of honor to foster the
I 27
'Nazi belief in the dignity of labor. In practice, however, fact was
widely separated from theory.
|The Effect of Nazi Policy on the
[Working Class
In actuality whatever comradeship that might have existed be
tween employers and workers was rapidly swept away. Early in 1934
'labor laws were decreed which "put the worker in his place" and raisec
| 2 8
jthe employer to his old position of absolute m aster. Workers could
■ n o longer strike, nor conclude collective bargaining contracts, nor
could they quit their jobs without the perm ission of their employer and
the sta te .^ The worker was literally bound to his employer, and his
position in the German economy had virtually degenerated to serfdom
under the Nazis.
During 1934, the six months labor service, which had been in
troduced as a depression m easure during the Republic on a voluntary
basis, was made compulsory. Every nine teen-year-old German, male
30
or female, was required to fulfill this six months obligation. In 1935
the Nazis introduced their "workbook," and the mobility of labor was
31
'further decreased. Workers were required to register with employ-
27 28
Stoddard, op. cit., p. 134. Shirer, op. cit., p. 363.
^Ibid. ^Heiden, op. cit., p. 661.
31
Shirer, op. cit., p. 365.
4 7
ment offices which had been set up under the labor trustees. After the
jworkers were registered they were each given a book. The books con
tained information concerning the individual w orker's work history and
degree of skill. Without this book it was impossible for a worker to
iind a position in industry. A sim ilar situation confronts the Soviet
worker today.
One author has offered the opinion that the real purpose of the
Labor front was to compel workers to produce more for the same, or
less, pay, and to quiet any attempts they might have made to better
j 3 2
jtheir pay or working conditions. P rices had been stabilized along
jwith wages at the 1932 levels. As production began to increase, the
'Nazis boasted of a production boom without a price boom, and they
I 33
claimed that real wages had improved. Insofar as many workers had
been unemployed, this was not exactly a falsehood, but, in term s of
what real wages had been before the controls, one estimate has it that
34 r •
•real wages had decreased forty per cent. It seems fair to conclude
that, because of increased employment, the position of labor as a class
was improved by the Nazis, but that the effect of Nazi policy on the in-
35
dividual worker was very poor indeed.
The Nazi Offering: "Strength
Through Joy"
Gustav Stolper has written that the most important policy of the
32 3 3
Behrend, op. cit., p. 62. Loucks, op. cit., p. 705.
•^Stephen H. Roberts, The House that Hitler Built (New York:
Harper and Brothers Publishers, 1938), p. 171.
35
Gustav Stolper, German Economy 1870-1940: Issues and
Trends (New York: Reynal and Hitchcock, 1940), p. 270.
. ^ g .
36
Labor front was Kraft durch Fruede, or "Strength Through Joy." This
was the program the labor front undertook in order to minimize the
negative effects of the preponderance of Nazi labor policy. Under the
auspices of Kraft durch Fruede German workers were offered welfare
insurance, savings plans, and a certain amount of occupational training.
This organization also erected a multitude of recreational clubs, and it
offered the w orkers, among other things, vacations, theatre tickets, and
tickets to sporting events, all at nominal cost. Apparently Kraft durch
Fruede was popular among the w orkers, and, according to Lothrop
I 37
Stoddard, it was prized as the outstanding benefit of the Nazi regime.
iThe Official Nazi View of the Role
of Women
A rather whimsical sidelight to Nazi labor policy was offered by
the role it assigned to women. In the first place, the Nazis claimed the
natural career of women was m arriage. They continued their argument
by pointing out that when women entered the professions or took a job
they displaced men and became their competitors rather than their
companions and helpmates. The Nazis went on that by working women
were depriving themselves of their chief joy, and that if both men and
women worked there soon would not be enough consumers to consume
I 38
what they had produced. No doubt the high rate of unemployment the
Nazis inherited when they came to power had much to do with the adop
tion of this avowed policy of theirs, but as war production increased
there developed in Germany, as will be explained, an acute labor
36Ibid., p. 266.
38Ibid., p. 164.
3 7
Stoddard, op. cit., p. 138.
: 49
i
shortage. Therefore, women were induced to move from their "natural
Lareers," and by 1938, not including those working in agriculture, there
I 39
were nearly seven million women in the German labor force.
Nazi Organization of Agriculture
When the Nazis came to power, the condition of the agricultural
sector of the German economy was desperate. Agricultural income had
fallen to a new low in 1932-33. At that time farm income was more
i 40
than a billion m arks below the worst postwar year of 1924-1925. To
add to the plight of the German farm ers was the tremendous twelve bil
lion m ark debt they had run up during the period since 1925. Interest
on the debt alone absorbed some fourteen per cent of farm income, and
| 4 1
taxes and welfare contributions were added to this burden. The G er
man farm er, like so many of his contemporaries in other lands, was
facing ruin.
iThe Agricultural Estate
During 1933 and 1934 the Nazis established their agricultural,
or food, estate. The immediate aim of this organization was to set
•farm prices at a profit making level. The Nazi administration in
creased wholesale farm prices by as much as twenty per cent in some
agricultural categories.^ The farm population generally benefited
•from such increases, but in many cases the value of the increased
prices was negated by corresponding increases in non-agricultural
I ____________________________________________________________________________
■^Heinrich Hauser, Battle Against Time: A Survey of the G er-
■many of 1939 from the Inside (New York: Charles Scribner1 s Sons,
1939), p. 82.
40 41 4?
___________Shirer, op. cit., p. 354.___________Ibid.___________ Ibid., p. 356.
; 5U
1
prices. Nonetheless, the farm ers were pleased by the attention given
daem by the Nazi regime.
Organizationally, the agricultural estate included virtually every
occupational and ownership relationship directly concerned with and
complementary to agriculture.^ In many respects this estate re
sembled a gigantic qua si-publicly-owned corporation. Its prim ary func
tion was alleged to be to bring the interests of those involved in agri
culture, which were previously at cross purposes, to a harmonious
blend of co-ordinated effort.
iThe Hereditary Farmlands Law
A prominent feature of early Nazi agricultural policy was to of-
:er farm ers increased security. During 1933 the Hereditary Farmlands
Law was promulgated, and it featured the maximum of security in r e
turn for the maximum of control. Under the provisions of this law all
I
farm s up to 308 acres, and capable of providing a living, were entitled
to become hereditary estates. Such estates could not be sold, divided,
mortgaged, nor foreclosed. Thus, this law revived the old Teutonic
concept that landowners were intimately linked with the land, and the
medieval laws of entailment were reapplied.
In all, 700,000 or more hereditary farm s were established under
the law. The only qualifications necessary to gain the hereditary grant
were proof of German blood and the ability to manage the farm . As a
result of this law farm ers had ceased to be free agents. They were r e
quired to raise what they were told, and to sell at established prices.
In short, economic security had been bought with rigid state control.
'^ Guillebaud,_op._cit. ,_ p . ._ 5 X * .
I
I
I
CHAPTER V
NAZI ECONOMIC POLICY
This chapter will investigate the main phases of Nazi economic
policy between 1933 and 1939. In a chronological sense this six year
era can be divided into two periods. In the first period, from 1933 to
1936, Nazi policy was largely devoted to securing economic recovery,
and in the second period, from 1936 to 1939, Nazi policy was directed
toward meeting the requirements for intensive arm s production.
The Period of Economic Recovery
Before the Nazis could concentrate the productive capacity of
the German economy on rearm am ent, it was necessary to stimulate
economic recovery. The Nazis had inherited an economic situation in
jwhich there were between six and eight million unemployed Germans.
'In relative term s, Germany was harder hit by the depression than the
United States.
Measures to reduce unemployment were introduced during the
Republic. Such m easures usually took the form of public works p roj
ects, government loans, or government subsidies. These m easures
were eminently unsuccessful, due to poor timing. It was therefore left
to the Nazi government to solve the unemployment problem, and when
this was accomplished Dr. Schacht was given most of the credit.
5 JL
(The Nazi Economic Wizard:
Or. Hjalmar Schacht
Dr. Hjalmar Schacht was perhaps the most important figure in
dictating Nazi economic policy during the first three years of Nazi rule
'Before we consider Nazi economic policy, it is well to introduce some
■information about Schacht1 s career and economic philosophy.
It should be rem em bered that Dr. Schacht was instrumental in
jending the 1923 inflation. The Republic rewarded Schacht for the p e r
formance of this feat by making him president of the Reichsbank, and
he held this position until 1930. In 1930 Schacht became disgruntled at
jthe Republic's inability to end reparations, and he left the Reichsbank
to become a supporter of the Nazi cause.
Shortly after the Nazis came to power Schacht returned to his
old position at the Reichsbank, and in addition to being president of the
'Reichsbank, he was made Minister of Economics and Plenipotentiary-
General for War Economy. Schacht's popular, or unpopular, unofficial
title was "the Old Wizard."
Schacht* s handling of German foreign economic affairs drew
severe criticism ; the policies he pursued in this sphere are discussed
■ in Chapter VI of this study. In the domestic problems of Germany,
Schacht's m easures to induce economic recovery were highly success
ful. So successful, in fact, that Shirer described Schacht as the single
■most important man in helping the Nazis to rebuild German economic
strength and in rearm ing Germany for World War II? Schacht himself
William L. Shirer, The Rise and Fall of the Third Reich: A
'History of Nazi Germany (Greenwich, Connecticut: Fawcett Publica
tions, Inc., 1959), p. 284.
5 3
i
i
probably best described bis authoritarian economic philosophy when he
said:
The secret of financing Germany's political and economic tasks
lies in the centralized and rigid concentration of the whole public anc.
private activities of the German Reich, that is, public finance as well
as private economy.
Despite his success, Schacht fell out with Hitler in 1937, and
dermann Goering became the new Nazi economic leader. Schacht con
tinued as president of the Reichsbank and as a M inister Without P o rt
folio until 1939. By this time he was considered to be an enemy of the
jNazi cause, and before the war ended Schacht was placed under "pro
tective custody" in a concentration camp. After the war Schacht was
Lne of the two accused major war crim inals to be acquitted by the Nu
rem berg Tribunal.
The Nazi Employment-Creation
'Program
Under the broad title of the F irst Four-Y ear Plan the Nazis
initiated numerous m easures designed to stimulate economic recovery.
'In some instances they continued with recovery m easures introduced
Luring the Republic. It is important to realize that Nazi economic
planning was not conducted in the systematic, comprehensive style of
the Soviet Union. In truth, the Nazi F irst and Second Four-Year Plans
were plans in name only.
Many of the recovery m easures introduced by the Nazis were
aimed at decreasing unemployment while they set the foundation for
2
W. F. Bruck, Social and Economic History of Germany from
William II to Hitler 1888-1938: A Comparative Study (Cardiff: Oxford
University P ress, 1938), p. 212.
5 4 s
future large-scale arm s production. As a stimulant to recovery, re
armament played a definite part. Dr. Schacht explained its significance
in this manner: "Rearmament played a not inconsiderable part in the
creation of employment, though it is entirely untrue to say that the cre-
3
ation of employment consisted solely of rearm am ent."
Guillebaud characterized Nazi m easures to increase employ
ment in four different categories:
1. The Nazi Government stimulated the demand for labor di
rectly with public works.
2. The Nazi Government stimulated the demand for labor indi
rectly by encouraging increased investment in the private sector with
loans, subsidies, and tax exemptions.
3. The Nazis sought to increase the demand for labor by de
creasing the labor supply with incentives to women to become house
wives or domestic servants.
4. The Nazis sought to increase the demand for labor by means
4
of increased consumption with subsidies to low income families.
The employment-creation m easures comprised the concerted
Nazi program dedicated to ending the depression in Germany. Among
the largest and most successful of these m easures were Dr. Schacht’s
Reinhardt Program s.
The F irst Reinhardt P rog ram .--A s president of the Reichsbank,
^Hjalmar Schacht, Confessions of "The Old W izard'1 : The Auto
biography of Hjalmar Horace Greeley Schacht (Boston: Houghton Mifflir
Company, 1956), p. 330.
4C. W. Guillebaud, The Economic Recovery of Germany: From
1.933 to the Incorporation of Austria in March 1 938 (London: Macmillan
Schacht possessed complete control over the German money and capital
m arkets. However, because of the depressed condition of the economy,
there were virtually no financial reserves on which Schacht could base
government program s of loans and subsidies.
Schacht utilized two methods in circumventing Germany* s grim
economic condition. He went to the printing press to find unlimited
money reserves, and, in order to facilitate credit expansion, he cre
ated negotiable certificates for government loan purposes. The F irst
jReinhardt Program was a government loan scheme based on so-called
"employment creation bills.," or "work drafts." The work drafts were
negotiable certificates paid out by the Reichsbank to employers or
property owners for home or factory projects devoted to expansion,
maintenance, or modernization.
The work drafts ranged widely in value, and Heiden has related
that a qualified individual could obtain one, several, if necessary,
I 5
whether he wanted to overhaul his factory or paint his home. E sti
mates of government involvement in this program ranged from one bil
lion to three billion m arks. Most w riters, including Schacht, agree on
A
the form er figure. The government was aided in financing the work
drafts from such sources as the national railway system, the unem
ployment insurance fund, and from postal receipts. The work drafts
were redeemed at twenty per cent of their principal value each year in
and Company, Ltd., 1939), p. 42.
C
Konrad Heiden, Per Fuehrer: H itler's Rise to Power (Boston:
Houghton Mifflin Company, 1944), p. 662.
^Schacht, op. cit., p. 278.
ihe five year period 1934-1938. The Reichsbank established a sinking
:und to facilitate their redemption.
The Second Reinhardt P rogram .--The Second Reinhardt P ro
gram was sim ilar to recovery m easures introduced during the Republic.
Under the auspices of this program the government established a 500
m ark general fund. This fund was paid in the form of lost subsidies to
property owners for home repairs and the conversion of houses to
Tats. The condition on which the government granted a subsidy was
that the property owner paid from two to four times the amount of the
[subsidy from his own resources in order to finance the project.
Public works projects.- - The Reinhardt Program s were clearly
aimed at stimulating economic activity in the private sector of the
Lconomy. At the same time the Nazis were active in the public sector
with large public works projects. Among the most important of these
was the Nazi highway construction project. Under this project nearly
5000 miles of first class highways were constructed at an estimated
7
cost of 3.5 billion m arks. The Nazis also initiated, or continued, pub
lic works projects devoted to the construction of public buildings. Hit
ler, who fancied himself an architect, was highly interested in this
project, and he designed many of the buildings. The Nazi Government
also erected a number of public recreational and cultural facilities.
The Mefo System.--S hirer has pointed out that much of the e a r
ly Nazi efforts to rearm Germany were financed by funds confiscated
7
Guillebaud, op. cit., p. 39-
j g
from Jewish interests and from blocked foreign accounts. Of the funds
j i
available to the government, these were probably best suited to the pur-j
pose. Their amount was entirely secret, and they could be handled se- j
cretly. Secrecy with any facet of arm s production was essential to the
NTazis before the announcement of m ilitary conscription in 1935. The
Nazis did not want to run the risk of French intervention.
Schacht devised a system by which arm s production was facili
tated by means of government credit expansion. The ingredients of this
system were Schacht's Mefo bills. Under the Mefo system, a small
Lompany was established, at the instigation of the Reichsbank, by sev
eral of the government's principal suppliers. It appears that the small
company then became a quasi-governmental agency, and the government
guaranteed all of its debts. When the government suppliers filled gov-
Lrnment orders, they then billed their small companies rather than the
government. The small companies paid for the government obligations
with Mefo bills. The Reichsbank issued the Mefo bills to the small
companies, and ultimately it discounted them. All German banks would
accept the Mefo bills, and, in essence, they were, as Nazi Finance
Minister von Krosigk rem arked, m erely another way of "printing mon-
ey."9
As a government credit expansion device, the Mefo system
seems to have been quite successful, and certainly it lent strength to
the Nazi employment-creation program. Since the Nazis precluded the
operations of the Mefo system from published budgetary and accounting
documents, it provided the element of secrecy they desired with regard
Q
Shirer, op. cit., p. 358. ^Ibid., p. 356.
58
to arm s production. Schacht, who was never known for his modesty,
later wrote this about the Mefo system: "From 1934 to the outbreak of
]World War II this system of Mefo bills was recognized throughout the
entire international banking world as an ingenious and well-adapted
method of providing funds.
The Reinhardt program s, public works projects, and the Mefo
system apparently were the most important m easures of the Nazi em
ployment-creation program, but there were other employment-creation
measures which m erit some mention.
Tax rem issions to industry.--A s a method of stimulating private
investment, the Nazis allowed corporation, income, and profits tax r e
missions to firm s which paid for replacement and modernization proj
ects out of their profits.
The winter-help lottery.--W inter-help was a means by which
the Nazis sought to increase employment by subsidizing low income
families, the idea being that the subsidies would cause increased con-
Lumption. In theory, winter-help was a lottery operated on the princi
ple of charity, but it seems to have been a lottery in name only. Most
of the winter-help fund was obtained from assessm ents on corpora
tions. However, individuals were continually harassed by Nazi minor
^officials and storm troopers soliciting contributions for winter-help.
jClose to four hundred million marks flowed into this fund annually, and
jthe coercion applied by the Nazis in obtaining the "contributions" for
winter-help prompted one American w riter to characterize it as "an
^Schacht, op. cit., p. 291.
amazing cross between the Salvation Army and Tammany H all."^
M arriage loans.--The Nazis possessed a two-fold purpose in of
fering their m arriage loans. They wanted to draw women out of the la
bor force to make way for men, and they wanted to increase the birth
■rate. M arriage loans were made in household goods rather than cash,
and they were repaid in installments. Twenty-five per cent of the r e
maining balance of each loan was canceled with each birth, and if a wife
resum ed her employment the loan was subject to immediate call. By
'1940 over 900,000 such loans had been granted. No doubt the m arriage
i.oans added appreciable stimulus to the German birth rate. The birth
rate stood at 957,000 in 1933; by 1939 it had increased to about 1,300,
(100. As a further stimulus to the m arriage and population booms, the
Nazis placed high income tax rates on bachelors. The income tax rates
were set so as to decrease sharply with m arriage and children.
Schemes of subsidized employment.--The Nazis also encour
aged women to leave their positions in industry to become domestic
jservants. This was accomplished by increasing the demand for domes
tic servants by allowing their employers to carry them as income tax
^exemptions. A sim ilar scheme was offered in agriculture with respect
to farmhands. F arm ers were paid three m arks a day for each addition
al farmhand they employed. The three m ark payments were about equal
to unemployment benefits, and by 1939 such payments had reached the
-rather noteworthy total of six hundred million m arks.
^ L othrop Stoddard, Into the Darkness: Nazi Germany Today
(New York: Duell, Sloan and Pearce, 1940), p. 196.
_ _ - 60'
iThe Effects of the Nazi Employraent-
, Creation Program
The prim ary effect of the Nazi employment-creation program,
coupled with the labor service and conscription, was soon reflected in
jdecreased levels of unemployment. At the same time there were trends
in German industry which indicated large-scale preparations for arm s
production.
The end of unemployment.- - The success of the Nazi employment
-creation program was rapid and, for the most part, all-inclusive. By
1937 total German unemployment had dropped to less than one million.
jln percentage term s, this was a seventy per cent drop from the 1933
'level of unemployment, and it corresponded to a thirty per cent drop in
| 12
unemployment in the United States. Bank clearings also reflected the
jquickened pace of German economic activity. Between 1933 and 1937
the volume of Reichsbank Giro clearings increased from 252 billion to
nearly 427 billion m arks.
In 1937 German labor reserves were so far exhausted that plans
were being made to import foreign w orkers. The labor shortage was
acute among skilled workers in general, and it was particularly acute
among skilled workers in the capital goods industries. The shortage of
'labor was not pressing in the consumer goods industries. This was
true because increased employment in the consumer goods industries
lad largely been brought about by shortening the work day, and c e r
tainly the Nazi Government placed less emphasis on the consumption
12
Heinrich Hauser, Battle Against Time: A Survey of the G er-
■many of 1939 from the Inside (New York: Charles Scribner's Sons,
11939), p . 71.___________________ ___________________________________________________
goods industries in comparison to the capital goods industries. Much
of the labor shortage was eventually made up by recruiting agricultural
workers into industry, and women and retired men were coaxed back to
1
the shop. Later, in 1938, labor conscription was instituted in an effort
to solve the problem.
With the end of unemployment, virtually every economic index
■reflected signs of prosperity. However, this was a prosperity without
an increase in the standard of living for m ost segments of German so
ciety. While millions more were employed, the relative share of all
German workers in the expanded national income had actually de
creased. In the depression year of 1932, labor's share of the national
■income stood at 56.9 per cent; in the boom year of 1938 it sank to 53.6
1 3
per cent. H erbert Heaton has offered this explanation of the situation:
With prices, wages, interests, and profits fixed, with the mobili
ty of capital and labor alike restricted, and with the state taking a
larger share of the national income, full employment was not the
same thing as‘full employment for the standard of living sank low
er.
While labor's share of the national income decreased, the share
of business, particularly capital business, increased. This meant that,
despite the Nazi propaganda appeal, the maligned capitalists, not the
workers, benefited most from Nazi economic policy. However, the vast
majority of the German working class seems to have been well satis
fied. Perhaps Shirer best expressed the attitude of the German working
class, with regard to Nazi rule, when he wrote:
1 ^
Shirer, op. cit., p. 364.
^ H e rb e rt Heaton, Economic History of Europe (New York:
•Harper and Brothers Publishers, 1948), p. 714.
6 2 "
By the autumn of 1936 the problem of unemployment had been
largely licked, almost everyone had a job again and one heard work
ers who had been deprived of their trade union rights joking over
their full dinner pails, that at least under Hitler there was no more
freedom to s ta rv e d
Nazi direction of industry.--The noticeable industrial trends
jvhich developed during the Nazi employment-creation program r e
flected a general favoring of the capital goods industries. Except for
increased housing, the consumption sector was relatively ignored by the
Nazis.
Of all the industries, the construction and related building m ate
rials industries showed the greatest gains in employment during the
first years of Nazi rule. Much of this was stimulated by a general
lousing shortage which seems to have literally commanded the attention
of the government. Also, with the tax rem issions and the F irst Rein-
iiardt Program , there was much building and modernization of industri
al plants. Between the consumption and capital goods industries, it is
clear that the Nazis lavished much more attention on the latter. Using
1936 as the base year, during the period 1932-1934 employment in the
capital goods industries increased sixty per cent, while it increased
only twenty per cent in the consumption goods industries.^ This em
phasis on the capital goods industries was a prominent feature of Nazi
jeconomics, and it undoubtedly found its basis in meeting the require
ments of large-scale arm s production.
The Period of Rearmament
In March, 1935 Hitler announced the reintroduction of m ilitary
1 C
Shirer, op. cit., p. 321. ^Heiden, op. cit., p. 663.
i 6 "3 '
jconscription, and the veils of secrecy were lifted from Nazi rearm a
ment efforts. From that time on the economic life of Germany was
Lolely directed toward the creation of the vast arsenal with which Nazi
Germany so nearly gained a world empire. The employment-creation
program, with its emphasis on capital goods production, had presented
the Nazi policy m akers with the equipment necessary for arm s produc
tion, and they were now ready to put the Wehrwirtschaft to work.
|The Fall of Dr. Schacht
Hitler, as the national leader and supreme policy maker, was
not interested in the routine aspects of rule. The administrative de
tails of government and economy seem to have actually bored him. He
was therefore quite content to lay down in general term s the objects of
national policy and allow his subordinates to carry the burden of de
tailed administration; at the same time Hitler never allowed his under
lings to doubt who possessed true and absolute authority.
Dr. Schacht, as the successful Nazi economic leader, apparently
leld a high place in H itler's esteem. Schacht had been an active sup
porter of the Nazi cause since before the regim e's rise to power, and,
of course, he owed his appointment to the position of Nazi economic
czar largely to his pre-regim e support. However, there is no doubt
that he continued to hold this position because of his success and faith
fulness in meeting the demands of Nazi economic requirements, and
certainly Schacht's m easures were successful.
Soon after the reintroduction of conscription, Schacht began to
show signs of rebelling against the economic requirements Hitler set
before him. From May, 1935 until the official date of his resignation
| • ' ' 64
I
in December, 1937 Schacht wrote memoranda and letters highly critical
of the reckless methods by which rearm am ent was being conducted. In
early 1936 Schacht felt that if Germany maintained arm s expenditures
at the rate she was going, she would soon reach the limit of bankruptcy.
Schacht made his decision to resign with H itler's announcement of the
I
Second Four-Year Plan in September, 1936.
Despite Schacht1 s criticism and offer to resign, it appears that
Hitler only reluctantly released him from his post as Minister of Eco
nomics. In all, fifteen months passed between the time Schacht an
nounced his intention to resign and its final acceptance by Hitler in
'1937. Even then, as was mentioned earlier, Schacht continued as presi-
Lent of the Reichsbank and M inister Without Portfolio. Much of
Schacht1 s arguments against the Second Four-Year Plan were based on
an economic orthodoxy he himself had often times ignored in his efforts
to stimulate economic recovery. In essence, this plan was devised to
orepare Germany for a total war economy and the achievement of au-
tarky. Perhaps this statement by Bullock offers a good view of
Schacht's objections, along with a picture of the entire rearm am ent pe
riod after 1935:
The wastefulness and danger of H itler's and Goering's program
of autarky and search for ersatz raw m aterials were criticized by
Dr. Schacht at the time [of the institution of the Second Four-Year
Plan], but his economic arguments fell on deaf ears. They were
men in a hurry, indifferent to the cost or to long term economic
consequences, provided they got the arm s they wanted quickly.
When Schacht persisted in his protests his resignation was accepted,
and Goering continued to ride rough-shod over economic theories
and economic facts alike. By the spring of 1939 Hitler had carried
out an expansion of German m ilitary power unequaled in German
history.
17
Alan Bullock, Hitler; A Study in Tyranny (New York: Bantam
,The Second Four-Y ear Plan
Three dominant motives seem to have prompted the Nazis to
establish the Second Four-Y ear Plan. In the first place the Nazis were
eager to speed up the m ass production of war m aterial. Second, the
Nazis wanted to mitigate the effects of any World War I type naval
blockade; thus, they began their drive for national economic self-suffi
ciency. Finally, the Nazis wanted to exercise even closer control over
the German economy. They wanted a total war economy.
The control device the Nazis relied upon to achieve the war
economy was Hermann Goering's Office of the Four-Y ear Plan. Under
this office stricter m easures were introduced to control the allocation
Lf resources in industry and agriculture. Price and wage controls
were further supplemented by this office, and strict m easures were in-
I IQ
troduced to control the allocation of foreign exchange. In short, the
Nazi vise closed tighter in controlling the German economy, and the
m ilitary economy became an absolute reality.
The Nazi program of autarky has absorbed the attention of most
'"s
of the literature devoted to describing the Second Four-Y ear Plan. The
goal of this program was to achieve national self-sufficiency within
jfour years. In pursuing this program imports were reduced by the
Nazis to a bare minimum, and factories were established to manufac
ture synthetic goods. The Hermann Goering Works were constructed to
make steel from low grade iron ore, and the Nazis erected a multitude
jof other plants devoted to the end of national self-sufficiency. The
Books, 1961), p. 312.
1 8
Hauser, op. cit., p. 107.
propaganda barrage which accompanied this program caused one w riter
to compare it to a national neurosis.^
The folly of the Nazi drive for autarky was immense. Besides
being costly, it was not successful. Of thirty-four essential raw m ate
rials, Germany was dependent on the outside world for twenty-six, and
it was necessary for her to import six more to meet part of her r e
quirements. It was clear that Germany could hardly attain self-suffi
ciency in industry. In agriculture the prospects were equally as bad.
'It was absolutely impossible for German agriculture to supply all of the
nation's food requirements and still make its contributions to industry.
iThe best showing the agricultural sector was able to make was only
eighty-three per cent of Germany's total needs.
It would appear that the program of autarky fell far short of its
goal. However, the industrial boom quickened in pace during the Second
'Four-Year Plan, and the Office of the Four-Y ear Plan put the finishing
touches on the Wehrwirtschaft. In fact, the war economy was so com
plete that all the Nazis had to do when the German troops crossed the
20
Polish frontier was to initiate food rationing.
^Stephen H. Roberts, The House that Hitler Built (New York:
Harper and Brothers Publishers, 1938), p. 146.
20
William N. Loucks, Comparative Economic Systems (New
York: H arper and Brothers Publishers, 1957), p. 704.
r
CHAPTER VI
NAZI FOREIGN ECONOMIC AFFAIRS
The strict Nazi m easures of control and direction which char
acterized German domestic economic activity also characterized Ger
man international economic activity. Dr. Schacht dictated Nazi policies
in foreign economics which in many instances were continuations of
m easures introduced by the Republic. However, the "Old Wizard" pos
sessed more than enough innovating spirit to promote Nazi m easures
which managed to negate German bankruptcy. The purpose of this
chapter is to consider the foreign economic policies developed by
Schacht and the important depression m easures of the Republic.
The Depression Measures of the Republic
Norbert Muhlen has offered the opinion that the foreign loans
which flooded Germany between 1923 and 1929 virtually laid the founda
tion on which Nazi Germany was built up?" This was a fair conclusion.
German industry was expanded and modernized during this period, and
when the Republic fell it left the Nazis a larger and renewed industrial
complex.
It was pointed out that the foreign loans proved detrimental to
Norbert Muhlen, Schacht, Hitler*s Magician: The Life and
Loans of Dr. Hjalmar Schacht (New York: Alliance Book Corporation,
1939), p. 100.
h i
, 6 -g -
the long life of the Republic with the coming of the depression. As the
depression increased in severity the loans were called and the outflow
of foreign capital from Germany reached large proportions. In 1931
foreign capital in the amount of four billion m arks left Germany. As a
result of this there were nearly twenty thousand bankruptcies, and Ger-
I 2
man production sank to the 1895 level. The magnitude of the disaster
fed the Republic to request a moratorium on all future foreign debt
payments.
The Republic called a "bank holiday" in July, 1931, and in Sep
tember its campaign for a moratorium manifested itself in the first of
several "standstill agreem ents." This agreement simply provided that
short-term foreign credits then outstanding were allowed to remain in
perm any for the time being. Foreign creditors could theoretically
terminate the agreement at their choosing, but due to the extent of the
German bankruptcy such a circumstance was highly unlikely.
The standstill agreement did take some pressure off the Ger
man economy, and with the continuance of the depression it was ex
tended into 1933. Many observers viewed this agreement as the first
step toward German economic consolidation, but its scope was prim ari
ly limited to foreign short-term credits. The entire long-term debt
structure of Germany was therefore subject to the immediate effects of
the international depression, and the Republic resorted to more rigo r
ous m easures in its efforts to stem the capital outflow.
Beginning in 1931 the Republic clamped tight controls on all
Heinrich Hauser, Battle Against Time: A Survey of the Germa
ny of 1939 from the Inside (New York: Charles Scribner's Sons, 1939),
p. 43.
69
foreign exchange transactions. Typically the controls were designed to
alock foreign assets in German banks and hinder their conversion into
foreign currencies. Douglas Miller has offered this excellent synopsis
of the exchange control m easures introduced by the Republic:
When foreign exchange regulation came into force in 1931, G er
man m ark balances owned by foreigners inside Germany could not
be freely exchanged for other currencies. The export of German
currency notes was also'prohibited. A foreigner with a m ark bal
ance in a German bank found his funds blocked. He could only obtain
access to them under permit. Funds of this type were called simply
'blocked m arks.' In case such funds had arisen from the sale of se
curities or real estate they could only be invested inside Germany
on long term --th at is, for a minimum of five years. This type of
blocked m arks were called security m arks and were soon discounted
at a greater figure than the ordinary variety. Marks owned by p e r
sons desiring to leave the country were blocked as emigrant m arks.
Marks held by foreign banks under the standstill agreement were
available for resale at a discount to tourists and travelers entering
Germany and were called travel m arks. Finally, the m ark balances
arising from the sale of foreign commodities in Germany under the
new arrangem ents or under special perm its were blocked as Aski
m arks. Since these marks were only available for purchase of Ger
man goods, designed to be exported to the specific country of owner
ship of the funds, and since trade movements varied from country to
country, these newly created Aski m arks were discounted at varying
rates, differing from each other, and the whole series of discounts
fluctuating from day to day.
When the Nazis came to power Schacht used blocked m arks to
great German advantage. His efforts in this direction are discussed in
the following section.
During the years of the Republic, foreign exchange controls,
including the blocked m arks, were considered emergency m easures to
stop the drain on gold and foreign exchange reserves and to bring the
German balance of trade and balance of payments into proper align
ment. The Republic was therefore largely motivated by considerations
3
Douglas Miller, You Can't Do Business with Hitler (Boston:
Little, Brown and Company, 1941), pp. 81-82.
7 0
of a defensive nature in introducing the controls. Under the Nazis the
^defensive nature of exchange controls often times turned to offense as
jDr. Schacht hit upon devices to swing the advantage to the German side.
Here again Douglas Miller has offered a good explanation of the situa
tion:
Only after the rerem ergence of Dr. Schacht in the Reichsbank
during the spring of 193 3 did it appear evident that the Nazis had
made a virtue of necessity and were using the totalitarian control of
foreign commerce transactions as an offensive as well as defensive
weapon.^
Schacht1 s Handling of the Foreign Debt Problem
When Dr. Schacht returned to the Reichsbank and became Nazi
Minister of Economics, the most crucial international economic prob-
I
'lem Germany faced was the repayment of her large foreign debt. The
depression and the resulting capital outflow had been responsible for
the strict exchange and transfer regulations established by the Repub
lic. The foreign debt problem was serious, and Dr. Schacht set about
to solve it.
Schacht viewed Germany's large foreign debt through a lens
jvhich totally ignored economic reality. It has been mentioned that
Schacht resigned his presidency of the Reichsbank under the Republic
largely because of the Republic's inability to end reparations, and
Schacht's belief seems to have been that borrowing to pay reparations
jwas the prim ary cause of the German foreign debt. Shortly after the
’ Nazi rise to power Schacht expressed his opinion concerning the for-
Lign debt in this manner:
^T b i d ., p p . 6 3 - 6 4 .
I The foreign loans were only raised for the payment of the Ver
sailles tribute. They were applied not to making the German eco
nomic system more productive but to paying off the Reparations
burdens. Germany’s fight against the wrong of Versailles is thus at
the same time a fight against the German foreign debts.^
It is difficult to believe that a man as aware of economic affairs
as Dr. Schacht apparently was could subscribe to such a theory. Virtu
ally all w riters in the field of German economic history describe the
Republic’s prosperous period as the product of German receipt of for
eign loans well in excess of reparations. While arguments concerning
the adverse effects of reparations in economic relations are largely
Lound, Schacht's line that reparations absorbed the most part of the for
eign loans was erroneous. He therefore must have adhered to it as an
excuse for the policies he pursued.
Schacht literally declared war on foreign credits. Virtually
every type of German foreign loan fell in some way under Schacht's
ax. From July, 1933 onward all interest and dividends on the Young
'Plan loans were halved annually, and the Dawes Plan loans received
much the same treatment. Finally, in September, 1934 Schacht ex
tended the six months moratorium, which had been placed on the am or-
I
tization of the Dawes and Young Plan loans, until 1945.
Long-term credits suffered severely from Schacht's policies.
Much of the interest of such funds was canceled and their amortization
payments were forced into a Reichsbank conversion fund. The long
term funds were thus effectively blocked. In order to sem i-satisfy
these loans the Reichsbank authorized their purchase at fifty per cent
of their nominal value. The fifty per cent savings was used to subsidize
5
M u h l e n , o p . c i t ., p . 9 4 .
7 2
6
German exports. As a result of these policies the value of German
foreign bonds quickly dropped fifty per cent of their value. It is clear
that the fundamental characteristic of Schacht* s handling of the German
foreign debt problem was that of default.
While Schacht* s m easures of enforcing German non-payment of
"oreign loans conserved foreign exchange and gold reserves, they also
acted to upset German m arkets. However, due to the depression Ger
many's buyers in the United States and Western Europe were largely
out of touch with the market, and German trade began to shift to the
truly bankrupt states in Eastern Europe and Latin America.
Nazi Foreign Trade Policy
In September, 1934 Schacht announced his "New Plan" for fo r
eign trade. Before this plan came into effect German foreign exchange
quotas were issued by perm it to established import houses at a p er
centage of their form er requirements. The quotas ran from eighty to
ten per cent of normal requirem ents, and the amount of the quota in
| *
each economic category was determined by the importance, in term s of
necessity, of the commodity being imported. While this arrangement
.imited the import of foreign raw m aterials, no great hindrance was
posed to Nazi rearm am ent efforts. However, this perm it system of
foreign exchange gave rise to price increases, and the economy was
threatened with an inflationary bias.
The cause of the increase in prices was the monopoly position
Hjalmar Schacht, Confessions of "The Old Wizard": The Auto
biography of Hjalmar Horace Greeley Schacht (Boston: Houghton Mif
flin Company, 1956), p. 289. _____________________________
73’
of those holding the foreign exchange perm its. Since the perm its were
not easy to obtain, im porters simply took advantage of the problem of
scarcity by raising the prices of imported goods. The government was
then forced to establish a system of price controls on foreign commodi
ties and on goods made from imported raw m aterials. This system of
price controls on foreign com m odities had much to do with the eventual
7
establishment of controlled prices throughout the German economy.
iThe New Plan
Schacht h im self best described the New Plan when he wrote,
''This Plan represented a centralization of trade whereby im ports were
com pulsorily regulated according to the m eans of payment available."^
Under the auspices of this plan, tw enty-five import control offices were
established to police every transaction which involved foreign exchange'.
'Each office covered particular com m odities, and they held their control!
power through the issuance of foreign exchange certificates. This was
L function the im port control offices were solely authorized to perform .
In the early years of Nazi rule, n ecessity was the standard by which thJ
exchange certificates w ere issued, and by 1935 n e cessities were being
Q
described as goods of m ilitary significance. Later, the import control
offices were helpful in enforcing the Nazi program of autarky.
The Broad Lines of Nazi Foreign
Trade Policy
When the Nazis came to power, Germany's relationship with
7
M i l l e r , o p . c i t ., p . 6 8 .
^ M i l l e r , o p . c i t . , p . 6 5 .
g
S c h a c h t , o p . c i t . , p . 3 0 2 .
- , T 4
other nations varied from a slight creditor to an aggravated debtor po
sition. For example, Germany held a slight creditor position in E ast
ern and Central Europe, while she was in debt to the United States,
Latin America, and W estern Europe. German import, and export bal
ances reflected these relationships. They ranged from an import bal
ance of around 800 million marks with the United States to small export
balances in other directions. Schacht therefore determined that Germa
ny's best interest would be served by establishing separate and differ
ing trade regulations with each foreign country. Miller described
Schacht's foreign trade policy in this manner:
The broad lines of Schacht's economic policy were, first, to
segregate Germany's trade relations from participation in any inter
national network of com mercial and financial transactions, estab
lishing a series of independent bilateral relations with individual
foreign countries. Or in other words, Germany's foreign trade was
no longer to be international trade but a system of parallel but sepa
rate relations with other state s.
Germany entered into a series of bilateral trade agreements,
mainly with the poorer countries of Eastern and Central Europe and
with the Latin American countries. These trade agreements were
usually barter or clearing arrangem ents in which no foreign exchange
pas transferred between Germany and her trade partners. Instead,
German exporters received credits in the Reichsbank and foreign ex
porters received credits in their national central banks. Ideally, at the
end of a trade year, exporters, whether German or foreign, received
payment in their national currencies for the credits accumulated in
their export accounts, and in theory any balance between Germany and
another country was to be carried forward to apply against the next
1 - 0 I b i d . , p p . 7 1 - 7 2 .
year's transactions.
I
Theoretically this type of national clearings was a satisfactory
method of conducting trade between bankrupt states. However, in prac
tice bilateral trade rarely results in an even approximate balance of
trade between a pair of countries. The factors which ultimately lead to
unbalanced trade p ersist and cause even greater one-sided balances.
A .s a result, it is not unlikely to have the central bank of the exporting
jcountry put pressure on trade interests to equal or cut under current
imports from the debtor country. If this is successful the other coun
try retaliates by reducing its balance. Finally, both countries end up
jockeying for position, and each attempts to hold down its exports below
(its imports through fear of delays in payments and eventual losses.^
Bilateral trading reached its highest point in relations between
'Nazi Germany and the Latin American and Eastern European states.
^Generally speaking, German policy was to run up a large debt with
these countries and then make payment in blocked m arks. Germany ac
complished this by offering the countries relatively high prices for
jtheir agricultural and raw m aterial products. Sellers in these coun
tries were naturally enthused by the German offers, and they exerted
pressure on their governments to accept the German credits. In short,
foreign sellers wanted high prices, quick sales, and immediate reim
bursement out of the funds of their central banks, and they were p e r
fectly content to leave it to their governments to collect from Germany
Ls best they could.
11 I b i d . , p .' 9 4 .
The Blocked Marks and Multiple Unit
Currency
Once Germany had managed to run up a large debt with her bi
lateral trade partners in Latin A merica and Eastern Europe, they were
in effect, tied to her. These countries could not afford to break off
I
their trade relationships with Germany because of their already heavy
commitments, and they were unable to sell in other m arkets. They
vere therefore left to the m ercy of Germany, and they had to accept
phatever she decided to offer in the way of reimbursement. Germany
was truly taking advantage of the buyer's m arket caused by the depres
sion.
It was mentioned before that money owed by Germany to foreign
creditors was placed in blocked accounts, and that the funds thus incar
cerated were known as "blocked m arks." These blocked foreign cred
its were then paid off by the Reichsbank at heavy rates of discount, or
else they were paid off with goods the anxious creditors did not really
jvant. The savings thus derived from the discounting could then be used
by Germany to purchase foreign raw m aterials for armament, or they
could be used to further German economic penetration in politically de-
I 12
sirable directions by means of subsidized German exports.
German marks owed to foreign creditors were blocked in such a
way as to lessen or void their purchasing power for certain German
commodities. Because of this the Nazi rearm am ent program was not
jeopardized by foreign demand for essential m aterials. Since the
1 2
Frank P. Chambers, Christiana Phelps H arris, and Charles C
|Bayley, This Age of Conflict: A Contemporary World History 1914 to
P resent (New York: Harcourt, Brace and Company, 1950), p. 461.
7 7
German government had full power to decide which goods could be pur
chased by the blocked m arks, a great deal of "dumping" of German
*oods occurred. As Norbert Muhlen wrote, "For the first time in the
aistory of world trade, true dumping was directly and avowedly fi
nanced with resources which had been forcibly taken from abroad by
I 13
the dumping country."
German dumping by means of the blocked m arks led to such de
liveries as old steam locomotives to Chile, truckloads of lacquer and
jvarnish to Peru, m asses of spectacle cases to Argentina, and Bolivina
■received a large quantity of m ilitary trum pets. Countries in Southwest-
Jern Europe were lucky enough to receive carloads of harmonicas and
vast quantities of aspirin, which they undoubtedly needed.
Oh the other hand, some of these countries did manage to garner
some benefit from the German trade. Since their exports to Germany
were mainly agricultural and raw m aterial products, the benefits these
'countries derived from the German trade were of the multiplier v arie
ty. More rural purchasing power generated by the exports helped to
maintain urban employment. One w riter has offered the opinion that as
long as they received any imports from Germany, the countries of
Latin America and Eastern Europe were better off than if they had gone
without."^
On top of the many types of blocked marks Schacht set different
rates on their purchasing power. Reichsmark values varied among
^M uhlen, op. c it., pp. 78-79.
^ C h a rle s P. Kindleberger, International Economics (Home
wood, Illinois: Richard Irwin, Inc., 1958), pp. 284-285.
countries in order to take advantage of special circumstances. One e s
timate has it that there were twenty-five different types of blocked
m arks from which no less than 237 values could be obtained."
1 ^Stephen H. Roberts, The House that Hitler Built (New York:
Harper and Brothers Publishers, 1938), p. 156._________________________
1
CHAPTER VII
EVALUATION AND SUMMARY
The main events and economic policy decisions of the first six
years of Nazi rule in Germany have been indicated. The purpose of
I
this chapter is to present an evaluation of Nazi economic performance,
together with a summary of the entire study.
Evaluation of Nazi Economic Performance
Early in this study it was pointed out that the dominant motives
aehind Nazi economic policy were the creation of m ilitary power and
the attainment of economic self-sufficiency. It is well that these mo
tives be kept in mind in an evaluation of Nazi economic performance,
h Nazi policy these motives superseded any such considerations as in
creasing the standard of living or of promoting economic welfare.
Therefore, their policy decisions, even in retrospect, are likely to
seem extravagant, wasteful, and nonsensical to those acquainted with
the calculus of economic welfare as a yardstick for measuring econom
ic growth. Some sources contended that German real wages decreased
ay forty per cent between 1933 and 1936.^ In some instances, policies
jvere pursued by the Nazis which could be considered "uneconomic,"
even in the context of fulfilling their economic desires.
^See ch. IV, p. 47, quoting Roberts.
.7 .9 .
g0
[The Nazi Persecution of Jewish
'Business Interests
When the Nazis came to power, Jewish business in terests were
playing a vital role in the conduct of German econom ic affairs. Howev
er, the extrem e an ti-sem itism of the Nazi Party soon began to displace
these people from their positions in the German econom y. Jewish busi
n ess firm s w ere expropriated and Jewish property was aryanized, the
Ltaff or holders of which ended up in some ghetto or concentration
camp. Usually, long-standing m em bers of the Nazi Party were placed
in the positions vacated by the d isp o ssessed Jews, and usually such
Nazis w ere gro ssly incompetent in carrying on the business of their
Lew positions. The result was an appreciable drop in the busin ess effi
ciency of the expropriated firm s.
Since the end of World War I, Jewish in terests had been de
cidedly in favor of Germany. This was largely a result of their belief
■ in the unreasonableness of reparations. The Nazi an ti-sem itism com
pletely deprived Germany of this support abroad and crippled econom ic
efficiency at hom e. It is fair to suggest that the persecution of the
Lews was an outstanding example of Nazi indifference to econom ic ex
pediency.^
A . View of the Effect of the Nazi Party
[on the German Economy
The persecution of the Jews certainly was not the only factor
which adversely affected German economic efficiency. Soon after the
Nazi rise, Hitler began to express his thanks for the support his old
^ K i n r a d H e i d e n , P e r F u e h r e r : H i t l e r ' s R i s e t o P o w e r ( B o s t o n :
• H o u g h t o n M i f f l i n C o m p a n y , 1 9 4 4 ) , p . 6 5 5 .
_ _ _ _ _ - 8r
Darty friends had given him by appointing them to public offices of con
siderable responsibility. Heinrich Hauser described the significance of
this situation in this manner:
The final result of the loyalty and gratitude which the Fuehrer
accorded to his old Party members was a tide of inefficiency and
corruption that flooded the public offices far more extensively than
in the days of the Weimar Republic.^
The final result of this was that many of the newly appointed officials
rad to be replaced. While Hitler was creating and filling vacancies in
public offices, party mem bers who escaped his notice were out caring
for their own best interests. Thousands of Nazi Party officials de-
Lcended upon business firm s threatening to seize them, in some cases,
jor demanding well paying jobs in management in others. As a result,
businessmen rushed to join the party, and they hired some of the more
forceful party officials. Thus, many new sources of business ineffi
ciency came into being.
' )The Stimulus of Nazi Policy on
Economic Growth
Between 1934 and 1938 Germany increased industrial output
■more than any other industrialized nation. During this period German
production increased eighty-seven per cent, while American and Brit-
4
•ish gains amounted to forty-nine and thirty-five per cent, respectively.
Thus, the growth in German industrial output was described as a m ira
cle. German national income gains substantiated this growth record.
3
Heinrich Hauser, Battle Against Time: A Survey of the Germa-
[ny of 1939 from the Inside (New York: Charles Scribner's Sons, 1939),
ip. 55.
"^Stephen H. Roberts, The House that Hitler Built (New York:
Harper and Brothers Publishers, 1938), p. 166.
in 1933 the German national income stood at 46.6 billion marks; by 1937
I 5
it had increased to 71.1 billion m arks.
These gains in German economic growth did not occur without a
drastic increase in the national debt. One estimate placed the increase
in the national debt between 1931 and 1937 at as much as 22 billion
marks ^ Most of this increase is a reflection of the Nazi work-creation
program and the increased arm s expenditures. Many observers did not
believe the Nazis could continue to increase the national debt without a
severe inflation. One w riter characterized the British view on this
subject in this manner:
Englishmen, with their emphasis on balanced budgets and sound
economy, had watched the German financial hocus-pocus with
amazement. Accustomed to the automatic laws of capitalism, they
yearly prophesied inflation of the m ark and the ruin of Germany's
credit system.
Certainly no such d isaster visited the Nazi economy. With tight
price and wage controls there was virtually no manner by which an in
flationary bias could develop. The national debt could increase to any
Jceiling so long as the in terest was a safe percentage of the national in
come. Some econom ists negated the likelihood of an inflation altogeth
er. They felt that with full em ploym ent the German national income
would have increased m ore significantly without wage and price con-
^C. W. Guillebaud, The Economic Recovery of Germany: From
1933 to the Incorporation of Austria in March 1938 (London: Macmillan
and Company, Ltd., 1939), p. 193.
6 Ibid., p. 130.
” ^John F. Kennedy, Why England Slept (New York: Wilfrend Funk
Inc., 1961), pp. 171-172. _________________
tro ls ?
Several factors indicate that the econom ic recovery of Nazi
Germany was not such a m iracle as was described. German industrial
gains between 1934 and 1938 w ere surely superior to the econom ic ex
perience of any other country during that period. However, Germany
w as operating under a totalitarian-directed economy with a firm idea of
national purpose. It was therefore p ossib le for Nazi policy m akers to
co-ordinate and litera lly push the econom y toward the achievem ent of
national goals, and certainly Nazi Germany p o ssessed the desire to
achieve rapid econom ic recovery in order to rearm . Shortly after the
United States and Britain began their "programs of preparedness," the
significance of rearm am ent in stim ulating econom ic recovery was r e
flected in their decreased rates of unemployment and increased nation
al incom es. In short, Germany m erely began to rearm at an earlier
Late than m ost of the other industrialized countries.
Another factor which mitigated the validity of the Nazi m iracle
was the fact that Germany was not the only country to experience large
gains in employment during the early period of Nazi rule. According to
Sfigures which were compiled by the International Labor Office in Gene
va, employment in nineteen large countries increased over seventeen
per cent between 1932 and 1935.^ During the same period of time, G er
man employment increased twenty-seven per cent. Perhaps Heiden ex
pressed it best when he wrote:
The 'National Socialist M iracle' was neither entirely National
Socialist nor a m iracle, but largely a part of world recovery; though
in Germany, it must be admitted, this recovery was experienced
^ G u i l l e b a u d , o p . c i t ., p p . 8 9 " 9 0 . ^ H e i d e n , o p . c i t ., p . 6 6 5 .
8 4
with a passion equaled no where else.^
The purpose now at hand is to summarize the significant events
of economic importance which took place during the interwar period in
derm any.
|The Republic
At the end of World War I, the German economy was suffering
from wartime economic dislocation and inflation. Germany's economic
jcondition further deteriorated with the Allied demand for reparations.
jThere is no doubt that this was a mistaken policy. Rather than rep ara
tions, the world needed a feeling of security in order to bring about
11
economic recovery.
With the occupation of the Ruhr by France, Belgium, and Italy,
the Allied reparations policy and the poor economic policies of the
German government produced the tremendous currency inflation of
1923. In this inflation the German middle class was largely wiped out,
and many of its mem bers enrolled in the ranks of the Nazi Party. Dr.
Lchacht made his first notable appearance in German economic affairs
by stabilizing the currency system with his rentenmark.
When the Dawes Plan came into effect, large sums of foreign
capital began to flow into Germany. The entire period between 1923
and 1929 was characterized by German receipt of foreign loans well in
10Ibid.
^ K o p p e l S . P i n s o n , M o d e r n G e r m a n y : I t s H i s t o r y a n d C i v i l i z a -
it io n ( N e w Y o r k : T h e M a c m i l l a n C o m p a n y , 1 9 5 4 ) , p . 4 4 8 .
| 8 5 j
jexcess of reparations payments. The result was an unparalleled perioc.
|of German prosperity. In 1929 the prosperity ended with the coming of
the depression, and the Nazis began to show significant gains at the
3oils. Within four years the depression and social and political faction
alism produced the Nazi dictatorship.
iThe Nazi Period
In a chronological sense, the important economic events of the
first six years of Nazi rule can be divided into two periods. From 1933
through 1935 the Nazis initiated program s designed to promote econom
ic recovery while laying the basis for future large-scale arm s produc
tion. From 1936 until September 1, 1939 the Nazis converted the Ger
man economy into a total war economy which then performed until the
jNazi defeat. Economic activity during this period was characterized by
large expenditures for armament and the rather foolish Nazi program
Jof autarky. It was clear that Nazi economic policy was reflected by the
Nazi ideological base of aggressive nationalism.
Nazi ideology.- - The extreme nationalism of the Nazi movement
set the requirements for German economic policy during the Nazi peri-
Jod. In essence, this nationalism stood for the aggrandizement of the
German nation and nullification of German losses which grew out of the
World War I defeat. In order to carry out the aggressive foreign policy
necessary to fulfill the Nazi nationalistic tenets, the re-creation of
massive German m ilitary power was essential and accordingly Nazi
economic policy was devoted to meeting the requirements of arm s pro
duction.
Sb
William N. Loucks compared the nationalism of Nazi Germany
with the nineteenth century struggle for nationhood and a "place in the
12
sun." Others offered the opinion that Nazi nationalism was born of a
■reaction to the spread of collectivism which occurred after the end of
I 13
World War I. Perhaps a more correct appraisal would include both of]
these factors while stressing the importance of the upsurge in German
nationalism caused by the loss of World War I and the subsequent allied
reparations policy.
Because of its nationalistic basis, Nazism espoused the theory
jof the supremacy of the state. Therefore, the principles of political
and economic liberty were destroyed, and the reactionary movement
jbackwards toward absolutism was enforced. The most typical charac
teristic of the Nazi movement was its reaction against the liberal and
democratic forces of German politics and economics. Perhaps Kuczyn-
ski's suggestion that Nazism could only come to power in a nation
where there was a tendency for the reactionary elements to strengthen
and progressive elements to weaken helps to substantiate this assump-
L 14
tion.
Because of its belief in the supremacy of the state, national so
cialism placed emphasis on the duties rather than on the rights of indi
viduals. In politics this meant the individual could only obey. In eco-
12
William N. Loucks, Comparative Economic Systems (New
York: Harper and Brothers Publishers, 1957), p. 694.
1 ^
Raymond T. Bye and William W. Hewett, Applied Economics:
The Application of Economic Principles to Problems of Policy (New
York: Appleton-Century-Crofts, Inc., I960), p. 558.
14
Jurgen Kuczynski, Germany: Economic and Labor Conditions
Under Fascism (New York: International Publishers, 1945), p. 13.
nomics it meant that an individual could function in any capacity only so
!.ong as it was in the interest of the state for him to do so.
The Nazi success.--Despite the totalitarian pressure exerted
upon them by the Nazi Regime, the German people remained loyal and
obedient. They were obedient mainly because they had to be, but they
were loyal because of their satisfaction with Nazi foreign and economic
oolicies. The Nazi work-creation program and rearm am ent had given
them jobs, and the Nazi propagandists were busy building patriotism
with each new Nazi success in foreign policy. They were satisfied and
sroud when they sat at their full dinner tables and listened to the radio
crackle forth its messages that German troops had occupied the Rhine
land, that Austria had been annexed to the German Reich, and that
Prague was now in German hands. Economic recovery, coupled with
foreign policy successes, therefore won for Hitler the support of his
^oppressed people.
The economic consequences of Nazi success.--By means of
'large government expenditures, loans, and subsidies, Nazi Germany
(successfully achieved her "m iracle" of economic recovery. However,
(economic recovery had been purchased at a price above considerations
of cost. It was a recovery purchased by the loss of industrial democra
cy, and it was largely devoted to the most wasteful of man's pursuits,
namely, war. Douglas Miller very thoughtfully expressed his view of a
general characteristic of the Nazi type economy in this manner:
One fundamental characteristic of all totalitarian economies is
their essential unproductiveness. This arises first of all from their
m ilitaristic nature. They are economies of conflict, working toward
an expansion of their territory and an increase in their power. They
r " ■ ■ ■ 8 8 1
i
15
can never be disassociated from the thought of war.
Because of the Nazi drive to create a war machine, it was n e c
e s s a r y to create the Wehrwirtschaft. The m ilitary economy, with all
its systems of government direction and control, then replaced the free
enterprise economy which had characterized Weimar Germany. P e r
haps the most somber statement regarding the fall of the German free
enterprise economic system and its replacement by the Nazi totalitari
an system was written by Otto Nathan. In many ways it is a fitting con-
Llusion to the study of the economic system- of an old enemy, Nazi G er
many, and it seems to point to an always present source of peril.
Nathan wrote:
Wherever the individualist competitive economic system has
taken root and continued to develop, the institution of free competi
tion has undergone important changes. The nature of these changes,
particularly in the last fifty years, has made it apparent that free
competition creates conditions and sets into operation forces which
tend to destroy it.
1 5
Douglas Miller, You Can't Do Business with Hitler (Boston:
Little, Brown and Company, 1941), p. 31.
1 fii
Otto Nathan, The Nazi Economic System: Germany*s Mobili
zation for War (Durham, North Carolina: Duke University P ress, 1944),
p. 59-_____ _______________________________________________________________________
BIBLIOGRAPHY
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Creator Holden, Ronald Summers (author)

Core Title The Nazi Wehrwirtschaft: Prelude and operation

Degree Master of Arts

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, history,history, European,OAI-PMH Harvest

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Kottke, Frederick E. (committee chair), Anderson, William H. (committee member), Garis, Roy L. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-451993

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