The Nazi government would come to power at the height of the worst unemployment crisis in Germany since the First World War. It was a problem that had to be addressed, and they would do so in many different ways.
Hello everyone and welcome to History of the Second World War Episode 28 - The Third Reich Part 14 - Work Work Work. This week a big thank you goes out to Gary and Michael for choosing to support this podcast on Patreon where they now get access to ad free versions of all of these episodes, plus special Members only episodes released once a month, like the most recent episode which took a bit of a deep dive into what the Japanese planned to do against the American Navy in the case of a war in the Pacific. If that sounds interesting to you, head on over to historyofthesecondworldwar.com/members to find out more information. Last episode covered some of the economic policies put in place after 1933 by the Nazi government, policies that cause some of their own problems. This episode we will first discuss the work creation programs that were put in place during 1933 to try and address the massive unemployment that was present in the Germany economy after the events of the Great Depression. Work creation efforts are an interesting topic when it comes to the actions of the Nazi government, because they did not really play any role in the party’s platform before January 1933, and work creation would only be a real priority for a few months. Part of the work creation effort would be consumed by the second topic of this episode, rearmament. Rearmament had been, and always would be, a priority for the Nazi leaders, and their goal was to get the German army back to a point where it could compete with others in Europe as quickly as possible. The idea was that this would then give Germany the political and military power to start reasserting itself, and allow it to start making territorial demands and then perhaps even territorial seizures. Obviously these actions would most likely prompt a response and so there would be efforts as rearmament progressed, to try and make the German economy far more self-sufficient and to prepare for a time when perhaps they were cut off from some of their external sources of goods.
Even before the events of January 1933 unemployment in Germany was a huge problem, there would be six million workers out of work during this period, which cause great hardship for many in Germany. There were several attempts by the government to try and address this problem, but given the general instability of governments during the first years of the Depression it was difficult for a coherent strategy to emerge. The last effort would be made by General Schleicher during his very brief period as Chancellor before being removed in late January 1933. However, before he was removed he would be able to get full funding for his work creation programs. These programs would be debt financed, which meant that additional government spending over the annual budget to the sum of around 500 million Reichsmarks would be put in place. Because Schleicher was able to guarantee the funding for this program when Hitler took up his office as Chancellor he would inherit a fully funding program that was simply waiting to be executed. This money, and much more would then be spent during the first six months of the Nazi regime. However, the program that would eventually be implemented would have some issues that would reduce its ability to provide lasting benefits. Before I dive into these problems I do want to remind everybody that at this point in history the actual efficacy of these job creation programs was a hotly debated topic among national leaders and economists. Some believed that they were the best way to jumpstart an economy and guarantee income for workers, which is why they would be tried in the United States and France, but there were others that believed that such programs just threw money away and resulted in very little lasting benefit, which is why there would not be a work creation program in Great Britain at this time. It should also be said that the programs put in place in the United States and France had less than inspiring results. The efficacy of these programs had little bearing on the mistakes made in the German program: First, much of the spending would be done for for the program would used funds that were gathered together from local governments. They allowed the funds to be used on large national work creation initiatives, but resulted in a reduction of local efforts to accomplish the same goals. Second, there was a lot of disorganization about how and when the funds were used, there was little overall planning for the best way to use them, and so some money was squandered on various plans created by different leaders that contradicted the plans of other leaders. Third, and finally, no small amount of money would disappear not into new jobs for people but instead into the blackhole that was military spending. Rearmament was of course very expensive and so even from the money Schleicher initially allotted to the program almost 200 million would be spent on the military in some form. They did still reduce the number of unemployed workers, but not as efficiently as what might have otherwise been accomplished. Overall the unemployment figures in Germany would peak at 6 million during 1932, then drop to 4 million the summer of 1933, and then be less than a million by 1936. However, much of this employment would only be possible due to the massive increase in military spending and the work that the spending created in the armaments industry. It as also buoyed by just the general improvement of the worldwide economy in the years after 1933. When looking back on the actual work done by the specific job creation programs it was generally too haphazard and poorly organized to produce a real economic recovery by itself in many areas of Germany, and so those external improvements would be critical to the German economic recovery.
One of the big the big moments for the work creation programs was the May Day events that occurred all over Germany on May 1 1933. A few episodes back we discussed how these events played a role in the Nazi suppression of the labor unions. First they reached out to workers all over the nation on May 1st, resulting in large parades. But then the very next day they arrested many union leaders and began a serious crackdown on union activity. May Day would also be used as a launching point for a new round of work creation programs, an idea that was advocated for by the Reich Labour Minister Franz Seldte. Seldte was one of the ministers from the nationalist parties, but he was very enthusiastic about the new labor creation initiative and particularly the Reinhardt program which he would play a key role in creating. The Reinhardt program was the largest work creation package created up to that point in Nazi Germany and its goal was to create work for around half a million Germans for around a year. It would be officially unveiled on June 1st, and it would cost more than a billion Reichsmarks in total. There had been many discussions about how this money could best be used, and there was never a firm agreement among Nazi leaders as to the best course of action. There were a variety of initiatives within the program, but some of the largest involved land reclamation projects all over Germany. These projects had two purposes to provide more farmland which would help Germany to become more self sufficient in food products, and then also to allow for the settlement of urban workers in the rural areas of Germany. There were many problems with these plans though, for example there was not an adequate budget for housing and roads to connect this new reclaimed land to the outside world, or to provide somewhere for people to live if they wanted to move out of the cities and into the countryside. It was also just based on the false idea that land reclamation projects would work, with the result of them being a large increase in usable agricultural land, which would prove to be far more difficult to achieve than originally planned. The end result of the first Reinhardt program would be somewhat disappointing, and would not employ as many Germans for as long as was originally hoped.
Certainly the most recognizable and lasting result of these work creation programs was the Autobahn. However, the relationship between this large construction project and the number of unemployed workers that it employed in Germany is negligible. Hitler loved the idea, he would put Fritz Todt in charge of making the massive road network a reality. 5 billion Reichsmarks would be allocated for the process, to be used over 5 years, with the goal being to build 6,000 kilometers of roads. All of this effort only created a less than a thousand jobs in 1933, and a year later that number would only be 38,000, which essentially equates to a rounding error in the million of Germans that were unemployed when the project began. This would be just one of many projects where the goals in terms of employed workers would prove to be far outside of reality, but in the case of the autobahn there were many other reasons to build the network of highways, not least of which were their military applications. In September 1933 the Second Reinhardt Program was launched. This time there would be a different approach, whereas the first program had sought to use government funds to directly finance more jobs, this one tried to boost private industry. For example instead of trying to directly fund the creation of housing, hundreds of millions of Reichsmarks were set aside to subsidize mortgages taken out in 1933 and 1934 with the hope that this would boost the housing market. But all of these efforts could do little to assist the workers that were most troubled by continuing unemployment, those in the cities. The situation improved during 1933 in the rural areas, and that is where much of the drop in unemployment would be experienced, but by the last months of 1933 it stopped improving even in those areas. The unemployment numbers would stabilize at around 4 million for much of 1934. Even though unemployment remained high, even at this early stage hundreds of millions of Reichsmarks were being funneled into rearmament activities, which at this point were being hidden under the budget category of ‘special measures’.
Rearmament had always been a goal for most German political parties practically since the Versailles treaty had been signed. The nationalist parties, Nazis, even the Communists, whose rearmament plans of course looked quite different. This meant that within the German government, and within the German Army, the Reichswehr, an eye had always been to the future when rearmament could begin. However, it was only after Hitler came to power than concrete steps were taken towards transitioning rearmament from a dream for the future to a reality of the present. Hitler’s policies essentially demanded it, he wanted to be aggressive with other nations diplomatically and economically and he wanted to expand German influence decisively, and for that the German army was required. Or as he would say “The future of Germany depends exclusively and only on the reconstruction of the Wehrmacht. All other tasks must cede precedence to the task of rearmament…In any case, I [Hitler] take the view that in future in case of conflict between the demands of the Wehrmacht and demands for other purposes, the interests of the Wehrmacht must in every case have priority.” Rearmament would be one of the primary drivers in massive increases in government spending between 1928 and 1935, spending that would increase by 70% almost entirely due to military related spending. Soon after the Nazi leaders were in power Schacht would propose a budget of 35 billion Reichsmarks, to be spent over the course of 8 years on the military. That comes out to about 4.4 billion per year, or between 5 and 10% of Germany’s GDP at this time. For comparison the average spending on the Reichswehr during the Weimar years had been measured in the hundreds of millions. While 4.4 billion per years was the estimated spending, it quickly became apparent that there was little actual control the Schacht or anybody else in the government could exercise over the money the military wanted and received. General Blomberg, the Minister of Defense, would present almost any number and if Schacht attempted to bring it lower Blomberg would simply escalate the matter to Hitler, who would always support the military. This was problematic, because even the first set of estimates, that 4.4 billion Reichsmarks per year, required some creative methods to produce the money. Given the state of the German economy and its relations with foreign creditors it was impossible to either tax this value out of the German people or to borrow it from foreign sources, and so Schacht got creative. How this was done was through the creation of a company whose German name abbreviated to MeFo, m-e-f-o. It has a big long German name, which I will not have a go at, but what is important is that it was a corporation created solely for the purpose of Schacht’s plan. The new company was given a total of a billion Reichsmarks from four of the largest German industrial leaders, Krupp, Siemens, Rheinmetall, and Gutehoffnungshütte. They did this because they were guaranteed by the government that the money would be repaid in five years with interest. Then armament contracts were funded via IOUs from this MeFo company, which again only existed to facilitate the transactions. The MeFo bills as they were soon called were then accepted by all German banks, and since they were guaranteed by the government, and they had an interest rate associated with them, they became something of an investment item. They could also be redeemed at any time from government banks which made them safe investments. This created a situation where these bills became almost like a second currency, although one that was created strictly based on the creation of physical goods, mostly armament production. If all of these bills would have been redeemed at one time there would have been serious problems, but because there was an interest rate tied to them and a general faith in the government to honor them, they became investment vehicles. Now, when their five year term started to expire in 1938 there would be some real challenges, but from their introduction in 1934 it allowed the German government to finance vastly more rearmament than it otherwise would have been able to. The government was able to get so much support and cooperation from the large armament firms partially due to their policies of keeping wages suppressed, keeping unions out of the equation, and allowing the armament industry profits to soar.
When this massive amount of funding began to be funneled into rearmament, Germany was suddenly on the clock. There was a limit to what they could do in terms of keeping the spending and the results of that spending a secret from other nations, the information simply would get out eventually. The first step in a public announcement was an opportunity presented by the Geneva Disarmament talks in October 1933. During the discussion the announcement was made that Germany was withdrawing from both the disarmament discussions and from the League of Nation. The reason provided was that Germany was no longer willing to be forced into a second class status among nations in terms of military strength. While rearmament would not officially be announced until 1935, during 1934 it started to become simply too difficult to hide everything that was happening. Then in 1935 it was openly announced that Germany was both rearming, and would also begin to implement conscription. There was real concern from some German leaders that this announcement would prompt immediate military intervention. Goering and Blomberg for example began looking to put in place plans to defend against French and Polish invasions, neither of which would of course occur. Not for the last time, when presented with an opportunity to firmly punish Germany for breaking an international law or an international agreement, France and other nations would do little. After the announcement German rearmament was accelerated, and also took on much greater importance as there was constant concern that the German military had to be ready to meet any action that might be taken against them.
This also played into one of the long term economic goals for Germany which was to become as economically self-sufficient as possible. This was simply not possible in 1933, which is what led to so many trade agreements being signed with various other nations. In those agreements Germany was trying to surround itself with trade partners that would meet many of its needs in the case of a fallout with some of the larger trading partners like Great Britain. The largest issue with these agreements was that many of the nations that Germany was working with simply did not have the economies to absorb very many German produced goods. This made it challenging to find the perfect trade partners, but was all secondary to the long term goal of self-sufficiency, or to use the economic term: autarky. A discrete plan would be put in place in 1936 to try and achieve this autarkic goal, and Hitler would announce the plan in September of that year. It sought to make Germany entirely self-sufficient in certain key goods within four years, mostly to prevent the kind of economic warfare that had been used so successfully during the First World War. This meant investing huge sums in the manufacturing of goods, and the substitutes for goods, that Germany did not have easy access to, for example synthetic rubber and oil. The implementation of this plan would also be an important turning point for who was in control of German economic decisions. Schacht was against the plan as he felt that the benefits gained from such actions were simply not worth the cost, either to the German treasury or to Germans political standing in Europe. However, Hitler was not interested in debating the topic, or as Germany and the Second World War Volume 1 would say “Hitler himself dismissed any objections to his programme, especially with regard to still insufficiently developed production methods or deficient technical installations. Instead he declared it to be industry’s task to overcome any possible obstacles to production and in this connection to prove its much-vaunted private enterprise flexibility.” Instead of Schacht, the program would be put under the control of Goering, and this represented that turning point, where Goering would almost completely take over most of the economic planning activities within the Third Reich, something that he had been trying to do for years. This shift was made official on October 22, 1936 when Goering was put in control of imports, exports, foreign exchange, and other economic actions. Schacht was forced to take orders from Goering until he would eventually resign in November 1937.
Another facet of the Four Year Program was greater economic control. To try and meet the objectives of the program it was necessary after 1935 to find ways to more intensively use the available labor pool. This meant longer working hours for those in certain industries and the greater utilization of mechanization where possible. It also meant a reduction in manpower available for the creation of consumer goods, which would cause serious issues for German citizens who were unable to buy many products. Eventually manpower would have to simply be conscripted into certain industries, and in the summer of 1938 this would be put in place with a decree which allowed for mandatory employment to be in place for limited periods. Ideally this would cause the most optimized allocation of labor to achieve the goals of the four year plan, although the results would still be a bit disappointing.
No decisive improvements were achieved by the first few years of the Four year Plan. The largest issue was agricultural production, which had been a serious problem for the German economy for many years, but only got worse as remilitarization and rearmament ramped up. As more factory jobs were created in the urban areas almost 1.4 million Germans would move out of rural areas and into cities by 1939. This created a manpower shortage, which the government would find no easy way to resolve. There would be attempts to lure workers back into Rural areas with programs like housing construction, but there would often be problems actually finding resources to allocate to these projects, and the housing construction project and others would fall apart due simply to a lack of resources to execute them. This meant that the German economy was still heavily dependent on imported food, which made up almost half of all imports into the country in the late 1930s. These imports could not continue indefinitely, because Germany was becoming more and more indebted to countries which were exporting food products to Germany. It was very possible that a point would be reached where further credit would not longer be available. This resulted in a situation in which Germany would either have to reorient its economy towards export goods, and not military production, or find some other way to get agricultural products. After 1937, Hitler favored another way to get more, and it was to use the military to secure it. The economy was not the only area that would be changed in Germany after 1933, and next episode we will take a look at some of the changes that the Nazi government would put in place for German society after it came to power.