The Economic Reasons for the Rise and Fall of the Third Reich

The Economic Reasons for the Rise and Fall of the Third Reich

By: Joseph Meehan

Student Number: S00114598

Course: Bus (accs)

Submitted in partial fulfilment of Economics Course Module pursuant to BA in Business Studies

Introduction and Purpose

Hitler's Germany was a catalyst of great upheaval throughout Europe, it defined new boarders and gave new words to the world's lexicon of evil: Kristallnacht, Lebensraum, Racial Purity. The resultant bloodbath of world war and the racist fuelled genocide of millions of innocent people permeate the background of this document. Post World War Two's socio-political and economic maps were fundamentally altered giving us NATO, East and West Berlin, the Iron Curtain - the list of repercussions to the Reich's existence is endless.

The dichotomy to the hate and blood lust created by the Hitler's Third Reich is that the Nazi's didn't seize power through revolution. The Nazis gained power through the ballet box, through democracy, though never having an absolute majority (Smitha, 2011). Hitler's popularity and its rise were based on his work as chancellor and early work as the Fuhrer delivering an 'economic miracle' to the German people. This occurred in a few short years, achieving full employment - "bread and work" - and significant GDP growth. He built the autobahns, public parks, and great buildings reflecting national pride. In short, the people adored him.

The creation of a fascist state was maybe not fully justified in the eyes of but fully accepted by millions of Germans struggling through the economic havoc of the last years of the Weimar republic. Germany was 'on it knees' its colonies were lost, large sections of land were annexed (Poland, Belgium and France) and massive reparations were still being paid for World War 1, hyperinflation and millions unemployed.

Any discussion on Germany's successes always needs to be counterweighed against the atrocity of the 'Final Solution'. Anti-Semitism, ethnic cleansing, and genocide were not new phenomena to Europe. What made the Nazis singular (up to that point) is that they undertook these outrages in an economy with emergent information technology capacity (IBM patented Hollerith Card Sorters) together with the might of post World War 1 industrialised economy (Black, 2001). The German Third Reich had the means to develop lists of Jews, Marxists, Gypsies, intellectually disabled and other cadres they wished to eliminate. Eichmann had the trains to ship these to concentration camps and Himmler's SS could mass produce Zyklon B and build industrial sized ovens for carcass incineration. (Black, 2011)

This document does not review this particular aspect of the Nazi's ideology and subsequent implementation leading to mass murder. The purpose of this document is to outline the economic backdrop for ordinary Germans to acquiesce to a totalitarian state and its terrifying conclusion of war and genocide.

Weimar Republic's First Economic Failure

Germany had lost world war one. The treaty of Versailles, 28th June 1919, was widely denounced by all sectors of German Society, on the day of its signing all Protestant churches rang their bells in mourning (Bloy, 2011). The treaty placed onerous demands on the German people.

War reparations of approximately 226 billion Reichsmarks (Rms) were agreed by an Inter-Allied Reparations Commission. In 1921, it was reduced to 132 billion Rms (Hetzel, 2002). However, this was still over double the GDP of the entire economy (64 billion Rms). Versailles Reparations came in a variety of form, including: coal, steel, intellectual property (e.g. the trademark for Aspirin) and agricultural products were used as part of the reparation schedule.

The territorial areas lost through the treaty also greatly hindered the already fragile economy; Poland, France and Belgium annexing large swathes of German territory.

In 1921, the Allied Reparations Commission presented a bill for €6.6 billion (10% of Germany's GNP). By December 1922 Germany had no option but to renege and watched helplessly as French and Belgians occupied the Ruhr; 'annexing' the coal and production of the Ruhr valley as a 'payment-in-kind' (Bloy, 2011).

The powerful trade unions downed tools in a show of passive resistance. The impact was immediate with the collapse of German economy in a matter of weeks. Due to the occupation, the fall in production in Germany's industrial heartland was dramatic; the overspill to other industries was equally remarkable, creating catastrophic loss of employment nationally. Unemployment went from 2% to 23%. Prices began to rise and tax revenues, primarily income and corporations taxes, collapsed. To continue in operation the German Government began printing money, by the time the cycle had reached its zenith prices has soared to over 350 million times that of April 1919. Savings were lost, money was worthless. In 1913, total currency in Germany amounted to just 6 billion marks. In November 1923 in Berlin, a loaf of bread cost 428 billion marks and a kilogram of butter almost 6,000 billion marks (Hetzel, 2002). The table below shows the scale of the hyperinflation period.

Table 1: Exchange of DM to €US Dollar from 1919 to 1923

** Table taken History Home Website (Bloy, 2011)

In 1923 Gustav Stresemann became Chancellor; he introduced a new currency, the Rentenmark, which ended the hyperinflationary period. He negotiated the treaty on war reparations - starting with a two year moratorium - the first payment was set at £50m sterling (rising to a maximum of £250m p.a. after five years). He sourced $800m from Germany's own internal capitalist structures (banks, large corporations) and began accessing American banks for loans to finance ongoing yearly budgetary deficits. Stresemann achieved a lot before his death; he died aged 51 of a stroke in 1929: he reduced the repatriation payments to €2 billion in total, payable over 59 years, he defined the German borders (still in flux due to WW1) and the Rhineland was completely evacuated by 1930. (Wikipedia)

The Weimar Republic's recovery from the first economic collapse was financed mainly by American banks. This policy exposed the economy to the Great Wall Street Crash on a greater