As I have shown in the last article, there were six major circumstances or conditions prevailing in Germany at the time the Nazis seized power that determined their thought:
– First, there was large, if finally steady, unemployment in essentially all lower sectors of the economy.
– Second, there was an urgent need for foreign currency reserves to pay imports with: with the loss of Alsace-Lorraine, Germany had almost no major raw resource for its industries in any large quantity except coal. It had to import ore from France and Sweden, cotton and wool from Britain and elsewhere, rubber and oil from other countries’ colonies. Moreover, Germany’s large number of middle-sized farmers were technologically and productively backwards as a result of enormous excess labor in the countryside, a situation not dissimilar to the one the Soviet Union was in at the same time, about which I have written elsewhere. This meant that it also was highly dependent on middle-sized farmer export countries such as the Netherlands and Denmark for butter, animal feed, milk etc. With no regular reserves existing as a result of the reparations payments and the huge debt, this meant that reviving German exports had a priority, as did defaulting on any further debts, as Hitler did in 1933.
– Third, the German military position was weak, as mentioned, and from the point of view of the military needed urgent rearmament, especially faced with the inevitable hostility from France, Britain and the United States its newly nationalist policy would provoke.
– Fourth, it is important to emphasize that the standard of living in Germany was substantially lower than in Britain or America, and although it had very advanced heavy industry, much of its smaller agriculture and small industry (such as textiles and food processing) lagged seriously behind. In 1990 dollars, the German per capita income was about $4500, comparable with mid-level global economies today, such as Iran or South Africa. The United States was already, be it slowly and with great inequality, embarking on the mass production of consumer goods for the upper middle class, such as fridges and cars, which Germany altogether lacked. The British middle class, too, was significantly better off than the Germans, fuelling the fires of revanchism further. Britain’s comfortable arrangements with the other Commonwealth states in the form of the Ottawa Agreement economic union assured it an export market, while at the same time permitting cheap import of raw materials of all sorts from its colonies like India and Malaysia. Hyperinflation, but more importantly the reparations regime had destroyed the German middle class and damaged its industry, while Britain and the US proceeded to increase their growth pace. German capital therefore felt itself truly surrounded and incapable of meeting the challenge of competition on these terms, while the military worried about lack of industrial production potential due to unemployment and the small market, which would weaken the capacity for war production. German housing was terrible even compared with Britain, and general inequality very high (one reason why the KPD had remained large despite its incompetence). At the same time, its technological level at the top of capital was still high and its research excellent.
– Fifth, there was the central issue of Lebensraum. The excess labor in agriculture and its low standard of production, especially with a dual system of great landowners and lagging middle-sized family farms, gave the impression of great overpopulation in rural areas. This, in turn, was translated by Nazi policy into a need for more land. This was nothing new of itself: the mass emigration of some 40 million Europeans to settler colonies outside Europe in the preceding century was the product both of low wages and of land hunger. In 1933, some 29% of the entire workforce was engaged in agriculture; compare this to a country like the Netherlands today, which produces, albeit with significant subsidies, vast excesses for export with an agricultural workforce of a mere 2-3%. Moreover, most of these were agricultural laborers who were quite poor, as well as hard-pressed family farmers, whose infinitely divisible inherited plots became smaller and less profitable as time went on. The end of WWI had seen widespread famine and disease, which killed hundreds of thousands. The population density of Germany was high, especially now that it lacked any overseas colonies, and very unfavorable compared with France or America (or the USSR), meaning it would lag more and more behind and become ever more dependent on imported food. For Hitler c.s., this was a recipe for ‘race death’. The only option was expansion and settlement elsewhere. (It is important to note Italy, Germany’s later war ally, was in much the same position – in fact it had even fewer ha per rural population available than Germany did.)
– Sixth, there is the question of race. National-Socialism on the one hand expressed the unified desire for expansion and settlement on the part of both certain sections of heavy industry, in particular the ‘quantitative’ ones like mining and steel, as well as that of the middle and large farmers; on the other, it expressed the logic of colonialism in its most aggressive form, where all was ranked according to a hierarchy of peoples eternally fighting over their living space and exploitable resources, endlessly warring over their settlements, in a race to the death to have one ‘blood’ win over another. This crude medley of social Darwinism, racial ‘science’ and imperialist apologetics was a poisonous concoction brewed out of the ingredients of Victorian thought, and could not have existed without the prior popularity of each of these elements among the bourgeoisie and intelligentsia of the Victorian-era great powers. This includes, of course, anti-semitism and support for ideas of ‘racial purity’. Truly Nazism went further than any other in this regard, but this was more a matter of boldly boiling down the fluffy mass of Victorian imperial justification to its toxic core than a matter of innovation. In his main work Mein Kampf, Hitler immediately connected this entire ideological framework with the concrete and medium term needs of those larger farmers and heavy industry, as well as the revanchism among military circles, in a maneouvre as brilliant as it was diabolical. This meant of course implacable hatred toward those weakening the race on the one hand, such as ‘impure’ groups, and those opposed to the aforementioned classes on the other hand, such as socialists. In fact, the commentators seem to disagree on whether Hitler hated Jews more than Communists, and whether he hated Jews for being Communists or Communists for being Jews; be that as it may, these aspects followed immediately from these ideological elements. Fitting the combination of Lebensraum policy with support for the Nazis’ particular racial ideology, the agricultural areas of the north and east of Germany were the only parts to ever give the NSDAP a full majority in an election.
For the Nazis, this meant a number of things as immediate implications for their policy. First, they would need to expand aggressively to create more living space for Germans, in particular German farmers, to settle in. This would relieve the overpopulation, allow consolidation of farms in Germany itself, and besides strategically secure the German flanks for the future – after all, all of history was a battle between races and peoples, and as a result expanding your people geographically was a strategically important move. The only possible direction in which this could be done on a large scale would be in the direction of the East, that is Eastern Europe; this area already was largely agricultural, had great potential as production zones for wheat (the Ukraine for example), and was populated by Slavic peoples, racially inferior to the Germans. There were historically already German populations in many Eastern European countries and regions, and these would have to be brought into any settlement plan. Although military defeat of France would allow reannexation of some French territories, not much was immediately expected of this. Overall therefore it became a fixed part of the Nazi Government’s plans to include in all strategic considerations the Ostraumlösung: the solution in the East.(1) What this meant, we shall soon see.
If Germany were to expand, this would also mean war. Therefore, a great rearmament programme was developed during the 1930s, which would enable on the one hand the elimination of unemployment through industrial and infrastructural labor projects, and on the other hand greatly strengthen the German military for its future battles, at the least to be against France and against any opponent in the East, most likely the Soviet Union. France had to be defeated for Germany to become hegemon on the continent, and the USSR’s fertile agricultural lands in Ukraine and elsewhere were ripe for German colonization. Yet from the perspective of the Nazis, all this would be useless if at the same time the purity and safety in strategic-historical terms of the German people were not assured. Therefore, it would be necessary as a prelude to war to also get rid of the Jews and other undesirable elements within Germany, so that these could not sabotage any of the industrial or war efforts nor dilute the positive effects of the German settler expansionism. For the immediate future, the policy intended for this was to force Jewish emigration out of Germany, and out of the areas immediately considered for German annexation (Austria and the Czech lands). It is important to emphasize that the expulsion of the Jews and other “ethnically alien elements” was a foundation for German war policy as well as settlement policy, not just an aberration stacked on top of ‘normal’ war efforts, as the popular view has it.(2) The ideal solution would be for Germany to win its wars and thereby obtain foreign colonies, possibly French ones, to which Jews and other undesirables could be expelled. As Heydrich put it as late as 1940:
The Jews are considered hostile to us because of our standpoint on race. For this reason they are of no use to us in the Reich. We must eliminate them. Biological extermination, however, is undignified for the German people as a civilized nation. Thus after the victory we will impose the condition on the enemy powers that the holds of their ships be used to transport the Jews along with their belongings to Madagascar or elsewhere.
To eventually obtain the desired front against the American power, it would become necessary from a military perspective to become dominant on the European continent, and to ally with Britain. Germany had few designs on Britain’s overseas colonies, and the Nazis counted on being able to come to an agreement where Britain would keep dominion over the seas, while Germany dominated the land. This bloc together would have the power to stand up against the American strength and control all the resource flows of the rest of the world. Britain was expected to have an interest in this, since it would mean the destruction of France and the USSR, two major rivals, and a common front against the Americans, a third major rival – and with no loss in territory necessary. Nonetheless, there was always the possibility that Britain would not go along, in which case Germany would be in a dire war position, and would have to prepare as quickly as possible.
Finally, there was the issue of payment and production, and this brings us to understanding how these strategic considerations overlapped with the interests of most of German heavy industry and mining interests as well as the settlers-to-be from the agricultural areas. First we shall focus on the agricultural side. As Hitler had explained in Mein Kampf, the local Slavic population in the East could of course not remain were they were. As Tooze explains, “the prelude to a massive programme of German settlement would therefore have to be a wholesale demographic ‘rearrangement'”.(4) In the short term, German farmers were protected by a series of tarriff arrangements and reorganizations, organized by the newly created Reichsnährstand and a series of laws aimed at creating the ideal German sized farm across the country. This was achieved by on the one hand disinheriting by law all women and non-firstborn sons from inheritance, which ended the endless subdivision into small units of the middle-sized farms and thereby the chain of impoverishment facing any farming community still largely dependent on human labor inputs. Jews and undesirables were excluded from farming, although since very few Jews were in the farming business (this having been one of the many economic functions traditionally barred to them since Medieval times), this had little practical meaning; but important ideological meaning nonetheless. All farmers’ debts were taken over by the government in exchange for a taxation to the Rentenbank Kreditanstalt that would manage them. Those sons of the German farmers disinherited by these rules would be the perfect people for resettlement in the East in the future.(5) The net result of this program, implemented throughout the 1930s with great vigor, was to support the middle sized farmers as against agricultural labor or the smallest farms (which were to be consolidated into larger ones).(6)
It was implemented by Richard Walter Darré, generally considered a complete idiot but who harbored some hostility towards the Prussian great landowner gentry, the Junkers. The latter did not gain much support from the entire undertaking, nor did the larger prosperous farmers in the northwest of Germany. But they approved of the manner in which it avoided a real land redistribution in the eastern parts of Germany, and moreover, the Reichsnährstand also implemented a scheme of price controls by subjecting all agricultural production to itself. This price control system systematically raised the prices both for the processed food products of the middle sized farms and for the grain producers. However, this meant a significant drop in the standard of living of the German workers and middle class as food prices rose, and this led to a crisis in 1934 when the harvest was disappointing, greatly worrying the only recently empowered Nazi government.(7) During the period 1934-1939, Darré c.s. were then forced to attempt import substitution policies to protect the German farmers while reducing the enormous foreign reserve costs of the inputs for German middle-sized agriculture – such as the oilseed and high-protein animal feeds from abroad. This was remarkably successful, to be seen as an early example of the ‘import substitution’ strategy for rural nations. The RNS reorganized agriculture to de-emphasize meat production and rationed butter and milk, which allowed at the same time increases in marketization of potatoes and grains. The overall production of German agriculture increased by 28% between 1927 and 1936, but food prices, especially of dairy and meat, rose significantly and led to deteriorations in the standard of living of workers, especially once demand rose as a result of reduced unemployment.(8) In this manner, it consciously favored the interests of German farmers, middle- and large-sized, over those of German workers. Nonetheless, it was also clear that given the dependency of German agriculture on its imports and given the excess population in the countryside, Germany could in no way achieve self-sufficiency without expanding east. Only by mechanization and large-scale land redistributions, ejecting the excess population into industry, would this have been possible in Germany itself – the USSR followed this course at the same time, and it was implemented in East Germany and Poland after the German defeat. But the class interests of Nazi Germany were the polar opposite of this, and it was not even considered.(9)
The reorganization of agriculture by means of cartelization, analogous to what would take place in industry, was also part of the strategic consideration. During the 1930s, German industry was encouraged to invest in the creation of plantations in Eastern European countries of oilseed and other German imports for agriculture, so that in the future world order the provision of food to Germans would be assured. Those Eastern European states whose outright annexation and colonization was not planned in the short term would be made, through aggressive economic and diplomatic maneouvres, entirely dependent on Germany. This was possible because they were mostly agricultural countries in the first place, highly dependent on export of basic primary products. Traditionally these areas had been under French influence since 1918, but the problem with British and French attempts at economic binding of these regions was that although they could give them credits for importing French or British goods, neither France nor Britain could import any of their agricultural products without undermining their own, more advanced, agricultural position. This was precisely not the case for Germany, and this allowed Germany to import their agricultural goods in exchange for German machinery and investment, binding nations such as Romania, Bulgaria, Hungary and Yugoslavia to Germany at the expense of France during the so-called “Second Four Year Plan” under Goering.(10) The great strategic importance given to these agricultural considerations can be shown by pointing out how many believed that the collapse of the WWI front was due to the impossibility for Imperial Germany to provide sufficient food supplies, probably not entirely wrongly.(11) The recurrent crises in food production, real or perceived, due to bad harvests or the massive flight of agricultural labor (who did not profit from the cartelization at all and were often conscripted for industrial and military work) greatly worried the Nazi government. This only confirmed to them the correctness of their overall strategic outlook. As Darré put it in a speech in 1936:
The natural area for settlement by the German people is the territory to the east of the Reich’s boundaries up to the Urals, bordered in the south by the Caucasus, Caspian Sea, Black Sea and the watershed which divides the Mediterranean basin from the Baltic and the North Sea. We will settle this space, according to the law that a superior people always has the right to conquer and to own the land of an inferior people.
(12) And again the comparison was made with the British settler colonization preceding the German plans, by pointing out that the entirety of this new German domain would be no larger than Australia or Canada, which the British had settled following the same ‘law’.(13)
On the front of industry, there was a strong division of opinion about the Nazi plans. Roughly, German industry (including mining and the like) could be divided into two groups: the “Harzburger Front”, which favored the Nazi policies, and the “Brüning coalition”, which by and large opposed them, and preferred the orthodox economic strategies of free trade and deflation, combined with authoritarian government, of the Brüning period.(14) The “Brüning coalition” consisted mainly out of the German industries that had survived the recession the best and were the least in immediate danger of bankruptcy; in particular, those industries in which Germany had an immediate advantage in quality and/or technology, which allowed them to compete successfully still on any world market. These industries had need of good diplomacy to maintain economic ties with the outside world and to prevent retaliatory tarriffs etc., and much of their income was also gained from contracts with foreign governments for development projects in countries like Egypt and Brazil. Any overly aggressive posture would endanger the German ability to pressure these distant governments as well as provide an opportunity for competitors, such as America, to step in. The main example of this was Siemens, although it applied to a lesser extent to IG Farben and AGFA.(15) Racial politics also damaged their position, as it would harm the relative strength of German science, on which they were highly reliant. The “Harzburger Front”, on the other hand, consisted out of those industries that needed immediate government support and a policy of protection against world market competition, because they were unable to survive the recession under liberal conditions. These were heavy industries using mass production, with vast outlays of fixed capital. They needed to be able to keep up a constant high level of production to be profitable, and the recession destroyed the ability of foreign industries as well as the home market to buy their goods. What’s more, most of this industry suffered severely from competition with the United States, and looked to rearmament efforts to provide them with the necessary sales. Just like how heavy industry in the United States itself refound its profitability on the basis of war production, so did the Harzburger Front encourage any and all militarism and expansionism in order to allow it to recover its position this way. The greater the captured market Germany possessed, besides, the better the position even during peacetime of the coal and steel producers and so forth. Therefore, at a conference at Harzburg in 1932, they undertook to financially and politically support the NSDAP, in exchange for the Nazi post-coup strategy favoring them by means of expansionism and restoration of their profitability. Hitler, perhaps grudgingly, agreed, and thanked his subsequent ability to destroy all opposition and maintain the confidence of the army to a great degree to this pact.(16) The middle position was taken up by those industrialists who had both interests in expansionism and rearmament as well as world trade. Their main representative was the Krupp von Bohlen family, owners still of the enormous Krupp machine and armaments plants.
Notwithstanding these internal differences, after the Nazi takeover a convergence of interests took place over time. The Wehrmacht for obvious reasons favored expansionism and rearmament; it also favored a revitalization of German heavy industry to contribute to this, and it desired a certain degree of state coordination of industrial production to place it on a war footing. The Nazi government needed the military to be in its best possible condition to implement their strategic plans for the new world order. Therefore, they implemented just as in agriculture a cartelization of industry. Industry would remain in private hands under the unlimited control internally of the private owners, but each branch of industry would be in turn subjected to the control of the branch organization, of which there were an astounding total of some 1720.(17) All imports were prohibited of anything that could be produced domestically, eliminating the element of foreign competition as a threat to German industry. Within the industrial cartels, the members were restrained from overly competing with each other, so as to ensure their overall profitability and to not waste productive capacity on unrealized production. All of this was along the lines of the Harzburger front. But most important of all, the period 1933-1939 saw an unprecedented investment boom by the German government, both in quantity of production as in R&D. This investment boom had remarkable results. Over the period mentioned, the German government invested so strongly in armaments expansion, in industrial technology (particularly production of synthetic substitutes for imported raw materials like oil and cotton), in a completely new aircraft industry, and so forth, that unemployment melted like snow in the sun. By 1935, imports were about at the same level as they had been during the recession in 1932, but industrial production had doubled.(18) Vast money was spent on export subsidies to permit Germany to import the necessary raw materials, which were to be phased out over time through development of huge new plants for synthetic rubber, oil and fibers. These export subsidies had to be paid for by taxing the newly reviving profits of German industry, but the strategy paid off, with export growth allowing a steady stream of imports for armaments production between 1935 and 1938.
It is important to emphasize that this great expansion of production and the reduction of unemployment to a mere 1% by 1939 was not, as is often assumed, achieved by great public works programmes in the style of the New Deal. Much was made of the labor-intensive work projects on building the German highways and defensive fortifications, but this very quickly petered out and only managed to achieve an end to the growth in unemployment, not a reduction. The various state building projects, led by Nazi manager Fritz Todt, were aimed primarily at infrastructure – not so much to relieve unemployment as to benefit Germany’s military position by improving the speed with which armies could move from an eastern front to a western front, which for obvious historical reasons was considered essential. In terms of employment, it was negligible: after one year of Autobahn building, no more than 38.000 people were employed in it, and there barely even was financing to maintain the existing roads.(19) The economic growth in Nazi Germany was not built on industrialization, as in the USSR, nor on public works, as to some degree in the US, but virtually wholly on rearmament and gearing for war. By 1935, Germany’s economy had recovered to the 1928 level, an achievement comparable to that of the United States under its New Deal program. But private consumption was at -7% compared to 1928 level, and private investment at -22%; however state investment had increased by an impressive 70%, almost entirely military spending.(20) Between 1933 and 1939, the German government spent the amazing sum of 45 billion RM on rearmament, about three times the national income of 1937.(21)
Eventually, the “Harzburger Front” as such no longer would lead the Nazi economy. By 1936, the Nazi economic strategy underwent a major shift. Goering took over control of the economic as well as the military spheres, since the contradiction between the needs of rearmament (import of raw materials, manpower to the army) and those of industry (restriction of imports, labor for industry) had become unresolvable without dictatorial intervention, just like fascism had appeared in Germany altogether because of the inability of the different sections of agricultural and industrial capital to unite for their overlapping interests on their own. Hjalmar Schacht as banker had enabled the initial investment drives to be paid for without massive inflation essentially by paying the rearmament industrialists with a separate currency (Mefo), an effective “IOU” on the future. Further import of raw materials for more production had become impossible however without devaluation of the Reichsmark, which the Nazi government categorically refused to do, as they understood quite well how rampant inflation had already destroyed two prior regimes (the Wilhelmine and Weimar). Schacht’s attempts at righting the finances ran into the resistance of the military and the farmer lobby, and therefore he was sidelined in favor of Goering as strongman. Goering immediately took drastic measures. He expropriated all privately held foreign exchange holdings that still existed. Nonetheless, France was finally threatening to also devaluate. The rightist French governments had foolishly kept to the gold standard until voted out in 1936, in order to maintain their class position within France itself; but in so doing, they had prolongued unnecessarily the economic depression, which led to France recovering slower and later than any other power – something that would contribute to its later defeat. At the moment, however, French devaluation was likely, which would entirely destroy Germany’s already bad enough competitive export position. Therefore, Goering and Hitler together devised a new economic shift: the so-called “Four Year Plan”. This plan implied the following: because exports could not save Germany, and there could be no devaluation, it would be necessary to rely as much as possible on synthetic substitutes in the short term, and to expand the military even faster, so that in the longer term the solution could come through conquest, as designed from the beginning. The army needed materials for war; war was the only way to obtain these materials; to win that war, more armies were needed. This deadly logic would dominate the economic strategy until 1939.(22)
One result of this was that IG Farben and the other exporting industries, mainly specialized in processing and high-tech production, were hitched to the war bandwagon as well. These industries now were emphasized in the investment plans, including the creation of the enormous Leuna synthetic oil plant. The Goering plan would take up 25% of all state investment between 1936 and 1940, planning to halve the import bill by making 5% of all German industrial production synthetic substitutes.(23) High taxes on petrol financed production of synthetic oil, and plans were laid for massive investment in synthetic rubber, at a future Buna plant to be built for IG Farben. With all these extra investments, on the basis of rearmament and future war prospects, the Brüning coalition’s interests came fully to coincide with those of the Nazis. As the major other prong of the Goering plan, steel was rationed in according with the priorities of the plan. With the world market slowly recovering, Germany badly needed to export more to pay its outstanding trade deficits, steel being the primary candidate. Renewed trade deals, negotiated by the ‘moderate’ Schacht, with Britain ensured that the world market would not be shut against such exports.(24) This came at the expense, however, of military production, which had to operate at an actually reduced level during 1937 and 1938. The Nazi plans ever came up to this same paradox: they needed exports to be able to import, and yet the war effort required ever more imports, not exports. In the meantime, the Spanish Civil War had started, Mussolini had invaded Ethiopia and after his diplomatic rebuff sought alliance with Germany, and Japan had invaded China. Even the annexation of Austria and the Rhineland, made possible by these events, added but small extra capacity, although sufficient foreign reserves to last Germany another year. Without war in Europe, the Nazis could not solve their problems.
The next part can be found here.
1) Götz Aly, Final Solution: Nazi Population Policy and the Murder of the European Jews (London 1999), p. 3.
2) “The protagonists of the Third Reich had long since [before 1941] incorporated the ‘forced migration’ (Abwanderung) of European Jewry into their plans, making deportation the foundation of their planning for wartime and the post-war period.” Aly, Final Solution, p. 3.
3) Cited in Aly, Final Solution, p. 3.
4) Tooze, p. 180.
5) Tooze, p. 183.
6) Tooze, p. 184.
7) Tooze, p. 190.
8 ) Tooze, p. 191-193.
9) Tooze, p. 197.
10) Sohn-Rethel, p. 70-72, 99.
11) Tooze, p. 264.
12) Cited in Tooze, p. 198.
13) Tooze, p. 199.
14) Sohn-Rethel, p. 34.
15) Sohn-Rethel, p. 38-39.
16) Sohn-Rethel, p. 52.
17) Tooze, p. 108.
18) Tooze, p. 91.
19) Tooze, p. 47.
20) Tooze, p. 65.
21) Götz Aly, Hitlers Volksstaat (Frankfurt am Main 2005), p. 52.
22) Tooze, p. 222.
23) Tooze, p. 225.
24) Tooze, p. 234.