On 19 September 1934, to try and counter these mounting problems, Hjalmar Schacht, the newly anointed ‘economic dictator’ of Germany, announced a ‘New Plan’ according to which trade would from now on be on a bilateral basis: a kind of barter between Germany and other states, in which imports would only be permitted from states to which Germany exported substantial quantities of goods. ‘Implementation of the rearmament programme’, he declared on 3 May 1935, was ‘the task of German policy.’ In order to pay for it, imports had to be restricted as far as possible, to arms-related raw materials and foodstuffs that could not be grown in Germany.88 South-eastern Europe seemed a particularly favourable area for bilateral trade arrangements. A focus on the Balkans might well open up a perspective on a future Greater German trade area in East-Central Europe, the long dreamed-of Mitteleuropa (Central Europe) project. It would be safer in the event of war than existing trade links to the north and the west. Besides this, cutting back on overseas trade would lessen Germany’s dependence on the British merchant marine, which might prove severely damaging in the event of a future war between the two nations.
Too many raw materials came from far-flung parts of the globe, and the New Plan sought to reduce Germany’s dependence on such sources. Enforced by twenty-five Surveillance Officers, the new plan helped cut German imports from the rest of Europe from 7.24 billion Reichsmarks in 1928 to 2.97 billion ten years later; by the latter date, imports from South-eastern Europe, which had made up 7.5 per cent of the total in 1928, had risen to 22 per cent of the whole.89 Yet the army was soon complaining that while Schacht was managing to find the money to pay for the initial stages of rearmament, he had not succeeded in making the economy ready for war. In particular, import restrictions had dangerously depleted Germany’s domestic reserves of raw materials, ore and metals, while attempts to find substitutes - home-grown textiles, synthetic rubber and fuel, locally drilled oil and so on - had so far made only a very limited impact. The time had come, in Hitler’s view, for a far more radical intervention in the economy - one which Schacht, who made no secret of the fact that he thought the German economy had reached the limits of its ability to sustain rearmament and war mobilization by 1936, could no longer be trusted to manage.90
Map 11. Major Exporters to the Third Reich
I I
On 4 September 1936, Hermann Goring read out to the cabinet a lengthy memorandum that Hitler had drawn up in the light of the mounting evidence of the New Plan’s bankruptcy. In typical fashion, it ranged widely over history and politics before coming to the point at issue: preparing the economy for war. Politics, Hitler declared, was ‘a struggle of nations for life’. In this struggle, the Soviet Union was now becoming a threat. ‘The essence and goal of Bolshevism is the elimination of those strata of mankind which have hitherto provided the leadership and their replacement by worldwide Jewry.’ Germany had to take the lead in the struggle against it, since Bolshevism’s victory would mean ‘the annihilation of the German people’. Preparing for the coming battle, Hitler declared, was an absolute priority. All other issues were of secondary importance. ‘The German armed forces must be operational within four years.’ ‘The German economy’, he added, ‘must be fit for war within four years.’ Hitler went through his familiar litany of economic beliefs: Germany was overpopulated and could not feed itself from its own resources; the solution lay in extending living-space to obtain new raw materials and foodstuffs. Raw materials could not be stockpiled for a war, since the quantity needed was simply too great. The production of fuel, synthetic rubber, artificial fats, iron, metal substitutes and so on had to be ratcheted up to a level that would sustain a war. Savings had to be made in food supplies; potatoes for example were no longer to be used for making schnapps. The people had to make sacrifices. An economic plan had to be drawn up. The interests of individual businesses had to be subordinated to those of the nation. Businessmen who kept funds abroad had to be punished by death.91
In presenting this memorandum to the cabinet, Goring launched a fierce attack on the view, propagated by Schacht and his ally the Price Commissioner Goerdeler, that the solution to the economic blockage of 1936 lay in scaling down the rearmament programme. On the contrary, since ‘the showdown with Russia is inevitable’, it had to be speeded up. There had to be much tighter controls on the economy and on the export of currency. Goring revealed that it was he who had been entrusted by the Leader with the execution of the Four-Year Plan that Hitler went on to proclaim at the Party Rally on 9 September. Schacht had begun to outlive his usefulness. On 18 October 1936 a decree made Göring’s supremacy official. He used it to establish a whole new organization dedicated to preparing the economy for war, with six departments dealing with the production and distribution of raw materials, the co-ordination of the labour force, the control of prices, foreign exchange and agriculture. Goring appointed the top civil servants in the Ministries of Labour and Agriculture to run the relevant two departments in the Four-Year Plan organization. In this way he began to bring the two Ministries under the aegis of the Plan, bypassing Walther Darré and Franz Seldte, the two responsible Ministers. Göring’s operation also undercut Schacht, who had been sent on compulsory leave on the day that the Plan had been unveiled to the cabinet. Schacht soon found that the Four-Year Plan operation was taking policy decisions without reference to his Economics Ministry. His protests had no effect. Increasingly frustrated at this loss of power, and increasingly worried by the rapid expansion of military and raw material production on what he regarded as an inadequate financial basis, Schacht wrote to Hitler on 8 October 1937 reaffirming his view that there could only be one head of economic affairs in the Third Reich, and making it clear he thought that person should be himself. The threat of resignation was clearly implicit.92
By this stage, however, Hitler had lost all confidence in Schacht, whose economic realism was now a serious irritation to him. On 25 October 1937, the head of the navy, Admiral Erich Raeder, had formally asked Reich War Minister General Werner von Blomberg to get Hitler to step in personally to arbitrate between the different interests - army, navy and air force - that were competing for the inadequate supplies of iron, steel, fuel and other raw materials. Hitler responded by getting Blomberg to call a meeting in the Reich Chancellery on 5 November 1937, at which the Nazi Leader outlined his overall strategy to a small group consisting of Raeder, Blomberg, the Commander-in-Chief of the army General Werner von Fritsch, the head of the air force Hermann Goring and Foreign Minister Konstantin von Neurath. Notes were taken by Hitler’s military adjutant Colonel Friedrich Hossbach, and these were subsequently used as evidence that Hitler was already planning a war in the not-too-distant future. In fact, there was no concrete plan, although there were certainly intentions. Hitler was mainly concerned to impress on his audience the need for urgency in rearmament and the imminence of armed conflict, particularly in East-Central Europe. Much of what he had to say would already have been familiar to his listeners from earlier statements of this kind. ‘The aim of German foreign policy’, Hitler began, according to Hossbach’s memorandum of the meeting, ‘was to make secure and to preserve the racial stock (Volksmasse) and to enlarge it. It was therefore a question of space.’ By this he meant, as he had always done, the conquest of East-Central and Eastern Europe, which would solve the German race’s need for expansion ‘only for a foreseeable period of about one to three generations’ before further expansion, probably overseas, became necessary and indeed, with the probable collapse of the British Empire, possible. After a detailed survey of the shortages in raw materials and foodstuffs, Hitler concluded that ‘autarky, in regard both to food and to the economy as a whole, could not be maintained’. The solution especially in terms of food supplies was to be found in ‘gaining space for agricultural use’ in Europe, by conquest and, implicitly, the removal or reduction of the people who lived there. ‘Germany’s problem’, he declared, ‘could be solved only by the use of force.’93
Hitler went on to wa
rn that other nations were catching up in armaments, and the domestic food crisis would soon reach breaking point. Hossbach noted that Hitler’s speech sounded a new note of anxiety about his own health: ‘If the Leader was still living, it was his unalterable determination to solve Germany’s problem of space by 1943-5 at the latest.’ Indeed, he would take military action earlier if France was weakened by a serious domestic crisis or became involved in a war with another state. In either case, if war came, Germany’s first priority would be to overthrow Austria and Czechoslovakia to reduce the threat on its south-eastern flank. The forced removal of two million people from Czechoslovakia and one million from Austria would free up additional food supplies for the Germans. The British and the French, he added, were unlikely to intervene, while the Poles would remain neutral as long as Germany was victorious.94 Thus Hitler’s response to the supply bottleneck was not to reduce the pace of rearmament but to accelerate the pace of proposed conquest of ‘living-space’. Despite the doubts of some of those present at the meeting, Hitler thus pressed on with rearmament at an ever more frenetic tempo. The caution of Schacht and his allies - who included some of those present at the meeting - was brushed aside. The solution of Germany’s economic problems was reserved until the creation of ‘living-space’ in the East. With Hitler in such a mood, Schacht’s position had now become wholly untenable. On 26 November 1937 Hitler accepted his resignation as Minister of Economics. The management of the economy now passed effectively to Hermann Goring. The discussion earlier in the month made it clear that it was Goring’s job to make sure that the brakes were taken off rearmament whatever the economic problems this might cause.95
The results of these changes could soon be seen. The pace of rearmament quickened still further. As Schacht had predicted, by 1938 expenditure on preparations for war was clearly spiralling out of control: 9,137 million Reichsmarks were spent on the army, compared to 478 million in 1933; 1,632 million on the navy, compared to 192 million five years earlier; and 6,026 million on the air force, compared to 76 million in 1933. Including expenditure on administration, and on the redemption of Mefo bills, rearmament costs had risen from 1.5 per cent of national income in 1933 to 7.8 per cent in 1934, to 15.7 per cent in 1936 and 21.0 per cent two years later, where national income itself had almost doubled in the same period. The Reich’s finances, which had recorded a modest surplus in 1932, recorded a deficit of 796 million Reichsmarks in 1933, rising to nearly 9.5 billion in 1938. Acting now in his capacity as President of the Reichsbank, Schacht wrote a personal letter to Hitler on 7 January 1939, signed by all the other directors of the Reichsbank, in which he warned that ‘overstretching public expenditure’ was rapidly leading to the ‘looming danger of inflation’. ‘The limitless expansion of state expenditure’, they told Hitler, ‘is destroying every attempt to put the budget in order. Despite an enormous tightening of the screw of taxation, it is bringing the finances of the state to the edge of ruin and from this position it is wrecking the bank of issue and its currency.’ Hitler’s response was to sack him along with the entire board of directors a few days later, on 20 January 1939. He no longer fitted into the general National Socialist scheme of things, Hitler told Schacht.96
Schacht went on a long holiday to India and retired from public life on his return. After the death of his first wife, he married a member of the staff at the Munich House of German Art, a woman thirty years his junior, and after a honeymoon in Switzerland in 1941 they lived quietly in the countryside, though Schacht retained a variety of more or less meaningless titles including that of Minister without Portfolio. His successor was the former state secretary in the Propaganda Ministry, Walther Funk, whom Goring had shoehorned into the position of Reich Minister of Economics on 15 February 1938. Funk now took over the running of the Reichsbank as well, thus subordinating both institutions to the Four-Year Plan. Unsurprisingly, what Schacht and his fellow directors, some of whom were subsequently reinstated, had called the ‘unrestrained spending habits of the public finances’ continued unabated, at an even more frenetic tempo than before. On 15 June 1939 a new law removed all limits on the printing of money, thus realizing Schacht’s worst fears. But Hitler and the Nazi leadership did not care. They were counting on the invasion and conquest of Eastern Europe to cover the costs. In February 1934, Hitler had stated that rearmament had to be complete by 1942. By the time of the Four-Year Plan, the date had been moved forward to 1940. Germany’s economic problems, as Hitler had always said, could only be definitively solved by war.97
III
The switch from the New Plan to the Four-Year Plan in 1936 testified to the growing sense of urgency with which Hitler was now pursuing this goal. But neither could really be called a plan in the normal sense of the word. At least Schacht, as economic supremo in the early years of the Third Reich, had retained a firm conceptual grasp of the economy and state finances as a whole. But Goring, for all his undoubted energy, ambition and intuitive grasp of how power worked, possessed no such overview. He had very little understanding of economics or finance. He did not set clear priorities, nor could he, since Hitler kept changing his mind as to which arm of the services - air force, navy, army - should come top of the allocation list. New blueprints kept being produced and then superseded by more ambitious ones. The chaos of overlapping and competing competencies in the management of the economy was characterized subsequently by one senior official as the ‘organizational jungle of the Four-Year Plan’. There was a fundamental contradiction between the drive to autarky in anticipation of a long war and reckless rearmament in preparation for an imminent conflict. It was never resolved. Nor was the statistical information available which was necessary for the provision of a rational planning system. Despite its elaborate structure, which included a General Council that was supposed to co-ordinate operations and harmonize the activities of the various government Ministries involved, the Four-Year Plan consisted in reality of little more than a series of piecemeal initiatives. Yet these met with some success. Coal production, for instance, increased by 18 per cent from 1936 to 1938, lignite by 23 per cent, and coke by 22 per cent. By 1938, Germany was producing 70 per cent more aluminium than two years before and had overtaken the USA as the world’s largest producer. In 1932 Germany had only been able to meet 5.2 per cent of demand for textiles, essential among other things for military uniforms. Increased production of rayon and other artificial fibres raised this to 31 per cent in 1936 and 43 per cent by 1939. The goal of abolishing Germany’s reliance on imported fuel moved nearer to fulfilment as petroleum production went up by 63 per cent and output of synthetic fuel by 69 per cent between 1937 and 1939. In 1937 Hitler announced the establishment of ‘two gigantic buna [i.e. synthetic rubber] factories’ which would soon produce enough to meet all Germany’s requirements.98
Yet these impressive figures masked a failure of the Four-Year Plan to produce the desired result of making Germany entirely self-sufficient by 1940. To begin with, the Plan failed to solve Germany’s chronic balance of payments problem. Although exports did rise in 1937, they fell again in 1938 as German manufacturers put their faith in safe and lucrative domestic contracts instead of risking their products on the world market. And in both years, they were exceeded in value by imports, further reducing Germany’s already seriously depleted foreign currency reserves. It was this issue more than any other, perhaps, that occasioned Schacht’s growing alienation from the regime he had served so faithfully from the beginning.99 Imports continued to be vital in a number of fields after he had departed the scene. Despite massively increasing their output, Germany’s aluminium factories, for instance, relied almost entirely on imported raw materials. High-grade steel was similarly reliant on metals not to be found in Germany. Buna production amounted to no more than 5 per cent of Germany’s domestic consumption of rubber in 1938; only 5,000 tonnes had been produced, as against a planned target of 29,000. Germany still depended on imports for half its mineral oil in 1939. Expansion to the East might bring new
sources of oil within Germany’s reach, but it would certainly do nothing to alleviate the shortage of rubber. Above all, these increases in domestic production had to be set against massive growth in demand, above all from the armed forces. Initially, the armed forces had conceived of rearmament as a means of strengthening Germany’s defences; but the long-term goal was always the mounting of an offensive war against the East, and already on 30 December 1935 General Ludwig Beck, Chief of the General Staff, built on the experience of successful armoured manoeuvres the previous summer to demand the creation of a more mobile kind of army, increasing the number of tank brigades and motorized infantry units. By the middle of 1936 the army was planning to include three armoured divisions and four motorized divisions in its peacetime force of thirty-six. All of these would require huge quantities of steel to build and massive amounts of fuel to drive.100
The Third Reich in Power Page 44