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Nazi Germany’s Economy

The Great Depression played a great part and can probably be correctly said that the decisive part that led to the fall of the Weimar Republic and the Rise of the Third Reich. Hitler rose to power in 1933. The German economy at that time was as hard hit as any other economy in the world. Inflation was rising, unemployment was high and production dropped significantly in comparison to the pre-Depression levels.

The main goal of Hitler and his cronies was to rearm Germany and conquer lands for the German people(Lebensraum) in Eastern Europe. But as the economy stood in 1933, this looked more or less impossible. Germany’s army was very small, it had no airforce, few ships and very few armed vehicles. The economy also lacked money, which was crucial for the beginning of any sort of rearmament.

As their first acts, the Nazis eliminated all their political opponents. Within a year of Hitler’s naming as Chancellor, Germany had become a one-party state. Of course, Hitler had support, President Hindenburg for instance had the power, as the commander of the army, to crush Hitler, had he wanted to, but he rather stood on the sideline and allowed Hitler to eliminate political pluralism. Big business also gave its tacit support to Hitler, and before the crucial election in March 1933 they even supported the Nazis with donations.

Once his political adversaries were killed or sidelined, the Nazis started their ambitious rearmament program, and here enters the picture Hjalmar Schacht, the President of the German Central Bank.

Schacht and the Mefo Bills

Schacht was a clever and realistic man. He understood the dynamics of depression perfectly well. He knew that the people who had money during the Great Depression were hoarding it, just like during most economic recessions of the past. It was no doubt a rather safe policy, as investments looked rather risky during that period.

But Schacht also knew that the key to getting out of the Depression was convincing the people with the money to invest it. Investment created jobs, jobs gave people money to consume, which in turn would have created more demand, which the suppliers would have had to meet. It would have been like this in Germany also, had the aim of the Nazis not been rearmament.

Schacht came up with a scheme that convinced the German industrialists to invest their money, the so-called Mefo Bills. A limited liability company was formed, MEtallurgische Forschungsgesellschaft, or in short Mefo, which issued bills of exchange for certain sums. The bills were an attractive investment as they were guaranteed by the German state, and had an interest rate of 5%. The bills were also convertible in Reichsmarks.

The bills were a clever scheme by Schacht as they allowed the industrialists to make a safe investment, and their money was used for rearmament. The illusory nature of the bills and the constant refusal of the state to convert these also spared the population from possible inflation, though price-fixing also played its part here.

Consequently, the German government was able to run huge budgetary deficits throughout the 1930s. The bills created an alternative source of debt for the German state, which by 1938 was around 12 billion Reichsmark, while the official debt of Germany( government bonds) stood at 19 billion Reichsmarks.

The Mefo bills were not the only method by which the Nazis raised money either, as large scale industries were privatised during the 1930s. It was a rather strange irony that the party was named National Socialist, as they were anything but socialist. They were fully on the side of big business, they outlawed the trade unions, and the working conditions of the workers did not get better under their rule, while wages, if anything dropped if one looks at the hourly wage of the German worker.

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Billateral trade deals and dream of autarky

The German economy back then, just as nowadays, was an economy that imported a great number of raw materials and created finished goods for domestic purposes and exports.

Thanks to this characteristic of the German economy, the effects of the Great Depression lead to an increase in the prices of raw materials and a decrease in the prices of finished goods hit them hard.

The Nazi leadership dreamed of turning Germany into an autarky, but thanks to their shortage of raw materials and fuel, this was never a real possibility. However, the Nazis tried to secure favourable bilateral trade deals with poorer southern European and Latin American countries. These deals allowed Germany to buy their needed raw materials for cheap, and there found a ready market for their goods like machinery.

By 1937 the leadership surrounding Hitler was more or less split into two parts. Schacht and his faction of financiers and capitalists wanted to slow down rearmament and pushed for a more balanced economy, while ideologues like Himmer or Goring called for even more rearmament and more efforts to make Germany as self-reliant as possible.

Hitler sided with the latter, and Schacht quickly resigned in the aftermath, his place was taken by Goring. Domestic production of resources accelerated, though oftentimes it was not a very efficient method, for example, German iron wasn’t of particularly high quality. Goring founded the Reichswerke-Herman Goring, which in time became the largest steel industrial complex in Europe with the German conquests in the early part of the war.

In another effort to reduce their reliance on foreign materials, the Nazis tried to manufacture synthetic materials, but their success was rather limited if one looks at the amount they produced, and what would have been needed.

Plundering and Forced labour

Finally, the two aspects that are often overlooked by historians regarding the economy of Nazi Germany were plunder and the high percentage of forced labour.

The forced labour camps began already in the 1930s, but at the beginning, the number of forced labourers was rather small. The people who were in the workforce in these camps were the so-called undesirables: the work-shy, the political enemies, Jews, homosexuals just to name a few categories. As the war escalated and more and more prisoners have captured a large percentage of these were used as forced labourers also, plus the civilian population too. Historians estimate that by 1944 forced labour made up around 25% of Nazi Germany’s workforce.

Another aspect that kept the German economy afloat was plunder. This habit had already begun in the 1930s when the property of Jews was confiscated by the state and continued into the war. German need for food, raw materials and fuel were sated by plundering the occupied territories of Europe and their junior partners like Romania( oil fields played a key role in supplying fuel to the Wehrmacht). It is difficult to estimate just how much plunder made up of Germany’s war chest, especially since considering that through corruption a good portion of the plunder went into private hands.


As a conclusion in my opinion the key pillars of German rearmament and war effort were the following: deficit spending, favourable trade deals, forced labour and plunder.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2022 Andrew Szekler

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