Wehrwirtschaft

As of the spring of 1939, the country which balances Europe's fate on its brown back is Nazi Germany. At the heart of the question of whether Europe will have war or peace lies the riddle not of Germany's military might or expanding totalitarian ideology, but of Germany's internal economy. Deliberately geared for war for the past five years, is it an economy that can withstand peace? Is further territorial expansion a necessity for Germany's economic survival? And if that expansion should bring Germany into armed conflict, could the economy of the Third Reich withstand a prolonged war?

To a large extent the tentative, day-to-day diplomacy of the anti-fascist powers is attributable to the fact that the statesmen of the "Peace Front" have been slow to find conclusive answers to these questions. But facts are known, and the basic facts go back to the days before the last war. The Nazi economy has merely given a new twist to these basic facts of Germany's 70-year-old economic history.

Bismarck to Stinnes. In 1913 Kaiser Wilhelm II received from the Association for International Conciliation congratulations on his reign of peace. Within the next 25 years, Germany had fought the greatest war in history, seen its Kaiser flee to Holland, gone through the most harrowing political, social and economic disorders in modern times and emerged the scar-covered bully-boy of the world. The Germany of Kaiser Wilhelm's day differs from the Germany of Adolf Hitler's day in that it had 18,778,491 fewer people and 50,545 fewer square miles in Europe. Aggrandizer Hitler's Germany does not to date possess Kaiser Wilhelm's Germany's African and Asiatic colonies, but since these accounted for less than 5% of pre-War Germany's export and import trade, they are not the major factors in the altered economic picture.

Salient fact about Germany then and now remains that she has few natural resources except her people. In important raw materials Germany has an exportable surplus of only two things: coal and chemicals. With a few industries (such as the electrical and dyestuff industries) the Germans have worked wonders. But ever since Germany ceased after 1871 to be a collection of medieval agrarian principalities she has had to import wool, cotton, rubber, metals, wood, oil and foodstuffs from beyond her territory.

Pragmatic economists have pointed out that Fascism is a reflex of the lean and bony ridges and sandy or sparse soil of Central Europe. Socialists insist that Fascism is not inevitable anywhere, and that a different system of property, political and consequent international relations would result in plenty for the German people even though their soil and raw materials are poor. But whatever the truth of the Socialist argument, it is axiomatic that a nation's total well-being under any economic system is limited by two things: the nature of the land and what is under the land, and the number and ingenuity of the population. A nation of clever and ambitious people with scant natural resources has but one recourse: it must sell its services by fabricating and transporting raw materials supplied by others. The economic history of Germany since the third quarter of the last cen- tury has been the history of a people consciously and steadfastly steered by their State to sell services. "We must export," recently said Herr Hitler, a legitimate heir to this tradition, "or die." In the rush to catch up to western industrial powers, Germany has tried ever since 1871 to syncopate history. A patron saint among German economists is Friedrich List, who spent seven years in the U. S., learned to admire Alexander Hamilton's protectionist philosophy and went home to write his National System of Political Economy (1841). While Prussia was busy consolidating the German nation by successive wars with Denmark, Austria and France, no one paid much attention to List. But after 1871, he provided justification for what Aggrandizer Bismarck wanted to do.

An aristocratic landowner from Pomerania in the backward German east, Bismarck cared little for the doctrines of economic freedom from feudal interference that were popular in free trade England. He made German capitalism an "assisted" capitalism, far more consciously purposeful than the economic systems of the west. Price-fixing and market-sharing cartels were encouraged; protection was granted to both agriculture and industry. The Prussian railroads were bought for the Prussian State, and the Social Democratic trade unions were won over to the paternalistic system partly because of the general pre-War prosperity and partly because Bismarck had introduced sickness, accident and old-age insurance for wage-earners.

By the time of the World War the German steel cartel, or Stahlwerksverband, which included the Krupp armament works, was practically coterminous with the entire German steel industry. Fettered at home, competition was directed outward, against the industries of other nations; and throughout Germany the professors were quarreling over the concepts of State Socialism and State Capitalism, and wondering which was which. Meanwhile the Kaiser and court were fearful that the Socialists in the Reichstag (the Social Democratic Party had 112 seats out of 397 in 1912) might forget their "revisionist" doctrines and adopt the naked class war propounded by Karl Marx. Lacking internal flexibility and with the shaky Austro-Hungarian Empire messing up the possibilities of progress to the east, the German economic system had seemingly reached its limits of growth as far back as 1914, Germany's "assisted capitalism" had run head-on into Germany's poverty of resources--a circumstance which was to have an ominous parallel 25 years later.

In 1871 Germany raised enough food to feed her population of 40,997,000. But the years between the Franco-Prussian and the World Wars saw a three-fold growth of the city population, while the rural population stood still. After 1900 the trend frightened the military clique into demanding increased tariff protection for the farmer, and just before the famous shot was fired at Sarajevo the Kaiser's advisers were only reasonably certain that the food situation could withstand a war.

By 1918, however, industrial Germany's dependence on imported animal fodders had become all too apparent in the wizened faces of the German children. Lack of feed for German cows cut the Berlin milk supply by two-thirds, and 9,000.000 German pigs had to be slaughtered in the war's first year because there was not even garbage for them to eat. As early as 1916 ration cards for fats and meat had been introduced, and the "turnip" winter was at hand. In coal and steel production War-time Germany held up, partly because of the capture of Belgian and French mines and blast furnaces. But the immense capacity of Pittsburgh, made available to the Allies even before the United States' entry into the war, easily beat down the Ruhr and the German State lost its first war.

Before the World War Germany was a rich creditor nation, with an estimated 35 billion marks invested abroad. Although she imported more than she exported, income from this overseas capital and revenues from a merchant marine second only to England's were more than enough to make up the difference. To back a note circulation of 1,800,000,000 marks the Reichsbank held 1,370,000,000 marks in gold--double the coverage considered normal in 1914. Another two billion marks in gold currency were in circulation among the people. These liquid reserves made it easy for Germany to market her war bonds--and had she won there would never have been an inflation as insane as that of 1923.

As it was, defeat gutted the German economy. Colonies, working capital, merchant marine, chattels and domestic animals were taken by the Allies. Lorraine's minette iron ore, historic complement to Ruhr coking coal, reverted to France. Some of the gold had gone for raw materials, shipped in via Holland and Scandinavia, and the rest went after the War in the year in which Germany could get no credit. A strained industrial machine deteriorated still further during the chaotic years of sporadic revolution and French occupation of the Ruhr, and when the inflation came there were no marginal producers to be jogged into action by the rise in prices. So the rise in prices failed to stimulate increased production of real wealth. It worked only to impoverish the nation by making its money valueless.

Dawes to Hitler. Practically no one profited from the inflation except industrialists of the temper of greedy, gross Hugo Stinnes, who was able to expand his holdings and write off his fixed charges in worthless marks again and again. Stinnes practically owned the German economy when the mark was finally brought under control in November 1923, by the trick of backing a new currency with a first mortgage on German land and industry. Labor managed to stagger through the inflation, for the unions were powerful enough to compel continuing though laggard adjustments of wages to skyrocketing prices. The abrupt melting of savings accounts and insurance policies, however, humbled many in Germany's proud lower middle class, and if the western nations had not stepped in with the Dawes Plan and helpful loans the chaos of inflation might have terminated at once in a dictatorship.

In 1933 the sinister fruits of 1923 were finally plucked by Hitler, who spent the stabilization year of 1924 in jail working on Mem Kampf. The appeal of the dynamic jailbird, however, fell flat throughout the late '20s, for a still democratic Germany was able to buy herself five years of Indian summer prosperity with the aid of $1.377,000,000 borrowed from the U. S. and $2,373.000.000 from the rest of the world, chiefly Great Britain. The equivalent of two-thirds of the borrowed funds went out again as reparations payments, but the rest was spent to finance a local boom. Those were the fat years in which Germany revamped her industrial machine, built 1.432,843 (1926-30) houses, and dotted her cities with parks, athletic stadia, modernistic churches, skyscrapers, new city halls and post offices and monuments.

The depression called a halt to all that. And with other nations holding up their internal price levels by prohibitive tariffs, import quotas and preference systems, the German exporter began to lose hope that he would ever recover. Currency devaluation in England, Japan and the U.S. compounded the difficulties, for changed relations in the value of money left the German price level too high to appeal to the foreign buyer. And the Germans themselves did not dare tinker with the mark t0 meet the competition in depreciation. Memories of the 1923 inflation were too strong.

Enter Nazis. Unable to compete abroad, the German business class cried weakly for a directing savior. In their happiest times they had always had one. The immediately pre-Hitler years were the years of the phenomenon of "tired capitalism"; the German cartelized business structure, which was inextricably merged with five big banks, did not know the rules of intramural competition. Then came the first Nazi experiments with a rigidly controlled system, with businessmen retained as managers in their own plants, but with the Government allocating raw materials, dictating wages and prices and limiting and forcing new investment in accordance with Nazi conceptions of national welfare. Capital surpluses went into armaments; the Nazis ceased to build houses. The peasant was bound to his land by laws prohibiting the sale or mortgaging of hereditary homesteads, and farm production was indirectly managed through price-fixing boards. The great drive of Wehrwirtschaft, or war economy, was on.

During the World War Walther Rathenau, industrialist and economist, had taken hold of the German economic machine and coordinated it after the fashion of Bernard M. Baruch's later U. S. War Industries Board. A Jew, Rathenau was assassinated after the War by antiSemitic, anti-liberal nationalists. But Rathenau's secret dream of a completely rationalized and goosestep-clicking German industry was remembered by some of his young disciples who became Nazis. Hitler's first and second Four-year plans for making Germany self-sufficient owe more to Rathenau's social thinking than any Nazi would dare to admit.

Schacht to Funk. Even before Hitler the Germans had been forced to experiment with foreign exchange control. With exports falling in 1933, Hjalmar Horace Greeley Schacht, head of the Nazified Reichsbank, first prohibited the transfer of interest on German foreign debts and then evolved a system of control boards to balance imports and exports. Out of these equilibrist schemes grew the blocked currency accounts and the barter devices, with the Germans paying foreign exporters in special marks good only for German goods at a price lower than the internal price level. Boycotts and currency difficulties kept lopping off chunks of normal German trade with England, the U. S., and Soviet Russia, but export subsidies to the extent of 30% of the value of all German exports enabled Nazi businessmen to quote speciously attractive prices to the Balkans and South America, regions with surpluses of grain, tobacco, oil, cotton, coffee and cocoa. Between debtor nations the system of subsidized barter might have worked satisfactorily enough, but the Nazis themselves were slow to deliver finished goods in return for foodstuffs and raw materials, and they frequently demoralized world markets for their suppliers by reselling coffee, tobacco, cotton, etc., at knock-down prices in order to get needed foreign exchange.

Recent replacement of Schacht by Dr. Funk as Reichsbank head has revived talk in U. S. newspapers of internal German inflation. Proponents of Nazi economic methods argue, however, that "inflation" is a word that has no meaning in relation to Nazi finance. The Nazis have, almost from the beginning, supplemented tax receipts by debt-creation" through forced loans. With the "secret" debt added to the acknowledged public debt of 40,000,000,000 marks, the total Government deficit may be as high as 54,000,000,000 marks. But prices #151;the popular measure of inflation-- have not risen markedly except on the "black" markets, nor are they likely to rise as long as Heinrich Himmler's Gestapo is busy spying on the shopkeepers. The over-all German standard of living has, however, fallen by at least 20% since the depression. And if extended work hours, the quality of goods and the recent failure to build houses or to replace obsolescent railroad equipment are considered, the decline has been even more precipitous. Money that formerly went into dwellings and the making of machines for producing articles that could be enjoyed is now funneled off by Government command into industrially sterile armaments and showy public monuments. Before the War only 5% of the national income was spent on armaments--and that was a time when Colonel House was reporting that Berlin presented a spectacle of "militarism run stark mad." Today one-fourth of the national income goes for guns, fortresses and stadia for the self-glorification of Nazi party meetings.

By comparison with 1932 standards the Nazis have raised the level of over-all German consumption. But immediate consumption (which omits money spent for housing construction) is still 10% below that of 1927. Moreover, Nazi economists themselves predict a decline of purchasing power for this year. The regime gains acquiescence from the majority because the industrial working class (approximately 40% of the population) has lost relatively less income than the upper, upper middle and lower middle classes--and with the unemployed now at work the class as a whole has gained. The farmers (approximately 21% of the population) receive about what they were getting per capita in 1927. Hence it can be argued that Naziism has a mass base, even though forced contributions (party dues, winter relief, etc.) subtract considerably from workers' incomes. The decline in quality is most noticeable in upper and middle class goods; working class goods are maintained in comparative quality and abundance. The German lower class diet, however, has always been heavily weighted with potatoes, cabbage and bread, and in consequence working class food standards have not very much room in which to fall. The one real gain the "little man" in Germany has over his 1932 condition is assurance of employment.

Enter Goring. Since General Goring took control of the entire German economy in 1936, the Nazis have made some progress towards their goal of Wartime self-sufficiency in Central and Eastern Europe. Low-grade iron ores are being worked by the State-owned Hermann Goring Iron Works; by 1940 the Nazis expect that perhaps 35% of the iron consumption of Great Germany will be supplied from domestic sources. Aluminum from bauxite imported from Hungary and the Balkans is supplementing heavier metals, such as copper and nickel. Artificial rubber sufficient for 25 to 30% of the peacetime rubber requirements is being conjured out of limestone and coal.

Welfare & Warfare. Yet, though Reich chemists are working night and day, Germany is less able today to support a long war than she was in 1914. With Lorraine gone the iron ore supply is not enough. The available soil, even including the Bohemian and what could be seized in Poland, Hungary and Rumania, is not sufficient to produce both fodder crops for the cattle and breadstuffs, sugar beets, potatoes, vegetables, flax and hemp for the 152,300,000 population of a Middle European empire. Intensive grain cultivation operations are now being set up in East Prussia, but most of the acres available for agricultural production are even now under intensive cultivation.

On the whole Germany's agricultural situation is no better and no worse than it was in 1914. But one thing has changed very much for the worse: the fuel oil needs for a modern mechanized army and air service. In the event of a major war Germany will need 15 to 20 million tons of oil a year. The entire annual yield of the nearby Rumanian fields, assuming Germany could and would quickly take Rumania through Hungary, is short of 7,000,-ooo tons and synthetic production in Germany can hardly exceed a million tons. Furthermore, number one truism of writers on military problems is that the next long war will be won by the nation with the greatest industrial potential behind the lines. The ability to mass-produce and to service guns, tanks, planes, ships and motors will, so the military theoreticians predict, be the crucial factor. Her lack of home metallurgical supplies would indicate that here, too, a warring Germany would be behind the eightball.

In deliberately abandoning an economy of welfare--in which, as in the richer democracies, a variety of goods is produced for universal consumption and the productive machinery is merely tapped, not regimented, for the use or revenue of the State--for an economy of warfare, Germany has developed out of her eco-nomic past a new and unique type of economy. The Italians have to a lesser extent followed the same method and the eagerly imitative Japanese have copied Nazi procedure since their Chinese adventure.

The Nazis' economic invention has organized Germany from top to bottom for war. The "unemployed" have been at work for years on strategic roads, airports and military structures. The farmer has been directed to produce cheap bulk crops for the masses instead of money-making high-quality vegetables and fats, and priority in raw materials has gone either to the armament makers or to the export manufacturers who bring in needed foreign exchange which can be turned into imported materials of military value. But the Nazi effort is a frenzied effort to build on an insufficient natural base, and indications are that, like German efforts in the past, it is probably doomed to splinter on the harsh facts of Central European geography.

It is possible that, with belt-tightening and abandonment of the 25% of German effort now going into armament and public works, Germany could sell its services to a mollified world and live at home. Given a decade of peace, the ability of the Nazis to remain in power rests partly on psychological factors (how many economic sacrifices the German people will bear) and partly on economic factors (how high a standard of living Nazi economics can give). Continued "bloodless" victories over the races of Eastern Europe will increase Germany's economic self-sufficiency, but at the cost of new political difficulties of a sort that led to the disintegration of old Austria-Hungary.

Moreover, the need for industrial and military man power is draining the German farms of needed labor, and hopelessness is spreading in the rural villages. In the old Reich alone the number of male farm workers has fallen by 800,000--which adds to the burden of farm women and children. Peasants have traditionally been the backbone of the State in Central Europe; and if the peasantry becomes disaffected, a war-making Nazi Government might find itself defeated on the field of morale. The chances of Germany's winning a long war are even slimmer in view of one further factor which lies outside of Germany or Germany's economy: the German lines of communication are even more vulnerable than Britain's. The British Isles front for many coastal miles on the open ocean, while Germany's ports are all on semi-landlocked seas. During the World War the British effectively blockaded Germany and starved her white simply by keeping the fleet in readiness in the home waters.

The moral: If she fights soon, Germany, unless she can team up with Russia, must win by a Blitzkrieg, or "lightning war," or she will lose, as in 1914-18, to the silent pressure of human and industrial starvation and the British fleet. If she chooses to postpone war, she must keep her people imbued with the belief that continued belt-tightening now will mean a stronger industrial machine--and a reversion to welfare economy--later on.

This file is automatically generated by a robot program, so reader's discretion is required.