A Note on the Organisation of the German Economy at the Outbreak of War273

The Nazi system of government was based on the ‘leadership principle’, each minister being responsible personally to Hitler. There was no collective Cabinet responsibility and consultation between ministries for the co-ordination of policy was frowned upon by Hitler and the Nazi Party. Cutting across the structure of the ministries were the offices of ‘commissioners’ and ‘plenipotentiaries’, created to deal with particular problems and constantly growing in number. The central and regional authorities of the Party itself interfered in economic matters, creating a dualism with the bureaucracy. Decisions upon broad questions of economic strategy rested ultimately with Hitler himself.

The economic recovery of Germany after 1933 depended primarily upon the programme of rearmament initiated by the Nazis, and the armed services themselves played an important and independent role in shaping the economy in that they were given wide powers to require from industry the production of war material. Between the Services and the Reichswirtschaftsministerium (the Ministry of Economics) which carried the main responsibility for administering the civil economy, there were serious conflicts of jurisdiction, exacerbated by competition between the three Services for the products of industry.

Until 1936, when the Four Year Plan organisation was established, the primary responsibility for control of the supply of raw materials to industry lay with the Ministry of Economics, within whose jurisdiction came also the control of foreign trade and the management of foreign exchange holdings. To control and administer the supply of raw materials the Ministry early established Reichsstellen (Reich Offices) for each raw material and basic industrial product and, in theory at least, the ‘planning’ of industrial output rested upon the rationing of raw materials by the Ministry of Economics through these offices. In practice, however, this system was ineffective because although the Reichsstellen had the responsibility for issuing permits for the use of materials they had no control over the formulation of demands by competing users. Nor had the Ministry of Economics any control over the placing of industrial orders by the armed services.

By 1934 the unco-ordinated flow of demands for raw materials had already led to a shrinkage of stocks, sharp increases in imports and serious balance of payments difficulties. Two measures of reorganisation were then introduced in an attempt to remedy the situation.

One of these measures was the transfer in 1934 of the economic staff of the Army Ordnance Office to the War Ministry, where it was given inter-Service status under the title of Wehrwirtschafts-und Waffen-wesen (Defence Economy and Armament Affairs), and the conferment upon its head. Colonel (later General) Georg Thomas, of responsibility for co-ordinating economic support for the arms programmes of the three armed Services.

The other measure appeared to be more far-reaching, since it seemed to recognise the need for some form of central planning for the economy as a whole. In August 1934 Dr Schacht, Germany’s leading financial expert, succeeded Kurt Schmitt, the Minister of Economics, first as Acting Minister and then, in January 1935, as full Minister. This appointment was an acknowledgement of the seriousness of Germany’s international financial problems. In May 1935, however, Schacht was given a further appointment which acknowledged the seriousness of the conflicts of economic jurisdiction within Germany. He was made Plenipotentiary General for the War Economy (Generalbevollmachtigter fiir die Kriegswirtschaft - GBK) with overriding authority in economic matters.

Neither experiment succeeded in its object. The responsibilities of the Wehrwirtschafts-und Waffenwesen office were ill-defined and the three Services retained full control of current supply and weapon development for their own needs. The office was therefore incapable of reconciling the competing demands of the Services upon industry. What Schacht might have made of his position as GBK had his real powers been equal to those required by his task it is impossible to say. He was handicapped from the outset by being denied any authority over the armed Services’ programme of mobilisation. He was regarded with suspicion by the Party. Nor was Hitler willing to confer upon anyone other than himself the real powers which the office of GBK implied. Finally Schacht was confronted in October 1936 with the creation of the Four Year Plan organisation and the appointment of Goring as Commissioner for the Plan, Commissioner for Fuel and ‘responsible’ for raw materials.

Hitler saw the primary purpose of the Four Year Plan as being to secure self-sufficiency in a number of raw materials of major strategic importance until a new Lebensraum could be obtained by conquest. He instructed Goring that he was to seek total independence of foreign sources only for fuels and rubber and it was in these two sectors that the Plan was most effective. Under its auspices great progress was made in the construction of synthetic oil plants and the development of artificial r, ubber production, and it also secured a considerable expansion of the output of artificial fibres.

Once again, however, the powers of the new organisation were ill-defined. Goring held that it was to exercise leadership and drive but not to take over the functions of existing offices. Most of its agencies were in fact set up within other hiinistries. To support his new role as ‘ responsible ’ for raw materials Goring established within the Four Year Plan organisation a Bureau for Raw Materials and Synthetics under the direction of Golonel Lob of the Air Force Staff, who in the spring of 1937 produced a long-range plan.

Nominally Goring as Gommissioner was endowed with the powers of a supreme planning authority, although Schacht still remained GBK. Conflict between Schacht and Goring over jurisdiction was therefore inevitable. To this was added a direct conflict over policy, since the capital expenditure and raw material imports, coupled with a weakening of export trade, ran counter to Schacht’s efforts to restore the financial situation. The final clash between the two men arose over Gdring’s plan for the exploitation of low grade German iron ore which was opposed by both Schacht and the steel industry. Schacht resigned as GBK and Minister of Economics in November 1937. His successor. Funk, was confirmed in office in February 1938.

With the fall of Schacht from ministerial office (he remained President of the Reichsbank for another year) Goring gave up his ineffectual attempt to plan the raw material balance: Lob’s long-term plan was scrapped and the Bureau for Raw Materials transferred to the Ministry of Economics, where it continued its function of building up stocks. Goring dissipated his general planning authority amongst newly created plenipotentiaries and special commissioners and allowed the General Gouncil of the Four Year Plan, which was to have served as a supreme planning authority, to lapse.

None of these experiments in organisation affected inter-Service rivalries in relation to the economy. Thomas’ Wehrwirtschafts-und Waffenwesen office had already proved ineffective as a means of co-ordinating Service requirements when an event occurred which was to weaken its position still further. In February 1938 Hitler dismissed his Gommander-in-Ghief, von Fritsch, and the Minister for War, General von Blomberg, and took over the command himself. The armed Services directorate of the Ministry became the OKW under Keitel, of which Thomas’ staff, re-named Wehrwirtschafts-und Riist-ungsamt (Wi Ru), was a branch. Whereas Blomberg had at least endeavoured to make a reality of Thomas’ co-ordinating function, Keitel made little effort to give it his support. Thomas, however, still tried to exert a general influence upon economic policy and, in doing so, became more and more clearly identified with policies unacceptable to Hitler and Goring, arguing for armament in depth and for total mobilisation of resources at the expense of the consumer. Not fully

Total War (1968).

Understanding Hitler’s strategic ideas he was pessimistic about the raw material situation and even by 1939 did not consider Germany ready for war. Goring generally disregarded what he had to say.

During much of 1938 quarrels about jurisdiction between the GBK, the Four Year Plan and OKW (in the shape of Wi Ru) persisted. In September an attempt was made to put an end to them by a new Reich Defence Law under which Goring replaced Keitel as Hitler’s deputy in national defence matters. It was decreed that in time of war German domestic administration would be in the hands of a group (chaired by Hitler or Goring) consisting of the Chief of OKW, the GBK (now re-named Generalbevollmachtigter fiir die Wirtschaft (GBW)) and a new Plenipotentiary for the Administration of the Reich (Generalbevollmachtigter fiir die Reichsverwaltung (GBV)). Wilhelm Frick was appointed to the new office.

The new law made little difference to the positions of the contending authorities in the last months of peace. When, in May 1939, OKW and GBW staffs sat down together to draw up a joint ‘ Mob. Plan Wirtschaft’ (Economic Mobilisation Plan) for the economy as a whole, responsibility for war planning was still divided between them, the OKW staff (Wi Ru) being theoretically responsible for the Wehrmacht programme and GBW for the civilian side, with the Four Year Plan organisation playing an ambiguous role in the background. They had not completed their work when war broke out in September.

In another important respect also the German economic system on the eve of the war fell far short of comprehensive planning. The supply of labour to the various sectors of the economy was administered centrally by the Ministry of Labour but there was no inter-departmental mechanism by which its decisions could be related to the supply of other resources. In practice such co-ordination as there was took place at the regional level, inspectors subordinate to Wi Ru being responsible for securing the labour required by the main armaments firms (A-betriebe) through the Regional Labour Offices. The authority of the Regional Labour Offices was, however, restricted by the existence of a ‘Standing Ghange of Employment Order’ requiring the consent of both employer and employee to any change of job.

It fell to Goring to attempt some solution to the administrative problems arising from competing demands for manpower. Characteristically he avoided the issue and in a decree of 14 June 1939 placed the responsibility collectively upon the GBW, the GBV, the Chief of OKW and the Fiihrer’s Party deputy. When, in December 1939, Goring succeeded in abolishing the office of GBW such influence as the Ministry of Economics could exert in manpower matters was further weakened. In practice the administration of labour supplies was to remain poorly co-ordinated with the administration of the economy as a whole throughout the war. Not even Speer could bridge the gap.

Thus at the outbreak of war the German economy was still without a central planning authority. Nothing comparable with the Soviet ‘command’ economy, with its Gosplan for the construction of a self-consistent plan and its «hierarchy of economic ministries responsible for plan-fulfilment, had been established. Nevertheless a method of administering the actual production of goods and services had been developed which adequately served Hitler’s purposes and which by the exercise of ingenuity on the part of industrialists overcame the defects of the central administration to the extent hat it provided Germany with the economic basis for Blitzkrieg.

There was little state ownership in Nazi Germany. Agriculture, industry and commerce remained in private hands, but they were grouped in ‘self administering’ associations set up by the Nazis on coming to power. There were four such ‘co-operative’ structures:

(i) the Reichsnahrstand (the Food ‘Estate’ or administration), (2) the Organization der gewerblichen Wirtschaft (the Organisation of Industry and Trade), (3) the Deutsche Arbeitsfront (the German Labour Organisation), and (4) the Aufbau des Verkehrs (the Corporate Organisation of Transport).

The largest branch of the Organisation of Industry and Trade was the ‘Reichsgruppe Industrie’ (Reich Industrial Group) comprising all classes of industrial production, which for policy-making purposes was formally subordinate to the Ministry of Economics. In practice, however, apart from its authority over the supply of raw materials the Ministry had little say in the conduct of industrial affairs.

In the face of confusion and bickering at the highest levels of government and despite the absence of a national plan for economic mobilisation for war the ‘self-administering’ organisations, under strong and experienced leadership, provided without great difficulty the material required by the armed Services in the campaigns in Poland, Norway, western Europe and Russia up to the winter of 1941-42. This success was achieved in spite of a system of allocating raw materials so defective that although by 1939 stocks were in fact adequate for Hitler’s purposes, industrialists clamouring for supplies found themselves confronted with recurring shortages, especially of steel. The wastefulness of the method of allocating resources was not to become apparent until the real nature of the war in Russia was borne in upon Hitler’s government in the winter of 1941 and reform became imperative. When introduced in 1942 the reforms demonstrated that one of the most important areas of ‘slack’ in the German economy had been in planning and administration. Many of the strains which were being reported to Whitehall between 1936 and 1939 were due to the fact that what was undeniably a war economy had not been fully mobilised either by the subordination of all economic activity to the production of armaments or by the establishment of an administrative system by which the optimum use of resources could be made in a long war.