Sam Hassani – Personal Study – 16118
To what extent did the Nazis achieve an economic miracle in Germany between 1933-1939?
Prior to Hitler being appointed Führer of Germany in 1933, the economic climate had been one of instability given the effects of the 1930 Economic Depression. There is no doubt that the Nazis did improve the economy, but the extent to which it was a miracle will be examined in detail throughout this essay. Another important factor to consider in this study is whether the economic situation had begun to improve under the Weimar Republic or whether the Nazis were alone solely responsible for the revival.
In January 1933 Germany had all the features of a depressed economy. Foreign trade had declined, industrial production, and with it national income, had fallen by 40% and there was mass unemployment, with a third of the working population unemployed. Added to this, wages and real income had fallen with inevitable consequences for those who produced consumer goods. Only by the second quarter of
1933 did it become clear that a more general improvement was taking place. By the end of that year the index of industrial production (1928=100) stood at 66, seven points higher than in 1932, and unemployment fell by over two million between March 1933 and March 1934. By the end of 1935, GNP in real terms had reached the level of 1928. This led to growing support for the Nazi party who, using force and terror, were keen to cement their position as Germany’s main political party. Evans and Jenkins’ ‘Years of Weimar and the Third Reich’ claims that ‘Hitler wanted the continuation of pre-1932 modest attempts at the control of inflation and expansion of government spending and employment.’ In other words, Evans and Jenkins are implying that Hitler’s success or so-called ‘miracle’ in improving the economy was already under way before the Nazis came into power.
Debate circulates as to what plans Hitler had for the economy when he was announced as Fuhrer of Germany in 1933. One leading historian stated that ‘no single unified economic system prevailed throughout the entire period of the Nazi regime.’ Overy’s ‘The Economic Recovery 1932-38’ states that Hitler was opposed to reckless experiment and instead wished to continue with pre-1932 modest attempts to control inflation and the expansion of government spending and employment. In the years before 1933, Hitler had been careful not to become too tied down to a specific economic policy. Despite his resentment and hatred of capitalism, political necessitated a certain ambiguity in order to satisfy the different economic interest groups and gain the support needed to gain power by democratic means. However, Layton contradicts Overy’s view stating that in 1932 Hitler began to shift his approach towards the economy. Firstly, he tried to begin his implementation of the policy of autarky (self-sufficiency). He envisaged the creation of trading or economic community under the influence of Germany, which he believed would rival the other strong economic powers during this period. (Must develop idea of autarky and exactly what this involved). Secondly, he turned his attention to what was a growing idea around Europe-deficit financing. The British economist, John Maynard Keynes, proposed the theory that by spending money on public work schemes, this would create an increased number of jobs, which would in turn act as an artificial stimulus to demand within the economy. Government expenditure rose by 270% between 1933-1939, whilst total debt rose from 13.9 to 23.7 Billion Reichmarks. By 1934, the revival of the economy was causing concern because of a balance of trade deficit. Germany was importing more than it was exporting, and its gold and foreign currency reserves were beginning to run short. The New Plan in 1934 was devised by Schacht to tackle this problem. Schacht instructed Hitler to monitor all imports, which had to be approved by the government. Schacht made trade agreements, especially with the Balkan states, who supplied much of Germany’s strategic raw materials. The New Plan was successful in overcoming the immediate balance of trade in 1934, but the problem of increased demand sucking in imports still existed.
This led Hitler to appoint Dr Hjalmar Schacht as President of the Reichsbank and in August 1934 as Minister of Economics. As well as being a very astute banker, Schacht also had very close links with the economic elite. Schacht, as President of the Reichsbank, implemented Keynes’ policy of deficit financing to boost the economy. Schacht introduced Mefo Bills on behalf of the government to help fund increased expenditure on rearmament by delaying real payment as well as increased public expenditure without causing inflation. Another hyperinflation crisis such as that experienced in 1923, when $1 = 4,200,000,000,000 marks, was also avoided through government controls on wages and prices.
As seen from the above table, in 1933 there were approximately 3.7 million of people who were unemployed and causing a strain on German finances by having to rely on state funding.
Autarky, as already mentioned, means self-sufficiency. In other words, Hitler wanted Germany to be less dependant on imports. Hitler’s idea of autarky involved three key features. They were to expand domestic production, develop substitutes for certain raw materials and to expand abroad in countries such as Austria and Czechoslovakia. Hitler considered this vital for a country geared for war to avoid the damage inflicted by an economic blockade. Total autarky was possibly too unrealistic to achieve and Hitler had not envisaged Germany being totally self-sufficient. In 1928, the value of imports stood at 14 billion marks, but by 1938 that value stood at approximately 5.4 million. Exports, however, experienced the same trend as imports, which was not what Hitler did want to happen. In 1928 the value of exports was placed at 12.3 billion but by 1926 this value had been reduced by 250% to just under 5 billion marks. However, in 1932 Hitler managed to overturn the import-export deficit that had stood for over a decade by increasing the value of exports to more than the value of imports therefore going into the black. This trend continued up to 1938 before the two values began to level off. Nevertheless Hitler had managed something remarkable given the worldwide atrocity of the 1929 Economic Depression.
This is a preview of the whole essay
Hitler succeeded where the Weimar Government had failed, in tackling the effects of the Depression. Many historians argue that had Gustav Streseman still been alive in 1929 then Hitler may never have come to power. Unfortunately for the Weimar Republic, events did not turn out the way they had hoped and were unprepared for such a sudden and devastating attack on worldwide economies. In many respects, the Depression was very fortuitous for the Nazi party, given that the Weimar Republic was forced out of power paving the way for the more extremist parties such as the Nazis and the Communists to offer a new, radical approach to solving the huge economical problem that was now faced. Despite a revival of the economy in late 1932, it was too little too late for Weimar politicians who had offered the orthodox idea of Economic Liberalism. Hitler was presenting greater state intervention alongside Keynes’ thinking of deficit financing. These ideas appealed to a large proportion of the population especially the 5.6 million that were unemployed in 1932 and without regular income. Hitler was promising increased public expenditure and investment, and it tried to stimulate increased consumer demand. Hitler extended the public work schemes, initiated in 1932, especially the building of homes and motorways. Such works, paid for by the state, provided orders for many private companies who took on more workers. There were also subsidies provided for hiring more workers in the private sector and a growth in jobs in the government bureaucracy. Unemployment relief was reduced by making certain groups ineligible for benefits. This included agricultural workers, whilst the Young Service (RAD) took the young off the unemployment register (400,000 in 1934), and from 1935 conscription removed all 18-25 year old males, who were required to do military service for two years. During this period, the armed forces grew from 100,000 in 1933 to 1.4 million in 1939.
Hitler restored full employment to Germany and built up its economic strength, which allowed them to dominate Europe by 1941. However, many historians have debated the extent to which Hitler was responsible for the recovery. It had begun before 1933 and other policies, such as continued development of consumer and export markets rather than rearmament, might have led to a more sustained and faster growth of the economy. Hitler’s priorities meant that the mass of the German people failed to benefit greatly from economic growth. Autarky was not fully achieved, though to Hitler’s credit, he had not really expected Germany to be completely self-sufficient after the effects of the 1929 Depression and rearmament was wasteful and disorganised until Albert Speer rationalised the system. Nazi economic policy was increasingly geared to the needs of war, and in this Germany failed. Overy, in ‘Modern History Review’ writes, “Hitler’s vision of a powerful militarised economy clearly failed the test of war. Recovery from the slump had been real enough. But at the point where that recovery might have been used to improve living standards and expand trade…. Hitler chose to divert economic development towards massive militarisation in a short term gamble that he could create a new gamble political and economic order out of the one which failed in 1929.”
When Hitler was appointed Chancellor in January 1933, Germany was in economic turmoil. Six million were unemployed, dole payments were inadequate and industries and banks had gone bankrupt. A nationalistic organisation like Hitler’s would not countenance going back to the Americans for loans, so Germany would have to find the means for its own recovery. Industrialists and workers alike had high expectations. Hitler passionately believed in the ability of the German people to affect their own recovery. He was convinced that it was financial institutions and dependence on foreign imports or loans that rendered Germany weak. If the Germans were freed from the constraints imposed on them, and taught to work hard, then Germany would prosper. However, Hitler also intended to put people to work by force, to remove ‘racial enemies’ from the workplace, and, ultimately find new markets and agricultural lands in Eastern Europe so that German people were no longer confined within the narrow borders of the Reich.
Hitler responded to his ‘racial struggle’ concept by demanding rearmament, which led to the dislocation of the economy. The problems of the Depression, which the Third Reich had inherited, were to be overcome in the same way that he aimed to overcome all other problems in Germany, namely the force of the political ‘will.’ Once accomplished, Hitler believed that Germany must prepare itself for the final confrontation with the forces of Bolshevism, which he regarded as the strongest manifestation of the Jewish threat. Although rearmament provided employment, the production of military goods could not be sold (this tends to produce inflation). Its demands on imports tended to come at the expense of other goods, especially consumer products. Hitler’s solution was autarky (economic self-sufficiency), which attempted to make Germany independent of foreign exchange. Finally, when rearmament threatened to precipitate a financial crisis and force Germans to accept rationing, Hitler embarked on his programme of conquest for resources prematurely.
Despite the cancellation of the war reparations by the Weimar Republic in June 1932 with the Allies’ agreement, there were still considerable interest payments and other loans to repay. Schacht managed to delay repayments and only paid partial amounts when forced to do so, and then finally abolished repayments expect in the form of bonds which would be honoured at some future date. The continuing Depression tended to mask Germany’s rearmament funding which continued apace in secret. But this only created a second problem. The demand for raw materials for its rearmament caused an increase in imports and the strength of the Reichsmark meant that these imports were expensive, especially when other countries had thrown up protective tariffs. Exports were also less competitive and consequently the volume of exported goods continued to fall. Hitler’s drive for work creation schemes had also caused an increase in consumer demand, and this caused an overall increase in imports. In effect, Germany was being sunk deeper into financial debt. Schacht also set up bilateral trade agreements with neighbouring Eastern European countries, hoping to get the advantage of any deal. However, the Germans’ bullying approach merely alienated the Czechs and Hungarians, although there was some limited success with barter agreements (where Germany did not buy goods with scarce foreign currency but offered to exchange goods for other commodities, such as timber).
Schact’s solution to the economic problems was the New Plan, which as introduced in 1934. The net effect of the increase in imports was a trade deficit and a serious balance of payments problem, which developed during the summer of 1934. The New Plan gave the government the powers to regulate imports by forcing importers to apply for permission to import goods before a transaction. The government gave priority to two things: raw materials and foodstuffs. Consumer goods were to be relegated in importance, but, if sustained, the risk was a fall in standard of living (and consumer spending) and a housing shortage. A second balance of payments deficit crisis began in 1935 and by early 1936 looked set to cripple the German economy. Imports rose by 9%, exports by fell by the same percentage. Added to this problem, a conflict arose between the consumer demand for the import of fats and meat, and the rearmament requirement for raw materials, especially lead and copper. Schacht was officially replaced in 1937 after failing to find a solution to the financial crisis. Hitler appointed Goering as Plenipotentiary of the Four Year plan because he would be more compliant with Hitler’s policies. At first continued with the policy of prioritisation of raw materials and food. Goering, however, did manage to avoid rationing by maintaining foodstuffs. Yet, within the party there was pressure on him not to slow down the pace of rearmament either, so alternatives needed to be found. Attempts were made to increase agricultural production, but this had a negligible effect on the economy. More effort was placed on cutting imports and pushing exports, but this policy was toned down, as it was unlikely to succeed with European neighbours for long. The alternative was to produce synthetic goods and research was carried out into the feasibility of producing cheap synthetic oil and rubber. Schacht had previously opposed this move, arguing that it cost more to produce than to import. Hitler was attracted by the idea of autarky as it appealed to his patriotism. The First World War had seen Germany blockaded by the Royal Navy. Its resources had dwindled and as a result, it lost its capacity to wage a total war. He refused to see the rearmament programme jeopardised and so he overruled Schacht and launched the Four Year Plan.
Planning and Procedure
Since beginning to study Germany and the introduction of the Nazi party in German history at GCSE level, I have been particularly intrigued by how Hitler was able to resurrect the economy in such a short period of time i.e from the 1929 Depression to the start of the Second World War, whilst hypnotising the minds of millions of Germans through methods such as propaganda and terror amongst a few. Having briefly skimmed over the topic when deciding on my exact title, I found that there was a lot of scope to this essay. The performance of the German economy between the Great Depression and the Second World War had been the subject of intense amademic debate for several decades, with no definitive conclusion. Therefore, this challenge was one that I was prepared to delve into and come up with my own, hopefully analytically-based, judgement as to whether the Nazis did achieve an economic miracle in Germany between 1932-39.
Throughout this essay, I encountered several problems, some that I found extremely difficult to overcome. When doing my research on the Internet I found it very tricky to find specifically the detail I was looking for to analyse. When I actually found two websites, they were both in German. Some of the text was in English, which did provide me with some helpful material, but having never studied German the rest was ineligible to me. Another problem that I came across was the complexity of some of the economic terms that were present in a few of my reading references. Having not taken Economics at an advanced level, I found it difficult integrating my reading with what I wanted to put down on paper. Having friends and family who have some knowledge of the economy, I relied on their expertise when coming upon ‘foreign’ terms. An extensive amount of research and reading was required to sample all the different perspectives of these historians, though some reasrch proved much more fruitful than others. For example, Kershaw’s ‘Profile of Hitler’ seemed like a intellectual and analytical, based on my reading of the preface, however, the relevant content of the book was minimal for my investigation. A lot of time was wasted on this reading for such little return.
I also found some difficulty understanding some of the historians’ views. The language involved in some of my references was complex and therefore was not easy to translate into a more understanderable form.
The main source I decided to use was Overy’s ‘The Nazi Economic Recovery 1932-38’ as Overy is considered as a widely knowledgeable historian on the subject of Germany. The entire book is based on the German economy under Nazi dictatorship so was completely relevant to my investigation title. Overy is direct and competently discusses the main areas of the debate. The book covers the extensive factors that led to the collapse of the economy and Hitler’s attempts to resurrect it from its lowest point. Overy argues that for much of the 1920’s and 1930’s the German economy was stagnant and that the economic miracle did not take place until after 1945, which is outside the scope of my essay. Whilst not as comprehensive as Overy’s source, Layton’s ‘Germany: The Third Reich 1933-45’ provides both a narrative and analytical account of social and economic aspects and the effects of war preparation on the Nazi state. The ‘Access to History’ series provides a concise and readable introduction to the state of the Nazi economy. However, for such an in-depth study, this book does not contain enough substance to it to provide me with the detail needed to form a balanced assessment and conclusion. Both Bullock and Kershaw are widely respected historians and offer analytical studies on Hitler. However, for this study both their books were too general and not enough directed towards the economic situation between 1932-29. Although, I read much of these sources, I found in this case that was too broad and therefore could only use a limited amount of detail from them. Nevertheless, I do believe that the restricted information that I extracted from them was accurate, balanced and very reliable based on both authors’ worldwide acclaim.
The sources and materials that I had on hand for this investigation were varied, yet very beneficial. Despite not being able to extract much detail from Kershaw and Bullock’s sources, I was able to gain an overview of Hitler’s style of leadership and his view on issues such as the ‘racial struggle’ that existed under the Nazi Party rule. Indirectly, I was able to link this to his outlook on the future of the economy and how to restabilise what was in reality, weak foundations in 1933. Their books delved into the mind of a very complex man, which gave me a greater insight into his thinking of how to repair the damage created by the Weimar government and the Great Depression.
However, during the 1932 Nazi leadership there was a change to the approaches to the issue of the economy. Firstly, there was the policy of autarky (self-sufficiency). This envisaged the creation of trading or economic community under the dominating influence of Germany, which could be developed to rival the other great economic powers.
Secondly, attention was given to the emerging idea of deficit financing, which found its most obvious expression in the theories of the British economist, John Maynard Keynes. By spending money on public works, it was intended to create jobs, which would then act as an artificial stimulus to demand within the economy.
In the years before 1933 Hitler had been careful not to become tied down to the specific details of an economic policy. Despite the anti-capitalist sentiments of the 25 Point Programme, political realities necessitated a certain ambiguity in order to satisfy the different economic interest groups.
Hitler was opposed to reckless experiments and instead preferred to continue with pre-1932 modest attempts at the control of inflation and expansion of government spending and employment. He also set out to restore the health of Reich finances with the appointment in March 1933 of Dr Hjalmar Schacht as President of the Reichsbank and in 1934 as Minister of Economics.
There is no agreement about when the economic recovery began in Germany. Some indices show an early upward movement in the middle of 1932, but unemployment peaked slightly later and in the early months of 1933 there was a growing fear that the optimistic signs of the previous year, like those of 1931, had been a mirage.
. The peak figure for the 1920’s for industrial production was reached by 1936, that for employment by 1937. By 1938 the economy was entering a period of growth well above the level of 1913 for the first time since the end of the war.
Maddison has shown that almost all Germany’s neighbours and major competitors had a higher growth record between 1931 and 1938. But the recovery was remarkable given the particular circumstances of the German economy at the beginning of the 1930’s.
Germany: The Third Reich 1933-45, Layton, pg. 73→
-In the years before 1933 Hitler had been careful not to become tied down to the specific details of an economic policy. Despite the anti-capitalist sentiments of the 25 Point Programme, political realities necessitated a certain ambiguity in order to satisfy the different economic interest groups.
-However, during the 1932 Nazi leadership there was a change to the approaches to the issue of the economy. Firstly, there was the policy of autarky (self-sufficiency). This envisaged the creation of trading or economic community under the dominating influence of Germany, which could be developed to rival the other great economic powers.
Secondly, attention was given to the emerging idea of deficit financing, which found its most obvious expression in the theories of the British economist, John Maynard Keynes. By spending money on public works, it was intended to create jobs, which would then act as an artificial stimulus to demand within the economy.
-Hitler himself had no interest in or understanding of economics. The real issue lay in the parliamentary politics of the 19th Century where Hitler sought power through democratic means as opposed through his initial belief on gaining power through revolutionary means. This policy was laid to rest when he was arrested after the Munich Putsch and placed in jail. Despite this, his book, written in jail, “Mein Kampf” attracted huge publicity amongst large quarters
-As one leading historian has stated, ‘no single unified economic system prevailed throughout the entire period of the Nazi regime.’
Years of Weimar and the Third Reich, Evans and Jenkins, pg. 341→
-In January 1933 Germany had all the features if a depressed economy:
- foreign trade had declined
- industrial production, and with it national income, had fallen by 40%.
- there was mass unemployment, with a third of the working population unemployed.
- wages and real income had fallen with inevitable consequences for those who produced consumer goods.
-People had been affected unevenly by the problem: big business and trade unionists did well, but peasants, the intelligentsia and white-collar workers less so, compared with the experience of pre-1914 when they had fared better.
-The average income for peasants in 1933 was 600 marks a year compared with 1,000 marks for workers.
-The Wall Street Crash of 1929 had not been the cause of collapse of the German economy. It was already in recession by the Spring of 1929 so that the crash sent it into a further downward spiral. There was a shortage of gold and foreign exchange reserves, preventing the purchase of overseas technology, raw materials and foodstuffs.
-The downturn of the weak domestic economy between 1929 and 1931 is more important than 1933. Textbooks have stated that at the height of the depression the number of registered unemployed reached six million, but recent research has shown the figure to be much closer to eight and a half million. The difference represents the number of number of unemployed who were removed from the register by the government through the programme of voluntary labour service, different kinds of welfare funding or because they were female.
Hitler’s response to the economic catastrophe
-Hitler had no preconceived strategy or programme for dealing with the crisis in business. In 1933, he believed it was a ‘matter of will,’ though he had economic aims based on his election promises to provide workers with work and bread, to rescue the middle class, to carry out land reform in the peasants’ favour and to revive business fortunes.
-He was prepared to spend public money to stimulate the economy, but he was also keen to control inflation. Equally, he was aware that he could not politically afford to introduce rationing or sacrifice the working classes’ standard of living.
-In the early years of the regime policies to evolve out of the demands of the situation rather than being the result of careful planning.
-Hitler was opposed to reckless experiments and instead preferred to continue with pre-1932 modest attempts at the control of inflation and expansion of government spending and employment. He also set out to restore the health of Reich finances with the appointment in March 1933 of Dr Hjalmar Schacht as President of the Reichsbank and in 1934 as Minister of Economics.
Nazi Economic Policy 1933-1939
People will vote for or join a political party that they believe will increase their wealth, power, and prestige. One of the most important reasons why the Nazi Party gained in popularity in the late 1920s was because of the economic chaos in Germany after the Wall St Crash of 1929. The Nazis realised that if they were to gain and keep mass support from the German people, they would have to tackle these serious issues:
- Unemployment – this had risen to over 6 million by 1932
- Inflation and hyperinflation – Germany had faced devastating hyperinflation in 1923 when $1 = 4,200,000,000,000 marks
- Self-sufficiency (autarky) - Germany relied on overseas trade for vital raw materials and food supplies. Part of the reason Germany had lost the Great War was because it hadn’t been able to maintain these supplies. Hitler hoped to make Germany self-sufficient.
The Nazis had been relatively unpopular between 1923-1928, but their fortunes changed with the Wall Street Crash in October 1929. Desperate for capital, the United States began to recall loans from Europe. One of the consequences of this was a rapid increase in unemployment. Germany, whose economy relied heavily on investment from the United States, suffered more than any other country in Europe.
Before the crash, 1.25 million people were unemployed in Germany. By the end of 1930 the figure had reached nearly 4 million, 15.3 per cent of the population. Even those in work suffered as many were only working part-time. With the drop in demand for labour, wages also fell and those with full-time work had to survive on lower incomes. Hitler, who was considered a fool in 1928 when he predicted economic disaster, was now seen in a different light. People began to say that if he was clever enough to predict the depression maybe he also knew how to solve it.
By 1932 over 30 per cent of the German workforce was unemployed. In the 1933 Election campaign, Adolf Hitler promised that if he gained power he would abolish unemployment. He was lucky in that the German economy was just beginning to recover when he came into office. However, the policies that Hitler introduced did help to reduce the number of people unemployed in Germany.
Nazi economic policies:
- On 2nd May, 1933, Adolf Hitler ordered the Sturm Abteilung (SA) to arrest Germany's trade union leaders. Robert Ley formed the Labour Front (DAF), the only union organization allowed in the Third Reich.
- A pay freeze was introduced in 1933 and this was enforced by the Labour Front. Wages were now decided by the Labour Front and compulsory deductions made for income tax, and for its Strength through Joy programme. The Labour Front issued work-books that recorded the worker's employment record and no one could be employed without one.
- The government banned the introduction of some labour-saving machinery.
- Employers had to get government permission before reducing their labour force.
- The Nazi government gave work contracts to those companies that relied on manual labour rather than machines. This was especially true of the government's massive autobahn (motorway) programme.
- The Nazis concentrated on rearming. Thousands of Germans worked in factories producing weapons.
- Conscription into the German armed forces helped to reduce the numbers of unemployed.
- Hitler also encouraged the mass production of radios. In this case he was not only concerned with reducing unemployment, but saw them as a means of supplying a steady stream of Nazi propaganda to the German people.
- Youth unemployment was dealt with by the forming of the Voluntary Labour Service (VLS) and the Voluntary Youth Service (VYS), these planted forests, repaired river banks and helped reclaim wasteland.
- Women in certain professions such as doctors and civil servants were dismissed, while other married women were paid a lump sum of 1000 marks to stay at home.
- In the summer of 1935 Adolf Hitler announced the introduction of Labour Service (RAD). Under this measure all men aged between the ages of nineteen and twenty-five had work for the government for six months. Later women were also included in the scheme and they did work such as teaching and domestic service.
Did the Nazis produce an economic miracle for Germany?
How successful were the Nazis in tackling unemployment, inflation and creating self-sufficiency?
- Unemployment had fallen from 6 million in 1933 to 300,000 by 1939
- Industrial production in 1939 was above the figure for Weimar Germany before the 1929 Wall Street Crash.
- By 1939, Germany still imported 33% of its required raw materials
- Government income had been 10 billion Reichmarks in 1928. In 1939, it was 15 billion. However, government spending had increased from 12 billion Reich marks in 1928 to over 30 billion in 1939.
- From 1933 to 1939, the Nazi government always spent more than it earned so that by 1939, government debt stood at over 40 billion Reichsmarks.
- Annual food consumption in 1937 had fallen for wheat bread, meat, bacon, milk, eggs, fish vegetables, sugar, tropical fruit and beer compared to the 1927 figures. The only increase was in rye bread, cheese and potatoes.
- Real earnings in 1938 were all but the same as the 1928 figure. (Real earnings are wages adjusted to allow for inflation).
The real wage value increased over the 8-year period to 200% of its 1929 value. The value stood at