World War II: Economics


Figure 1.-- The U.S. Congress chose to finance the war primarily by borrowing from financial institutins and individuals. The Federal Government launched well publicized drives to sell war bonds on a voluntary basis. The drives were supported by Hollywood celberties and decorated service men. Even children participated in these drives. They could buy Defense Saving Stamps and when they filled up their book a bond would be issued. This process began even before the Japanese Pearl Harbor attack brought America into the War (1941). Here Scouts in 1941 are helping to sell National Defense Stamps in 1941. The press photo caption read, "Peacetime Blitz: This flying squad of Boy Scouts, shown with F. H. Church of the chamber of commerce on the truck servicing the downtown area, are just leaving headquarters on an invasion of retail stores to sell defense saving stamps durng Retailers for Defense Week, Scouts shown above are, left to right, Richard Kelly, Sammy Danos, Marvin Braunstein, Fred Peterson, Ernie McClelland, Oleg, Obuhoff, Earl Lowart, Victor Fortakoff, and Elmer Soderquist. More than 300 Scouts are participating.

Economics played a central role in World War II. Hitler's rearament program was bankrupting NAZI Germany. It is questionable how long Hitler could have continued his rearament program if he had not taken Germany to war in September 1939. Germany proceeded to loot the national banks of the conquered nations. The persecuution of the Jews and the Holcaust was also used in part to finance the War. The NAZIs very effectively integrated the economiy of Czecheslovakia into the German arms industry. Germany did not go to a full war footing until late in the War. Not did Germany effectively cooperate in war prodyction with its Axis allies. Germany also did not effectively used the economies and industries of the captive nations, especially the countries occupied in Western Europe. The Germans did use te conquered countries as a source of slave labor. German ineffiency in coordinating with Allies stands in sharp contrast to the close copperation between Britain and America. President Roosevelt began mobilizing the Arsenal of democracy, the vast American economy well before America went to war. Very extensive cooperation in weapons development and production also began between Britain and American before American ntered the War. Hitler avoided putting Germany on a full war footing, because he thought the War had been won and he did not want shortages and rationing to deminish domestic support for the War. Only after the setbacks in Russia, especially Stalingrad, did Hitler turn to Speer and give him the authority to fully convert the German economy for war. Fortunally for the world, by then it was to late to stop the expanding force of the Soviet Union in the East and the Western allies in the West.

Treaty of Versailles (199)

Germany began World War I as the dominant industrial power in the Continent. The Versailles Treaty transferred simecterritiry in the wesst (Alsace-Loraine) and east along vthe border with the new Polish srate. None of these trasfers affcted the industrial hearland of Germany. The countryvremained the dominanht vindustrial power on the Continent. The Treaty of Versailles had significantly limited the German military. The Weimar Republic Government had publically accepted the limitations. While lmiting the size of the armed forces and weapons like planes, battleships, and submarines, the Treaty did not limit training programs. The military was also allowed to persue inovative reserch programs. There were also secret military arrangements with the Soviet Union. Aircraft development was persued with a Dutch company. Hitler had made the Versailles Treaty a major political issue in his rise to power. As a result, of previous evasive policies, Germany was not as weak as the rest of Europe assumed when Hitler seized power.

Industry and Science

The Industrial Revolution began in Britain (mid-18th century) and after the Napoleonic Wars gradually spread to the Continent, especially France and Germany. And by the turn-of the 20th century was beginningvto transform other countries such as Russia. Industrialization and the advance of science which accompnied it transformed warfare. The major industrial powers became the most important Military powers. Russia and Austria declined as great powers while Prussia was able to unite Germanhy around it and emerged as the dominant power in continental Europe. And the highly militarized Prussian state becanme a diminant force in the German Empire. Industry also developed in Belgium, the Netherlands, Sweden, and Switzerland but were too small to develop important bmilitary forces. Partialy because of this they sought refuge in neutrality, despite the Belgian experience in World War I. America emerged as a great industrial power, but lagged behinf Europe in Scientific expertise although the science establishment was growing. America except for the Civil War and World war I declined to devote important resources to the military. America after the turn-of-the 20th vcentury thanks to Henry Ford developed the industrial assemby line which transfornmed the country into the preminent world industrial power. Industries in Europe such as automobile companies continued ti be more craft ships. Producing often high-quality products, but on a smaller scale and at higher prices. The Soviet Union emerged in Russia and continued the country's industrializatiion which had begun during the Tsarist period and devoted great resources to the military. Stalin speed up the developmentb of heavy industry by starving the countryside. There was also impotant induistrial development in northern Italy and Czechoslovakia which emerged from the Austro-Hungarian Empire. Japan emerged as the only indudrtrial power in Asia. While Japn modrnized economically, it had a relatively small scientific establishment. In contrasr to the economic advances, the country retained a very traditional political outlook with mikitary built around a medieval code of honor nd conduct--Bushido. These industrial and scientific developments played an important role in World War I and would play an even more important role in World War II.

The Depression and Germany

The Depression played an important role in the NAZI sizure of power and in the image that Hitler built in Germany once he seized power. Tragically for Germany, the most serious period of the depression followed the New York Stock Market crash (1929) through Hitler's seizure of power (1933). The impact that the Depression had on Germany folded neatly into Hitler's political drive for power. Apparent economic improvements in Germany were an important element in Hitler's real popularity after seizing power. The view of the Hitler and the NAZIs in Europe was substantially different in Europe during the 1930s before Hitler launched World War II than it is today. It should be remembered that until Kristallnacht (November 1938) that NAZI actions against the Jews were not greatly different fom how Blacks were treated in the American South. In fact many NAZI racial laws were based on laws enacted against Blacks by Southern state legislatures. There were prominent Americans (Lindberg, Ford, and others) before World War II who were impressed with the NAZIs. Hitler was seen by many as the most dynamic leader in Europe. One reason for this was that NAZI policies essentially ended the depression by 1935. Many Germans had turned to the NAZIs in the earlt 1930s because of the Depression. The NAZIs expanded German labor programs, creating a National Labor Service must like the American CCC. The NAZIs seized control of the economy. German industrialists benefitted and soon learned that it was very dangerous to defy the Government. It might be argued that Germany under the NAZIs had the most controlled economy in Europe. Their major project was the construction of the Autobauns. The massive new armaments program was a major factor in putting Germans back to work. The German GNP was back to pre-Depression levels by 1935. NAZI policies made sure there was no longer wide-spread unemployment and destitution in Germany. The German people, however, were not better off. The benefits of the expanding economy was not brought to them in terms of more consumer goods, but rather a rearmed military. Many Germans, however, were convinced that they were better off. This was in part due to declinging product standards. It was also a result if the effectiveness of NAZI propaganda which emphasized the increased international respect with which Germany had achieved. [Hanby]

NAZI Rearmament

Hitler and the NAZIs planned from the beginning for a massive rearmament program--Aufrüstung. NAZI propaganda promoted the idea that Germany must rearm. The NAZI objectives could in fact only be achieved by war. The NAZIs did not, however, begin a massive rearmament program immediately upon seizing power in 1933. Hitler's first objective was to secure control of Germany and he did not want to precipitate foreign intervention before he was ready. The German military itself has already sponsored secret armament programs during the Weimar era in violation of the Versailles Treaty. The NAZIs thus had a solid foundation upon which to base a revived military. The NAZIs sharply expand weapon research. The German military expanded in secret during 1933-34. Hitler by March 1935, felt sufficiently secure to publicize his military. The NAZIs announced that they expansion - which broke the terms of the Versailles Treaty. Europe learned that the Nazis had a modern 2,500 plane Luftwaffe and a Wehrmacht with 300,000 men. Hitler publicly announced that he was instituting a compulsory military conscription and planned to expand the Wehrmacht to 550,000 men. Actual armaments production began in earnest in 1936. The NAZIs in 1936 doubled armaments spending over 1935 levels. It was in 1936 that NAZI arms spending first exceeded the combined total for transportation and construction spending. The nature of arms spending also increased. NAZI arms spending initially focused on research, development, and capital investment. The NAZIs in 1936 began concentrating on producing actual military equipment. This is one of the least economically beneficial types of government spending.

The Allies

Hitler had to at first proceeed in secret and with cautious diplomacy. The allies if they acted decisively could have destroyed his regime.

France

Hitler ordered Germany to withdraw from the Geneva Disarmament Conference. He desguised this with by demanding that France should disarm to the level of the Germans or that the Germans should be allowed to re-arm to the level of the French. Hitler knew that the French could be expected to reject his proposal. As the proposal sounded reasonable, the NAZIs could claim that the French had forced Germany to withdraw from the Conference. The French decided on a defensive policy against the NAZI threat. The center-piece of French defenfense policy was the Maginot Line, named after a French efefense Minister. Enormous sums were spent on a series of underground forts on the French and German frontier.

Britain

The British concern was primarily with the navy. The Treaty of Versailles stated that Germany’s navy should have no submarines and only six warships over 10,000 tons. Britain in a huge concession signed the Anglo-German Naval Agreement (June 1935). Under the Treaty, Germany was permited one third the tonnage of the Royal Navy's surface fleet and an equal tonnage of submarines. The Royal Navyhad no concern over submarines. They had developed somar and believed that this had rendered the sunmarine useless. This was a major miscalculation. The Treaty itself was a huge concession to Hitler and the first major effort at appeasement

NAZI Economic Policy

The NAZIs as other European governments in the early 1930s were confronted with the enormous difficulties of the Great Depression, the same Depression that had helped bring them to power. The NAZIs immediately began rearmament. This was was a central NAZI epolicy, more important than fighing unemployment. Hitler seized power in January 1933. Arms expendictures were only 10 percent of government spending in 1933. The NAZIs increased this to 25 percent by 1935, a massive increase, but on a fairly small base and still small in comparison to future spending. The Government projects that would have the greaest impact pn production and employment was spending related to motor vehicles, transportation infrastructure, and construction. The construction of the Autobahns was the largest single project. Here the NAZI German Labor Service, Reichsarbietsdienst (RAD), played an important role in providing employment. This was a uniformed labor service, some what similar to the American Civilian Conservation Corps (CCC). NAZI economic policy was to combine increases in government investment with increases in private investment, and to manage the ecoonomy to maximize investment and resulting employment increases.

German Economic Controls

The NAZIs gained substantial control over the German economy. Important were brought undr effectiuve NAZI control by being offered lucrative government contracts. Individuals who refused to cooperate were dealt with by the regime coersive instruments like the Gestapol. The NAZI government's economic role was primarily supervisory. The NAZIs did not for the most part seize and directly operate German industries. The NAZIs expected cooperating industrialists. NAZI officials occassionaly intervened to ensure compliance with state objectives. Even during the War, slave labor was often contracted out to German corporatiins rather then used in SS operated production facilities.

Economic Recovery

NAZI propagand proclaimed that it had developed effective policies for dealing with the Depression. They in fact managed to convince many Germans of this. One economist points out that in the 1930s, German productivity only grew 1.3% per year from 1929 to 1938, roughly half the growth rate of Britain in the same years leading up to the War. The NAZI policies did help Germany recover from the sharp collapse of the German economy during the early years of the Great Depression. The NAZIs did not, however stimulate any real economic growth. There were investsments in new plants and equipment in the 1920s, but under the NAZIs in the 1930s, there was little economic expansion, only existing plants were brought back into production. There were two important consequences of the NAZI led recovery. First, as a result of a massive expansion of the Soviet industrial base in the 1930s, the economic gap between Germany and the Soviets was significantly narowed. Second, the NAZI policy of economic self sufficency had the affect of insulating German industry from competition. As a result, many innovative production techniques developed in countries that had to compete, were not adopted by German industry. As a result, NAZI Germany began World War with an industrial base that was mno longer as dominant over Russia as had been the case in World War I and with industrial production methods that were not as ifficent as those of the Western Allies. Both of these developments were largely unknown to the NAZIs, but were to have a major impact on the War.

German Rearmament

Hitler and the NAZIs planned from the beginning a massive rearmament program. NAZI propaganda promoted the idea that Germany must rearm. [Riegler] The NAZIs did not, however, begin a massive rearmament program immediately upon seizing power in 1933. The Weimar Republic Goverment itself has spomsored secret armanents programs in violation of the Versailles Treaty. The NAZIs did sharply expand weapon reseearch. The German military expanded in secret during 1933-34. Hitler by March 1935, felt suffucently secure to publicize his military. The NAZIs announced that they expansion - which broke the terms of the Versailles Treaty. Europe learned that the Nazis had a modern 2,500 plane Luftwaffe and a Wehrmacht with 300,000 men. Hitler publicly announced that he was insituting a compulsory military conscription and planned to expand the Wehrmacht to 550,000 men. Actual araments production began in earnest in 1936. The NAZIs in 1936 doubled armamets spending over 1935 levels. It was in 1936 that NAZI arms spending first exceeeded the combined total for transportation and construction spending. The nature of arms spending also increased. NAZI arms spending initially focused on research, development, and capital investment. The NAZIs in 1936 began concentrating on producing actual military equipment. This is one of the least economically beneficial types of government spending. .

German Defecits

The NAZIs sustained aapidly expanding deficits as the regime progressed. These defitis began when the Weimar Governmnt expanded spending to deal with the Depression. Expanded deficits began in the 1928-29 fiscal year. The NZIs continued the deficit spending policy, but greatly expanded the actual amount of the deficits. The NAZIs from the 1933-34 to 1935-36 fiscal years were sustaining government expenditures which exceeded income by about 50 ercent and this was before massive arms producrtion began. The German defecit spending sounds like classic Keynsian economic policies designed to stimulate a depressed economy. The idea was to stimulate consumer spending. Through the multiplier effect, government spending can theoretically have a major impact on stimulating consumer spending. The NAZIs were, however, not at all interested in stimulating consumer demand and spending. They in fact did not want increased consumer conumption. They wanted to increase investment and savings. As a result the multiplier effct of NAZI spending averaged only about 1.5 rather than the 2.5 estimated as likely by Keysian economists in western capitalist countries. The NAZI rearament program by the 1938-39 fiscal year was consuming 46 percent of total German government spending. This level of spending caused a substantial debt load. The NAZIs significantly increased government spending without any comparable increase in revenue. The NAZI government was spending almost twice as much as its revenue nd in the years leading up to the war that was primarily on the military. As NAZI government spending was a third of the economy, the government debt was very rapidly increasing. This enabled the NAZIs to create and arm the Whermacht and to establish a poweful military capable of attacking Britain and France. (It should be srssed, however, that the defeat of France was not entirely sue to NAZI military spending, but a failure in French tactics and will to wage war.) The German defecits enable the Germans to buoild a military advantage, but they also forced Hitler'd hand and the decesion to launch the war. Not only were the British and French rapidly rearming, but Germany could not continue massve defecit spending indefinitely. NAZI expendictures in the 1938-39 fiscal year which was the last fiscal year before World War II, government expenditure exceeded revenue by 86 percent. The total German debt load exceeded annual revenue by 136 percent. NAZI Government spending totaled 33.5 percent of GNP, up from only 19 in 1933. The NAZIs had managed to increase production by 25 percent over 1928 levels and 100 over Depression lows in 1932. The increases resulted from the expanded output of capital goods (infrastructure, heavy industry, etc.) rather than consumer goods.

German Defecit Financing

The growing NAZI defecit was primarily financed through domestic rather than foreign borrowing. NAZI Germany did not have substantial freign creditors. This was largely because of both te Deporession and the fact that foreign creditoirs declined to lend moey to Germsny. The government could not continue to borrow such large amounts domestically. The NAZIs were increasing the national debt about 15 percent annually and this was not sustaniable.

National Economies

The Axis allied with the Soviet Union at the time of World War II had succeeded in gaining the balance of military power in the world. Asfter the fall of France, if the NAZIs and Soviets had been able to coexist, the Allies would have not had the military power to reenter the Continent. This is in sharp contrat to the economies of the the Axis countries. The two largesteconomies of the world were the United States ($66 billion annual output) and Britain ($21 billion). Britain and France ($12 billion) had a national output nearly double that of Germany ($18 billion). The Soviet Union ($15 billion) has a national output roughly comparble to Germany. Italy had an especially weak economy for a country preparing for war. [Clark and Maddison] Data on Japan was not included in the studies we consulted, but would be a fraction of the major world powers. The German numbers are somewhat misleading. Germany had some of the eading world corporations with cutting edge technology. The Germans had not, however, developed American mass production techniques especially in the autimotive indusyry, in part because of the relatively small size of the domestic market. The most productive German automobile manufacturer was Opel, asubsiduary of General Motors. And whole the Germans had many advanced corporations, a sizeable part of the manufactured output was produced by small or medium-sized companies operationg what might be called workshops. Germany also had a relatively inefficent agricultural sector. Despite its vaunted reputation, the average America had an income and life-style beyond the imagination of the average German. And that economic difference affected the military power that the two ecomnomies were capable of generating. The same economic situation also described Britain and France to varying degrees, but both had more efficent agricultural sectors as well as empires with access to raw materials. The Soviet Union was much less economically developed than Western Europe, but as aresult of Stalin's policies had expnded heavy industry. American companies had helped expand Soviet production of cars and trucks. And the Soviet Union like the Germans had concentrated on military production. Unlike the Germans, the Soviets had vast deposits of natural resources, especially oil. The German military successes before (especially the occupation of Czechoslovakia) and in the early phase of the War (especially the Low Countries and France) significantly expanded Germany's economic power base.

Strategic Materials

Strategic materials played a critical role in World War II, in both the desire to launch the War and in the ability to wage an extended conflict. Only one country at the outbreak of World War II had the industrial and agricultural capacity as well as the resource base to wage world war and that was the United States which had no desire to wage another world war. The Soviet Union had significantly expanded the Russian industrial base, but weakened the country's agricultural base through enducung the Ukranian famine and collectivzing agriculture. Like the United States, the Soviets posessed enormous natural resources and like Germany, they has desisns on neigboring countries. Britain was less well situated. It had a substantial industrial and scientific base, but except for coal and iron, limited domestic resources. And it had to import large quantities of food. Those resources, however, existed in the Empire and overseas trading partners like America. The Royal Navy existed to ensure access to those resources in time of War, but had been allowed to decline in strength during the inter-War period. France was better situated in terms of Britain as to food production and as a result of its navy and alliance with Britain was guaranteed access to needed raw materials in its colonies and trading partners. The Axis powers were less favorably positioned for War in ters of raw materials. Germany was an important industrial and scientific power, but could neither feed itself nor possessed the strategic resources needed for industrial world war. The one critical resource Germany possessed in abundance was coal. Other important strategic materials would have to be imported. This made Germany vulnerable to blockade and as in World War I, Germany did not have the naval power to contest a Royal Navy blockade. Germany was particularly defecient in access to petroleum, a necesity for the modern mechnized war in planned to wage. Germany's answer to this was a sunthetic petroleum industry, but this did not even meet the country's need in peace time. The limited resource base was why Hitler in his strategic thinking from a very early stage looked east to the copious resources of the Soviet Union--resources that were not subject to a Royal Navy blockade. Italy was the least prepared country of all the major beligerants. Italy had neither the industrial base nor the raw materials to wage a protracted war. Japan was the most industrialized country in Asia, but its industrial base was small in comparison to America. The Home Islands had almost no natural resources, but Japan had acquired some in Korea and Manchuria. Like Germany, Japan had virtually no petroleum and imported most of its needs from the United States, making it even more vulnerable than Germany.

Foreign Trade

Germany's foreign trade after the NAZI's seized power was redirected toward importing of critical goods. Bilateral barter agreements were negotiated. The importation of consumer goods was restricted. The NAZIs sought to in effect isolate the German economy from the world economy. Trading agreements were negotiated when critical goods were unavailable in the domestic economy. Germany had to pay with these imports with industrial exports. And thus the Country's rearmament rogram was limited by the need to devote a substantial portion of industry to export. One author cntends that the primary constraint on German rermament was not the Allies, but the shortage of foreign echange. [Murray, p. 2.] The country was forced to draw down on stockpiles of material like cotton and rubber and as the 1930s progressed, countries beyond NAZI influence began to become more demanding about payment because of increasing dounts over the solvency of NAZI Germany. [Murray, p. 2.] Acparticular problem was obtaining iron ore and some authrors argue that Hitler's recklessness at Munich and decesion to invade Poland were in part motivated by the serious economic situtation. [Murray, p. 2.]

NAZI Solvency

Germany was not in a good economic position when Hitler seized power and his decesion to launch a major armament program made the situation even worse. Hitler's rearament program was bankrupting NAZI Germany. The Anschluss improved the finalcial situatin, but did not redress the basic problem (1938). It is questionable how long Hitler could have continued his rearament program if he had not taken Germany to war in September 1939. We know that NAZI government expenditures in the years just before the War began were more than twice as large as revenues. NAZI economic policies held little chnce for economic groth. NAZI focus on the military, inefficent production methods as a result of Germany's economic isolation, and the aging infrastructure, all argued against economic growth. Nor was Germany well situated to competing economocally with other major industrial countries. German corporations now acustomed to Government contracts were increasingly less capable of facing internatiinal competition. One analyst writes, "It is my conclusion that regardless of whether or not levels of deficit spending were decreased, Germany would be very poorly placed to compete in international trade, and would likely be outgrown by their major economic competitors. In the short term, they were not well placed to outgrow even the Communist economy of the USSR, which had experienced substantial levels of industrial growth while the rest of the world experienced the Great Depression." [Montgomerie]

Czechoslovakia (1938-39)

The NAZIs obtained the Sudetenland at Munich (September 1939). They then invaded the remainder of Czechoslovakia and converted it into the Protectorate of Bohemia and Moravia (March 1939). At the same time, Slovakia seceeded from Czechoslovakia and became alavisly obedient NAZI puppet state. Slovakia and the Sudetenland were largely agricultural. The Czech labds, however. important industrial centers. The most important was the Skoda works. The NAZIs very effectively integrated the economiy of Czechoslovakia into the German arms industry. The Skoda Works in particular made a major contribution to German war production.

Captive Nations

A major question that has not been asequately addressed in the copius scholarship in World War II is how effectively the NAZIs exploited the resources and economic potential of the occupied nations. Germany proceeded to loot the national banks of the conquered nations. Obtaining the gold from the treasuries was critical for the NAZI war effort. The NAZIs oriented the economy toward war production and meeting domestic demand, not internation commerce. Thus critical raw materials from countries they did not conquer (Spain, Portugal, Sweden, Switzerland, and Turkey) had to be purchased with gold. The NAZI success in exploiting the economies is a complicated question. Of course the policies they pursued wee morally reperhensible. This virtually goes without saying. But a very different question is the effectiueness of NAZI policies. Here the record is mixed and the comclusioin dependent on what indices the reader estanlishes. It is undeniable that the NAZIs finncecHitler's War on the backs of the peoples of the occupied countries. They managed to keep the privations felt in other countries until the last full year of the wsar, 1944. It was in that year that the Germsan people began to experience the consequences of the War their leadership launched pn their behalf. By this time the stratehic bobing campign reached its intensitiy and the advancing Allied armies meant that the despoiling of the wealth of the occupied countries was no longer possible. For the NAZIs, their whole plan of conquest backfired on them. Hitler's war plan was to seize the resources of the East (essetially the Soviet Union) and use those resources to turn Germany into an unassailable continental power. But this did not occur. Stalin was shipping greater quantities of oil and other critical msaterials to Germany before the NAZI invasion than the Germans were able to obtain after the invasion. The Germans were never able to bring Soviet mine and factory production back on line to any great extent. And most of the agricultural resources of the East were used to feed the Whermacht rather than returned to feed Germany. Germany did nore effectively utilize the resources of occupied Western Europe--especially France. But here too the picture is mixed. While the Germns did exploit the wealth of the capotive nations in the West, what they exploited was the existing wealth and producive csapacity at the samne time that America, Britain, and the Soviet Union were massvely expanding arms production. Germany also did not effectively used the economies and industries of the captive nations, especially the countries occupied in Western Europe. Germany did use the captive nations as a source of raw materials. Romania in particular was a critical source of petroleum. (Romania was a NAZI ally, but coersion was an important factor in forming alliances with coutries like Romania.) Germany did not, however, prove very effective in fully utilizing the indutries of captive nations. France in particular had a large, sophisticated armaments industry. This industry was not converted to support the German armed forces. The economies of France and the Low Countries could have made a major contribution to the NAZI-war effort. The NAZIs in 1940 seemed more concerned in making sure that France would never again be a threat in the West. As a result, therwas not effort to gear up French armaments production. By the time the NAZIs realized that the War was not already won, it was to late to take full advantage of French industrial capacity. Thus planes, tanks, artillery, and other key weapons were not constructed in France for the Germans. Given the industrial forces being marshalled against Germany in America, Britain, and the Soviet Union, the Germans needed tofully utilize the industrial capoacity of the conquered nations. They failed to do so. In part this was because a goal of the NAZIs was to turn neighboiring countries into subservient agricultural countries that would feed agricultural harvests and raw materials to Germany. In the end the criminality of the NAZI world view sewed the seeds of its own production.

British War Finances

Britain at the turn-of-the 20th century was the richest power in Europe with a vast Empire that helped feed the national treasury. Londom was the center of world finance. Loans from America helped bank role the British war effort. British finances had been weakened by the vast cost of World War I. The Great Depression further weakended the country's finncial position. While Germany lost World War I, it did not pay a substantial part of the reparations. Most of the German payments were money borrowed from America. And the Germans could finance the War by looting the occupied countries. Britain could not do this. And the costs of the War were rapidly depelting the British trasury. Britain to continue the War needed to import food and raw material in addition to armaments made in America. American Neutrality Laws placed this on a "cash and carry" basis. Britain after the fall of France (June 1940) found itself the only country still ar war with Germany. The Battle of Britain (July-Septmber 1940) had prevented invasion, but Britain now had to fight the Germanswho had much of the resources of Western and Central Europe at his disposal and as aesult easily able to finance the War. At the samr time, Britain's financial capability to finance the War was rapidly declining, both reserves and the ability to borrow money. Britain facing bankruptsy turned to the United States. Prime Minister Churcvhill wrote to President Roosevelt (December 1940). President Roosevelt's answer was Lend Lease (March 1941). This in esence was the American commitment to bank role the British war effort. It was in essence a declaration of economic war against NAZI Germany. Hitler and the NAZIs recognized it as such. It mean that Britain could conduct the War indefinitely. (Hitler has his own plan to put Germany in a comprble position--Operastion Barbasrossa, the invasion of the Soviet Union. Yhe Japabese had a similar lan, seizing the Southern Resource Area.) Even with Lend Lease, World War II placed tremendous demands on the British people, Britain would finance the War throiugh donestic taxation and borrowing, both domestic and foreign. Britain borrowed £15.2 billion during the War--a staggering sum at the time. [Sayers, p. 193.] Foreign assetts were sold off in an Imperisal fire sale. The Government intoduced the National Savings Certificates. (Comparable to American War Bonds.) Normally Britain would pay for imports with the export of manufactured goods. But with the economy on a war footing, manufacturing was concereted to war production. Unlike NAZI Germany, Britain in 1940 began waging total war. Production of consumer goods for domestic consumption or export were cut back to the bare minimum. The War would leave Britain with a huge war debt. Britain would end the War as the greatest debtor nation in world history.

British Bankruptsy (December 1940)

While the NAZI victories in the War, changed the German financial position for the better, the cost of the War was bankrupting Britain. Primeminister Churchill had to write to President Roosevelt to inform him that Britain was rapidly reaching the point tht it could no longer afford to pay for the war materials it was purchasing in America (December 1940). Churchill told Roosevelt that the financial situation would make it impossible for Britain to continue the War without American assistance. In fact Britain was already bankrupt.

American Arsenal of Democracy

Hitler was a gambler whoi willing to stake everying. Taking Germany to war with its limited resources and industrial capacity was an enormous gamble. As Briton and France failed to call his bluff before it was too late, Hitler was able to achieve enormous successes in the early phase of the War. But another oart of Hitler's ganble was tha he could defeat Britain and the Soviet Union before America cold mobilze its huge industrial capacity to bear on Germany. Here he lost and lost big.

Lend Lease (March 1941)

The NAZI Blitz on London, reportedly nightly by radio by Edward R. Murrow had a profound impact on American public opinion. Public opinion polls by December, 1940, indicated that 60 of Americans favored helping Britain, the only country still resisting the NAZIs, even if it meant war. This and the President's overwealming reelection, strengthened his hand in Congress. The U.S. Congress's in March, 1941, passed the Lend-Lease Act proposed by theAdministration. It proverd to be one of the most important pieces of legislation in history. . The Lend-Lease Act empowered the president to "lend, lease, or exchange" war materials with nations whose struggle against aggression was considered necessary to American security. It made the United States the "arsenal of democracy," not only for the United States, but for a vast coalition of allied nations forming around Britain and the United States.

Holocaust Economics

The destruction of the Jews was a major NAZI war aim. As the War turned against the NAZIs, it became the only war goal that Hitler was able to achieve. The Holocaust is usally approached understandably on moral grounds. But there are other dimensions to the Holocaust. And one of those dimensions is economics. What were the economics of the Holocaust to the NAZI war effort? There wre some economic benefits to the NAZIs. One step in the Holocaust was to enpoverish Jews. This was not only a lucrative undetaking, but once destitute the Jews were made even more vulnerable. Confiscating the property of Jews provided valuables that could be used to reward the party faithful or German soldiers and officials during the War. The money and valuables sttollen from the Jews was suposed to go to the Government. Golden and other valuables collected by the SS was deposited in the Reich Bank. Often SA, SS, and other NAZis kept valuables for their own personal use. Some SS men were wen proceuted for this during the war. We have never seen an accounting as to how much loot taken from the Jews was actually used to finance the NAZI war effort. We are not sure if such a calcilation has ever been made. It is clear that the NAZIs desperately needed gold and hard currency. This was not necessary countries they occupied, even austensible allies like Romania where they simply seized the oil and other resouces. This was not possible for unoccupied countries (Portugal, Spain, Sweden, and Switzerland). Critical materials like wolfram and iron ore had to be purchased from those countries. And as German industry was fully committed to the war, goods were not available for export. The NAZIs needed gold or cash. There was, however, a major economic downside to killing Jews. The Germans needed labor for the war effort. As the War went against Germany, every resoinably healthy German male of military age was conscripted. This and the exoansion of production required labor. The NAZIs killed about 6 million Jews. This meant roughly about 4 million productie workers (discounting children and the elderly), many with skills that could have been productively utilized. This was an enormously valuable resource and some NAZI officials wanted to utilize it. The Jews trapped in NAZI ghettos were hopeful that the usefulness of their labor would save them. Only Hitler could have resolved the competing proposals among his subordinates and made the decesion for murder. The murder of 4 million productive workers was a major detriment to the NAZI war effort. Germany began the War with an industrial capacity far below that of its adversaris. The murder of 6 million Jews, in addition to the barbarity of the act, is one of the ways in which the NAZIs failed to capitalize on the polential industrial strength of the occupied countries.

Gold

German financial officials before Hitler and Stalin launched World War II managed to obscure the level of the German Government's massive and growing debt. This allowed Hitler to pursue a massive rearmament program without causing a financial melt-down. Once Hitler took over Austria (April 1938) and Czechoslovakia (March 1939) he had access to new financial resources. Austria was annexed to the Reich. Czechoslovakia could be exploited ruthlessly. One of the first actions taken in both countries was to seize the Government's gold stocks. The same rutless policies were followed with the invasion of Poland and the outbreak of the war (September 1939). Exploiting the economies of occupied countries was critical to the NAZI war economy. Seizing foreign gold stocks was an important part of the NAZI effort. This was because Hitler began the war with an economy that lacked many vital resources. And the War mean thst few neutral countries wanted to accept Reich Marks to pay for imports of critical ntural resources. Hitler got oil from his allies, first the Soviet Union and then Romania, neither of which required Germany to use its gold supplies. Other resources could be looted from occupied countries. But other resources such as iron ore, cobalt, tin, tuhgsten and other metals as well as manufsctured goods had to be imported from neutral nations (Portugal, Spain, Sweden, Switzerland, and Turkey). And for this the NAZIs needed gold. Thus the Germans as they overan country after country, immediately went after each country's gold reserves. Yhe Poles managed to get most of their gold to France, but France itself was also endangered. As a result, massive gold shipments began arriving in the United States (Spring 1940). The gold came from Belgium, Britain, France (including the Polish gold), the Netherlands, and Norway. The story of NAZI efforts to gets their hands on the goild of occupied countries is a fascinating World War II story. The NAZIs also wnt after gold in individual hands. Here the major tarket was the Jews in Germany and the occupied countries. The Japanese in Asia also needed gold, but there was less gold to be had in China and the European colonies they occupied. There the most important World War II story is Yamashita's gold.

German War Production

Germany did not go to a full war footing until late in the War. Hitler avoided putting Germany on a full war footing, because he thought the War had been won and he did not want shortages and rationing to deminish domestic support for the War.

Axis Cooperation

Nor did Germany effectively cooperate in war production with its Axis allies. The failure of Axis arms meant that the European and Asian Axis powers never made physical connection. For a whilw when the Germans advanced in the Soviet Union there was air connections, but this was severed after Stalingrad. The more important sea routes were severed by the Royal Navy and the U.S. Navy. But the Axis failed to effectively share technology. By the final months of the war, the NAZIs were sending high tech weaponery to the Japanese, but by this time it was too late.

German Total War (1943)

Hitler's concept of World War II involved short campaigns in which targeted counties would be knocked out individually or in small groups before they could adequately prepare. This was historically the way Prussia waged war. Prussia was a small, relatively poor country that did not have the resources to wage protracted wars against larger, richer countries. Thus a well trained standing army gave Prussia an advantage at the onset of wars. This was the approsch that Hitler adopted as Germany was surrounded by countries with far greater resources. Once countries were occupied, they could be looted to finance abd supply the German war effort. Hitler wanted to mimimize the demands on the German civilians because many did not want another war and privations on the home front had undermined the World war I war effort. Hitler stressed the importance of the ‘gigantic all destroying blow’. This was a central concept in Prussian war planning. The competence of the Wehrmacht brought huge victories in the early phase of the War, but his plan began to fail when the British refused to buckle under in the Battle of Britain (1940). This led to Barbarossa, the invasion of the Soviet Union (1941). The Soviet winter offensive before Moscow meant that the Wehrmacht had failed to smash the Red Army and that there would be no German victory in a short war. Hitler planned for a short war because Germany did not have the manpower or resources for a protracted war. As a result, the German people and the German economy were not prepared for a long war. The Germany economy was not put on a total war footing. Women were not brouht into the work force and German companies continued to produce consumer goods. Promising arms projects like jet aircraft were on hold. Hitler wanted to maintain the civilian standard of living. Even after the disaster before Moscow, Hitler resisted massive changes in economic policy. This changed after the disasters in Stalingrad and North Africa. As the War turned against Germany, Hitler no longer desired to appear in public. It was thus Propaganda Minister Goebbels that announced "Total War". He delivered a long speeces in Berlin (February 1943). The German people were required to make real sacrifices for the first time at the same time that the Allied Strategic Bombing campaign became increasingly effective. By this time, however, it was too late. German war production could be raised and Speer accomplished a great deal. But productions increased were only marginal and paled in comparison to Allied production. The Germans faced the massive armies and war production that the Americans, British, Soviets were able to muster.

Slave and Forced Labor

The NAZIs during World War II implemented a slave and forced labor program to supply needed labor to the German war industry. This program was approved by Hitler months before the 1939 invasion of Poland. The German program as it evolved during the War had two purposes, The primary purpose was two provide workers for German factories and farms as German manpower was to be directed into the armed forces. This was especially important as NAZI idelopgy resisted imploying married women in factories. Allied countries dealt with this problem by bring women into the work force, the proverable Rosie the Rivetor in America. (British and Soviet women were even more significantly brought into the workforce.) NAZI idelogy was involved here. The German Housefrau, however, was to stay home amd produce Aryan babies for future German armies. The other factor was the phenomenal German success at the beginning of the War which left the impression that there was no needed for women to enter the workforce. The secondary purpose was mass deportation and mass enslavement combined with underfeeding and overworking foreign laborers could be used to reduce populations of countries which posed a threat to NAZI Germany, Not only could the labors of these workers be used against their country, but the mistreatment could help reduce both the population of other countries and other ethnic groups, especially the slavs of Eastern Europe.

Soviet Transport

The Soviets incredibly after 1941 tore up arms plants in westrn Russia and shipped them to sites in or beyond the Urals. It was a mamouth undertaking. The plants were rapidly set up in new sites. Production was limited in 1942, but by 1943 huge quanytities of high quality weapons were flowing from Soviet plants. The Germans, lacking long-range bombers, could not target the Soviet plants.

America: Financing the War

The absolute cost of the World War II to America was $321 billion durung the War years (1941-45). This does not include the cost of careing for wounded veterans after the War and GI-Bill expenditures. It was, however, greater than any other country paid. This was in part because of the high wages paid to American workers and soldiers. This was very different than the approach Germany used to finance the war--slave labor and pilaging occupied countries. The cost to America was also greater than olter countries because yhrough Lend Lease, America helped equip allied armies. It was much greater than the cost of World War I in which America only participted for a year and a half. Taxes during the war covered slightly more than 40 percent of the cost. The Federal Govrnmrnt had to borrow the reminder. Here there were several alternatives. Congress could have increased taxes to astronomical levels or it could have adopted some kind of compulsory war bond purchase scheme. Both alternatives were rejected. Congress did increase taxes. The Revenue Act of 1942 substatially changed the Federal tax system. Many more individuals were required to pay income taxes, including Americans with modest salaries. The number of taxpayers were increased from 13 million to 50 million people. The tax was highly progressive with wealthy people paying a larger percentage. Corporations were also affected by excess profits taxes. Congress chose to finance the war primarily by borrowing from financial institutins and individuals. The Federal Government launched well publicized drives to sell war bonds on a voluntary basis. The drives were supported by Hollywood celberties and decorated service men. Even children participated in these drives. They could buy Defense Saving Stamps and when they filled up their book a bond would be issued. This process began even before the Japanese Pearl Harbor attack brought America into the War (1941). There were several drives. We note a Sherman tank being used in the Third War Bond Drive (1943). The War Bond drives not only help finance the war, but took money out of the cosumer economy and thus limited both inflation and consumer demand competing with war production. President Rooselvelt had been criticized for the New Deal defecit spending during the 1930s. This oproved to be a small fraction of what the War cost. All the borrowing caused the national debt to baloon five times to $259 billion.

Anglo-American Cooperation

German ineffiency in coordinating with Allies stands in sharp contrast to the close copperation between Britain and America. President Roosevelt began mobilizing the Arsenal of Democracy, the vast American economy well before America went to war. Very extensive cooperation in weapons development and production also began btween Britain and American before American entered the War. Lend Lease not only helped keep Britain in the War, but equipped the Allies with weapons and equipment that amazed the Allies as well as the Axis. The production of Liberty Ships meant that the Allies ended the war with more merchant tonnage than they began the War. Production methods were to developed for mass producung radars and other equipment that once required involved production techniques. Major weapons like the P-51 Mustangs werethe result of a combined Anglo-American effort. The Manhattan Project to build the atomic Bomb was a joint Anglo-American project.

NAZI Atomic Bomb Project

It is widely assumed that the Germans did not produce an atmoic bomb during World War II because they lacked the resources to devote to the project during the War. The actual reason is much more complicated. Actually tremendous resources were avaoilable to the NAZIs. Many were poorly utilized. Some claim that the leading German scientidsts led the research now a fruitless path on purpose. There is little evidence to substantiate this claim. We do know that other factors affected the NAZI bomb program. Driving out leading physicists because they were Jews or sympathetic to the Jews deprived the NAZIs of some of the greatest minds in physics. The failure to use the sciences of captive narions and the view of nuclear physics as Jewish scince were other factors. Also Hitler was uninterested in long-term projects

Japan

Incredibly the Japanese do not appear to have made any kind of assessment of the industrial potential of the United States and the resulting capacity to wage war. They appear to have assumed that their naval superiority, especually their substantial superority in carriers, would allow them to seize a vast empire in Southeast asiand the South Pacific. They appear to have believed that America with its fleet bloodied would not have the national will needed to dislodge the Japan from its empire. From the point of view ofthe Japanese, American industrial and economic superiority was less important than the marshal spirit of the Japanese armed forces.

Speer and Total War

Only after the setbacks in Russia, especially Stalingrad, did Hitler turn to Speer and give him the authority to fully convert the German economy for war. Fortunally for the world, by then it was to late to stop the expanding force of the Soviet Union in the East and the Western allies in the West.

Sources

Clark, Colin. Clark's economic work in 1930s was reassessed by Angus Madison. The date he compiled had differences, but essential made the same point. Germany launched World War II will arelatively small economy not prepared for global war. Madison, A. "Quantifying and interpreting world development: Macromeasurement before and after Colin Clark," Australian Economic History Review Vol. 44 (2004). Another good source on World WAr II economics is Maddiso, The World Economy" A Millennial Perspective (Paris, 2001).

Hanby, Alonzo. For the Survival of Democracy.

Montgomerie, Ian. "The Nazi economy," undated internet posting.

Murray, Williamson. Srategy for Defeat: The Luftwaffe, 1933-1945 (Diane Publishing co, 1983).

Overy, R.J. The Nazi Economic Recovery 1932-1938 (Economic History Society).

Riegler, Hans, Heer, Flotte und Luftwaffe. Wehrpolitisches Taschenbuch (Berlin: Verlag für vaterländische Literatur, 1935).

Sayers, R.S. "Financial Policy, 1939-45" in Sir Keith Hancock, ed. History of the Second World War: United Kingdom Civil Series (London: H.M. Stationary Office, 1956).







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Created: November 19, 2002
Last updated: 12:46 PM 10/15/2014