Economic and Social Effects of World War II on Germany

Overview and Pre-War Economic Conditions

Prior to World War II and immediately following the Great Depression of 1932, Germany was in a state of economic recession. Having not yet rebounded from the effects of World War I, the German economy felt the lingering consequences of the Treaty of Versailles, which had been signed to end World War I, while simultaneously beginning to feel the effects of Nazi rule. At the end of World War II, Germany's economy suffered even more. It was not until after World War II — and following a controversial system of economic reform targeting taxes, currency, and price controls — that the German economy began to rebound. Within ten years of that reform, the German economy was being called a miracle. This paper compares and contrasts the pre-World War II and post-World War II periods of Germany, focusing particularly on the economic peaks and valleys that took place during each period.

The Nazi Party and Economic Control

Prior to World War II, the German economy was in a state of economic recession. By 1936, the government had become the master of the economy, and all small businesses had been economically subordinated to the large industries that would nourish the German war machine. In 1933, the National Socialist German Workers' Party — the Nazi Party — led by Adolf Hitler began to take control of what was already a suffering economy. For the next few years, Hitler and the Nazis would implement different economic and work-related programs throughout the nation that resulted in a revival of the slumping economy. While these programs fueled and revived the economy on the surface, they simultaneously set the nation on a path toward World War II — the second world war started by Germany in twenty years.

The Nazi Party was led by Adolf Hitler. Membership in the party was strict and limited to people who could meet qualifications that discriminated based on race or national origin, institutional affiliation, and medical history. The qualifications required one to be a member of the German people, have a clean record, be of pure German blood, not belong to a Freemason's lodge or any related organization, and have completed his twenty-first year (in some cases his eighteenth). The Nazis forbade membership to anyone who was married to a Jewish person or a person of a so-called "colored" race, anyone belonging to a Freemason's lodge, or anyone suffering from a hereditary illness.

The Nazi government under the rule of Hitler was called the Third Reich. It was the Nazis' goal to totally subordinate the German people and the German economy to their rule. The Nazis came to power during a period when Germany was suffering economically and in need of reform. They brought reform to the people of Germany, but at a cost. Under Nazi rule, all males under age twenty-five were forced into compulsory labor, and after 1939 women were also conscripted into the workforce. The government grounded its rule on the workforce by introducing the Arbeitsbuch (work book), which gave the Nazi government the power to limit job choices for individuals of its choosing. This gave the Nazis control over the flow of labor into the industries they deemed most profitable to the economy, such as food and agriculture.

The Nazis also adopted strict wage controls — the piecework rate was adopted instead of the hourly wage. The piecework rate paid employees based on production and work efficiency rather than hours worked. The outcome under this system was absolute control of the workforce that, ironically, resulted in growth of the labor market. The only way a worker could earn more money was to work harder or longer; the more the worker produced, the more he was paid.

The economic control exercised by the Nazis appeared to strengthen the economy, and on the surface it did. However, the actual result was a weakening of the underlying structure of the German economy. Employees worked harder, longer, and produced more goods, but the general economy remained stunted because of the tight rule imposed by the Nazi Party. Price controls were in place and food rationing became national policy. Price controls permitted goods to be sold below market level, thereby allowing the government to save money. Rationing began after World War II started and was a system that helped the economy cope with the extensive food shortages that occurred during the War.

Some scholars have argued that the rule of Hitler and the Nazis created a complete turnaround of Germany's bleak, economically depressed situation prior to World War II. Henri Liu commented in his article "Nazism and the German Economic Miracle": "Through an independent monetary policy of sovereign credit and a full-employment public-works program, the Third Reich was able to turn a bankrupt Germany, stripped of overseas colonies it could exploit, into the strongest economy in Europe within four years, even before armament spending began." The German economy prior to the Second World War was indeed in recession, and the effect of the Third Reich on the economy can be documented. However, one must also consider whether the Third Reich's influence on the pre-war German economy contributed to the severe economic depression Germany faced after World War II.

A further contributing factor to the pre-war economic recession was the creation of a second bank currency by the Nazi Party. These notes were used to pay subcontractors that performed work for the government. These fictitious notes became a second form of currency during the pre-World War II era of the Third Reich. The creation of notes drawn on a fictitious bank further negatively affected the economy because the businesses performing government work ultimately provided either free or reduced-cost labor and consequently lost money. While their resources were spent on completed work, they were not adequately compensated. Many businesses could no longer operate under these conditions and likely closed their doors, leading to a rise in unemployment. This illustrates the nature of Hitler's rule over the pre-World War II German economy. The people of the nation were completely subject to his policies, and because the economy was already in a vulnerable position as a result of the First World War, Hitler's policies were widely perceived as providing assistance to the nation. The research indicates that Hitler's regime managed to counter rising unemployment through the institution of the German Labor Service and other workforce and labor programs.

Pre-World War II Unemployment and Labor Programs

Between January 1933 and July 1935, the number of employed Germans rose by half, from 11.7 million to 16.9 million. Under the rule of Hitler, more than five million new jobs paying living wages were created. The Great Depression of 1932, though it originated in the United States, negatively influenced the German unemployment rate and soon became a worldwide phenomenon. Germany and other Eastern European economies had been weakened by the First World War, and Germany was bound by an obligation to pay reparations to the victors. The Depression hit hardest those nations most deeply indebted to the United States — namely Germany and Great Britain. As a result, unemployment in Germany rose sharply beginning in late 1929, and by early 1932 it had reached six million workers, or approximately 25 percent of the workforce. The following table illustrates the pre-World War II unemployment rates in Germany from 1933 through 1939. These numbers are approximate because there has been debate regarding whether actual unemployment figures were reported accurately during the period of Nazi rule.

The United States, as the primary victor of World War I and before the onset of the Great Depression, had the financial power to maintain a steady stream of investments in European countries like Germany. However, when the Great Depression hit, the US could no longer afford to maintain that financial relationship. As a result, the German economy slumped along with the American economy and unemployment rates rose.

At the time of high unemployment in pre-World War II Germany, Hitler created the German Labor Service. This institution required all men under age twenty-five, and most women, to work for the government for at least six months. While the German Labor Service did alleviate the unemployment rate through its compulsory labor requirements, it also concentrated power further in Hitler's regime, making the nation more vulnerable to oppression. The mission of the German Labor Service was to enable Germany to produce its own food. As a result, the German labor force was able to generate its own food supply, relying less on other countries for imported food. By the time Germany entered World War II, the nation was producing a vast majority of its own food.

The Work Creation Programs of 1933–1936 were instituted by Hitler as a means of rebuilding the financial and economic structure of Germany — in essence, an economic recovery program. These programs were founded on the creation of credit by the government based on private-sector funding. The government's role was limited to soliciting investments from members of the private sector, offering work creation vouchers to credit institutions as incentives.

The significance of these credit vouchers was controversial. Some contractors or suppliers required cash in order to participate in the work creation programs. These businesses extended a type of credit to the agency ordering work or to the appropriate credit institutions, which assumed responsibility for payment based on the work creation bills they had been granted by the government. These bills could be discounted by any bank that had joined the network, and those banks, along with government banks, created the money needed to pay contractors by rediscounting the bills. This process of creating, redeeming, and rediscounting work creation bills has been viewed as a financial practical joke on the government. However, to an ailing economy, the work creation program was far from a scheme. The government's work creation programs in 1933–1934, financed by these bills, represented the most risk-free, responsible way available to provide work incentives to the nearly six million unemployed people at that time. The Work Creation Plan, along with other pro-economy actions taken by Hitler, appeared to work in favor of the German economy by creating jobs for the nation. However, the final result was ultimately a further weakening of the economic structure, such that the economy could not rebound from the Second World War without a complete economic reform.

Hitler's plan to strategically consolidate his regime's control over Germany continued with the institution of price controls on goods in 1936, imposed to enable his government to purchase war materials at artificially low prices. As a result, the damaging scenario created by the fictitious bank notes was perpetuated. Businesses were not receiving fair market value for their goods and suffered economically, with many inevitably closing. In 1939, one of Hitler's top Nazi deputies, Hermann Göring, imposed rationing — a system adopted to protect Germany against food shortages during the War.

Even though the economy was suffering in other respects, agricultural output was rising due to the government's financial support for agriculture and the German Labor Service's mission to farm and create domestic food supplies. Prior to World War II, Germany produced 83% of its own food resources. This, combined with the fact that Germany took food from regions it conquered, ensured that Germany would not suffer a food shortage during the War.

As was the case with food, Germany also possessed an abundance of other natural resources, such as coal. It found ways to utilize this coal to its benefit and in preparation for the coming War. Coal was converted into synthetic rubber and petroleum, greatly reducing oil and petroleum shortages during the War for Germany. This abundance did not begin to dissipate until adversaries began bombing the nation's oil and petroleum factories during the conflict.

Conclusion

The Republic of Germany has experienced significant periods of economic despair, primarily as a result of the two World Wars. After the First World War, the economy was stagnant and suffered greatly. The effect of the War on the population was likewise devastating, as it was at that time the deadliest war in history. The nation signed the Treaty of Versailles to end the War, and the devastation on the economy was exacerbated.

During the Great Depression, the nation's already ailing economy experienced further distress as the United States lost its ability to invest in the country. Unemployment rates were in the millions before Hitler obtained control of the country. Under the rule of Hitler's Third Reich, the German economy reportedly experienced a rebirth and a rise in employment rates — while at the same time the country was being prepared to start its second world war within twenty years.

After World War II, the German economy regressed back to its post-World War I state. The tight controls on prices, the policy of food rationing, and a corrupt system of currency put in place by Hitler's regime further stagnated the economy. Economic reform spearheaded by Wilhelm Röpke and the Marshall Plan instituted by US Secretary of State George C. Marshall helped to rebuild the economy of the ailing Republic under post-World War II conditions. However, political and economic disagreements, the Cold War, and the influences of foreign controlling nations forced a split of the Republic into East Germany (the GDR) and West Germany (the FRG).

In the decades following World War II, the Republic of Germany continued to function as two separate nations — at times thriving in the areas of economics, employment, and population, and at other times struggling. In 1989, the Republic became one nation again as the Berlin Wall, the physical dividing line of Germany, was demolished. Today, in spite of its turbulent history, the Republic of Germany exists as a powerful world force.