tooze nazis

Preface
How was this possible? In 1938 the Third Reich embarked on Germany’s second campaign of conquest and destruction in less than a generation. At first, Hitler’s Wehrmacht seemed unstoppable, better prepared and more aggressive than the Kaiser’s armies. But as Hitler charged from victory to victory, his enemies multiplied. For the second time, a German bid to dominate the continent of Europe ran up against overwhelming opposition. By December 1941 the Third Reich was at war not only with the British Empire and the Soviet Union but with the United States as well. It took three years and five months, but in the end Hitler went down to a defeat far more cataclysmic than that which felled the Kaiser. Germany, along with large swathes of the rest of Eastern and Western Europe, was left in ruins. Poland and the western Soviet Union were practically eviscerated. France and Italy lurched perilously close to civil war. The overseas empires of Britain, France and the Netherlands were shaken beyond repair. And as the world learned of the extraordinary genocide committed by the National Socialist regime, the superiority once confidently claimed for European civilization was thrown for ever into question. How was this possible?
People make their own history. In the last instance, human will–both individual and collective–must be the starting point for any account of Nazi Germany. If we are to understand the awful deeds of the Third Reich we must seek to understand their perpetrators. We must treat Adolf Hitler and his followers seriously. We must seek to penetrate their mindset and to map the dark interstices of their ideology. It is not for nothing that biography–both individual and collective–is one of the most illuminating ways to study the Third Reich. But if it is true that ‘people make their own history’, it is also true, as Karl Marx put it, that ‘they do not make it just as they please; they do not make it under circumstances chosen by themselves, but under circumstances directly encountered, given and transmitted from the past’.1
What, then, are these circumstances? Somewhat surprisingly for those who think of him as a simplistic economic determinist, Marx followed up his famous aphorism, not with a disquisition on the mode of production, but with a paragraph about the way in which ‘the tradition of all the dead generations weighs like a nightmare on the brain of the living’. Historical actors, ‘just when they seem engaged in revolutionizing themselves and things, anxiously conjure up the spirits of the past . . . and borrow from them names, battle cries and costumes’ that allow the ‘new scene of world history’ to be dressed up in ‘time-honoured disguise’. Hitler and his cronies certainly inhabited such a self-fashioned world. And it is with good reason therefore that recent writing on the Third Reich has been preoccupied with politics and ideology. The cultural crises of early twentieth-century Europe, the vacuum left by the secularizing tendencies of the late nineteenth century, the radicalizing horror of World War I, all demand attention from anyone seriously interested in plumbing the deeper motives of National Socialism. How else can we understand a regime that took as its central objective the destruction of European Jewry, an objective apparently devoid of all economic rationale, a project that, if it can be understood at all, seems to be intelligible only in terms of a violent theology of redemptive purifica tion?2
The cultural and ideological turn in the study of Fascism has permanently remodelled our understanding of Hitler and his regime. It is hard to imagine now, but there was a time, not so long ago, when historians routinely dismissed Mein Kampf as a historical source and thought it reasonable to treat Hitler as just another opportunistic imperialist. Those days are gone. Thanks to the work of two generations of historians, we now have a far better understanding of the way in which Nazi ideology conditioned the thought and action of the Nazi leadership and wider German society. But whilst we have been busy unravelling the central ideological and political thread of Hitler’s regime, other crucial strands of the story have been relatively neglected. Most notably, historians have tended to downplay or even ignore the importance of the economy. In part, this has been a deliberate act of rejection. In part, the marginalization of economic history has been self-inflicted. The statistical terminology in which much economic history is couched is inaccessible to readers trained in the humanities, and too little effort has been made by either side to bridge the gap. Perhaps most of all, the turn against socio-economic analysis has been motivated by a sense of ennui, the impression that there is simply nothing new to say, that all the major questions were answered by the first two generations of historians and social scientists writing after 1945, who seized on such topics as the Nazi economic recovery or the history of the war economy.
What we are left with is a historiography moving at two speeds. Whereas our understanding of the regime’s racial policies and the inner workings of German society under National Socialism has been transformed over the last twenty years, the economic history of the regime has progressed very little. The aim of this book is to start a long overdue process of intellectual realignment. To do so, this book reassesses the archival and statistical evidence, much of which has gone unquestioned in sixty years, brings it into dialogue with the latest research, both by historians of the Third Reich and by economic historians exploring the dynamics of the inter-war economy, and asks what light this throws on some of the central questions in the history of Hitler’s regime. How did the fissures in the global power structure created by the great depression of 1929–32 enable Hitler’s government to have such a dramatic impact on the world scene? What was the relationship between the extraordinary imperial ambition of Hitler and his movement and the peculiar situation of the German economy and society in the 1920s and 1930s? How did domestic and international economic tensions contribute to Hitler’s drive to war in 1939 and his restless drive to widen the war thereafter? When and how did the Third Reich develop the Blitzkrieg strategy that is widely seen as the hallmark of its spectacular success in World War II? When the Blitzkrieg failed outside Moscow in December 1941, how did the Third Reich continue the war for almost three and half years against overwhelming material odds? And what are we to make of Albert Speer? In recent years this singular figure has attracted an extraordinary amount of attention, yet, and it is surely a sign of the times, what has been in the foreground has not been Speer’s primary function as Armaments Minister but questions relating to his role as Hitler’s architect, Speer’s personal knowledge of the Holocaust and his tortured efforts after 1945 to come to terms with the truth. This book is the first in sixty years to offer a truly critical account of the performance of the German war economy both under Speer and his predecessors and it casts stark new light on his role in sustaining the Third Reich to its bloody end. For it is only by re-examining the economic underpinnings of the Third Reich, by focusing on questions of land, food and labour that we can fully get to grips with the breathtaking process of cumulative radicalization that found its most extraordinary manifestation in the Holocaust.
The first aim of this book, therefore, is to reposition economics at the centre of our understanding of Hitler’s regime, by providing an economic narrative that helps to make sense of and underpin the political histories produced over the last generation. No less urgent, however, is the need to bring our understanding of the economic history of the Third Reich into line with the subtle but profound rewriting of the history of the European economy that has been ongoing since the late 1980s but has gone largely unnoticed in the mainstream historiography of Germany.
It is hardly an exaggeration to say that historians of twentieth-century Germany share at least one common starting point: the assumption of the peculiar strength of the German economy. Obviously, when Hitler took power Germany was in the midst of a deep economic crisis. But the common sense of twentieth-century European history is that Germany was an economic superpower in waiting, an economic force comparable only to that of the United States. For all the argument there has been over the backwardness or otherwise of German political culture, the assumption of Germany’s peculiar economic modernity has gone largely unquestioned. This assumption frames the writing of much of German social history, as much as it also informs accounts of German imperialism in the foreign policy field. Indeed, so influential has been the assumption of Germany’s economic superiority that it has influenced narratives, not only of German history, but those of other countries as well. For most of the twentieth century it was Germany with which Britain, France, Italy and even the United States were compared.
From the vantage point of the early twenty-first century, it is this assumption that we must start by challenging. Both the real-life experience of Europeans since the early 1990s and a generation of technical work by economists and economic historians has shaken, if not demolished, the myth of Germany’s peculiar economic superiority. The master-narrative of European economic history in the twentieth century, it turns out, was one of progressive convergence around a norm that was defined for most of the period, not by Germany, but by Britain, which in 1900 was already the world’s first fully industrial and urban society. Furthermore, Britain up to 1945 was no mere European country; it was the largest global empire the world had ever seen. In 1939, as the war started, the combined GDP of the British and French empires exceeded that of Germany and Italy by 60 per cent. Of course, the idea of inherent German economic superiority was not simply a figment of the historical imagination. Germany from the late nineteenth century onwards was the home for a cluster of world-beating industrial companies. Brand names like Krupp, Siemens and IG Farben gave substance to the myth of German industrial invincibility. Viewed in wider terms, however, the German economy differed little from the European average: its national per capita income in the 1930s was middling; in present-day terms it was comparable to that of Iran or South Africa. The standard of consumption enjoyed by the majority of the German population was modest and lagged behind that of most of its Western European neighbours. Germany under Hitler was still only a partially modernized society, in which upwards of 15 million people depended for their living either on traditional handicrafts or on peasant agriculture.
What strikes one today as the defining feature of twentieth-century economic history is not the peculiar dominance of Germany or any other European country, but the eclipse of the ‘old Continent’ by a sequence of new economic powers, above all the United States. In 1870, at the time of German national unification, the population of the United States and Germany was roughly equal and the total output of America, despite its enormous abundance of land and resources, was only one-third larger than that of Germany. Just before the outbreak of World War I the American economy had expanded to roughly twice the size of that of Imperial Germany. By 1943, before the aerial bombardment had hit top gear, total American output was almost four times that of the Third Reich.
We start the twenty-first century, therefore, with an altered historical perception from that which framed narratives of German history for most of the last hundred years. On the one hand we have a sharpened appreciation of the truly exceptional position of the United States within the modern global economy. On the other hand the common European experience of ‘convergence’ provides us with a distinctly disenchanted perspective on Germany’s economic history. The basic and possibly most radical contention of this book is that these interrelated shifts in our historical perception require a reframing of the history of the Third Reich, a reframing which has the disturbing effect both of rendering the history of Nazism more intelligible, indeed eerily contemporary, and at the same time bringing into even sharper relief its fundamental ideological irrationality. Economic history throws new light both on the motives for Hitler’s aggression and on the reasons why it failed, why indeed it was bound to fail.
In both respects, America should provide the pivot for our understanding of the Third Reich. In seeking to explain the urgency of Hitler’s aggression, historians have underestimated his acute awareness of the threat posed to Germany, along with the rest of the European powers, by the emergence of the United States as the dominant global superpower. On the basis of contemporary economic trends, Hitler predicted already in the 1920s that the European powers had only a few more years to organize themselves against this inevitability. Furthermore, Hitler understood the overwhelming attraction already exerted on Europeans by America’s affluent consumer lifestyle, an attraction whose force we can appreciate more vividly, given our sharpened awareness of the more generally transitional status of the European economies in the inter-war period. As in many semi-peripheral economies today, the German population in the 1930s was already thoroughly immersed in the commodity world of Hollywood, but at the same time many millions of people lived three or four to a room, without indoor bathrooms or access to electricity. Motor vehicles, radios and other accoutrements of modern living such as electrical household appliances were the aspiration of the social elite. The originality of National Socialism was that, rather than meekly accepting a place for Germany within a global economic order dominated by the affluent English-speaking countries, Hitler sought to mobilize the pent-up frustrations of his population to mount an epic challenge to this order. Repeating what Europeans had done across the globe over the previous three centuries, Germany would carve out its own imperial hinterland; by one last great land grab in the East it would create the self-sufficient basis both for domestic affluence and the platform necessary to prevail in the coming superpower competition with the United States.
The aggression of Hitler’s regime can thus be rationalized as an intelligible response to the tensions stirred up by the uneven development of global capitalism, tensions that are of course still with us today. But at the same time an understanding of the economic fundamentals also serves to sharpen our appreciation of the profound irrationality of Hitler’s project. As this book will show, Hitler’s regime after 1933 undertook a truly remarkable campaign of economic mobilization. The armaments programme of the Third Reich was the largest transfer of resources ever undertaken by a capitalist state in peacetime. Nevertheless, Hitler was powerless to alter the underlying balance of economic and military force. The German economy was simply not strong enough to create the military force necessary to overwhelm all its European neighbours, including both Britain and the Soviet Union, let alone the United States. Though Hitler scored brilliant short-term successes in 1936 and 1938, the diplomacy of the Third Reich failed to bring about the anti-Soviet alliance proposed in Mein Kampf. Faced with a war against Britain and France, Hitler was forced at the last moment to resort to an opportunistic arrangement with Stalin. The devastating effectiveness of the Panzer forces, the deus ex machina of the early years of the war, certainly did not form the basis for strategy in advance of the summer of 1940, since it came as a surprise even to the German leadership. And though the victories of the German army in 1940 and 1941 were undoubtedly spectacular they were inconclusive. We are thus left with the truly vertiginous conclusion that Hitler went to war in September 1939 without any coherent plan as to how actually to defeat the British Empire, his major antagonist.
Why did Hitler take this epic gamble? This surely is the fundamental question. Even if the conquest of living space can be rationalized as an act of imperialism, even if the Third Reich can be credited with a remarkable effort to muster its resources for combat, even if Germany’s soldiers fought brilliantly, Hitler’s conduct of the war involved risks so great that they defy rationalization in terms of pragmatic self-interest.3 And it is with this question that we reconnect to mainstream historiography and its insistence on the importance of ideology. It was ideology which provided Hitler with the lens through which he understood the international balance of power and the unfolding of the increasingly globalized struggle that began in Europe with the Spanish Civil War in the summer of 1936. In Hitler’s mind, the threat posed to the Third Reich by the United States was not just that of conventional superpower rivalry. The threat was existential and bound up with Hitler’s abiding fear of the world Jewish conspiracy, manifested in the shape of ‘Wall Street Jewry’ and the ‘Jewish media’ of the United States. It was this fantastical interpretation of the real balance of power that gave Hitler’s decision-making its volatile, risk-taking quality. Germany could not simply settle down to become an affluent satellite of the United States, as had seemed to be the destiny of the Weimar Republic in the 1920s, because this would result in enslavement to the world Jewish conspiracy, and ultimately race death. Given the pervasive influence of the Jews, as revealed by the mounting international tension of the late 1930s, a prosperous future of capitalist partnership with the Western powers was simply impossible. War was inevitable. The question was not if, but when.
This is a long book and, since it is written to be read from beginning to end, I don’t want to deflate the tension by revealing the decisive punch lines in the first few pages. Suffice to say that, though the broad outline of the history of the Third Reich has been deeply engraved in decades of painstaking investigative labour, the story as it is told here is new. My goal is to provide the reader with a deeper and broader understanding of how Hitler established himself in power and mobilized his society for war. I provide a new account of the dynamic that launched Germany into war and explain both how this sustained a successful war effort up to 1941 and how it reached its inevitable limit in the Russian snow. Next, the book takes on what is surely still the fundamental interpretative challenge facing any historian of the Third Reich, and perhaps particularly an economic historian: explaining the Holocaust. Drawing both on archival material and a generation of brilliant historical research, I emphasize the connections between the war against the Jews and the regime’s wider projects of imperialism, forced labour and deliberate starvation. In the minds of the Nazi leadership, there were, in fact, not one but a number of different economic rationales for genocide. Finally, building on these decisive chapters on 1939–42, I explain the extraordinary coercive effort through which the regime sustained Germany’s war effort for three bitter years, at the heart of which stood Albert Speer.
Those who at this point are already impatient for more specific conclusions should turn to Chapter 20, which provides a brief summary of at least some of the key points.

20
The End
The jaws of defeat finally closed on the Third Reich in the last week of April 1945. Just before midday on 25 April advanced patrols of the US 1st Army’s 69th infantry division and the Soviet 1st Ukrainian Army linked up on the banks of the Elbe at the small Saxon town of Strehla amidst the gruesome wreckage of a German refugee trek. The banks of the river, where Lieutenant Albert Kotzebue’s GIs embraced their Soviet counterparts, were littered with the dismembered corpses of dozens of old men, women and children. Three days earlier they had fallen victim to retreating Wehrmacht soldiers, who had been so desperate to escape capture by the Red Army that they had blown up the makeshift pontoon bridge whilst hundreds of civilians were still streaming across it. As many as four hundred may have drowned or been blown to pieces by the twin detonations.
Not surprisingly, the official occasion for the world-defining Soviet–American encounter was shifted 45 kilometres downstream to the town of Torgau, where contact was made later the same afternoon. The official photograph on Torgau’s broken-backed bridge was staged the following day. Contrived though it may have been, the handshake was highly significant. Along the course of the Elbe, Torgau lay midway between the burned-out baroque splendour of Dresden and the cradle of Lutheran Europe at Wittenberg. A few miles further to the north was Dessau, home not only to the Junkers bomber factories but also to the seminal early twentieth-century modernism of the Bauhaus. In Germany there was no more symbolic terrain on which to enact the epochal shift in the global balance of power from old Europe to the new powers of the United States and the Soviet Union.
From an economic point of view, Torgau was the logical outcome of two truly dramatic developments that defined the early twentieth century. The first and most obvious was the emergence of the United States as the dominant force in the world economy. The second, which did not become apparent until the 1930s, was the astonishing transformation of the Russian Empire wrought by the Bolshevik dictatorship. As the linking up of American and Soviet infantrymen deep in the heart of Central Europe confirmed, the history of the Continent in the first half of the twentieth century, the history of Germany and the history of Hitler’s regime cannot be understood but in relation to these twin developments in the United States and the Soviet Union. Certainly, this is the backdrop against which this particular account of the rise and fall of the Nazi economy has been set.
Hitler never ceased to hark back to the revolutions that swept Europe in 1917–18. Anti-Communism was an unwavering element in his politics, tightly interwoven with a particularly toxic form of conspiratorial anti-Semitism. But anti-Communism was generic on the German right, as were projects of Eastern expansionism. Furthermore, though the Soviet Union remained a looming presence in European affairs, it turned inwards from the late 1920s onwards and in the 1930s tended to be belittled as a factor in European power politics. To identify the peculiarity and motivating dynamic of Hitler’s regime, it therefore seemed more illuminating in the early chapters of this book to focus on the relations between the Third Reich and the Western powers.
The rise of the United States confronted Germany, as it did Britain and France, with a choice. With Stresemann as Foreign Minister, the Weimar Republic responded with remarkable flexibility and realism to the new situation. As we have shown, the Weimar Republic premised its entire security strategy on the economic power of the United States, both as a guarantor of its security and as a lever through which to pressure Britain and France into revision of the Treaty of Versailles. And as we have seen, this strategic choice continued to define the policy of the last respectable government of the Weimar Republic up to the summer of 1932. Not until the final spasm of the Great Depression in 1932–3 and the collapse of American hegemony in Europe was the path really open for Hitler’s brand of aggressively unilateralist nationalism.
In one of his final conversations with Martin Bormann, in February 1945, Hitler remarked: ‘An unfortunate historical accident fated it that my seizure of power should coincide with the moment at which the chosen one of world Jewry, Roosevelt, should have taken the helm in the White House . . . Everything is ruined by the Jew, who has settled upon the United States as his most powerful bastion.’1 What weighed on Hitler’s mind, in the last months of the war, was the pivotal role played by Roosevelt in frustrating his project of Continental conquest. In 1933, however, the role of the United States was the reverse. As Hitler came to power and Roosevelt took office, the American economy was racked by a last, devastating banking crisis. Washington’s decision to unfasten the dollar from gold, taken without regard to its international ramifications, destroyed what little chance there was of assembling a combined international front to contain Hitler’s regime before it had consolidated its grip on Germany. The coincidence of Hitler’s seizure of power with America’s temporary retreat from global affairs–a retreat that left Europe orphaned as it had not been since World WarI–was of incalculable importance.
Though he disagreed profoundly with Stresemann’s strategy in relation to the United States, Hitler was by no means oblivious to the changed world of the 1920s. In his ‘Second Book’, written in 1928, Hitler posed the central strategic questions with startling clarity: how was Germany, as a European state, to react to the ‘threatened global hegemony of North America’? How could it forestall America’s seemingly inevitable economic and military dominance? How was Germany’s political leadership to respond to the material aspirations awakened in its population by the example of American affluence? These are undeniably modern questions. Indeed, they are with us still. Hitler’s answers, however, were explosive. The solution was not to ally Germany with the United States, or to adopt American modes of life and production. Any such attempt at ‘Americanization’ was bound to end in frustration and disaster. Behind America, after all, stood the malevolent force of world Jewry, cloaked in the garb of liberalism, capitalism and democracy. The only adequate response to the American challenge was to create a Lebensraum for the German people sufficient to match that provided by the continent of the United States. Space on this scale was only available in the East and it could be attained only through conquest. There seems no reason to doubt that this mission of conquest was the sustaining ambition of Hitler’s regime. For Hitler, a war of conquest was not one policy option amongst others. Either the German race struggled for Lebensraum or its racial enemies would condemn it to extinction.
Mounting such a challenge required a diplomatic strategy and a major military effort, both of which were ultimately founded on economics. The enormous effort of national mobilization must be the central focus of any account of the economic history of Hitler’s regime. By comparison with the military-industrial complex, the various civilian work creation measures set in motion between June and December 1933, the domestic social policy initiatives and abortive projects of mass-consumption that followed, were nothing more than interim measures, which could attain their real significance only after a successful campaign of conquest. In any case, it would be a mistake to assume that the remilitarization of German society was something imposed from the top down, with the majority of Germans preferring butter to guns. For many millions, the reconstruction of the Wehrmacht was clearly the most successful aspect of the regime’s domestic policy and the collective mass-consumption of weaponry was a more than sufficient substitute for private affluence. As should be evident from the first half of this book, rearmament was the overriding and determining force impelling economic policy from the earliest stage. Everything else was sacrificed to it. In the six years between January 1933 and the autumn of the Munich crisis, Hitler’s regime raised the share of national output going to the military from less than 1 to almost 20 per cent. Never before had national production been redistributed on this scale or with such speed by a capitalist state in peacetime. This extraordinary effort at redistribution was certainly eased by the simultaneous growth in German output. Putting to work 6 million unemployed provided for the needs of the Wehrmacht, whilst allowing consumption and civilian investment to be increased as well. But it is easy to forget, given its wealth today, that Germany in the 1930s was a generation away from affluence and that the majority of the population subsisted on a very modest standard of living. Rearmament came at a serious cost and this was made even more pressing by the often crippling constraints imposed by Germany’s balance of payments. Already in 1934 the interests of both consumer goods industries and farmers were being sacrificed to rearmament. From 1935 in many German cities, butter and meat were surreptitiously rationed. From 1938 onwards, with military spending reaching wartime levels, the trade-off between consumption and armaments became truly severe. That Hitler’s regime was able to impose this redistribution of resources betokens not inefficiency and disorganization, but a system that was highly effective in pursuit of its central objectives. Furthermore, it should lead us to question any interpretation of Hitler’s regime based on the assumption that it lacked solid internal foundations. To reiterate, the Third Reich shifted more resources in peacetime into military uses than any other capitalist regime in history. And this advantage in terms of domestic resource mobilization continued to hold throughout the ensuing world war.
So far-reaching were the regime’s interventions in the German economy –starting with exchange controls and ending with the rationing of all key raw materials and the forced conscription of civilian workers in peacetime–that one is tempted to make comparisons with Stalin’s Soviet Union. Such a comparison is certainly suggestive in pointing to the kind of synthesis between militarization and domestic social and economic restructuring that might have been necessary to fulfil Hitler’s ambitions. Since the emergence of the United States as a world power in the early twentieth century, only Soviet-style militarism has been able to mount a credible and sustained challenge to its hegemony. And judged against Stalin’s regime, one might indeed describe Hitler’s state as a ‘weak dictatorship’. As we have seen, this was the conclusion reached by well-informed observers such as General Franz Halder in the autumn of Barbarossa’s failure in 1941. Most notably, in comparison with the Soviet Union, the Third Reich shrank from a dramatic rationalization of the most backward sectors of its society, peasant agriculture and the craft sector, a measure which might have ‘freed’ millions of additional workers. But given what we now know about the Generalplan Ost and the comprehensive agrarian restructuring that it was supposed to initiate, it seems that this was a matter of timing. The comprehensive restructuring of German society was simply postponed until after the conquest of Lebensraum in the East. If one must therefore concede that the Nazi party, unlike the cadres of Soviet Communism, was not a battle-hardened weapon of class war, by Western European standards it can hardly be faulted for its lack of redistributional energy. Never before, in peacetime, had a sophisticated capitalist economy been redirected so purposefully.
Setting aside the Stalinist counterfactual, one might equally well ask the opposite question. How was the Third Reich able to push its control over the German economy as far as it did? Why did Germany’s business lobby tolerate this dramatic intrusion of state power after 1933? Only a decade earlier, ‘big business’ had after all played an important part in frustrating the reforming ambitions of the early Weimar Republic. The answer given here consists basically of four elements. First and foremost, one must emphasize the damage done to the independent power of the business lobby by the Great Depression. Even if they had been predisposed to do so, Germany’s big businessmen were in no position to put up a serious fight in 1933. Secondly, though the Nazi autarchic turn was certainly at odds with the international agenda of the German business lobby, the domestic authoritarianism of Hitler’s coalition was much to their liking, as were the healthy profits that rolled in from the mid-1930s. Thirdly, though there clearly was a dramatic assertion of state power over business after 1933, naked coercion was applied only selectively and in many spheres the regime was only too willing to harness the independent initiative of businessmen, managers and technicians. Finally, given the highly uneven structure of ownership and organization in the German economy and the lack of unity between competing capitalist interests, a series of well-chosen tactical alliances were all that was needed to push vital parts of industry and commerce in the direction desired by the regime.
Once we bear in mind the constraints under which it operated it is, therefore, hard to escape the conclusion that the Third Reich was an extremely effective mobilizing regime. Furthermore, it is clear that this mobilization was from the outset directed towards the resurrection of Germany as a military power and in some general sense towards the achievement of Hitler’s goals of conquest. But if one asks whether this economic mobilization was part of a coherent strategic synthesis, if one asks whether diplomacy, military planning and economic mobilization were united after 1933 in a coherent war plan, the answer delivered by this book is negative. In this respect we still struggle to unpick the effect of hindsight. We know, after all, that up to the frustration of Barbarossa in the autumn of 1941, Hitler’s armies carried all before them. It seems hard to imagine that this remarkable military preponderance was not the result of long-term preparation. But the vertiginous conclusion suggested by recent military history is that this was indeed the case. Germany started the war in September 1939 with no substantial material or technical superiority over the better-established military powers of the West. It was only the fatal interlocking of Allied and German operational planning that led to the defeat of France in a few short weeks in May and June 1940. And it was this in turn that unleashed the Wehrmacht for its rampage through Southern and Eastern Europe in 1941, which was finally and predictably brought to a halt by the enormous expanse of the Soviet Union and the dogged though ill-directed resistance of the Red Army. The central chapters of this book are devoted to unlocking the puzzles that are implied by these compelling findings of battlefield historians. If the huge rearmament drive of the 1930s and the annexation of Austria and Czechoslovakia were not enough to give Germany a substantial material advantage over its enemies, if their immediate effect was to drive Britain and France into abandoning their pacificism in favour of an aggressive strategy of containment and to force both Washington and Moscow to reconsider their positions in Europe, why did Hitler go to war in September 1939?
Faced with this question, some historians choose to argue that Hitler simply miscalculated. He did not intend to precipitate a general European war, they insist. After his experience at Munich in 1938 he expected Britain and France to stand aside in Eastern Europe. It was not Hitler, but the Western powers who chose to turn Poland into a casus belli. That argumentative option is rejected here since it does not accord with the diplomatic evidence of the last days leading up to the war. In August 1939, as in September 1938, Hitler was confronted with the near certainty that Britain and France would declare war. On the former occasion he had pulled back. In 1939 he chose not to. Why he plunged forward rather than pulling back is explained in this book through a novel synthesis of three distinct elements.
The first point to emphasize is that Hitler knew by the summer of 1939 that his effort to develop a long-term programme of preparation for a war with the Western powers had failed. This, indeed, is one of the key findings of this book. Though, in 1938, Hitler’s regime did attempt to respond to the growing resistance of the Western powers by embarking on a gigantic programme for ‘full spectrum’ rearmament and though Hitler and Ribbentrop did attempt to create a global alliance with the reach to match the emerging Western coalition, this attempt was frustrated. By the summer of 1939, German efforts to unite Italy and Japan into a triple threat against the British had manifestly failed. Furthermore, as this book shows for the first time in full detail, the German armaments economy in the summer of 1939 was being seriously squeezed by the persistent problems of the balance of payments. This is not to say that the Third Reich was facing an economic crisis. The combination of controls put in place in the course of the 1930s was undeniably effective in preventing the recurrence of a general crisis of the kind that had come close to destabilizing Hitler’s regime in 1934. But in 1939 the precarious situation of the German balance of payments permitted no further acceleration of the armaments effort. Since Britain, France, the United States and the Soviet Union were all accelerating their rearmament at precisely this moment, Hitler found himself facing a sharp deterioration in the balance of forces at a date far earlier than he had expected.
Adding to the pressure for immediate action was the dramatic shift in the global diplomatic constellation. Through his breakneck aggression in 1938 and early 1939 Hitler had dismantled the French security cordon in Central Europe that had hinged on Czechoslovakia. However, after the occupation of Prague in the spring of 1939 the diplomatic fronts were hardened by the British and French guarantees to Poland and Romania. Everything now depended on the behaviour of the two flanking powers, the United States and the Soviet Union. In the summer of 1939 Stalin’s decision to opt for a strategy based on fomenting inter-capitalist war tilted the balance in favour of Germany. The Nazi–Soviet pact guaranteed Germany against a second front in the East, and protected it against the worst effects of the much feared Anglo-French blockade. One can therefore construct a compelling economic-strategic rationale for Hitler’s decision to go to war in September 1939. Given Germany’s deteriorating economic position and the unexpectedly favourable shift in the diplomatic balance, Hitler had nothing further to gain by waiting. And as we have seen, Hitler spelled out this logic in virtually these words to anyone who would listen after September 1939.
But to confine ourselves to these rational elements of strategy would be to miss the crucial third ingredient in Hitler’s decision-making process. To argue in terms of a strategic window of opportunity begs the question of why Hitler believed that war with the Western powers was inevitable. Why did he feel compelled to seize the opportunity, to gamble the future of his entire regime on a war with Britain and France, at a moment when Germany enjoyed, at most, only a slender military advantage? To explain this decision we must invoke ideology. This might seem paradoxical in light of the fact that Hitler was departing so flagrantly from the programme outlined in Mein Kampf. In that book, dictated in a prison cell in Landsberg fifteen years earlier, Hitler had called for an Anglo-German alliance against the Judaeo-Bolshevik threat. In 1939 he went to war with fronts reversed: in alliance with Stalin against Britain. This, however, is simplistic. The key to Hitler’s ideology was not a particular diplomatic schema, but his obsessive fixation on racial struggle and in particular the antagonism between Aryans and Jews. In the Four Year Plan memorandum of 1936, the emphasis had still been on the Judaeo-Bolshevik conspiracy. Two years later, as foreign policy and armaments policy were directed ever more clearly against the West, there is a striking parallel in the shifting focus of the regime’s anti-Semitic rhetoric. From 1938 onwards, in Hitler’s public utterances, the Jewish question in its wider sense was emphatically a Western and above all an American question. As was shown in Chapters 8 and 9, from the Évian conference onwards and with ever greater intensity after Kristallnacht, President Roosevelt was identified as the chief agent of a worldwide Jewish conspiracy bent on the destruction of National Socialist Germany. It was no coincidence that Hitler’s famous threat of annihilation of 30 January 1939 came as a direct response to Roosevelt’s State of the Union address. The United States, as everyone understood, was the key to deciding the balance of the arms race. If Britain and France could count firmly on American aid, their position would be well nigh unassailable. But the position of the United States was precariously balanced. Whilst Roosevelt led the rhetorical assault against Hitler and encouraged Britain, France and Poland in their resistance to Nazi expansionism, isolationist currents in the United States were still strong. Hitler and the rest of the Nazi leadership could not help but interpret this complex situation through the dark haze of Manichaean anti-Semitism. For them, it was obvious that it was Jewish elements in Washington, London and Paris, bent implacably on the destruction of Nazi Germany, that were tightening the international encirclement. And it was this paranoid sense of menace that precipitated Hitler’s decision to launch his strike against Poland and then against the Western coalition that continued to stand obstinately in his way.
It is perhaps not surprising that this factor was not emphasized in the speeches that Hitler made to the military leadership between May and August 1939–certainly not in the notes taken by the military men who attended. But after the fact Hitler made no secret of its importance. Most emphatically in their conversations with the Italian leadership in the spring of 1940, both Hitler and Ribbentrop stressed the role of world Jewry in forcing the pace of events in 1939. And what is more, this peculiar combination of strategic and economic factors, overarched by Hitler’s abiding anti-Semitic obsession, is capable not only of accounting for Hitler’s decision to go to war. It can also make sense of his subsequent willingness to escalate the conflict to an ever larger scale. The decision to risk a general European war over Poland, the decision in the summer of 1940, after having defeated France but not having defeated Britain, to begin immediate preparations for an attack on the Soviet Union and finally in November–December 1941 the decision to support Japan in its aggression against the United States, all followed the same pattern. Faced with the coalition of enemies that had first shown itself in 1938, orchestrated, as Hitler believed, by the ‘chosen one of world Jewry’, he knew that time was not on his side. The combined economic might of the Western powers, added after June 1941 to that of the Soviet Union, was overwhelming. If he was ever to secure the Lebensraum that Germany needed for true strategic freedom, Hitler needed to strike hard and fast.
In relation to the early years of World War II, there are four points of novelty to emphasize as conclusions of this book.
The anti-Western turn in Nazi anti-Semitism, which we have identified as an important theme of 1938–9, continued unabated throughout 1940 and 1941. Having precipitated the war by backing Britain and France in their guarantee for Poland, Roosevelt was now prolonging the war by backing Churchill in his refusal to surrender, a constellation which in Berlin could be explained only by reference to the malevolent role of Jews in both Washington and London. This in turn implies that as far as motivation is concerned any hard and fast distinction between the wars in the West and the East must be softened if not abandoned altogether. Though in their modes of execution the wars were drastically different, to think of them as motivated in fundamentally different ways is mistaken. The war in the West against Churchill and Roosevelt was no less an ideological war than the war for Lebensraum in the East. And though the primary motivation for invading the Soviet Union in 1941, as opposed to a later date, was to force the pace of events in the West, by driving Britain into submission before America could intervene, this too must be seen as part of the larger war against world Jewry. To counterpose this ‘strategic rationale’ to Hitler’s long-held ideological vision of a war of conquest in the East is to pose a false alternative. Since 1938 Hitler had seen himself as locked in a global confrontation with world Jewry. Linking the campaign in the East to the war in the West, therefore, in no way diminishes its ideological content.
Having cleared aside that possible source of misunderstanding, the second point to make is that there was a compelling economic case for Hitler’s decision to widen the war in 1941. The astonishing defeat of France in the early summer of 1940 had promised to change everything. But in fact the Wehrmacht’s spectacular victory did not resolve Hitler’s fundamental strategic dilemma. The German navy and air force were too weak to force Britain to the negotiating table. The competitive logic of the arms race continued to apply in 1940 and 1941. Rather than surrender to Hitler’s will, Britain proved willing to go to the point of national bankruptcy before being rescued by lend-lease. And thanks to its comparatively abundant foreign reserves and American assistance it could mobilize a far larger percentage of foreign resources than Germany at this critical point in the war. In Berlin, by contrast, once the euphoria of victory had worn off, a considerable disillusionment set in over the economic viability of Germany’s new Grossraum. Conquering most of Western Europe added a drastic shortage of oil, nagging difficulties in coal supply and a serious shortage of animal feed to Germany’s already severe deficiencies. The populations of Western Europe were a vital asset, as was their industrial capacity, but, given the constraints imposed by the British blockade, it was far from clear that these resources could be effectively mobilized. Unless Germany could secure access to the grain surpluses and oil of the Soviet Union, and organize a sustained increase in coal production, continental Europe was threatened with a prolonged decline in output, productivity and living standards. Added to which, Roosevelt had launched his own spectacular rearmament programme within days of Germany’s breakthrough at Sedan. The strategic pressure on Hitler to pre-empt decisive American intervention in the war can only really be appreciated if we do full justice to the scale of the Anglo-American effort from as early as the summer of 1940. In this respect, the truly vast discrepancy between Anglo-American aircraft procurement and Germany’s relatively insignificant outsourcing to France and the Netherlands is very telling. It was an imbalance that was not lost on Goering and the German Air Ministry.
Giving due weight to the trans-Atlantic arms race in German calculations in 1940–41 also helps us to explain another conundrum which has continued to preoccupy students of the Nazi regime and which seriously influences the way in which we write its history. Contrary to the claims of some authors, the Ostheer of 1941 was considerably more powerful than that which invaded France. But it is equally undeniable that it was a force carefully calibrated on the assumption that the Red Army could be destroyed in a short campaign. German planning provided for no margin of error. Even on a charitable reading, therefore, the Barbarossa campaign was surrounded by enormous risks. It appears irrational and foolhardy when this evidence of minimal mobilization is combined with the most widely cited industrial statistics, which appear to show stagnation in armaments output and a catastrophic collapse in labour productivity between 1940 and 1941. In the light of this data, it would seem that complacency and inefficiency following the victory over France, combined with racist condescension towards the Soviets, prevented the Wehrmacht from maximizing its chances in what was clearly the decisive campaign of the war. If this were true, this moment of ‘failure’ should clearly stand at the centre of our entire interpretation of Hitler’s regime. However, once we consider the wider strategic situation and combine this with critical scrutiny of the economic evidence, a very different picture emerges. The idea that armaments production in Germany lagged in 1940–41 and that there was a dramatic collapse in productivity is in large part a statistical illusion. Furthermore, a narrow focus on armaments production ignores what was one of the most distinctive features of the early German war effort, a huge wave of investment that continued almost uninterruptedly between 1939 and 1942. When we give this its due weight, we realize something crucial. Thanks to America’s backing for Britain, Germany continued to be locked into the logic of the trans-Atlantic arms race, even whilst it was girding itself for Barbarossa. Germany’s industrial resources could never be fully concentrated on the Soviet Union, because at the same time enormous preparations needed to be set in train for the coming air war with Britain and America. It was after the stupendous German military victories in France, therefore, that Hitler adopted what can justifiably be described as a Blitzkrieg strategy, a coordinated strategy in which both armament production and strategic planning were premised on the assumption of swift and decisive battlefield victory over the Red Army. Its purpose, however, was not to cushion the civilian population. Its purpose was to allow Germany to fight two wars at once.
One might in fact say that the Third Reich in the spring of 1941 was preparing itself not for two wars, but for three wars: one against the Red Army, one against the British and Americans and a third against the civilian population of Eastern Europe, beginning with the Jews. And here too ‘pragmatic economic’ motives and genocidal ideology were inseparably intertwined. On the one hand the SS programmes of genocidal population clearance, to begin with the Jews, were embedded in the Generalplan Ost in an extraordinary vision of agricultural and industrial colonization. Conversely, in the Hunger Plan agreed by the Ministries in the spring of 1941 the most straightforward pragmatic calculation of the food supply was combined with assumptions of racial hierarchy to produce a plan for mass murder, which dwarfed even the Wannsee programme.
This global Blitzkrieg, this grand strategy of racial war, turned out, however, to be a strategy not of victory but of defeat. Already at Smolensk in July–August 1941 Barbarossa ran aground. Meanwhile America was ever more firmly committed to providing aid both to Britain and the Soviet Union. Faced with the ever greater certainty of having to fight a two- or even three-front war, the extraordinary strategic synthesis that the Third Reich had concocted over the previous twelve months fell apart. By December Hitler, true to his conspiratorial logic, had declared war on the United States in alliance with the Japanese. Convinced that open war with the United States was, in any case, only a matter of months away, he seized on the strategic diversion provided by the Japanese offensive in the Pacific. It was to his verbal exchanges of January 1939 with Roosevelt that Hitler repeatedly returned in the autumn of 1941 as he was mulling over both the ultimate shape of the Final Solution and the possibility of a strategic escape from the two-front war in which the Third Reich now found itself.
By any reasonable estimation, Hitler’s declaration of war on the United States sealed the fate of Germany. The economic and military forces arrayed against the Third Reich by early 1942 were overwhelming. As we have shown, this fatalistic view was shared by all those most closely involved with the management of the German war effort up to the Moscow crisis. Udet of the Luftwaffe, Fromm of the army, Thomas of the Wehrmacht high command, Todt in the Armaments Ministry, Canaris in intelligence, Rohland and his colleagues in the Ruhr, all came to the same conclusion. All these men had thrown in their lot with Hitler’s regime. But they were not ignorant of the basic trends of early twentieth-century history. They were as convinced as the vast majority of their contemporaries of the pivotal importance of the United States economy. None of them doubted that once American industrial capacity was mobilized–and they were fully aware of the measures that had already been taken in 1940 and 1941–Germany’s situation would be worse than that of 1918. To have thought anything else would have been to fly in the face of contemporary common sense, well reflected in the anxieties of the general public that were faithfully recorded by Gestapo informants. The full extent of America’s production triumphs after 1942 came as a surprise even to the Americans. But the basic script had already been written in 1917–18 and in the endless retelling of the Fordist narrative throughout the 1920s and 1930s. And the fact was, of course, that the pessimism of the leading German experts did not even give full weight to the extraordinary industrial and military staying power of the Soviet Union that in fact turned out to be the Wehrmacht’s main problem in 1942 and 1943.
This pessimism, however, should throw stark light on the group of individuals who took charge of the German war effort in the aftermath of the Moscow crisis. There has never been any argument about the motivations of men such as Herbert Backe, the orchestrator of the Hunger Plan, or Gauleiter Fritz Sauckel with his pan-European press-gangs. Nor should there be any further argument about Albert Speer. These men were not unpolitical agents of technocratic efficiency. They were the Hitler loyalists willing to do their bit for the Third Reich to the bitter end. They were the men on whom Hitler could rely even in the last months of the war. And they would literally stop at nothing to continue the fight. Speer’s ‘armaments miracle’ relied on resources mobilized by every facet of the Nazi state. The Reichsbank, the Ministry of Economic Affairs and the Finance Ministry played an important but largely unacknowledged role in preserving the stability of the German currency, at least until the beginning of 1944. German industry rallied all its energies in a desperate effort to prevail against the Soviet Union. But these seemingly innocuous components of the German war effort were multiply interconnected with the sinister nexus of political power organized around the questions of labour and food by Gauleiter Sauckel, State Secretary Herbert Backe, Hermann Goering and Heinrich Himmler. Through their combined efforts, in 1942 millions of extra workers were mobilized for German industry and the food balance of Europe was drastically redistributed so as to secure the calories and protein necessary to fuel Albert Speer’s armaments miracle. As we showed in Chapter 16, in the summer of 1942 even the wholesale gassing of the Jews of Poland was made to serve a functional purpose in this radicalized form of Total War. And from the summer of 1943 onwards Speer came to rely ever more heavily on a coercive partnership with Heinrich Himmler and the SS.
The emphasis on rationalization in the management of the German war effort that emerged from the crisis of 1941 was certainly new. And after Speer’s appointment German armaments output did increase. However, to treat this as the apolitical expression of Speer’s technocratic abilities is to miss the point. The entire purpose of the ‘armaments miracle’ was political. Loudly trumpeted by the new line in ‘armaments propaganda’, it served to answer the fundamental doubt that increasingly beset the German war effort. The essential message of the rationalization campaign was that Germany’s obvious material inferiority need not be fatal. With the proper application of will-power and energetic youthful improvisation, more could be produced for less. And, as the Wehrmacht had so often demonstrated, there was no limit to what German soldiers could achieve, provided only that they had the necessary weapons.
The point is not of course to dismiss entirely the increase in armaments production achieved by Speer and Milch. It was real enough. But no less real was its strategic failure. The essence of Hitler’s gamble in December 1941 was timing. After the declaration of war on the United States the need to achieve a decisive success against the Red Army was more pressing than ever. In this crucial respect Speer’s Armaments Ministry failed. In 1942, in the first full flush of the ‘armaments miracle’, Germany was considerably outproduced by the extraordinary mobilization of the Soviet economy. This Soviet effort was unsustainable. By 1944 Germany had caught up with and overtaken the Soviet Union. But as both the Soviets and the Germans knew, the summer, autumn and winter battles of 1942–3 were the key to deciding the war on the Eastern Front. And in this crucial period it was the Soviet factories that prevailed. This window of opportunity was so important because during most of 1942 Britain and America’s offensive operations against the Third Reich were marginal in their impact. As of the autumn of 1942 this was no longer the case. The weight of British and American material made itself felt first in North Africa and the Mediterranean, then in the defeat of the German U-boats and, as of the spring of 1943, in sustained aerial bombardment. Combined with the elimination of Mussolini in July 1943, the opening of a significant ‘second front’ had a truly dramatic effect. For six months in 1943 the disruption caused by British and American bombing halted Speer’s armaments miracle in its tracks. The German home front was rocked by a serious crisis of morale. By July 1943 the war was obviously lost.
The final, famous acceleration of German armaments production in 1944, on which the reputation of Speer’s Armaments Ministry largely rests, took place amidst a maelstrom of apocalyptic violence that consumed the lives of millions of people and laid waste to a large part of the Continent. First in the Mittelbau and then in the brutal practices of the Jaegerstab, the murderous violence of the SS police state was imported directly into the war economy. Tens of thousands of out-of-date fighters were squeezed out of Germany’s factories in the first half of 1944 by mobilizing all available labour and materials, applying virtually limitless powers of repression and exploiting every possibility for economies of scale. In the summer of 1944, Speer and the Jaegerstab maintained a telephone hotline to the ramp at Auschwitz, where SS guards were processing the Jews of Hungary, the last great population to be fed to the gas chambers. It was in the dank, deathly gloom of Hans Kammler’s underground factories that the Third Reich made its final futile bid to match the Americans in mass-production.
Hitler had prophesied that if Germany did not prevail against its enemies, it would face a national catastrophe unlike anything in modern history. From 1942 onwards he and his collaborators, Albert Speer chief amongst them, steered Germany directly towards this outcome. Even now, the damage inflicted by Hitler’s regime and by his futile war is almost unbearable to contemplate. Decades after the event, the memory of the harm done–to the population of Europe, to the physical fabric of daily life, to the very idea of European civilization–is still enough to inspire feelings of despair, rage and resentment, and not only on the part of Germany’s victims. Here is not the place to attempt a review of this horror. But since economic historians have ways of making disasters, such as that which Germany brought down upon itself in 1945, disappear from the long-run trajectory of economic growth, it is worth lingering a little on this scene.
The destruction and human misery in Germany in 1945 is barely describable in its scale.2 As the Third Reich collapsed, quite apart from the millionfold murder that Germany had committed across Europe, more than one-third of the boys born to German families between 1915 and 1924 were either dead or missing. Amongst those born between 1920 and 1925 losses amounted to 40 per cent. The rest of the German population was subject to uprooting and displacement on a truly epic scale. Whilst the 11 million Wehrmacht men who had survived the war in uniform were herded into makeshift prisoner of war camps administered by the occupying forces, a similar number of 9–10 million non-German displaced persons enjoyed an unwonted degree of freedom, whilst they waited to be repatriated to their homes in Eastern and Western Europe. At the same time 9 million German evacuees streamed back towards their devastated cities. Meanwhile, to the east there was an extraordinary human avalanche, as 14.16 million ethnic Germans were driven systematically out of their homes in Eastern and Central Europe by the embittered Slav population. Of this spectacular exodus at least 1.71 million would die en route. The country to which they ‘returned’ presented a scene of devastation and poverty that defies description. Large parts of Germany had been reduced to ‘a rubble-strewn wasteland in which the living often envied the dead’.3 At least 3.8 million out of a stock of 19 million apartments had been destroyed. In the cities hit hardest by the bombing, losses in housing stock ran to 50 per cent.4 Huddled in overcrowded and half-ruined apartments, the German population, which until the autumn of 1944 had been reasonably well fed, now starved and froze.
Unlike the Germans during their reign over Europe, the Allies did what was necessary to keep the German population alive. But they did so with reservations. As General Lucius D. Clay, Eisenhower’s deputy, put it in June 1945: ‘Conditions are going to be extremely difficult in Germany this winter and there will be much cold and hunger. Some cold and hunger will be necessary to make the German people realize the consequences of a war which they caused.’5 Nevertheless, Clay also insisted that ‘this type of suffering should not extend to the point where it results in mass starvation and sickness’.6 Joint Chiefs of Staffs Directive 1067, the basic instructions issued to the occupying forces in 1945, specified that food should be provided to Germany sufficient only to prevent ‘disease and unrest’. Until 1948, however, the food supply in all four zones of occupation fell well short of what was required. As a direct result of decisions taken by Speer and the Zentrale Planung in 1943 and 1944, the nitrogen fertilizer needed by German farms had been directed instead to the production of explosives and ammunition. Yields were drastically down. To make matters worse, Germany’s richest grain surplus area east of the Oder–Neisse was awarded to the Poles at the Potsdam agreement. Supplies were brought in from across the Atlantic, but by the early summer of 1946 rations in many parts of urban Germany were below 1,000 calories per day. Despite the flourishing black market, the evidence of serious malnutrition was unmistakable. Mortality increased as did the incidence of hunger-related diseases. Infection rates for diphtheria, typhoid and tuberculosis in the British and American zones doubled. The birth weight of babies fell drastically. Even the most intrepid statisticians hesitate to plumb the depths to which Germany had fallen by the end of 1945. Money had long since ceased to function in any ordinary sense of the word. One estimate for 1946 puts German per capita GDP at just over $2,200, a figure not seen since the 1880s, one-tenth the level that Germans enjoy today. And this certainly exaggerates the actual level of economic activity in the second half of 1945. Coal production, the lifeline of modern urban society, was down by 80 per cent, and the coal that was available could not be distributed, given the ruination of the railway system.
Nor should we underestimate the intensity of hatred felt towards Germany by its neighbours and former enemies. If it is true that Germans after 1945 were forced to swallow at least some of their sense of vic-timhood, it is no less true that Germany’s former enemies thought it better to forget the sense of rage that clearly motivated much of Allied policy in the immediate aftermath of the war. In 1945 along the Dutch-German border, American GIs passed signs that read: ‘Here Ends the Civilized World’.7 It is one of the most persistent myths in post-war history that the Allies learned the lesson from World War I not to extract reparations from Germany. In fact, both halves of Germany paid substantially higher reparations after 1945 than the Weimar Republic ever did. Not surprisingly, the Soviets were most determined in their pursuit of compensation. What was to become the German Democratic Republic suffered the dismantling of at least 30 per cent of its industrial capital stock and paid occupation costs and reparations to the Soviet Union which even in 1953 still totalled almost 13 per cent of its national income.8 The Federal Republic for its part was more leniently treated. But it too made payments between 1953 and 1992 totalling in excess of 90 billion Deutschmarks. And it was not merely physical capital that was dismantled. In the Soviet zone, tens of thousands of suspect members of the Nazi party were rounded up for interrogation and summary trials. Many thousands were executed. The Western powers, not surprisingly, adopted more legalistic procedures. Roughly 200,000 Nazi suspects were arrested and detained in internment camps, including many leaders of German big business. Of 5,153 individuals accused of major war crimes, 668 were condemned to death by military tribunals. In addition, in the first burst of enthusiasm, the Western Allies dismissed almost half the civil servants in their zones and required millions to register for denazification. Though this process ultimately degenerated into a cynical farce, in its early stages it was perceived by the German population as a threatening intervention in the structure of social life. Viewed in conjunction with the high-profile trials at Nuremberg, it was one more sign of Germany’s pariah status.
The initial post-war period thus went a long way towards confirming Hitler’s apocalyptic view of politics. Germany had ceased to exist as a political entity, as a military force or an economic unit. The terrible irony, however, is that in the years that followed it was not Hitler’s logic but Stresemann’s that prevailed. In 1919, with his eye on the Bolshevik threat in the East, Stresemann had predicted that the time would soon come when Germany would again be needed. After World War II, with the Red Army in Vienna and Berlin, it took barely two years for the same insight to impose itself in Washington and London. To stave off collapse and a surge in support for the Communist party, reconstruction began already over the winter of 1946–7. In the 1920s Stresemann had gambled that the German economy was so integral to the wider economy of Europe that it would be in the interest of none of the victor powers to see it permanently crippled. In 1947 American Secretary of State General George Marshall made his famous offer of aid to Europe dependent on the inclusion of Germany. At first this was hard for France to swallow. France’s national programme of economic reconstruction after 1945 was premised on the assumption that it would be France not Germany that controlled the resources of the Ruhr. But within three years of Marshall’s announcement, it was the French, as they had done in 1929, who came forward with proposals for European integration based this time around a European Coal and Steel Community and a European Defence Community. To complete the bitter irony, Konrad Adenauer, who as the Chancellor of the Federal Republic between 1949 and 1963 was to steer West Germany towards its position at the heart both of the European Community and NATO, was in fact two years older than Gustav Stresemann, who had been only 51 at the time of his death in 1929.9
A functioning parliamentary system, an alliance with America and closer European economic integration were all goals to which Stresemann clearly aspired. But in the 1920s Weimar politics had still been animated and ultimately destabilized by the idea that Germany would one day re-emerge as a great power in the classic eighteenth- and nineteenth-century sense. What precisely this meant was already questionable in the aftermath of World War I and its demonstration of the futility of war as a means of great power politics. But ‘freedom of action’ in international relations was clearly still constitutive of full sovereignty, for Stresemann as much as for most other Europeans. After the horror of Nazism and World War II, democratization, the Western alliance and closer European integration were all back to the fore. The apocalyptic temptation of militarism was largely exorcized from Europe. Its dying embers flared up only occasionally in the rearguard actions of empire. But with it also went any aspiration to the ‘freedom’ once implied by great power status. As early as the autumn of 1943, after the Battle of Kursk, the United States had realized that the dominant power in Europe for the foreseeable future would be the Soviet Union, not Britain, let alone France. At first Roosevelt’s administration hoped to adjust to this new reality in cooperation with the Soviets. Together the two superpowers would rule both Europe and the world, under which circumstances it might have been possible to ‘do without Germany’. But by 1947 that option was clearly off the table. First West Germany and then East Germany were resurrected as independent states. Their subsequent economic recovery along with that of the rest of Europe was one of the true miracles of the twentieth century. The success in creating a democratic polity in West Germany was also remarkable. So free, in fact, did West Germany seem of the tensions that had plagued the Weimar Republic, that some were even tempted to suppose that the curative fire of National Socialism had been necessary to drive out the German demons. What this ignores, however, is that German democracy after 1945 was not as anyone had imagined it in the 1920s. It existed within a strange and truncated form of statehood and much the same might be said for most, if not all, of the former ‘great powers’ of Europe. Through the middle of Germany’s territory ran the new battle lines of the Cold War. Huge forces of occupation were massed on either side, non-European forces–American on one side, Soviet on the other. The threat of nuclear annihilation hung over everyone. And though West Germany certainly had a functioning democracy, the scope of political debate was also incomparably more restricted than it had been in the 1920s. The most explosive issues of Weimar politics–the question of territorial integrity and the question of military parity–were removed, it seemed, for ever from the political agenda. The economic miracle was the abiding preoccupation of the West German Republic, as it was for the rest of Europe. The drama of twenty-five years of unprecedented economic growth moved ‘politics’, in the classic sense, to the sidelines. Even the remarkable project of European integration resolved itself into an endless process of bartering over milk quotas and national rebates. The catastrophe of the Third Reich had not brought about the extinction of Germany, but what it had done was to draw the curtain on the classic era of European politics. Sixty years later, what else there might be to politics in Europe beyond the tiresome squabbles of discontented affluence remains an open question.

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.