27: Show Me the Money

Description

While not a priority for the new Nazi government, the German economy would have to be considered if it wanted to accomplish its goals.

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Sources

The Coming of the Third Reich by Richard J. Evans
Germany and the Second World War Volume 1: The Build-Up of German Aggression by Wilhelm Deist, Manfred Messerschmidt, Hans-Erich Volkmann, and Wolfram Wette
Hitler: A Biography by Ian Kershaw
The Third Reich by Thomas Childers
The Wages of Destruction: The Making and Breaking of the Nazi Economy by Adam Tooze
The Rise and Fall of the Third Reich by William Shirer
France and the Remilitarization of the Rhineland, 1936 by Stephen A. Schuker
The First Capitulation: France and the Rhineland Crisis of 1936 by R.A.C. Parker (1956)
France, Germany, and the Saar by A.J.P. Taylor (1952)
The Franco-Polish Alliance and the Remilitarization of the Rhineland by George Sakwa
French Intelligence and Hitler’s Rise to Power by Peter Jackson
Great Britain and the Saar Plebiscite of 13 January 1935 by C.J. Hill
Hitler, Intelligence and the Decision to Remilitarize the Rhine by Zach Shore
Hitler’s Thirty Days to Power: January 1933 by Henry Ashby Turner Jr.
Prologue to Peacekeeping: Ireland and the Saar, 1934-35 by Michael Kennedy
Fantasy and Reality in Nazi Work-Creation Programs, 1933-1936 by Dan P. Silverman
Franz von Papen, the German Center Party, and the Failure of Catholic Conservatism in the Weimar Republic by Larry Eugene Jones
Causes and Consequences of the Plebiscite in the Saar by E.W (1955)
The Purge of the SA Reconsidered: “An Old Putschist Trick”? by Eleanor Hancock
The Remilitarization of the Rhineland and its Impact on the French-Polish Alliance by Roman D. Bicki (1969)
Rohm and Hitler: The Continuity of Political-Military Discord by David Jablonsky
The German Roman Catholic Hierarchy and the Saar Plebiscite of 1935 by Guenter Lewy (1964)
Saar Coal After Two World Wars by O.R. Reischer
Schacht’s Regulation of Money and the Capital Markets by Arthur Schweitzer (1948)
The Myth of Chancellor Von Schleicher’s Querfront Strategy by Henry Ashby Turner Jr.
The Struggle for Control of the German Economy by Amos E. Simpson
The Nazi State and German Society: A Brief History with Documents by Robert G. Moeller
Franz von Papen, Catholic Conservatives, and the Establishment of the Third Reich, 1933-1934 by Larry Eugene Jones
Franz von Papen, the German Center Party, and the Failure of Catholic Conservatism in the Weimar Republic by Larry Eugene Jones
British Establishment Perspectives on France, 1936-1940 by Michael Dockrill

Transcript

Hello everyone and welcome to History of the Second World War Episode 27 - The Third Reich Part 13 - Show me the Money. This week a big thank you goes to Bret who has chosen to support this podcast on Patreon where they now get access to ad-free versions of these episodes and special Members only episodes released every month. As an added bonus all of the podcast’s supporters will get special early access to an upcoming special episode, a lengthy episode on the HMS Warspite which will be releasing for everyone in mid-December, but will be available for supporters in early-November. If any of that sounds interesting to you head on over to historyofthesecondworldwar.com/members to find out more information. After the Nazi government took power in 1933, an important aspect of its policy revolved around the economy. Like many nations around the world Germany had been hard hit by the Great Depression, and by early 1933 it was not clear that it was on the path to recovery. The economic and unemployment crisis had been one of the reasons that so many Germans had abandoned their support for more traditional political parties and had shifted to parties that wanted to drastically reshape German society, like the Nazis. If Hitler and the Nazi leaders wanted to ensure the long term support of the German people they needed to find a solution to the economic problems that the nation faced. In this episode we will discuss some of the economic policies under the Nazi regime and their effects on the German economy, the German people, and Germany’s position on the world stage. The one topic that we will not discuss today is the work creation programs which would be in place in Germany in the mid-1930s, they deserve their own episode we will give them next week.

Economic policy has an interesting place within the Nazi government. Hitler and the other Nazi leaders were not well versed in the intricacies of modern economics. They also did not bring with them into power a platform of specific economic reforms. This is even more interesting when you consider that such a large part of the Nazi Party’s opposition platform during the early 1930s had been based on claiming that the government was doing so many things wrong in the economic sphere. Instead, the party often viewed economics as a secondary matter, one that was subordinated to the political and societal changes that the party viewed as necessary. After they came to power Nazi leaders would often work other views into why they would claim that the economy was having issues. For example in May 1934 Geobbels would lay much of the blame for Germany’s economic woes at the feet of German Jews, saying in a speech that ‘If Germany was forced to declare to the world that it was no longer in a position to pay its debts and transfer interest, then the blame does not lie with us.’ There were some Nazi leaders and members who did have strong opinions about what should be done but these were mostly of the left-wing Nazi variety, and they saw nationalization as the preferred end state for many industries. Some of these members would even begin to take actions that they hoped would lead to that end state. they began trying to take over business associations to prepare for the next step, but in many ways these views were out of step with what the party leadership wanted, and were a relic of the party’s early days in the 1920s. It would require the party leadership to specifically say that the nationalization of the German department stores, which had been promised many times over the years was “not indicated for the present.” This is just one specific example of how many of the promises that the party made over the years, promises that would have required drastic economic changes, were not followed through on. For example, for a party that has originally quite loudly proclaimed its anti-capitalist beliefs, after 1933 their policies were far from anti-capitalist. Private property as a concept would not really be altered during the 1930s. The most important reason for this lack of change in property relations was that Nazi leaders, Hitler and Goebbles first among them, believed that the goal of the Nazi social revolution should be to change the views of the German people, not to change the status of German industry. The Third Reich by Thomas Childers would say on this topic that “The Nazis did not need to socialize the banks and factories; they were socializing the people.” While the party leaders were busy with trying to make this a reality, obviously Germany had to have somebody making economic decisions, and some changes, which is where Hjalmar Schacht would come into play.

During the 1920s Schacht was a banker, and was known for his very orthodox economic views, views that he would bring with him into his role in the Nazi government. After the Nazi regime was put in place in 1933 Schacht would be in almost total control of the national government’s economic policies. He had two primary purposes, to bring Germany out of the Great Depression and to put it on a solid economic footing for future remilitarization. Schacht would inherit the choices of those who had come before him, and one of those choice was that Germany was on the gold standard. This is of course not the first time we have discussed the gold standard or its consequences. On the topic of the standard the most important moments for Germany was the devaluation of the British pound in 1931 and then the devaluation of the American dollar in April 1933. With so much of the world’s trade now happening between nations that were not on the standard, Germany had a choice to make, and an important one. If Germany stayed on the standard it would be able to take advantage of relatively cheap imports, which would keep prices low, however its exports would be incredibly uncompetitive on the world market. If they devalued, German exports would be much more competitive, but the price of imports would increase and would most likely cause high inflation numbers in Germany. Hitler and Schacht would avoid devaluation at almost all costs to prevent that inflation, and would accept and work around the problems that went along with that choice.

One of the major factors that had to be considered for any economic policy decisions was the large amount of foreign debts that the German government and German industry owed to other nations. This became a serious problem once the decision had been made not to devalue, because German exports would begin to drop rapidly. In 1929 Germany had exported roughly 8 billion Reichsmarks worth of goods, but by 1933 that number had dropped to 4.8 billion, a number that would drop further in 1933. During this time the value of German imports first approached export levels, and then after 1933 began to surpass it. On top of all of these export and import numbers in 1932 just servicing all of Germany’s international debts required them to have a billion Reichsmarks in various foreign exchange currencies, and that was after reparations had been reworked at the Lausanne conference. this number, while obviously quite large, was workable as long as German exports, which brought in foreign exchange were greater than German imports, which reduced foreign exchange. However, as the imports approached the value of exports, whatever foreign exchange German banks possessed began to evaporate incredibly quickly. This caused the German government to announce that on June 30th 1933 it would put a moratorium on the repayment of all German foreign debts. The government guaranteed that those within Germany who owed money would continue to make deposits of Reichsmarks into the central bank, but this money could only be redeemed if the foreign nations agreed to purchase German goods with foreign currency. Germany could not just cut itself off from the world though, it needed imports and it also needed nations to buy its goods, and so Schacht would turn to bilateral trade agreements to find a way to make deals with various nations to work around the challenges that Germany faced.

This would lead to a flurry of trade discussions and negotiations with nations in Europe and around the world, and dozens of trade agreements would eventually be put in place. The crowning achievement of these efforts was the Anglo-German Payments Agreement which was signed on November 1 1934. To get this agreement signed, first Germany had to agree to restart their servicing payments on the Dawes and Young loans which had been negotiated throughout the 1920s between the Western Powers and Germany as a way of reworking the Versailles reparations. In exchange the British would sign the agreement which would provide Germany access to some much needed foreign exchange. The Bank of England would also give the Germans a loan to pay off some of their specific trade debts that they had built up, and then they would have access to a specific margin of free foreign exchange that they could use around the world. In exchange for this, Germany agreed to use over half of its revenues that it gained in British pounds to buy British goods, while 10 percent would be used strictly to service the loans that Germany owed to British creditors. The British leaders signed the agreement because it gave them access to the huge German market, which even in 1934 was beginning to once again grow. This was a really big win for the Germans because it gave them a solid source of foreign exchange, while also improving relations with the British who were of course valuable trade partners. However, the amount of foreign exchange that it gave them did not in any way come close to approaching what the German economy needed to grow, especially in the ways in which the Nazi leaders wanted the economy to grow in the future, which would involve rearmament.

By mid-1934 something had to change within the German economy. Foreign currency was dwindling to almost nothing in the Reichsbank, and as long as the decision was made not to devalue, it would continue to decrease. With Schacht and Hitler against such an action, there was really only one choice available, and in early 1934 Schacht and the leaders of the Reichsbank began to craft a set of trade controls. Essentially how it would work is that the Reichsbank would have the power to choose who got foreign exchange, and how much of it they received. These decisions could be made for all kinds of reasons, but one of them was the export returns that such a commitment of foreign exchange might bring. So for example if an industry imported a relatively cheap commodity item, and then refined it in some way, and exported it for a much larger price, it would be far more likely to receive the foreign exchange required to buy the commodity in the first place. Eventually these decisions would be passed off to a set of committees which would supervise the 25 major classes of commodities used within Germany. When an importer was given permission to use foreign exchange for an import they would be given exchange certificates which guaranteed that a specific amount of foreign currency would be available to them. The amount of foreign exchange handed out, at least initially, did not result in drastic changes but very quickly it would be reduced. Eventually the amount given would reach just 5% of what had been used in July 1931. Initially the allotments were provided on a monthly basis, but eventually even this became too challenging and it started to be paid out on a daily basis. At one point the total foreign exchange currency holdings of the Reichsbank was down to less than 100 million Reichsmarks, or just a weeks worth of imports. During this time there was no guarantee on what would be available from day to day, which prevented any kind of long term planning by German industry. The uncertainty caused foreign trade to almost grind to a halt.

Such stringent import restrictions were not sustainable in the long term, behind them the German economy was growing and to continue to do so it needed to import more products. There were some external factors that helped to alleviate these issues though. In the mid-30s many nations were coming out of the worst of the Great Depression and as every nation started to grow their international trade back to pre-depression values the German economy also benefitted. It would also quickly be clear that other nations were willing to work with Germany to create new trading agreements that were beneficial to both nations. The only real exception to this was the United States, with the Americans refusing to work with Germany, and instead preferring to stick with their own idea on free trade. These benefits would only really come in later though, and the year 1934 would be the period of greatest hardship and uncertainty for the German economy. One fact that helped Schacht and the Nazi government was that they were not in any danger of being replaced. It did not matter what the consequences of their trade policy were as long as they were able to maintain power, so while things were rough in 1934 they were able to weather the storm of public opinion which allowed them to get to the point in the later years where the situation began to improve.

One question that could be asked is how did the larger German businesses feel about the restrictions that were being placed on them by the new government. Well, their response would start before the March 1933 election when on February 20th a group of 25 of Germany’s leading businessmen were gathered together. Hitler and Goering would make some opening remarks, and then Schacht got down to business, proposing a large election fund that all of the businesses leaders were encouraged to contribute to. This contribution would later become a recurring expense for the industrialists. What this signified was that the big business leaders were more than willing to help Hitler to retain power in the hope that they would be able to cash that in later for benefits. Or as Adam Tooze would say in The Wages of Destruction: The Making and Breaking of the Nazi Economy “Nothing suggests that the leaders of German big business were filled with ideological ardour for National Socialism, before or after February 1933. Nor did Hitler ask Krupp & Co. to sign up to an agenda of violent anti-Semitism or a war of conquest. The speech he gave to the businessmen in Goering’s villa was not the speech he had given to the generals a few weeks earlier, in which he had spoken openly about rearmament and the need for territorial expansion. But what Hitler and his government did promise was an end to parliamentary democracy and the destruction of the German left and for this most of German big business was willing to make a substantial down-payment.” That down payment would eventually bear fruit. The large industrialists would be able to gain import priority when imports were restricted, and in 1934 a national labor law was passed which put these larger firms in an unassailable position of power.

There was popular discontent due to the economic problems that the nation would face in the first years under Nazi rule. This would be felt in many different areas of society, but in many cases would see small business owners and small farmers forced into the role of wage laborer. Smaller businessmen had supported the Nazi party almost from its very beginning, however after the party came to power many small businesses were forced to close down due to the continuing economic problems. One of the problems had nothing to do with the economy and instead was due to the actions of larger corporations in Germany. The Nazi leaders worked closely with these larger corporations to try and free them from any problems caused by trade unions, which of course these larger businesses were not huge fans of. This, along with the removal of any government oversight, caused profits to skyrocket in large corporations. However, this boom was not shared with smaller businesses, and in fact in later years smaller corporations would be completely banned, with all corporations under a certain size were dissolved. While this caused problems for small businesses, these changes did help the businesses that it was trying to help, and profits would skyrocket at the top end of the Germany economy. This concentrated wealth in a small number of corporations, which would then help to finance some of the eventual recovery of the German economy. But this recovery would be at the expense of the small businesses and the workers, who were deprived of union protections and would see their wages decrease. New labor legislation replaced the labor unions with new labor trustees who were supposed to handle much of the purpose that unions had filled. It would soon become clear that the trustees mostly just did the bidding of the employers at the expense of the employed. With collective bargaining and strikes made against the law, and with the government more than willing to meet such actions with violence, there was little that the workers could do. Other restrictions were then put in place to increase control over the actions of workers, a May 15 1934 a law would restrict the ability of workers to change jobs, February 1935 would introduce workbooks which kept a record of skills and employment, June 1935 would give state employment offices exclusive control over employment, and on June 22 1938 labor conscription was introduced which removed much of what freedom workers still had. All of these trends meant that as the German economy as a whole began to improve during the 1930s, and while large businesses began making incredible profits, wages for workers decreased. German wages had never been high, but instead of growing with the economy they instead were reduced, with the percentage of national income that went to wages dropping from 57% to 53.3% between 192 and 1938 all while profits for businesses skyrocketed.

Workers were not the only ones who were experiencing issues inside the new conditions, and small hold farmers experienced similar issues. Almost a third of the total work force in Germany worked in agriculture in 1933, however, many of these did not work their own land but instead worked on larger estates. This was due to the fact that in 1933 just the top .2% of farms controlled a full 25% of Germany’s total farmland. Unlike in many other areas of Europe after the First World War, there was no large land reform movement in Germany after the First World War. In most of Eastern Europe these large estates had been broken up and distributed, but in Germany they remained. This meant that the old system of a small number of very large estates, a decent number of farmers who controlled at least a livable area of land, and then a huge mass of those who lived in rural areas who either owned just enough to struggle through or were forced to become farm wage laborers. These issues were part of why Hitler’s eastward expansion would be so heavily favored among the rural members of German society, it would provide simply more land for more farmers, theoretically allowing more of them enough land to be able to support themselves.

One of the problems that this caused for all of German society was that the average purchasing power within the nation remained quite low. This reduced the ability of Germans to spend money, because they simply had less of it, which was offset by military spending within the economy, but resulted in the standard of living for individuals to be far behind what was experienced in other nations. There was an effort made to try and kick the standard of living up through the use of volksproducts. These were simplified version of various consumer goods, which were all standardized and produced as cheaply as possible. The first of these, a radio, would be far and away the most successful. The radio was made available from many utility companies on a payment plan, with monthly payments as low as 4.40 Reichsmarks. Having the product at such a cheap price allowed radios to penetrate into 70% of all urban homes by 1938. Even this percentage, which was much higher than it would have been without the volksproducts initiative, was still far short of the United States, although it was roughly on par with Britain. The radio, which had obvious political motivations behind it, the most people who owned a radio the more people who could hear government propaganda, would be by far the most successful of the volksproducts. Of course it was not the most famous, a privilege that went to the Volkswagen, a car designed to increase the number of people in Germany who would afford an automobile. The Volkswagen was of course much more expensive than a radio, and so a payment plan was setup so that customers had to deposit 5 Reichsmarks a week into a payment account, then when that account reached 750 Reichsmarks they would receive their vehicle. They were also required to buy a two year insurance contract for 200 Reichsmarks on delivery. While these payments were being made, the company that received the payments was able to earn interest on the money, which made the whole venture quite profitable for them. 270,000 people would sign up for these contracts before 1939, but not a single car would ever be delivered because whatever manufacturing capacity had been allotted to the car before the war was quickly swallowed up into war production. It would not be until the 1960s that some compensation would be paid back to purchasers. What all of the volksproducts were trying to resolve was the wide gulf between what the government and the people wanted their standard of living to be and the progress the Nazi leaders had promised, with what the purchasing power of the German workers, which was influenced by government economic policy, actually was. For small, cheap, products this could be successful, but for large and expensive items, there simply was no way to resolve the contradiction.

Next episode we will discuss the Nazi work creation programs which began in 1933, which were well covered in Nazi propaganda, but were perhaps not as miraculous as they wanted the German people and the world to believe.