Fritz Thyssen, of the Thyssen mining and steelmaking company based in the Ruhr city of Duisburg, was born in 1873. Joining the army in 1914, he was soon discharged on grounds of ill health. After the First World War, Thyssen’s conservative nationalism was clearly seen when the French and Belgians occupied the Ruhr in 1923. He refused to cooperate and was arrested, imprisoned and fined. As a result he became a national hero. Unusually, Thyssen donated large sums to the Nazi Party before 1933, at a time when many German industrialists regarded the Nazis with suspicion. In November 1932, he was one of a number of leading industrialists who wrote to President Hindenburg, urging him to appoint Hitler as Chancellor. In 1933, Thyssen joined the Nazi Party. He approved of Hitler’s suppression of the Communist Party, the Social Democrats and the trade unions. Although not an active anti-Semite, he went along with Nazi discrimination against the Jews and dismissed Jews who worked for his firm.
However, in time he began to have his doubts. In 1937, he wrote to Hitler complaining at Nazi intimidation of the Catholic Church and Christians generally. In 1938, he protested at the violence towards Jews on Kristallnacht (‘Crystal Night’, the night of broken glass). By 1939, he was vocal in his condemnation of the state’s subjection of the whole economy to the needs of war. That same year he left Germany for Switzerland. From there he moved to France and was intending to emigrate to Argentina. However, he was visiting his mother in Belgium in 1940 when the Germans invaded. Arrested, he spent the war imprisoned in concentration camps, first, at Sachsenhausen and, then, at Dachau. He was joined in prison by his wife who refused to escape to Argentina; together they survived the war. Tried for complicity in the Nazis’ crimes, he admitted supporting Hitler until 1938. He was acquitted of the charges against him but paid compensation to victims of his actions. In 1950, he emigrated to Argentina and died in 1951.
Fritz Thyssen was unusual. He had supported the Nazis when most other industrialists stood apart from them. And then he had rejected the Nazis when most other leading industrialists had come to support them and were benefiting financially from heading industries under the Third Reich. However, his story raises the question of what the impact was of the Nazis on the German economy and what the relationship was between the leaders of industry and Hitler.1
The Wall Street Crash of 1929 – with its attendant banking collapse and worldwide depression – had thrown six million German workers into unemployment. It was essential that this be addressed by the Nazi government, as offering a solution to crushing unemployment had been one of its central promises. German economic recovery was essential in order to create stability at home, reduce opposition from workers (many of whom had been supporters of either the Social Democratic Party or the Communist Party, before 1933) and provide the basis for German rearmament and territorial expansion. The Nazi propaganda machine made great claims about the positive impact of the new government on the German economy. But how successful was the Nazi economic transformation? And was it only sustainable if eventually accompanied by a war of conquest and seizure of raw materials? In order to decide, it is necessary to examine exactly what the Nazis did for the German economy and then explore how substantial and sustainable these changes really were.
Given the Nazi promises that they were the only party that could rescue Germany from the depression, it is noticeable that they were remarkably short of detailed economic plans. This was consistent with Hitler’s general approach to issues of setting broad goals and then leaving the detail to later. The Nazi Party programme promised limitations to the monopoly powers of big businesses, limitations to the powers and profits of financiers, assistance to small business through the abolition of department stores and assistance to farmers. As the depression deepened, these goals from the early 1920s were added to with promises of job-creation in order to put the German unemployed back to work. At the same time, Hitler rowed back on the anti-capitalist aspects of Nazism. Whilst his personal outlook typified the resentments of the German lower middle classes towards the wealthy and powerful, his personal dislikes were tempered by the need to reassure German business leaders, distance the party from the socialists and communists and ensure that nothing got in the way of his rearmament goals. These were important constraints on Nazi radicalism.2
The principal aims of Nazi economic policy that emerged in the 1930s were, first, increased political direction of economic planning whilst still allowing considerable freedom of manoeuvre for German capitalists to prosper; second, to create autarky, which aimed to make Germany self-sufficient and independent of the international system of trade; third, to establish a war-economy whereby the overall aims of the economy were ultimately geared to winning a future war. However, just listing these aims gives them the appearance of being part of a coordinated and coherent plan. Nothing could be further from the truth. As with so much else in the Third Reich, Nazi economic policies would be a complicated mass of, at times, contradictory policies.3
Perhaps the most famous achievement of the Nazi regime was a reduction in German unemployment figures from about six million in 1933 to under one million by 1938. This, unsurprisingly, made a great impression on Germans at the time and was loudly trumpeted by the Nazi propaganda machine. To many international observers the replacement of dole queues with armies of determined workers engaged in building projects would be one of the most striking characteristics of the Third Reich. It was achieved by government investment in public-works programmes designed to employ large numbers of the unemployed, even if this was in labour-intensive schemes that were not necessarily the most efficient way to get a job done. The most famous and conspicuous form of these could be seen in the new system of autobahns (motorways), overseen by Fritz Todt, who was appointed to this task in June 1933. By 1938, a total of 2,170 miles (3,500 kilometres) had been built despite the fact that Germany had few cars.4 Companies were given tax-relief if they took on more workers, and, in addition, there were many public-building projects, draining marshes, bringing moorland under cultivation and increased spending on armaments. The first two had been planned under Weimar governments but the Nazis took the credit for implementing these schemes. In the same way, the Nazis were assisted by a worldwide economic recovery that was slowly under way.
Between 1933 and 1937, economic policy in Germany was greatly influenced by Dr Hjalmar Schacht, who was ‘an ingenious, pragmatic banker, not a theoretical economist’.5 Schacht was not a Nazi but instead was a well-respected conservative who was made President of the Reichsbank in 1933 and Economic Minister in 1934. Under Schacht, interest payments on foreign debts were frozen. Whilst this was widely condemned by creditor countries, they failed to take a united stand against this German action and instead allowed their own self-interest to dominate their reactions. Therefore, instead of a united approach to Germany, what followed was a series of trade agreements between Germany and individual countries (bilateral agreements), which resulted in Germany importing most of its raw materials from South-Eastern Europe and from friendly South American states. The aim of this was twofold. First, it ensured that Germany was not dependent on countries that might prove hostile in a future war. The memory of being starved of resources by the British naval blockade in the First World War was a constant shadow over Nazi planners.6 Second, it built on traditional pre-Nazi German ambitions to dominate Central and South-Eastern Europe (see Chapter 15).
This idea of a German-dominated Central and South-Eastern Europe was described in the word Mitteleuropa (literally ‘middle Europe’ or central Europe) and implied a German control of Central Europe accompanied by economic exploitation of this region alongside territorial seizure, settlement of German colonists, expulsion of non-Germans from areas seized and eventual ‘Germanization’ of a series of puppet states, which would be created as a buffer between Germany and Russia. Whilst this had been a traditional geographical area of German influence for generations, the radical plan took concrete shape during the First World War and influenced the later thinking of Weimar politicians after 1930, as well as Nazi leaders.7 By 1938, Germany overshadowed the economies of South-Eastern Europe. As a massive buyer of food and raw materials Germany dominated this trade from the Balkans. In return these countries had to accept payment in German currency, which then had to be used to buy German goods, or invested in industries that produced goods required by Germany.8 Whilst this was not actually autarky, it did create a situation in which Germany largely controlled the key resources from those countries it considered in its sphere of influence and it lessened Germany’s dependence on British merchant shipping.9
At the same time more of the German economy was devoted to rearmament. As a result the percentage of the German economy engaged in producing consumer goods fell from 25 per cent in 1935, to 17 per cent in 1937. The German government faced two main problems in this huge rearmament programme. First, it was banned by the Treaty of Versailles (1919), which aimed to reduce Germany’s military power. Second, there was a legal interest rate limit of 4.5 per cent. Borrowing extra funds by offering a better rate of interest was problematic because of this interest rate cap and because it would attract international scrutiny at a time when the Nazi government wanted to disguise its rearmament programme. Clearly, a large government borrowing programme, creating a deficit, would have given the game away. Consequently, to help pay for this rearmament programme and to get round these problems, Schacht introduced something known as mefo bills. These were credit notes issued by the government under the guise of the Metallurgical Research Corporation (abbreviated in German to MEFO). This was a cover organization. So-called mefo bills were issued by the government as payment to armaments manufacturers. These could be converted into Reichsmarks when necessary but firms were encouraged to delay conversion through gaining interest on the bills they held. Consequently, they disguised the real extent of government spending as the total number of mefo bills issued was kept secret, without an obvious paper trail. No more were issued after 1937, since Schacht feared they would have an inflationary effect on the economy. By 1939, there were some 12 billion Reichsmarks of mefo bills in circulation – some figures suggest a total of 21 billion was eventually reached – compared with the 19 billion Reichsmarks the government raised through official government bonds. As well as hiding the government deficit and the real extent of rearmament, these mefo bills also paid for other goods and services, which the government reinvested in the economy.
At the Nuremberg War Crimes Trials, Schacht would later claim that he opposed the gearing of the whole German economy towards war and that his resignation in November 1937 was due to his realization that Hitler was determined to force the economy to support his war plans regardless of economic consequences. The reality seems to have been that Schacht and Hitler disagreed over the speed and sustainability of the build-up rather than its objective, Hitler being committed to rapid preparation and Schacht to a more sustainable and slower build up.10 The Nuremberg prosecutor summed it up in his statement that Schacht broke with the Nazis ‘over tactics, not principles’. Schacht was, though, a strange mass of contradictions: he helped establish the Nazi economy yet defended Jews and attended a church whose pastor was an anti-Nazi; he assisted in rearming for war but was eventually imprisoned in a concentration camp towards the end of the Second World War for opposition. Acquitted at Nuremberg, he died in Munich in 1970 at the age of ninety-three.
But what is clear is that, by 1936, a number of Nazi leaders – notably Hermann Göring – were expressing impatience at the speed of rearmament. Despite its impressive achievements, these Nazis believed that Schacht was too concerned about the dangers of inflation and that this was slowing down the drive to rearm. And to accompany this there was a crisis in the availability of imported raw materials. These prices were increasing just as German reserves of gold and foreign currencies were running low. As a response to this, a ‘Four-Year Plan’ was set up under Göring.
Hermann Göring knew nothing about economics but he was one of the ‘big beasts’ in the Nazi jungle and a bigger player in politics than Schacht could ever be. The aim of the Four-Year Plan (inspired in part by the Five-Year Plans of the USSR in the 1930s) was to make Germany self-sufficient in food and raw materials and ready for war by 1940.
The incentive to set up the Four-Year Plan had been caused by a contradiction in Nazi economic policy. By 1935, Germany had insufficient reserves of foreign currencies to purchase both the raw materials it needed for rearmament and food. This was made worse by the fact that German farmers could not keep pace with food demands within Germany. And the organization responsible for agriculture (the Reich Food Estate, under Richard Walther Darré) had discouraged agricultural expansion in order to keep farm prices high, so as to please farmers. What was to be done? Rationing would be bad for morale and an embarrassment to the government. Darré instead had demanded that Schacht divert more of the foreign currency reserves to purchase foodstuffs and animal fodder. Schacht refused. This was because such a move would cause a reduction in imported raw materials needed for rearmament. Hitler, typically, could not make a decision and gave Göring the job of sorting out the contradiction. Göring backed Darré because he feared popular discontent if food prices increased, but this was no long-term solution. One answer would have been to export more German goods to increase funds of foreign currencies and to then use these to buy the much-needed raw materials. But this was unacceptable for two reasons. First, foreign countries were not keen on buying more German goods as the Nazi obsession with autarky and tough import controls had not won friends abroad. Second, it would mean diverting energy within Germany towards export industries when the priorities of the Third Reich were on armaments. The Nazis were caught in a fix of their own construction.11 Schacht characteristically complained that the obsession with autarky was ‘cutting our own throats’.12 But Hitler was unmoved, and was implacably opposed to any reduction in the building of weapons. This was a policy of ‘guns before butter’. And it was as a result of this crisis that he instructed Göring to set up a Four-Year Plan in August 1936.
The Four-Year Plan set out a number of radical goals: reduction of imported raw materials; their replacement by synthetic products (e.g. ‘buna rubber’); incentives to farmers to increase food production. The setting up of the Four-Year Plan undermined the position of Schacht – and he knew it – and is a clear illustration of the way in which the Third Reich was riddled with competing and overlapping agencies, which undermined its coherency and efficiency. In January 1939, Schacht wrote to Hitler complaining that the ‘overstretching public expenditure’ was ‘bringing the finances of the state to the edge of ruin’.13 Hitler sacked him from his post as President of the Reichsbank and he was replaced by Göring’s man Walther Funk, who ensured that henceforth the Reichsbank was subservient to the Four-Year Plan. And what of the Four-Year Plan?
There were successes. By 1939, Germany was self-sufficient in bread, potatoes, sugar and wheat; and there were significant increases in production of aluminium, coal, coke, artificial fibres and synthetic fuel. But, overall, the Four-Year Plan failed in its aim of autarky by 1940. In 1939, Germany was still importing about 15 per cent of its food14 and about 33 per cent of its overall raw materials. It was particularly dependent on imported oil (66 per cent), copper (70 per cent), rubber (85 per cent) and almost all the raw materials needed for the production of aluminium. Something much more radical would be required. But first, the energy of German capitalism needed to be successfully harnessed.
Far from being eclipsed by the arrival of the Nazis, as many disgruntled SA and lower-middle-class Nazi voters had hoped, capitalism played a vital part in putting government plans into action. This was particularly the case regarding the drive towards war. Although German industrialists were harnessed to Nazi goals, they still retained the freedom to make enormous profits if they pulled in the same direction as the state. The clearest winners were the largest industrial complexes. Many of these increased their size as larger monopolies made it easier to meet the demands of the state for rearmament. For directors of such companies profits rose enormously. In these companies, managers’ salaries rose considerably, at a time when suppression of independent trade unions ensured that workers found that their wages remained static and many even experienced a reduction in their purchasing power. At the top of this pyramid of businesses stood the huge industrial giants such as the chemical monopoly of IG Farben, the steel giant Thyssen and the arms manufacturer Krupps.
The corrupting effect of compliance with the Nazi state was seen at all levels of business and banking.15 For example, the Deutsche Bank, Germany’s largest financial institution, played an important role in the expropriation of Jewish-owned enterprises both in Germany and in the areas seized by the German army during the Second World War. It benefited from the Aryanization policies of the Nazi regime, whereby Jewish banks and businesses were taken over by Aryan (non-Jewish) Germans and their assets seized. From 1938 onwards it became even more radically involved as the Nazis seized Jewish assets in occupied countries. The bank played an important role in gold transactions and in the financing of the construction of Auschwitz. Important work on the relationship between the banks and the Nazis has been carried out by Harold James, Professor of History at Princeton University, USA,16 and reveals the alarming complicity of these pillars of the community in Nazi crimes.
However, things were not all plain sailing for capitalists under the Nazis. By the mid 1930s it was clear that failure to comply with government demands could lead to major problems for industrialists. This was seen most clearly in 1937 in the government’s handling of a confrontation with the iron-making industry in the Ruhr. Here companies had been reluctant to expand their capacity by processing uneconomic German iron ore. The government though was determined to reduce dependence on better quality iron ore from abroad and reacted ruthlessly. It was also determined to make it clear who made the ultimate decisions in Germany. In response to reluctance from the Ruhr capitalists a huge state-run plant was established at Salzgitter. Called the ‘Reich-Works-Hermann-Göring’ it operated in direct competition with the iron works of the Ruhr valley and was given priority in allocations of both labour and raw materials. It was clear who would win in any showdown between the Nazi state and capitalism. As Göring remarked, ‘The programme of munitions production and armaments must not be jeopardized, in the event of war, by a shortage of ore. Everything possible must be done by the firms, and the State must step in where the firms are clearly no longer in a position to do so.’17 While German capitalists found it could be economically advantageous to fall in line with Nazi economic policies they were riding a tiger. And it was a tiger that was easier to mount than dismount.
Restrictions in many areas reduced the independence of industrialists. They were controlled with regard to their imports, use of raw materials, wages paid and prices asked, employment regulations, what to produce and how much of it, where new factories should be built, the amount of profit to take. Some who had earlier supported the Nazis became disillusioned. One such was Fritz Thyssen. But there was no united opposition to this Nazi interference, or to the kind of society created by the Nazis, because there was no common experience of the impact of the Nazis. Whilst some industrialists suffered financially and struggled with the demands of state control, others made fortunes and had no intention of rocking the boat. IG Farben, for example, saw its net profits rise from seventy-four million Reichsmarks in 1933 to two hundred and forty million Reichsmarks in 1939. It showed its gratitude in its contributions to the Nazi Party. These contributions in 1939 stood at 7,538,857 Reichsmarks for the year. When war came, the chemical giant’s role would only grow and it would eventually build a vast industrial site within the Auschwitz complex and work it by slave labour. When the panzer divisions rolled into Poland, in September 1939, they used tyres made from IG Farben’s synthetic rubber and their engines ran on IG Farben’s synthetic fuel. About 35 per cent of a German foot soldier’s equipment was made of IG Farben materials and even the keys on the Enigma coding machines were made of IG Farben’s plastic. Furthermore, the company supplied materials for the racial mass murder carried out at the extermination camps.18 But IG Farben was not alone in the advantage it gained from being both compliant with the Nazis and operating in a militarily useful area of production. Overall, the profits of big business rose from 1.3 billion Reichsmarks in 1928 to 5.0 billion Reichsmarks in 1939. For some, business under the Nazi economy was indeed booming.
Further down the social scale though the promises made by the Nazis to small businesses failed to materialize. Whilst some gained from the Aryanization policy, which saw Jewish businesses taken over by ‘Aryan’ (racially acceptable) Germans, many of these small business people experienced at best mixed gains from Nazi policies and at worse major problems. Department stores were not banned (although Jewish ones were expropriated) and the pressure to create bigger, more coordinated and more efficient industrial units worked against small businesses. There was some increased protection for skilled workers through increased regulation of craft qualifications. Overall though, this mixed middle-class experience was particularly striking, given the noticeably lower middle-class origins of many in the Nazi Party (see Chapter 8).
The same mixed experiences applied to farmers. On one hand, prices paid for agricultural products increased by 20 per cent between 1933 and 1937; and the Hereditary Farm Law (1933) protected farms from being mortgaged or sold due to debt. On the other hand, the drive towards autarky caused a sharp upward hike in the cost of imported animal feed and hit those producing for the export market hard; the outlawing of selling a family farm meant farmers were tied to the soil; the ban on raising a mortgage on a farm made it hard to raise loans; the drive for rearmament meant that many labourers or younger children found the wages offered in industrial enterprises highly attractive and caused something of a flight from the land. In this way the Nazi ideologies of Germanic peasants on hereditary farms and rapid industrialization conflicted with each other. This was a common feature in the chaotic jungle of Nazi government. By the end of the 1930s the main beneficiaries of Nazi agricultural policies were the biggest landowners and commercial farms. This was not what the majority of German farmers had voted for.
The world was amazed at the sight of Germany put back to work after 1933. A nation without hope appeared to have been transformed into one of activity and construction; it seemed to be a nation in which unemployment was a thing of the past. A stagnant economy appeared to have been replaced by one of dynamic action and growth. Clearly, though, despite the apparent achievements of the Nazis, there were real problems in the German economy, and as the 1930s progressed, these problems increased. The Nazi ‘economic miracle’ was not due to improved efficiency. Nor was it due to increased exports to the wider world. Nor was it sustained by increased consumer spending because the policy of ‘guns before butter’ meant that consumer goods were not a high priority.
The economic growth was primarily due to the huge expansion of arms production and the public works programme – but the cost of this, as we have seen, was hidden in a world of mefo bills. In the long term, this cost would need to be met by either increased taxes or increased German trade with the international community. However, the former was unacceptable because it would be unpopular (as would be the option of rationing foodstuffs). The latter was not going to work because the drive for autarky was reducing German trade with the rest of the world, not expanding it. Inflation too was a real challenge. This problem was masked by the government policy of freezing prices and wages during the 1930s but, in the long term, it would not be possible to sustain this.
In short, the German economy under the Nazis was highly abnormal. By the end of the 1930s it had reached a situation where a series of wars were almost inevitable, in order to meet the needs of the imbalanced German economic system through theft and the control of European resources, markets and populations, particularly in the East.19 Germany simply did not possess enough gold and foreign currency reserves to buy these products legitimately, given the huge expansion of armaments it had undertaken. This preparation for war made war almost inevitable, not that this would have disturbed Hitler. As he had noted in the directive of August 1936, which established the Four-Year Plan as a reaction to the conflicting demands of importing raw materials and rearming: ‘The final solution lies in extending our living space, that is to say, extending the sources of raw materials and foodstuffs of our people. It is the task of the political leadership one day to solve this problem.’20 Hitler, then, would solve his economic problems by invasion and plunder. But this was hardly surprising, since he had created the problem in the first place by racing to gear Germany for war. There was a chilling circularity in the processes involved and in their outcome.
1. Pool, James, Who Financed Hitler?, Simon & Schuster, revised edition, 1999, focuses on the controversies surrounding the Nazi Party’s financial backing.
2. Wiesen, S. Jonathan, West German Industry and the Challenge of the Nazi Past, 1945–1955, University of North Carolina Press, 2003, looks at the effects of these relationships for German industry even after the fall of the Third Reich.
3. Overy, R. J., The Nazi Economic Recovery, 1932–8, Cambridge University Press, 1996, for example, argues that there was a significant change in Nazi economic policy in 1936–7 with an increase in state power.
4. Evans, Richard, The Third Reich in Power, Allen Lane, 2005, p. 325.
5. Freeman, Chris and Louçã, Francisco, As Time Goes By: From the Industrial Revolutions to the Information Revolution, Oxford University Press, 2001, p. 270.
6. See Halpern, Paul G., A Naval History of World War I, Routledge, 1994.
7. See Brechtefeld, Jörg, Mitteleuropa and German politics: 1848 to the present, Palgrave, 1996.
8. Noakes, J. and Pridham, G., Nazism 1919–1945, vol. II, State, Economy and Society, 1933–1939, University of Exeter Press, 2nd edition, 2000, p. 81.
9. Evans, Richard, op. cit., p. 355.
10. A point made strongly by Weitz, John, Hitler’s Banker, Little, Brown, 1997.
11. Noakes, J. and Pridham, G., op. cit., pp. 84–5.
12. Ibid., p. 86.
13. Schacht, Hjalmar, My First Seventy-Six Years, Wingate, 1955, pp. 362–77.
14. Volkmann, Hans-Erich, ‘The National Socialist Economy in preparation for war’ in Germany and the Second World War, Oxford University Press, 1990, pp. 293–300 and 350–4.
15. See Nicosia, Francis R, and Huener, Jonathan (eds), Business and Industry in Nazi Germany, Berghahn Books, 2004.
16. James, Harold, The Deutsche Bank and the Nazi economic war against the Jews: The Expropriation of Jewish-Owned Property, Cambridge University Press, 2001, and also see James, Harold, The Nazi Dictatorship and the Deutsche Bank, Cambridge University Press, 2004.
17. Noakes, J. and Pridham, G., op. cit., p. 119.
18. Examined in detail in Jeffreys, Diarmuid, Hell’s Cartel: IG Farben and the Making of Hitler’s War Machine, Metropolitan Books, 2008.
19. Evans, Richard, op. cit., p. 349.
20. Noakes, J. and Pridham, G., op. cit., p. 90.