AQA 7042 · 2O · R15 - Economic policies and the degree of economic recovery; Schacht
This lesson examines Nazi economic policies, the degree of recovery by 1939, and the changing roles of Schacht and Goering. It also investigates the industrial elites who retained private firms and profited from recovery while operating under growing state direction. The central problem is that “recovery” looks different when measured by employment and output, household living standards, financial stability or readiness for war.
What would count as economic recovery?
The starting point was the severe Depression. Some German economic indicators had begun to turn upwards during 1932, before Hitler became chancellor in January 1933, but the recovery was still uncertain and unemployment remained extraordinarily high. In R. J. Overy's account of the recovery, the industrial-production index, with 1928 set at 100, rose from 59 in 1932 to 66 by the end of 1933. Unemployment then fell by more than two million between March 1933 and March 1934. These were real changes, not simply propaganda, but their timing prevents the whole improvement from being credited to Hitler or to one minister.
Economic recovery
An economic recovery is a sustained improvement after a downturn. It may be measured through employment, production and income, but a historical judgement should also test living standards, financial stability, the distribution of gains and whether growth served civilian welfare or another state purpose.
Six criteria reveal different aspects of the Nazi record:
| Criterion | Question to ask |
|---|---|
| Employment | Did people obtain regular paid work, and how accurately did official figures represent that change? |
| Production | Did factories produce more goods and use idle capacity? |
| Living standards | Did wages and access to consumer goods improve, rather than work merely becoming longer or more intensive? |
| External and financial stability | Could growth continue without a foreign-exchange shortage, concealed debt or inflationary pressure? |
| War-readiness | Did policy secure the arms and raw materials required for the regime's military aims? |
| Distribution | Who gained power and income from recovery, and who bore its restrictions and exclusions? |
The distinction between recovery and prosperity matters. By 1935 real national output had regained its 1928 level; the 1920s peak of industrial production was reached in 1936 and that of employment in 1937. Yet those aggregate achievements do not show how the gains were shared. Nor do they prove that an economy increasingly dependent on rearmament could sustain the same course in peacetime.
Official unemployment also needs careful handling. Work-creation schemes, labour service and, from 1935, conscription moved people out of the registered unemployed total, while Nazi persecution expelled others from ordinary economic life. Those qualifications do not make the whole fall fictitious: scholarship based on the labour market still finds a large real expansion of work. They change what the number proves. A strong judgement therefore begins, “employment recovered substantially”, and then asks about the nature, cost and durability of that employment.
Schacht and managed recovery, 1933-1936
Hjalmar Schacht became president of the Reichsbank in 1933 and Reich Economics Minister in 1934. He was a conservative banker rather than the sole designer of a new Nazi economic theory. Work-creation programmes and experiments with state-supported credit had begun in 1932, while taxation and public works involved other ministers and agencies. Schacht's distinctive importance lay in making rapid recovery and rearmament possible despite scarce conventional finance and foreign currency.
Work creation operated through spending as well as financial devices. Public orders for roads, housing and repairs hired construction workers and increased demand for suppliers such as steel and building-material firms. Those wages could then support further purchases. The motorway programme was highly visible propaganda, but it should not stand for the whole recovery: many projects continued earlier initiatives, and industrial and armaments orders became increasingly important. Labour service and conscription also reduced the registered unemployed total by taking men into organised service; this was different from creating freely chosen civilian employment.
The first mechanism was credit. From 1934, the government paid armaments firms with Mefo bills: interest-bearing bills accepted by a dummy company, the Metallurgische Forschungsgesellschaft. Firms could hold the bills or obtain cash by taking them to banks, which could in turn rediscount them at the Reichsbank. The arrangement concealed much arms finance from the published debt statement and delayed the moment when the state had to settle the bills. It activated industrial capacity and orders without an immediate large tax rise, but it postponed rather than removed the financial claim.
The second mechanism was Schacht's New Plan of September 1934. Rapid recovery had increased demand for imported food and raw materials, while Germany lacked the foreign currency needed to buy them freely. Import licences and foreign-exchange controls gave the state power to decide which purchases received scarce currency. Bilateral clearing agreements, especially with states in south-eastern Europe and Latin America, allowed Germany to exchange manufactured exports for raw materials without paying everything in gold or freely convertible currencies.
This was controlled trade, not complete autarky. Schacht tried to obtain essential imports while conserving currency and directing them towards politically important production. The policy reduced an immediate balance-of-payments constraint, but the need to ration imports showed that recovery itself had created pressure: factories could expand only if Germany could secure oil, rubber, ores and food.
Schacht's phase therefore linked several processes:
- state orders and credit raised demand;
- idle factories hired labour and increased output;
- Mefo bills helped finance rearmament away from the ordinary budget;
- the New Plan rationed the foreign exchange needed for imported inputs; and
- firms received orders and profit opportunities while accepting greater economic direction.
The result was rapid, but not neutral. Rearmament became an increasingly important destination for resources. Independent trade unions had been destroyed and wages were controlled, so workers could not bargain freely over the share of recovery they received. Schacht was therefore not an opponent of militarisation who merely restored a normal civilian market: he helped finance the arms build-up. His later conflict with Goering concerned the pace, priorities and economic strain of further rearmament, not whether the state should prepare for war at all.
Goering and the Four Year Plan, 1936-1939
By 1936 the problem had changed. Mass unemployment was disappearing, so further military expansion could no longer draw mainly on idle workers and factories. It competed more directly with consumer production for labour, investment and raw materials. Germany still depended on imports of essential materials, and Schacht's controls managed that shortage without eliminating it.
In August 1936 Hitler produced a confidential memorandum demanding that the armed forces and the economy be ready for war within four years. On 18 October he formally entrusted execution of the new Four Year Plan to Hermann Goering. Goering was not an economist, but his political authority and command of the Luftwaffe suited Hitler's priority: economic decisions were to be judged increasingly by whether they accelerated rearmament and reduced vulnerability to blockade.
Autarky
Autarky means economic self-sufficiency. Under the Four Year Plan it was principally a strategic aim to reduce dependence on imported materials vital for war; it did not mean that Germany actually ended all foreign trade or achieved complete self-sufficiency by 1939.
The Plan pushed investment towards synthetic fuel and rubber, aluminium, steel and the exploitation of lower-grade domestic ores. It tightened control over imports, prices, wages, labour and investment. If imported oil or rubber might be cut off in war, German industry was expected to create substitutes or expand domestic supply, even when the peacetime cost was higher. The criterion had shifted from ordinary commercial efficiency towards military security.
This was a change of priority rather than a complete change of system. Schacht had already enabled secret rearmament and imposed controls. Goering intensified state direction, made war-readiness more explicit and was willing to override orthodox financial objections. Their overlapping authority produced conflict. Schacht feared excessive military spending, raw-material imbalance and inflation; Goering regarded those cautions as obstacles to Hitler's timetable. Schacht left the Economics Ministry in November 1937 and was dismissed from the Reichsbank presidency in January 1939 after its directors warned about deficit finance.
The Four Year Plan achieved expansion in strategically important branches, but its title was an aspiration, not proof of success. Synthetic production and domestic ore could reduce vulnerability without matching the quality or price of imports. Germany continued to import key materials and faced consumer shortages. Historians agree that the economy was being prepared for military expansion; they disagree more about how fully it was ready for the war that began in 1939.
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