Nazi Economics

Michael McMenamin from the August/September 1999 issue

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These facts were well known at thetime, both within and without Germany. Roberts and others had written about them, attributing the food shortages to Hitler's centralized agricultural policy, which had virtually eliminated food imports while implementing government controls. The predictable result: Germany produced less food, causing both shortages and price increases. According to Roberts, wheat went up 15 percent, eggs 50 percent, butter 40 percent, potatoes 75 percent, and most meat 50 percent--all despite "official" and ineffectual price controls which Hitler for appearances' sake refused to lift. Well into Hitler's "miracle," Kershaw notes, "poor living-standards, falling real wages, and steep price increases in some necessities...[were] the dismal reality behind the `fine facade of the Third Reich.'"

At the same time, a ferocious eco-nomic policy battle was being waged over foreign exchange reserves: Should they be used to buy food imports or raw materials for armament production, the latter being Hitler's primary purpose since he first took office? Hitler appointed Hermann Göring (who knew less about economics than Hitler) to mediate between Economics Minister Hjalmar Schacht, who wanted to purchase raw materials for armaments, and Agriculture Minister Walther Darre, who wanted food to cover up his failed policies. Schacht, a social friend of Göring's, expected a rubber stamp in favor of raw materials for arms. To everyone's surprise, except Hitler's, Göring chose food, an answer that set Germany on the road to foreign conquest.

As Kershaw sees it, Hitler gave priority to food imports because the "immediate prime need was to avoid the damaging psychological effects of the only alternative: food rationing." But this decision, in turn, adversely affected German rearmament. "By early 1936," says Kershaw, "available supplies of raw materials for rearmament had shrunk to a precariously low level. Only one to two month supplies were left. Schacht demanded a slow down in the pace of rearmament....As Hitler entered his fourth year as Chancellor, the economic situation posed a real threat to rearmament plans. At the very time when international developments encouraged the most rapid expansion possible, the food crisis--and the social unrest in its turn--was sharply applying the brakes to it....Any slow down in rearmament...would inevitably bring increased unemployment in its train...[Hitler] saw this as all the more reason to hasten expansion to gain `living-space.'"

In other words, if Hitler had to spend foreign exchange reserves for food to keep the people happy, he would have to get the raw materials for armaments by taking them. Otherwise, there would be more unemployment when the arms workers were laid off due to a lack of raw materials. Hitler knew he couldn't survive both food shortages and a resurgence of unemployment.

Commenting in early 1937 on Göring's Four Year Plan for economic self-sufficiency, Roberts had presciently predicted the inevitability of either war or Hitler's fall from power. "There are 34 vital materials without which a nation cannot live, and unfortunately, Germany is worse off than any other great state insofar as these are concerned," he observed. "Whereas the British Empire is largely dependent on outside sources for only nine of these, Germany has only two in ample quantities--potash and coal. That means she must turn to the foreigner for all of her supplies of 26 of these and for part of six more. Yet this is the Power that sees fit to launch a plan for complete self sufficiency. It is ludicrous, unless she looks forward to obtaining control of the vast raw materials of central Europe or the lands beyond the Ukraine by some adventurous foreign policy....That is [Hitler's] basic dilemma. If he persists in the [economic] policies he has enunciated, he plunges Europe into war; if he abandons them, he can no longer maintain his position within Germany."

It's not that Hitler lacked contrary advice. Kershaw tells us that in October 1935 Price Commissioner Carl Goerdeler sent Hitler in October, 1935, "a devastating analysis of Germany's economic position." According to Kershaw, Goerdeler "favored a return to market economy, a renewed emphasis upon exports, and a corresponding reduction in the rearmament drive--in his view at the root of the economic problems....If things carried on as they were, only a hand-to-mouth existence would be possible after January 1936." But Goerdeler was ignored and later dismissed. Instead, Germany reoccupied the Rhineland, to widespread popular acclaim, and Göring unveiled his Four Year Plan, putting the economy firmly on a war footing.

Hitler himself apparently never had a clue that the economic policies he had followed for the first three years of his regime were responsible for his production problems. By 1936, Kershaw makes clear, Hitler believed his own press clippings regarding his economic acumen. Thus, for Hitler, the food crisis only confirmed his preconceptions. In the secret memorandum on which Göring's Four Year Plan was based, Hitler wrote, "We are overpopulated and cannot feed ourselves from our own resources. The solution ultimately lies in extending the living space of our people, that is, in extending the sources of its raw materials and foodstuffs." That is, the problem is not my fault and the answer is war, not economic reform.

Hitler's fears of losing power were not without foundation. His great nemesis, the Soviet Union, found that out 50 years later. In the 1980s, it could not keep up with increased U.S. defense spending and sustain what William E. Odom in The Collapse of the Soviet Military (1998) terms "a permanent war economy" in which 20 to 40 percent of the gross domestic product went to the military. The Soviets faced the same choice as Hitler: economic reform or war? Thankfully, the Soviet leaders chose economic reform, even though it didn't save them or their regime. Freeing yourself from orthodox principles of economics can be a tricky thing.