Preparing for war is a delicate balance of short and long term preparations, but not everybody in Germany agreed about what those should be.
Hello everyone and welcome to History of the Second World War Episode 79 - Germany Prepares for War Part 2 - The Plan. This week a big thank you goes out to Joe and Mike for choosing to support the podcast by becoming members. Members get access to add free versions of all of the podcast’s episodes plus special Member episodes roughly every month, you can head on over to historyofthesecondworldwar.com/members to find out more. This week I would also like to give a shoutout to the Maritime History Podcast, it is back after a bit of a hiatus and is at this moment covering the maritime history of ancient Greece in the run up to the Peloponnessian War. That is again the Maritime History Podcast. Back to our history now. If Germany wanted to achieve its rearmament goals in the last four years of the 1930s, it needed an economic plan. This plan needed to have two high level goals, the first was to optimize as much as possible every possible domestic resource. This included pouring money and time into creating substitutes fo ritems that did not have domestic sources, this would enable the second goal to be more easily accomplished. That second goal was to guarantee that for resources that were imported into Germany, they were both properly prioritized and properly used. Fighting against these two goals were several problems that would have to be dealth with. First of all there was a shortage of skilled workers, especially in several critical industries, there was also a shortage in the ability to import resources due to a lack of foreign exchange. The person put in charge of the problem to solve these issues was Hermann Goering, and at least if you asked Hitler, the success or failure of the program would dictate the future of the nation.
We spoke a bit about the problems that Germany would have with foreign exchange in the last episode, but there were also several domestic challenges that they would have to overcome as well. As more production capacity and raw materials were moved over to armament production, or were used as exports, civilian consumption of goods had to be curtailed. This curtailment required reversing trends of the previous years, which had seen domestic consumption growing as the German economy came out of it early 1930s slump. Goering would bring together a team of technical experts within the Luftwaffe, primarily to work on the ever present problem of syntheic fuels, but also on amore generic economic plans. it would be from this team of planners that the basics of the Four Year Plan would be determined. Teh result would be an outline that did not focus on armament production specfiically, but was designed to solve a few of Germany’s long term resource problems, primarily around just general domestic production capabilities, and then the production of fuel, oil, and food. The Four Year Plan would be introduced at the Nuremberg Rally in September 1936. Instead of making references to preparations for war, the public message was instead that the program was designed to increase the standard of living for German citizens. It was also trumpeted as another way for more Germans to be provided with jobs. With the plan announced, and it having the very clear support of Hitler, the question became what exactly was Hitler putting his support behind. The answer to this question, at least in terms of details, was difficult for many people to determine in September 1936, because there were very few copies of the memorandum that Hitler wrote about the program, possibly as few as two which Goering and the War Minister, Blomberg, had in their possession. Limiting the firm knowledge that others had about the program allowed Goering quite a bit of leeway in its implementation. The broad strokes were well known though, no devaluation and a priority on rearmament both in the short term and long term. Goering would be given formal control over the program on October 1th, which essentially gave him almost total control over all economic aspects within Germany. This drastically reduced the power of the Minister of Economics, Hjalmar Schacht, and moved control of events out of the Ministry and into Goering’s hands. This represented a huge victory for Goering, and was a culmination of his efforts to sabotage Schacht’s position. Schacht also held beliefs that were not fully in sync with the direction the Nazi government was moving, as he had a more traditional view of economics and was far less a blind follower of Nazi economic ideology, this was used as one of the wedges that would push him out of power.
With the control of the Four Year Plan removed from Schacht’s control, let’s talk about how it planned to accomplish its goals. The plan called for all domestic production programs to be maximized as much as possible, which would hopefully reduce the need to import goods that Germany could produce itself. This would be accomplished by removing any and all cost barriers that had previously prevented increases in production and production capacity. This was very important in some specific industries where one of the problems that had previously held back domestic production was the fact that it was more expensive to gather and process domestic materials than it was to just import them from another nation. Iron was an example of this type of material, with the specific composition of some German iron ore deposits being very costly to turn from iron ore into finished product. Under the new guidance as part of the Four Year Plan, this iron ore was going to be processed regardless of the cost. Attempting to capitalize on domestic resources would allow for some foreign exchange to be freed up, which would be used on a variety of items that could not be produced in Germany, or in the case of food, would be used to make up for shortfalls that were expected as domestic production was increased through a series of programs. Along with maximizing production of some natural resources, there was also going to be a huge amount of money put into producing and perfecting synthetic materials, especially fuel and rubber. Both of these materials had existing processes that allowed for them to be created synethically, and in fact both processes had been invented in Germany, with a process for rubber developed in 1909 and then fuel in 1913. However, to try and replace all consumption with these synthetic options was simply too costly before 1936. With the new changes under the four year plan, they very quickly became two of the most important points of emphasis, with the production capacity of both seen as critical, as any war that would begin after 1936 would be a war in which the production of fuel was incredibly important, and Germany might be fully dependent on synthetic production. Synthetic fueld was made through the Bergius process, named after its inventor Friedrich Bergius. I am not going to pretend to understand the chemistry involved, but the process involved taking coal, crushing it into a fine powder, adding a catalyst, and then applying heat. By 1936 Germay was already the world’s leading producer of synthetic fuel, produing 1.78 million tons in 1936, but this only covered about a 1/3 of the total fuel required in Germany at the time, and that was not wartime cosumption but peace time. Part of the Four Year plan was to massively increase the levels of production, bringing annual production up to about 5.4 million tons per year. Building out the large amount of infrastruction needed to make this expansion happen would be the most monetarily intensive part of the Four Year Plan. This was also just one example of the types of investments made in future production of various goods, which would be the bulk of the spending. This spending would sit along side, and often come into conflict with the rearmament goals that were also in place. When it came to armament production many of the monetary restrictions of previous years had been removed, and this certainly did help, but it did not solve all the problems. The goal was to build as much as materials and labor would allow, regardless of the cost. Removing any possible price concerns allowed the various military arms to introduce new designs and order huge numbers of them. This would happen for example in Goering’s domain in the Luftwaffe, with the announcement on December 25th that all Luftwaffe production facilities would from that date forward be on a war time footing, with the goal of producing maximum output after the following months.
As soon as the plan was announced and changes began to be made to put it into action, events started to occur that were not always according to the plan. It is challenges to talk about every type of good and resource, or every possible industry, so we will focus on one specific industry, steel. The German steel industry would experience a round of panic buying as soon as it was clear that new government restrictions and limitations would soon be put in place. There were suddenly orders being placed for hundreds of thousands of tons of steel, none of which were even remotely possible to fulfill, in the hopes that the private companies would be able to get that steel before their access to it was limited by future restrictions. Within a more free market economy what might have happened in this case was that the steel mills would have raised prices, or even allowed purchases to pay additional fees to expedite their specific orders. However, this was not allowed by the government, due to the conern that if price increases were allowed they would spiral out into inflation which would affect other areas of the economy. There would eventually be an outright ban on all price increases on November 26, 1936. The removal of the normal means of scarcity regulation, which would have involved raising or lowering prices to lower or raise demand, meant that there had to be another method of determining how goods were used and parcelled out, which meant rationing. Over the early months of 1937 rationing on many metals started, with steel ratoining beginning on February 23. Whenever rationing began on a good, and strict government control was implemented, existing orders for that good might be cancelled, which would happen for steel at the same time. This clearing of the ledgers allowed the government to more precisely control what steel was being used for, without having to contend with months of orders that sat unfulfilled. Overall, steel is an interesting resource to discuss when looking at this time period, because it was a resource that was both very obviously absolutely critical to rearmament but was also an important German export. This meant that when steel rationing began a decision had to be made about how to utilize the limited stock of steel that was either available or could be produced. The decision that was landed on was that steel exports would be protected and continued, which would be used to bring in more foreign exchange that could be used for other goods. This was a policy decision that Schacht heavily advocated for, and even with his fading influence and the limited power of the Finance Ministry was one that was put in place. The size of the export allocation for steel was over 500,000 tons every month, which was more than was given to the entire rearmament effort at this time. This meant that domestic production of goods that required steel took a hit, and in fact there would be a blanket reduction of 15% across all rearmament activities that consumed steel. Schacht felt that this sacrifice was mandatory, because there was a large and growing market for German steel on the international market. This demand was boosted by the rearmament efforts of other nations, along with a general global economic recovery that had been ongoing for much of the 1930s. Moving so much of German steel into exports created a shortfall among the steel that was desired for rearmament, even after the blanket reduction. By February 1937 the army wanted 270,500 tons of steel every month, but they were only getting about 195,000. This is a great example of how, at times, government control of rearmament efforts and the economy can have somewhat counterintuitive results. Just because the government was now in greater control did not meant that suddenly a huge amount of raw material was available for rearmament efforts. There were other concerns that overrode the immediate rearmament efforts. This was probably quite frustrating to the planners and leaders of the Wehrmacht, but it was the new reality that they could do very little to alter.
While the relationship between the military’s rearmament efforts and the new economic plan was in flux, there were also some new realities within the German economy that were also shifting. When the Nazi government came into power, it did so largely with the support of the German business community, and especially the larger industrialists. Before 1933 German business leaders saw the Communists as their primary enemy within German society, and so a group like the Nazis whose anti-communist credentials were spotless was seen as a counter balance against growing Communist support. After January 1933 there was for several years good relations between those same business leaders and the new regime. When it came to the business environment, the Nazi leadership did exactly what they said they were going to do, the Communists and then the Socialists were robbed of all power, and then they were outlawed. Unions and other worker organizations were removed and reformed under the control of the government, removing any risk of worker actions. This was followed by a period where the profits for those businesses skyrocketed as the German economy began to recover. By the time that the Second Four Year Plan was put into place, and relations between the government and industrial leaders began to change, it was already at a point where it was really too late for them to anything, as the Nazi regime was firmly in place and had solidified its control. This fact would become more important as the Second Four Year Plan was implemented, becuase Goering would very quickly begin to consolidate more and more power within his personal sphere. As Goering, and in general the Nazi party gathered more and more of this power to themselves in 1936 and 1937 they were able to finally take a more proactive stance against the industrialists. Up until that point there was a general resistance to state control from business leaders and it had been successful. This would then be used as one of the excuses for the increase in government control of private industry as it proved unable to meet the goals of the various Nazi economic plans. In reality those goals, due to all of the problems we have discussed, were totally unobtainable regardless of how indsutry was organized, but that did not realy matter. Any resistance to the desires of the Nazi party from any group within Germany would never be tolerated indefinitely, and this would result in the eventual creation of the Reichswerke. The Reichswerke was a company created and owned by the goernment which was designed to replace and supplement existing private industry. Its first target was the iron industry. It would take control of all iron works, and their owners would be compenstated with only minor shareholdings in the new company. When this was announced Goering would tell the assembled industrialists that ‘It is not important that you fill my ears with complaints, but that you pull yourselves together.’ The Reichswerke would then go on to take control of all industry in the captured territories of Austria and Czechoslovakia. This meant that over time the Reichswerke would toncinue to make up more and more of Germany heavy industry, while the more traditional industrial regions like the Ruhr saw its government support, and then its power, reduced.
While initiatives like the Reichswerke were put in place and would eventually take over massive pieces of the German industrial machine, early 1937 would be a critical time for German rearmament efforts as a whole. Almost immediately after the Four Year Plan started, there were already some concerns that goals for the Germany economy and for rearmament were not going to be met. One of the challenges was the friction between the goals of the government and the military, with the military strongly valuing short term rearmament objectives while the government was investing in longer term economic projects. By late spring 1937 Army leadership would be reporting that the goals for the next three years were in serious danger. If the military was to be ready to fight at 1940, it would need more resources that what it was getting. If no more resources were available, then quite simply the German military would not be ready. A few months later the War Ministry would write a memorandum which was circulated to the government, making it clear that the ministries frustrations were not just that resources were not available in the correct quantities, but that they were being wasted on other intiatives. Part of the memo would say ‘The troops do not understand why the state, the [Nazi] party and business are permitted to undertake large construction projects, when for lack of barracks they are spending the winter [under canvas] on the training ground.’ These decisions would have real impacts on the armament production that occurred in 1937, and instead of reaching new heights, which was required to meet the goals from 1936, armament production in 1937 was in the best of circumstances at the same level as the previous years. In other areas, production would actually decrease, which would happen in such important areas as aircraft procution, which would decrease between April 1937 and mid 1938. The math on what needed to happen was clear, if the Wehrmacht was to reach the goal of completing the 1936 program by 1940 they would have to be given massively larger amounts of resources. Sticking with steel as our example here, by the second half of 1937 the belief was that the Wehrmacht would need over 500,000 tons of steel every month in order to meet its targets, which was 70% more than they were actaully getting. This amount of steel was available, but giving it over to rearmament would require completely gutting the export allowances that were being used to pay for other imported goods. These exports were being zealously protected by Schacht and the Finance Ministry, and the imports that they paid for were just as desired as the initial steel was. High level concerns like this, with very powerful members of German industry, government, military, and party involved, would eventually end up in one place, Hitler. His involvement and the decisions that it would result in during this period can only be considered within the wider world of politics at the point in time. It was during this period of late 1937 that concrete plans for the later war would begin to not just crystallize within Hitler’s government, but also began to be communicated to the military leadership. But before we get to those communications, which would put added emphasis on meeting rearmament requirements, lets look at bit at some of those developments.
While changes were being made in the German economy in late 1936 and early 1937, this was also a period of diplomatic changes for Germany. On November 27th Hitler would put his stamp of approval on the Anti-Comintern Pact, and agreemnt between Germany and Japan that if either nation was attached by the Soviet Union the other would not provide any assistance to the Soviets. This was an important symbolic agreement, although as would be shown after 1939 the ability of either nation to provide real assistance to the other was limited. Along with better relations with Japan, of dubious military value, the far more important relations with Italy continued to improve and to solidify. It would be during this period that Mussolini would say in a speech that the line between Berlin and Rome was ‘an axis round which all those European States which are animated by a desire for collaboration and peace can revolve’. This being the origin of the Axis term that would be used over the years that followed, both among Italian and German propaganda, as well as their enemies. As discussed in the Munich episodes, this did not completely break relations between Rome and London and Paris, and Mussolini would still be seen as an important moderating influence on German actions, but relations between the two nations was important for Germany’s expansion plans for 1938, starting with the Anschluss.
Along with diplomatic relations and how they would support future German actions, we also have some view into Hitler’s mind during late 1937 due to the many conversations that were had with the military about future plans. It was of course crucial that Hitler inform the military about what would be required of them in the future, and this would occur several times. An interesting thing to keep in mind here is that these conversations were all occurring in late 1937, months before the Anschluss and almost a full year before the Munich Agreement. During November 1937 Hitler would outline these plans for the military leaders, and the plan was one in two stages. The first was that over the coming years Germany would expand in Eastern Europe, but it would do so without starting a general First World War style European wide conflict. The reasons for this expansion was not really to solve the problem of space, although lebensraum was certainly the long term goal. Instead the initial phase was all about resources. The goal was to expand German control to the point where there were enough resources available within its borders so that at a later date a major war would be launched. It would be this major war, certainly with Russia, probably with the British Empire, maybe even with the Americans, that would be decisive. Of course Germany would prevail, and the resulting victory would solve all of Germany’s problems of territory and space into the far future. Ignorin that future major conflict for the moment, the first phase of that expansion is far more entwined with the rearmament discussion. Hitler believed that Germany had to be ready to act if circumstances allowed for the absorbtion of Austria or Czechoslovakia, opportunites that hitler and groups within those countries would go to great lengths to manufacture throughout 1938. Poland was also another possible target, with the goal being as with the others to expand German territory into Poland without a major war starting. For all of these efforts the German military had to be ready to act, but the targets that it was acting against would always be easy targets. this did not prevent the military leaders at this time from being very concerned about the possibilites, which would be the great point of disagreement between Hitler and his generals over the course of 1938 and into 1939. They were strongly opposed to any early use of force, before the final rearmament goals were reached in the early 1940s, and to even risk such a conflict starting seemed like a major risk. When looking at the risks of conflict, the current state of rearmament activities, the current state of the German military, and the economic situation, both the Military and Hitler had different opinions about what needed to change. I like this tiny quote from Wages of Destruction by Adam Tooze “The generals responded by adjusting their time-horizons. Hitler responded by shifting the parameters.” Essentially, Hitler saw a goal, and achieving that goal was constrained in 1937 by a resource problem that Germany could not within its current confines solve. He therefore shifted planning and accepted greater possible risk in the short term, while obtaining greater territory and resources, believing that it still would not cause a wider war. On the other hand the military put rearmament before any expansion, and with resource challenges that meant that they wanted to push the date further in the future. This was also one of the major reasons there would be a large difference in the desired goals within the German economy in 1937. The military wanted to focus on short term goals with the goal of being ready for a war in the immediate future, while the government, through the Four Year plan, was focusing more resources on long term goals around that possible 1943 conflict. this meant massive investment, both in terms of money and raw materials, in future manufacturing capabilities. For example the massive Reichwerke facilities at Salxgitter, Linz, and Briix that would soak up more money than the entirety of the aircraft industry between 1933 and 1937. Similar massive investments would alter be made in explosives manufacturing and agricultural production. All of these investments were long term, which would do nothing for the German military strength in the last years of the 1930s. This would continue to frustrate Wehrmacht leaders, but there was little they could do. They would have even less influence after the Blomberg and Fritsch situationt hat we covered in the early Munich episodes. The robbed the German military of whatever power it had over events, next episode we will look at the next phase of German rearmament, which would begin in 1938 as some of those territorial expansions that hitler so desired began to happen with the Anschluss and then in Czechoslovakia. These new territories would then be exploited for the benefit of the German economy.