The Road to Recovery

Two days after becoming chancellor, Hitler outlined his economic program in a national radio address: “Within four years, the German farmer must be rescued from poverty. Within four years, unemployment must be finally overcome."17 The government enacted laws based on the strategy conceived by Fritz Reinhardt, a state secretary in the Reich’s Ministry of Finance. This unassuming, pragmatic economist introduced a national program to create jobs on the premise that it is better to pay people to work than to award them jobless benefits.

The Labor Procurement Law of June 1, 1933, allotted RM 1 billion to finance construction projects nationwide. It focused on repair or remodeling of public buildings, business structures, residential housing and farms, construction of subdivisions and farming communities, regulating waterways, and building gas and electrical works. Men who had been out of work the longest or who were fathers of large families received preference in hiring. None were allowed to work more than 40 hours per week. The law stipulated that German construction materials be used.18

Also passed that summer, the Building Repair Law provided an additional RM 500 million for smaller individual projects. Home owners received a grant covering 20 percent of the cost of each project, including repairs and additions. Owners of commercial establishments became eligible for grants for conducting renovations, plus for installing elevators or ventilation systems. Renters could apply for grants to upgrade apartments.

Under the law’s provisions, property owners receiving grants borrowed the balance of new construction costs from local banks or savings & loans. The government provided borrowers coupons to reimburse them for the interest on the loans. The Tax Relief Law of September 21, 1933, offered income and corporate tax credits for repairs. The regime covered nearly 40 percent of the cost for each renovation. The Company Refinancing Law, legislated the same day, converted short term loans into long term ones with lower interest. The law reduced the previous seven percent interest rate to four (and ultimately to three) percent. This did not hamper finance companies, since it prevented defaults on loans. The refinancing law released businesses from the obligation to pay their portion of unemployment benefits to former associates. The resulting available capital enabled them to re-hire employees and expand production.19

The Labor Procurement Law provided newlyweds loans of RM 1,000 at one percent monthly interest. The loans came in the form of coupons to buy furniture, household appliances and clothing. To be eligible, the bride had to have been employed for at least six months during the previous two years, and had to agree to leave her job. Returning women to the home vacated positions in commerce and industry, creating openings for unemployed men. For each child born to a couple, the government reduced the loan by 25 percent and deferred payments on the balance for one year. For larger families, upon birth of the fourth child, the state forgave the loan. It financed the program by imposing surtaxes on single men and women. By June 1936, the government approved 750,000 marriage loans.20 Reinhardt described the policy of diverting women into the household economy as “steadily regrouping our German women with regard to the labor market and with respect to social policy. This regrouping alone will ... in a few years be sufficient to eliminate unemployment, and bring about an enormous impetus in every branch of German economic life."21

The marriage law released approximately 20,000 women per month from the work force after September 1933. The increase in newlyweds created a corresponding need for additional housing. More tradesmen found work in new home construction. In the furniture industry, manufacture increased by 50 percent during 1933. Factories producing stoves and other kitchen appliances could not keep pace with consumer demand. The state imposed no property tax on young couples purchasing small single family homes. As Reinhardt predicted, reduced payments in jobless benefits and increased revenue through corporate, income and sales taxes largely offset the enormous cost of the program to reduce unemployment and revive the economy. He stated in Bremen on October 16, 1933, “In the first five months of the present fiscal year, expenditures and income of the Reich have balanced out."22

When Hitler took power, labor represented 46 percent of German working people and 82 percent of the nation’s unemployed.23 The government initiated massive public works projects to expand the job market for labor. It especially concentrated on upgrading the national railway. Also, construction of a modern superhighway began in September 1933, which found work for an additional 100,000 men each year. The production and delivery of building materials for pavement, bridges and rest stops simultaneously employed another 100,000. The Reich’s Autobahn project, originally planned for over 3,700 miles of new highway construction, relied primarily on manual labor. Limiting the use of modern paving machinery enabled the Autobahn commission not only to keep more men on the job, but devote 79 percent of the budget to workers' salaries. The Autobahn was a toll road; however, reduced wear on vehicles using this efficient highway system and savings in travel time were worthwhile compensation to motorists for the fee.

The Reich also focused on relieving the distressed circumstances facing the German farmer. The depression had left many farms in debt. Younger family members often left their homes to seek opportunities in the cities. A September 1933 law established the Reichsnährstand (Reich’s Food Producers), an organization to promote the interests of people in the agrarian economy, fishermen and gardeners. With 17 million members, the Reichsnähr stand s principle objectives were to curtail the gradual dying-out of farms in Germany, and prevent migration of rural folk to concentrated population centers or industry. Controlling the market value of foodstuffs, the organization gradually raised the purchase price of groceries by over ten percent by 1938. This measure was not popular among the public, but greatly assisted planters.

The Reichsnährstand not only arranged for a substantial reduction in property taxes for farms, but wiped the slate clean on indebtedness. This gave heavily mortgaged farm owners a fresh start. Another organization, the Landhilfe (Rural Assistance), recruited approximately 120,000 unemployed young people to help work farms. The government financed their salaries, training and housing. It also arranged for temporary employment on farms for school graduates and students on summer break. The Landhilfepermitted foreigners living in Germany, primarily Poles, to enter the program. Hitler had a particular interest in preserving Germany’s farming stratum. During World War I, his country had suffered acutely from Britain’s naval blockade of food imports. He considered a thriving agrarian economy vital to making Germany self-sufficient in this realm. By reducing the effectiveness of a potential nautical blockade in the event of future hostilities, growers indirectly contributed to national defense.

On the ideological plain, Hitler regarded a robust agrarian class to be essential for a healthy general population. In the turbulence of the modern age, industrialization and progress removed man further and further from his natural surroundings. Bound to the soil and the family homestead for generations, the farming community was an anchor rooted in traditional German customs and values. It drew sustenance from the land and passed it on to the nation. While labor represented a dynamic political force, the farming stratum remained the “cornerstone of ethnic life."24 The Führer esteemed such self-reliant, rugged people as an indispensable mainstay for the nation. Addressing half a million farm folk in Bückeberg in October 1933, he stated, “In the same measure that liberalism and democratic Marxism disregard the farmer, the National Socialist revolution acknowledges him as the soundest pillar of the present, as the sole guarantee for the future."25

Hitler not only maintained Germany’s agrarian class but augmented it; housing planners sited many new settlements of single family homes in rural areas where residents took up farming. The government provided interest-free loans and grants for the purchase of farm implements along with special marriage loans for newlyweds. The debts were to be forgiven after the family had worked the farm ten years.26

Germany’s economic reforms would never have been so successful without overhauling the tax structure. In the Weimar Republic, state and local governments had raised revenue for operating expenses, reparations payments to the Entente, and public aid through steadily increasing taxation. The drain on working families' budgets had reduced purchasing power, restricted the demand for consumer goods, decreased production and caused lay-offs. As more people lost jobs, unemployment pay-outs were augmented, placing greater demands on those still in the work force. Municipalities collected taxes and fees according to local needs without a nationally coordinated revenue system. Costly, inefficient, and overlapping bureaucracies burdened citizen and economy alike.

Tax reform was a major element of Reinhardt’s recovery program. Initial measures legislated to this end demonstrate what a crippling influence the Reich’s runaway taxation had previously exercised on commerce. The first to benefit from tax relief was Germany’s automotive industry. The Motor Vehicle Tax Law of April 1933 abolished at one stroke all operating taxes and fees for privately purchased cars and motorcycles licensed after March 31 of that year. The reduction in consumer costs to own and operate a car was so dramatic as to significantly boost sales. While the industry produced just 43,430 passenger vehicles in 1932, the number rose to 92,160 during Hitler’s first year in office. New car production increased annually. The number of people employed in automobile manufacture climbed from 34,392 in 1932 to 110,148 in less than four years. From 1933 to 1935, the industry built 15 more assembly plants.27

The government recovered the revenue lost from repealed automotive taxes through reduced payments of jobless benefits, income tax from newly employed auto workers, highway tolls and corporate tax. The state collected an additional RM 50 million by offering owners of older cars the opportunity to pay a one-time reduced fee to permanently eliminate their annual vehicle tax liability. The government devoted the entire amount to improving roads, thereby hiring more people for pavement and bridge repair. Others found work in industries that manufactured machinery. The tax law ratified on June 1, 1933, eliminated fees for the replacement and purchase of tools and machinery, as long as buyers opted for German-made articles. This measure breathed life back into industrial equipment production.28

Reinhardt demanded the creation of a simplified, centrally supervised tax structure. New tax laws and instructions used every-day German, easily understandable to taxpayers. He emphasized in his 1933 Bremen speech, “Not only will the number of taxes be substantially fewer, but the tax laws and new payment instructions will be worded so that the Reich’s Finance Ministry will no longer have as much latitude as before in interpreting the tax laws. The fact that the room for interpretation of tax laws was previously so broad, was a serious blow to the protection of taxpayers' rights."29

Under the Reinhardt system, the government gradually supplanted the plethora of municipal, provincial and state taxes and fees with a single national tax. The finance office calculated the budgets of local and state administrations, collected all revenue and distributed it to agencies and municipalities. During the year, each citizen received an annual income tax invoice and paid the amount in twelve monthly installments. This covered his or her total tax liability. The arrangement greatly reduced administrative costs of mailing local tax bills, collecting individual fees and pursuing delinquencies. It also simplified the accounting of private corporations no longer required to determine withholding taxes on employees' salaries.

In the long run, Germany’s policy of reducing taxes to promote commerce increased public revenues. During the first half of 1939, the finance office reported over RM 8.3 billion in revenue, compared to RM 6.6 billion in fiscal year 1932/33.30 These were evenly assessed taxes in 1939, paid by a fully employed population; not an imbalanced, excessive liability burdening working people to provide jobless benefits for the less fortunate.

In a Nuremburg speech in 1936, Reinhardt described income tax as “the main source of revenue. Income tax is measured according to (the citizen’s) actual income and is therefore the most socially just form of collecting taxes."31 A 1933 Swedish study comparing taxation among Great Powers established that the German people paid 23 percent of their income in taxes. In the United States the amount was 23.4 percent, in Norway 25.1 percent, Britain 25.2 and Italy 30.6 percent.32 (The figure did not take into account America’s numerous hidden taxes that were non-existent in Germany.)

No program to restore German prosperity could omit international trade. Deprived of its colonies, the Reich had to develop foreign markets to acquire raw materials for industry and a portion of the food supply. With gold reserves exhausted, the National Socialist administration had to create an alternative source of purchasing power. Despite objections from Hjalmar Schacht, president of the Reich’s Bank, Hitler withdrew Germany’s money system from the gold standard. Gold was the recognized medium of exchange for international commerce. Over centuries, it had become a commodity as well. Financiers bought and sold gold, speculated on its fluctuations in price, and loaned it abroad at high interest. Hitler substituted a direct barter system in foreign dealings. German currency became defined as measuring units of human productivity. The British General J.F.C. Fuller observed, “Germany is already beginning to operate more on the concept of labor than on the concept of money."33

In January 1938, the Soviet diplomat Kristyan Rakovsky commented on the German money system. Rakovsky had held posts in London and in Paris and was acquainted with Wall Street financiers. He explained, “Hitler, this uneducated ordinary man, has out of natural intuition and even despite the opposition of the technician Schacht, created an especially dangerous economic system. An illiterate in every theory of economics driven only by necessity, he has cut out international as well as private high finance. Hitler possesses almost no gold, and so he can't endeavor to make it a basis for currency. Since the only available collateral for his money is the technical aptitude and great industriousness of the German people, technology and labor became his 'gold'.... As you know, like magic it’s eliminated all unemployment for more than six million skilled employees and laborers."34

Germany’s withdrawal from the gold-based, internationally linked monetary system in favor of a medium of exchange founded on domestic productivity corresponded to Hitler’s belief in maintaining the sovereignty of nations. This was an unwelcome development in London, Paris and New York, where cosmopolitan investment and banking institutions profited from loaning money to foreign countries. Germany no longer had to borrow in order to trade on the world market. Foreign demand for German goods correspondingly created more jobs within the Reich.

Upon taking office, Hitler had assigned the elimination of unemployment as his first priority. During the first twelve months of his administration, unemployment declined by nearly 2.3 million. In 1934, 2,973,544 persons were still out of work, but by November 1935, 1,750,000 more Germans had found full time jobs.35 Addressing the National Socialist party congress in Nuremburg on September 12, 1936, Reinhardt presented statistics demonstrating that “mass unemployment in Germany has been overcome. In some occupations, there is already a shortage of workers.” He stated that among other civilized nations, of the 20 million people out of work in 1932, only two million had returned to the work force over the previous four years (The statistics did not include the USSR, since no figures were available).36 During the same period in Germany, the economy created jobs for over five million previously unemployed persons. In addition, the average work day within this time frame increased from six hours 23 minutes to over seven hours per shift.37

In November 1938, the German government officially recorded 461,244 citizens as unemployed. The statistic included individuals who were physically or mentally disabled, mostly homebound and hence unemployable.38 It also incorporated the populations of Austria and the Sudetenland. Germany had annexed these economically depressed lands the same year. Both had suffered massive unemployment, which Hitler had not yet had time to fully alleviate.39 From 1934 to 1937, the number of women in the work force increased from 4.5 million to 5.7 million. Despite programs to encourage women to return to traditional family roles, the government did not restrict those choosing a career. They were equally eligible for tax incentives offered for starting small businesses.40

An interesting element of Germany’s recovery is that Hitler, against the recommendations of Germany’s principle financier, Schacht, authorized the economic programs developed by Reinhardt, a man possessing comparatively little influence. A disciple of the liberal economic theory, Schacht disapproved of government interference in commerce. He opposed state-sponsored programs to combat unemployment. Otto Wagener, head of the NSDAP’s economic policy branch, told Hitler that Schacht was “an exponent of world capitalism” and hostile to the state’s revolutionary approach to economics.41 Historians have nonetheless described Schacht as a “genius of improvisation” and a “financial wizard.” One British author credits this American-educated, international banker with “financing ... unemployment programs by greatly expanding public works and stimulating private enterprise."42 Schacht’s pre-1933 writings and verbal statements reveal no trace of the ideas introduced by Reinhardt to revitalize the economy and create jobs. Regarding unemployment, the “solutions” Schacht suggested were to reduce workers' wages, encourage thrift, and resettle people out of work in state-operated camps.43

The campaign to stabilize Germany’s economy witnessed measures that were only possible in an authoritarian state. The National Socialist maxim, “community interest before self-interest,” guided a policy that was efficient and uncompromising. Among the first to feel its weight were Germany’s trade unions. By 1932, they had far less influence than during the previous decade. Few workers were prepared to risk their jobs by striking. Union representatives voiced no protest when Hitler, five weeks after taking power, banned the Iron Front and the Reichsbanner. These organizations had provided muscle at public demonstrations of the Social Democratic Party, which was closely affiliated with labor. In April 1933, the German trade unions issued a public statement declaring their desire to cooperate with the new government.44

Hitler had no interest in collaborating with trade unions. On May 2, the police and deputized SA men occupied union offices throughout the Reich. National Socialist labor commissioners replaced the union leaders. The government confiscated union funds. It banned strikes and lock-outs. The new chancellor acknowledged the necessity for an organization to advocate labor’s interests. He believed however, that it should be a state agency. When Hitler had been a combat infantryman in 1918, strikes called by independent trade unions stalled the delivery of munitions to the front. During a visit to Berchtesgaden between the world wars, Lloyd George had told the Führer, “Your revolution came to our aid at the last minute."45

Considering trade union leaders to be Marxist-oriented, Hitler viewed them as little more than instruments of Soviet Russia’s Comintern. Moscow had established this organization to promote Communist movements abroad. In 1935, the Executive Committee of the Communist International redefined the Comintern’s role. The “active endeavors of the Comintern” were to be brought “in the minutest detail into harmony with the objectives and tasks of the foreign policy of the Soviet Union."46 To allow the continued existence of non-government regulated trade unions, Hitler reasoned, placed German labor under the influence of a foreign power that was a commercial rival on the world market. In Soviet export, Hitler saw “a dangerous dumping policy with slave wages to undermine the economic systems of other countries."47

How the USSR misused Europe’s labor unions, a former Communist explained in a 1938 book. The forestry engineer Karl Albrecht had worked in Soviet Russia as a director of various projects in the timber industry from 1924 to 1934. His memoirs, penned upon return to Germany, corroborated Hitler’s misgivings: “The Communist party of the Soviet Union contrived strikes on precise schedules in the forestry industries of Finland, Sweden, Canada, Poland or other competing timber export countries. This was to paralyze work in wooded regions or sawmills there, to make export impossible. The purpose of these actions was to create shortages of lumber in the wood-importing lands England, France, America, Holland and so forth. This would overcome importers' reluctance over bringing in Soviet timber and pave the way for capturing these markets. . . . Strikes and other revolutionary activities, senseless wage demands in mining and coal production, in the lumber, paper and textile industries, ordered by the Comintern or the Red trade unions international, in no way served the interests of those employed in these branches of industry."48

After Hitler nullified the unions, workers came under the newly established Reich’s Institute for Labor Mediation and Unemployment Insurance, the RAA. A common procedure of the RAA was to redistribute manpower where it could better serve national interests. The institute not only possessed the authority to transfer workers to critically distressed areas, but to prevent others from relocating. It required for example, that young farmers seeking “occupationally unfamiliar employment” in cities first obtain RAA permission. Applications were rarely approved. In this way, it contributed to the goal of sustaining Germany’s agrarian economy and farming stratum. Another RAA regulation removed workers and supervisors in industrial centers who had come from farms, transplanting them into rural areas to resume their previous occupation. The RAA also prevented members of the workforce, regardless of vocation, from entering fields of endeavor that already had a higher rate of unemployment.

The restrictions generally impacted a small portion of the population. The institute relaxed some regulations as more Germans found jobs and the economy improved. By democratic standards, these initial steps represent an infringement on personal liberty. Directing people to specific occupations where their skills were better utilized developed out of Bismarck’s perception of labor as “soldiers of work.” National Socialism capitalized on this martial approach by defining vocational endeavor as an achievement for the nation or, in Hitler’s words, a “willingly given offering to the community.”

As a sacrifice for Germany, toil elevated “the working person to the first citizen of the nation."49 No longer, as in the traditional sense, would material possessions determine social status, but service to the common good through labor. Imposing a “duty to work” on his people, Hitler accordingly honored their achievements in the spirit that a country pays homage to the sacrifices of its soldiers. Still, the overall goal of his comparatively strict policy was not to militarize the national psyche but first and foremost to combat unemployment. Pursuant to his maxim that controls are fair and just when enforced uniformly without exempting any particular group, Hitler resorted to equally undemocratic methods to protect the working population from exploitation. He forbade speculation on nationally vital commodities such as agricultural harvest and energy. The stock exchange, which Reinhardt dismissed as a “gangster society,” suffered increasing limitations to its freedom of operation.50 Only rarely, and then with difficulty, could novice applicants obtain a broker’s license.

The government also protected smaller and newer businesses by banning the practice by established enterprises of ruining retail competitors by underselling their products.51 The state appointed the Price Oversight Commission to stop businesses from decreasing production or delivery of certain commodities, especially foodstuffs, for the purpose of creating artificial shortages to inflate prices and overcharge consumers. Hermann Göring, a member of Hitler’s cabinet, declared, “it is a crime when an individual or group tries to place private capitalist profit above the people’s welfare.” Göring warned that the state would “intervene in the severest way” upon identifying offenders.52 In some cities, the government closed businesses found to be not in compliance.

Perhaps nowhere was Hitler more restrictive than with regard to regulations governing the conduct of public officials. Sponsoring massive construction programs to improve the economy required civil servants to solicit bids and award contracts, issue building permits, conduct inspections, re-zone districts, recruit manpower and so on. The opportunity for them to favor certain private commercial interests in exchange for gratuities was particularly troublesome to Hitler. He enacted laws making it illegal for public servants to possess stock portfolios or to serve as consultants to private corporations. The law also affected members of the armed forces and the National Socialist party in positions of procurement. It was a violation for anyone leaving public sector to accept a job with a private concern that he had previously contracted with in an official capacity. Even as private citizens, former civil servants were forbidden by Hitler from investing their personal wealth in stock shares.53

By 1937, Germany’s work force was fully employed. The former American President Herbert Hoover, whose own country’s unemployment rate then stood at 11.2 percent, praised the Reich’s labor procurement program for both efficiency and frugality. The parallel New Deal program in the United States was more costly and making less headway. The U.S. national debt was $37.2 billion in June 1938. This was three times that of Germany. Even America’s Secretary of the Treasury, Henry Morgenthau, confided in his diary the Germans' success at creating jobs.54

The German parliament gave Hitler a free hand by ratifying the Empowering Act on March 21, 1933. This authorized him to write all laws, automatically approved by the Reichstag whether constitutional or not, for the next four years. The measure allowed the Führer to proceed aggressively against unemployment and national bankruptcy.

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