tooze nazis intro 2

Introduction
Reviewing the twentieth century, it is hard to escape the conclusion that two themes have dominated Germany’s history. On the one hand there is the pursuit of economic and technological progress, which for much of the century made Germany, along with the United States and latterly Japan, China and India, one of the largest economies in the world. On the other hand there is the pursuit of warfare on a hitherto unimagined scale.1
Germany was chiefly responsible for unleashing the first shattering World War of the twentieth century. It was solely responsible for the second. Furthermore, in the course of World War II Hitler and his regime extended the boundaries of war to include a wholesale campaign of genocide that stands unrivalled in its intensity, scope and deliberateness. After the second catastrophe of 1945, the occupying powers made sure to leave Germany with no choice. Though sport, technology, science and culture were gradually readmitted as fields of national and individual self-expression, and though German politics became more multi-dimensional from the late 1960s onwards, it was the depoliticized pursuit of material welfare that dominated national life, certainly in West Germany after 1945.2 By contrast, Germany’s first surrender, in 1918, was far less complete and the conclusions drawn both by Germans and their former opponents were correspondingly more ambiguous. One of the many extraordinary features of German politics in the aftermath of World War I is that throughout the existence of the Weimar Republic the German electorate faced a choice between a politics centred on the peaceful pursuit of national prosperity and a militant nationalism that more or less openly demanded a resumption of hostilities with France, Britain and the United States. Since most of this book will be taken up with a dissection of the way in which Hitler harnessed the German economy in pursuit of this latter option, it seems important to begin by clearly establishing the alternative against which his vision was framed and how that alternative was pushed out of view by the disastrous events leading up to Hitler’s seizure of power.
It would be wrong, of course, to deny that there are continuities that connect all sides in the strategic debate in Germany in the 1920s and 1930s to the imperialist legacy of the Wilhelmine era.3 Hostility towards the French and Poles and imperial designs on Germany’s neighbours both in the West and in the East were nothing new. However, an excessive stress on continuity obscures the transformative impact on German politics of the defeat of November 1918 and the traumatic crisis that followed. This agony reached its climax in 1923 when the French occupied the Ruhr, the industrial heart of the German economy. Over the following months, as Berlin sponsored a mass campaign of passive resistance, the country descended into hyperinflation and political disorder so severe that by the autumn of 1923 it called into question the survival of the German nation-state as such.4 Strategic debate in Germany was never the same again. On the one hand, the crisis of 1918–23 gave rise to an ultra-nationalism–in the form of the radical wing of the DNVP and Hitler’s Nazi party–that was more apocalyptic in its intensity than anything prior to 1914. On the other hand, it also produced a truly novel departure in German foreign and economic policy. This alternative to nationalist militancy also aimed to achieve a revision of the onerous terms of the Treaty of Versailles. But it aimed to do so not by gambling on military force. Instead, Weimar’s foreign policy prioritized the economy as the main field within which Germany could still exercise influence in the world. Above all, it sought security and leverage for Germany by developing financial connections with the United States and closer industrial integration with France. In certain key respects, this clearly anticipated the strategy pursued by West Germany after 1945. It was a policy that enjoyed the backing of all of the parties of the Weimar coalition–the Social Democrats, the left liberal DDP and the Catholic Centre party. But it was personified by Gustav Stresemann, leader of the national liberals, the DVP, and Germany’s Foreign Minister between 1923 and 1929.5
Four years after the stabilization of 1924, the general election of 20 May 1928 was the first occasion on which the entire electorate of Germany had the opportunity to give their verdict on the achievements of the Weimar Republic and Stresemann’s foreign policy. Gustav Stresemann chose to fight that general election in Bavaria. Munich, of course, was also one of the favourite stomping grounds of the NSDAP and as the leader of that fringe party, Hitler hoped to gain added attention by crossing swords with Stresemann. The voters of Bavaria were thus offered a dramatic choice between Stresemann’s conception of Germany’s future, based on four years of peaceful ‘economic revisionism’, and Hitler’s sweeping rejection of the foundations of Weimar’s foreign and economic policy. Both Hitler and Stresemann took the contest seriously. Though it was essential for Stresemann to present Hitler as little more than a crank, he admitted that he had taken time to read at least one of Hitler’s published speeches to inform himself about the arguments he might face.6 Hitler for his part used the argument with Stresemann to refine the ideas on foreign policy and economics that he had first formulated in Mein Kampf, his manifesto compiled in Landsberg prison in 1924.7 The result was the manuscript known as Hitler’s ‘Second Book’, which was completed in the summer of 1928 and contained substantial passages culled directly from stump speeches.8
I

Gustav Stresemann had first enunciated his view that ‘politics . . . [is] today first of all the politics of the world economy’, as an ambitious young representative of the National Liberal party in the Wilhelmine Reichstag.9 And this was no mere rhetoric, it was an experience ingrained in his biography.10 Born in 1878 in Berlin, the son of a small independent bottler of flavoured Weiss Bier, one of the capital’s favourite tipples, Stresemann had watched his father’s business squeezed by the competition of the larger breweries. As the only one of seven siblings to attend university he had completed his studies with a dissertation in historical economics and started work in 1901 as a syndic for the light-manufacturing industries of Saxony, where it was his job to lobby for the interest of export-orientated manufacturing against the overweening demands both of heavy industry and protectionist agriculture. Both by his reading of economic history and his practical experience of trade policy, Stresemann was convinced that the dominant forces in the twentieth-century world would be the three major industrial economies: Britain, Germany and the United States. The economic great powers were rivalrous, certainly. But they were also functionally and inescapably interconnected. Germany needed raw materials and food from overseas export markets to provide its population with work and bread. The British Empire was better placed with regard to raw materials, but it needed Germany as an export market. Furthermore, Stresemann was convinced from an early stage that the emergence of the United States as the dominant force in the world economy permanently altered the dynamic of competition between the European powers.11 In the twentieth century the future of the balance of power in Europe would be defined in large part by the relationship of the competing interests in Europe to the United States. Stresemann certainly did not underestimate either military force or the popular will as factors in power politics. In the dreadnought race, Stresemann was a consistent advocate of the Imperial fleet, in the hope that Germany might one day rival the British in backing its overseas trade with naval power. After 1914 he was amongst the Reichstag’s most aggressive advocates of all-out U-boat war. But even in his most annexationist moment, Stresemann was above all motivated by an economic logic centred on the United States.12 The expansion of German territory to include Belgium, the French coastline to Calais, Morocco and extensive territory in the East was ‘necessary’ to secure for Germany an adequate platform for competition with America. No economy without a secure market of at least 150 million customers could hope to compete with the economies of scale that Stresemann had witnessed first hand in the industrial heartlands of the United States.
There can be no doubt that Germany’s sudden defeat in the autumn of 1918 shocked Stresemann deeply, leaving him close to both physical and psychological collapse. It permanently shook his confidence in military force as a means of power politics, certainly as far as Germany was concerned. More fundamentally, it raised doubts in his mind about the German social and political system, which had proved less resilient than that of either Britain or France. This, however, merely reinforced his belief in the determining force of economics. The world economy was the one sphere in which Germany was truly indispensable. Already in April 1919 Stresemann demanded that, given Germany’s military weakness, the basis of its foreign policy should be the strength of its major corporations. ‘Today we need credits from abroad. The Reich is no longer creditworthy . . . but the private individual, individual large corporations still have credit. This is founded on the unlimited respect of the world for the achievements of German industry and of the German trader.’13 Crucially, the economy was the one sphere through which Germany could build a connection to the United States, the only power that could help Germany in counterbalancing the aggression of the French and the disinterest of the British. And this vision of a trans-Atlantic partnership clearly impelled Stresemann’s actions, both during his brief but decisive spell as Chancellor of the Republic in 1923 and then as Foreign Minister between 1924 and 1929. By facing down a storm of nationalist outrage and ending the ruinous campaign of passive resistance to the French occupation of the Ruhr, whilst at the same time signalling Germany’s willingness to pay reparations, Stresemann opened the door to a special relationship with the United States.
This of course came at a price. Stresemann was vulnerable for ever afterwards to accusations from the right that he was a ‘French candidate’. 14 And these accusations were further strengthened by Stresemann’s decision to use cooperative tactics rather than confrontation, to achieve an accelerated withdrawal of the French forces that patrolled the Rhineland. 15 Of course, nothing could have been further from the truth. Stresemann was in every respect a full-blooded German nationalist. He never distanced himself from the annexationist positions he had adopted during World War I, because he saw no reason to regret them. Nor was he ever willing to accept as a long-term solution the eastern border with Poland as defined by the 1921 plebiscite and League of Nations decision. His strategy, which relied on manipulating the interlocking interests of the United States, Britain and France, was simply more complex than the confrontational mode favoured by the ultra-nationalists.
Stresemann’s first success was the Dawes Committee, which met in Paris in 1924 to establish a workable system through which Germany could pay reparations without jeopardizing its financial stability.16 The chairman of the Committee was General Charles G. Dawes, a Chicago banker and industrialist who had presided over the American and inter-Allied procurement in World War I. But the actual architect of the scheme was Owen Young, the chairman of General Electric and as such one of the leaders of American industry.17 General Electric was furthermore closely allied with the Allgemeine Elektrizitaets Gesellschaft (AEG), Germany’s second-largest electrical engineering conglomerate. Dawes and Young more than fulfilled the hopes that Stresemann placed in the United States. The immediate reparation demands on Germany were substantially reduced, with the full annuity of 2.5 billion pre-war Goldmarks not to come into effect until 1928/9. J. P. Morgan did their bit by mobilizing an enthusiastic vote of confidence from Wall Street, with an initial and massively over-subscribed loan of $100 million. Re-establishing the Reichsmark on gold at its pre-war parity against the dollar ended the instability of Germany’s currency.18 Further protection was provided by the so-called Reparations Agent. This office was occupied by a young Wall Street star, Parker Gilbert, who had the power to halt transfers of reparations payments if they would endanger the stability of the German currency. The demands of the European ‘reparations creditors’ were thus relegated to a second order claim on Germany’s finances. American capital did not immediately crowd into Germany, as is sometimes suggested.19 However, given the large interest rate differential between the United States and Germany, where savings had been evaporated in the heat of hyperinflation, the conditions for lending were clearly good. And between October 1925 and the end of 1928 the inflow of foreign capital was so large that Germany could make its reparations payments without even having to earn a surplus on its trade account. This was convenient for the British and French since it enabled them to insist on German payments without having to open their markets to billions of Goldmarks’ worth of goods. At the same time it allowed Washington to insist that France and Britain should honour the debts they owed to America as a result of the war.
This merry-go-round in which Germans borrowed money from the Americans to pay the British and French who then paid the Americans raised anxiety on all sides.20 However, it served its purpose. The US Congress insisted on the fullest possible repayment of the inter-Allied credits owing to America.21 The new American lenders to Germany were making handsome profits. And the Weimar Republic enjoyed a standard of living considerably higher than would have been possible if it had been constrained to pay reparations out of an export surplus. Hjalmar Schacht, the president of the Reichsbank installed by Stresemann in November 1923, was deeply concerned about Germany’s mounting international debt burden.22 But he shared Stresemann’s strategic vision. As America’s stake in Germany grew, so would Washington’s interest in ensuring that excessive reparations demands by Britain and France did not jeopardize American investments. Put at its most simple and most cynical, Germany’s strategy consisted of exploiting the protection provided by the Reparations Agent to borrow so much from America that the service on this debt made it impossible to transfer reparations.23 More subtly, what Stresemann and Schacht aimed to do was to make American financial interests into the main force pushing for the revision of Germany’s reparations, allowing Berlin to normalize its relations with London and Paris. And in the late 1920s this strategy appeared to be working. In 1928, rather than the Germans it was the Americans and most notably the chairman of the US Federal Reserve, Benjamin Strong, who began to push for the renegotiation of Germany’s reparation obligations before the full annuities owing under the Dawes Plan came into effect.24 Strong did so not out of any love for Germany but in the interest of securing America’s huge stake in the German economy. A full-blown crisis could easily have destabilized a number of America’s largest banks.
Table 1. Borrowing from abroad: Germany’s foreign debt position, spring 1931 (million RM)

Source: C. R. S. Harris, Germany’s Foreign Indebtedness (Oxford, 1935), 9, 95
II

If in Stresemann’s case our problems of interpretation stem from the fact that his policies seem uncannily similar to those on which the stability of Germany has rested since 1945, the difficulty in getting to grips with Hitler’s vision is the reverse. Hitler inhabited a strange and embattled mental universe that we struggle to comprehend or even to take seriously.
It is tempting to deduce the very different world-views adopted by Hitler and Stresemann from their markedly different life histories. Hitler’s difficulties in finding a place in the world are too familiar to need rehearsing here.25 They certainly stand in marked contrast to Stresemann’s story of upward social mobility. For both men, the war was a turning point. But whereas Stresemann’s chronic ill health debarred him from active service in World War I, Hitler experienced the war from the trenches. It is hardly surprising in the light of this that Stresemann managed to retain his quintessential bourgeois optimism even during the nightmare of 1918–23, whereas Hitler’s thinking had a far darker edge. Nevertheless, Hitler and Stresemann were both products of a shared political culture. They were both advocates of the widely held view that World War I was the result of Imperial competition.26 Specifically, both blamed Great Britain for having initiated the war, in a deliberate attempt to cripple Germany as an economic and naval competitor. In Stresemann’s case, however, this common-sense model of military-economic competition was softened by his understanding of the mutual interconnectedness of the world economy and above all by the importance he attached to the United States as a counter-weight to Britain and France. Hitler’s outlook, by contrast, was far more embattled. He regarded the liberal ideology of progress through industry, hard work and free trade as nothing more than a lie spread by Jewish propagandists. In fact, any effort by the German people to seek salvation through industry and trade would eventually bring them into competition with Britain. Germany would again face the constellation of August 1914–an overpowering Continental alliance masterminded and bankrolled by the Jewish bankers of the city. The international Jewish conspiracy, which ruled now not only in Washington and London but in the Bolshevik dictatorship as well, would again force Germany into defeat.
For Hitler, the decisive factors in world history were not labour and industry, but struggle for the limited means of sustenance.27 Britain could sustain itself through free trade, but only because it had already conquered an empire by military force. What the German people needed to secure a decent standard of living was ‘living space’, Lebensraum, and this could be achieved only by warlike conquest. Colonies had been the great enthusiasm of Wilhelmine Germany, but that meant scattering Germany’s precious blood all over the world. Instead, Hitler favoured the conquest of contiguous Lebensraum in the East. Here again one can certainly point to similarities with the thinking of wartime annex-ationists. After the Treaty of Brest-Litovsk, Stresemann too had dreamed of a German Grossraum in the East. But, as we have seen, his primary aim was to gain a market sufficient in scale to match the United States. Hitler, by contrast, wanted the land, not the native inhabitants. The purpose of conquest was not the addition of non-German people. The population of the conquered territories would have to be removed. The bourgeois regime of Imperial Germany had lacked the nerve for this kind of radical racial policy in relation to the large Polish minority that inhabited its eastern borders. But if Germany was to prevail, there was no alternative to a ruthless policy of conquest and depopulation. War was Germany’s destiny. Concretely, Hitler seems to have envisioned a more or less systematic series of steps starting with the incorporation of Austria, then the subordination of the major Central European successor states, most notably Czechoslovakia, culminating in a settling of accounts with the French.28 The path would then be clear for a drive to the east. Hitler did not of course wish to repeat the constellation of World War I and in this respect Britain was crucial. Hitler was firmly convinced that, unlike an export-directed strategy, which would lead inevitably into conflict with the global influence of the British Empire, his strategy of Continental expansion posed no fundamental threat to Britain, whose basic interests lay outside Europe. It was fundamental to his strategic conception in the 1920s and early 1930s that he would be able to secure a dominant position for Germany in Europe without coming into conflict with Britain. Indeed, reversing Stresemann’s logic, Hitler believed that Britain would come to view Germany as an ally in the competition that it was bound to face from the United States.
In his childhood, like many millions of German-speaking boys, Hitler had been an enthusiastic reader of Karl May’s Germanic Westerns.29 In the immediate aftermath of World War I his fascination took on a darker hue, particularly in relation to President Wilson, who in the wake of Versailles became an object of near universal revulsion in Germany. In 1923 Hitler wrote that only a spasm of temporary imbecility brought on by the hunger pangs of the Anglo-Jewish blockade could explain how Germany had thrown itself on the mercy of a ‘crook like Wilson, who had come to Paris with a staff of 117 Jewish bankers and financiers . . .’.30 In Mein Kampf, drafted the following year, the United States barely figured in Hitler’s strategic vision. Three years later, given the role played by the United States in German affairs, such parochialism was no longer possible. As Hitler could not fail to note, the United States –even if it was not a military factor in European affairs–was an economic force to be reckoned with. Indeed, the remarkable industrial advance of the United States had changed the parameters of everyday life on the ‘old continent’. As Hitler himself put it, in what is surely one of the key passages in his ‘Second Book’:

The European today dreams of a standard of living, which he derives as much from Europe’s possibilities as from the real conditions of America. Due to modern technology and the communication it makes possible, the international relations amongst peoples have become so close that the European, even without being fully conscious of it, applies as the yardstick for his life, the conditions of American life . . .31

And not surprisingly, what most caught Hitler’s eye was the American domination of the motor vehicle industry. Hitler, of course, was a motor enthusiast. But what concerned him in his ‘Second Book’ were the strategic implications of America’s leadership in this crucial new industry. In their imaginings of a future of American affluence Europeans were apt to forget ‘that the relationship of surface area to the population of the American continent is vastly superior . . .’. America’s enormous competitive advantage in industrial technology was above all a function of ‘the size of’ America’s ‘internal market’ and its ‘wealth in purchasing power but also in raw materials’. It was the huge volume of ‘guarantee[d] . . . internal sales’ that enabled the American motor vehicle industry to adopt ‘methods of production that in Europe due to the lack of such internal sales would simply be impossible’.32 Fordism, in other words, required Lebensraum.
Whereas Stresemann saw the rise of the United States as a stabilizing factor in European affairs, for Hitler it merely raised the stakes in the struggle for racial survival. Nor could this struggle remain limited to the economic sphere: ‘The final decision in the struggle for the world market will lie with force . . .’33 Even if its businessmen were successful, Germany would soon find itself back in the situation of 1914, forced to fight for its access to world markets on highly unfavourable terms. Indeed, Hitler believed that the emerging economic dominance of the United States placed in jeopardy the ‘global significance’ of all the European countries. Unless the political leaders of Europe could shake their populations out of their usual ‘political thoughtlessness’, the ‘threatened global hegemony of the North American continent’ would reduce all of them to the status of ‘Switzerland and Holland’.34 Not that Hitler was an adherent of pan-European ideas. He regarded any such suggestion as vapid, ‘Jewish’ nonsense. The European response to the United States had to be led by the most powerful European state, on the model of the Roman or British empires, or for that matter the unifying actions of Prussia in nineteenth-century Germany.

In future the only state that will be able to stand up to North America, will be the one which has understood how, through the essence of its inner life and the meaning of its foreign policy, to raise the value of its people in racial terms and to bring them into the state-form most appropriate for this purpose . . . It is the task of the national socialist movement to strengthen and to prepare its fatherland for this mission.35

Along with France and the Soviet Union, the United States thus entered the ranks of Hitler’s enemies, to be confronted, after a period of internal consolidation, if possible in alliance with Great Britain. It is worth emphasizing this latter point. Hitler’s insistent emphasis on the need for an alliance with Britain was driven not only by his focus on conquest in the East, the central strategic argument of Mein Kampf, but also by his awareness of the threat posed by the United States, the new theme of the ‘Second Book’.
Hitler and Stresemann thus differed in their assessment of Germany’s position in relation to the dawning ‘American century’ and they differed in their assessment of the relative importance of economics and politics. Underpinning these divergences, however, was a more fundamental difference in their understanding of history.36 This is most clearly illustrated by their responses to the disaster of World War I. The essence of Stresemann’s position was that the war did not change the fundamental direction of world history, which was dictated by the inevitable trajectory of economic development. Though Germany had been defeated, the war, by weakening Britain and France and promoting the United States, opened the door to a reassertion of German power, though limited to the economic sphere. Hitler regarded this kind of thinking as characteristic of the naïve optimism of the German bourgeois. Hitler was not a pessimist. He rejected the doom-laden prophecies of Spengler. For him, however, history offered no guarantees. The fundamental determining factor in history was not the predictable telos of economic development, but struggle between peoples for the means of life. In this battle for survival the outcome was always uncertain. Even in the short span of ‘2,000 years’ of human history, Hitler declared,

world powers ruled cultures of which only legend now tells, enormous cities have fallen into ruins . . . Almost beyond all comprehension . . . are the concerns, the needs and suffering of millions upon millions of individual people, who were once, as living substance, the bearers and victims of these events . . . And how indifferent is . . . the present. How unfounded is its eternal optimism and how ruinous its wilful ignorance, its refusal to see and its refusal to learn.37

To shake the populace out of its optimistic stupor and to energize it with a sense of apocalyptic risk, this was the true task of political leadership. The idea that Germany could simply progress steadily towards a higher standard of living like that on show in the United States was a delusion. For Hitler, defeat in World War I heralded the starting point of a struggle no less definitive than that between Carthage and Rome. Unless Germans rose to the challenge, 1918 might well be the harbinger of an ‘Untergang’ as complete as that suffered by the great civilizations of antiquity. Such a prospect left no room for passivity and no room for patience. Faced with the utter ruthlessness of the Judaeo-Bolshevik enemy, even a strategy fraught with the most extreme risks could be justified. In the 1920s and early 1930s audiences could be forgiven for taking Hitler’s extreme warlike language as a rhetorical affectation. How deadly serious he was in his apocalyptic world-view was not to become fully apparent until 1939.
III

The German electorate thus faced a stark choice and they gave a clear answer. In the general election of May 1928, Hitler’s party gained a tiny 2.5 per cent of the vote giving it only 12 seats out of 491 in the Reichstag. By contrast, though the DVP’s share of the vote declined, Stresemann’s party still held a respectable 45 seats.38 And whereas the DVP enjoyed the generous backing of big business, the Nazis were so cash-strapped by the autumn of 1928 that they were forced to call off their annual party rally. Sales of Mein Kampf had slumped so badly that Hitler’s publishers decided to hold back his ‘Second Book’ for fear of spoiling the market. The DNVP, the other party on the extreme right, saw its share of seats cut from 103 to 73. These losses and the ensuing leadership crisis in the nationalist movement, leading to the election of the ultra-nationalist Alfred Hugenberg as head of the DNVP, were the headline news of the summer and autumn of 1928. By contrast, the Social Democrats, the founding party of the Weimar Republic, scored a major victory. Their representation in the Reichstag rose from 131 to 153 seats. Together with Stresemann’s DVP, the DDP and the Centre party they had a workable majority with Hermann Mueller as Chancellor. Gustav Stresemann continued for a fifth year as Foreign Minister.
In 1928, therefore, despite the presence of elements such as Hitler and his party, the Weimar Republic had a functioning parliamentary system and a government committed to pursuing the revision of the Versailles Treaty under the good auspices of the United States. The potential for disaster was clearly there. But even the most pessimistic observers would have been hard pressed to predict that within ten years Germany would launch Europe back into a dreadful war and embark on the single most ruthless campaign of genocidal murder in human history. This book is not a history of the Weimar Republic. But to start our account of Hitler’s regime, we must clearly first explain how Stresemann’s strategy was overturned, opening the door to Hitler’s far more radical vision.
One key factor contributing to the destabilization of the Weimar Republic after 1929 was the disappointment of the hopes invested in America’s ‘new order’ by Germany’s pro-Republican forces.39 In 1923–4 the successful stabilization of the Weimar Republic had depended crucially on the involvement of the United States. Thereafter, the credibility of Stresemann and Schacht’s ‘Atlanticist strategy’ hinged on the expectation that America’s influence in Europe would continue to grow and would ultimately open the door to comprehensive revision of the Versailles Treaty terms. This depended on American recognition of the linkage between the war debts owed by Britain and France to America and the reparations demands made by those powers on Germany. Owen Young did return to Paris in the spring of 1929 to renegotiate the reparations settlement.40 However, he came without any commitment from Herbert Hoover’s incoming administration to allow an explicit linkage between inter-Allied war debts and reparations.41 This in turn meant that the Young Plan was bound to disappoint.42 Instead of a reduction in the reparations annuity from 2.5 billion to 1.5 billion pre-war Goldmarks hoped for by the Mueller government, the amount demanded of Germany was reduced only marginally to just over 2 billion Goldmarks. In addition, the Young Plan removed the protection provided by the Reparations Agent. This relieved Germany of intrusive and humiliating foreign oversight and was intended as a first step towards placing Germany’s reparations bonds on a depoliticized, commercial footing. But it also meant that Germany was now permitted to postpone transfer on the majority of its reparations, for a maximum of only two years. And it was now the German government rather than a ‘neutral’ American agency that would have to make the decision.
The disappointment that followed in the wake of the Young Plan was devastating to the credibility of the Atlanticist strategy. The acrimony surrounding the negotiations negated any hope of a large-scale commercialization of Germany’s political debts. From 1928 onwards long-term American lending to Germany began to fall, as rumours swirled about the future of reparations and interest rates in the United States rose.43 Germany continued to borrow in 1929 and to sell shares in German firms to foreigners, but more than half the inflow was now short-term. And further damage to trans-Atlantic economic relations was to follow. In the course of the American election Herbert Hoover had won the Midwest with promises of agricultural protection. During its passage through Congress the trade bill which became notorious as the Smoot–Hawley tariff was festooned with a variety of demands, including significant protection against European manufactured imports. By the autumn of 1929 the Europeans knew that not only would Congress not permit any substantial reduction in the inter-Allied debt payments, and not only was there little prospect of any new long-term credit from America, but that the new tariff would in all likelihood make it harder for America’s European debtors to earn the dollars they needed to service their obligations to Wall Street.44
How Stresemann would have responded to this disastrous chain of events we shall never know. His health had been collapsing since the spring of 1928 and the effort to hold the right wing of the DVP in line with the Grand Coalition government was too much. Within hours of securing the agreement of the German government to the Young Plan, Stresemann suffered a series of strokes and died. But even before his untimely death there were indications of a shift in direction. Some have argued that the intensified discussions between Stresemann and the French Foreign Minister, Aristide Briand, in the summer and autumn of 1929 were motivated at least in part by a sense of disappointment with the United States. And in the last week of June 1929 Stresemann had spoken in the Reichstag of Europe becoming ‘a colony of those who have been more fortunate than us’. The time had come in which ‘French, German and perhaps also other European economies must find a way together to counter a competition that weighs heavily on us all’, an unusually antagonistic reference to the United States.45
A turn towards European integration was however only one possible reaction to the disappointment of hopes placed in America.46 A diametrically opposed option was presented by the behaviour of Hjalmar Schacht, president of the Reichsbank. In evolutionary terms Schacht forms the ‘missing link’ between Stresemann’s strategy of economic revisionism and the unilateral militarist aggression that replaced it after 1933. Born in 1877 into a German-American family, Horace Greeley Hjalmar Schacht, like Stresemann, was a Wilhelmine success story.47 Whereas his father had had a troubled career, first as a journalist and then in a succession of failed businesses, Schacht made the best of his first-class education. Like Stresemann, he started his professional life as a lobbyist for liberal free trade interests, before rising rapidly through the ranks of the Dresdner Bank. In 1914 he became part of the financial administration of occupied Belgium but was forced to resign in 1915 amidst rumours of corruption. Soon afterwards he was hired by the Dresdner’s rival, the Nationalbank. As a director of this rapidly expanding business, Schacht became one of the true profiteers of the hyperinflation. Like Stresemann, Schacht was a Vernunftrepublikaner (a republican by reason rather than by conviction). A founding member in 1918 of the left liberal DDP, he was Stresemann’s candidate to take over the Reichsbank at the height of the Ruhr crisis.48 Thereafter, Schacht was widely seen as a key ally in Stresemann’s effort to restore Germany’s international respectability. Widely credited with the stabilization of the Reichsmark in 1924, Schacht enjoyed close links both with banking circles in the United States and with Montagu Norman, governor of the Bank of England. Indeed, during the chaos of 1923–4 Schacht had toyed with a British alternative to Stresemann’s strategy, sounding out the possibility of tying the Reichsmark to the pound sterling rather than to the dollar.49 But once the Dawes deal was done Schacht was if anything even more committed to the Atlanticist approach than was Stresemann.50 Even more than in Stresemann’s case, however, this rational conception of German strategy clashed in Schacht with a deep sense of wounded national pride. Far more persistently and far less tactfully than Stresemann, Schacht linked the question of a financial settlement with demands for territorial revision.51 Schacht not only wanted to achieve an accelerated withdrawal of French troops from German soil. He also took every opportunity to reopen the territorial issue with Poland and even pressed for a restitution of German colonies. In April 1929, Schacht’s revisionist demands came close to derailing the entire Young Plan discussions. The Plan itself was clearly a devastating blow to Schacht’s faith in the American option. Immediately after Stresemann’s death, Schacht adopted a position of outright opposition to the Mueller government. He used his contacts in Wall Street to sabotage an effort by the German government to raise a new American loan and on 6 December 1929 he published a report that was devastatingly critical of the Young Plan and indeed of the entire financial strategy pursued by the Weimar Republic since 1924.52 Schacht’s days as Reichsbank president were clearly numbered. By the spring of 1930 he had resigned and thrown in his lot with the forces now gathering on the extreme right of German politics, who were bitterly opposed to any further financial cooperation with Germany’s former enemies.
The majority of the German political parties, however, remained committed to the basic principles of fulfilment. Indeed, the requirement to fulfil the Young Plan justified measures of domestic austerity that were extremely attractive to a large section of the right wing and business community. In the spring of 1930, therefore, the Grand Coalition was toppled over the question of budget cuts.53 Hermann Mueller was to be Germany’s last Social Democrat chancellor for almost forty years. He was ousted in favour of a minority government led by the staunchly nationalist Catholic Heinrich Bruening. At the Reichsbank, Schacht was replaced by Hans Luther. Ever since, there has been heated discussion about the economic policy choices made by Chancellor Bruening and Reichsbank president Luther between March 1930 and May 1932.54 Much of this, however, is beside the point. When one bears in mind the international constraints, it is clear that Bruening and Luther’s hands were forced, certainly in 1930.55 Under the rules of the gold standard, with the Young Plan demanding annual payments of 2 billion Reichsmarks and international capital markets increasingly nervous about German borrowing, deflation was the only option.56 The political costs were huge. Between April and July 1930 Germany’s parliamentary system tore itself apart in the struggle over Bruening’s deflation package. It was to force through the highly controversial poll tax on 16 July 1930 that Bruening first resorted to the emergency powers provided under Article 48 of the Weimar constitution. More cuts and tax increases followed with the comprehensive emergency decree of 26 July. On top of the collapse in world trade and the gathering force of the business-cycle, the effect was to crash-land the economy. Between June 1930 and February 1931 unemployment rose by 2.1 million, twice the normal seasonal increase. In the general election of September 1930, Hitler’s National Socialists achieved a stunning electoral breakthrough, raising their share of the vote from 2.5 to 18.3 per cent and gaining 107 seats, making them the second largest party in the Reichstag. The ensuing capital flight stripped the Reichsbank of one-third of its reserves and forced a further hike in interest rates.57 But at the same time, the deflation strategy was having its intended effect. A trade deficit of 2.9 billion Reichsmarks in 1928 was, by 1931, turned into a trade surplus of 2.8 billion Reichsmarks (see Appendix, Table A1). This surplus, however, resulted not from rising exports but from the fact that due to the Depression, demand for foreign imports fell even more rapidly than German sales abroad. As factories shut down, and the blight of joblessness and poverty spread across German society, demand for foreign raw materials and consumer goods plummeted. It was a brutal process of adjustment, but Germany was following the normal prescriptions of the gold standard mechanism. And Bruening was rewarded in October 1930 with a bridging credit of $125 million brokered by Lee, Higginson and Co. of New York.58
If Bruening’s government did have room for manoeuvre in 1930 and early 1931, it was with regard to foreign policy, not economics, and it used this freedom to dreadful effect.59 Instead of following Stresemann’s formula of the 1920s, which combined economic fulfilment with cautious diplomacy, Bruening and Julius Curtius coupled compliance with the financial provisions of the Young Plan with a foreign policy rhetoric borrowed from the nationalist right. The first element of the new German policy was the decision, despite the Reich’s desperate financial situation, to build two new battle cruisers for the navy. The second and third elements were the proposal for Austro-German customs union and the increasingly proactive German policy in Central and South-eastern Europe, symbolized by the effort to conclude exclusive bilateral trade agreements with Hungary and Romania. All three prongs of this strategy were directed against France. This followed logically from Bruening’s earlier rejection of Briand’s proposal for closer Franco-German economic relations. But it was spectacularly ill-timed. Throughout the 1920s it had been a premise of German policy that though France posed the primary military threat to Germany, in financial terms it was a third-rate power, behind the United States and Britain.60 By 1931, however, this was to seriously misunderstand the balance of power within the international financial system. Following the stabilization of the franc in 1926, the French central bank had set about systematically accumulating gold. By 1931 its gold holdings were substantially larger than those of the Bank of England and rivalled even those of the US Federal Reserve. Remarkably, in early 1931 Briand renewed his approach to Germany, suggesting that to assist Bruening in complying with the Young Plan, the Paris capital market might be opened to long-term German borrowing. Bruening’s government replied on 21 March 1931 by publicly announcing the proposal for an Austro-German customs union, slamming shut the door to Franco-German economic cooperation.
Through aggressive foreign policy, Bruening thus further constrained his own room for economic manoeuvre.61 Without the prospect of a foreign loan, Bruening had no option but to force through another painful round of deflation. And this, to make it palatable to the domestic electorate, required immediate action to accelerate the revision of the Young Plan. On 6 June 1931, therefore, in conjunction with his second emergency deflation decree, Bruening issued an aggressive demand for an end to reparations.62 It was this, finally, which precipitated disaster. The financial markets had been troubled since March by the ominous resurgence of German nationalism. But despite the banking crisis in Austria there had not been a run either on the German banks or the German currency.63 What triggered the crisis was Bruening’s further escalation of international tension. Within hours of the German government’s aggressive communiqué, fear spread throughout the world’s financial markets that Bruening was about to announce a unilateral moratorium, both on reparations and on Germany’s obligations to its private creditors. Over the next week the Reichsbank’s reserves fell from 2.6 billion to 1.9 billion Reichsmarks. Despite a shocking rise in interest rates, the reserves plunged inexorably towards the minimum level required to provide ‘gold-exchange backing’ for the currency. By the time the trouble at the DANAT and Dresdner banks hit the headlines on 17 June, the Reichsbank was already facing a full-blown currency crisis. Indeed, so severe was Germany’s international financial situation that on 20 June President Herbert Hoover was forced into a dramatic and unprecedented intervention.
Even as the German situation became critical in the early summer of 1931, the fundamental logic of the Atlanticist strategy continued to operate.64 Misjudging the French reaction, Hoover’s administration had taken a remarkably weak line in response to the nationalist turn in Bruening’s foreign policy.65 Instead of slapping down the customs union proposal, Washington indicated its willingness to consider it as a first step towards European economic integration. In the autumn of 1931, the US State Department even expressed its impatience with France and Poland for failing to address German concerns about its eastern borders. Most critically of all, on 20 June 1931, in response to the talk of an imminent debt moratorium, Washington finally conceded the linkage between reparations and the inter-Allied war debts.66 In the interests of preserving America’s loans to Germany, Hoover proposed a general moratorium both on ‘political payments’ by Germany and on inter-Allied war debts, opening the door to the formal cancellation of Germany’s reparations obligations a year later at the Lausanne conference.67 By June 1931, however, the French were in no mood for concessions. Not having been consulted by Hoover and resenting the fact that the United States was putting the interests of its long-term creditors above French demands for reparations, Paris delayed its approval of the moratorium until 6 July, long enough for the German financial system to haemorrhage hundreds of millions of Reichsmarks in foreign exchange. It was in this crucial interval that the banking and currency crises became fatally entangled. On Monday, 13 July the DANAT Bank collapsed, precipitating a general bank run.68 The cabinet and Reichsbank had no option but to declare a general closure of the German financial system and on 15 July to announce a new system of exchange controls ending the operation of the free gold standard in Germany.69 The value of the Reichsmark in terms of gold remained nominally the same. However, from the summer of 1931 onwards private holdings of foreign currency in Germany were nationalized. Any resident who received foreign currency in any form was required to exchange it for Reichsmarks provided by the Reichsbank. Anyone requiring foreign currency could obtain it only by application to the Reichsbank and all such applications were subject to severe rationing. Foreign currency was allocated to importers as a fixed percentage of the volume of their foreign transactions in the twelve months prior to the crisis. The Reichsbank thus acquired a direct means for regulating all imports to the German economy. In August, to complete the narrative of the crisis, the debt moratorium was extended by means of the so-called Standstill Agreement from German reparations to Germany’s short-term credits, the most unstable element in Germany’s debt mountain.70
But the storm had not yet passed. After Vienna and Berlin, London was the next casualty of the wave of financial instability sweeping across Europe. On 20 September, after weeks of severe speculation against the pound, Britain followed Germany in abandoning the gold standard.71 Unlike the Reichsbank, however, the Bank of England chose to leave the gold standard not by suspending free convertibility, but by abandoning the fixed peg against gold. Sterling continued to be bought and sold freely, but its value was no longer guaranteed against gold. Within weeks the world’s leading trading currency had plunged against the Reichsmark by 20 per cent. The anchor of the global financial system had torn loose. Britain’s abandonment of gold turned a severe recession into a profound crisis of the international economy. By the end of September, twelve countries had followed Britain in allowing their currencies to float freely. Eleven more countries had devalued their exchange rates whilst retaining a gold peg; whilst those that stayed on gold at their old parities, like Germany, France and the Netherlands, had no option but to defend their balance of payments by adopting draconian restrictions on currency convertibility and trade. This took care of the import side of the current account. But German exporters now faced huge obstacles. With most of Germany’s closest trade competitors having gained a major competitive advantage through devaluation, the volume of German exports fell between 1931 and 1932 by a further 30 per cent. The hard-won trade surplus of 2.8 billion Reichsmarks in 1931 was slashed within a year to no more than a few hundred million Reichsmarks, and even this precarious balance could only be maintained by further savage reductions in imports. By the spring of 1932, the allocation of hard currency to German importers was reduced to half the level that had been available prior to the crisis.72
One obvious way to alleviate Germany’s predicament would have been to devalue the Reichsmark to bring it into line with sterling.73 Indeed, the Bank of England had favoured devaluation of the Reichsmark already in the summer, as the most effective response to the banking and currency crisis.74 Nor should one imagine that responsible officials in Germany had set themselves absolutely against such a measure. Bruening later claimed to have hoped to carry out a 20 per cent devaluation once the acute crisis had passed and Germany had obtained sufficient foreign exchange reserves to be sure of being able to maintain the new level of the Reichsmark.75 In September 1931 Hjalmar Schacht hoped that Germany could take advantage of Britain’s embarrassment to gain concessions on trade or credits, whilst pegging the Reichsmark to sterling. However, there were severe risks associated with such a strategy of which the Reichsbank was only too well aware. In the popular mind, devaluation was inseparably connected with the experience of hyperinflation. In 1922 and 1923 the plummeting value of the Reichsmark against the dollar had been the daily index of German misery. It was hardly surprising therefore that German commentators scared themselves with a scenario in which a large devaluation dramatically increased the price of imports, sparking an inflation. The Reichsbank was certainly concerned that its limited currency reserves would leave it defenceless if there were a speculative attack on a devalued German currency. What was ultimately decisive, however, was the effect of devaluation on the Reichsmark value of Germany’s foreign debt. The vast bulk of Germany’s foreign debt was denominated in foreign currency. The immediate effect of a reduction in the value of the Reichsmark would, therefore, have been to raise the burden in Reichsmark terms of Germany’s foreign obligations. Though the Bank of England would have welcomed a German devaluation, the United States made it clear that it wanted to see Germany servicing its long-term loans whilst protecting its balance of payments by means of exchange controls.76 With President Hoover finally intervening decisively in the reparations question and even hinting that he might support German claims against Poland, Berlin opted one more time for the Atlantic strategy. Chancellor Bruening’s government gambled that, sooner rather than later, American action on war debts would enable Britain and France to accept the end of reparations. This, Bruening confidently expected, would open the door to the normalization of both political and economic relations in Europe.77 In the event, however, it took twelve disastrous months until the deal was finally done in Lausanne. Meanwhile, the outlook for the German economy was dire.
Pinned to gold by the American loans, but faced with devaluation of the majority of currencies in which Germany’s trade was transacted, Bruening had no option but to push through another round of deflation and to do so by decree. The fourth Presidential emergency decree of 8 December 1931, apart from banning the wearing of party uniforms and political demonstrations, also ordered mandatory cuts in wages, salaries, prices and interest rates, followed by a further decrease in government spending and an increase in taxation.78 It was, as The Economist put it, an intervention in ‘economic liberty unparalleled outside the territory of the USSR’.79 As his deflation Commissar, Bruening chose the severely conservative mayor of Leipzig, Carl Goerdeler, who immediately launched into a well-publicized austerity campaign.80 This could not disguise, however, that Germany now faced ruin. Unemployment was rising to more than 6 million and large parts of the business community faced imminent collapse. Clearly inflation was a bugbear to the German public. But in its immediate impact on the economy, deflation was infinitely worse, principally because of its impact on balance sheets. Whilst incomes and revenues fell in line with the deflation of prices and wages, debts, mortgages and other financial obligations remained at their high pre-Depression levels. Over the winter of 1931–2, bankruptcies began to eat away at the fabric of German business. After the summer crisis of 1931, all the major banks were under state control. There were spectacular failures in the insurance and the engineering industries. AEG, one of Germany’s premier electrical engineering firms, was ailing. A crisis was only averted at Vereinigte Stahlwerke, Europe’s leading steel and coal conglomerate, through the Reich’s acquisition of a large tranche of shares formerly owned by Friedrich Flick. As the Finance Minister, Hermann Dietrich, put it to a party colleague: ‘I did not set out to nationalize half the Ruhr . . . but the danger that foreign interests would buy up the shares and the fact that a collapse . . . would have shaken . . . the Stahlverein and that in turn would have rocked the painfully reconstructed structure of the German banks, have left me with no choice . . .’81
Faced with this mounting economic disaster, the ‘deflation consensus’ that had sustained Bruening in his first eighteen months as Chancellor collapsed.82 And Hjalmar Schacht again served as a bellwether. Throughout 1930 and early 1931 Schacht had abstained from overt criticism of the Bruening government, in the hope perhaps of returning to office as part of a conservative nationalist coalition. Following the disasters of the summer of 1931, Schacht abandoned this restraint to make a dramatic appearance at the rally of nationalist forces held at Bad Harzburg to denounce the spinelessness of Bruening’s reparations policy.83 A rejuvenation of Germany, he declared, was not a matter of party political programmes, or even of intelligence. It was a question of ‘character’. And Schacht no longer made any secret of the source from which he expected this moral renewal. The main organizers of the event were Hugenberg and the DNVP. But the headline news was the appearance of Schacht on the Harzburg platform alongside Adolf Hitler.84
IV

Clearly, the nationalist turn in German foreign policy in 1930–31 was disastrously mistimed. Nevertheless, with the Hoover moratorium in place and with the Americans now pushing decisively towards an end to reparations, the Atlanticist programme had in a sense reached its logical conclusion. Under normal circumstances the continuation of a trans-Atlantic financial axis would of course have remained an attractive option for Germany. However, the collapse of the American economy and the British decision to abandon gold shattered the fundamental assumption on which Stresemann’s conception had been based. Far from being a self-evident historical necessity, the unity and mutual interdependence of the world economy was now profoundly in question. There were, of course, voices both inside and outside Germany calling for a constructive effort to rebuild the fabric of the international order.85 But, given the global economic disaster, it appeared to many that international economic dependence itself was actually the problem.86 Nationalist visions, visions of a future in which global financial connections were not the determining influence in a nation’s fate, now had far greater plausibility.87 And even before Hitler took power four key elements in this nationalist agenda had already pushed well to the fore.
There is a deeply entrenched prejudice both in popular historical consciousness and the historical literature that the really important change in economic policy between the Weimar Republic and the Third Reich was the urgent implementation, after 1933, of programmes of national recovery and work creation.88 To put it crudely, Heinrich Bruening made a fetish out of deflation. By contrast, work creation and the struggle against unemployment played a critical role in the propaganda of Hitler’s regime. And in the light of the near contemporaneous ‘Keynesian revolution’ in economics, this contrast between before and after 1933 took on an even greater historical significance. For Keynesians, both in Germany and beyond, the disaster of the Weimar Republic will always stand as the most stark illustration of the consequences that follow from placing too much faith in the self-healing properties of the free market, a rhetorical connection that was put to extensive use in the long rearguard action that Keynesians fought against the intellectual forces of the New Right in the 1970s and 1980s.89 Germany’s history between 1929 and 1933 can certainly be made to serve this purpose. But if we seek to understand Hitler’s regime outside this anachronistic frame of reference the emphasis on work creation as the key to understanding Nazi economic policy seems misplaced. Work creation in fact emerged as a subject for intense discussion on the right wing of German politics only in the second half of 1931. The Nazi party did not adopt work creation as a key part of its programme until the late spring of 1932, and it retained that status for only eighteen months, until December 1933, when civilian work creation spending was formally removed from the priority list of Hitler’s government. Despite the claims of Goebbels’s propaganda and despite the preoccupations of later commentators and historians, civilian work creation measures were clearly not a core agenda item for the nationalist coalition that seized power in January 1933. In fact, amongst the coalition partners of January 1933, work creation was highly divisive.90 Credit-financed measures were fiercely opposed by Hugenberg, the leader of the DNVP, Hitler’s indispensable coalition partner. Work creation was also viewed with suspicion by business and banking circles close to the Nazi party, who on this issue had a vocal spokesman in Hjalmar Schacht. All of which was in sharp contrast to the three issues that truly united the nationalist right and made possible the Hitler government of 30 January 1933: the triple priority of rearmament, repudiating Germany’s foreign debts and saving German agriculture. These were the issues that had dominated the right-wing agenda since the 1920s. After 1933 they took priority, if necessary at the expense of work creation. It was Hitler’s action on these three issues not work creation that truly marked the dividing line between the Weimar Republic and the Third Reich.
Disarmament and international finances had been linked ever since the 1920s. But in 1932, in a last desperate bid to fashion a peaceful solution to Europe’s problems, President Hoover’s administration forced them into an even tighter connection.91 By the end of 1931 it was accepted by all sides that an end to reparations depended on American cancellation of French and British war debts. The emergency moratorium of 1931 had acknowledged this in practice. However, Hoover still had to sell debt reduction to Congress and to do so he needed to make progress on disarmament. It would be wholly unacceptable, if France and Britain used the financial relief they were asking for from the United States to engage in greater military spending. In early 1932 the Americans thus launched twin conference ‘processes’, in Geneva for disarmament and in Lausanne for political debts. A third track was provided by the long-winded preparations for an international conference on the global economy, which was to address the disorder in the world financial system and the damaging increase in international protectionism. In the 1920s, faced with an earlier American effort to reconstitute the international order, Stresemann’s strategy had been to position Germany as a key ally of the United States. By contrast, from 1932 the governments of Franz von Papen, General Kurt von Schleicher and finally Adolf Hitler adopted a contrary position. Rather than seeking prosperity and security in multilateral arrangements guaranteed by the power of the United States, they sought to secure unilateral German advantage, if necessary even in opposition to America’s efforts to restore the international order.92
Secret preparations for German rearmament had gone on throughout the 1920s but had never taken on truly threatening proportions.93 Stresemann had always ensured that the clandestine activity of the military did not jeopardize his primary objectives of negotiating the removal of French troops from German soil and achieving a substantial reduction in reparations. The evacuation of the last foreign troops from the Rhineland in the summer of 1930 set the stage for more concrete discussions. Bruening apparently favoured a timetable under which the Reichswehr, the German Army, was to begin its rearmament as soon as the issue of reparations had been resolved. By December 1931, the Reichswehr had finalized the second so-called Ruestungsplan (Rearmament Plan), which called for spending of just over 480 million Reichsmarks over five years.94 It was to provide Germany, in case of attack, with the capacity to supply a defensive force of twenty-one divisions, equipped with a small complement of artillery, tanks and aircraft. A more ambitious version of the plan, the so-called ‘Milliardenprogram’ (billion Reichsmark programme), set out the extra spending on industrial infrastructure required to keep this force permanently in the field. This planning, however, since it required no expansion of the peacetime strength of the Reichswehr, remained at least formally within the terms of Versailles. During 1932, General Schleicher’s increasingly prominent role in German politics added a new urgency and boldness to the thinking of the Reichswehr. In the second half of 1932 the Reichswehr leadership began planning for an outright Treaty breach through a significant increase in peacetime military strength. The Umbau Plan, authorized by Schleicher on 7 November 1932, called for the creation of a standing army of 21 divisions based around a cadre of 147,000 professional soldiers and a substantial militia. In the autumn of 1932 the German delegation to the Geneva disarmament talks temporarily withdrew from the conference in a bid to force France and Britain to accept Germany’s equality of status: whatever agreement was reached was to apply equally to all parties. But Schleicher, who succeeded to the Chancellorship in December 1932, still shrank from a complete breach with the international community. With the principle of equality conceded, the Germans returned to Geneva. Behind Schleicher, however, was a more aggressive cohort of generals, including Werner von Blomberg, who demanded an open resort to unilateral rearmament. Furthermore, the practical problem of rearmament imposed its own timetable. With the Depression taking its toll on the German engineering industry, it seemed that unless substantial government funds were soon forthcoming, the industrial capacity on which rearmament ultimately depended might soon cease to exist.95 It was with this in mind that General Schleicher’s government pioneered the use of work creation, both as a means of hiding military spending from foreign observers and as a way of uniting the German people behind rearmament.
In strictly economic terms, the defining agenda of German nationalism from the Dawes Plan of 1924 onwards was not work creation but the repudiation of Germany’s international obligations, first reparations and then the international credits taken up since the early 1920s to pay them. Until 1932, as we have seen, logic dictated the need to stick to the United States. The Young Plan did at least offer a reduced annuity and only pressure from the United States offered any prospect of a final elimination of reparations. The ultra-nationalists thus remained in a minority and fulfilment remained the bedrock of respectable politics. By the autumn of 1932, however, the situation was quite different. In July 1932 at the reparations conference in Lausanne, Britain and France agreed to a deal that brought a de facto end to Germany’s reparations payments.96 Significantly, they did so, against the will of the Americans, by tying a final end to all German obligations to a cancellation of the war debts owed by them to the United States. Britain made one last payment on its American war debts in December 1932, but only under protest. France, Belgium, Poland, Estonia and Hungary simply defaulted. Prime Minister Édouard Herriot, who had advocated honouring France’s obligations, suffered a crushing defeat in parliament. America was no longer able to hold the ring in Europe. And this in turn had dramatic implications for German strategy.
In January 1933, Germany still owed 19 billion Reichsmarks to foreign creditors, of which 10.3 billion were long-term bonds and 4.1 billion were short-term loans covered by the Standstill Agreement.97 At least 8.3 billion Reichsmarks were owed to the United States, by far the largest creditor. This debt burden, contracted since 1924, threatened Germany’s standard of living no less seriously than the reparations that had now been removed from the table. To service its debts Germany faced the need to transfer abroad interest and principal totalling something close to 1 billion Reichsmarks per annum, and, given the unavailability of new credit, in the 1930s unlike in the 1920s Germany faced the prospect of having to make ‘real transfers’. It could not simply borrow afresh to repay its creditors. If Germany was to service its debts, exports would have to exceed German imports by at least 1 billion Reichsmarks. This meant a substantial reduction in the standard of living. And with reparations gone, almost half of Germany’s onerous debt service payments would go to one country, the United States. Whilst Germany still needed American assistance in forcing Britain and France to end reparations, it was in Berlin’s interest to cooperate with Washington, even if the burden of American debts was heavy and the chance of new credits was slim. After the Lausanne agreement on reparations, with France and Britain bitterly at odds with the United States over their war debts, this imperative evaporated. Nor, in case of default, did Germany have much to fear from American trade sanctions. The balance of trans-Atlantic trade was hugely unfavourable to Germany. In this respect, American efforts to stabilize Europe had been fundamentally contradictory.98 American tariffs in excess of 44 per cent, compounding America’s competitive advantage in virtually every area of manufacturing, made it difficult, if not impossible, for America’s debtors to repay their debts, even if they had wanted to. Once reparations were lifted, this contradiction at the heart of American foreign economic policy provided Germany’s nationalists with a ready-made excuse for default.
Of course, this was not the only possible conclusion that could have been drawn from Germany’s situation. Aggressive unilateralism and default were not foreordained. In the 1920s Stresemann had sought to make Germany into a leading advocate of multilateral free trade, a line that was enthusiastically backed by at least the export-orientated industries.99 After all, Germany in times of prosperity had been one of the world’s pre-eminent trading nations, with exports going to literally every corner of the globe. In 1932 and 1933 preliminary negotiations were already under way for the World Economic Conference to be held in London, at which tariffs would be a key issue.100 There was still the opportunity for Germany to act as a positive force for liberalization rather than nationalist disintegration. By 1932, however, the voices of liberalism were drowned out by the deafening clamour of economic nationalism. Indeed, given the disintegration of the gold standard, even the Reich’s industrial association found it difficult to sustain a consensus on multilateral free trade. And here again it was the ex-president of the Reichsbank, Hjalmar Schacht, who led the nationalist charge. At the end of 1931 he put before some of Germany’s leading industrialists a new trade plan.101 Using an organization reminiscent of that employed during World War I, all German imports would be subject to central control. They could then be used to force those countries supplying Germany with goods, to accept at least equal quantities of German exports. Given the damage that this would cause to Germany’s complex multilateral trading relations, Schacht’s plan found favour with only a minority of German industrialists. In the ranks of agriculture, however, the enemies of liberalism found more eager supporters.
In so far as economic interests were responsible for the collapse of the Weimar Republic and the installation on 30 January 1933 of Hitler’s government, the group chiefly responsible was not big business or even heavy industry, but Germany’s embattled farmers.102 Ever since the 1870s, agriculture had been a lost cause to liberalism.103 Bismarck had won over the agrarians in 1879 with the imposition of the first substantial grain tariff. This had not halted the decline of agriculture, but it had significantly slowed what might otherwise have been a very dramatic process of social displacement and internal migration. In the mid-nineteenth century the share of workers in agriculture had stood at a half. By 1925 that had fallen to 25 per cent, but this still meant that 13 million people depended directly on farming for a living. The farm lobby was thus a vital constituency for all political parties other than the Social Democrats and Communists, neither of whom managed to devise a credible agrarian programme. By the late 1920s, however, the respectable parties of the centre right were struggling to maintain their support in agrarian circles, as the German farming community became progressively radicalized by the worldwide collapse in commodity prices.104 As a result, the farm lobby began demanding not only increased protection and relief from its debts, but a fundamental reorientation in German trade policy. Since tariffs had not proved effective in keeping out low-priced competition, the agrarians now demanded the introduction of specific quotas with which to restrict the import of key agricultural products to Germany from particular countries.105 Agricultural tariffs had always been objectionable to liberal-minded Germans. The new proposals, by discriminating between individual trading partners, threatened to destroy the system of multilateral trade altogether. It could not be denied, however, that the emergency measures of July 1931 pointed in this direction. After all, the Reichsbank’s new system of foreign exchange rationing provided precisely the instrument that was needed to control the composition of German imports.106 On quotas, however, Bruening dug in his heels. His government was lavish in its support for agriculture in every other respect, but on quotas there could be no compromise.107 On this point both Papen and Schleicher followed Bruening’s lead. Papen though he approved quotas in principle, did so only within the limits ‘permissible according to current trade treaties’ and when Papen fell, there was no decisive action by Schleicher.108 This, however, drove the farm lobby into outright opposition to the Republic. 109 In early 1933 key leaders of the agrarian lobby intervened decisively with President Paul von Hindenburg, himself the owner of a large estate, to push him towards accepting a coalition between Hugenberg’s DNVP and Hitler’s Nazi party. Like the advocates of debt default and rearmament, what the agrarians wanted was a government that would pursue their conception of Germany’s national interest unilaterally, forcing Germany’s neighbours and trading partners to accept its terms.
V

The enemies of liberalism were clearly on the march in Germany. By 1932 the damage done to the parliamentary system may well have been irreparable, making it more likely than not that the Weimar Republic would have been replaced by some kind of authoritarian, nationalist regime. After all, Germany ended 1932 with generals both as Chancellor and as President of the Republic. But the more we know about the back-door manoeuvring that led to Hitler’s appointment on 30 January 1933 the less certain it seems that that particular outcome was in any sense predetermined. There seems every reason to believe that the world might have been spared the nightmare of a National Socialist dictatorship if only Hitler had been kept out of government for a few months longer. The Nazis had surged to their most spectacular electoral triumph in July 1932 in the general election that followed the ousting of Chancellor Bruening, garnering 37.2 per cent of the vote. However, thanks to the resistance of President Hindenburg and key members of Papen’s cabinet, Hitler had not been offered the post of Reich Chancellor and he refused to accept any lesser position.110 Despite its electoral triumph, the NSDAP remained in opposition and in the second general election of 1932, in November, it suffered the consequences. Though the poll yielded no workable parliamentary majority, precipitating the fall of Chancellor Papen, it also delivered a severe setback to Hitler’s party, which saw its vote slump back to 33 per cent. The electorate were clearly disappointed with Hitler’s failure to take office. The party activists were beginning to flag. The momentum that had carried the NSDAP from victory to victory since 1929 was exhausted. In the aftermath of the November setback, the divisions between left and right wings that had plagued National Socialism in the 1920s, suddenly re-emerged. In December 1932 General Schleicher, the real king-maker in German politics, finally took power himself and made a popular start by launching the first national work creation initiative. Gustav Stolper later recalled a jocular breakfast meeting in the Reich Chancellery in January 1933, at which Schleicher and his aides took turns to predict how many more votes the Nazis would lose in the election that Schleicher hoped to call in the spring.111
Meanwhile, the first hints of an economic recovery had made their appearance in America in June 1932.112 After the lifting of reparations at Lausanne, demand for German bonds began to strengthen.113 This was crucial, because it provided an opportunity for hard-pressed banks to offload illiquid assets and to rebuild their cash balances. In late summer there were signs of a revival in construction. Inevitably, once the harvest was in and building activity slowed for the winter, unemployment did begin to rise again, heading back towards the shock figure of 6 million. But the mere fact that this did not exceed the level reached the previous year was encouraging to the experts. The ‘seasonally adjusted unemployment level’, a novel concept made fashionable by the newfangled science of business cycle analysis, had stabilized. By the end of 1932, Stolper’s journal Der Deutsche Volkswirt was joined in its optimistic assessment of Germany’s economic situation by the authoritative biannual report of the Reichskreditgesellschaft.114 In December 1932, even the Berlin institute for business cycle research, the most influential economic commentator in inter-war Germany and also one of the most pessimistic, declared that at least the process of contraction was over.115 The Economist’s Berlin correspondent reported that ‘for the first time for three or four years’, the German bourgeoisie could see ‘a glimmer of economic light’.116 This is a crucial point because it contradicts all subsequent portrayals of the German economy under National Socialism. 117 The German economy in 1933 was not a lifeless wreck. It was beginning what might well have become a vigorous cylical rebound. Certainly, on 1 January 1933 the New Year editorials of the Berlin press were optimistic. Vorwaerts, the social democratic daily, welcomed the New Year with the headline: ‘Hitler’s Rise and Fall’.118
In the event, what decided the fate of Germany and with it the world was the tragic miscalculation of a small coterie of ultra-nationalist conservatives. Ex-Chancellor Papen, embittered by his ousting in December 1932, conspired with the agrarian lobby and some of the most aggressive elements in the military to pressure the ailing Hindenburg into dismissing Schleicher and forming a new government founded on the popular platform of National Socialism. This was not possible without giving Hitler the Chancellorship. But the ultra-nationalist Hugenberg would take responsibility for both Agriculture and Economic Affairs. General Blomberg would take the Defence Ministry and Papen the Vice-Chancellorship. Nor should we assume that the balance of forces within the Hitler–Hugenberg–Papen–Blomberg government was foreordained. There were powerful forces in German society, most notably the military and the churches, but also the leadership of German business that could have done much to deflect Hitler and his followers from their path.119 The policy of anti-Semitism, aggressive rearmament and unilateral diplomacy was clearly in no sense forced on Germany. Indeed, it may strike some readers as absurd to have to make this point. But doing so makes clear that this standard of counterfactual criticism is not always applied even-handedly to all aspects of Hitler’s regime. The economic sphere, in fact, is often exempt from such critical scrutiny altogether. Too often it is assumed that real strategic choices in economic policy, choices in which National Socialist ideology really mattered, were faced by Hitler’s regime only in 1936, four years after the seizure of power. Too often it is assumed that addressing the unemployment crisis must have been the first priority of the regime. But this is one more effect of giving excessive attention to work creation. In relation to the unemployment crisis it is possible to tell a story in which Hitler’s regime simply pursued a long-overdue functional response to Germany’s dire economic crisis. Indeed, in many accounts, even recent accounts, one detects a hint of admiration for the ability of Hitler’s regime to break with the hidebound conservatism that supposedly constricted previous governments.120 But, as has already been suggested and will be shown in detail in the next chapter, the ‘Keynesian’ issues of work creation and unemployment were never as prominent in the agenda of Hitler’s government as is commonly supposed. The most crucial economic policy decisions taken in 1933–4 concerned not unemployment, but Germany’s foreign debts, its currency and rearmament, and in relation to these questions there could never be any pretence of political innocence. These issues were at the very core of the nationalist programme of self-assertion that was the true agenda of Hitler’s government. Furthermore, once we give due emphasis to the questions of foreign debt and foreign trade, it becomes clear that, for many millions of Germans, Hitler’s economic miracle was in fact a highly ambiguous experience.
If we are to avoid a depoliticized economic history of the Nazi regime, at odds with our view of every other aspect of the regime’s history, we must always bear in mind that even in 1933 there were alternatives to the economic strategy pursued by Hitler’s government. And not only that: these alternatives might well have brought greater material benefits to the majority of the German population. However, whilst keeping the sense of alternatives and thus the possibility of critique firmly in view, we must also not underestimate the damage done both inside and outside Germany by the Great Depression. Even if Hitler had not been appointed Chancellor and Schleicher had remained in power, it is hard to imagine Germany pursuing a course that was anything other than disruptive to the last-ditch efforts to restore peace and stability to the world, at the disarmament talks in Geneva and at the World Economic Conference in London. Added to which, one would be falling into the solipsistic trap of nationalist strategy if one imagined that the question was ultimately Germany’s to decide. Germany could pursue a policy more or less congenial to global stabilization, but the chance of achieving that elusive goal depended critically on the other major powers. And in 1933 the environment was far less congenial to a multilateral strategy than ten years earlier. Above all, the position of the United States had dramatically changed. In 1923 Stresemann had clearly been right to gamble on America as the dominant force in world affairs, both economically and as a future military superpower. Ten years later America’s position was fatally weakened by the most severe crisis in recorded economic history. As Hitler took power, Hoover was replaced by Roosevelt, who in his first months in office was focused, to the exclusion of all else, on saving America from the final disastrous spasm of the Depression. It would be years before the United States re-emerged as the pivot in all strategic calculations, and by that time Hitler’s ghastly regime had gathered too much momentum to be stopped by anything other than brute force.