The Third Reich in Power

by Evans, Richard J.

  But the Reich Food Estate proved a problematical institution.66 Very soon, Darre’s ideological vision of a future Germany based on a healthy and stable community of peasant farmers began to be pushed aside by the more immediate imperatives of autarky and rearmament. In line with general economic policy, the Reich Food Estate had to keep prices down, restrict imports (including animal fodder) and ration consumption. Price controls squeezed farmers’ profits and meant they could not compete with the big industrial firms in the level of wages they paid their workers. The shortage of iron and steel and the prioritizing of the armaments industry in allocating them meant severe restrictions on the manufacture of agricultural machinery that might have been an acceptable substitute for their vanishing labour force, assuming that farmers could afford to pay for it. Already in September 1934 Schacht launched a ‘production battle’ aimed to make Germany self-sufficient in food supplies, a goal that the Reich Food Estate had to play its part in fulfilling. Yet success proved elusive. Subsidies for the construction of grain stores, silos and the like had some effect. But this was more than counteracted by the requisitioning of large quantities of agricultural land for motorways, airfields, barracks and camps, and army training areas, and the drafting of agricultural labourers into arms-related industries in the towns and cities. Between 1933 and 1938, 140 villages were broken up and 225 rural communities disrupted or displaced by compulsory army land purchases, while in the last two years of peace, the building of the defensive emplacements known as the ‘West Wall’ caused the abandonment of 5,600 farms with 130,000 hectares of land. Grain yields generally failed even to reach the levels of 1913, while there was a shortfall in domestic production against demand of between 10 and 30 per cent in pork and fruit, 30 per cent in poultry and eggs, around 50 per cent in fats, butter, and margarine, up to 60 per cent in legumes and over 90 per cent in vegetable oils.67 In this as in other areas, the diversion of production to armaments and associated industries from consumer goods manufacture and the clampdown on non-military-related imports had created a shortage of consumer goods by the autumn of 1936, as demand began to outstrip supply. Prices therefore began to rise. A Price Commissioner - the conservative politician Carl Goerdeler, Mayor of Leipzig - had already been appointed late in 1934, but his advocacy of a slow-down in rearmament as the remedy had been brusquely rejected, and his office was little more than a propaganda show. To prevent a resurgence of the dreaded inflation of the early 1920s, the government imposed a compulsory freeze on prices on 26 October 1936. On 1 January 1937 it introduced rationing of butter, margarine and fat. Thus consumers began to feel the pinch as well as producers.68

  As Darré was also Minister of Agriculture, he had to go along with these measures. Every time the interests of the state clashed with those of the Reich Food Estate, it was the latter that had to yield. Moreover, by 1936, therefore, it was clear that the goal of self-sufficiency in food was as far away as ever. The Reich Food Estate was caught between the Party and the state. Formally an institution belonging to neither, it lost its functions as each of the two asserted its own interests. Darre’s star was now waning rapidly. His deputy, Herbert Backe, persuaded Göring and Himmler that Darré was an ideologue who lived in a dream-world and the practical goal of achieving self-sufficiency in food production could only be achieved by an expert such as himself. In addition, a war of attrition with Robert Ley over the interests of agricultural labourers had led to further inroads into the position of the Reich Food Estate in rural society. Ley was also able to use his role as Reich Organization Leader of the Party to remove a variety of functions, for example in education and training, away from Darré’s organization as a prelude to incorporating it into the Labour Front. Attempting to shore up his waning power, Darré had in fact already yielded to the demands of autarky, for example sponsoring a law of 26 June 1936 that allowed the state to merge farms together compulsorily to create larger and more efficient units. Moreover, he was also compelled to cede the care of the social and cultural welfare of its members to the Party and its subordinate organizations. The unpopularity of his schemes amongst the peasantry sealed his fate.69

  Göring and Backe devoted considerable energy to boosting the country’s home-produced food supply: measures taken included cheap loans to farmers for the purchase of machinery, price cuts for fertilizers, price incentives for producing grain, eggs and the like, and the requirement in some cases to cultivate crops that would provide the raw materials for textile fibres, such as flax, or vegetable oils and fats. They also tried to remedy the growing labour shortage on the land. From the outset of the Third Reich, hundreds of thousands of young people had been drafted onto the land to try and offset a long-term shortage of agricultural manpower, although many of them were too young, lacked the physical strength, or were too ignorant of the countryside and its ways to be of much use. Even concentration camp inmates were roped into clearing moorland for cultivation. This was not what Darré had imagined when he had set up the Reich Entailed Farms and the Reich Food Estate. On the eve of the war, his original vision had all but disappeared.70

  Germany did indeed become self-sufficient in some basic foodstuffs like bread, potatoes, sugar and meat by 1939, but there were still many products, notably fat, pulses (except lentils), and even eggs where imports were still necessary on a considerable scale to meet demand. The number of rural workers dropped by 1.4 million between 1933 and 1939, partly because of the removal of foreign workers, partly because of a continuing drift to better-paid jobs in the towns.71 The land brought under cultivation was not enough to make a significant difference. Thirty per cent of fodder for horses, still a vital component of the army transport system in 1938, had to be imported. Crop yields for cereals in 1939 were not much better than they had been in 1913. On the eve of war, roughly 15 per cent of Germany’s food supplies still came from abroad.72 All this pointed yet again in the minds of the Nazi leaders to the need for ‘living-space’ in the East to make up the deficit. On the other hand, the fact that the trade agreements Schacht had negotiated brought in cheap agricultural produce from South-eastern Europe allowed Hitler and Goring to avoid taking yet more draconian measures to subordinate peasant farmers completely to the dictates of autarky, which would have alienated them even more. The peasants were not going to be militarized or dragooned into a new kind of serfdom to satisfy the demands of the state. Some of the measures introduced by Darré early on thus remained, and the farming community could look back in 1939 to an improvement in its situation during the previous six years, in which the overall proceeds of agriculture had grown by 71 per cent in comparison to 1933, far less than those of industry but still, by the eve of the war, better than the situation of the late 1920s.73

  German consumers did not do so well. More and more foodstuffs were subject to official rationing as the government stockpiled supplies in preparation for war and requisitioned agricultural workers and crafts-men for arms-related industries. Butter and fat had long been restricted; fruit and coffee were also rationed from the early spring of 1939. Apples remained unpicked because workers had been drafted into the towns. People were urged to grow their own fruit and to make preserved fruit for use in the winter months. Food supplies were not helped by a series of poor harvests in the mid-1930s caused by bad weather, a cold snap in the spring of 1938 that froze a lot of fruit blossoms off the trees and a bad outbreak of foot-and-mouth disease among the nation’s cattle the same year. Coffee imports fell as the shortage of hard currency in Germany began to limit the ability of importers to pay for it. The shortage of wheat and rye meant official controls on bakers, who were instructed to bake only ‘homogenized bread’ made from an amalgam of inferior flours. White bread could be purchased only on presentation of a medical certificate. To prevent people evading controls on the purchase of milk by going directly to the producer, dairy farmers were obliged from 1 January 1939 to deliver all their supplies to central milk depots. Later the same year, it was reported that no eggs were to be had in Mu
nich for the whole of Easter Week, while in Elberfeld people were unable to bake Easter cakes for lack of fat. Training courses were put on for Saxon housewives to show them how to cook ‘Hungarian fish gulash’ since meat for the real thing was so hard to come by. On 28 March 1939, the meat counter at the Hertie department store on the Dönhoffplatz in Berlin was opened only to sell registered customers their weekly ration of fat; there was no fresh or frozen meat available at all. Shortages inevitably led to a flourishing black market in scarce foodstuffs. Berlin’s markets were already cleared out of fruit by seven in the morning, before the price commissioners came in to check that stallholders were adhering to the official price limits. Imported fruit, such as bananas and oranges, was particularly hard to come by. Only well-off early risers could afford to circumvent the regulations in this way, though at a price well over the official maximum. In the Ruhr, many workers were only able to eat meat once a week. ‘The people’, reported a Social Democratic agent in May 1939, ‘are suffering a great deal from the shortage of all kinds of foodstuffs and respectable, solid clothing. Still,’ he added, ‘this has not led to any kind of unrest, apart from queueing in front of shops, which has become a daily occurrence.’74

  BUSINESS, POLITICS AND WAR

  I

  Despite interventionist institutions like the Reich Food Estate, Hitler and the Nazi leadership generally sought to manage the economy by tough control of the market economy rather than by nationalization or direct state takeovers.75 Thus, to take one example, the regime pressed the giant chemicals combine I.G. Farben into developing and producing synthetic fuel for motor vehicles and aeroplanes through the hydrogenation of coal, so as to reduce Germany’s dependence on oil imports; an agreement was signed on 14 December 1933, committing the combine to produce some 300,000 tons a year in return for a guaranteed ten-year purchase order from the state.76 Where a company refused to go along with demands of this kind, however, the regime stepped in to bring it to heel, as in the case of Hugo Junkers, the aircraft manufacturer, who was forced to sell his majority interest in his two companies to the Reich at the end of 1933 after attempting to resist the government’s calls to convert them from civil to military purposes. On his death in April 1935, indeed, both companies were nationalized, although only briefly.77 Moreover, the Economics Ministry actively insisted on the creation of cartels in key areas so as to make it easier for the state to direct and monitor increases in war-related production.78 Yet despite this increase in state intervention, as Nazi economic spokesmen repeatedly insisted, Germany was to remain a free-market economy, in which the state provided leadership and set the primary goals. For this purpose, at least early on, when the ‘battle for work’ and the reorientation of the economy towards rearmament were the main aims, Hitler needed the willing co-operation of business.

  It was not surprising, therefore, that he chose a leading representative of the business community as his Reich Economics Minister after the enforced departure of the cantankerous German Nationalist Alfred Hugenberg.79 This was the general director of the Allianz Insurance Company, Kurt Schmitt. Born in 1886 into the modest bourgeois family of a doctor, Schmitt had been an enthusiastic duelling corps member at university, where he had studied commercial law, then worked briefly in the Bavarian civil service under Gustav Ritter von Kahr, later to become notorious on the far right in Bavaria. Shortly before the outbreak of war, Schmitt entered the Munich branch of the Allianz. Immensely hard-working, he was none the less no cold pen-pusher. He developed a human approach to insurance, personally mediating between claimants and insured, and thus reducing substantially the number of expensive lawsuits which the company had to handle. Not surprisingly, this led to his rapid promotion through the managerial ranks, a rise that was not seriously interrupted by the war, from which he was invalided out early on with a minor wound that became repeatedly reinfected and so prevented him from returning to the front. He became general director at the age of thirty-four. Soon, encouraged by his subordinates, Schmitt was wearing expensive, tailor-made suits and hobnobbing with the great and the good in the gentlemen’s clubs of Berlin. Under Schmitt’s leadership, Allianz expanded rapidly in the kind of mergers and takeovers that characterized other sectors of the business world in the 1920s as well. Like other businessmen, Schmitt was dissatisfied with the conditions under which private enterprise had to labour during the Weimar era, and he lobbied for a reform of the law affecting insurance through the Reich Association for Private Insurance. This brought him into contact with leading politicians, many of whom were impressed by his competence, his decisiveness and his obvious financial acumen. By the early 1930s he had become a public figure of some repute. He enhanced his reputation with his performance on the Economic Advisory Council set up by Brüning. Both Brüning and Papen offered him the post of Finance Minister. He turned the offers down in the belief that the prevailing economic situation would not allow him to do the job with any degree of success.80

  By this time, Schmitt had taken up contacts with the Nazi Party. In November 1930, like Schacht a little later on, he had met Goring at a dinner and been extremely impressed by his political advocacy. Soon Schmitt was indulging Göring’s impressive appetite for food and wine in regular lunchtime meetings in a Berlin restaurant, held at his company’s expense. Before long, he had met Hitler too. The Nazis’ promise to defeat the menace of Communism and end the party-political bickering of the Weimar years won him over to their cause. A self-made man who had risen by his own abilities, Schmitt was less wedded to traditional conservative politics than were colleagues from old-established business or civil service backgrounds. As the Nazis seized power in Germany, Schmitt abandoned his previous discretion and signed up as a Party member in the spring of 1933, leading company celebrations of Hitler’s birthday on 20 April. Schmitt shared the common elite prejudice that regarded Jews as too prominent in public and intellectual life, banking, finance and the law; the most common adjective he used when referring to them was ‘unpleasant’. He agreed with Göring’s proposal, made to him at one of their private meetings, to deprive Jews of the vote and ban them from holding positions of authority over Germans. By the summer, his contacts with Goring had borne spectacular fruit. Seeking to replace Hugenberg as Reich Economics Minister, Hitler was persuaded by Göring that it would be politic to have a leading representative of the business community in the post. Hitler offered it to Schmitt, who was sworn in on 30 June 1933, believing that he had a role to play now that the political situation had been stabilized.81

  Despite attempting to strengthen his position by, for example, becoming an officer in the SS, Schmitt proved no match for the big beasts in the Nazi power jungle like Goebbels, Ley or even Darré, all of whom had removed substantial areas of the economy from the purview of his Ministry within a few months. Underlings such as the Nazi economic theorist Gottfried Feder, who had written the abolition of ‘interest slavery’ into the Party programme in 1920, were a continual source of trouble. Schmitt’s announcements and instructions to state and regional officials not to endanger the economic recovery by countenancing actions against Jewish businesses were omitted from press reports and generally disregarded by ‘old fighters’. Most seriously of all, Schmitt was opposed to what he considered as unproductive expenditure on rearmament and of spectacular but, as he argued, useless ideas such as the motorways. Here too he was ignored. Schmitt disapproved of the Nazis’ extravagant propaganda claims about an economic recovery, the end of unemployment and the like. He increasingly thought of himself as a failure. Under increasing stress on all sides, he suffered a serious heart attack on 28 June 1934 and eventually resigned with effect from 30 January the following year. Before long, he had returned to the insurance business. He had realized his incompetence as a politician and refused all subsequent invitations to leave the walk of life he knew best.82

  Schmitt was replaced on 3 August 1934 as Acting Economics Minister, then from 30 January 1935 on a permanent basis, by Hjalmar Schacht, who had already
made it clear privately to Hitler that, unlike his predecessor, he would regard rearmament as a top priority irrespective of the economic situation. Schacht was given dictatorial powers of economic management. He began by promptly sacking Feder from his post in the Ministry and purged other Party figures who, the army had complained, were trying to impose their ideas on the management of the economy. In the next four months, Schacht established a new structure under the aegis of his Ministry, in which all firms were compulsorily enrolled in one or other of seven Reich Groups (industry, trade, banking, and so on), further subdivided into specialist and regional sub-groups. This enabled the Ministry to take a stronger lead in implementing rearmament policy on the existing basis of private enterprise rather than on the kind of anti-capitalist ideas favoured by Feder.83

  Already by this time, however, the nascent armaments boom was beginning to have some unwelcome effects. By boosting domestic industrial production, the state and the army caused industry to switch away from export-oriented, mostly consumer products. Added to a continuing slump in world trade and the imposition of trade sanctions by Britain and the United States in protest against the regime’s persecution of the Jews, this caused a fall in exports from 1,260 million Reichsmarks in the last quarter of 1933 to 990 million in the second quarter of 1934. Simultaneously imports grew rapidly in volume, as demand in Germany for products like rubber, oil and cotton all increased. Imports of raw materials rose by 32 per cent from the middle of 1932 to the beginning of 1934, while the prices obtained for German exports fell by 15 per cent. The situation was made worse by the fact that Britain and the USA had allowed their currencies to depreciate, while the Nazi government, like its predecessors, was unwilling to devalue the Reichsmark for fear that it would encourage inflation. Thus German goods became more expensive on the world market, encouraging other economies to turn elsewhere for their sources, while imports to Germany became cheaper, prompting German firms to buy more of them. In 1934, Germany’s balance of payments went into deficit.84 Germany’s foreign debt rose, while its gold and foreign exchange reserves fell by more than half between January and September.85 Piecemeal foreign currency quotas and restrictions failed to have any real effect on the rapidly deteriorating situation.86 On 14 June 1934 the Reichsbank imposed a six-month stop on the repayment of all long-term and medium-term foreign debts.87