Economy of Nazi Germany

The economy of Nazi Germany during the Hitler era (1933 – 1945) developed a hothouse prosperity, supported with high government subsidies to those sectors that Hitler favored because they gave Nazi Germany military power and economic autarky, that is, economic independence from the global economy.

Adolf Hitler, believing that "the economy is something of secondary importance", left the details of the economic National Socialist Programme out of his book. The Nazis rose to power while unemployment was very high , but achieved full employment later thanks to massive rearmament. Their pre-war economic policies, resembling Keynesianism, were in the beginning the brainchildren of their non-Nazi Minister of Economics, Hjalmar Schacht, who was later made to focus more on war production (cf: Military Keynesianism), and was eventually replaced by a Nazi, Hermann Goering.

The trading policies of Third Reich aimed at discouraging trade with countries outside the German sphere of influence, while making southern Europe largely dependent on Germany. Eventually, the Nazi party developed strong relationships with big business and abolished trade unions, while real wages dropped by a fourth and employees could not easily change employer. Taxes, though, were still low well into the war. Already before the war, people undesirable to the regime were used as slave labour, and in 1944 they reached one quarter of the workers.

Political economy of Nazi Germany

Adolf Hitler regarded economic issues as relatively unimportant. In 1922, Hitler proclaimed that "world history teaches us that no people has become great through its economy but that a people can very well perish thereby", and later concluded that "the economy is something of secondary importance". Hitler and the Nazis held a very strong idealist conception of history, which held that human events are guided by small numbers of exceptional individuals following a higher ideal. They believed that all economic concerns, being purely material, were unworthy of their consideration. Hitler went as far as to blame all previous German governments since Bismarck of having "subjugated the nation to materialism" by relying more on peaceful economic development instead of expansion through war.

For these reasons, the Nazis never had a clearly defined economic programme. The original "Twenty-Five Point Programme" of the party, adopted in 1920, listed several economic demands (including "the abolition of all incomes unearned by work," "the ruthless confiscation of all war profits," "the nationalization of all businesses which have been formed into corporations," "profit-sharing in large enterprises," "extensive development of insurance for old-age," and "land reform suitable to our national requirements"), but the degree to which the Nazis supported this programme in later years has been questioned. Several attempts were made in the 1920s to change some of the program or replace it entirely. For instance, in 1924, Gottfried Feder proposed a new 39-point program that kept some of the old planks, replaced others and added many completely new ones. Hitler refused to allow any discussion of the party programme after 1925, ostensibly on the grounds that no discussion was necessary because the programme was "inviolable" and did not need any changes. At the same time, however, Hitler never voiced public support for the programme and many historians argue that he was in fact privately opposed to it. Hitler did not mention any of the planks of the programme in his book, Mein Kampf, and only talked about it in passing as "the so-called programme of the movement".

Hitler's own views on economics, beyond his belief that the economy was of secondary importance, are a matter of debate. On the one hand, he proclaimed in one of his speeches that "we are socialists, we are enemies of today's capitalistic economic system", but he was clear to point out that his interpretation of socialism "has nothing to do with Marxian Socialism," saying that "Marxism is anti-property; true Socialism is not." At a later time, Hitler said: "Socialism! That is an unfortunate word altogether... What does socialism really mean? If people have something to eat and their pleasures, then they have their socialism." In private, Hitler also said that "I absolutely insist on protecting private property... we must encourage private initiative". On yet another occasion he qualified that statement by saying that the government should have the power to regulate the use of private property for the good of the nation. Hitler clearly believed that the lack of a precise economic programme was one of the Nazi Party's strengths, saying: "The basic feature of our economic theory is that we have no theory at all."

Hitler's political beliefs drew heavily upon Social Darwinism – the view that natural selection applies as much to human society as it does to biological organisms. Hitler's interpretations of this idea produced two separate conclusions: on the one hand, Hitler believed that history was shaped by a violent struggle between nations and races, and that a nation needed to be united under a strong, centralized state led by an heroic leader in order to succeed in this struggle. On the other hand, Hitler also believed that individuals within a nation battled with each other for survival, and that such ruthless competition was good for the health of the nation, because it promoted "superior individuals" to higher positions in society.

Pre-war economy: 1933–1939

Nazis came to power in the aftermath of the Great Depression. When the Nazis came to power the most pressing issue was an unemployment rate of close to 30%. Before World War II, the Nazis placed non-Nazi professionals in charge of economic policy. Hitler appointed Hjalmar Schacht, a former member of the German Democratic Party, as Chairman of the Reichsbank in 1933 and Minister of Economics in 1934.

At first, Schacht continued the economic policies introduced by the government of Kurt von Schleicher in 1932 to combat the effects of the Great Depression. These policies were mostly Keynesian, relying on large public works programs supported by deficit spending — such as the construction of the Autobahn — to stimulate the economy and reduce unemployment (which stood at 30% in early 1933). There was major reduction in unemployment over the following years, while price controls prevented the recurrence of inflation. The economic policies of the Third Reich were in the beginning the brainchildren of Schacht, who assumed office as president of the central bank under Hitler in 1933, and became finance minister in the following year. Schacht was one of the few finance ministers to take advantage of the freedom provided by the end of the gold standard to keep interest rates low and government budget deficits high, with massive public works funded by large budget deficits. The consequence was an extremely rapid decline in unemployment—the most rapid decline in unemployment in any country during the Great Depression. Eventually this Keynesian economic policy was supplemented by the boost to demand provided by rearmament and swelling military spending.

Meanwhile, the Nazis outlawed trade unions and banned strikes. They also directed Schacht to place more emphasis on military production and rearmament. Germany slowly began to recover from the Great Depression, but this recovery was driven primarily by a military build-up. A number of economists, starting with Michal Kalecki, have seen this as an example of military Keynesianism. In June 1933, the "Reinhardt Program" was introduced. It was an ambitious project for the development of infrastructure; it combined indirect incentives, such as tax reductions, with direct public investment in waterways, railroads and highways. The Reinhardt Program was followed by other similar initiatives resulting in great expansion of the German construction industry between 1933 and 1936. In 1933 only 666,000 Germans worked in construction; by 1936 the number had gone up to 2,000,000. In particular, road construction was expanding at a very rapid pace. This was part of Hitler's war preparations: Germany needed a state-of-the-art highway system in order to be able to move troops and materials quickly. Cars and other forms of motorized transport became increasingly attractive to the population. The German car industry experienced a boom in the 1930s. In 1936, military spending in Germany exceeded 10% of GNP (higher than any other European country at the time). Military investment also exceeded civilian investment from 1936 onwards. Armaments dominated government expenditures on goods and services.

The year 1936 also represented a turning point for German trade policy. Hjalmar Schacht was replaced in September 1936 by Hitler's lieutenant Hermann Goering, with a mandate to make Germany self-sufficient to fight a war within four years. Under Goering imports were slashed. Wages and prices were controlled—under penalty of being sent to the concentration camp. Dividends were restricted to six percent on book capital. And strategic goals to be reached at all costs were declared: the construction of synthetic rubber plants, more steel plants, automatic textile factories.

World prices for raw materials (which constituted the bulk of German imports) were on the rise. At the same time, world prices for manufactured goods (Germany's chief exports) were falling. The result was that Germany found it increasingly difficult to maintain a balance of payments. A large trade deficit seemed almost inevitable. But Hitler found this prospect unacceptable. Thus Germany, following Italy's lead, began to move away from partially free trade in the direction of economic self-sufficiency.

Unlike Italy, however, Germany did not strive to achieve full autarky. Hitler was aware of the fact that Germany lacked reserves of raw materials, and full autarky was therefore impossible. Thus he chose a different approach. The Nazi government tried to limit the number of its trade partners, and, when possible, only trade with countries within the German sphere of influence. A number of bilateral trade agreements were signed between Germany and other European countries (mostly countries located in Southern and South-Eastern Europe) during the 1930s. The German government strongly encouraged trade with these countries but strongly discouraged trade with any others.

By the late 1930s, the aims of German trade policy were to use economic and political power to make the countries of Southern Europe and the Balkans dependent on Germany. The German economy would draw its raw materials from that region, and the countries in question would receive German manufactured goods in exchange. Already in 1938, Yugoslavia, Hungary, Romania, Bulgaria and Greece transacted 50% of all their foreign trade with Germany. Throughout the 1930s, German businesses were encouraged to form cartels, monopolies and oligopolies, whose interests were then protected by the state. In his book, Big Business in the Third Reich, Arthur Schweitzer notes that:

"Monopolistic price fixing became the rule in most industries, and cartels were no longer confined to the heavy or large-scale industries. [...] Cartels and quasi-cartels (whether of big business or small) set prices, engaged in limiting production, and agreed to divide markets and classify consumers in order to realize a monopoly profit."
As big business became increasingly organized, it developed an increasingly close partnership with the Nazi government. The government pursued economic policies that maximized the profits of its business allies, and, in exchange, business leaders supported the government's political and military goals.

While the strict state intervention into the economy, and the massive rearmament policy, led to full employment during the 1930s, real wages in Germany dropped by roughly 25% between 1933 and 1938. Trade unions were abolished, as well as collective bargaining and the right to strike. The right to quit also disappeared: Labour books were introduced in 1935, and required the consent of the previous employer in order to be hired for another job. In place of ordinary profit incentive to guide investment, investment was guided through regulation to accord with needs of the State. Government financing eventually came to dominate the investment process, which the proportion of private securities issued falling from over half of the total in 1933 and 1934 to approximately 10 percent in 1935–1938. Heavy taxes on profits limited self-financing of firms. The largest firms were mostly exempt from taxes on profits, however government control of these were extensive enough to leave "only the shell of private ownership."

Another part of the new German economy was massive rearmament, with the goal being to expand the 100,000-strong German Army into a force of millions. The Four-Year Plan was discussed in the controversial Hossbach Memorandum, which provides the "minutes" from one of Hitler's briefings.

Nevertheless, the war came and although the Four-Year Plan technically expired in 1940, Hermann Göring had built up a power base in the "Office of the Four-Year Plan" that effectively controlled all German economic and production matters by this point in time. In 1942 the growing burdens of the war and the death of Todt saw the economy move to a full war economy under Albert Speer.

Wartime policies: 1939–1945

Initially, the outbreak of World War II did not bring about any large changes in the German economy. Germany had spent six years preparing for war, and a large portion of the economy was already devoted to military production. Unlike most other governments, the Nazis did not increase direct taxes by any significant amount in order to fund the war. The top income tax rate in 1941 was 13.7% in Germany as opposed to 23.7% in Great Britain.

During the war, as Germany acquired new territories (either by direct annexation or by installing puppet governments in defeated countries), these new territories were forced to sell raw materials and agricultural products to German buyers at extremely low prices. Hitler's policy of lebensraum strongly emphasized the conquest of new lands in the East, and the exploitation of these lands to provide cheap goods to Germany. In practice, however, the intensity of the fighting on the Eastern Front and the Soviet scorched earth policy meant that the Germans found little they could use. On the other hand, a large quantity of goods flowed into Germany from conquered lands in the West. For example, two-thirds of all French trains in 1941 were used to carry goods to Germany. Norway lost 20% of its national income in 1940 and 40% in 1943.

Even before the war, Nazi Germany maintained a supply of slave labour. This practice started from the early days of labour camps of "undesirables" (Template:lang-de), such as the homeless, homosexual and criminals as well as political dissidents, communists, Jews, and anyone that the regime wanted out of the way. As the war progressed, the use of slave labour experienced massive growth. Prisoners of war and civilian "undesirables" were brought in from occupied territories. Hundreds of thousands (perhaps millions) of Jews, Slavs and other conquered peoples were used as slave labourers by German corporations such as Thyssen, Krupp, IG Farben and even Fordwerke — a subsidiary of the Ford Motor Company. By 1944, slave labour made up one quarter of Germany's entire work force, and the majority of German factories had a contingent of prisoners. The Nazis also had plans for the deportation and enslavement of Britain's adult male population in the event of a successful invasion.

See also: Forced labor in Germany during World War II

The proportion of military spending in the German economy began growing rapidly after 1942, as the Nazi government was forced to dedicate more and more of the country's economic resources to fighting a losing war. Civilian factories were converted to military use and placed under military administration. By late 1944, almost the entire German economy was dedicated to military production. At the same time, Allied bombings were destroying German factories and cities at a rapid pace, leading to the final collapse of the German war economy in 1945 (Stunde Null).

Further reading

• Adam Tooze. The Wages of Destruction: The Making and the Breaking of the Nazi Economy New York: Viking, 2006. ISBN 978-0-670-03826-8.