Recovery and rearmament (GNP) and GNP deflator, year on year change in percentages, from 1926 to 1939 The Nazis came to power in the midst of the
Great Depression. The
unemployment rate at that point in time was close to 30%. At first, the new Nazi government continued the economic policies introduced by the government of
Kurt von Schleicher in 1932 to combat the effects of the Depression. Hitler appointed
Hjalmar Schacht, a former member of the
German Democratic Party, as President of the
Reichsbank in 1933 and Minister of Economics in 1934. The policies he inherited included large
public works programs supported by
deficit spending—such as the construction of the
Autobahn network—to stimulate the economy and reduce unemployment. These were programs that were planned to be undertaken by the
Weimar Republic during conservative
Paul von Hindenburg's presidency, and which the Nazis appropriated as their own after coming to power. Hjalmar Schacht created a scheme for deficit financing, in which capital projects were paid for with the issuance of promissory notes called
Mefo bills, which could be traded by companies with each other. Schacht was one of the few finance ministers at the time to take advantage of the end of the gold standard to increase deficit spending. This was particularly useful in allowing Germany to rearm because the Mefo bills were not
Reichsmarks and did not appear in the federal budget, so they helped conceal rearmament. When the notes were presented for payment, the Reichsbank printed money. This proved inadequate in 1938, when a large share of Mefo's five-year promissory notes fell due, so the government employed "highly dubious methods" where "banks were forced to buy government bonds, and the government took money from savings accounts and insurance companies" in order to pay the holders of Mefo bills, due mainly to a serious government cash shortage. Meanwhile, Schacht's administration achieved a rapid decline in the unemployment rate, the largest of any country during the Great Depression. By 1938, unemployment was practically extinct.
Price controls kept inflation in check but also squeezed out small farmers. The government also introduced
rent and
wage controls. The main economic priority of the Nazi government, which set it apart from previous German governments, was to rearm and rebuild Germany's military in preparation for an eventual war to conquer () in the East. Thus, at the beginning of his rule, Hitler said that "the future of Germany depends exclusively and only on the reconstruction of the
Wehrmacht. All other tasks must cede precedence to the task of rearmament" and "in case of conflict between the demands of the Wehrmacht and demands for other purposes, the interests of the Wehrmacht must in every case have priority." This policy was implemented immediately, with military expenditures quickly growing far larger than the civilian work-creation programs. As early as June 1933, military spending for the year was budgeted to be three times larger than the spending on all civilian work-creation measures in 1932 and 1933 combined. Nazi Germany increased its military spending faster than any other state in peacetime, with the share of military spending rising from 1 percent to 10 percent of national income in the first two years of the regime alone. Eventually, it reached as high as 75 percent by 1944.
Joseph Goebbels, who otherwise mocked the government's financial experts as narrow-minded misers, expressed concern in his diary about the exploding deficit. The main concern was that the deficit could lead to high
inflation. The government avoided inflation by keeping wages low, which they were able to do because the Nazis "destroyed the labor movement and instituted a reign of terror in the workplace." Hitler and his economic team expected that the upcoming territorial expansion would provide the means of repaying the soaring national debt, by using the wealth and manpower of conquered nations. In general, the Nazi government continued the policies of previous German governments towards private and public enterprises. Little changed in the relationship between business and government in the early 1930s, as the Nazis tried to use existing industry to meet their goals of military buildup and autarky. However, after the Nazis took power, industries were privatized
en masse. Several banks, shipyards, railway lines, shipping lines, welfare organizations, and more were privatized. The Nazi government took the stance that enterprises should be in private hands wherever possible. State ownership was to be avoided unless it was absolutely necessary for rearmament or the war effort, and even in those cases "the Reich often insisted on the inclusion in the contract of an option clause according to which the private firm operating the plant was entitled to purchase it." However, the privatization was "applied within a framework of increasing control of the state over the whole economy through regulation and political interference," as laid out in the 1933 Act for the Formation of Compulsory Cartels, which gave the government a role in regulating and controlling the cartels that had been earlier formed in the Weimar Republic under the Cartel Act of 1923. These had mostly regulated themselves from 1923 to 1933. Companies privatized by the Nazis included the four major commercial banks in Germany, which had all come under public ownership during the prior years: , , and . Also privatized were the (), the second largest joint-stock company in Germany (the largest was
IG Farben) and , a company controlling all of the metal production in the Upper Silesian coal and steel industry. Shares in the (), at the time the largest single public enterprise in the world, were slated to be sold in the fiscal year 1934-1935. The government also sold a number of shipbuilding companies, and enhanced private utilities at the expense of municipally owned utilities companies. One of the reasons for the Nazi privatization policy was to cement the partnership between the government and business interests. Hitler 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". Another reason was financial. As the Nazi government faced budget deficits due to its military spending, privatization was one of the methods it used to raise more funds. Between the fiscal years 1934–35 and 1937–38, privatization represented 1.4 percent of the German government's revenues. There was also an ideological motivation. Nazi ideology held
entrepreneurship in high regard, and "private property was considered a precondition to developing the creativity of members of the German race in the best interest of the people." The Nazi leadership believed that "private property itself provided important incentives to achieve greater cost consciousness, efficiency gains, and technical progress." Adolf Hitler used
Social Darwinist arguments to support this stance, cautioning against "bureaucratic managing of the economy" that would preserve the weak and "represent a burden to the higher ability, industry and value." The month after being appointed Chancellor, Hitler made a personal appeal to German business leaders to help fund the Nazi Party for the crucial months that were to follow. He argued that the experience of Weimar Republic had shown that "'private enterprise cannot be maintained in the age of democracy.' Business was founded above all on the principles of personality and individual leadership. Democracy and liberalism led inevitably to Social Democracy and Communism." In the following weeks, major corporations shifted their policy from financial contributions spread among several parties to ensure good will, to concentration on the Nazi Party. The Party received contributions from seventeen different business groups, with the largest coming from
IG Farben and
Deutsche Bank. Many of these businesses continued to support Hitler even during the war and even profited from persecution of the Jews. The most infamous being firms like Krupp, IG Farben, and large automobile manufacturers such as the Ford Motor Company. Historian
Adam Tooze writes that the leaders of German business were therefore "willing partners in the destruction of political pluralism in Germany." In exchange, owners and managers of German businesses were granted unprecedented powers to control their workforce,
collective bargaining was abolished and wages were frozen at a relatively low level. Business profits also rose very rapidly, as did corporate investment. The Nazis granted millions of marks in credits to private businesses. Many businessmen had friendly relations to the Nazis, Hitler's administration decreed an October 1937 policy that "dissolved all corporations with a capital under $40,000 and forbade the establishment of new ones with a capital less than $200,000," which swiftly effected the collapse of one-fifth of all small corporations. Meanwhile, large cartels were strengthened, and a law passed on July 15, 1933 allowed the Ministry of Economics to organize new cartels or to compel firms to join existing ones. In 1934, the Nazi regime introduced a new law on securities trading that favored large companies, and in December of that year it "limited the distribution of dividends to 6 percent, so that profits would be reinvested into companies." Generally, Nazi government policies "favored big corporations and the transformation of smaller corporations ( or ) to private firms ()." The rhetoric of the Nazi regime stated that German private companies would be protected and privileged as long as they supported the economic goals of the government—mainly by participating in government contracts for military production—but that they could face severe penalties if they went against the national interest. However, such threats were rarely carried out in practice, and historians Christoph Buccheim and Jonas Scherner state that "companies normally could refuse to engage in an investment project designed by the state without any consequences." Private firms refused government contracts and directions on many occasions. In 1937,
de Wendel, a coal mining enterprise, refused to build a
hydrogenation plant. In 1939, denied a government request to increase its production of
rayon and refused to invest in a synthetic rubber factory despite this being an important project for the regime. , a company producing machines for the armaments industry, successfully demanded cheap credit from the Nazi government under a threat of cutting back investment if its demand was not met. The regime generally used monetary incentives, such as guaranteed profits, to persuade businesses to support its goals, and freedom of contract was generally respected even in projects important for the war. According to Buccheim and Scherner, the reason why businesses sometimes refused these incentives was out of long-term profitability considerations. The government usually tried to persuade them to join military projects, but firms were worried about overcapacity in case the armaments boom would end. They did not want to commit themselves too much to war-related production for the future. Other historians dispute the Buccheim and Scherner thesis that the general absence of state coercion means there was no real threat of it. They believe that many industrialists feared direct state intervention in private industries if the Nazi government's goals were not fulfilled, and that their choices were affected by this concern. Peter Hayes argues that although the Nazi regime "wished to harness business's energy and expertise" and "generally displayed flexibility in order to obtain them, usually by offering financing options that reduced the risk of producing what the regime desired", the government was nevertheless also willing to resort to direct state intervention as a "Plan B" in some cases, and these cases "left an impression on the corporate world, all the more so as government spokesmen repeatedly referred to them as replicable precedents." Thus, the Nazi state did not resort to "blunt-instrument forms of coercion" because it did not need to, not because it was unwilling to do so. After 1938, "examples had been made, fear inspired, and the lessons internalized, on both sides of the business-state divide." Hayes describes Nazi economic policies as a "'carrot-and-stick' or 'Skinner Box' economy" in which corporate decisions "were increasingly channeled in directions the regime desired" through a combination of "government funding and state-guaranteed profit margins" on the one hand, and a series of regulations, penalties, "the possibility of government compulsion, and the danger that refusal to cooperate could open opportunities to competitors," on the other hand. As such, he argues that "the Third Reich both bridled and spurred the profit motive." Hayes concludes that "Nazi economic policies structured opportunities and thus corporate executives' choices. Did businessmen retain free will? Of course, they did. Was their autonomy intact? I think not."
Social policies The Nazis were hostile to the idea of
social welfare in principle, upholding instead the Social Darwinist concept that the weak and feeble should perish. They condemned the welfare system of the Weimar Republic as well as private charity, accusing them of supporting people regarded as racially inferior and weak, who should have been weeded out in the process of natural selection. Nevertheless, faced with the mass unemployment and poverty of the Great Depression, the Nazis found it necessary to set up charitable institutions to help those they deemed to be racially-pure Germans in order to maintain popular support, while arguing that this represented "racial self-help" and not indiscriminate charity or universal social welfare. Thus, Nazi programs such as the
Winter Relief of the German People and the broader
National Socialist People's Welfare (NSV) were organized as quasi-private institutions, officially relying on private donations from Germans to help others of their race—although in practice those who refused to donate could face severe consequences. Unlike the social welfare institutions of the Weimar Republic and the Christian charities, the NSV distributed assistance on explicitly racial grounds. It provided support only to those who were "racially sound, capable of and willing to work, politically reliable, and willing and able to reproduce." Non-Aryans were excluded, as well as the "work-shy," "asocials" and the "hereditarily ill." Efforts were made to involve middle-class women in social work assisting large families, and the Winter Relief campaigns were used as a ritual to generate public sympathy. Meanwhile, in addition to being excluded from receiving aid under these programs, the physically disabled and homeless were actively persecuted, being labeled "life unworthy of life" or "useless eaters." Various anti-labor laws were passed during the years of Nazi rule. The Law on Company Representation of April 1933, for instance, cut back the rights of the work councils, while the
Law on the Trustees of Labour introduced the following month abolished free collective bargaining. Commenting on the labor stance of the Nazi Party, one study has argued that The Nazis banned all
trade unions that existed before their rise to power, and replaced them with the
German Labour Front (DAF), controlled by the Nazi Party. They also outlawed
strikes and
lockouts. The stated goal of the German Labour Front was not to protect workers, but to increase output, and it brought in employers as well as workers. Journalist and historian
William L. Shirer wrote that it was "a vast propaganda organization ... a gigantic fraud." Meanwhile, the Chamber of Economics (whose president was appointed by the Reich minister of economics) absorbed all existing chambers of commerce. By 1934 these two groups merged somewhat when the Chamber of Economics also became the economics department of the DAF. To aid this, a board of trustees run by representatives of the Nazi Party, the DAF and the Chamber of Economics was set up to centralize their economic activity. When it came to retail and small business, in order to coordinate workers and small businessmen, shop councils and the so-called Courts of Honour were set up to monitor retail units. Unlike
Italian Fascism, Nazism perceived workers and employers in each enterprise as families; each with different roles. This was shown in their tax structure. The Nazis allowed industries to deduct from their taxable income all sums used to purchase new equipment. Rich families employing a maid were allowed to count the maid as a dependent child and reap the tax benefit. Real wages in Germany dropped by roughly 25% between 1933 and 1938. Along with the abolition of the right to strike, workers were also in large part rendered unable to quit their jobs. Labor books were introduced in 1935, and the consent of the previous employer was required in order to be hired for another job.
Foreign trade relations In the 1930s, 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. Germany began to move away from partially free trade in the direction of economic self-sufficiency. 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 Southeastern Europe) during the 1930s. The German government strongly encouraged trade with these countries but strongly discouraged trade with any others. In February 1933 (the first month of his chancellorship), Hitler promoted the imposition of
tariffs, which his economic minister
Alfred Hugenberg announced would apply to agriculture. 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. Germany would also leverage productive trade relationships with Spain, Switzerland and Sweden in areas ranging from iron ore imports and clearing and payment services. Throughout the 1930s, German businesses were also encouraged to form cartels, monopolies and oligopolies, whose interests were then protected by the state. Reduced foreign trade would mean
rationing of consumer goods like poultry, fruit, and clothing for many Germans. The year 1936 also represented a turning point for German trade policy. In September, Hjalmar Schacht was replaced by Hermann Göring, who was given the task to make Germany self-sufficient and able to wage war within four years. Measures enacted under Göring included slashing imports, instituting wage and price controls (with violations punishable by internment in a concentration camp), and restricting dividends to six percent on book capital. New strategic goals were introduced for the purpose of making Germany ready for war, including the construction of synthetic rubber plants, more steel plants, and automatic textile factories.
Richard Overy has argued for the importance of the August 1936 Memorandum by stressing that it was written personally by Hitler, who hardly ever wrote anything down. The "Four-Year Plan Memorandum" predicated an imminent all-out, apocalyptic struggle between "
Judeo-Bolshevism" and German National Socialism, which necessitated a total effort at rearmament regardless of the economic costs. In the memo, Hitler wrote: Hitler called for Germany to have the world's "first army" in terms of fighting power within the next four years and that "the extent of the military development of our resources
cannot be too large, nor its pace too swift" [italics in the original] and the role of the economy was simply to support "Germany's self-assertion and the extension of her ". Hitler went on to write that given the magnitude of the coming struggle that the concerns expressed by members of the "free market" faction like Schacht and Goerdeler that the current level of military spending was bankrupting Germany were irrelevant. Hitler wrote that: "However well balanced the general pattern of a nation's life ought to be, there must at particular times be certain disturbances of the balance at the expense of other less vital tasks. If we do not succeed in bringing the German army as rapidly as possible to the rank of premier army in the world ... then Germany will be lost!" and "The nation does not live for the economy, for economic leaders, or for economic or financial theories; on the contrary, it is finance and the economy, economic leaders and theories, which all owe unqualified service in this struggle for the self-assertion of our nation". Germany had already been rapidly rearming and militarizing before 1936. However, it was in his memorandum of 1936 that Hitler made it clear he expected war to be imminent. He argued that the German economy "must be fit for war within four years."
Autarky was to be pursued more aggressively, and the German people would have to begin making sacrifices in their consumption habits in order to enable food supplies and raw materials to be diverted toward military uses. Despite Nazi propaganda frequently depicting German families as well-dressed and driving new Volkswagen cars, consumption stagnated in the pre-war economy, with few people being able to afford cars. Speaking to a meeting of his main economic advisers in 1937, Hitler insisted that Germany's population had grown to the point where the nation would soon become unable to feed itself, so war for the conquest of in Eastern Europe was necessary as soon as possible. Therefore, if the rearmament drive caused economic problems, the response would have to entail pushing even harder in order to be ready for war faster, rather than scaling back military spending. Seeing that Hitler had taken this stance, Schacht resigned as Minister of Economics in November 1937, and the management of the economy effectively passed to Hermann Göring. In July 1937, the
Reichswerke Hermann Göring was established as a new industrial
conglomerate to extract and process domestic
iron ores from
Salzgitter, as the first step in a general effort to increase German steel production in preparation for war. It produced steel from low grade iron at rates unprofitable to other steel companies. The American engineering firm
Brassert was contracted to design and build the first new plant, and construction began in 1938. The
German occupation of Czechoslovakia in 1938-39 enabled the to undergo another major expansion immediately prior to the war, by acquiring shares in Czech coal mines, armaments firms, and iron and steel manufacturers. Initially these were not necessarily majority shares, as French and British shareholders also held significant stock in Czech companies, and the had to negotiate with them until war was declared. Later, during the war, the would expand by incorporating over 500 companies in key German industries and much of the heavy industry of occupied nations, including between 50 and 60 per cent of Czech heavy industries and slightly less in Austria. By the end of 1941, the had become the largest company in Europe, after absorbing most of the industry captured by Germany from the Soviet Union. While being under German control, the had the great majority of its assets and workforce located outside of Germany, since it had grown largely by absorbing non-German companies from conquered territories before and during the war. 70 per cent of its net assets and 76.5 per cent of its workforce were outside of the Reich by 1943, and even those inside the Reich were mainly in Austria and the
Sudetenland, not within the borders of pre-1938 Germany. ==War: 1939–1945==