Site Loader
Rock Street, San Francisco

To what extent
did Hitler prepare his country’s economy for war ?

How successful were Hitler’s attempts to
tackle the crisis and prepare his country for war ?

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 

            Before
analysing Nazi’s economic policies, it is crucial to understand what was
Germany’s economic situation before Hitler’s arrival to power in 1933. In the
1920s, the prosperity of German economy relied on very fragile bases. The
external debt took massive proportions as it reached 6.5 billion dollars at its
highest point with an annual interest expense of 300 million dollars, thus
requiring constant contributions from foreign capitals. In January 1933,
Germany owed 19 billion Reichsmarks to foreign creditors, of which 10.3 billion
were long-term bonds and 4.1 billion were short-terms loans covered by the
Standstill Agreement1.
On the 25 billion gold Marks invested since 1924, which were mostly coming from
the United States, 10 billion were short-term loans that German banks
frequently invested in the German industry in the form of bonds and long-term
credits. As a result, the Germans banks were unable to mobilise quickly these
capitals when they had to face the reimbursement requests made by their
American creditors and could therefore only rely on the small reserves of the
Reichsbank. Also, the evolution of the political situation and the electoral
progresses of extremist parties weakened the trust placed by the Germans in
their government and favoured capital flight2.

 

            The
influence of the American crisis would also deeply impact the German economic
situation. Firstly, by the end of 1928, one could witness the slow-down of
investments coming from America: 250 million dollars in 1928, only 40 million
in 1929. Secondly, the decrease of US external trade quickly caused the
decrease of international trade, thus reducing the number of German
exportations.

Table 1. Economic effects of the world economic crisis on Germany.

Economic effects

Key features

Trade

Exports value fell by 55 percent
1929 = £630 million
1932 = £280 million

Employment

Number of registered unemployed (annual
averages)
1929 = 1.8 million
1932 = 
6 million

Industry

Production: (1928 = 100)
1929 = 100
1932 = 58
50,000 businesses collapsed

Agriculture

Agricultural prices (1913 = 100)
1927 = 138
1932 = 77

Finance

Five major banks collapsed in 1931
50,000 businesses bankrupted.

Source: Goeff Layton, “Democracy and Dictatorship in Germany
1919-1963”, (Hodder education, an Hachette UK Company, 2009), 102.

 

From 1929 to 1932, German exportations
decreased by 25 percent in quantity and by 55 percent in value. One of the
reasons why German exportations decreased was the adoption by the United States’
Congress in 1930 of the Smoot–Hawley Tariff Act which implemented a significant
protection against importations of European manufactures by raising tariffs on
over 20,000 imported goods3.
The decrease of German exportations led to a drastic decrease of German
industrial production, which dropped by 20 percent between February 1929 and
February 1931 and thus leading to the bankruptcy of more than 50,000 German
businesses. In 3 years, the coal production went from 163 to 104 million of
tons and the steel production from 16 to 5.8 million of tons4.

 

            On
this period also started the massive withdrawal of American but also French and
British capitals invested in the Reich, which reduced the gold and currency
reserves of the Reichsbank, therefore provoking the collapse of the German
stock price and creating a feeling of panic, reinforced by the announcement, on
May 11, 1931, of the bankruptcy of the Kredit Anstalt, the most powerful
Austrian bank at the time5.
The crisis took an unprecedented dimension in July 1931 when the withdrawals
from banks and savings banks reached 2 billion Reichsmarks. Because of the
bankruptcy of one of the main German textile industries, the Bremen Nordwolle,
which was one of the four most important German credit institutions, the
Danatbank, the second largest bank of the country, went bankrupt6.
As a result, Chancellor Brüning established a strict control on withdrawals of
funds and on currency exchanges. Also, in order to try to stem the crisis, the
Brüning and later the Von Papen governments led policies of deflation
(reduction of social benefits, lowering of public officials’ wages, increase of
taxes), measures that directly hit the working and middle classes7.
However, these policies of deflation, in addition to the rising international
protectionism, deprived the German industry of opportunities to revive itself.

 

            Because
of the economic crisis, the social situation of Germany became critical as
unemployment rose drastically: 600,000 workers were unemployed in 1928, 1.8
million in 1929, 3.7 million by the end of 1930 and more than 5.5 million in
the early days of 19328.
If we add the number of unregistered unemployed to this figure, the total
without work was about 8 million in 19329.
As a result, the social crisis which was hitting Germany as well as the
government’s failure to provide solutions allowed Hitler’s political party, the
NSDAP (Nationalsozialistische Deutsche
Arbeiterpartei), to achieve an electoral breakthrough in the general
election of September 1930 by collecting 18.3 percent of the votes (against 2.5
percent in the previous election). The NSDAP gained 107 seats, which made it
the second largest political party in the Reichstag10.
From 1930 to 1933, Hitler and the National-Socialists took benefit from the
degradation of the German domestic situation to impose their vision of Germany
to the political life of the country. Hitler indeed incarnated the providential
man as he promised to deal with unemployment and insured Germany a ‘place in
the sun’. The NSDAP grew significantly during this period as the number of
members went from 80,000 before the crisis to 850,000 in January 1933.11
In the German federal election of the 5th of March 1933, Hitler’s
party collected 44 percent of the votes whereas all other political parties
collected less than 20 percent of the votes. Consequently, on the 23rd
of March, the Reichstag voted the Enabling act (Ermächtigungsgesetz) which granted Hitler the plenary powers12.

 

            Hitler’s
main objective when he became Chancellor was clear: wage wars in Europe in
order to create a strong German Empire. Hitler was aware that the economic
problems were one of the main reason why Germany was defeated during the Great
War as the long and drawn out conflict on two fronts caused economic collapse13.
For this reason, Hitler wanted to create a sustainable economy capable of
waging wars, a concept known as the Wehrwirstchaft
(defence economy) in which Germany’s peacetime economy would be geared to
the demands of total war14.
The first step towards the economic recovery of Germany was initiated by
Hjalmar Schacht, president of the Reichsbank between 1924 and 1930 and Minister
of Economics between 1934 and 1937. Indeed, under Schacht guidance, deficit
financing was adopted through a range of economic measures that were meant to
revive the industry and tackle unemployment. Schacht agreed with Fritz
Reinhardt, state secretary in the German Finance Ministry, to launch a plan,
the ‘Reinhardt Program’ where the Reich would invest in public works more than its
received from its incomes, hence the deficit financing. The main reason to lead
this policy was the fact that Germany could not adopt a policy of devaluation
that would have increased its indebtedness nor adopt, as the United States did
with the New Deal, a policy of controlled inflation because it would probably
have created a feeling of panic as it previously did in 192315.
During summer 1934, the Reichsbank had calculated that a devaluation of 40 percent
would have increased the cost of living by 5.4 percent to 7.4 percent with the
price of food rising up by 10 percent16.

 

            The
Reinhardt program was one of the first measures that the Reich adopted to
reduce unemployment17,
a policy known as the Arbeitbeschaffung.
In fact, this program was the continuation of the previous governments’
attempts to reduce unemployment since the public work schemes had been started
by Von Papen and Brüning.18
More than one billion Reichsmarks were invested in the program and the money was
to be used notably in the development and improvement of housing and in afforestation.
The program was financed by the ÖFFA bills, which represented a short-term indebtedness
through commercial drafts. Unemployment was also tackled ideologically with the
introduction of conscription in March 1935. Marriage allowances for women
helped to remove some women from the job market19
and for example, in 1934, 250,000 allowances were made.20

 

            The
construction of the Autobahnen, which
were part of the Reinhardt program, should be seen more as a policy of
rearmament than a job creation scheme. The idea was to connect the population
centres between them to facilitate the transportation of troops even though the
program was meant, in peacetime, to be used for ‘economic usage by passenger
and freight traffic’21.
Indeed, Hitler explained the true goal of the construction of the Autobahnen to his ministers on the 8th
of February 1933: ‘The next 5 years in Germany must be devoted to the
rearmament of the German people. Every publicly supported job creation scheme
must be judged by the criterion of whether it is necessary from the point of
view of the rearmament of the German people. This principle must always and
everywhere stand in the foreground … Germany’s position in the world will be
decisively conditioned by the position of Germany’s armed forces. Upon this,
the position of Germany’s economy in the world also depends.’22.
The motorways were to be built on ‘strategic principles’, reason why Hitler
suggested to cover the Autobahnen
with a concrete roof made to protect the roads from enemy potential bombings23.
Fritz Todt was named by Hitler to realize this project and with an allocation
of 5 billion Reichsmarks, he was to build 6,000 kilometres of road. Strategically,
the construction of the Autobahnen was
successful because Todt assured his roads could allow 300,000 troops to cross
the country from the east to the west in two days.

 

            The
Reinhardt program and the Arbeitbeschaffung
were relatively successful for two major reasons. Firstly, the job creation
scheme allowed Hitler to reduce drastically unemployment. If 5.6 million people
were unemployed in 1932, the number of unemployed had, by 1934, been divided by
two, which means only 2.7 million people were unemployed24.
It is however necessary to underline that the effect of the Autobahnen program upon unemployment was
negligible as, by 1934, only 38,000 men were employed to build Todt’s roads. Secondly,
by reducing unemployment, the Reich gained a large popular support which would
later be crucial to legitimize the rearmament of Germany. In addition to these
job creation schemes, the German Reich spent, between 1933 and 1934, more than
230 million Reichsmarks in the rearmament of the country by building, for
instance, strategic airports and army barracks25.
By 1936, military spending was already representing 11 percent of Germany’s
total national income whereas, in the early days of the First World War, the
military spending of the belligerents was situated between 3 and 4 percent of
their GDP26. As
a result, through the economic recovery of Germany, Hitler was already, from
1933, preparing his country to the war.

 

 

            The
Arbeitbeschaffung nevertheless led to
two major issues as Germany’s public debt exploded and its trade balance was in
deficit in 193427,
which means Germany was importing more in value than it was exporting. Indeed,
Germany’s debt tripled between 1933 and 1938 and exceeded 40 percent of
Germany’s GDP while the revenues of the country did not exceed 20 percent of
the GDP. As a result, the revival of Germany’s economic growth was not able to
generate enough revenues to restore Germany’s domestic balance of finances28.
It forced Germany’s government to collaborate with large groups, such as
Siemens, in order to find alternative ways to create money29.
As for the trade balance, the reduction of unemployment and revival of domestic
demand through public spending increased the number of importations. The
collapse of worldwide demand and the generalisation of protectionism limited
the German exportations that were divided by two between 1928 and 193430.
The United States and Great Britain were indeed letting their currencies
devaluating whereas, as we saw before, Germany could not do so with the Reichsmarks
as it would probably have led to inflation. The situation was therefore
catastrophic. If the value of Germany’s exportations reached 1270 million
Reichsmarks during the last semester of 1933, their value dropped to 990 million
during the second semester of 1934. Also, the volume of importations grew by 32
percent because of the progressive rearmament of Germany as demands of caoutchouc
and oil, for instance, were increasing whereas the buying price of German
exportations dropped by 15 percent31.
The deficit of Germany’s trade balance was slowing the country’s rearmament
because it drastically reduced the quantity of gold and foreign currency
reserves, thus limiting the government in its investment in the importation of
goods and in the production of armament. The gold and foreign currency reserves
went from 918 million Reichsmarks in 1932 to 83 million in 193432.

 

            The
catastrophic situation in which Germany’s trade balance was forced Hjalmar
Schacht, who had been granted the dictatorial power over the economy by the law
of 3 July 193433, to
find a rapid solution. On 19 September 1934, Hjalmar Schacht
presented a ‘New Plan’ which aimed at establishing a control by the government
of trade, tariffs and currency exchange34
in order to regulate the importations and exportations and therefore limit the
deficit of Germany’s trade balance. Schacht considered his ‘New Plan’ as
absolutely necessary to prepare Germany for war since he declared on 3 May 1935
that the ‘implementation of the rearmament programme was the task of German policy’35.
Indeed, between 1934 and 1935, 6 billion Reichsmarks were spent36
in the rearmament, which represented 15 percent of Germany’s industrial
production. A reorientation of external trade and rethought use of the small
reserves of foreign currencies was therefore crucial to guarantee a constant supply
in raw materials through importations37.
For this reason, in his ‘New Plan’, Schacht stipulated that trade would be on a
bilateral basis. It would take the form of barter agreements, thus avoiding
currency exchange and limiting the exhaustion of the Reichsbank foreign
currency reserves. These barter agreements often took place with countries of
South East Europe both because it would be safer in case of a war against North
West European countries and because it would ensure Germany a strong economic
influence over the region. According to Schacht’s objectives, the ‘New Plan’
was successful because it reduced the value of imports coming from the rest of
Europe from 7.24 billion Reichsmarks in 1928 to 2.97 billion Reichsmarks in
1938. Also, the importations coming from countries of South East Europe, which
represented 7,5 percent of Germany’s total importations in 1928, reached 22 percent
in 193838.
In 1936, the value of importations represented 4.2 to 4.5 billion Reichsmarks while
the value of exportations represented 4.8 billion Reichsmarks, which means
Germany’s trade balance was no longer in deficit but positive39.

 

            Hjalmar
Schacht’s ‘New Plan’, despite its apparent success, presented various problems.
Firstly, Schacht’s idea to exploit the USSR and Romanian commercial markets in
order to import raw materials were crushed by the Reich’s diplomacy and foreign
policy as the German government refused to establish commercial relations, especially
with the Bolsheviks, that contradicted its political ideas40
even though the resources exported by these two countries were essential to the
rearmament of Germany. Secondly, Hitler’s desire to build an autarkic and
self-sufficient economy was going against the ‘New plan’s’ will to encourage
exportations. Germany’s was to become a sustainable economy capable of waging
wars without having to rely on the revenues that exportations could create. For
this reason, the increase of exportations between 1934 and 1936 created
tensions within Germany. Finally, the Wehrmacht
was not satisfied by Schacht’s new plan. Even though Schacht has managed to
tackle the economic crisis and thus initiate the rearmament of Germany, the
army leaders declared that Schacht was not able to transform Germany’s economy
into an economy of war. The restrictions upon importations and increase of the
industrial production had emptied Germany’s reserves in raw materials, minerals
and metals, whereas the attempts to find substitution products, such as
synthetic fuel and caoutchouc, had a very limited impact41.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in order to revive Germany’s economy and
reinforce its banking system, the German state increased its control of capital
in order to limit the capital flight.

 

 

 

 

 

Adapter le systeme bancaire au rearmament

 

 

1 C. R. S. Harris, “Germany’s Foreign
Indebtedness”, (Oxford University Press, 1935), 101.

2 Berstein and Milza, The end of the European World 1900-1945, (Paris: Hatier, 1996),
vol.1, chap 26.

3 Robert Carbaugh, “International Economics”, (Boston: Cengage
learning, 2013), 190.

4 Berstein and Milza, The end of the European World 1900-1945, 311.

5 J. W. W-B., “The Austrian Loan”, from the Bulletin of International News, Vol.9, No.5, (Royal Institute of
International Affairs, 1932), 139.

6 Berstein and Milza, The end of the European World 1900-1945, 311

7 Ibid.

8 Adam Tooze, “The Wages of
Destruction: The Making and Breaking of the Nazi Economy”, (Penguin Books,
2007), 43.

9 Goeff Layton, “Democracy and Dictatorship in Germany 1919-1963”,
(Hodder education, an Hachette UK Company, 2009), 163.

10Adam Tooze, “The Wages of Destruction”, 17.

11 Patrice Touchard, ”Le siècle des excès : de 1870 à nos
jours”, (Paris : Presses Universitaires de France, 2010), 193.

12 Zurcher, Arnold J. “The Hitler Referenda.” The American Political Science
Review 29, no. 1 (1935), 91.

13 Goeff Layton, “Democracy and Dictatorship in Germany 1919-1963”,
(Hodder education, an Hachette UK Company, 2009), 162.

14 Ibid.

15 Berstein and Milza, The end of the European World 1900-1945, 323.

16 Adam Tooze, “The Wages of Destruction”, 119.

17 Martin Broszat, “Der Staat Hitlers. Grundlegung und Entwicklung
seiner inneren Verfassung”, Deutscher Taschenbuch Verlag, (Mu?nchen, 2000),
176-177.

18 Robert Wolfson & John Laver, “Years of change”, (Hodder &
Stoughton, 1978), 375.

19 Robert Wolfson and John Laver, “Years of change”, 375.

20 Richard J. Evans, “The Third Reich in Power, 1933 – 1939: How the
Nazis Won Over the Hearts and Minds of a Nation”, (Paris: Flammarion, 2009),
374.

21 Adam Tooze, “The
Wages of Destruction”, 46.

22Karl-Heinz Minuth, “Akten der
Reichskanzlei: Die Regierung Hitler, 1933–1934”, 49-51.

23 Richard J. Evans, “The Third Reich in Power”, 379.

24 Fre?de?ric Clavert. ”Hjalmar Schacht, financier
and diplomat (1930-1950)”, (Université Strasbourg III, 2006), 222.

25 Birgit Wulff, “Arbeitslosigkeit
und Arbeitsbeschaffungsmassnahmen in Hamburg 1933-1939”, (Internationaler Verlag der Wissenschaften, 1987), 60.

 

26 Richard Overy and Andrew Wheatcroft, “The
Road to War: The Origins of World War II” (Harmondsworth: Penguin, 1999), 58.

27 Hans-Erich Volkmann,
“The National Socialist Economy in Preparation for War” in
Militärgeschichtliches Forschungsamt, Germany
and the Second World War, (Clarendon Press, 2015), 242-244.

28 Jean-Christophe Defraigne and Patricia Nouveau, ”Introduction à l’économie
européenne”, (De Boeck Superieur, 2017), 48.

29 Avraham Barkai, “Nazi Economics: Ideology, Theory, and Policy”, (Yale
University Press, 1990), 204.

30 Jean-Christophe Defraigne and Patricia Nouveau,
”Introduction à l’économie européenne”, 48.

31 Richard J.
Evans, “The Third Reich in Power”, 399.

32 Avraham
Barkai, “Nazi Economics: Ideology, Theory, and Policy”, 255.

33 Goeff
Layton, “Democracy and Dictatorship in Germany”, 167.

34 Ibid.

35 Richard J.
Evans, “The Third Reich in Power”, 399.

36 Fre?de?ric Clavert. ”Hjalmar Schacht”, 235.

37 Ibid.

38 Fritz Blaich, “Wirtschaft und
Ru?stung im “Dritten Reich””, (Schwann, 1987), 27.

39 Fre?de?ric Clavert. ”Hjalmar Schacht”, 344.

40 Ibid., 345.

41 Richard J. Evans, “The Third Reich in
Power”, 400. 

Post Author: admin

x

Hi!
I'm Velma!

Would you like to get a custom essay? How about receiving a customized one?

Check it out