The Wages of Destruction: The Making and Breaking of the Nazi Economy

by Adam Tooze

the substantial increase in car ownership over which Hitler’s regime presided after 1933 was in large part driven by investment decisions taken by GM in Detroit. Exploiting the efficiency of its state-of-the-art manufacturing plant in Ruesselsheim, it was Opel that took the lead in introducing a new generation of small family saloons, offering a good compromise of performance, reliability and comfort.

In 1936, cars in the sub-1.5 litre class accounted for 70 per cent of the new registrations in Hitler’s Germany, and, of the 150,000 cars sold in this class, almost half were made by GM’s German affiliate.

What Hitler had specifically in mind was a family saloon of 30 horsepower, capable of carrying four people in moderate comfort, priced at the extraordinarily low figure of only 1,000 Reichsmarks. Not surprisingly, the media reacted excitedly to this bold new project. The motor vehicle industry, however, was far less enthusiastic.

what particularly recommended Porsche to the car industry was the fact that he appeared to agree with their basic attitude towards the Volkswagen project. To expect to produce a high-quality family car for less than 1,200 Reichsmarks was simply unrealistic. Industry gambled that Porsche was the man to persuade Hitler of this inescapable economic limit.

The car-makers, however, underestimated both Hitler’s bloody-minded determination and the ruthlessness of Porsche’s ambition. Rather than backing away from the Volkswagen, Hitler renewed his commitment in his opening speech at the International Motor Show in February 1935. Later in the year Porsche began road-testing the first Beetle prototype. Predictably, however, Porsche had failed to solve the problem of cost.

It was simply not acceptable that Germany, with half the population of America, should have one-fiftieth as many motor vehicles. No one should doubt the determination of the National Socialist government to bring the VW project to a successful conclusion.54 As Hitler had assured Porsche, if necessary the VW project would be pushed through by decree even against the resistance of the industry.

Faced with the impossibility of meeting the 1,000 Reichsmarks target on commercial terms, it seems that Germany’s private car industry was on the whole content to see Porsche and his troublesome project transferred to the state sector. As a commercial project the VW was not viable. A factory built through the compulsory conscription of private business, along Brabag lines, would damage the entire industry. Far better to use public funds, or rather the funds of the German Labour Front (DAF).

Popp suggested that the DAF should take on the Volkswagen as a not-for-profit project. Non-profit status would qualify the factory for tax concessions that would help to cut the final price of the car.

The basic question, however, remained unsolved. How could the Volkswagen be produced at a price affordable to the majority of Germans? The DAF claimed that the Volkswagen was now to be promoted in conformity with Nazi ideology as a tool of social policy rather than profit.

From the outset it was clear that the capital costs of building the plant would never be paid off by the sale of cars priced at 990 Reichsmarks per vehicle.

The DAF, which had inherited the substantial business operations of Germany’s trade unions, had assets in 1937 estimated to be as much as 500 million Reichsmarks. It also commanded a huge annual flow of contributions from its 20 million members. However, the demands of constructing the VW plant were enormous. Rather than the 80–90 million Reichsmarks originally mooted by Hitler, Porsche’s planning now envisioned the construction of the largest motor vehicle factory in the world.

The initial tranche of 50 million Reichsmarks to start work on the factory could only be raised by a fire sale of office buildings and other trade union assets seized after May Day 1933. Another 100 million were raised by over-committing the funds of the DAF’s house bank and the DAF’s insurance society.

Rather than providing its customers with loans to purchase their cars, the DAF conscripted the savings of future Volkswagen owners.

To purchase a Volkswagen, customers were required to make a weekly deposit of at least 5 Reichsmarks into a DAF account on which they received no interest. Once the account balance had reached 750 Reichsmarks, the customer was entitled to delivery of a VW. The ...

The VW savings contract was non-transferable, except in case of death, and withdrawal from the contract normally meant the forfeit of the entire sum deposited.

In total, the DAF netted 275 million Reichsmarks in deposits. But not a single Volkswagen was ever delivered to a civilian customer in the Third Reich. After 1939, the entire output was reserved for official uses of various kinds.

The 275 million Reichsmarks deposited by the VW savers were lost in the post-war inflation. After a long legal battle, VW’s first customers received partial compensation only in the 1960s. But even if the war had not intervened, developments up to 1939 made clear that the entire conception of the ‘people’s car’ was a disastrous flop.

Assuming a production of ‘only’ 250,000 vehicles per annum–which was significantly more than the German market could bear–the average cost per car was in excess of 2,000 Reichsmarks, resulting in a loss of more than 1,000 Reichsmarks per car at the official price. Furthermore, even priced at 990 Reichsmarks the VW was out of reach of the vast majority of Germans.

Blue-collar workers, the true target of Volksgemeinschaft rhetoric, accounted for no more than 5 per cent of VW’s prospective customers.

The Volksempfaenger and the Volkswagen were both desirable consumer goods and attractive symbols of modernity. But they were strictly items of discretionary expenditure. They impacted only marginally on the day-to-day material preoccupations of the vast majority of Germans.

unlike cars and radios, housing was an issue on which any German government had to take a stand. It was a field of consumption that had become progressively more and more politicized since the beginning of the century and it was to prove utterly unamenable to any kind of quick fix.

The most common way of describing the housing situation in Germany in the inter-war period was one of ‘housing shortage’. Rival interest groups competed to define this deficit, with estimates varying between 1 and 2 million apartments depending on the author of the estimate.

The symptoms of shortage in the housing market of inter-war Germany were, therefore, first and foremost a reflection of the ‘distortions’ introduced by the imposition of rent controls after the end of World War I.57

With rents fixed for the majority of the housing stock at levels which in real terms were substantially below those prevailing in 1913, the construction of new apartments became extremely unattractive to private investors.

the new estates often incorporated a pleasing version of modernist design. However, they were of only indirect benefit to the mass of the population since, given prevailing construction costs, the minimum monthly rent even allowing for subsidy was 40 Reichsmarks per month, greatly in excess of the sums that working-class families considered affordable.

In 1927, in the cities of Germany, as many as one in six apartments accommodated lodgers and sub-tenants along with their primary occupants. And these lodgers included at least 377,000 families of three or more people, who lived as sub-tenants in other people’s apartments.

Contemporary accounts describe families living in windy attics and damp cellars. When mass unemployment threw thousands into homelessness, makeshift squatter camps housing tens of thousands of people sprang up on the outskirts of Germany’s major cities.

As tax revenue plunged and expenditure on welfare increased, the flow of public funds towards new construction collapsed. From a peak of 1.34 billion in 1928 the public subsidy to housing fell to as little as 150 million Reichsmarks in 1932 with devastating consequences for the building trades.

In this extreme situation, the Reich took the extraordinary step of announcing a subsidy for the self-built settlements of the unemployed and their families on the margins of Germany’s cities. Each settlement was to be provided with enough land for the families to secure a high degree of self-sufficiency in their food supply.60 The Reich would provide a subsidized loan of 2,500 Reichsmarks towards construction, the rest would come from the self-help of the settlers themselves.

Hitler’s accession to power permanently ended Weimar’s system of direct subsidy for housing construction. In the Third Reich, there were more important uses for the revenue of the Hauszinssteuer than the funding of social housing.

The largest single allocation to housing in Hitler’s Germany came from the work creation programmes of 1932 and 1933 that provided a total of 667 million Reichsmarks to subsidize the repair and conversion of existing apartments. In addition, 45 million Reichsmarks were provided as a subsidy towards the construction of private homes.

In general, the housing policy of the Third Reich in its early years consisted of shifting responsibility back towards private sources of funding. Whereas under the Weimar Republic 42.4 per cent of all housing finance had been provided by the public authorities, by 1936 this had fallen to 8 per cent.

In so far as Hitler’s regime had an ideological housing policy, it consisted in the early years in accelerating the construction of the officially sponsored settlement programme, first launched in 1931. Rather than being seen as a refuge from the industrial economy for unemployed workers, ex-urban settlements were now trumpeted as the future of German housing.

Ten to fifteen million Germans were to find new homes in small towns, with fetching names such as Hitlerburg and Goeringen.

Compared to the billions spent by the Weimar Republic on its vision of social housing, Hitler’s regime provided a total of only 180 million Reichsmarks to subsidize its settlement programme.

These settlement homesteads were surrounded by an ample plot of land, but they were rudimentary even by contemporary standards in the quality of life they offered to their inhabitants. The materials used in construction were of such poor quality that in some cases mortgage lenders considered the buildings insufficiently durable to provide the necessary security.

Hot running water, central heating and a proper bathroom were all ruled out as excessively expensive. Electricity was to be provided but only for lighting. Each housing unit was to be subsidized by Reich loans of a maximum of 1,300 Reichsmarks. Rent was to be set at a level which did not exceed 20 per cent of the incomes of those at the bottom of the blue-collar hierarchy, or between 25 and 28 Reichsmarks per month.65 To achieve this low cost, however, the Volkswohnungen were to be no larger than 34 to 42 square metres.

By 1939 the permissible cost of construction even for small Volkswohnungen had had to be raised to 6,000 Reichsmarks, driving rents to 60 Reichsmarks per month and thus pricing even this basic accommodation out of the popular rental market.

Instead of the 300,000 per year that the Labour Ministry had intended, construction on only 117,000 Volkswohnungen was started between 1935 and 1939.

what Hitler’s regime could not resolve was the contradiction between its aspirations for the German standard of living and the actua...

By the late 1930s, the official ideal of ‘people’s housing’ was a large family apartment of at least 74 square metres, fully electrified, with three bedrooms, one each for parents, male and female children. At the same time it was estimated that an apartment built to the DAF specification would cost in the order of 14,000 Reichsmarks, 40 per cent more even than those constructed by the Weimar Republic.

In 1938 the DAF’s rationalization experts estimated that only 5 per cent of the content of a normal building was made up of mass-produced components; in the case of the VW it was to be 100 per cent. With efficient bulk production, the DAF hoped to be able to lower the cost for its generous Volkswohnungen to as little as 7,000 Reichsmarks.

Measured against their own ambitions, the Volksprodukte failed. But it is not enough to stop there. We must follow up this conclusion by asking what meaning the regime may have attached to these failures.

it is clear that the frustration experienced with the Volksprodukte called into question none of the basic ideological tenets of National Socialism.

It was simply that the limitations of German purchasing power came as no surprise to Hitler and other true believers. Whilst Germans were constrained to inhabit an inadequate Lebensraum hedged around by hostile powers, egged on in their antagonism towards Germany by the global Jewish conspiracy, it was no surprise that Germans could not afford cars.

There's always an excuse.

As Hitler himself had put it in his ‘Second Book’, if the German state could not secure sufficient Lebensraum for the German people, ‘all social hopes’ were ‘utopian promises without the least real value’.69 The real instrument for the attainment of American-style consumer affluence was the newly assembled Wehrmacht, the instrument through which Germany would achieve American-style living space.

It is conventional in histories of the Third Reich to counterpose rearmament to the ‘civilian’ objectives of the regime as though they were mutually exclusive alternatives, a view often summarized as a choice between ‘guns or butter’. And there is an undeniable truth in this.

At the same time the Reich, to pay for rearmament, siphoned off taxes and private savings to a total of almost 60 billion Reichsmarks.

As a share of national income, military spending by 1938 had climbed to 20 per cent, enough to pay for even the most gigantic housing programme.

At a strategic level, guns were ultimately viewed as a means to obtaining more butter, quite literally through the conquest of Denmark, France and the rich agricultural territories of Eastern Europe.