Guns or Butter - The Nazi Economy

German Autobahn
The autobahn system which was built despite few people owning cars. By Dr. Wolf Strache [Public domain], via Wikimedia Commons

A study of how Hitler and the Nazi regime handled the German economy has two dominant themes: after coming to power during a depression, how did the Nazis solve the economic problems facing Germany, and how did they manage their economy during the largest war the world has yet seen, when facing economic rivals like the US.

Early Nazi Policy

Like much of Nazi theory and practice, there was no overarching economic ideology and plenty of what Hitler thought was the pragmatic thing to do at the time, and this was true throughout the Nazi Reich.

In the years leading to their takeover of Germany, Hitler didn’t commit to any clear economic policy, so as to widen his appeal and keep his options open. One approach can be seen in the early 25 Point program of the party, where socialist ideas such as nationalization were tolerated by Hitler in an attempt to keep the party unified; when Hitler turned away from these goals, the party split and some leading members  (like Strasser) were killed to retain unity. Consequently, When Hitler became Chancellor in 1933, the Nazi Party had different economic factions and no overall plan. What Hitler did at first was to maintain a steady course which avoided revolutionary measures so as to find a middle ground between all the groups he’d made promises to. Extreme measures under extreme Nazis would only come later when things were better.

The Great Depression

In 1929, an economic depression swept the world, and Germany suffered heavily.

Weimar Germany had rebuilt a troubled economy on the back of US loans and investments, and when these were suddenly withdrawn during the depression the Germany economy, already dysfunctional and deeply flawed, collapsed once more. German exports dropped, industries slowed, businesses failed and unemployment rose.

Agriculture also began to fail.

The Nazi Recovery

This depression had helped the Nazis in the early thirties, but if they wanted to keep their hold on power they had to do something about it. They were helped by the world economy beginning to recover at this time anyway, by the low birth rate from World War 1 reducing the workforce, but action was still needed, and the man to lead it was Hjalmar Schacht, who served as both Minister of Economics and President of the Reichsbank, replacing Schmitt who had a heart attack trying to deal with the various Nazis and their push for war. He was no Nazi stooge, but a well-known expert on the international economy, and one who’d played a key role in defeating Weimar’s hyperinflation. Schacht led a plan which involved heavy state spending to cause demand and get the economy moving and used a deficit management system to do so.

The German banks had tottered in the Depression, and so the state took a greater role in the movement of capital – borrowing, investments etc. – and put low interest rates in place. The government then targeted farmers and small businesses to help them back into profit and productivity; that a key part of the Nazi vote was from rural workers and the middle class was no accident.

The main investment from the state went into three areas: construction and transportation, such as the autobahn system which was built despite few people owning cars (but was good in a war), as well as many new buildings, and rearmament. Previous Chancellors Bruning, Papen and Schleicher had started putting this system into place. The exact division has been debated in recent years, and it’s now believed less went into rearmament at this time and more into the other sectors than thought. The workforce was also tackled, with the Reich Labour Service directing the young unemployed. The result was a tripling of state investment from 1933 to 1936, unemployment cut by two-thirds (Nazi faithful were guaranteed jobs even if they weren’t qualified and if the job wasn’t needed), and the near recovery of the Nazi economy.

But the purchasing power of civilians had not increased and many jobs were poor. However, Weimar’s problem of a poor balance of trade continued, with more imports than exports and the danger of inflation. The Reich Food Estate, designed to co-ordinate agricultural produce and achieve self-sufficiency, failed to do so, annoyed many farmers, and even by 1939, there were shortages. Welfare was turned into a charitable civilian area, with donations forced through the threat of violence, allowing tax money for rearmament.

The New Plan: Economic Dictatorship

While the world looked at Schacht’s actions and many saw positive economic outcomes, the situation in Germany was darker. Schacht had been installed to prepare an economy with a large focus on the German war machine. Indeed, while Schacht didn’t start off as a Nazi, and never joined the Party, in 1934 he was basically made an economic autocrat with total control of the German finances, and he created the ‘New Plan’ to tackle the issues: the balance of trade was to be controlled by the government deciding what could, or couldn’t be imported, and the emphasis was on heavy industry and the military. During this period Germany signed deals with numerous Balkan nations to exchange goods for goods, enabling Germany to keep foreign currency reserves and bringing the Balkans into the German sphere of influence.

The Four Year Plan of 1936

With the economy improving and doing well (low unemployment, strong investment, improved foreign trade) the question of ‘Guns or Butter’ began to haunt Germany in 1936. Schacht knew that if rearmament continued at this pace the balance of payments would go crippling downhill, and he advocated increasing consumer production to sell more abroad. Many, especially those poised to profit, agreed, but another powerful group wanted Germany ready for war. Critically, one of these people was Hitler himself, who wrote a memorandum that year calling for the German economy to be ready for war in four years’ time.

Hitler believed the German nation had to expand through conflict, and he wasn’t prepared to wait long, overriding many business leaders who called for slower rearmament and an improvement in living standards and consumer sales. Quite what scale of war Hitler envisioned isn’t certain.

The result of this economic tug was Goering being appointed head of the Four Year Plan, designed to speed rearmament and create self-sufficiency, or ‘autarky’. Production was to be directed and key areas increased, imports were also to be heavily controlled, and ‘ersatz’ (substitute)  goods were to be found. The Nazi dictatorship now affected the economy more than ever before. The problem for Germany was that Goering was an air ace, not an economist, and Schacht was so sidelined that he resigned in 1937. The result was, perhaps predictably, mixed: inflation had not increased dangerously, but many targets, such as oil and arms, had not been reached. There were shortages of key materials, civilians were rationed, any possible source was scavenged or stolen, rearmament and autarky targets were not met, and Hitler seemed to be pushing a system which would only survive through successful wars. Given that Germany then went head first into war, the failures of the plan soon became very apparent. What did grow were Goering’s ego and the vast economic empire he now controlled. The relative value of wages fell, the hours worked increased, workplaces were full of the Gestapo, and bribery and inefficiency grew.

The Economy Fails at War

It’s clear to us now that Hitler wanted war, and that he was reformatting the German economy to carry out this war. However, it appears that Hitler was aiming for the main conflict to start several years later than it did, and when Britain and France called the bluff over Poland in 1939 the German economy was only partially ready for the conflict, the goal being to start the great war with Russia after a few more years building. It was once believed that Hitler tried to shield the economy from the war and not move immediately to a full wartime economy, but in late 1939 Hitler greeted the reaction of his new enemies with sweeping investments and changes designed to support the war. The flow of money, the use of raw materials, the jobs people held and what weapons should be produced were all changed.

However, these early reforms had little effect. Production of key weapons like tanks stayed low, due to flaws in design negating speedy mass production, inefficient industry, and a failure to organize. This inefficiency and organizational deficit were in a large part due to Hitler’s method of creating multiple overlapping positions which competed with each other and jostled for power, a flaw from the heights of government down to the local level.

Speer and Total War

In 1941 the USA entered the war, bringing some of the most powerful production facilities and resources in the world. Germany was still under-producing, and the economic aspect of World War 2 entered a new dimension. Hitler declared new laws – the Rationalization Decree of late 1941 – and made Albert Speer Minister of Armaments. Speer was best known as Hitler’s favored architect, but he was given the power to do whatever was necessary, cut through whichever competing bodies he needed, to get the German economy fully mobilized for total war. Speer’s techniques were to give industrialists more freedom while controlling them through a Central Planning Board, allowing for more initiative and results from people who knew what they were doing, but still kept them pointed in the right direction.

The result was an increase in weapons and armaments production, certainly more than the old system produced. But modern economists have concluded Germany could have produced more and was still being beaten economically by the output of the US, USSR, and Britain. One problem was the allied bombing campaign which caused massive disruption, another was the infighting in the Nazi party, and another was the failure to use the conquered territories to full advantage.

Germany lost the war in 1945, having been outfought but, perhaps even more critically, comprehensively out produced by their enemies. The German economy was never functioning fully as a total war system, and they could have produced more if better organized. Whether even that would have stopped their defeat is a different debate.