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Kindle Notes & Highlights
by
Adam Tooze
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December 31, 2021 - January 22, 2022
Often this is taken as an unambiguous expression of business power, since the nominal wage levels prevailing after 1933 were far lower than those in 1929. From the business point of view, however, the situation was rather more complex. Though wages had fallen relative to 1929, so had prices. In practice, the Depression brought very little relief to real wage costs.
In the aftermath of World War I, the business lobby had been strong enough to contain the revolutionary impulses of 1918–19. Now capitalism’s deepest crisis left German business powerless to resist a state interventionism that came not from the left but the right.
The first years of Hitler’s regime saw the imposition of a series of controls on German business that were unprecedented in peacetime history. In large part these stemmed from the difficulty of managing the German balance of payments and in that sense they clearly had their origin in the great financial crisis of the summer and autumn of 1931.
The combination of rising domestic demand, an end to foreign competition, rising prices and relatively static wages created a context in which it was hard not to make healthy profits.
In the light of the far more modest increase in workers’ incomes, it seemed that the Communists and Social Democrats did indeed have a point. The Nazi regime was a ‘dictatorship of the bosses’.
The Great Banks of Berlin were thus saved from nationalization. The evidence suggests, however, that they never really recovered from the damage done to them by the financial crisis of 1931. In purely commercial terms the Berlin Great Banks were amongst the chief ‘losers’ of the Nazi economic recovery.
But, contrary to the view that the Great Banks were the ultimate string-pullers of National Socialism, it is in fact hard to think of any other period in modern German history in which these institutions had less influence than the period between 1933 and 1945.
For this purpose, the rhetoric of Hitler’s National Revolution was a convenient cover. However, in practice the Reichsbank and the Reich Ministry of Economic Affairs had no intention of allowing the radical activists of the SA, the shopfloor militants of the Nazi party or Gauleiter commissioners to dictate the course of events. Under the slogan of the ‘strong state’, the ministerial bureaucracy fashioned a new national structure of economic regulation.
It would be absurd to deny the reality of this shift. The crisis of corporate capitalism in the course of the Great Depression did permanently alter the balance of power. Never again was big business to influence the course of government in Germany as directly as it did between the outbreak of World War I in 1914 and the onset of the Depression in 1929.
What Hitler’s regime positively enabled German business to do was to recover from the disastrous recession, to accumulate capital and to engage in high-pressure development of certain key technologies: the technologies necessary to achieve the regime’s twin objectives of increased self-sufficiency (autarchy) and rearmament.
Whereas to Stresemann’s strategy the importance of German business had been defined by economic factors –the international competitiveness and creditworthiness of German business–the Third Reich needed German industry above all for its productive resources, both technological and organizational.
Before 1914 the German chemical industry, as a progressive leader of the second industrial revolution with a deep-seated stake in multilateral trade and a less than reactionary outlook in domestic politics, belonged in the liberal camp of German business, and to a degree this still held true in the 1920s.
By making possible the domestic production both of explosives and fertilizer, this made the German chemical industry and above all BASF into a mainstay of the German war effort in World War I.
Thyssen’s real inspiration was the corporatist model of industrial organization pioneered by Fascist Italy. The distinctive feature of this vision was that it included employers and workers in a single organization, imposing social unity by government fiat.
The story of aircraft production in the Third Reich deserves to stand at the centre of our understanding of the regime’s entire industrial history.90 In 1932 the German aircraft industry employed 3,2 00 people and had the capacity to produce no more than a hundred aircraft per year.
Less than ten years later, the regime had created a multi-billion Reichsmark aircraft and aero-engine industry. It employed at least a quarter of a million people and was capable of turning out every year more than 10,000 of the most sophisticated combat aircraft in the world. Of all the industrial effects of rearmament this was by far the most significant.
What was distinctive about the aircraft producers was that, unlike ship-builders, gun- or tank-makers, the aircraft producers had no significant civilian production.
Fundamentally, therefore, Germany’s largest new manufacturing sector was not merely state controlled. It was a product of state initiative, state funding and state direction. It was founded indeed on one of the most blatant acts of coercion applied to any non-Jewish business in the history of the Third Reich.
But Junkers was in fact a conservative nationalist, who eagerly embraced the cause of rearmament. His difficulty was simply that he owned the largest aircraft plant in Germany and that Goering and his Secretary of State Erhard Milch were determined to have control of it. In the 1920s Junkers had squabbled with the German military about the future direction of aerial rearmament. The new holders of power were not willing to argue. After twenty-four hours in police detention, Junkers agreed to sign away his firm to the Reich.
The example of VGF raises the more general question of how foreign owned companies fared in Hitler’s Germany. Many sensationalist claims have been made on this score in recent years and a dose of realism is in order. It is true that there was substantial foreign direct investment in Germany both in the 1920s and before 1914. During World War II the Americans estimated that there were in the order of $450 million invested directly in businesses in Germany.102 Standard Oil’s investment of almost $65 million in the Deutsch-Amerikanische Petroleum Gesellschaft, combined with its close ties to IG
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At the same time as acknowledging this important foreign involvement in the Nazi boom, one cannot ignore the fact that the cumulative total of direct investment in Germany was dwarfed by the billions that were in default to American and European banks and bond holders. And on the crucial question of repatriating the capital they had invested or the profits they earned, direct investors were treated no better than the holders of Germany’s other foreign debts.
The fundamental problem was the enormous gap between these high-flown aspirations and German reality. By the standards of the day, let alone by the standards of the later twentieth century, Germany in the 1920s and 1930s was not an affluent society. And to avoid confusion, it is perhaps worth stressing that this was not a short-term effect of the Great Depression. The problem of international economic inequality was deep-seated.
In terms of per capita income, Clark estimated that Germany enjoyed a standard of living that was half that of the United States and at least a third lower than that prevailing in Britain.
In today’s league table of economic development, the Third Reich would rank alongside South Africa, Iran and Tunisia.
So cheap were Ford’s cars and so high were his rates of pay that Ford’s workforce provided a major market for the cars they were making, a situation virtually unthinkable in Europe.
According to contemporary comparisons, in the mid-1930s America’s productivity advantage over its European rivals was in excess of 2 : 1 in most branches of manufacturing, widening to as much as 4 : 1 or even 5 : 1 in the production of motor vehicles and radios.13 What is more surprising, from our early twenty-first-century perspective, is Germany’s marked inferiority relative to Britain.
Britain not only had a higher per capita income than Germany; he believed that despite the much smaller size of the British population, the British economy was still somewhat larger than that of Germany. This conclusion has been modified by more recent calculations. We now believe that the German economy in the 1930s was slightly larger. However, the claim that per capita incomes in Germany were substantially lower than in Britain has proved robust.
In virtually every industrial sector, German and British firms were closely matched. What dragged Germany down was its large and highly inefficient agricultural sector and the substantial tail of small shops and workshops in the craft and service sectors.
Not surprisingly, the majority of Germans lived on a modest and monotonous diet of bread and jam, potatoes, cabbage and pork, washed down with water and small amounts of milk and beer.
At only 3 Pfennigs apiece, cigarettes were a luxury even the poorest could afford. All in all, expenditure on food, drink and tobacco accounted in working-class households for between 43 and 50 per cent of average household budgets.22 Rent accounted for another 12 per cent, implying average housing expenses for German working-class households of only 24 Reichsmarks per month.
In 1929, the Ford Motor Company commissioned an investigation of the wages that would be required in each of its fourteen European locations to enable its workers there to match the standard of living of those on the lowest rung of the Dearborn wage scale.
In total, to have matched the standard of living of Detroit in either Frankfurt or Berlin in the early 1930s would have required an income of between 5,380 and 6,055 Reichsmarks, sums that were beyond the wildest dreams of the majority of the German workforce.
It cannot be stressed too strongly, that in the early 1930s Germany looked back on almost twenty years in which economic decline and insecurity massively outweighed the experience of prosperity and economic advancement. Over the previous decade, international economic integration had brought crisis. Investment had led to bankruptcy. Hundreds of thousands of young people who had embarked optimistically on apprenticeships and university degrees found themselves stranded in unemployment. In light of this experience, one did not have to be a radical right-wing ideologue or paranoid anti-Semite to
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The Third Reich made it its mission to use the authority of the state to coordinate efforts within industry to devise standardized and simplified versions of key consumer commodities. These would then be produced at the lowest possible price, enabling the German population to achieve an immediate breakthrough to a higher standard of living.
In fact, by 1933 the use of the term ‘Volk’ had become so inflationary that the newly established German advertising council was forced to ban the unlicensed use of the term.
Radios became one of the genuine boom industries of the 1930s, stimulating not only electronics production, but also the manufacture of Bakelite and wood cases. By 1935 the radio industry was showing all the symptoms of a speculative bubble. Production had outrun demand, inventories had risen to unhealthy levels and three of the smaller producers, including Seibt, whose chief designer had been responsible for the Volksempfaenger, went into liquidation.
By 1938, the penetration of radios in the big cities of Germany had reached 70 per cent. In the countryside, however, radios remained a luxury. And Germany’s relative poverty was still starkly evident from the comparative statistics. In the second half of 1938 only half of German families afforded themselves a radio, as compared to 68 per cent in Britain and 84 per cent in the United States.
In fact, only a tiny minority of licensed vehicles were primarily for personal use. The overwhelming majority of cars in Hitler’s Germany were owned for business purposes.
As Hitler was fully aware, Germany in 1933 did not measure up to this standard. In 1933 only 25 per cent of Germany’s major roads had hardened surfaces suitable for high-volume motor traffic.
In April 1933, the regime also announced the elimination of car tax on all newly acquired vehicles. Prior to 1933 these taxes were amongst the highest in Europe and at least ten times higher than those prevailing in the average State in the United States.47 Not surprisingly, the result was a considerable surge in car production and ownership.
By the late 1930s the price of a litre of petrol in the Third Reich stood at 39 Pfennigs (roughly $1.70 in dollars of 1990). At this price, a family outing of 160 kilometres in a fuel-efficient car cost an entire day’s work for the average German worker.
What determined the actual cost of petrol in the Third Reich was politics.
Taxes and the legal requirement to add domestically produced alcohol doubled the price of petrol.
Of far greater strategic importance to Hitler’s regime than popular motorization were the problems of the balance of payments and the related project of fuel autarchy, which required that the price of petrol in Germany be raised to far in excess of world market levels.
Taxes on imported oil were a significant source of revenue, bringing in 421 million Reichsmarks in 1936, a third of the total customs revenue of the German state.
And 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.
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.
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. Most of Porsche’s half-finished factory was turned over to military production. 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.
To the naked eye, by far the most striking difference between the economic situation of Germany, Britain and the United States was the huge command over raw materials and land provided by the continental expanse of North America and the vast reach of the British Empire. Land hunger was one, if not the most important impulse behind the European explosion into the world that had profoundly reshaped the structure of global power since the seventeenth century.
Though it is common to regard the German economy in the early twentieth century as a modern, dynamic, cutting-edge global competitor, in fact until the 1950s a substantial minority of the German population continued to eke out a living from the soil, under conditions, in many cases, of extraordinary backwardness.4 The census of 1933 counted no less than 9.342 million people as working in agriculture, almost 29 per cent of the total workforce.
