Was the Nazi Economy Really Successful?

The Nazi Party came to power in 1933 in a Germany devastated by the Treaty of Versailles and Great Depression, and paralysed by a huge unemployment crisis of over 6 million. Six years later it was arguably the greatest power in Europe, tearing across the continent in relentless pursuit of ‘Lebensraum’. What happened in between might therefore be chalked up to nothing less than an economic miracle. It was not. When defining economic success on the regime’s own terms, namely autarky, eliminating unemployment and building military capability, the regime’s record shows partial and temporary gains, contested by statistical fragility and moral catastrophe. Germany’s recovery was largely a vast exercise in deficit spending, statistical manipulation, and forced labour, sustained only by the promise of conquest. Nazi Germany is therefore not a case study of how to rapidly become a world power economically, but rather it demonstrates the power of a nation if all work towards one goal: war.

The problems facing the German economy when Hitler acceded were considerable: as Richard Overy documents, German trade had halved between 1929 and 1932, and Germany had been forced to default on the debts imposed on it by Versailles. Most importantly, Germany was experiencing an unemployment crisis. As Overy argues, Hitler knew that failing to deliver on his electoral promise of providing ‘Arbeit und Brot’ (work and bread) would lead to his regime’s failure. 

In order to reassure the conservative economic elite, Hitler appointed influential banker Hjalmar Schacht as president of the Reichsbank, the German central bank, in 1933 and minister of economics in 1934. Dr. Schacht’s efforts in the three years of Nazi rule were largely devoted to dealing with unemployment by expanding public works and by stimulating private enterprises (William Shirer). Schacht introduced a system of centralised economic management, ‘Wirtschaftslenkung’, under his ‘New Plan.’ Upon his arrival, wage rates were frozen at 1933 levels and labour unions were disbanded to encourage hiring. In a move branded the ‘battle for work’, the state dramatically increased government spending to stimulate consumer demand. The Autobahn system was built, creating over 80,000 jobs, and other expenditures such as public buildings, reforestation, and land reclamation were also pursued to create jobs. In 1935 the Reich’s labour service was introduced, imposing six months of forced labour in farming or construction onto unemployed men. Schacht’s policies are generally considered as having produced “a remarkable three year recovery”. 

The recovery did indeed have successes; the implementation of a state labour service to reduce unemployment through what was essentially slave labor was highly successful economically but deprived Germans of basic rights. Between 1933 and the launching of the four year plan in 1936 unemployment fell by 4.6 million, according to historian Richard Overy’s War and Economy in the Third Reich, or 4.2 million according to Adam Tooze’s The Wages of Destruction: The Making and Breaking of the Nazi Economy. However, those figures are nowhere close to the eradication of unemployment advocated by the Nazis. Although unemployment dropped during Schacht’s time as President of the Reichsbank, the Nazi regime manipulated statistics: they removed Jews and other minorities from unemployment numbers, not considering them true citizens since the Nuremberg race laws of 1935. Although unemployment and industry did experience a remarkable recovery, a bad harvest in 1936 put much pressure on a fragile trade balance, revealing the economic weaknesses of the Nazi economy’s objectives of autarky in order to be self-sufficient. Overall, the success of the Nazi economy depends on whether ethics are accounted for, yet even so, it cannot be counted as a ‘remarkable success,’ despite Overy’s claims, as the Nazis manipulated their economic statistics.

A second principal objective of the Nazi regime was achieving autarky, considered essential in time of war. To achieve autarky, Hitler had increasingly displayed ambition to “break away from the world’s market,” according to historian Adam Tooze. Despite his efforts, Schacht failed to meet this objective as Germany still relied on trade with partners such as Hungary by 1936. By this time, food shortages prompted Schacht to propose a trade increase and reduce investment into the arms industry, a debate that became known as ‘guns or butter.’ 

Hitler prioritised rearmament and autarky over economic stability and relieved Schacht from his roles of minister of economics in 1937 and president of the Reichsbank in 1939. In Schacht’s place, the Four-Year Plan was erected as the second phase of Hitler’s economic strategy. Introduced whilst Schacht was still nominally in post, during the annual Nazi party rally of 1936, it was truly led by Hermann Göring. To rearm Germany, the plan turned to the concept of ‘Wehrwirtschaft,’ which Overy describes as a ‘defense based economy’ with modern economists likening ‘Wehrwirtschaft’ to a ‘military-industrial complex.’ The plan included the increase of Germany’s own production of key commodities such as iron, steel, and food and substitutes for products such as rubber and coal were to be developed to enable self-sufficiency in time of war. German social scientist Fritz Pollock, exiled in the United States during the war, defined the plan as ‘state capitalism’: the Ministry of Economics would set the target and let private enterprises find solutions. Should they fail, the state would intervene, making Göring’s practices an ideologically ‘völkisch’ state-run industrial economy. This intervention is highlighted by the creation of Reichswerke, an industrial conglomerate originally conceived for ore mining and ironworks but expanded to other domains deemed vital to the German economy. 

This interventionist system heavily suppressed private business as the Reichswerke confiscated property from businesses in certain domains and brought up others in very favourable deals achieved through pressure on shareholders to sell cheaply to the regime. Göring’s Reichswerke became the regime’s largest state-owned corporation, a major step taken by Göring to restrict private industrial capitalism. Yet by the eruption of war, Germany was still dependent on foreign powers for one-third of its raw materials. The failure to achieve autarky reveals failures of economic policy, but also implies something else: the primary objective of rearmament was always prioritised over all others, showing the contingency of Nazi economic planning on war.

These policies fostered a growth hollow at its core: the plan triggered an economic boom through rearmament investment, with two thirds of industrial development between 1936 and 1939 coming from rearmament, but said growth and concomitant employment was unsustainable. This is proven by Göring’s propositions for the creation of other permanent work past the rearmament boom. The plan’s objective of autarky also failed as production targets in key areas such as fuel and rubber were missed. Despite this, investment into rearmament and wider industry did spark infrastructure growth and was described by historian William Shirer in The Rise and Fall of the Third Reich as the “real basis” of Germany’s growth. Germany’s national product grew by over 70% between 1933 and 1938, becoming Europe’s largest economy whilst outperforming the USSR in growth over that period. However, this military spending, up to 20% of GDP by 1938, was only made possible by the introduction of credit notes, MEFO bills, which enabled the government to pay for its measures without actually financing them, as expenditure would not appear in government accounts. This scheme enabled the nation to spend without immediate payment, causing Germany’s real debt to triple between 1933 and 1939. The policy was unsustainable, relying on Hitler’s conquest of neighbouring nations to finance the past spending. Hitler’s rearmament was therefore unsustainable, as would be demonstrated during the latter years of the war.

Ultimately, notwithstanding Germany’s revival from broken nation to continental hegemon, these measures were only temporarily successful and ultimately unsustainable should the nation not have gone to war. Yes, unemployment, which had plagued Germany for two decades, was reduced from 6 million in 1932 to less than a million four years later. Yes, national production also rose 102% between 1932 and 1937. Understandably, economists hailed the recovery as a ‘miracle.’

Nevertheless, part of Germany’s economic growth came from unashamedly inhumane decisions. The regime’s distortion of statistics explains the contemporary view that the economic recovery was more successful than it was. These and other lessons, as part of the Nazis’ broader demonstrations of the power of a nation when geared towards war, have critical implications today, as defence spending surges and great power conflict rears its ugly head once more.

Image: Wikimedia Commons/:GattoFurryPazzo (likely Heinrich Hoffmann)

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