1L - Economic developments: the impact of the Depression
Germany's economy moved from Depression to rearmament, wartime exploitation and post-war reconstruction. This lesson explains how recovery was achieved, whom it benefited and how military aims shaped economic development between 1929 and 1949.
Depression and deflation
The international Depression struck an economy still exposed to foreign finance and uneven domestic demand. As lending contracted and trade declined after 1929, businesses lost both customers and access to capital. Falling production brought redundancies, which reduced household spending and created further pressure on employers. Banks faced withdrawals and difficulties over loans, contributing to the financial crisis of 1931. Agriculture already suffered from prices and debts before the global contraction intensified those problems.
Brüning's government cut expenditure, reduced benefits and pursued higher taxes and wage restraint. Deflation is a fall in the general price level; a deflationary policy seeks to reduce costs and expenditure. Lower German costs might improve competitiveness and the government hoped to stabilise finances and secure changes in reparations. In the short term, however, lower spending and incomes intensified the contraction. A fall in prices did not compensate an unemployed worker for the loss of wages, while fixed debts became harder to service from smaller incomes.
Registered unemployment reached millions, and many employed people faced shorter hours and insecure work. The Depression weakened confidence in democratic government and made promises of work attractive. It also left unused labour and industrial capacity available for a later recovery. Explaining the Nazi turnaround requires this low starting point: restarting idle plant can initially raise output more quickly than building an entirely new productive system.
The production and employment series collected in GHDI records the scale and unevenness of contraction. Its particular industrial index should not be combined uncritically with another series using different definitions.
Job creation and rearmament
The Nazi government made reducing unemployment a central public promise. Recovery included public construction, housing and infrastructure programmes, tax incentives and spending that increased demand. Some job-creation measures had origins under Hitler's predecessors, and the economy had begun to turn from its lowest point. Nazi claims that Hitler created all recovery from nothing therefore require qualification.
Rearmament became the decisive expanding demand for industry. Contracts for weapons, vehicles, aircraft and supporting equipment stimulated steel, chemicals and engineering. Hjalmar Schacht, Reichsbank president and economics minister, used financial arrangements including MEFO bills: government-guaranteed promises to pay, issued through a nominal company, which arms producers could hold or discount. This financed expenditure while obscuring the immediate scale of official borrowing. It postponed payment; it did not create resources without cost or remove the state's liabilities.
Conscription from 1935 and compulsory labour service also removed men from the civilian unemployment register. Exclusion of some groups from employment and statistical categories affected recorded totals. Even allowing for these changes, genuine employment and output increased substantially. The correct qualification is that the headline statistics do not measure freely chosen, equally distributed prosperity.
Workers gained employment but lost independent unions, meaningful bargaining and freedom to strike. Wages and conditions were controlled, while consumption competed with military priorities. Public works mattered, but identifying the autobahns alone as the explanation of recovery misses the much wider industrial demand from rearmament. Economic policy reinforced political control by connecting jobs, discipline and national mobilisation.
Contemporary industrialists photographed in 1933 and the accompanying MEFO provenance identify the financing mechanism without reproducing the photograph.
The New Plan and Four Year Plan
Economic expansion created a foreign-exchange problem: Germany needed imported raw materials while exports did not generate unlimited foreign currency. Schacht's New Plan of 1934 controlled access to foreign exchange and imports, and used bilateral trading and clearing arrangements. These could direct scarce payments towards priorities and obtain supplies through negotiated trade. They did not make Germany independent of other economies.
Hitler's military ambitions increasingly took priority over conventional financial restraint. In 1936 the Four Year Plan placed Göring at the head of a drive to prepare the economy and armed forces for war. Autarky, economic self-sufficiency, aimed to reduce vulnerability to foreign supplies and blockade. Investment in synthetic fuel and rubber and greater exploitation of domestic resources were meant to lessen dependence. These substitutes could be costly or inefficient; Germany still relied on imported materials and food. The plan's ambitions should therefore be distinguished from its results.
Agriculture was politically favoured as a symbol of national and racial rootedness. The Reich Food Estate regulated production and marketing, while hereditary-farm legislation sought to preserve designated peasant holdings. Price support and controls could protect some farmers, but restrictions on land transactions, debt and labour shortages created other problems. Industrial demand pulled labour away from farms, and Germany remained unable to supply every need from domestic agriculture.
Schacht resisted aspects of the pace and financing of rearmament and lost influence; Göring's authority represented a shift towards more direct military preparation. Private firms remained important, often profiting from contracts, but investment and trade were increasingly subordinated to state priorities. The economy was recovering in productive terms while becoming geared towards an aggressive war rather than balanced consumer welfare.
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