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

by Adam Tooze

Viewed in wider terms, however, the German economy differed little from the European average: its national per capita income in the 1930s was middling; in present-day terms it was comparable to that of Iran or South Africa.

Germany under Hitler was still only a partially modernized society, in which upwards of 15 million people depended for their living either on traditional handicrafts or on peasant agriculture.

In 1870, at the time of German national unification, the population of the United States and Germany was roughly equal and the total output of America, despite its enormous abundance of land and resources, was only one-third larger than that of Germany. Just before the outbreak of World War I the American economy had expanded to roughly twice the size of that of Imperial Germany. By 1943, before the aerial bombardment had hit top gear, total American output was almost four times that of the Third Reich.

In both respects, America should provide the pivot for our understanding of the Third Reich. In seeking to explain the urgency of Hitler’s aggression, historians have underestimated his acute awareness of the threat posed to Germany, along with the rest of the European powers, by the emergence of the United States as the dominant global superpower.

As in many semi-peripheral economies today, the German population in the 1930s was already thoroughly immersed in the commodity world of Hollywood, but at the same time many millions of people lived three or four to a room, without indoor bathrooms or access to electricity.

The originality of National Socialism was that, rather than meekly accepting a place for Germany within a global economic order dominated by the affluent English-speaking countries, Hitler sought to mobilize the pent-up frustrations of his population to mount an epic challenge to this order.

Germany would carve out its own imperial hinterland; by one last great land grab in the East it would create the self-sufficient basis both for domestic affluence and the platform necessary to prevail in the coming superpower competition with the United States.

Hitler’s regime after 1933 undertook a truly remarkable campaign of economic mobilization. The armaments programme of the Third Reich was the largest transfer of resources ever undertaken by a capitalist state in peacetime. Nevertheless, Hitler was powerless to alter the underlying balance of economic and military force. The German economy was simply not strong enough to create the military force necessary to overwhelm all its European neighbours, including both Britain and the Soviet Union, let alone the United States.

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Crucially, the economy was the one sphere through which Germany could build a connection to the United States, the only power that could help Germany in counterbalancing the aggression of the French and the disinterest of the British.

By facing down a storm of nationalist outrage and ending the ruinous campaign of passive resistance to the French occupation of the Ruhr, whilst at the same time signalling Germany’s willingness to pay reparations, Stresemann opened the door to a special relationship with the United States.

Stresemann was in every respect a full-blooded German nationalist. He never distanced himself from the annexationist positions he had adopted during World War I, because he saw no reason to regret them. Nor was he ever willing to accept as a long-term solution the eastern border with Poland as defined by the 1921 plebiscite and League of Nations decision.

Stresemann’s first success was the Dawes Committee, which met in Paris in 1924 to establish a workable system through which Germany could pay reparations without jeopardizing its financial stability.16 The chairman of the Committee was General Charles G. Dawes, a Chicago banker and industrialist who had presided over the American and inter-Allied procurement in World War I. But the actual architect of the scheme was Owen Young, the chairman of General Electric

J. P. Morgan did their bit by mobilizing an enthusiastic vote of confidence from Wall Street, with an initial and massively over-subscribed loan of $100 million. Re-establishing the Reichsmark on gold at its pre-war parity against the dollar ended the instability of Germany’s currency.

And between October 1925 and the end of 1928 the inflow of foreign capital was so large that Germany could make its reparations payments without even having to earn a surplus on its trade account.

This merry-go-round in which Germans borrowed money from the Americans to pay the British and French who then paid the Americans raised anxiety on all sides.20 However, it served its purpose.

Put at its most simple and most cynical, Germany’s strategy consisted of exploiting the protection provided by the Reparations Agent to borrow so much from America that the service on this debt made it impossible to transfer reparations.

Hitler’s outlook, by contrast, was far more embattled. He regarded the liberal ideology of progress through industry, hard work and free trade as nothing more than a lie spread by Jewish propagandists. In fact, any effort by the German people to seek salvation through industry and trade would eventually bring them into competition with Britain.

For Hitler, the decisive factors in world history were not labour and industry, but struggle for the limited means of sustenance.27 Britain could sustain itself through free trade, but only because it had already conquered an empire by military force. What the German people needed to secure a decent standard of living was ‘living space’, Lebensraum, and this could be achieved only by warlike conquest.

Stresemann too had dreamed of a German Grossraum in the East. But, as we have seen, his primary aim was to gain a market sufficient in scale to match the United States. Hitler, by contrast, wanted the land, not the native inhabitants. The purpose of conquest was not the addition of non-German people. The population of the conquered territories would have to be removed.

Hitler did not of course wish to repeat the constellation of World War I and in this respect Britain was crucial. Hitler was firmly convinced that, unlike an export-directed strategy, which would lead inevitably into conflict with the global influence of the British Empire, his strategy of Continental expansion posed no fundamental threat to Britain, whose basic interests lay outside Europe. It was fundamental to his strategic conception in the 1920s and early 1930s that he would be able to secure a dominant position for Germany in Europe without coming into conflict with Britain.

Whereas Stresemann saw the rise of the United States as a stabilizing factor in European affairs, for Hitler it merely raised the stakes in the struggle for racial survival.

Along with France and the Soviet Union, the United States thus entered the ranks of Hitler’s enemies, to be confronted, after a period of internal consolidation, if possible in alliance with Great Britain.

This is most clearly illustrated by their responses to the disaster of World War I. The essence of Stresemann’s position was that the war did not change the fundamental direction of world history, which was dictated by the inevitable trajectory of economic development.

For him, however, history offered no guarantees. The fundamental determining factor in history was not the predictable telos of economic development, but struggle between peoples for the means of life.

In 1928, therefore, despite the presence of elements such as Hitler and his party, the Weimar Republic had a functioning parliamentary system and a government committed to pursuing the revision of the Versailles Treaty under the good auspices of the United States. The potential for disaster was clearly there. But even the most pessimistic observers would have been hard pressed to predict that within ten years Germany would launch Europe back into a dreadful war and embark on the single most ruthless campaign of genocidal murder in human history.

One key factor contributing to the destabilization of the Weimar Republic after 1929 was the disappointment of the hopes invested in America’s ‘new order’ by Germany’s pro-Republican forces.39 In 1923–4 the successful stabilization of the Weimar Republic had depended crucially on the involvement of the United States.

the credibility of Stresemann and Schacht’s ‘Atlanticist strategy’ hinged on the expectation that America’s influence in Europe would continue to grow and would ultimately open the door to comprehensive revision of the Versailles Treaty terms.

Following the stabilization of the franc in 1926, the French central bank had set about systematically accumulating gold. By 1931 its gold holdings were substantially larger than those of the Bank of England and rivalled even those of the US Federal Reserve.

The anchor of the global financial system had torn loose. Britain’s abandonment of gold turned a severe recession into a profound crisis of the international economy.

Eleven more countries had devalued their exchange rates whilst retaining a gold peg; whilst those that stayed on gold at their old parities, like Germany, France and the Netherlands, had no option but to defend their balance of payments by adopting draconian restrictions on currency convertibility and trade.

Whilst incomes and revenues fell in line with the deflation of prices and wages, debts, mortgages and other financial obligations remained at their high pre-Depression levels. Over the winter of 1931–2, bankruptcies began to eat away at the fabric of German business.

However, the collapse of the American economy and the British decision to abandon gold shattered the fundamental assumption on which Stresemann’s conception had been based.

But, given the global economic disaster, it appeared to many that international economic dependence itself was actually the problem.86 Nationalist visions, visions of a future in which global financial connections were not the determining influence in a nation’s fate, now had far greater plausibility.

Work creation was also viewed with suspicion by business and banking circles close to the Nazi party, who on this issue had a vocal spokesman in Hjalmar Schacht. All of which was in sharp contrast to the three issues that truly united the nationalist right and made possible the Hitler government of 30 January 1933: the triple priority of rearmament, repudiating Germany’s foreign debts and saving German agriculture.

In strictly economic terms, the defining agenda of German nationalism from the Dawes Plan of 1924 onwards was not work creation but the repudiation of Germany’s international obligations, first reparations and then the international credits taken up since the early 1920s to pay them.

In so far as economic interests were responsible for the collapse of the Weimar Republic and the installation on 30 January 1933 of Hitler’s government, the group chiefly responsible was not big business or even heavy industry, but Germany’s embattled farmers.

The farm lobby was thus a vital constituency for all political parties other than the Social Democrats and Communists, neither of whom managed to devise a credible agrarian programme. By the late 1920s, however, the respectable parties of the centre right were struggling to maintain their support in agrarian circles, as the German farming community became progressively radicalized by the worldwide collapse in commodity prices.

The enemies of liberalism were clearly on the march in Germany. By 1932 the damage done to the parliamentary system may well have been irreparable, making it more likely than not that the Weimar Republic would have been replaced by some kind of authoritarian, nationalist regime. After all, Germany ended 1932 with generals both as Chancellor and as President of the Republic.

There seems every reason to believe that the world might have been spared the nightmare of a National Socialist dictatorship if only Hitler had been kept out of government for a few months longer.

Furthermore, once we give due emphasis to the questions of foreign debt and foreign trade, it becomes clear that, for many millions of Germans, Hitler’s economic miracle was in fact a highly ambiguous experience.

The results of the March election were a disappointment to Hitler and Goebbels. The failure of the Nazis to achieve anywhere near an absolute majority, even when their electoral appeal was backed up by considerable intimidation, confirms the conclusion reached by most observers in the autumn of 1932. As a political movement, the Nazi party had reached its limit well short of a majority of the German electorate. Now, however, Hitler and his party no longer needed to rely exclusively on the electoral process.

Across Germany in the spring of 1933, the Nazi party and its nationalist allies unleashed a ferocious wave of violence directed above all against the Communists, Social Democrats and Germany’s small Jewish minority.

Inexplicably, the socialist trade unions lulled themselves into believing that they might be able to cooperate with Hitler’s government. They even joined with Hitler and Goebbels in orchestrating 1 May 1933 as a celebration of national labour, the first time that May Day had been treated as a public holiday.

If it did not follow the dollar off gold, Germany would be left completely uncompetitive in every export market in the world. On the other hand, the dollar’s devaluation also brought a huge windfall, by reducing the Reichsmark value of the debts Germany owed to the United States.

Pandering to popular sentiment, Hitler and Schacht made the defence of the official gold value of the Reichsmark into a symbol of the new regime’s reliability and trustworthiness.

The fundamental question was whether public expenditure, financed in the short term by newly minted money, could have any real impact on production and employment.

Under conditions of mass unemployment, government spending financed by new credit would result in greater real demand, greater production and employment rather than inflation. The art of economic policy was to provide the correct dose of credit-financed stimulation, sufficient to restore full employment, but not an excessive amount that would push the economy beyond the limit of full employment and unleash an inflationary free-for-all.

Ironically, however, the autobahns were never principally conceived as work creation measures and they did not contribute materially to the relief of unemployment.26 They followed a logic, not of work creation, but of national reconstruction and rearmament, a logic indeed that was as much symbolic as it was practical.

As Todt himself made clear, the ultimate rationale for these gigantic roadways was military. Germany’s fundamental strategic dilemma was its vulnerability to military attack from both east and west. The autobahns would serve as the ‘lifeline’ of a reconstructed national defence system.