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

by Adam Tooze

Similarly, Hitler’s obsessive preoccupation with food was rooted in contemporary reality. Though famine had been banished from Western Europe in the second half of the nineteenth century, in large part due to Europe’s ability to tap huge new sources of overseas supply, World War I had forced the question of food supply back onto the agenda of European politics.9 The British and French blockade, though it failed to produce outright famine, did succeed in producing an epidemic of chronic malnutrition in Germany and Austria that was widely blamed for killing at least 600,000 people.

One way or another, virtually everyone alive in Germany in the 1930s had an acute personal experience of prolonged and insatiable hunger. Nor was mass starvation a distant threat confined to Africa and Asia. On Germany’s eastern borders in the early 1920s, the turmoil of war, revolution and civil war in Russia, Poland and the Ukraine had precipitated an agricultural disaster, which by 1923 had claimed the lives of perhaps as many as 5 million people.

By comparison with densely packed Germany, France had a vastly favourable ratio of population to land as well as its own considerable Empire. Britain and the United States controlled the agricultural heartlands of both halves of the American continent as well as Australasia.

By refusing to accept this state of affairs as inevitable, Nazi Germany was not seeking to turn back the clock. It was simply refusing to accept that the distribution of land, resources and population, which had resulted from the Imperial wars of the eighteenth and nineteenth centuries, should be accepted as final. It was refusing to accept that Germany’s place in the world was that of a medium-sized workshop economy, entirely dependent on imported food.

Faced with overcrowding and low wages in the cities, urban families would do their best to reduce the birth rate. The best and the brightest would emigrate to new territories that offered more scope for advancement. For lack of natural resources, the German economy would never be able to match the affluence on show in the United States. And if Germany were ever to emerge as a serious trade competitor, it would be at the mercy of the British and the Jewish propagandists of global liberalism, who would not hesitate to unleash a second, ruinous world war, whilst crippling the German home front by means of blockade.

Within the space of three years, Darré’s agricultural organization conquered the German countryside. The farmers’ organizations, which had always been dominated by the Junker interests, were entirely subverted.

It was on Darré’s instigation that the SS began the process of transforming itself from a sworn fraternal brotherhood into a self-perpetuating and expanding community of families of certified racial purity–a Sippengemeinschaft (clan community).

Germany was far more densely populated than France and lacked the colonial outlets available to Britain. For readers today, living as we do in post-agricultural societies, this rhetoric has a somewhat empty ring. It is hard to believe that by Lebensraum Hitler really meant mere land, rather than something more valuable such as industrial raw materials. But in making such assumptions we are in danger of ignoring the fact that ‘land shortage’ was in the 1930s still one of the chief afflictions of German society.

Compared to Britain, Germany had more land to devote to agriculture, but its rural population was disproportionately larger. Compared to France, the German agricultural population was smaller in relative terms, but France was far more favourably endowed with land.

in terms of land per farmer Germany had far more in common with backward ‘peasant nations’ such as Ireland, Bulgaria or Romania. Amongst the large Western European states only Italy had a higher ratio of rural population to land endowment.

No such dramatic redistribution was carried out in Germany. In 1933, 7,000 estates of more than 500 hectares, just over 0.2 per cent of all farms, controlled almost 25 per cent of German farmland. By contrast, 74 per cent of all farms in Germany–2.26 million in total–farmed only 19 per cent of the land, in often widely dispersed holdings of between 0.5 and 10 hectares.

For all but the most privileged members of the rural community, farm life was hard. On peasant farms in particular, survival depended on extraordinarily long hours, in excess of twelve hours, six days per week, for both men and women.

By 1936 at the latest it was abundantly clear that even with the most concerted management, it was simply impossible for Germany within the confines of its present territory to achieve anything like self-sufficiency, certainly if the regime was determined to maintain the current standard of living and the current structure of German agriculture.

By May 1936, Emperor Haile Selassie was in exile and the Italians had installed a genocidal regime that was to claim the lives of hundreds of thousands of Ethiopians.

The governments of both France and Britain were desperate to avoid a major conflict, not because they expected to lose, but because they believed that only the flanking powers–the United States, the Soviet Union and Japan would benefit.

For both France and Britain the first priority was to ensure that they could negotiate from a position of defensive military strength. Both countries, therefore, began in 1936 to make serious efforts to respond to Germany’s rearmament.4 The second key element was to undo some of the damage done by the Great Depression in restoring a degree of economic coherence between the three major Western powers–France, Britain and the United States.

The third and most familiar facet of appeasement, finally, was the effort to construct a package of concessions sufficient to tie Hitler into a lasting peace settlement in Europe.

The case for appeasement was powerfully reinforced by the fact that Hitler’s regime, after weathering the storm of indignation that followed the Rhineland Aktion in March 1936, seemed to be entering a phase of comparative ‘respectability’. In the summer of 1936, Germany hosted the athletes of the world at the Berlin Olympics, accompanied by a mob of international journalists. Goebbels bit his lip as the German press was instructed to give ample coverage to the triumphs of Jesse Owens and other African American athletes.

In its fifth year, Hitler’s regime could present itself as the model dictatorship. Unemployment had fallen to negligible levels. The economy was booming. Life for millions of German households was returning to something like normal.9 The savage wave of repression in 1933–4 had done its job. Inmate numbers in Himmler’s concentration camps dwindled to a few thousand.

When compared to the warlike aggression of Fascist Italy in Africa and Imperial Japan in China, not to mention the well-publicized excesses of Stalin’s show trials, Hitler’s government appeared positively reasonable.

The majority in Britain and France, however distasteful they may have found Hitler’s regime, were clearly willing to make space in Europe for an authoritarian Germany.

By March 1936, after two years of reduced imports, Germany’s stocks of foreign raw materials were at a desperately low ebb and there was a real threat that industrial production would be severely interrupted.

The gigantic machinery of mobilization could not be kept spinning indefinitely. If there was no intention to use the army at a predetermined point, then the whole rationale for rearmament at the pace being envisioned in the summer of 1936 had to be questioned. Given the scale of the resources required, means and ends could no longer be separated. War now had to be contemplated not as an option, but as the logical consequence of the preparations being made.

The Anschluss added somewhat less than 8 per cent to Germany’s existing industrial output. Austria’s heavy industrial resources, however, were relatively scanty.

For the German economy as a whole, the main benefit of the Anschluss was the addition of the underemployed Austrian workforce.

By contrast, the impact of the Anschluss on the all-important balance of payments was ambiguous. In the longer term, the effects were clearly negative. Like Germany, Austria depended on imports both for its food and industrial raw materials and it struggled to sustain exports at a sufficiently high level.6 A large-scale revival of the Austrian economy could, therefore, be expected to add to Germany’s balance of payments problems.

The gold and foreign exchange reserves of the Austrian national bank alone totalled 345 million Reichsmarks.7 Altogether, the Austrian foreign exchange dowry came to at least 782 million Reichsmarks, more than doubling Germany’s reserves. These funds were crucial, because in the first weeks of 1938 Germany’s balance of payments situation looked extremely bleak.

But the motivation for the Anschluss was not booty. The real imperative was strategic. The joining together of Germany and Austria dramatically increased the Reich’s power in relation to the smaller countries of Central and South-eastern Europe. From time immemorial, Vienna had been the hub around which the trade of Eastern and South-eastern Europe had flowed.

He still hoped that the British would see reason and that the confrontation with France could be delayed until 1943–4, by which time the German army would have completed its build-up. But if the Western powers were determined to oppose his first steps towards eastward expansion, Hitler would not shrink from war. From the spring of 1938 onwards, Hitler began seriously to contemplate the need for a major war in the West, as a prelude to his drive against the Soviet Union.

Nevertheless, in the days following the May crisis of 1938, Hitler gave the order.24 Germany was now heading towards war. All consideration for the civilian economy was to be set aside. The full, wartime army was now to be completed by April 1939, sooner even than the original target date of April 1940.

In so doing, he committed over half the Luftwaffe’s workforce to the production of a medium-range bomber, whose only strategic rationale was offensive operations against France and Britain.

In 1918, Imperial Germany had produced 13,600 tons of high explosives and 13,250 tons of gunpowder per month. In the summer of 1938 the Third Reich’s capacity was no more than 5,400 tons of either.

It has often been remarked that the Third Reich could have done more to raise taxes.47 But this ignores the fact that Germany in the late 1930s was already the most heavily taxed society in Europe.

So the Finance Ministry proceeded selectively. Corporation tax was lifted in the autumn of 1938.49 At the same time the Reich plundered the coffers of local government, redirecting hundreds of millions of Reichsmarks towards national priorities.

To ensure that it was the Reich not the private sector that secured the lion’s share of German private saving, the Reichsbank exerted systematic pressure on savings banks and insurance offices to invest their funds in government bonds and short-term paper.51 Most dramatically, the Reich made a determined effort to curb private construction, the most important form of private investment.

At a time when Germany was facing the worst housing shortage in its history, the decrees of the summer of 1938 meant an end to publicly funded housing construction.

The frustrations of the housing shortage were no doubt acute. But, more worrying for the Reich authorities was the impact of underinvestment on the German railway system. By 1938 the Reichsbahn was increasingly unable to cope with the combined demands of the Wehrmacht and a booming economy.

Whilst metalworking, chemicals and construction boomed, the inflationary battle for resources took a severe toll on the weakest sector of the German economy, agriculture.

It may seem odd, at a moment of high international drama, to return to the placid fields of rural Germany. But there can be no doubt that in the summer of 1938 the leadership of the Third Reich believed itself to be threatened by a crisis in the national food supply.

What caused labour to drain out of agriculture was the huge differential in wages and standard of living between town and country. This imbalance had been the driver of labour migration in Germany at least since the mid-nineteenth century. The acute labour shortage of the late 1930s merely accelerated the flow.

By the late 1930s, however, the ‘world market’ as far as Germany was concerned was an increasingly irrelevant abstraction. Given the politicization of its foreign trade, Germany no longer purchased at ‘world’ prices.

According to the Reichsbank, this was no longer realistic. For years the rates at which goods were exchanged with each other had not been determined by the anonymous and continuous workings of the market system, but by a series of ad hoc and inconsistent political decisions. The consequence was that for foreign trade purposes the Reichsmark now lacked any well-defined value. The purchasing power of the Reichsmark in foreign transactions depended entirely on which commodity it was measured in terms of and from where those goods were sourced.

One could cite many factors to explain the relatively slow rate of Jewish emigration. However, the most important single obstacle was clearly the extremely high cost of leaving Germany. This in turn was dictated by the same problem that afflicted virtually every other aspect of Nazi policy, the shortage of foreign exchange.

By far the biggest beneficiary of the economic persecution of German Jewry was not German business, but the German state and thus indirectly the German taxpayer in general.

Hitler had achieved the ultimate goal of German nationalism, the establishment of Grossdeutschland, something which had eluded even Bismarck, and he had done so without provoking war. This extraordinary national resurrection was above all based on a gigantic armaments effort, which had been managed in such a way as to give full employment to the German people whilst avoiding the curse of inflation. This too was a unique historical accomplishment. But, in the autumn of 1938, at the moment of Hitler’s greatest triumph, the economic foundations of his success were in question.

By the end of the year, the Reich found itself facing both a cash flow crisis and a severe squeeze on its foreign exchange account, blocking any substantial progress towards Hitler’s target of tripling armaments production.

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.

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.

For conventional strategic minds such as Ludwig Beck or General Thomas the convergence between Britain, France and the United States was in no way surprising. In light of their experience in World War I, the trans-Atlantic alliance seemed a natural counter-weight to German power in Europe. For Hitler, by contrast, it was profoundly counter-intuitive. In particular, it ran counter to his deeply held belief, expressed clearly in his ‘Second Book’, that British and American interests were fundamentally antagonistic.140 What, therefore, explained the emerging Anglo-American alliance was the malevolent force of world Jewry personified by its ‘chosen one’, President Roosevelt.

Furthermore, despite the worldwide sensation caused by Germany’s swift victory over Poland, a few weeks of sharp fighting had exposed severe shortcomings in Hitler’s hastily assembled war machine. 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.