The Third Reich in Power

by Evans, Richard J.

  Yet already in the 1960s, some Marxist historians were beginning to argue that in Nazi Germany at least, the economy was subjected to a ‘primacy of politics’ in which the key parameters were set by ideology rather than by capitalist self-interest.117 The truth is, the economic system of the Third Reich defied easy categorization. To some extent its sheer irrationality undermines any attempt to portray it as a system at all. Superficially, the Four-Year Plan in Germany was more than reminiscent of Stalin’s Five-Year Plan in the Soviet Union. But Nazi economic planning was clearly not designed to further the interests of the working class, as its Soviet counterpart was, at least officially. While Soviet planning under Stalin more or less eliminated free markets and free enterprise, Nazi planning left business intact, from great firms like I.G. Farben all the way down to small retailers and backstreet artisanal workshops. On the other hand, Nazi rhetoric, especially in the 1920s, had a strongly anti-capitalist flavour, so it is not surprising that business only swung round to support the Party after Hitler became Chancellor in January 1933. The destruction of the labour movement in the following months convinced many businessmen that they were right to back the new regime. But as time went on, businessmen found that the regime had its own objectives that increasingly diverged from their own. Chief of these was the ever more frenetic drive to rearm and prepare for war. Initially, business was happy to accommodate itself to this objective, which brought it renewed and then increased orders. Even consumer goods producers benefited from the armaments-driven economic recovery. But within a few years, as the regime’s demands began to outstrip German industry’s capacity to fulfil them, industrialists’ doubts began to grow.118

  Few industrialists’ reactions to this process were as sharp as those of the steel boss Fritz Thyssen, whose support of the Nazi Party before 1933 was as extreme as the extent of his disillusion with the movement six years later. In 1939 Thyssen bitterly condemned the state’s direction of the economy and prophesied that the Nazis would soon start shooting industrialists who did not fulfil the conditions prescribed by the Four-Year Plan, just as their equivalents were shot in Soviet Russia. He fled abroad after the outbreak of the war, his property was confiscated by the Gestapo, and he was subsequently arrested in France and put into a concentration camp.119 His alarm at the state’s growing interference in the economy was shared by many others, however. At the centre of their concerns was the Four-Year Plan. In his attempt to increase supplies of domestic raw materials, Goring had first of all berated industrialists for their egotism in exporting their products for profit instead of using them to further German rearmament, then taken matters into his own hands, nationalizing private deposits of iron ore, taking over control of all privately owned steelworks and setting up a new company, known as the Hermann Göring Works.

  Founded in July 1937, this state-owned and state-run enterprise, based at Salzgitter, was designed to produce and process low-grade German iron ore at an uneconomic price, something private industry had been unwilling to do. The Hermann Göring Works would use the state’s money to pay over the odds for coking coal and other raw materials, and for labour too, forcing private firms to compete. The effect would be to push up the price of German iron and steel and make it more difficult to export; yet exports at this time were where the biggest profits lay. Worse still, the Hermann Göring Works soon began taking over small firms in the same area, then in April 1938 the Rheinmetall-Borsig armaments company. The nationalization of the large Thyssen concern was in fact part of a wider process in which Göring was getting industry into line to serve the interests of autarky and rearmament. Heavy industrialists in firms such as the United Steelworks, backed behind the scenes by Schacht while he was still in office, objected furiously to this increase in state ownership and control and to state-subsidized competition with their own enterprises. They began intriguing against the Four-Year Plan and talking about ways of getting state controls reduced. Göring had their secret meetings bugged and their telephone conversations tapped and even summoned the two leading conspirators to his office to play back recordings of their conversations. Faced with such pressure, and the more than implicit threat of arrest and consignment to a concentration camp, the industrialists, intimidated, disillusioned and divided, caved in.120

  Typical of such men in many respects was the steel magnate and arms manufacturer Gustav Krupp von Bohlen und Halbach, who had presided over the Krupp firm in the company town of Essen, in the Ruhr, since marrying into the family in 1906. The Krupps had a long and close association with the Prussian state, which they supplied with arms. Kaiser Wilhelm II himself had given formal permission to Gustav to add the Krupp name to his own on his marriage to the family heiress Bertha. From that point on, Gustav, previously a career diplomat (although from an industrial family), regarded the preservation of the firm as his principal task in life. Stiff, formal, cold and unbending, he worked long hours to further the company’s interests, and was rewarded by huge armaments orders which ensured that by 1917, 85 per cent of Krupp’s output consisted of war-related products. Although not active in politics, Gustav was, like most industrialists, a conservative nationalist; Alfred Hugenberg was the chairman of the company’s supervisory board from 1909 on, and the two men shared many of the same views. A paternalist who supplied his workers with housing, welfare and other benefits in return for their agreement not to join trade unions or engage in political activity, Gustav thought the state should behave in much the same way, looking after the masses so long as it retained their loyalty. This became more difficult for the firm during the postwar inflation and even more so during the French occupation of 1923, during which Gustav was imprisoned for seven months for allegedly encouraging German resistance. However, the company survived, reorienting itself successfully towards peacetime production until it was hit by the world economic crisis in 1929. By 1933 its output of steel and coal had virtually halved since 1927, and its workforce at Essen had been reduced from 49,000 to little over 28,000.121

  These events did not turn Gustav Krupp into a supporter of Nazism. On the contrary, he regarded its demagogy with considerable distaste, preferring to lend his support to the radical-conservative government of Franz von Papen. Krupp’s importance was enhanced by his position as head of the Reich Association of German Industry, the national organization of employers, on behalf of whom he lobbied against the idea of autarky and promoted the idea of a strong state which would repress the unions, cut welfare expenditure, and provide the political stability necessary for a recovery of the economy. Like many others, he did not at first see Hitler’s appointment as Reich Chancellor on 30 January 1933 as much more than the creation of yet another short-lived Weimar government. In the subsequent election campaign he gave funds to Papen and the German People’s Party in the forlorn hope of a conservative victory. Under pressure from Thyssen and other supporters of the new regime, he was forced to agree to the ‘co-ordination’ of the Reich Association. When Paul Silverberg, a Cologne industrialist and one of the Association’s most prominent figures, was deprived of his positions in 1933 and forced into exile because he was Jewish, Krupp made a point of going to visit him in his new Swiss home. He did not join the Nazi Party in its first years of rule, and although he became director of the ‘Adolf-Hitler Donation from the German Economy’, which regularly supplied the Nazi Party with large sums of money from June 1933 onwards, this was not least undertaken in order to fend off the numerous and rapacious demands made to industrialists and employers for ad hoc donations by Regional Leaders, brownshirt gangs and local Party officials. A visitor who met Krupp in Berlin towards the end of 1934 found him in despair at the arbitrary nature of Party rule. ‘Believe me’, he said, ‘we are worse off here than the natives in Timbuctoo.’122

  Nevertheless, Krupp on balance was not dissatisfied with the Third Reich in the early years of its rule. He was reassured by the presence in government of men like Papen and Schacht, the continuing domination of the armed forces by officers like Blomber
g and Fritsch, the relatively orthodox financial policies pursued by the Economics Ministry, and above all the swelling order books that resulted in a virtual doubling of Krupp’s profits by 1935 and an increase in the workforce at Essen from 26,360 at the beginning of October 1932 to 51,801 two years later. Before long, however, Krupp began to find that the new regime did not allow his company the freedom of action he wanted for it. An important part of the firm’s growth lay in exports, including major arms contracts in Turkey and Latin America, and Krupp was sufficiently concerned about the regime’s growing drive for autarky to speak out against it in public in 1935. He continued to maintain a mixed portfolio of products, in which armaments were only part of a wider whole. From 1937 he began to become alarmed at the Four-Year Plan’s downgrading of basic heavy industry, its hostility to international trade and its promotion of state ownership, above all in the Reich Works. The growth in the firm’s profits had slowed down considerably. The independence Krupp had sought for his business had become severely restricted by the regime’s manic concentration on preparations for a European war, in which the Krupp firm’s name marked it out for a significant part. The government provided it with interest-free loans to expand capacity, but only at the price of putting the state in charge of determining what it was used for. Things had not turned out at all as Krupp had hoped, and already in 1937 he was beginning to put his business in the hands of younger men who, he hoped, would press his company’s interests more aggressively than he himself now felt able to do. In 1941 he suffered the first of a series of strokes that forced him to relinquish his part in the business altogether. Incapacitated, he lived on until 1950, largely oblivious of what was going on around him.123

  Ostensibly, a concern like I.G. Farben, whose products were at the centre of the regime’s plans for an autarkic economy, was better placed to profit from the Third Reich. From 1933 onwards its influence on the formation and implementation of government economic policy in this area grew rapidly. The concern began preparing for war as early as 5 September 1935, when it established an Army Liaison Office to co-ordinate preparation for a war economy. Yet the combine’s role should not be exaggerated, for its share of expenditure under the Plan amounted in all to no more than a quarter, and the share of the chemical industry in the German economy overall did not markedly increase under the Third Reich. Metal processing, iron, steel and mining were always more central to the rearmament programme. At the same time, I.G. Farben was forced to reorient its own production increasingly to meet the military demands of the regime. Complex and seemingly interminable negotiations over the financial conditions under which the combine would produce the much-desired buna (synthetic rubber) illustrated only too clearly the gulf between the primacy business placed on profits and the disregard the Four-Year Plan had for anything except accelerating rearmament and the drive towards autarky. I.G. Farben dragged its feet in the process because of its concern to minimize costs. By the autumn of 1939, national output of buna was only just in excess of two-thirds of the targeted 30,000 tons, while production and stockpiles of rubber in September 1939 were only sufficient for two months of warfare.124 Such caution ensured that the giant combine did well out of the Four-Year Plan, though growth rates were still slower than they had been in the initial years of recovery. From 1933 to 1936, net profits grew by 91 per cent, and between 1936 and 1939 by another 71 per cent. The five most important branches of the combine under the Plan - fuel oil, metal, rubber, plastics and nitrogen for explosives - increased their share in I.G. Farben’s turnover from 28 per cent in 1936 to almost 33 per cent in 1939; during this period they accounted for more than 40 per cent of the combine’s sales. But the contribution made to the total turnover of I.G. Farben by product lines fostered by the Four-Year Plan only grew from 28.4 per cent in 1936 to 32.4 per cent in 1939, and the combine in effect had to pay for the development of these products itself. Thus neither was the Plan mainly dependent on I.G. Farben, nor I.G. Farben on the Plan.125

  Big business undoubtedly benefited from rearmament and more generally from the economic recovery that occurred, partly in the natural form of the economic upswing that had already begun before the Nazis came to power, and then increasingly from the knock-on effects of rearmament for the rest of the economy. The financial policies pursued by Schacht were bold and ingenious but in the end financially relatively orthodox. By 1938 they had run their course, and the regime, running up against the limits imposed on rearmament by the profit motive that was always the central feature of free enterprise, began to take matters into its own hands. Hitler’s unrelenting drive to rearm had already brought vastly increased interference by the regime in the economy with the Four-Year Plan. By 1938 the Nazi Party and various affiliated organizations such as the Labour Front, under Hitler’s direction, were creating huge economic enterprises that aimed to bypass conventional capitalist operations in the pursuit of the regime’s power-political goals. The automobile industry was to be outflanked by the Volkswagen company; iron and steel by the Hermann Göring Works. A rapidly swelling flood of laws and regulations aimed at setting limits on prices, forcing the rationalization of businesses, diverting investment into war-related branches, imposing production quotas, steering foreign trade, and much more.

  Promises made in the Party programme and subsequently to nationalize the banks and stock exchanges of Germany had quietly been forgotten as the realities of the financial world became clear to Hitler and his lieutenants. They needed money, and banks were needed to supply it.126 Nevertheless, here too the regime gradually imposed tighter and more comprehensive controls on financial institutions in order to steer capital into the rearmament programme. By 1939 a series of laws on credit, mortages, loans and banks had ensured that freedom to invest in anything apart from rearmament had been severely curbed.127 Businessmen spent increasing amounts of time dealing with the mass of regulations and requirements imposed on them by the state. These involved increasingly detailed interference in production and trade. On 2 March 1939, for instance, Colonel von Schell, Plenipotentiary for the Automobile Industry, issued a series of orders restricting the number of different models that could be manufactured. Thus the production of spare parts could be rationalized and made less expensive, and military vehicles could be repaired more quickly and efficiently. Instead of 113 different kinds of truck and van, for example, only nineteen were allowed to be manufactured in future, and by specifically nominated companies. ‘Private property has remained in industry, to be sure,’ concluded a critical observer, but very little initiative remained ‘for entrepreneurial initiative, which is being pushed back by the power of the state in giving orders.’128 No wonder that some thought that the socialism in National Socialism was coming to the fore once more.

  ARYANIZING THE ECONOMY

  I

  ‘Socialism’ in the Nazis’ ideology had involved a real element of hostility to big business in the early 1920s, usually mixed with a strong dose of antisemitism. In the last years of the Weimar Republic, Hitler had done his best to play this down. What was left was, predictably, a continuing hatred of Jews’ role in the German economy, which the Nazis exaggerated for their own purposes. The economic history of the Third Reich is indeed inseparable from the history of the regime’s expropriation of the Jews, a vast campaign of plunder with few parallels in modern history. In keeping with those ideological imperatives, one of the prime targets of Nazi propaganda before 1933 had been the department store (Warenhaus ), where since the late nineteenth century people had been able to go to buy cheap, mass-produced goods of all kinds. Many of the founders of such stores were Jewish, reflecting perhaps the existing concentration of Jews in drapery and similar branches of the retailing trade.

  The most famous of these enterprises had been founded by members of the Wertheim family after 1875, when Ida and Abraham Wertheim opened a small shop in Stralsund selling clothes and manufactured goods. Soon their five sons joined them, and introduced a new system of retailing based on high turnover, l
ow profit margins, fixed prices for goods, a broad selection of merchandise, a right to return or exchange goods and payment strictly in cash. The firm grew quickly, and in 1893-4 it constructed a large new building on the Oranienstrasse in the Berlin district of Kreuzberg, followed by three more stores in the capital. Wertheim offered a new concept of shopping, in bright, airy and well-designed stores with helpful shop assistants and a mixture of cheap and luxury goods to encourage impulse buying. It also displayed an advanced attitude towards labour relations and employee welfare; the company was the first in Germany, for example, to make Sunday a compulsory rest day for all those who worked for it. The Wertheims were not the only Jewish family to found a chain of department stores; in 1882, for instance, Hermann Tietz and his nephew Oscar founded a small shop in Gera, on similar principles. This too flourished, and by 1930 the Tietzes owned fifty-eight department stores, including the famous KaDeWe (Kaufhaus des Westens, or Department Store of the West) in Berlin. Compared to the annual sales of the Tietz stores, which stood at 490 million Reichsmarks in 1928, and their massive workforce of more than 31,450 employees, Wertheim by this stage, with a mere seven stores and 10,450 employees and sales of 128 million Reichsmarks, was a relatively modest enterprise. 129

  Despite their popularity, these department stores accounted for less than 5 per cent of total retail sales in Germany up to the late 1920s.130 Antisemitic attacks on them remained muted before 1914, even among small retailers’ associations.131 This situation changed with the economic problems of the early Weimar Years. Point 16 of the Nazi Party programme appealed directly to small shopkeepers in 1920 when it demanded the ‘immediate nationalization of the big department stores and their renting out at low prices to small businessmen’.132 In 1932, a local election pamphlet in Lower Saxony urged retailers and small tradesmen to join the Party to oppose the opening of new branches of ‘the vampire business’ of Woolworth’s, which would supposedly ruin them in the name of ‘finance capital’.133 In March 1933 stormtroopers broke into a branch of Woolworth’s in Gotha and trashed the entire store; violent attacks were launched on a number of department stores irrespective of their ownership. In Braunschweig the restaurant in a local department store was shot to pieces by brownshirts armed with pistols. Less dramatically, there were many demands in the first months of the Third Reich to close down the department stores or tax them out of existence. But the Ministry of Economics and the Nazi leadership quickly realized that closing down enterprises that employed so many scores of thousands of people would seriously damage the ‘battle for work’. Hess stepped in to protect the department stores, and the nationwide boycott of Jewish-owned shops on 1 April 1933 had no impact beyond the day itself.134