Monday, July 05, 2004

The economy of Nazi Germany

Were the Nazis socialists and was the economic system of Nazi Germany more socialistic than capitalisitc?

Of course many people say: no, Hitler was on the "rigth", and the line of argument is usually that he fought the communists, was a racist and did not nationalise "the means of production". The material below is informative in that discussion, although there is no right aswer to the question if Hitler was a 'real" socialist.

The main problem in determening if Hitler was a socialist is that the concept of socialism not so easy to define."Socialism" is kind of a phantom concept, as is evident in an debate on the subject when the claim that the Soviet system was indeed not a true socialist system always seems to pop up. If one goes further and analyses socialistic governments and movements around the world, then it is evident that there is a great difference among the various socialistic movements. Nationalism, racism and private enterprise is found in "socialistic" systems all around the world.

It is therefore it is evident that shallow people can get lost in discussions on socialism and clever people can always find all kinds of exceptions to furhter their ideological cause.

It is my opinion that Nazi Germany was indeed "less socialistic" than the Soviet (although equally or more socialist than many other socialistic states). The ideas of class struggle were not a central to the Nazi ideology nor did they have much of the industry in private hands and formally recognized porperty rights. As is quite evident below, the Nazis had a tight grip on the industry and centrally directed the production toward the "war industry".

"Industrialists were visited by state auditors who had strict orders to examine the balance sheets and all bookkeeping entries of the company or individual businessmen for the preceding two, three, or more years until some error or false entry was found," explains Reimann. "The slightest formal mistake was punished with tremendous penalties. A fine of millions of marks was imposed for a single bookkeeping error."
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While state representatives are busily engaged in investigating and interfering, our agents and salesmen are handicapped because they never know whether or not a sale at a higher price will mean denunciation as a 'profiteer' or 'saboteur,' followed by a prison sentence. You cannot imagine how taxation has increased. Yet everyone is afraid to complain. Everywhere there is a growing undercurrent of bitterness. Everyone has his doubts about the system, unless he is very young, very stupid, or is bound to it by the privileges he enjoys." - Ralph R. Reiland, citing from the book "The Vampire Economy: Doing Business Under Fascism" by Guenter Reimann

"Most cruel joke of all, however, has been played by Hitler & Co. on those German capitalists and small businessmen who once backed National Socialism as a means of saving Germany's bourgeois economic structure from radicalism. The Nazi credo that the individual belongs to the state also applies to business. Some businesses have been confiscated outright, on other what amounts to a capital tax has been levied. Profits have been strictly controlled. Some idea of the increasing Governmental control and interference in business could be deduced from the fact that 80% of all building and 50% of all industrial orders in Germany originated last year with the Government. Hard-pressed for food- stuffs as well as funds, the Nazi regime has taken over large estates and in many instances collectivized agriculture, a procedure fundamentally similar to Russian Communism." - Time Magazine; Jaunuary 2, 1938

"Between 1933 and 1936 the German GNP increased by an average annual rate of 9.5 percent, and the annual production index for industry and crafts rose by 17.2 percent. The principal source of this growth, which propelled the German economy out of a deep depression into full employment within less than four years, was increased demand by the Public sector, defined by German economists of the period as Staatskonjunktur (state prosperity). The average annual growth of public consumption during these four years was 18.7 percent, while private consumption rose only by 3.6 percent annually. These data alone already show that the Nazis overcame unemployment primarily through government-initiated public works and/or orders by the government and other public-sector authorities.
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In March 1937 a special law authorised the RNS (Reichsnährstand; Ríkis-stofnun sem sá um að miðla matvælum frá framleiðendum til seljanda) to determine what crops were to be grown in order to increase the output of scarce produce, in particular vegetable fats. In July of the same year peasants were ordered to hand over all wheat and rye harvests to official purchase agencies, while the feeding of these grains to livestock was strictly forbidden. From August 1938 grains were stockpiled in specially requisitioned gymnasiums and dance halls.
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Another campaign, accompanied by a clamorous propaganda drive, pursued an entirely different aim. In May 1938, with a great deal of publicity, Hitler laid the cornerstone for the plant that was to produce the popular Volkswagen. Even before the ceremony numerous Germans had begun to pay savings-installments toward future purchase of such a car. It is reasonable to assume that at the time, with accelerating war preparations, no one seriously intended to begin production of such cars in the foreseeable future. Instead, it was a measure directed toward the withdrawal of disposable income from the public, whose earnings had grown throughout the period of prosperity, wage restrictions notwithstanding. Hitler himself mentioned the issue in his foundation ceremony speech: 'If the German people spend all their wages on consumer goods, we cannot ... produce without limits, it will cause disaster. It is therefore vital to guide the purchasing power of the German people in other directions.' In this case the direction was toward recruiting savings for armaments, with an additional incentive to work overtime in order to realise the dream of owning a car. By the end of March 170,000 savers had deposited the sum of 110 million reichsmarks in the Volkswagen account for the popular model. However, when the plant began operating, it produced military vehicles and aircraft parts exclusively. Ferdinand Porsche's clever invention, the horizontal 'boxer engine,' achieved recognition and was mass-produced only some years after the war had ended. (actually the boxer engine was mass-produced during the war but only in war-machines like the famous Kubelwagen)" - A. Barkai, Ideology and the Economy, Implemented Policies (1990)

"Our socialism is no utopia, alienated from the real world, but natural life, full of pulsating blood ... the sole egalitarian economic demand it grants all the people is the right to work." - Otto Dietrich, Hitler's Press Secretary, Das Wirtschaftsdenken im Dritten Reich (1937)

"But industrial leadership, under the Nazis, differed from the Weimar model in certain respects. Commercial capital was no longer represented. In other words, free trade did not exist. Commercial capital had lost its predominant position, and heavy industry was restricted to some degree-at least to the extent that it could not interfere with the overall objectives of the regime in foreign and domestic policy. So, industrial leadership, under the Nazi regime, was smaller and much more integrated than it had been in the Weimar period. In a sense, the whole Nazi economy was under the rule of certain monopoly producers, who made a deal with the political rulers. Although, I hasten to add, that this does not mean that the Marxists are right in saying that the Nazi party represented a capitalist plot to save itself from disintegration. The Nazi movement was much more than a mere salvage operation of monopoly capitalism. Hitler used the capitalists as much as they used him." - Professor Gerhard Rempel, The Political System of the Third Reich

"Darre wished to "reform" the production and marketing of food and to raise prices for farmers. Darre's entire program was designed with one objective in mind: to insulate the peasant farmer from the market. To this end, Darre issued the Hereditary Farm Law in 1933, which had the purpose of preventing foreclosure on or the sale of farmland-at the expense of the peasant farmers` liberty. This "law" established that only Aryan Germans who could prove the purity of their bloodline back to 1800 could own a farm.
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In 1936, Göring's Four Year Plan was inaugurated. This made Göring, who was almost as ignorant about economics as Hitler, Germany's economic dictator. In the drive for a total war economy, protectionism was decreed and autarchy the desire-the so-called "Battle of Production." Consumer imports were nearly eliminated, price and wage controls were enacted, and vast state projects were built to manufacture raw materials.
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Businessmen and entrepreneurs were smothered by red tape, were told by the state what they could produce and how much and at what price, burdened by taxation, and were forced to make "special contributions" to the party. Corporations below a capitalization of $40,000 were dissolved and the founding of any below a capitalization of $2,000,000 was forbidden, which wiped out a fifth of all German businesses.

The cartelization of industry-which began before the Nazi regime-was made compulsory, and the Ministry of Economics was empowered to form new compulsory cartels or to force firms to join existing ones. The maze of business and trade associations created to lobby the Weimar Republic for various considerations in the law were nationalized and made compulsory for all businesses.
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Then, in February 1935 all employment came under the exclusive control of government employment offices which determined who would work where and for how much. And on June 22, 1938, the Office of the Four Year Plan instituted guaranteed employment by conscripting labor. Every German worker was assigned a position from which he could not be released by the employer, nor could he switch jobs, without permission of the government employment office. Worker absenteeism was met with fines or imprisonment-all in the name of job security. A popular Nazi slogan at the time was "the Common Interest before Self"!
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Social life too, was centralized by the Reich. Under the organization "Strength through Joy," the leisure time of the people was regimented. No organized social, sport or recreational groups-from chess and soccer clubs to bird-watching, to adult education, to the theatre, opera, and music concerts-were allowed to function without the oversight of the state. Besides the social costs of not trusting people to be able to look after themselves, there were the enormous costs of this vast bureaucracy that policed the private activities of the citizens." - Adam Young, Nazism is Socialism

"The German and the Russian systems of socialism have in com­mon the fact that the government has full control of the means of production. It decides what shall be produced and how. It allots to each individual a share of consumer's goods for his consumption. These systems would not have to be called socialist if it were other­wise.
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The German pattern differs from the Russian one in that it (seemingly and nominally) maintains private ownership of the means of production and keeps the appearance of ordinary prices, wages, and markets. There are, however, no longer entrepreneurs but only shop managers (Betriebsführer). These shop managers do the buying and selling, pay the workers, contract debts, and pay interest and amortization. There is no labor market; wages and salaries are fixed by the government. The government tells the shop managers what and how to produce, at what prices and from whom to buy, at what prices and to whom to sell. The government decrees to whom and under what terms the capitalists must entrust their funds and where and at what wages laborers must work. Market exchange is only a sham. All the prices, wages, and interest rates are fixed by the central authority. They are prices, wages, and inter­est rates in appearance only; in reality they are merely determina­tions of quantity relations in the government's orders. The gov­ernment, not the consumers, directs production. This is socialism in the outward guise of capitalism. Some labels of capitalistic market economy are retained but they mean something entirely different from what they mean in a genuine market economy." - Omnipotent Government by Ludwig von Mises

"Before Hitler came to power, Chancellor Brüning again introduced price control in Germany for the usual reasons. Hitler enforced it, even before the war started. For in Hitler’s Germany there was no private enterprise or private initiative. In Hitler’s Germany there was a system of socialism which differed from the Russian sys tem only to the extent that the terminology and labels of the free economic system were still retained. There still existed 50 Economic Policy “private enterprises,” as they were called. But the owner was no longer an entrepreneur, the owner was called a “shop manager” (Betriebsführer).
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The whole of Germany was organized in a hierarchy of führers; there was the Highest Führer, Hitler of course, and then there were führers down to the many hierarchies of smaller führers. And the head of an enterprise was the Betriebsführer. And the workers of the enterprise were named by a word that, in the Middle Ages, had signified the retinue of a feudal lord: the Gefolgschaft. And all of these people had to obey the orders issued by an institution which had a terribly long name:Reichsführerwirtschaftsministerium (Führer of the Reich’s, i.e., the empire’s, Ministry of Economics), at the head of which was the well-known fat man, named Goering, adorned with jewelry and medals.
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And from this body of ministers with the long name came all the orders to every enterprise: what to produce, in what quantity, where to get the raw materials and what to pay for them, to whom to sell the products and at what prices to sell them. The workers got the order to work in a definite factory, and they received wages which the government decreed. The whole economic system was now regulated in every detail by the government.
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The Betriebsführer did not have the right to take the profits for himself; he received what amounted to a salary, and if he wanted to get more he would, for example, say: “I am very sick, I need an operation immediately, and the operation will cost 500 Marks,” then he had to ask the führer of the district (the Gauführer or Gauleiter) whether he had the right to take out more than the salary which was given to him. The prices were no longer prices, the wages were no longer wages, they were all quantitative terms in a system of socialism." - Ludvig von Mises, ECONOMIC POLICY. Thoughts for Today and Tomorrow. 1979

"When in power Hitler also implemented a quite socialist programme. Like F.D. Roosevelt, he provided employment by a much expanded programme of public works (including roadworks) and his Kraft durch Freude ("power through joy") movement was notable for such benefits as providing workers with subsidized holidays at a standard that only the rich could formerly afford. And while Hitler did not nationalize all industry, there was extensive compulsory reorganization of it and tight party control over it. It might be noted that even in the post-war Communist bloc there was never total nationalization of industry. In fact, in Poland, most agriculture always remained in private hands.
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There always remained, however, one essential difference between Nazi and Communist ideology: Their responses to social class. Stalin preached class war and glorified class consciousness whereas Hitler wanted to abolish social classes and root out class-consciousness. Both leaders, as socialists, saw class inequality as a problem but their solutions to it differed radically. The great Nazi slogan Ein Reich, ein Volk, ein Fuehrer ("One State, one people, one leader") summed this up. Hitler wanted unity among Germans, not class antagonisms. He wanted loyalty to himself and to Germany as a whole, not loyalty to any class. Stalin wanted to unite the workers. Hitler wanted to unite ALL Germans. Stalin openly voiced his hatred of a large part of his own population; Hitler professed to love all Germans regardless of class (except for the Jews, of course). This was indeed a fundamental difference and substantially accounts both for Hitler's unwavering contempt for Bolshevism and his popularity among all classes of Germans.
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Hitler was, however, more Rightist than Stalin in the sense that, as a popular leader, he did not need to resort to extreme forms of oppressive control over his people (Unger, 1965). German primary and secondary industry did not need to be nationalized because they largely did Hitler's bidding willingly. State control was indeed exercised over German industry but it was done without formally altering its ownership and without substantially alienating or killing its professional managers.

The contempt that Hitler had for Stalin and for "Bolshevism" generally should also not mislead us in assessing the similarity between Nazism and Communism. Leftist sects are very prone to rivalry, dissension, schism and hatred of one-another. One has only to think of the Bolsheviks versus the Mensheviks, Stalin versus Trotsky, China versus the Soviet Union, China "teaching Vietnam a lesson", the Vietnamese suppression of the Khmer Rouge etc. Similarity does not preclude rivalry and in the end it was mainly competition for power that set Hitler and Stalin on a collision course.
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Hitler was not however original in being both a socialist and a nationalist. The Italian nationalist leader, Mussolini, came to power much before Hitler but was in fact even more Leftist than Hitler. Although generally regarded as the founder of Fascism, in his early years Mussolini was one of Italy's leading Marxist theoreticians. He was even an intimate of Lenin. He first received his well-known appellation of Il Duce ("the leader") while he was still a member of Italy's "Socialist" (Marxist) party and, although he had long been involved in democratic politics, he gained power by essentially revolutionary means (the march on Rome). Even after he had gained power, railing against "plutocrats" remained one of his favourite rhetorical ploys. He was, however, an instinctive Italian patriot and very early on added a nationalistic appeal to his message, thus being the first major figure to add the attraction of nationalism to the attraction of socialism. He was the first socialist to learn the lesson that Hitler and Stalin after him used to such "good" effect." - John J. Ray. Hitler was a Socialist.

"It is a common mistake to regard National Socialism as a mere revolt against reason, an irrational movement without intellectual background. If that were so, the movement would be much less dangerous than it is. But nothing could be further from the truth or more misleading. The doctrines of National Socialism are the culmination of a long evolution of thought, a process in which thinkers have had great influence far beyond the confines of Germany have taken part. Whatever one may think of the premises from which they started, it cannot be denied that the men who produced the new doctrines were powerful writers who left the impress of their ideas on the whole of European thought. Their system was developed with ruthless consistency. Once one accepts the premises from which it starts, there is no escape from its logic. It is simply collectivism freed from all traces of an individualist tradition which might hamper its realization." - Friedrich Hayek. The Road to Serfdom: The Socialist Roots of Naziism

"Like most other economies, Germany's economy had hit bottom in 1932. Under Hitler, the strategy for recovery was largely the work of his economics minister, Hjalmar Schaact, traditionally a conservative but dynamic in thought. Schaact stopped the sending of German money out of Germany. He reduced foreign trade largely to barter agreements, and he put strict limits on imports -- all this to keep wealth within the country. Under Schaact, private industry was compelled to reinvest its profits in manufacturing approved by the state. And crucial to Germany's recovery was government spending, much of it on public works, the most visible of which was a new highway system -- the autobahn -- which the army wanted for more efficient movements within Germany. There was also an electrification program, and government investment in industry. One third of Germany's income had as its source government payments and investments -- almost three times the percentage being spent by the U.S. government. And, as in Sweden, the government debt that Schaact was creating was quickly offset by the recovery in revenues that came with the rise in the economy.

Wages and the standard of living remained relatively low for Germans, but the aim of the government was not public consumption but increased industrial production of non-consumer goods. Unemployment was falling, and business optimism returned. In 1935 compulsory labor service was introduced, and unemployment was reduced further as tax incentives were introduced to persuade women to leave the labor force, to return to what was considered traditional for German women: cooking, children and church attending (küche, kinder und kirche)." - Frank E. Smitha. World History.

"Walter Eucken was a professor of economics at the University of Freiburg, Germany and an architect of the economic reforms that led to the Economic Miracle. In this article Eucken wanted to explain the problems and weaknesses of centrally administered economies such as that of National Socialist (Nazi) Germany and the Soviet Union.

The Nazi economic system developed unintentionally. The initial objective in 1932-33 of its economic policy was just to reduce the high unemployment associated with the Great Depression. This involved public works, expansion of credit, easy monetary policy and manipulation of exchange rates. Generally Centrally Administered Economies (CAE's) have little trouble eliminating unemployment because they can create large public works projects and people are put to work regardless of whether or not their productivity exceeds their wage cost. Nazi Germany was successful in solving the unemployment problem, but after a few years the expansion of the money supply was threatening to create inflation.

The Nazi Government reacted to the threat of inflation by declaring a general price freeze in 1936. From that action the Nazi Government was driven to expand the role of the government in directing the economy and reducing the role played by market forces. Although private property was not nationalized, its use was more and more determined by the government rather than the owners.

Eucken uses the case of the leather industry. An individual leather factory produces at the direction of the Leather Control Office. This Control Office arranged for the factory to get the hides and other supplies it needed to produce leather. The output of leather was disposed of according to the dictates of the Leather Control Office. The Control Offices set their directives through a process involving four stages:
1. The collection of statistical information by a Statistical Section. The Statistical Section tried to assemble all the important data on past production, equipment, storage facilities and raw material requirements.
2. The planning of production taking into account the requirements of leather by other industries in their plans; e.g. the needs of the Shoe Control Office for supplies of leather. The available supply of hides limited the production of leather. There had to be a balancing of supply and demand. The result of the planning of all the control offices was a Balance Sheet. There was some effort at creating some system for solving the planning, such as production being limited by the narrowest bottleneck, but in practice the planning ended up being simply scaling up past production and planning figures.
3. The issuing of production orders to the individual factories.
4. Checking up on compliance with the planning orders." - Thayer Watkins. The Economy of Germany.

""The economic policies of the Nazis were designed to help the largest corporations in Germany, particularly ones where high-ranking Nazi official were majority shareholders. Small businesses and companies in non-essential industries were bought out, driven out of business or confiscated if the owners were enemies of the state such as Jews and Communists. Nazi-controlled corporations benefited because they both obtained the assets of the other companies and had fewer competitors as a result. The former owners of the small businesses, many of whom were highly skilled artisans, would then be forced to work for these large corporations in order to earn a living." - Review of "The Economics of Barbarism Hitler's New Economic Order in Europe". J. Kuczynski and M. Witt .

"By 1948 the German people had lived under price controls for 12 years. Adolf Hitler had imposed them on the German people in 1936 so that his government could buy war materials at artificially low prices. (Roosevelt and Churchill also imposed price controls.) In November 1945 the Allied Control Authority, formed by the governments of the United States, Britain, France, and the Soviet Union, agreed to keep Hitler's price controls in place." - The German Economic "Miracle" by David R. Henderson

"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 Goring'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." - Book review by Michael McMenamin; Hitler, 1889-1936, by Ian Kershaw

"The state did not own industry in Germany. It consequently needed to have a legal instrument with which to implement the plan. The Nazis signed long-term contracts with industry groups to buy their outputs at fixed prices. These contracts where nominally contracts expressing agreement between the two parties. But they were decidedly unequal. The Nazis viewed property as conditional on its use - not a fundamental right. If the property was not being used to further Nazi goals, it could be nationalized. Prof. Junkers of the Junkers aeroplanes factory refused to follow the government's bidding in 1934. The Nazis thereupon took over the plant, compensating the Junkers for his loss. This was the context other contracts were negotiated." - Soviet and Nazi economic planing in the 1930's. Peter Temin (pdf).




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