The Economy of Germany Before World War II

After the stock market collapsed in 1929, the financial strength of various markets in the globe was set into a tailspin with devastating impact. The economy of Germany as especially vulnerable since it was built upon foreign capital, primarily from American loans. After the credits abruptly came due and the world market of Germany export fell, the well-oiled industrial machines of the Germans swiftly come to a halt. With a fall in production level, workers were laid off. German banks similarly failed, which meant that saving accounts were instantly wiped out. This was then followed by inflation, which significantly affected the purchasing power of families. In a single night, the standards of the middle-class that many German families enjoyed became ruined by the event occurring outside Germany (Sutton, 2010). The Great Depression had commenced, and Germany was cast into poverty, which necessitated it to look for a solution. Adolf Hitler saw this as an opportunity and seized it.

Adolf Hitler, after rise to power and become Chancellor in 1933, he proposed policies that aimed to improve the economy of the nation and according to Stolper (2017), some of the introduced policies included, autarky, tariffs on imports and privatization of state industries. Wages rose by about 10.9 percent in real terms during this time, although a reduction in foreign trade meant rationing of consumer goods including fruits, clothing, and poultry for most Germans. He also believed that war was the primary engine to drive progress. Hitler asserted that the motive behind the economy of a nation should be to allow that nation to battle and triumph wars of expansion. Thus, after Hitler and the Nazi became in power, they embarked on a massive program of arming the military, which rapidly dwarfed the investment of the civilian (Ferguson & Voth, 2008). In this article, I will, therefore, focus on the economy of Germany before World War II, and how Hitler managed to rebuild German so quickly.

Recovery and Rearmament

The Nazis came into power in the middle of the Great Depression. At this time, the rate of unemployment was approximately 30 percent. Initially, this new government supported the economic policies, which t had been set by the Kurt von Schleicher government, that were meant to battle the impact caused by the Depression. Hitler in 1934 appointed Hjalmar Schacht to be the minister of economics (Overy, 1982). He inherited policies, which included an extensive public work program that was supported by deficit spending to reduce the rate of unemployment and stimulate the economy. Schacht designed a scheme for deficit financing, where capital projects were paid through the issuance of promissory notes termed as Mefo bills. These bills could be traded between companies, which made them particularly useful in enabling the government to rearm since these bills were not Reichsmarks (German currency between 1924 and 1948) and were not included in the federal budget and thus aided the Nazi in concealing rearmament.

The Reichsbank would print money when the bills were presented for payment. However, in 1938, this became inadequate when a large share of the promissory notes fell due. Due to a severe cash shortage, the government employed dubious approaches where banks were forced to purchase bonds from the government and took money from insurance companies and savings account to pay for the bills (Höpner & Krempel, 2004). Meanwhile, the administration of Schacht had attained a significant decline in the rate of unemployment. This was the most significant decline in any country during the Depression and by 1938 unemployment in Germany had become extinct.

The Nazi government’s chief economic priority that set it apart was to rearm and rebuild the military strength of Germany in preparation of eventual war. Hitler began his rule by noting that Germany’s future exclusively and only depended on the reconstruction of the Wehrmacht and in the event of a conflict between the Wehrmacht’s demand and the demand of other functions, Wehrmacht interest must be first prioritized. This policy became implemented instantly, in which the expenses of the military rapidly grew far much larger than the work-creation programs (Bel, 2010). By June 1933, the expenditure of the army is said to be three times larger as compared to all civilian work-creation measure of between 1932 and 1933.

The rearmament first financial package was officiated in 1933, and it was very striving. A figure of 25 billion Reichsmark was approved and sent to the military buildup for eight years. During this time, the German’s entire national income was 43 billion Reichsmarks, and thus, the Nazis were not only proposing to raise the spending of the military but to make it as the primary focus of the national economy (Whealey, 2015). Hitler withdrew from the disarmament since the internal treaty obligations could not allow such extensive rearmament. As a result, the government feared to provoke an immediate war with France, which never occurred. However, this fear created a sense of urgency that reinforced the rearmament program. This unprecedented size in the budget military became impossible to hide from foreign observers, but when asked for an explanation, Hitler asserted that Germany was only engaged in basic maintenance and renewal expenditure.

This massive buildup was in no small extent financed through deficient spending. The German government total revenue amounted to 62 billion Reichsmarks between 1933 and 1939, whereas its spending exceeded 101 billion. This resulted in an enormous deficit that rose the national debt, and by 1939, it had reached the 38 billion mark. Hitler together with his economic team expected that the forthcoming territorial expansion would create the means of repaying the rising debt, by utilizing the workforce and wealth that the nation would have conquered.

An elaborate bureaucracy was proposed that would regulate the import of raw materials and finished goods with the aim of reducing foreign competition in the marketplace as well as to improve the nation’s balance of payment (Kley, 2000). The government encouraged the creation of synthetic materials which would replace goods including as textile and oil. The government also made a profit-sharing contract with some companies such as IG Farben, since the market was experiencing a surplus and petroleum price was low. This guaranteed a five percent return on capital invested in the synthetic oil plant.

The Reinhardt program which focused on developing infrastructure was also introduced in 1933. This program blended direct public investment in railroads, highways, and waterways with indirect incentives such as tax reduction. It was then followed by other initiatives that resulted in considerable expansion of the construction industry. Consequently, employment in the construction sector rose from merely 666,000 to over 2,000,000 between 1933 and 1936 (Gellately, 2002). Various forms of motorized transport including cars became more and more attractive to the citizens, which saw the German motor industry boom. However, the drive to attain autarky meant the government had to restrict foreign currency, which resulted in a shortage of fuel and rubber for the civilians.

Foreign Trade Relations

World prices of raw material which mainly constituted German imports were on the rise, and at the same time, global prices of finished goods were failing. This saw German face a challenge in maintaining a balance of payment, which seems to result in a large trade deficit. However, Hitler viewed this concern as improper, and Germany decided to move away from partially free trade in the path of economic sufficiency (Braun, 2010). Hitler knew that Germany had no reserves for raw materials and thus a full autarky could not be achieved. As a result, he settled on a different approach, where the government attempted to reduce its trade partners and only partner with nations within the sphere of influence. This resulted in a couple of bilateral trade agreements between European countries (majorly country in South-Eastern and Southern Europe) and Germany.

By the end of the 1930s, German aimed at using the trade policies for its political and economic power, by making the European nations reliant on Germany. The Nazi would acquire raw materials from these regions, and in return, these countries would receive the manufactured goods. The government would also influence productive trade relationships with Sweden, Spain, and Switzerland in various sectors such as the import of iron ore, and payment and clearing services (Whealey, 2015). German businesses were also encouraged to forge oligopolies, cartels, and monopolies whose interest was protected by the government.

Privatization and Business Ties

The Great Depression had encouraged increased state ownership in western capitalist nations. This also transpired in Germany during the last term of the Weimar Republic. However, after Hitler came to power, most industries including welfare organizations, several banks, shipping lines, shipyards, railway lines and more were privatized. This move was employed within the context of increasing control of the state over the entire economy through political interference and regulation. The government ensured that the enterprises were in private hand where applicable and state ownership was discouraged unless it was necessary for rearmament or war effort. Hetzel (2002) notes that the four commercial banks that are major in Germany, which had become a property of the public in prior years, were similarly privatized. Various public services, which were previously owned by the government were also privatized including labor and social-related services.

The drive behind the privatization policy was to strengthen the partnership and interests between the businesses and the government. Financial power was also another reason since the government was facing budget deficits that it had incurred from the military expenses. Thus, privatization promised to raise more funds, and it represented about 1.4 percent of the national revenue between the fiscal year 34-35 and 37-38. The approach was also encouraged by an ideological motivation. This ideology held entrepreneurship in high regard, and private ownership was perceived as a precondition to advancing the creativity of Germans (Leitz, 2004). The Nazi leadership considered privatization as a means of providing significant incentives in attaining efficient gains, greater cost consciousness, and technical progress. Hitler employed Social Darwinist arguments to support this approach.

Furthermore, due to his anti-trade union and anti-communist stance, many business owners supported Hitler’s rise to power. After he became chancellor, Hitler appealed to the business leaders to fund the Nazi party, and consequently, the party received contributions from 17 different business groups with much of the support coming from Deutsche Bank and IG Farben. Many of these continued to support Hitler even during the war (Baranowski, 2011). In return, the managers and owners of the businesses were given unprecedented powers to control their workforce. The collective bargain was suppressed, and salaries were frozen at a relatively low level. As a result, profits rose rapidly as well as corporate investment.

The Nazi regime rhetoric asserted that private companies would be privileged and protected as long as they aided the economic objectives of the government (mostly by accepting contracts for military production). However, they would be faced by severe consequences if they did not comply and go against the national interests. Nonetheless, these threats were rarely undertaken, and some companies would refuse to participate in some investment projects that the state had designed. The government used monetary incentives in an attempt to persuade business to support its goals (Mierzejewski, 1988). The liberty of contract was greatly esteemed even in projects that were considered necessary to war. It is thought that the motive behind this refusal was out of long-term profitability. Many companies were also worried about overcapacity in case the armament boom ended. Further, most did not want to commit to much war-related production for the future.

Social Policies

Hitler upheld the concept of social Darwinist in which the weak and vulnerable should perish. As a result, the Nazi were hostile to the notion of social welfare in principle and the welfare system of the Weimar Republic was condemned. Private charities were also accused of aiding racially weak and inferior individuals, who ought to be weeded out in the cycle of natural selection. However, when the government was faced with poverty and mass unemployment, it viewed it as necessary to create a charitable institution to aid the racially pure and superior Germans in attempt to maintain popular support. The Nazi argued that this was racial self-help and not an indiscriminating charity (Baranowski, 2011). Programs such as the broader National Socialist People’s Welfare (NSV) and the Winter Relief of the German People were designed as quasi-private institutions and relied on private donations from the Germans to help their race.

The NSV assisted explicitly racial basis, and unlike the social welfare institutions of the Christian charities and the Weimar Republic, it provides support only to those who were considered racially sound, politically reliable, able and willing to reproduce and capable of and willing to work. Further, the Winter Relief campaigns were used as rituals of creating public sympathy and successful efforts were made to get the middle-class women involved in social work to assist other families. Non-Aryans, as well as individual who were asocial, work-shy or hereditarily ill, were excluded from aid programs. Glaeser (2005), notes that some of these people were actively persecuted and being labeled as “useless eaters” or ”life unworthy of life.”

Furthermore, trade unions that had existed even before the rise of the Nazi were banned and replaced with the DAF (German Labor Front). Strikes and lockouts were also outlawed. The goal of the DAF was not to safeguard workers but to raise their output, and it was enforced to both the employers and the employees. At this time, the chamber of economics absorbed all existing chambers of commerce, and by 1934, these two groups merged. The chamber of economics became the economic department of the DAF (Fulbrook, 2002). When it came to coordinate retails and small businesses shop councils and the Court of Honor was created to monitor them. Nazism viewed employees and employers as families with each performing a unique role. This was well depicted in the tax structure, where the Nazis allowed industries to deduct from the taxable income all the amount used in purchasing new equipment. Financially stable families viewed maid as a dependent child.

Conclusion

As noted above, the economy of Germany, similar to other western nations, suffered the impacts of the Great Depression. The Germans people became tired of suffering, misery, and weakness and in their desperation, they were willing to listen to anyone who could give them a way out, including Adolf Hitler. Nonetheless, once he came into power, Hitler directed the foreign policy of his party toward undoing the Treaty of Versailles. From mid to later 30s, among other things, he rebuilt the German armed force beyond the expected capacity by the Treaty of Versailles. The military spending of the Nazi increased swiftly as compared to all other nations in peacetime and eventually the military came to represent a large portion of the German economy during the 40s. Before the war, this was mainly funded through deficit financing, and the Nazis expected to cover these debts by plundering the wealth of the nations that they had conquered. Although such plunder occurred, it, however, fell far short from what the Nazis had expected. The government also engaged in partnerships with leading German business interest, who were in support of the regime’s goals and its war effort in exchange of subsidies, contracts, and the suppression of the trade unions. Monopolies and cartels were supported at the cost of small businesses, even though the government had received significant electoral support from various small businesses.

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