The Economics of War
The German Economy, 1938-1945
Much like the American experience in the 19th century, Germany ultimately lost WWII due to it’s depletion of natural resources, labor and manufacturing. An ironic twist: German military commanders had studied the tactics of the Confederate military, but ignored it’s strategic shortcomings.
The 1939 military German machine appeared impregnable. Overconfident and recklessly ambitious, Hitlers most serious problem lay in the economics of war. In the long run, he lacked sufficient resource planing to sustain his delusional world conquest. Nevertheless, he asserted that he would lead Germany on a thousand year reign.
Nazi propaganda programs exaggerated the military firepower to the nation. Parades and military exhibitions were a frequent occurrence in the late 1930’s. Because of this over-inflated image of their relatively small air force and naval fleet, very few actually doubted Hitler’s totally erroneous assertion that he had spent 90 billion Reichsmarks in military rearmament prior to September, 1939.
After the highly successful military campaigns into Poland and Western Europe, it must have appeared that Hitler’s Blitzkrieg strategy was nothing short of invincible. This illusion of omnipotent power, led to a fatally complacent sense of security. Sustained success was illusionary.
Germany had stockpiled sufficient quantities of armaments for their Blitzkrieg purposes, but had a very low potential to replace that equipment in the event of a prolonged war. They had forgone the investment necessary to produce high levels of armaments in sufficient amounts to compete with the greater mass-producing powers. They had a high degree of armament readiness, but a low degree of armament producing potential. Many military officers recognized this problem, among them General Georg Thomas was the most outspoken:
“An all out preparation for war is impossible.1 The unforeseeable duration of the war, the exorbitant cost of such an armaments, effort, and the danger of the equipment becoming obsolete or lost are the chief reasons for this”.2
Thomas argued repeatedly in memorandum that drastic reforms should be taken since, in his opinion, Germany was not arming for the right sort of war. By contrast, Bormann and the Gauluters, were resistant to the idea of preparing for “total war” and were only converted when it was too late.
Contrary to popular opinion, Germany’s production of consumer goods was extremely well sustained throughout the war years. In 1938, when one would expect a high degree of priority placed on rearmament, only 18.1% of her total gross national product was made available for military expenditures.
Government expenditure on defense as% of total expenditure3 and of gross national product, 1933-38
||% of Expenditures
||% of GNP
This policy surely created a very comfortable political climate for the third Reich. It seemed that Germany could have its cake and eat it too. However, even though the economy adapted remarkably well, in the final analysis, it was probably a very crucial element in deciding the fate of World War II. Due to the initial economic commitment of armament production in “width”, as opposed to production in “depth”, the German war offensive was quite unprepared when the bitter Russian winter of 1941-42, forced the Nazis into a situation at Rostov they had hitherto not encountered – retreat and retrenchment; a war of attrition. Ironically, on the eve of the Russian invasion the decision was taken to reduce the level of armaments production.
Even though Germany’s economic machinery was amazingly rapid in converting its strategy towards a full war economy*, the time, energy and effort wasted, was undoubtedly costly to the total war effort. While valuable time was lost in converting German’s industry to produce armaments at high volume levels, the British by contrast, were making crucial advances in their maximum output capacity of weapons. While Germany had committed only £ 1,710,000 worth of military investment in 1938, the United Kingdom had expended £ 358,000,000 out of a gross national product of £ 5,242,000,000.4 While Hitler was pursuing his policy of “guns and butter”, the British had made the necessary expenditures to narrow the Nazis initial superiority gap (i.e. at the beginning of the war, German and British production of aircraft were running at about the same level, however, in Britain tanks were being produced in greater quantities, even though Germany had more tanks).
*In between February and July of 1942, administrative reforms led by Fritz Todt achieved an armament production of over 55%. Ironically, he was killed in an air crash that February.
“From 1936 onward German armaments production was probably at a higher rate, and also qualitatively more modern, than that of the other powers, until the later months of 1939 when Britain caught up with German monthly totals in many important fields (this statement does not apply to Russian production, the levels of which remain unknown)”. 5
Germany did have the advantage of having gained considerable lead time, since they had been committed to a policy of rearmament much longer. But, in 1939, Germany had not yet pledged itself to the economic commitment that would eventually be necessary – the British of course, had.
Hitler’s strategy of fighting short intensive battles worked fine, because armament production could be collated from one type of machinery to another. When planes were in greatest demand, tank production would be throttled back and vice-versa. This could of course, work only with a commitment to a single front war. The Rostov retrenchment consigned Hitler to a struggle on two fronts. One required tanks and artillery, the other necessitated ships and aircraft. This to Blitzkrieg, became impossible. Even in light of this perilous situation, it is evident that the economic machinery was not geared high enough toward maximum armament production.
Astoundingly, in 1944, when armament production was at such a high volume level, the German economy was still not totally committed to the production of weapons. The production of certain consumer goods actually increased between 1943 and 1944. On October 6, 1943, Hitler’s chief economic planner, Albert Speer, addressed this issue to an economic planning committee at Posen:
“For example, we still produce in a year 120,000 typewriters, 13,000 duplicating machines, 50,000 address machines, 30,000 calculating machines and accounting machines, 200,000 wireless receivers, 150,000 electrical bedwarmers, 3,600 electrical refrigerators, and 300,000 electricity meters”.6
Ironically some of the most wasteful expenditure of mass producing resources actually went to the armed forces themselves. The Wehrmacht procurement officers were undoubtedly given considerable latitude in their purchasing decisions. Consequently, a large supply of non-essential luxury items depleted vital resources because of the high demand for officers’ watches, production in that industry nearly regained its peacetime level.
“At present there are still being made for the Wehrmacht 512,000 pair of riding boots a year, 312,000 pairs of officers’ boots a year, 360,000 service bags for women signal assistants, 364,000 spur straps, 250,000 rucksacks … I really don’t know what they use them for. The Wehrmacht needs 440 million of the total yearly new production of bottles of 739 millions. The Wehrmacht needs 620,000 of the new production of closets which reaches a figure of one million yearly. Out of the production of stamping surfaces for ink pads the Wehrmacht needs 6,200,000. The scissors production is reserved entirely for the Wehrmacht, they receive 4,400,000 a year”.7
In 1943 Germany, when production of wall paper was running at 12,000 tons, and 4,800 tons of hair tonic were being produced, the Navy had a demand for 50,000 officer daggers rejected.
Eventually reforms were undertaken by Albert Speer & Co., to eliminate much of the inessential production of such goods. Speer’s greatest achievement was in reducing the consumer good production in the textile industry, and the subsequent conversion of that floor space for the other more essential purposes. Much of the curtailment can also be attributed to allied bombing and raw good shortages.
The Germans were haunted again and again by the bottlenecks in production resulting from problems they should have expected. The three most common causes of low production output were: insufficient production of high grade steels; difficulty of procuring supplies of components and shortages of skilled labor.
In general, German production of steel was high, but was mostly geared toward development of low grade types. In February, 1942, the increasing demand for high grade forged pieces and drawn tubing far surpassed the available supply. Again, the problem resulted from insufficient investment in the industry before the war. By the time the Germans realized this problem, it was of course, too late.
Procurement of small components was hampered by the geographies of that industry. There were many low volume producers scattered about the countryside. As transportation problems were exacerbated by fuel shortages, this became a very serious problem.
“The party however, was a victim of its own propaganda which had insisted that a woman’s place was in the home”.
One of the most serious bottlenecks, and one of the most ironic were the labor shortages. As early as 1937, German factories experienced shortages of skilled labor. Most of the factories lost their most highly skilled workers to the draft. Often apprentices would be called on as soon as their training was over. Even more serious, was the consumption of supervisors and foremen, which were vital components in the development of shift-working. Local shortages of unskilled workers could have been avoided by employing more women. The party however, was a victim of its own propaganda which had insisted that a woman’s place was in the home. It was Hitler’s philosophy that this activity would be biologically harmful to the race.8 In 1942, Speer calculated that at least 80,000 women had left the industry since July, 1939.9
The serious void of labor created by constriction of laborers could have probably been offset by many resources in occupied territories, the “new orders” economic policy of “rape and pillage”, was a common method of procedure in German occupations. Certainly the civilian population of such territories might have been more efficiently utilized in supplying vitally needed goods and services.
“In most captured territories consumer goods factories were already working half-time, owing to the inability to obtain raw material. This under-employment could be eliminated if fuel and raw materials were transported for industrial production to places with good lines of communication with the Reich. At the moment transport was being devoted to carrying people into Germany to work in German factories where they deliberately worked badly”.10
Certainly the Jewish concentration camps might have been utilized for more constructive purposes. If the SS would have relinquished its overabundant supply of labor to the Speer ministry, many economic problems would have not developed, and many lives would have been sustained. This of course is the paradox of Hitler’s inhalation program.
With the availability of an overabundant supply of labor, the SS developed an economic empire that encompassed more than forty undertakings with about 150 firms.11 Ironically, most of these operations were devoted to production of consumer goods (i.e. foodstuffs, minerals, water, textiles, furniture, pottery, etc.). Although several conversions were made to armament production, by February, 1944, the SS was still largely employing people in consumer goods production.
Certainly there can be many explanations as to the single most contributing weakness that facilitated the collapse of the 1945 German Empire. Allied bombing is thought to be one of the most debilitating elements. But when you analyze the situation closely, bombing was just a symptom of a larger disease. The eccentricity displayed by Gorings decision not to build more defensive aircraft, when it was obvious that the Germany situation was rapidly deteriorating into defensive war, illustrates the incompetence of many high level officials in the Nazi organization. Surely this was the single largest liability to Germany.
“Speer calculated that between January and May, 1945, he committed about sixty separate acts of high treason”.12
Probably the only lucid mind in the Reich hierarchy was Albert Speer. Surely, if it were not for Speer’s efforts towards adopting Germany’s economic machinery to better deal with a “total war” situation, the third Reich would have imploded much sooner than it did. Speer’s position in the party represented at least some rational influence over policy decisions. In the last days of the war, Speer prevented much of the “economic suicide”* policy that Hitler had decreed. Speer calculated that between January and May, 1945, he committed about sixty separate acts of high treason.12
* The Fuhrer-Command of March 19, (Zerstorung) charged total destruction of economic life. This primarily emphasized the demolition of all factories and power plants.
It is almost incomprehensible that so many incompetent German radicals could have attained the prominence and political power that they did. It is chillingly terrifying that in the twentieth century, a country could be so hungry for leadership, that they would consign it lock, stock and barrel over to an eccentric dictatorship.
Reichstagsgebäude – Wikipedia
To quote Albert Einstein: “The world is not made evil by those that commit such acts, but by those that allow such occurrences to take place.”
– Economics Report • Bob Henderson • Belmont College 1981
1. Address by A. Hitler before the Reichstag, 1 September 1939, J. W. occurrences, “Documentary Background of World War II, 1931-41”, p.713.
2. FD 4457/45 HWA, p.4.
3. Extracted from S. Andic and J. Veverka, Op. Cit., Table A. 21.
4. W. K. Hancock and M. M. Gowing, “British War Economy”, pp.19-20.
5. A. S. Milward, “The German Economy at War”, p.15.
6. FD 3353/45 Vol.81, “Rede Reichsministers Speer”, 6 October 1943, p.11.
7.FD 1434/46 (no.168), OKW/Wiruamt.
8. FD 1434/46 (no.167), Wiruarnt.
9. Idid. , p. 2 .
10. A. S. Milward, “The German Economy at War”, p.80.
11. E. George, “Die Wirtshaftliche Unternehmungen Der SS”. 12. Speer Report no.7, p.11.