The National Socialist Economy: propaganda "miracle", financial manipulation or economic reality? A brief survey.
Citation avoids Plagiarism and Offence. Please note I am not an accredited academic so therefore what I have written here won't get you any extra browny points.
The detractors of the 1930s Nazi regime have traditionally conceded the economic policies of Hitler's Germany to be a success. Looked at in isolation from the degradation of human rights, it has become common knowledge in the former allied nations, that Hitler reinvigorated the German economy more swiftly than any other leader of any other comparable country. Hitler is said to have restored work and dignity to the German people. In his introduction to Why Hitler? The Genesis of the Nazi Reich Samuel W. Mitcham jr. relates that he,
" once knew a German who was the type of man one would not mind having as a neighbor. Certainly, he was not the type of monster who committed murder. I was appalled when he told me, in a confidential manner, that he had voted for Hitler. After I had expressed my shock, he became very thoughtful. He reminisced about being a young man lying in bed next to his wife at night, but neither of them could sleep since their children in the next room were crying because they had not had enough to eat. Then his eyes focussed directly on mine. 'Yes,' he declared forcefully, 'You're damn right I voted for Hitler. He offered us hope!' "
Ordinary German people believed that Hitler could solve the problems caused by the slow post war economic recovery, the lack of confidence in the Weimar Government and the Great Depression. Did National Socialism succeed in improving the economy or did a masterly propaganda machine deceive the German people, and the rest of the world? Was the "miracle" simply born of wage and labour controls and public borrowing?
Throughout the Thirties, nations struggled to cope with the consequences of economic collapse. The USA had suffered greatly with unemployment ranging from 4 to 25 percent during the period 1929-1933 and a drop in manufacturing output. High unemployment and low output were the signifying indicators of all that had gone wrong, not just for the USA, but for all the developed economies of Europe.
President Roosevelt pragmatically brought together a number of economic ideas in order to couch what has been termed "The New Deal". Over the period of his administration there were in fact several New Deals; essentially adaptations of policy to take into account changing factors. In Italy Mussoliniís Fascist government continued with its corporatist programme, but used increased state intervention. Britain appears to have fudged her way through this era with no great plans ever reaching fruition due to the fall of the Labour Government in 1931 and the subsequent Coalition Governmentís highly conservative approach.
The newly elected Hitler invested in work creation programmes. During his rise to power Hitler had not received general support from the major German capitalists. Mitcham states that individual party members and supporters had largely funded the rise of NSDAP. Hitler had received donations from Thyssen, the iron and steel magnate, although these were somewhat negated by his subsequent denunciation of the Nazi regime and exile from the Reich. Links with industrialists would grow after Hitler became Fuehrer. It would be these associations that would support the work creation schemes and subsequent rearmament. (Hitler's associations with American big business will not be discussed in this essay)
In The German Economy in the Twentieth Century: The German Reich and the Federal Republic Hans-Joachim Braun indicates that the Naziís had some economic ideas but that they were largely underdeveloped in terms of any great academic substructure and that any idea was measured by how well it contributed to the Fuehrer's desire for rearmament and war. Initially and in a very loose manner the Nazis had considered Gottfried Feder's 'unalterable 25 points'í of 1920 as an economic guide. Amongst Feder's assertions were notions that the Nazis utilised both as policy and as propaganda; these included the innate wrongness of usury and profiteering; land reforms for small farmers and peasants; protection for small business from big business. Of major import to lower class Germans were further ideas suggesting the abolition of unearned income (meaning specifically, financial speculation) and the requisition of land to grow more food (meaning Lebensraum). By appearing to challenge big business, the financial institutions and large landownership the Nazis appeared to be on the side of the 'little man'. However, it is notable that these ideas as they left the page and became actual policy would have a devastating effect upon the largely assimilated German Jews involved in financial businesses and to all those people, whether Jew or Gentile of non-Germanic stock, living within the putative Lebensraum.
However, not only the Jews, but also the actual 'little man' of Germany would suffer for the benefit of the Nazi economy. As new the Reich established itself and began its policy of Aryanisation, which didn't simply mean the removal of Jews from key posts, but also confiscation of Jewish businesses and especially high levies of tax upon the Semitic population, the policies relating to a fair deal for German workers were also quietly shelved. Hitler eliminated free association through Trade Unions and introduced wage controls. The elimination of Trade Unions solved two problems; the risk of opposition to employers managing government contracts and the risk of leftist opposition to the Nazis themselves. Any leftist tendencies with NSDAP were also dropped or eliminated.
Yet throughout the Thirties, propaganda, unfailingly referenced the work creation projects, consumerism and the continued lionisation of the Peasant.
The work creation projects are worthy of some consideration in terms of how they were financed and in terms of actual achievement of employment levels and output. As can been seen from the USA and from Italy work creation was not a novel idea. Weimar Germany had had work creation projects under Schliecher and under Von Papen.
In the 1930s Hans Buchner had introdroduced in the Volkischer Beobachter, an article that outlined Nazi economic doctrine. This was essentially a policy of corporatism. The parties of business interest and labour interest were to become units of production known as Staende. The Staende or Estates represented various sectors of the economy from local to national level. The key point of this was the avoidance of, or even the abolition of ëClass Struggleí. By 1933 these ideas were pragmatically dropped in favour of a more state interventionist form of Corporatism with the workers most definitely at the bottom of the pile. The Fuehrer, whilst maintaining the view that private property was the reward for the forceful risk-taking entrepreneur, Braun observes that as Hitler in a reassuring mood,
"...told industrial leaders that he was not in favour of a planned economy..."
whilst paradoxically his government,
"...forced reluctant lignite producers to finance the production of synthetic fuels and lubricants...."
The differing remarks and conduct do indicate the Fuehrer's disregard for policy continuity. Hitler pragmatically told audiences that which they wished to hear, whilst continuing to enact, with force, any policy that would enable him to achieve his pursuit of military supremacy.
However, it is one thing to persuade or force industrialists to participate in work creation or to the production of specific products; it is entirely another matter to find the funds to get the policy off the ground. It was clear that insufficient tax could be levied from the populace to inject the economy with the necessary subsidies. In the meantime propaganda continued to intimate that the work programmes were funded by Aryanisation and to an extent by income tax.
Hitler had appointed Dr. Hjalmar Horace Greeley Schacht as his Minister of Economics. Schacht, although not a card carrying Nazi, had raised funds for NSDAP during the Twenties; whilst believing in the importance of work creation as an socio-economic tool for social cohesion it is not clear that he shared Hitler's military objectives. Capable of aggressive economic tactics, such as the abolition of the old currency during the hyperinflation period, Schacht had also negotiated reduced war reparation payments, only to resign from his role as Reichbank Chairman at the onset of the Depression. For the Nazis, by manipulation of accounting practice, he obtained the finance for the work creation programme.
Schacht invented a company, Metallurgische Forschungsgesellschaft, m.b.H or MEFO. MEFO was a paper entity said to have capital of one million Reichmarks. Through MEFO, Schacht, on the Nazis' behalf, drew up contracts with manufacturers. MEFO gave the manufacturers 'bills of exchange' which were in turn 'cashed' by the German banks. The manufacturers used the cash to fund their contracts. The Reich underwrote the bills of exchange for a five-year period, after which the banks could redeem them from Reichbank. Funds for rearmament were raised, without the Nazis having to make requests for large loans directly from the Reichbank, a practice prohibited by law; without having to change legislation in order to facilitate larger loans and without drawing the attention of the international community.
Clearly Schacht, the Nazi leadership, the manufacturers and banks were cogniscent of this financial ruse. The system led to a massive Government debt of around 12 billion Reichmarks by 1938, which set against the governmental lending limit from the Reichbank of one million Reichmarks, puts into perspective the amounts the MEFO ploy allowed the Nazis to spend on rearmament. Such was the level of debts that Schacht resigned believing that the Nazi leadership had overplayed its hand.
The early Nazi work creation projects were not recognisably related to the military programme of rearmament. Referring to the first Reinhardt programme, (named after Fritz Reinhardt the Secretary of State of the Ministry of Finance), of June 1933, Braun points to some direct public investment and tax incentives as inducements for the support of schemes which improved waterways, railroads, highways, residential housing and public building. The second Reinhardt plan in 1933/34 spent RM500million on further works upon housing, agricultural buildings, investment in the infrastructure of the mail service and the railway network. All of these programmes could be construed as restoring the German infrastructure to a pre-Depression level, thereby disguising the military intent.
The work creation schemes were designed to give support to the key areas of Construction and Motorisation. The matter of motorisation has often been confused with issues relating to Hitlerís love of sports cars or the introduction of the Volkswagen. Whilst undoubtedly Nazi propaganda showed the Fuehrer speeding purposefully along the new autobahns, motoring for the masses was a largely unfulfilled dream for the most Germans. The Volkswagen was not an item of mass consumerism based on ability to pay; the vehicles, like the holidays offered by the Strength through Joy organisation, were largely the provinces of office workers. Motorisation really referred to the infrastructure that supports motor transportation, military transportation.
The reinvigorated German railways, waterways and the new autobahns were to serve the Nazi army. The creation of jobs was incidental to Hitlerís master plan for rearmament and war. Goetz Aly in his controversial Hitlers Volkstaat noted that the improved infrastructure, including the postal service and an autobahn baggage allowance, allowed German soldiers to send back spoils of war, including perishable items such as meat, cheese and butter to hungry relatives in Germany during the war years.
Having elucidated his plan for Autarky, Lebensraum and war in the East, Hitler may have been simply giving his wish list to his cohorts. However, this 'wishlist' was to have serious effects upon German business and the work of ordinary Germans. Ultimately Germany as the conquering nation would set up its own trade networks amongst the defeated Eastern nations. Alan Tooze has posited that the conquest of Romania gave access to petroleum reserves that would never have been matched by the Autarky's lignite producers of Ersatz Oil. It may also be posited that conquest in the east gave access to labour power.
Autarky as described in the Hossbach Memorandum may have benefited the large industries, coal; iron and steel; machinery manufacture and petro- chemicals, all directly involved in supporting rearmament. For the producers of consumer goods for the home and export market dependant on foreign imports and favourable currency exchange rates the notion of Autarky, i.e. self sufficiency was potentially disastrous. Work creation schemes and MEFO bonds were of no use to these businesses.
As a provider of employment, work creation schemes were somewhat less effective than the burgeoning bureaucracy of the Nazi years. R.J Overy in The Nazi Economic Recovery 1932-1938 has noted that,
"Some indices show an early upward movement in the middle of 1932, but unemployment peaked slightly later and in the early months of 1933 there was a growing fear that the optimistic signs of the previous year, like those of 1931, had been a mirageÖonly by the second quarter of 1933 did it become clear that a more general improvement was taking place."
Was it possible that the natural economic cycle was beginning to reassert itself? Unemployment fell by 2 million between March 1933 and March 1934, a useful propaganda coup. Dan Silverman in Hitler's Economy: Nazi Work Creation Programs 1933-1936 has also written extensively on the matter of unemployment. He points to global nature of the world economy at this point and that improvements may have occurred naturally. However he has also written extensively upon the matter of statistical accuracy in the Third Reich. Departments were merged and sometimes disbanded without any apparent logic and new staff were employed who lacked the expertise of earlier statisticians in government employ. This indicates that whilst reductions in unemployment were real, the extent of improvement may, or may not, have over estimated. It is apparent that different offices collected and administrated data by different methods. Moreover the effect of the removal of thousands of Jews, Leftists and others from public sector employment releasing many positions for the unemployed was masked by the regimeís propaganda.
Apart from actual rates of employment, another useful indicator of economic recovery is the values of wages. R.J Overy has produced some helpful figures. Real wages, money wages and real earnings all fell during the period 1933 to 1938. Working class food consumption is another indicator. Between 1933 and 1938 consumption of the cheaper Rye bread increased by 20 per cent as opposed to the decrease of 44% in consumption of the more expensive wheat bread. Cheese consumption rose by 11.5 percent and potatoes by 4.1 percent during the same period. At the same time meat consumption dropped by 18.3 percent and bacon fell by 10.5 percent. Milk, eggs, fish, vegetables and sugar consumption were also reduced by 1938. Tropical fruit fell by 37.1 per cent and beer by 58.7 percent. By the end of 1938 Germans were eating a very bland diet which hardly seems credible in a society riding high on armaments manufacture, one of the greatest economic driving forces. Overy reports that by 1938 German workers were less productive than their British, French, Swedish, American and Italian counterparts; they were also the lowest paid.
The early wartime victories in France and elsewhere with the subsequent influx of consumer goods and food must have seemed like manna from heaven. The influx of slave and forced labour from the conquered nations lifted the lowliest German's status in the workplace.
The economic policies seem to have benefited the Nazi elite and the leaders of big business rather than the 'little man'. That does not however preclude the fact that the 'little man' or Mitchams' German neighbour may, through the power of propaganda, have believed that he was living in a country with a strongly recovering economy. How long he would have held that view is questionable as the worldwide economic cycle began to turn downwards during 1937 towards a global depression that was potentially deeper than that of 1929 - 1932; a depression averted by the inflationary pressures of war.