The Economy & Class Structure of German Fascism: Chapter 12

Arms Economy and the Four Year Plans

Unfortunately, only a sketchy picture can be traced here of the development towards the transition to the ‘Second Four Year Plan’ which started in autumn 1936, and which relied on Göring’s economic dictatorship of industry. The Plan was essentially a summing-up and systematisation of projects begun or envisaged long before the actual proclamation of the Plan, as early as 1934 in the Economic Office of the Ministry of Defence. They included the question of synthetic raw materials, the moving of armaments factories and production essential to warfare into the interior of the country and the whole preparation for economic mobilisation in wartime. This ranged from the division of the economy into sectors according to defence priorities, the classification of factories according to their importance or adaptability to munitions, the distribution of labour between military and civilian production and covered even such repressive measures as were to be taken against sabotage, strikes, or revolts in plants crucial to the war effort. All this had been extensively worked out and its major outline rubber-stamped by the staff at the War Ministry and by the General Staff long before it materialised into the ‘Second Four Year Plan’.

Previously the War Economic Office had been under the charge of Colonel Thomas who worked in close co-operation with General Kaamann of the Army Supplies Department. It had been Thomas’ job to deal with all the economic problems of rearmament and since these questions encroached more than any others upon the activities, investments and profit-making of private business, his office had become the true Economic Ministry of the country. Its importance for industrial interests had been all the greater since it had consistently avoided collaboration with the bureaucracy of the other Ministries and instead had worked directly with the industrialists, businessmen and agriculturalists themselves, in the offices of the Bendlerstrasse. It had become simultaneously the most important office economically and the most independent one politically, being almost completely removed from Nazi Party influence. By using its inner hierarchy, private industrialists could sound out their interests with the Army Heads and from there proceed if need be right up to Hitler and the Party Minister Hess, past the whole intervening Party, administrative and ministerial bureaucracy. In a word, the Thomas’ staff had formed the real link between the high bourgeoisie and the fascist dictatorship. But as such it had also been the focal point for tensions between them. Its close collaboration with Schacht had formed for him the real power base until the rise of the Göring dictatorship.

But all this changed when the War Economic Office was brought out from its unique position within the respectability of the War Ministry in the Bendlerstrasse and became both inflated and yet diluted as the governing body of the ‘Four Year Plan’ and placed in the public eye under the dictatorship of Göring. Its famous colonels were transferred as generals to the colossal, impersonal Air Ministry and the economic regime of the bourgeoisie placed in rigid symbiosis with the Nazi Party, the Gestapo and the State bureaucracy. It was then that Schacht’s position fell inescapably to the knife. The rise of Göring’s economic dictatorship was the most significant phase of the process in which the levers of economic command of industrial fascism passed out of the hands of the bourgeoisie into those of the fascist functionaries themselves. And at the same time this was the process by which the original personal union of the economic ministries was re-established in the figure of Göring. Thus was re-asserted a dictatorial economic unity at the service of industrial fascism which was not only connected with the subordination of agrarian to industrial interests but also, and at the same time, the subordination of these industrial interests to the fascist state dictatorship of the Party.

The economic fact underlying this political shift of power by which the fascist dictatorship had come into its full stride was the subjection of the whole of German industry during the first four years of its regime to the armament boom to which it was irrevocably committed. What genuine capital assets had remained in the possession of non-armament industries had been sacrificed to the heavy industries such as iron and steel, mining, construction, cement and the like. The initial deficit of the armament industries had been turned into mounting nominal profit accounts. Labour was obtained from every possible source to utilise the existing capacities to the full and to increase them by massive building of new arms plants. Thus an enormous production boom was generated. In fact, during the first four years fascism had paid dividends to those who had put it into power.

The industries which suffered were those with the potential for genuine profitability, for this potential was ruined by the inflationary arms boom. Both their foreign and domestic market areas shrivelled drastically and as their investment capital underwent structural changes towards arms production and as inflation increased its effect on their plant capital, so the magnetic needle of profit and loss began to move with them too, slowly or quickly towards the extreme of a fascist economic solution. With the transition to the Second Four Year Plan, they, the electrical, rubber, nonferrous metal and food industries, moved into the action centre of the new economy. They now operated, as their heavy industrial colleagues had previously done alone, on a basis which, measured against their previous standards, was one of capital loss. The compulsive economic character of the fascist development had extended itself over the whole of German industrial capital and had thus secured the political imprisonment of the bourgeoisie in its own fascist dictatorship.

The shortage of foreign currency meant that raw materials for rearmament could no longer be purchased abroad. A large part of these materials could be produced synthetically, but copper, iron, zinc and other metals had to be extracted from meagre reserves of inferior quality ores in Germany. No private capitalist would undertake such an unprofitable task. Therefore the State funded the special enterprise known as the Hermann-Göring-Works for Metal Ore Mining and Steel Foundries. For materials like petrol, rubber, fibres, leather, glass and others, rearmament relied on the inventiveness and resources of the I.G. Farben Industries. Thus while Schacht in the First Four Year Plan was associated with the heavy iron and steel industrialists, Göring shared his special powers with the I.G. Farben in the Second Four Year Plan.

From 1937 the downward trend of Germany’s foreign trade did not continue but on the contrary improved noticeably. In the first place, the prices of German industrial products, when compared by official exchange rates with those of other industrial countries, did not increase to such an extent as to throttle export. There was, however, a gap which had to be bridged by an export subsidy which in 1935 amounted to about 24% and in 1936 to about 23% of the total value of exports. It thus corresponded to a devaluation of the mark of about 25%. But in 1937 the subsidy was considerably less, mainly because the rise in the world price level for manufactured goods benefited the German development.

Secondly, Germany’s advances in the arms race meant that she could export in greater quantity than her competitors. This allowed her not only to cover her most urgent food shortages but even to relieve somewhat the restrictions imposed on national consumption. From the end of 1936 certain food industries registered a slight rise in their production and marketing figures. However, up till then these margins had had to cover the rising costs of rearmament and the restructuring of German industrial production under the Second Four Year Plan and this had to be done through a lowering of the rate of public consumption, by means of lowering real wage levels. This necessarily created tensions. The fascist profit economy was running so far into the red that the bourgeoisie were beginning to fear for their actual capital.

As an economy of absolute surplus value production, fascism has to live by making goods that do not return to the market and thus do not depend for their valorisation upon an increase in consumer buying power. The First Four Year Plan satisfied this condition by mobilising the economy towards military ends; the Second Four Year Plan kept the economy busy with an investment boom producing synthetics. These two phases do not follow one another in neat succession as the chronology of the Four Year Plans would suggest. Instead they interlink like a chain which holds both the bourgeois class rule and capitalism itself as prisoners. It is only because as a whole this chain has the imprint of a war economy that individual links can have a relatively consumer-oriented economic character.

The First Four Year Plan laid the foundations of an arms industry big enough to cope with all-out war as well as everything that this entailed by way of industrial construction, factory re-organisation, re-location of production and so on. After this stage, there came the provision of war materials to cover the immediate needs of the first few weeks of warfare, from cartridges to battleships and fortifications such as the Siegfried Line. But no matter how vast the stocks of ready materials designed for sudden devastating attacks might be, the building of so-called shadow factories to produce this material when war broke out took pride of place. As long as industry was employed in this capacity, the situation amounted to a large investment boom similar to that of the rationalisation boom of ten years earlier; in all its various stages production ran at full capacity. But what would happen when this build-up had been concluded? First of all the full employment which guaranteed it would decline and secondly the shadow factories would lie fallow, unutilised. Only a few could be used for other production purposes; the majority were designed to produce military material exclusively. Re-organisation was out of the question because the plant had been built precisely so as to be fully operational for the outbreak of war. Even assuming that up to the completion of their construction they had been fully depreciated — and this was very largely true in Germany — the costs of maintenance continued. But over and above this, if they were to be kept in working order the wheels must turn. Thus the possibility of arms production stipulates its very necessity.

But who is at the receiving end of the whole operation? The needs of the producing state are limited. If its peacetime requirements are once satisfied, any further production is restricted to replacing and renewing what is obsolescent. Certainly the rate of obsolescence is faster here than in any other area of modern production and so the demand for renewal is high. But the very smallest improvements in arms technology require the complete re-construction of the plant concerned, if not the building of new plants altogether. The compulsion to produce must find its escape route in export. The need to produce entails a need to export.

In Germany this was planned from the very first. From the earliest stage of intensive rearmament, from the beginning of 1934, Schacht intended that, when once completed, the arms industry should recuperate through export what its construction had swallowed up in foreign exchange. For this reason he insisted that the arms produced should be paid for by the state at a price high enough to include the cost of depreciation of the plant so that the German arms industry should enter the export race on an optimal financial basis and reap the advantage of its early construction. And although he came into conflict with the Finance Minister, Schwerin-Krosigk, on this point, he had his way. There is no doubt that after the arms industry became fully operational the relationship turned full circle: what was paid for by export did not need to be paid for by the state. In the study on ‘Industrial Mobilisation’ published in 1936 by the Berlin Institute for Economic Research, we read: ‘On the whole, the exporting countries can keep their capacities (in the sense of industrial war resources) a third higher than would be possible without the exporting of war materials.’ (P.37)

So generally it can be said that the industrial war resources which a modern state can afford and, above all, can maintain after their construction is complete, depends on how large an export market it can find for its military product. If like England, it had a whole commonwealth, or, like France, a whole system of alliances, or, like the U.S.A., a whole continent to supply with arms, it could maintain a higher war potential for a longer peacetime period than if it had no such firm customers but had to incite foreign wars in order to create the market in the first place. And even this market would be secure only for as long as its own arms production could keep ahead and export while the others were still in the construction stage and had not yet supplied their own armies. If they too were ready, their military production would turn its face to the outside and thrust towards export and war. The danger of wars breaking out becomes general and acute precisely as, one after the other, the arms producing countries complete this process and their competing production and market demands clash against each other, issuing from capacities which, taken together, could satisfy the largest peacetime requirement many times over.

In addition, arms had become the major capitalist powers’ cure against crisis: they were stepping along the very path that the weaker capitalist powers had followed a whole crisis cycle earlier. To speak with Roosevelt, they had long been infected with the disease of fascism. That their arms were arms to defend peace was a pious fairy-tale. They were there to defend ‘prosperity’, profit and the capitalism which in the ‘democratic’ countries, albeit with a little more give-and-take, was engaged on the same road to a final military crisis as were the fascist states. In the interim, the German production of war resources, as it approached completion, pushed its export tentacles in every direction. Quite apart from meeting Spanish and Chinese military requirements, its drive was directed above all at South East Europe so as to keep the French and other previously prominent arms suppliers out of Yugoslavia, Romania, Hungary, Austria, Bulgaria and Greece. And although the value of this business was far from spectacular, it saw the application of the old exchange programme: industrial exports against agrarian imports on the basis of agrarian cartelisation. The Second Four Year Plan attached greater significance to the import of raw materials and foodstuffs and extended the programme to bring the South East into the realm of German autarchy. Germany’s Central European expansionism not only continued but was now massively affected by influences that earlier had been mere subsidiary factors.

The drive of the German arms industry towards export was tempered by the piecemeal and uncoordinated completion of military resources which overlapped with the carrying out of the Second Four Year Plan. Since this programme for a new economy of full employment replaced or complemented the first, it prevented the break in production which would otherwise necessarily have followed the completion of military production with all its politically untenable trappings of unemployment, credit and finance squeeze and mass liquidations — that is, if the fascist development were subject to economic cycles as the process of rationalization had been before. In actual fact, however, it obeyed the opposite rules; it expanded the volume of production up to the last reserves of labour power, materials, capacities and credit and even beyond them. Pushing against the limits of these reserves and forced constantly to extend them, the Second Four Year Plan meant in effect that the necessary materials were obtained at almost any price, reserves of labour power were squeezed further and pushed to ever greater efforts, capacities were increased and the credit-pump strained even faster. It was a mere illusion that the shortage barrier and the remedies needed to overcome it were measured in absolute terms, so much and no more. To be sure, the measures applied progressed in line with the expansion of the production process, but the overcoming of the barrier produced its own barriers — barriers of an increasing relative constriction; as was, for instance, the case in the production of synthetic materials.

The gap which has to be bridged at a given moment is the gap between requirements and the import margin or, amounting to the same, the export capacity. If the import requirement as a value is measured by 200 units of value but the export capacity which would have to cover it is worth only 100 units, then the need for synthetic material production seems to have found its definitive limit in the 100 units still outstanding. But to carry out this production has in its turn the effect of diminishing export capacity. For instance, the switching of the German textile industry to synthetic fibres when the production of synthetic raw materials began as early as 1934, weakened the export potential of this industry so greatly, both in quality and in cost, that it was reduced from a previously very active to a now passive payment balance. The rubber and the leather industries met a similar fate and, if the reserves of the iron and steel industry were to be autarchised by the Hermann-Göring Works so as to ‘improve’ the future foreign trade balance, the export capacity of German secondary iron and steel production would suffer too, that is the manufacture of machinery, tools, motors and other appliances, comprising about half of the entire volume of German exports. The autarchistic attempt to extend limits serves at one and the same time to constrict them by weakening export capacity and by increasing requirements. The construction of synthetic production plant requires materials before any new products can be made. Thus the political dialectic of the Second Four Year Plan was a tendency to constrict by expanding production and a tendency to expand by constricting it. In the economic cauldron, it produced a growing tension and with the tension a growing pressure on the walls — from the resource capacities as much as from the production results.

The more urgently one needs the domestic requirements and the less one can pay for their import, the more intense becomes the need simply to take, to rob, what one cannot buy. If one can no longer buy copper, iron, lead, zinc ore, oil and bauxite from outside and yet cannot stop the process which instigates the need for them because it is endemic to one’s whole system, then it becomes increasingly necessary to annex the mines and other sources of such materials where they are easily accessible, in this case in South East Europe.¹

What, on the other hand, is to happen to the finished products of the primary and secondary synthetic materials once their production capacity is completed? If they are to be sold in the domestic market, domestic buying power would have to increase in order for this market to pay for depreciation and interest on the plant and reap the profit of its valorisation; the level of real wages and their share of the whole national income would have to rise. But if this should happen, the basis of the whole of fascist production and profit-making which is absolute surplus value production would be wrecked. The fascist system of ‘deficit’ capitalism would have to prove its efficiency according to the real standards of relative surplus value production which it had to suspend in order to survive. The result would be inner collapse, either in the form of a deflationary crisis of totally unimaginable proportions or alternatively a swing from a credit to a monetary inflation and thus a radical liquidation of the whole accumulation process carried on since 1933.

The fascist economy was designed so that no end product should return to the domestic market. The important fact is that it has done its service by having been produced — afterwards it must disappear into stock or be conveyed across the border. Otherwise the whole fascist edifice would be blown sky high. The Second Four Year Plan, or the regime of Göring/I.G. Farben, produced, just as did the First Four Year Plan and the regime of Schacht/Krupp, a mere dammed up expansionism, an economic ship in a bottle. The disadvantage this time was simply that the results of planned production appeared in a usable form. They had to be exported, outside buyers had to be found for them and as this was difficult for goods that were both expensive and bad, the old practice had to be continued for as long as possible: good quality stocks went abroad and the remaining, synthetic product went to the people at home. 

However, this did not provide the funds that the whole of the German economy needed. Devaluation would surely be called for to ease a path through this oppressive stranglehold. That is, if direct raids in the neighbouring countries did not burst it wide open.

1. We have stated this in so many previous chapters, but Sohn-Rethel’s analysis is spot-on once again. In earlier chapters, Sohn-Rethel describes how the high price levels of German products made them uncompetitive on the world market. Ordinarily, this would create an impetus for war with other countries, either for the purpose of decimating the productive capacity of competitor countries, or to enlarge the domestic market by annexation of territory, or some combination thereof. For a variety of reasons, this was not a feasible solution for Germany so soon after World War I, and so rather than immediately resort to war, Germany focused on the reorganization and streamlining of its productive forces; rationalization, cartellisation, devaluation, proletarianization, etc. The result of these changes were such that by the end of this process, German products were more competitive on the world market, but the German economy was operating on such narrow profit margins that it had trouble affording the raw materials it needed in order to feed its productive capacities. This created an impetus to annex suppliers of raw materials into the German economy in an attempt to ensure a constant supply of raw materials at a constant exchange rate. Even if this had been achieved by peaceful or violent means, however, it would not have resolved the contradictions in the German economy, but, on the contrary, further intensified them. — Bluebird