German Economic Policy and the Nazi War Economy 1933 to 1944

Initial Economic Policy and the "Economic Miracle"

• The Depth of Depression: When the Nazi regime took power, the German economy was considered to be in the depths of a significant depression, largely due to previous policies.
• Economy as Propaganda: The economy was utilized as a primary propagandist instrument to demonstrate the success of the regime. This perceived success was often referred to as the "Economic Miracle."

Economic Stimulation Strategies (Beginning January 1933)

• Socially Aligned Policies: Upon being appointed Chancellor in January 1933, Hitler initiated policies designed to stimulate the economy through social investment.
  • Public Works: The government pumped money into the economy to build homes and "Autobahns" ($A-u-t-o-b-a-h-n-s$).
  • Consumer Demand: To stimulate demand, the regime provided tax concessions and grants to specific groups.
  • Private Sector Subsidies: Subsidies were granted to private firms to encourage them to hire more workers.
• Economic Controls: To manage the effects of this spending, the government implemented specific controls:
  • Wage Controls: The regime regulated wages to maintain control over prices.
  • Inflation Management: By controlling prices, they aimed to prevent inflation from destabilizing the recovery.

The New Plan (1934)

• Foreign Trade and Balance of Payments: Under the "New Plan," the government sought to control Germany’s foreign trade to improve the country’s balance of payment.
  • The primary goal was to reduce the outflow of German money (—foreign currency) to preserve domestic resources.
• Initial Steps Toward Rearmament: Pressure from Hitler led to the first steps of rearmament, which required a massive expenditure that the government needed to finance without external borrowing.

Financing Rearmament: MEFO Bonds

• MEFO Bonds Mechanism: To finance rearmament secretly and avoid showing a massive deficit in government spending, the regime created MEFO bonds.
  • Borrowing from the Public: The government borrowed money from its own citizens rather than from international sources.
  • Terms and Interest: The bonds had a full five-year term where the government did not pay out immediately. After five years, the money was returned with an interest rate of $4\%$ per annum.
  • Advantages: This kept rearmament expenditures hidden from the regular budget, preventing international or domestic pushback against military expansion.

The "Guns or Butter" Conflict (1935–1936)

• Standard of Living: Between 1935 and 1936, living standards for ordinary Germans did not see the growth projected by propaganda, leading to growing disillusionment with the regime.
• Conflict of Priorities: A fundamental conflict existed between the production of armaments and the production of consumer goods.
  • "Guns": Represents the rearmament program and heavy industry.
  • "Butter": Represents consumer goods and food for the populace.
• Economic Autarky: To resolve this, the Nazis pushed for "economic autarky," which meant making the country self-sufficient to reduce dependency on imports.
  • Expanding home production for food and raw materials was theoretically intended to save foreign currency for essential peacetime imports.

The Four-Year Plan (1936)

• Introduction: Introduced in 1936 under the leadership of Hermann Goring.
• Shift to Full-Scale Rearming: The plan signaled a move toward full-scale, total rearmament.
• Core Requirements of the Plan: To achieve autarky and support the rearmament goals, the state had to take total control of several economic factors:
  • Control of labor supply.
  • Control of prices and raw materials.
  • Control of foreign exchange.
• Institutional Measures:
  1. Targets for Private Companies: Setting specific output targets, similar to Stalin’s Five-Year Plans.
  2. State-Owned Industrial Plants: The creation of state enterprises, most notably the "Hermann Goring Works."
  3. Key Commodity Production: Increasing the production of iron, steel, and chemicals.
  4. Substitute Products (Ersatz): Encouraging research and investment in substitute products to reduce import dependence, such as synthesizing rubber and extracting oil from coal.
• Propaganda Campaigns: Campaigns were launched to persuade citizens to buy only German goods, eat only German food, and use only German raw materials.
• Scrap Material Collection: In 1937, a campaign was launched to collect scrap material from homes, gardens, and public spaces to be melted down for reuse.

Economic Strain and Industrial Relations

• Failure to Meet Claims: The actual results of the Four-Year Plan often failed to match the claims made in propaganda.
• Resource Diversion: By 1939, the German economy was under severe strain. To avoid domestic anger, labor and capital were occasionally diverted back to consumer industries from war industries.
• Relationship with Industrialists:
  • While many big businesses cooperated initially because the regime suppressed unions and controlled labor, not all were satisfied.
  • Skepticism: Steel and iron firms were skeptical of using domestic German iron ore, which was considered more expensive and lower quality than imported ore.

Flaws and Statistical Manipulation

• Exaggerated Success: Propaganda heavily exaggerated the successes and covered up failures of Nazi economic policies.
• Unemployment Statistics: The regime manipulated unemployment figures to show an artificial increase in employment.
  • Exclusion from Workforce: Married women were encouraged to leave jobs via marriage loans, and Jews were stripped of their positions; neither were counted in unemployment stats.
  • Invisible Unemployment: Historian Richard Evans estimated that "invisible unemployment" was as high as $1,500,000$ people.
  • Casual Labor: Part-time and casual workers were counted as fully employed in official statistics.
• Standard of Living Realities:
  • Workers were forced to work longer hours for pay that was subject to compulsory contributions.
  • The German Labor Front (DAF) made membership mandatory for all workers, making it difficult to assess the true standard of living.

The War Economy and Structural Weaknesses (1939–1941)

• Timeline Disruptions: Hitler initially believed the war would not start until 1941, planning to complete naval and military expansions by then. The 1939 outbreak of war disrupted these plans.
• Structural Weakness: Production suffered because different branches of the military demanded highly specialized, high-quality equipment, preventing standardization.
• Labor Shifts: The production of armaments required highly skilled labor. The force grew from $21\%$ in September 1939 to $55\%$ by January 1941, but remained insufficient due to the lack of mass production techniques.
• Goring’s Mismanagement: Goring had poor relations with military leaders and large banks. He was preoccupied with building his own economic empire ("Hermann Goring Works") rather than coordinating a centralized war economy.

The "Production Miracle" of Albert Speer (1942–1944)

• Appointment: Following the death of Fritz Todt in a plane crash in February 1942, Albert Speer was appointed Minister of Armaments.
• Rationalization of Production: Speer was given full executive power to establish a Central Planning Agency and coordinate the entire production process.
  • Central Coordination: Established centralized allocation of labor, equipment, and materials to factories.
  • Factory Consolidation: Concentrated production in fewer factories to allow for standardized products.
  • Mass Production: Implemented mass production techniques and initiated 24-hour factory shifts.
• Statistical Results:
  • Between 1941 and 1943, aircraft production increased by $200\%$.
  • Tank production increased by $250\%$.
  • Aircraft output rose from $180$ per month to approximately $1,000$ per month.

Mobilization of Labor During the War

• Dwindling German Labor: As more German men were conscripted into the armed forces or killed, the domestic labor supply became limited.
• Foreign and Forced Labor:
  • By 1944, there were $7,000,000$ foreign workers in Germany.
  • An additional $7,000,000$ workers in occupied countries were performing work for the German war effort.
• Women in the Workforce: Despite Hitler's ideological opposition (concerned that it would affect birth rates and the "master race" growth), women were eventually forced back into the labor force toward the end of the war to sustain production.

Questions & Discussion

• Question: "Any questions so far?"
• Response: "No? Okay."
• Closing Note: The next lecture will focus on the impact of policies toward women, children, and religion.