Popular anxieties about wartime profiteers and revolutionaries were easily projected onto a phantom propaganda enemy: the “Jewish plutocrat” whose greed played into the hands of the equally rapacious “Jewish Bolshevik.” While the former was accused of destroying the middle classes and enslaving agricultural and industrial workers in the service of big-money capitalism, the latter was blamed for “the complete dissolution of order” and the erosion of public respect for religion, morality, property, and the rule of law.
47
Using this propagandistic foundation, the instigators of anti-Semitic state policies invariably justified their measures against “the Jews” as acts of self-preservation. The concluding chapter of
Mein Kampf
is entitled “The Right to Self-Defense.” A landmark piece of anti-Semitic legislation, the April 1933 Law for the Restoration of the Professional Civil Service, was justified on the same grounds and initiated the gradual exclusion of Jews from public life. When the Finance Ministry drafted legislation paving the way for the partial dispossession of German Jews in the summer of 1937, the draft was titled the Law Concerning the Reparation of Damages Caused to the German Empire by Jews.
48
The longer the war went on, the more one-dimensional German propaganda depicted it as the struggle of “Aryan resistance” against the aggression of “global Jewry,” with its threefold aspirations to world dominance: “firstly as Jew, secondly as member of a plutocratic Jewish clan, and thirdly as Jewish Bolshevik.”
49
The Nazi doctrine of Germans as a master race fit in seamlessly with these schematic divisions. Despite all the bluster about German superiority, the doctrine was grounded in the anxiety that humanity’s worthiest representatives—as defined by racialist pseudoscience—would inevitably come under attack by their inferiors and be forced to defend themselves. The socialist worldview contained a similar, if less paranoid, element in its doctrine, whereby the proletariat, the inevitable victors of history, were under siege by the bourgeoisie, an inferior class condemned to extinction. That affinity eased the transition of many Germans from one salvation doctrine (Communism) to the other, especially given that National Socialism presented itself as the more open and pragmatic ideology and was indeed capable of appealing to extremely diverse segments of German society. Civil strife and class antagonisms had spelled the end for the Weimar Republic. In its wake, the Nazi movement seduced its followers with the dream of a “third way.” Nazi politicians promised the populace that justice would be restored and that they would fight against all forms of social “disintegration,” whether liberal-capitalist or doctrinaire-Bolshevik in nature.
IN CONTRAST to the Germany of 1939, that of 1914 could look back on three successful wars. Waged between 1864 and 1871, they coincided with Prussian chancellor Otto von Bismarck’s successful creation of an imperial German nation-state. Forty years of peace followed, bringing economic growth and bourgeois prosperity. At the beginning of World War I, German warehouses were full with stockpiled necessities valued at about 40 billion reichsmarks. In 1940, Germany possessed only 5 billion reichsmarks in available reserves in case of a blockade, and the purchasing power of the reichsmark was dramatically lower than in 1914. Furthermore, while on the eve of World War I the Reichsbank could draw on holdings of 1.4 billion marks to procure supplies from neutral countries and the value of its gold reserves was 2.5 billion marks, Germany’s public and clandestine gold reserves on September 1, 1939, amounted to only around 500 million reichsmarks.
50
Yet although Germany was in better fiscal shape at the start of the First World War than at the beginning of the Second, World War II proved to be better financed. From September 1939 to September 1944, 50 percent of war expenditures (considered a golden ratio) were covered by existing revenues. From 1914 to 1918 that figure was only 13.1 percent. “Floating debts,” which were paid by printing more money, covered 24.8 percent of expenditures, while the remaining 62.1 percent were financed via long-term war bonds bought by the German people. The nine series of war bonds issued between 1914 and 1918 brought in 98.2 billion marks. By comparison, Great Britain covered 28 percent of its costs in World War I with tax receipts.
51
Germany’s difficulty in raising revenues between 1914 and 1918 was not just a failure of political will. It was caused primarily by the fact that the individual states within imperial Germany retained most of the control over the tax system. The imperial government lacked its own financial administration. In 1913, the gross national product totaled 40 billion marks, from which the imperial government was able to raise only 2.3 billion in taxes. Three-quarters of that sum went for military expenditures. By today’s standards, the proportion of state revenues relative to GNP appears laughably tiny. Wilhelmine Germany was hardly the centrally organized colossus it is often depicted as.
52
The wartime truce declared by Germany’s political parties in 1914 prevented any serious debate about how the state could bolster its tax revenues. Alone among the leading parties, the Social Democrats called for levies on war-related profits. But they were outnumbered. The only remaining option was to incur long-term debt in the form of war bonds. It wasn’t until 1919, when the Weimar Republic created a centralized tax system as part of its overall finance reform, that the German state was able to increase—gradually but continually—the share of GNP it raised in taxes. The Weimar Republic thus set a precedent that allowed the Hitler regime, during World War II, to collect taxes in amounts that scholars agree would have been dismissed as utterly unworkable in 1914.
53
Along with requiring deficit spending, both world wars took a heavy toll on Germany’s economic infrastructure. Commodity reserves were used up; machinery, buildings, industrial facilities, and means of transportation were left in need of repair; and forests and arable land were badly depleted. Between 1914 and 1918, the average German’s standard of living declined by almost 65 percent, with the majority of the populace hovering just above the minimum required for survival. That decline was viewed by financial strategists in the Third Reich as “deeply unsettling.” In 1941, one young economist wrote: “History has shown us that once this level of deprivation has been reached, the people can bear no more. The collapse of the home front was the price paid for shoring up the front lines abroad.” But in contrast to their experience in World War I, the author hastened to add, the citizens of the Third Reich had no reason to fear such a “deterioration of their standard of living.”
54
CHAPTER 2
The Accommodating Dictatorship
The Appearance of Economic Improvement
Upon taking power in 1933, Hitler promised, above all, to put Germany’s 6 million unemployed back to work. He was able to achieve this goal within five years. In one twelve-month period alone, the number of jobless fell from more than 2.5 million people to 1,610,000.
1
Examined closely, however, the turnaround was largely an illusion. Wages and pensions stagnated at the paltry levels of the Depression. In 1928, the best economic year of the Weimar Republic, total wages paid in Germany amounted to 42.6 billion reichsmarks. In 1935 that figure was 31.8 billion. It took three more years before wages regained their previous level, and hourly and individual wages, as well as pensions, remained lower than in the 1920s.
2
Furthermore, annual revenues from agriculture in Nazi Germany lagged considerably behind those of 1928–29.
3
The public’s belief, however, that decisive authoritarian action had produced an economic recovery was enough to secure the National Socialist government the loyalty of the vast majority of Germans. By late 1933, after an initial wait-and-see period, most middle-class citizens were convinced. “Trust is growing,” wrote Leipzig anatomist Hermann Voss. “We’re coming to believe that there will be an economic upswing in Germany under this government.”
4
In 1936, the Socialist Workers’ Party smuggled Willy Brandt, later chancellor of the Federal Republic, from Norwegian exile into Germany to gauge the mood of working people in Berlin. He characterized it as “neither euphorically nor especially proregime,” but “definitely not antiregime.”
5
In a free plebiscite in 1935, despite the best efforts of antifascist activists, the people of the Saar region, claimed by both Germany and France, voted overwhelmingly to rejoin the German Reich. The reintroduction of compulsory military service and the remilitarization of the Rhineland—in violation of the Treaty of Versailles and the spirit of the Locarno Pact—followed quickly upon that vote. Meanwhile, the Wehrmacht was rapidly being rearmed with ste-of-the-art weaponry. The regime in Berlin had officially abrogated the Treaty of Versailles in 1935, two years after withdrawing from the League of Nations. Both these moves had increased the government’s popularity. In the eyes of the vast majority of Germans, they showed that the regime was willing to stand up to those who had burdened post-World War I Germany with the “lie of culpability” and “a shameful peace” and who had subjected the country to constant harassment and humiliation in the 1920s. The early years of Hitler’s rule gave a desperate, belligerent, and self-destructive people satisfaction for perceived past affronts.
When Hitler assumed the daily business of running the government in 1933, the Depression had already bottomed out. It was the perfect moment for his financial experts to promote the incipient economic recovery. They increased the state’s short-term debt in order to combat unemployment and to boost domestic spending. That move freed the state from welfare payments, which took money out of government coffers, and offered the promise of increased revenues in the near future.
Indeed, tax revenues increased by 25 percent, or 2 billion reichsmarks, between 1933 and 1935. At the same time, unemployment-related expenditures dropped by 1.8 billion. Viewed narrowly, some 3.8 billion reichsmarks’ worth of public debt paid for itself in a relatively short period. The regime’s policy of borrowing against future prosperity seemed to be literally paying off. Nazi propaganda trumpeted what it called a German financial miracle.
6
At the same time, respected economists began publishing essays with titles like “A Time of Exceptional Performance in Reich Public Finances.”
7
Yet with additional expenditures exceeding additional revenues by almost 300 percent, public debt increased in the first two years of the Nazi regime by 10.3 billion reichsmarks.
8
The only major tax increase enacted between 1933 and the beginning of World War II to cover the spiraling deficit was in the corporate income tax, which had been introduced nationally in 1920 under the Weimar Republic. In four stages between August 1936 and July 1939, the base rate of that tax was doubled from 20 to 40 percent. The hike was aimed particularly at corporate enterprises that profited from rearmament, and the government increased the taxable base for enterprises by reducing the possibility of tax depreciation.
9
By 1938, corporate tax revenues, which had amounted to 600 million reichsmarks in 1935, had increased to 2.4 billion marks, and the proportion of total state tax revenues they accounted for rose from 7 to 14 percent.
10
Though not nearly enough to close the budget gap, transferring the tax burden to corporations earned the leadership in Berlin considerable political capital, as the government keenly registered. The 1938 annual report of the Main Security Office, an organ of state surveillance, noted: “The increase in corporate income tax has made a favorable impression, especially on the working classes.” This was interpreted as proof that the costs of rearmament should be financed “via a socially just sharing of the burden,” in which “the huge profits of large corporations are duly taken into account.”
11
Populist social and tax policies benefited families. The income tax law of October 1934 dramatically raised the basic exemption, bettering the lot of low-income wage earners. But because the law stipulated that the tax reform should not oratio a decrease in government revenues, the shortfall had to be made up “by increasing the proportion of the burden on single people, married couples without children, and, in certain higher income brackets, couples with up to two children.” Family and child tax credits, marriage loans, and home-furnishing and child-education allowances were among the measures with which the state tried to relieve the financial burden on parents and encourage Germans to have more children. Yet in absolute terms, the level of funding the regime devoted to such programs before 1941 was relatively low, amounting to just over 3 billion reichsmarks.
12
BUT THERE was a budget crisis in the making. Between 1933 and mid-1939, the Third Reich spent at the very least 45 billion marks on the military, an astronomical sum for the time and more than three times the amount of total state revenues for the fiscal year 1937. Consequently, by August 1939 the national debt had reached 37.4 billion marks.
13
The reemployment of millions of jobless and the rearmament of German military forces had been financed by borrowing gigantic sums of money. Even Goebbels, who otherwise mocked the government’s financial experts as narrow-minded misers, expressed concern in his diary about the exploding deficit.
14
In January 1939, the directors of the Reichsbank sent a letter to Hitler, calling upon him to intervene:
The unlimited expansion of state expenditures flouts every attempt to draw up an orderly budget. It has brought state finances, despite the drastic tightening of tax legislation, to the brink of collapse and threatens now to destabilize both the national bank and the currency. No financial recipes or systems—no matter how ingenious or well thought out—and no institutions or set of fiscal mechanisms can suffice to rein in the disastrous consequences of unbridled deficit spending on the currency. No national bank is capable of propping up the currency against the inflationary spending policies of the state.