Germany's Economic Conditions Before the Nazi Rise to Power
Under Otto von Bismarck, Prussia united the German states into Germany and defeated France in 1871 to become the country in charge of continental Europe. With France defeated, it faced three other international "big dogs." To the east, the Russian Empire was undeveloped, but controlled massive tracts of land that it was settling and also had a very large population. To the west, the United Kingdom was a not-very-large island, but it controlled land all over the world and was the world's largest empire. And across the sea, the United States loomed large as the nation that was not yet a superpower at the end of the 19th century, but was clearly fated to be. At the time of German unification, Germany and the United States had approximately the same size populations and America was only about one-third more productive than Germany despite its far greater bounty of land and resources. By the late 1930s, US output was twice that of Germany's and by 1943, before allied aerial bombardment started to really pummel Germany, the US was producing almost four times as much as Nazi Germany. But who should we compare Germany to? In Diplomacy, Henry Kissinger convincingly argued that Germany was actually fated to become the strongest power in Europe, but that in its haste to do so, it delayed itself with two world wars. Indeed, as soon as Germany reunified in the 1990s, it was once again the largest economy in Europe. But Tooze points out that German leaders were not only unsure that this would happen, but that they compared themselves to the United States, not to other European powers. To make Germany a country with a US-size economy would require a Hail Mary (or a Heil Maria?). Moreover, what has been unstated, but I am thinking of now, is that part of Germany becoming the biggest economy in Europe is that it could do so only once the structure of the EU/EC was created, along with NATO, providing economic and military security. Anyway, what is important to note is that Hitler was thinking about an epic struggle with the United States, not just the United Kingdom.
In the spring of 1930, Germany's social democrat-led government was toppled, having chosen to continue to try to pay off Germany's Versailles-debt by enacting budget cuts. This was unpopular, and Hermann Mueller "was to be Germany's last Social Democrat chancellor for almost forty years." The new minority government was a right-wing government led by Heinrich Bruening. The Bruening government was forced into deflation to pay off the debt by the logic that a more valuable Reichsmark would make debt payments more manageable. This plus budget cuts and tax increases crashed the economy. Between June 1930 and February 1931, unemployment rose by 2.1 million, double the normal seasonal increase, and in the September 1930 election, Hitler's Nazis raised their share of the vote from 2.5 to 18.3 percent, gaining 107 seats to become the second largest party in the Reichstag. At this time, French Prime Minister Aristide Briand, flush with gold, offered Bruening a way to comply with the Young Plan for debt repayments- long term loans to replace the short-term that could cripple Germany. But Bruening refused, instead announcing an attempt at an Austro-German customs union in March 1931. Without a foreign loan, Bruening forced through another round of deflation, and then announced in June 1931 an aggressive demand to end German reparations for WWI, which spread fear in international markets that Bruening would announce a unilateral moratorium, precipitating a bank run. Even more deflation came in December 1931, and Bruening also ordered mandatory cuts in wages, salaries, prices, and interest rates along with further decreases in government spending and increases in taxation. In the winter of 1931-32, bankruptcies increased dramatically.
Seeing this crisis, Britain and France agreed to end Germany's reparations payments on the condition that the Americans cancel the debts that Britain and France owed to the United States in July 1932. This was done without US consent. Britain made one more payment in December 1932, but France, Belgium, Poland, Estonia, and Hungary just defaulted on their US loans. In January 1933, Germany still owed 19 billion Reichsmarks to foreign creditors, with at least 8 billion owed to the United States. In July 1932, the Nazis won their largest electoral triumph (after Bruening was ousted), winning 37.2 percent of the vote. Despite this, they remained in opposition, and declined to 33% of the vote share in November 1932, the electorate disappointed by Hitler's failure to take office. Nazi timing was good, however. Hitler would finally be handed the keys to government in January 1933, as the economy was starting to improve. With German reparations already forgiven the previous July, demand for German bonds strengthened, opening up new means to get cash into the German economy. Indeed, in December 1932, the Berlin institute for business cycle research declared that at least the process of contraction was over, and The Economist's Berlin correspondent reported that Germany was making its way out of the economic doldrums at that time. The editorials that ran on New Year's Day 1933 were mostly optimistic about the German economy. But due to the miscalculations of ultra-nationalist conservatives, Germany would be sent down a different path- an economic recovery would come, but so would a war that would destroy Germany. Embittered by being ousted from government in December 1932, ex-Chancellor Papen worked with the agrarian lobby and the more aggressive elements of the military to pressure the aged President Paul von Hindenburg to form a new government founded on National Socialism, giving Hitler the Chancellorship.
The German Economic Recovery with Hitler in Power
On April 19, 1933, the United States unilaterally abandoned the gold standard and allowed the dollar to depreciate. The UK and most of the world would go on to do the same, inflating their currencies to save domestic industry. From April to August 1933, the dollar fell by 30% against the Reichsmark. Germany decided not to follow in the path of inflation. This would make Germany extremely uncompetitive on the world export market, but would seriously reduce the debt burden that German confronted. Germany maintained the gold standard for this reason, but also for the symbolic reason that it showed a certain reliability and a break with the hyper-inflationary recent past. Hitler set out a policy in August 1933 to fight unemployment through civilian work creation, but the main focus would be rearmament, the central objective of nationalist politics.
Germany's recovery under Hitler would be based on refusing to pay debts while using that money to rearm itself. In December 1933, Germany unilaterally announced reductions in payments to foreign creditors from 50% (it had already done this before, halving what its burdens really were) to 30%. Britain and the US temporarily brought Germany back to making its payments in full by making threats in January 1934. With tentative agreement reached, Germany refocused on arms. By the second year of Hitler's government, over 50% of German central government expenditure on goods and services was dedicated to military spending, rising to 73% by 1935. At the same time, Germany pursued work creation schemes that were responsible for 30% of a reduction in unemployment of 2.6 million people from February 1933 to March 1934. Rearmament was most successful in aeronautics. In 1932, the German aircraft industry employed just 3,200 people producing no more than 100 aircraft per year. Less than ten years later, the industry employed a quarter of a million people who turned out over 10,000 of the most sophisticated combat aircraft in the world every year. Germany pioneered the process of turning planes from skeletons with canvas over them into full metal machines. German radio production also doubled from 1934-42.
On Monday, February 20, 1933, Goering and Hitler invited 25 of Germany's top businessmen to a private meeting to "explain his policies." In the meeting, Hitler gave his view of the political situation, and told them that "private enterprise cannot be maintained in the age of democracy," and that a new phase in his struggle would begin after the election on March 5. Hitler did not take questions, but he left no doubt that he planned to put an end to parliamentary democracy, crushing the German left by physical force. Hitler left the meeting, and Goering made the ask for money, clarifying that this sacrifice was not so bad since it would be the last election "for the next ten years, probably even for the next hundred years." Seventeen large business groups would make large donations to the Nazi cause, the largest coming from IG Farben, Deutsche Bank, and the mining industry association. This large cash injection came at a time when the party was severely short of funds an enabled the Nazis to win the election on March 5, increasing their vote share from 33% to 44%, which they could combine with their allies, the German National People's Party, to reach 52%. It came just six days after the Reichstag fire, and it was the last election in unified Germany for over sixty years.
Tooze argues that agrarian policy served as the economic justification for Lebensraum. Germany was more densely populated than other developed countries and less agriculturally efficient. This created a natural decision to move more people to the cities and use technology to increase efficiency in agriculture. But seeing great moral virtue in being farmers, and being aggrieved at the results of WWI, the Nazis instead decided that what they needed was not to be more efficient but to get more land. Germany refused to accept its place in the world as a medium-sized workshop economy dependent on imported food. Instead, the Nazis sought to become a self-sufficient economy, which could not be done in such a small area as Germany was. Indeed, if Germany wanted to redistribute all its farmland, there would only be enough to provide each of Germany's 3 million farming families with just 13 hectares. Germany was just not large enough to support such a large farming population at the standard of living of people living in cities without some major change. German agronomists at the time determined that to achieve full self-sufficiency at the current standard of living, Germany would need to add 7-8 million hectares of farmland to the 34 million already within its borders. So Germany was forced to choose two of the following three: peace, a high standard of living, and self-sufficiency. It chose war, which Hitler had always wanted.
War in Europe
Tooze contends that by the late 1930s, it was inevitable that Germany would start a European war, since otherwise the entire rearmament would be meaningless. The internal pressure for Germany to go to war only compounded as Germany felt the effects of raw materials shortages. These shortages, themselves caused by the intense rearmament, increased the desire to go to war in order to gain more raw materials; additionally, if Germany was running up against the limits of its industrial capacity, that meant that it was peaking in its power, and should take advantage in a war at that moment of peak production, and not wait until it had a lesser comparative advantage. Shortages meant that by 1937, the Luftwaffe was reducing its aircraft expansion program, and that aircraft production trended down from April 1937 to the summer of 1938. Germany was stuck in a balance of payments issue, and simply did not have the funds to purchase more raw materials from abroad.
One way that Germany attempted to resolve its balance of payments problem was by confiscating Reichsmarks from those who emigrated from Germany. But this just conflicted with its policies attempting to force Jews to emigrate from Germany. While many did, many others chose to stay rather than have all their wealth confiscated as they left. But they got more creative. After Kristallnacht, the Nazi government demanded that the Jewish community pay for the costs of cleanup, forfeit insurance claims, and also pay a fine of one billion Reichsmarks, presumably for having provoked the rioters by existing. The Nazis then banned Jews from economic life- no more retail, no more crafts, no more trade fairs, and no more holding any positions of authority in any firm. At the Evian Conference, the European states debated what to do about this issue, but there was no appetite for actually resolving the issue by taking Jewish refugees, since those refugees would have all their property confiscated when they left Germany, arriving in their new homes with nothing.
Additionally, Germany ran into a labor shortage, especially in farming. In 1938, the German government negotiated with Poland to admit 60,000 harvest helpers. Once Germany invaded Poland, it used 300,000 Polish prisoners of war to help with the harvest. By 1940, it was using any unemployed Poles. These workers were made into a force of slave labor. And they were starved. While the Germans rationed 2,600 calories per German in 1940, inhabitants of Poland's major cities were allotted just 609 calories and Jews only 503. By the end of the year, the numbers for Poles increased to 938 calories daily while for Jews it was reduced to 369.
In the Phone War, it was still Hitler's goal to land a knockout blow quickly. Interestingly, Tooze notes that initial German war plans against France in 1940 involved limited objectives in a modified Schlieffen Plan. But in February, two officers were shot down over French territory with a briefcase containing the plans. The Germans then changed their plan to a bold encircling move through the Ardennes forest, proposed by General Erich von Manstein. Thus, the blitzkrieg victory in France was not some great plan but something improvised to solve a problem that would have gone unsolved if chance had not intervened. But knocking France out of the war was not enough, as England still stood against Germany at war. By September and October of 1940, German public opinion was turning against the war. Meanwhile, in the United States, the public was gaining confidence in a British victory.
It was because of Germany's swift victory in France that American policymakers were frightened enough to start to seriously support England. At this point, Tooze argues, Germany's defeat was destined. Once American industrial might was brought to bear, Germany couldn't stand a chance. By the end of June 1940, London was expecting delivery of 10,800 aircraft and 13,000 aero-engines over the next eighteen months (in addition to Britain's own production of 15,000 aircraft). Meanwhile, Germany only produced 10,826 aircraft in 1940 and would only increase to 12,000 in 1941. In 1940, the US produced 6,019 military aircraft, of which 2,006 went to Britain and 557 to France. In 1941, the US produced 19,433 military aircraft, of which about 5,000 went to Britain. In 1942, the US production skyrocketed to 48,000 and then hit 85,898 in 1943. This trajectory was unstoppable. Hitler was lucid enough to understand this. On December 17, 1940, he proclaimed to his war leaders that they needed to resolve all continental European problems in 1941, because by 1942, the United States would be in a position to intervene decisively in the war. At that point he was correct, but still delusional in thinking that he could simply resolve his European problems before the end of 1941. In his most insane move, he would invade Russia in the summer of 1941.
World War
Germany invaded Russia in June 1941. It did so without being ready. Because of low birthrates during World War One, 85% of those between 20 and 30 years old who were fit for military service were already in the Wehrmacht in the summer of 1941, and 640,000 had to be granted draft exceptions due to their importance to the war economy. The best German manpower was committed, therefore, to the initial assault, and there would be no reserve to draw on if German could not win a swift victory in the East.
The Germans planned a campaign of mass murder in the Soviet Union. Notes from a May 2, 1941 meeting record that "1.) The war can only be continued, if the entire Wehrmacht is fed from Russia in the third year of the war. 2.) If we take what we need out of the country, there can be no doubt that man millions of people will die of starvation. 3.) The most important issues are the recovery and removal of oil seeds, oil cake, and only then the removal of grain." German leaders were recorded expecting at least 20-30 million Soviet citizens to die. Initially, they thought they could starve the populace by simple requisitioning all available grain and "shutting off" the cities, but they soon found out that people don't want to be starved and will find a way to live. The only large groups that the Germans were able to kill by simply withholding food were those confined in captivity: urban Jews in ghettos and Soviet prisoners of war. Those Jews not immediately murdered by Einsatzgruppen were banned from food markets and from purchasing eggs, butter, milk, meat, and fruit. The Wehrmacht systematically starved its prisoners to death. By December 1941, the Germans had held 3.35 million prisoners, but only 1.1 million were still alive and just 400,000 in good enough condition to work. Of the 2.25 million who died, at least 600,000 had been shot and the rest died of natural causes. T
he Nazis couldn't afford to both feed their prisoners and feed a massive army needed for conquering all of Europe. They were short on labor and food, problems that compounded each other. This would cost them dearly during the invasion of the Soviet Union, as the Nazis killed about 7 million potential workers over the course of the war. So the Nazis needed labor to run the economy with all their best men away at war. But they wouldn't accept Jewish labor in large numbers because of the genocidal program. These two ideas could have balanced each other out, but the Nazis were also short on food, and decided to work Jews to death while feeding them the minimum to slowly starve them. They decided to cut the Polish ration off in March 1943 while cutting off the Jewish ration months earlier in the autumn of 1942. By the end of 1942, only 300,000 Polish Jews were left alive, about ten percent of the prewar population.
Meanwhile, Germany lost its manufacturing advantage over Russia during the course of the invasion. Despite suffering major territorial losses, the Soviet Union out-produced Germany in almost every category of weapons. In small arms and artillery, the Soviet Union out-produced Nazi German 3:1, in tanks it was 4:1, and in combat aircraft it was 2:1. This allowed the Red Army to withstand the second invasion in 1942 and then counterattack at the end of the year. This advantage was temporary--by 1944 Germany had closed the gap in every category--but it was critical in saving the Soviet Union from collapse and changing the battle lines. Tooze is also very down on Albert Speer's wartime "miracle" of armaments production. He argues that it wasted energies on tanks that were better spent on aircraft and that the positive results were largely delayed benefits from previous officials. The U-Boats created by the end of the war were extremely good, but they were not sea-worthy in time to actually fight in the war.
Conclusion
Tooze finishes the book by discussing why Hitler would choose to go to war with England and France and then with the Soviet Union and the United States. Coming from the perspective of armaments and the war economy, Tooze points out that by the summer of 1939, Hitler was aware that his long-term efforts to prepare for war with the Western powers had failed. Instead of making him deterred from conflict, it left him feeling that he had a short period to take advantage of the temporary edge he had due to those efforts that would not last. Therefore, he secured his eastern flank through a deal with the Russians and struck while he had a temporary advantage. Moreover, Hitler was ideologically motivated to go to war, since he felt that "world Jewry" was closing in on him, and he needed to strike first. This book was an astoundingly thorough examination of the German war economy, which in turn helped explain German decisions before and during World War Two. I would highly recommend.
Miscellaneous Facts:
- The United States already accelerated the program that became the Manhattan Project before the Japanese bombed Pearl Harbor.
- More than one-third of the boys born in Germany from 1915 to 1924 were either dead or missing by 1945. For boys born from 1920-25, the number is 40%.
- The Allies extracted substantially greater reparations from Germany after WWII than after WWI. The Soviets dismantled 30% of East Germany's capital stock and forced the East Germans to pay the costs of occupation and reparations to the Soviet Union, which totaled 13% of national income in 1953. The West Germans were treated more leniently, but were forced to make payments until 1992 that totaled 90 billion Deutschmarks.
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