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

by Adam Tooze

In the light of the severe setback to Germany’s armaments effort in the summer of 1939, fully revealed for the first time in this chapter, these justifications offered by Hitler for his decision to go to war deserve to be taken seriously and not waved aside as mere ‘half-truths’ and ex post facto rationalizations.

As Europe moved ever closer towards war, the highly restrictive Neutrality Act of 1937 remained in force. Following the occupation of Prague efforts had begun in Congress to loosen the restrictions so as to permit belligerents

to purchase arms on a ‘cash and carry’ basis.106 But by the early summer these attempts at revision had been fought to a standstill by the isolationist minority both in the House and the Senate. On 18 July Roosevelt was forced to abandon the attempt until the next session. In Paris and London there was consternation. In the Fascist camp, the media rejoiced. America’s promises were empty.

But what was clear in the summer of 1939 was that, in case of a war in Europe, it would take months, if not years, before America’s military and industrial might could be fully brought to bear.

A ‘triple threat’ from an Axis coalition in the Atlantic, Mediterranean and Pacific was the real nightmare of Royal Navy strategists.112 The pursuit of a global answer to Britain dictated that Germany not push for closer relations with the Soviet Union, since Japan and the Soviets were involved in a tense stand-off of their own in Manchuria. In Moscow, however, the signs of a new approach to European security were unmistakable.113 At the same time as the Japanese increasingly pulled back from a firm military commitment to Germany and Italy, the Soviets drifted towards Hitler.

It was only when the hope of a military pact with Japan was finally disappointed in early July that the German diplomatic corps was free to overtake Britain and France in the race for a deal with Moscow.

German-Soviet contacts became ever closer in June and moved quickly from narrowly economic issues to broader strategic concerns. In early July the German ambassador met with Foreign Minister Molotov for the first time.120 By August, negotiations were progressing quickly. The framework for a credit and trade deal was agreed on 19 August. In the early hours of 24 August 1939, Hitler’s Foreign Minister Ribbentrop signed a non-aggression pact with the Soviet Union, which included secret provisions for the division of Eastern Europe into separate spheres of influence. Poland was to be partitioned. Stalin and Hitler, sworn ideological enemies, were bound together in a pact of non-aggression and mutual assistance.

On the German side, there was bewilderment as well, but principally amongst men who now counted themselves as enemies of the regime. The fascist industrialist Fritz Thyssen was so appalled that he went into exile in Switzerland, allowing Goering to confiscate his large stake in the Vereinigte Stahlwerke.121 Amongst the ideological followers of Nazism, however, the deal never seems to have been regarded as anything more than a convenient ceasefire.

Negotiations began immediately for a gigantic trade deal, the precise terms of which were finally hammered out in February 1940. Over the coming year, the trade volume was set at between

600 and 700 million Reichsmarks. This was less than the Germans had hoped for, but it was the composition, not the absolute volume of Soviet supplies to Germany that was critical. 125 The Soviet Union rapidly became Germany’s main source of imported animal feed. In 1940 the Soviet Union also supplied Germany with 74 per cent of its phosphates needs, 67 per cent of its asbestos imports, 65 per cent of its chrome ore supplies, 55 per cent of its manganese, 40 per cent of its nickel imports and 34 per cent of its imported oil.126 As the Quartermaster General of the German army, Colonel Eduard Wagner, put it, ‘the conclusion of this treaty has saved us’.

He was ready for war on 26 August, but postponed because the flexibility of the German mobilization timetable allowed him three more days of diplomacy, designed not to avoid war, but to split up the Allied coalition and to shift the burden of ‘war guilt’ to Britain and France. As of 28 August, Hitler was driving towards war, fully aware of the likely involvement of the British. Both at the time and after the event there were those in and around the leadership of the Third Reich who refused to believe that Hitler could be deliberately courting such an enormous risk.129 We, however, should not flinch from this enormity. To talk of ‘miscalculations’ and ‘mistakes’ in relation to the outbreak of World War II is to underestimate the deliberateness of Hitler’s intent.

On the ground and in the air, the Wehrmacht could expect to enjoy at least a temporary advantage. Meanwhile, over the summer of 1939 Germany’s strategic situation suddenly took a turn for the better. Czechoslovakia was eliminated as a threat. Roosevelt was frustrated by a resurgence of isolationism. And through a few hectic weeks of diplomacy, Ribbentrop broke the encirclement that had seemed to threaten after the occupation of Prague. Rather than backing Britain and France, the Soviet Union committed itself to supporting Hitler’s aggression. This in turn enormously strengthened Hitler’s hand in relation to the smaller South-eastern European countries who would now, surely, be roped into the Axis corral. In the final analysis, there seems little reason

to quibble with Hitler’s own assessment, which was that he chose war in September 1939 because he had nothing to gain by further delay.

The Nazi–Soviet pact, whilst it shifted the balance of power in Europe in Germany’s favour, negated any chance of a deal with Japan. Immediately following the announcement, the pro-German cabinet in Tokyo resigned. Power passed to the Japanese army, which was preoccupied with keeping the Soviets out of Manchuria. At the same time Mussolini made clear his inability to join Germany in a premature war against the Western powers.134 The British for their part could heave a huge sigh of relief, safe in the knowledge that for the foreseeable future they would not have to deal with the triple threat of the German, Italian and Japanese navies. Nor had the Soviets concluded the deal out of any particular friendship towards the Third Reich. Stalin was buying time, assuming that Germany would soon embroil itself in a prolonged and bloody war

with Britain and France.

Britain and France did not appease Germany because they expected to be defeated by the Wehrmacht, but because, in the words of France’s right-wing Prime Minister Daladier, another European war would mean the ‘utter destruction of European civilization’, creating a vacuum that could only be filled by ‘Cossack and Mongol hordes’ and their ‘culture’ of Soviet Communism.

The truth was that in the late summer and autumn of 1939 no one in Europe, with the possible exception of Hitler, anticipated the remarkable military events that would unfold over the coming months. The mood in Paris and London was one of resigned optimism. Certainly no one anticipated an immediate German victory.138 Though the German army and air force

were ready for war in September 1939, the Wehrmacht did not have an overwhelming material advantage over its opponents. To conventional strategic minds, Germany’s prospects seemed bleak.

This ominous constellation of forces was not as Hitler had predicted or as he had wished. But since the enemies of the Third Reich were improvising, Germany would have to do the same. What Hitler could not do, in light of the ‘will to annihilation’ (Vernichtungswillen) that Nazi conspiracy theory attributed to the enemies of Germany, was to back down or to hesitate.144 War with the Western powers involved huge risk. But given the increasingly unmanageable dynamic of the global arms race and the existential threat supposedly posed to

Germany by the gathering forces of the ‘world Jewish conspiracy’, Hitler could see no alternative but to take the offensive.

In August 1914, the young Adolf Hitler had been amongst the ecstatic crowds that thronged the streets of Munich. He could not but have been struck by the starkly different mood that greeted his war in September 1939. There were no cheering mobs, no garlands for the troop trains and with good reason. In military terms Germany was not ready for a confrontation with the Western powers.

The German air force was in better shape. It was the largest and the most modern in Europe. However, studies done by the Luftwaffe staff in 1938 had concluded that a strategic air war against Britain was out of the question unless Germany could somehow gain control of airbases along the channel coastline.

On their return home, the victorious troops were treated to wild celebrations.8 Following the Polish campaign, large parts of the population now expected France and Britain to be crushed by Christmas, an expectation encouraged by the well-publicized success of Guenther Prien and the crew of U-47 in penetrating the home-base of the British fleet at Scapa Flow and sinking the battleship Royal Oak.9 Over the weeks that followed, SS informants overheard children throughout the Reich reciting a blasphemous new version of the Lord’s Prayer addressed to ‘Our Father Chamberlain who art in London, erased be your name, your kingdom soon will be gone . . .’10 The priggish commentators of the SD were appalled, but Goebbels was only too happy to capitalize on the boisterous new anti-British mood.11 Hitler, too, demanded immediate action on the Western Front.

. . Everything points to the fact that the moment now is propitious, in six months, however, it may perhaps not be.’14 Meanwhile, Hitler was far from certain of his new ally in the East. In a long war, Hitler felt the Soviet Union could not be relied upon. He therefore demanded an immediate attack in the West, setting 12 November 1939 as the date for the Wehrmacht’s assault across the French border.

The raw material shortages that had restricted armaments production in 1937 and 1939 meant that Germany had gone to war without adequate stocks of equipment. Thomas’s prediction of an ammunition crisis was immediately confirmed.15 In only a few weeks of operations, the Luftwaffe had seriously depleted its stock of bombs. Monthly consumption in Poland exceeded production in September 1939 by a factor of 7.16 For lack of training, the infantry had not performed to the high standards expected of the German army.17 There had been incidents of panic amongst the third-string reserve formations that made up a large part of the wartime strength. And even the much vaunted new Panzer divisions had shown alarming weaknesses. The rate of attrition amongst their motley collection of vehicles had been high. In less than a month of fighting a quarter of the initial force of tanks had either been knocked out or broken down.18 The antiquated Mark I and Mark II tanks, with which most of the Panzer divisions were still equipped, were clearly inadequate for an attack in the West. In France waited the fearsome

Char B, at 32 tons the world’s heaviest and most powerful fighting vehicle. On paper at least, the armies of France, Britain, Holland and Belgium matched the Wehrmacht both in manpower and equipment. Furthermore, the plan for an attack on France, hastily drafted by the army high command in the autumn of 1939, convinced no one.

In the event, bad weather forced the cancellation of the attack planned for 12 November. Without the Luftwaffe in support, even Hitler had to concede that the offensive stood little chance of success. In so doing, Hitler almost certainly saved his regime from catastrophe. Too often our knowledge of the extraordinary victories achieved by the Wehrmacht in the summer of 1940 obscures the precariousness of Hitler’s situation over the winter of 1939–40. At this critical moment he could count neither on the unquestioning loyalty of the army, nor on the unambiguous support of the German people. The dynamic of total war that was soon to cement German society firmly in support of the regime had only begun to take hold. Public opinion was jittery and could hardly be counted upon in case of a long and arduous war. Once the possibility of a negotiated peace with the Western powers had been ruled out, Hitler had only one option, to deliver military victory as quickly as possible. War against Britain and France was the worst-case scenario of German strategy. Only hindsight leads us to underestimate this fact. The leadership of Hitler’s regime had only faced up to this possibility in the spring of 1938 and, as we have seen, they had failed to devise a coherent strategic response. The army had not even begun planning for an attack in the West until after war broke out. It is hardly surprising, therefore, that in the autumn of 1939 there was a degree of chaos and

confusion in Berlin. On the other hand, the widely held view that the first year of the war was characterized by complacency is very wide of the mark.25 The outbreak of war actually had the effect of removing many of the constraints that had hampered German rearmament in the previous years. And Hitler’s regime responded to the existential challenge facing it with a combination of opportunism, technocratic radicalism and ideologically inspired violence.

On the other side of the Atlantic, Hitler’s aggression against Poland sent shock waves through American public opinion. Within weeks of the outbreak of war, the isolationists lost the argument in Congress.26 On 3 November 1939 President Roosevelt signed into law the ‘cash and carry’ bill that lifted the strict American neutrality provisions banning the sale of weapons to foreigners. So long as France and Britain paid in cash and shipped their American cargo in their own vessels, they could take their pick amongst the immense industrial capacity of the

United States. Technically, Germany was free to do the same. But in practice it had neither the hard currency nor the means to protect its shipments on the long haul across the Atlantic. Whereas the Wehrmacht’s economic staff estimated the dollar assets of Britain and France to be in the region of $7.37 billion, the German total, even on optimistic assumptions, came to no more than $700 million.

But serious negotiations were under way with representatives of America’s mighty motor vehicles industry to arrange for a dramatic increase in aircraft and aero-engine capacity and, as of March 1940, Britain and France had agreed a joint programme of orders.29 This was deliberately designed to permit the Europeans to stretch their foreign reserves over many years if necessary. But by the summer of 1940 they had orders in hand for more than 10,000 military aircraft to be delivered by the end of 1941, the equivalent of an entire year of German production.

At the same time as America was opening its gates to the Western Allies, Germany faced economic isolation. At the outset of World War II, thanks to French and British economic warfare, transport problems and its limited ability to pay, Germany found itself largely cut off from its overseas supplies of raw materials.30 The monthly figures for the volume of imported raw materials, circulated in confidential reports by the Reich Statistical Office, showed an astonishing collapse.31 Within months of the outbreak of war, Germany’s imports were reduced to a fraction of the level necessary to sustain a large-scale armaments effort. Ore supplies from Narvik were cut off.32 Imports of copper and oil fell virtually to zero. Germany in the first months of World War II was more isolated in economic terms than at any time before 1944–5. The trade agreement with the Soviet Union promised some relief. But the significance of Germany’s sudden exclusion from world markets cannot be overestimated. It overshadowed every aspect of German military strategy and economic policy in the first decisive months of the war.

Within six months of the outbreak of war, Germany was importing in real terms less than a third of the raw materials it had consumed in 1932, at the trough of the Great Depression.

The fact that following the outbreak of war, Hitler’s regime was able not only to avoid an industrial disaster but actually to increase its output of armaments betokens not ‘business as usual’, but a series of draconian interventions in the functioning of the economy.

The reason why Hitler gambled everything on a massive attack in 1940 was not because he was worried about making excessive demands on the German population, but simply because he thought that this was the only way that Germany could win the war. Regardless of how intensively its home front was mobilized, Germany would lose a protracted war, because the combined economic might of its enemies was simply overwhelming. Germany therefore needed to concentrate all its resources on striking a single decisive blow at the earliest possible opportunity.

In a long war, priority also had to be given to sustaining exports, so as to be able to maintain imports of crucial raw materials from Germany’s remaining trading partners. High priority had also to be given to agriculture, because without food, the home front would collapse, as it had done in Russia in 1917 and in Germany in 1918. This might look like a strategy that favoured the civilian economy. But this was deceptive. It was a strategy motivated first and foremost by the long-term sustainability of the war effort. Nobody in 1939 expected Germany to be able to last as long

as in World War I. The Third Reich’s deficiencies of foreign exchange and raw material stocks were too severe. But under the direction of State Secretary Backe, the Reichsnaehrstand was preparing for a three-year war.41 General Thomas of the OKW and his collaborators in the Ministry of Economic Affairs believed that with careful husbanding, Germany’s stocks of industrial raw materials could be stretched over a similar period of time.

What started as no more than a sensible precaution against the possibility that battlefield success might prove elusive turned out to be a strategy that precluded the possibility of such a victory. And this in turn begged the question of whether Germany, in fact, had any chance of winning the ‘long war’ for which Thomas and Backe were so urgently preparing. Did the ‘long war’ strategy not play directly into the hands of Britain and France?

He had launched the attack on Poland, accepting the risk of British and French involvement. Now that Germany was at war with the Western powers and they were unwilling to come to terms, there was no alternative but to gamble again, this time in launching a spectacular assault on France. And Hitler was fully clear about the economic consequences that followed. He needed to force the Wehrmacht’s economic experts to abandon their caution and to press immediately for the expenditure of all available resources in preparation for the 1940 offensive, regardless of the long-term consequences for the viability of the German war effort.

‘The Fuehrer himself has recognized that we cannot last out a war of long duration. The war must be finished rapidly. Therefore, the great blow was to be launched if possible even before Christmas. Everything had to be wagered on this card, including the use of stocks as well as raw materials [sic]. The necessary requirements were to be taken out of the export sector ruthlessly.’ And Keitel went on to add a further consideration: ‘Everything had to be concentrated so as to finish with the Western powers as soon as possible, since it was not clear how long the Russians would hold to us.’

He had reluctantly agreed to the postponement of the attack he had ordered for 12 November 1939. But abstaining from offensive operations altogether, in an effort to drag out the war, was simply not an option. The Western offensive of 1940 would be an all-out assault.

Work on capital ships that could not be completed in 1940 was halted with immediate effect. The dockyards of Hamburg, Bremen and Kiel scrambled to redeploy labour to the production of standard, Mark VII U-boats.50

The ‘U-boat programme’ that replaced the Z Plan called for the production of 25 submarines per month. Nominally, this was to enjoy high priority in the allocation of raw materials and labour. But actual production of U-boats in the first twelve months of the war was derisory.

On 3 July 1939 Hitler was treated to the infamous ‘magic show’ at the Rechlin air proving ground, featuring a stunning display of aerial wonder weapons–including jet fighters, rocket planes and large airborne cannon–all, supposedly, within months of entering production. Then, in the third week of August, when Hitler was preoccupied with the coming war, Koppenberg and

Ernst Udet, chief of the technical office at the RLM, coaxed him into signing a Fuehrer Order restoring the Ju 88 programme to top priority. The consequences were dramatic. For the rest of the war, the Luftwaffe was to claim at least 40 per cent of the German armaments effort.

But it was not office politics alone that made ammunition the truly divisive issue in the first year of the Nazi war effort. The fundamental question was one of resources. After aircraft production, supplying the enormous volumes of ammunition demanded by modern warfare was by

far the largest industrial challenge facing the German economy in World War II. Not for nothing were shell factories amongst the iconic images of 1914–18. Though less prominent in the visual repertoire twenty-five years later, in industrial terms they were hardly less significant. Ammunition was voracious in its appetite for raw materials. In the final year of World War I, no less than 400,000 tons of steel per month was consumed by the ammunition factories. That was a quarter of Germany’s total output of steel in the autumn of 1939. Shell cases and cartridges also consumed critical quantities of copper, which was in particularly short supply. With Hitler insisting on a major offensive in the West at the earliest possible opportunity, urgent action was clearly needed to make good Germany’s inadequate stockpiles. To further complicate matters, the army procurement office, in managing ammunition production, was not dealing with the kind of dependent producers clustered around the Reich Air Ministry. The main suppliers of ammunition were the giants of German heavy industry, firms such as the Vereinigte Stahlwerke, Krupp, Kloeckner or the Reichswerke Hermann Goering. By the autumn of 1939, after three years under the haphazard steel rationing system, these firms had built up a head-steam of frustration that now vented itself on the army procurement office.

Hitler made his first intervention in the ammunition question in October, to insist on the priority of artillery and artillery ammunition.57 In mid-November, as the struggle with Brauchitsch and Halder neared its climax, he demanded ammunition production at three times the level previously envisaged by army procurement.58 By the end of the month this so-called ‘Fuehrerforderung’ (Fuehrer’s Challenge) had begun to take on more concrete form. Based on figures that Hitler had cribbed from the standard history of the Great War, it gave priority above all to howitzers and heavy mortars–the decisive weapons of trench warfare. 59 On 12 December 1939 Hitler personally approved the final version of the Fuehrerforderung, the most dramatic headline of which was the demand to raise monthly production by the autumn of 1940 to 3 million light howitzer shells, 650,000 rounds of heavy howitzer ammunition and no less than 150,000 21 centimetre mortar bombs.60 For the standard 10.5 centimetre howitzer shells of the Wehrmacht, Hitler demanded an almost eightfold increase in production.61 Relative to actual production in the autumn of 1939 measured in terms of weight of shot, the Fuehrerforderung implied a three-and-a-half-fold increase in the next twelve months and a fivefold increase by the autumn of 1941. These figures are important testimony to the kind of war that Hitler expected to have to fight in the coming year. In

November and December 1939, Hitler appears to have been conceiving his armament programme, not around a brilliant vision of Blitzkrieg, but in relation to the army’s first draft plan for the invasion of France. As we have seen, this foresaw not a sweeping war of manoeuvre, but a bludgeoning drive to the Channel, followed by an aerial bombardment of Britain. If there was to be a lightning blow, it would be delivered by the Luftwaffe against the British home front, not on the battlefields of Flanders.

Far from lacking clear priorities, the German industrial war effort was dominated by only two components: aircraft and ammunition. Between them, these two items claimed more than two-thirds of the resources committed to all armaments production in the first ten months of the war. In June 1940, when Hitler’s ammunition programme reached its peak, their combined share topped 70 per cent.