The Economy of Nazi Germany Part 2: Nazi Economic Policy
In the first part of this series, we went through various quotes and passages from Hitler, discerning as best we can his exact economic views and beliefs. To quickly sum up the confused positions of Hitler, he believed that the state should try to ensure the public welfare at all costs. He was fine with private property, but as soon as private property got in the way of his own machinations, he had no scruples over violating property rights. Economics was a means to his ends.
The economic policy apple did not fall far from the economic theory tree in the case of Nazi Germany. Hitler’s regime, especially from 1936 onward, was a constantly intervening force in the economy. Hitler was not a man of empty words in his speeches and writings, and followed through on his promises to use the state to bring about the “common good” for all.
When Hitler first came to power in 1933, he inherited a country that was still recovering from the hyperinflation of the late 1920s, and had still not completely recovered from the destruction of the First World War. The Weimar Republic, the post-Kaiser but pre-Nazi government, had initiated public works programs to try and boost the sinking economy. Unemployment was one of the biggest problems facing Germany, with little relief in sight given the state of the economy. The Nazis believed that public works, among other methods such as forcing women out of jobs, could alleviate the situation. However, Fortune magazine stated:
“By mid-1934 it had become apparent that little if any long-term benefit was being accomplished, and that the same problems remained as before. The recovery ideas of Schacht and other moderates were thereupon abandoned, and in their place was substituted secret military rearmament.” (“Germany. I. ‘We Are Living in a Fortress.’” Fortune, October, 1939. p. 126.)
The economic focus of the nation started to turn towards military rearmament. Tooze states that between 1933 and 1935, military spending rose from 1% of national income to 10% of national income. Rearmament was on its way, and the expenditures would only grow over time. Each year from 1933-39, government receipts increased by 27% each year on average.
In September, 1936, Hitler enacted the Four-Year Plan. Shirer says that this was a “total war economy” and the purpose of this plan was to make Germany completely self-sufficient in four years. Germany itself lacks several key resources needed to wage modern war, such as rubber and oil, leading to the necessity of making sure a naval blockade would not cripple the German war economy. This led to an effective takeover of the economy.
Shirer states that “businessmen, though their profits soared, became mere cogs in a war machine…”
Business Under the Nazis
Even before the economic coup of 1936, the Nazis had their eye on business. In 1933, the existing cartels of businesses that had existed under the Weimar Republic were made compulsory and under the control of the Ministry of Economics through an amendment to the 1923 Cartel Act.
In 1934, businessmen were required to streamline their business and trade associations through the state. This gave birth to a sprawling bureaucracy in the Nazi government, with over 100 chambers of industry. At the top of the multi-leveled system was the Reich Economic Chamber.
The culmination of these steps toward control came in 1936 with the Four-Year Plan. Temin states that:
“The Nazis also set quotas for many industrial goods, including pig iron, steel, aluminium, magnesium, gunpowder, explosives, synthetic rubber, all kinds of fuel, and electricity.”
Shirer gives us a picture of the attitude of businessmen at this point, saying that they were:
“Buried under mountains of red tape, directed by the State as to what to produce, how much and at what price, burdened by increasing taxation…”
Shirer also states:
“Amidst this labyrinthine organization and all the multitude of offices and agencies of the Ministry of Economics and the Four-Year plan and the Niagara of thousands of special decrees and laws even the most astute businessman was often lost, and special lawyers had to be employed to enable a firm to function.”
The Nazi government had slowly but surely taken control over German businesses, and by extension, the economy itself. Rather than businessmen deciding themselves how best to conduct their trade, the orders came from the top.
None of these new controls eliminated the entrepreneur or their ownership over their property per se. All that changed was that the entrepreneurs were only allowed to use it in ways the government had approved. I hope the reader will see the lack of distinction between the two.
The Vampire Economy
One of the best sources concerning life under the economic bureaucracy is Gunter Reimann and his book, “The Vampire Economy.” Reimann himself was a Communist who had been part of the underground anti-Nazi resistence. He wrote “The Vampire Economy” in London in 1939, inspired by what he had seen in his time in Nazi Germany.
Reimann had a hatred for what the Nazis had done to the economy, seeing it as a corruption of the individual and his spirit. He said of the businessman:
“The life of the German businessman is full of contradictions. He cordially dislikes the gigantic, top-heavy,bureaucratic State machine which is strangling his economic independence. Yet he needs the aid of these despised bureaucrats more and more, and is forced to run after them, begging for concessions, privileges, grants,in fear that his competitor will gain the advantage.”
One of the most prevalent aspects of the Four-Year Plan and economic controls were the price and wage controls. Reimann despised them, as is evident in his writing. The question when instituting price controls is always, “What should the price be?” There is never any satisfactory way to answer this question and the Nazis weren’t any different. Reimann states:
“There were a number of official definitions of the "justified" price. At first the definition was that the price should be "reasonable," then that it should represent the cost of production plus a "reasonable" profit. But there was no effective control of production costs and what might constitute a "reasonable profit" remained a mystery. However, all this was soon forgotten when manufacturers started complaining about the tremendous increase in the cost of raw materials and other expenses. A new definition had to be found: the price must be "justified from the point of view of national economy." This was still more mysterious and vague. In reality it meant that the price level of any given commodity no longer depended merely on economic conditions, but also on political factors.”
As ubiquitous as these price controls may be, the German people simply found ways around them. One way was a “combination deal”. Essentially, instead of selling one good at a determined price, you would bundle it with another good and sell them both together. The second good might be something relatively worthless, but because it was a bundle, you could get around the price controls.
Reimann records an example of this bundling of goods. A seller would be selling pigs, but would also have his dog with him. The seller could only sell his pigs at a maximum, state-mandated price. So instead of selling his pigs, he would sell a customer his dog and throw in a pig for free. After receiving his pig, the buyer would simply let the dog go free and it would return back to the seller!
These deals were technically illegal, as the government saw that it was little more than a roundabout way of charging higher prices, but Reimann says that:
“Combination deals are forbidden in Germany, but they will be common practice as long as the price of articles that are scarce is not allowed to rise and as long as sales of these articles are less profitable than sales of other articles.” (pg. 71)
I will leave this section on Reimann with one final quote:
“In Nazi Germany there is no field of business activity in which the State does not interfere. In more or less detailed form it prescribes how the businessman may use capital which is still presumably his private property. And because of this, the German businessman has become a fatalist; he does not believe that the new rules will work out well, yet he knows that he cannot alter the course of events. He has been made the tool of a gigantic machine which he cannot direct. He looks at the rest of the capitalist world, hoping for help in winning back from the State his lost rights and freedom” (pg. 305)
Hitler’s Economic Legacy
As you are probably aware, Nazi Germany invaded Poland in 1939, effectively launching the Second World War, which would eventually destroy their country and economy. Germany was divided into two halves, and remained that way until the fall of the Soviet Union. History has not at all been kind to Hitler or the Nazi party, being damned and hated by nearly everyone. Despite all of this, the economic ideas that he held are still alive today.
Hitler was not the originator of his socialistic economic ideas and policies, but he embraced them wholeheartedly. His judgements of placing private property as subservient to public need were not new, but it was his mantra. He didn’t invent the idea of forcing the individual to serve a collective, but he injected it into German society.
The same ideas that Hitler and the Nazis held about economics are still alive and well today. With a new brand of “Democratic Socialism” on the rise, these ideas are more popular than at any time in recent years. The sentiments and slogans of Hitler’s speeches have returned, only the speakers have been swapped. The Nazi Swastika is a taboo image, but the economic ideas that it represented still loom over us today.