Crushing the Opposition to the Nazis

SABy itself, elimination of political opposition by the leaders of the country committed to making a Quantensprung of the magnitude that the Third Reich had to make, is not a crime.

It is actually a necessity as country leaders are facing problems and challenges of such an enormous magnitude that they simply can not afford any opposition. Hence it is no surprise that no quantum leap of a comparable scale (comparable to Nazi Germany that is) was achieved in a democracy.

It has been achieved by either a ruthless dictatorship (Soviet Union – twice, Nazi Germany, China, South Korea, Taiwan, etc.) or under occupation administration (post-WW2 Germany and Japan).

Democracy works (sometimes well, sometimes not so much) during periods of stability; in the times of a severe crisis (especially existential crisis) it can be outright deadly. During those times only the ruthless dictatorship can save the nation in question. In other words, to prevent the country from being destroyed, one must destroy the opposition.

Using the optimal tools and methods. Including deportation and even internment (under house arrest, in jail or even in a concentration camp) of leaders of opposition and other individuals deemed by the security agencies to be a threat to the Quantensprung. And unlike in the democratic environment, during the times of crisis it is far better to “over-detain” than to “under-detain”.

Consequently, annihilation of the opposition by the Nazis was criminal (although nowhere as criminal as the one committed by Stalin and his henchmen at exactly the same time) not because of their objective (which was absolutely necessary for the very survival of Germany), but because of the tools and methods that were used. Tools and methods that were far more brutal, murderous and criminal than necessary.

I will cover in sufficient detail the whole Nazi project of eliminating the opposition (including the infamous Night of the Long Knives) in the chapter devoted to Hitler’s crimes. In this section I will only briefly cover the four key tools used by the Nazis – the Sturmabteilung (SA) paramilitaries, secret political police (Gestapo), detention centers (concentration camps) and special political courts (Sondergerichte).

Contrary to a popular misconception, in just about all their peacetime endeavors (with the exception of those related to their “racial” and “Jewish” questions) were highly pragmatic.

Consequently, they understood that (a) positive motivation was far more powerful than the negative one; and (b) an ounce of prevention (of anti-Nazi activities) is far more valuable than a ton of punishment.

Hence in their management of their German subject they put emphasis on positive stimuli (i.e. on propaganda and actually caring for the German people by identifying their needs) rather than on a negative one (fear of being punished by the Nazis).

And the fundamental objective of their political repression system was to prevent anti-Nazi activities from happening in the first place rather than to punish the “wrongdoers”.

Consequently, the primary function of the SA (until they were relegated to political oblivion in July 1934), Gestapo, concentration camps and special courts was intimidation, not punishment of actual or potential political opponents.

Historians generally agree that these instruments of intimidation (especially the much-feared Sondergerichte) performed their functions very well and had a strong deterrent effect against active opposition to the Nazis. The latter appears to be was sufficiently intimidated through psychological terror to refrain from active (or even passive) resistance to the Nazis.

The Sturmabteilung (SA) was the only “terror and intimidation” tool (and a very efficient one at that) used by the Nazis prior to their acquisition of absolute power in the end March of 1933.

Nazi stormtroopers beat up their political opponents; prevented, disrupted and dispersed meetings and rallies; attacked and destroyed the premises (headquarters and branches) of political parties; kidnapped and detained opposition activists (by the time Nazis came to power, the SA operated a vast network of illegal detention centers).

After the Nazis had obtained the absolute (plenary) powers in Germany after the Reichstag Fire Decree and especially the Enabling Act became laws, they no longer needed the SA to suppress the opposition. Now they had the whole law enforcement system of Germany (police, prosecutors, the courts and the penitentiary system) to do this job for them.

Actually, this was the primary reason for the spectacular fall of the SA in 1934 – they simply had nothing to do any more. Their last valuable contribution to Nazi cause was made weeks before the Enabling Act – just before the March 1933 elections (the last multi-party elections in a unified Germany until 1990).

The SA unleashed a nationwide campaign of violence against the Communists, Social Democrats, other left-wingers, trade unionists and even the centrists. Which, however, did not achieve the desired outcome – Nazis still got only 44% of the votes (still short of an absolute majority).

After the Night of the Long Knives when just about all SA leaders were either murdered or incarcerated, SA functions were reduced to just one – attacks on the Jews.

For over four years, the Brownshirts were the main perpetrators of anti-Jewish violence which culminated on the infamous Kristallnacht in November of 1938.

After the murder of German diplomat Ernst vom Rath on November 7th by Herschel Grynszpan (a Polish Jew), the SA were used for “spontaneous demonstrations” against this very much terrorist act (which, however, does not justify the subsequent pogrom at all).

In very violent riots, the stormtroopers shattered the glass storefronts of about 7,500 Jewish stores and businesses (hence the name Kristallnacht – “Crystal Night”) given to the events. Jewish homes were ransacked throughout Germany.

Members of the SA and SS (and a lot of “ordinary Germans” who participated in the event en masse) damaged and in many cases destroyed, about 200 synagogues (nearly all Germany had), dozens of Jewish cemeteries, more than 7,000 Jewish shops, and 29 department stores. Dozens of Jews were beaten to death and more than 30,000 Jewish men were arrested and taken to now very much legal concentration camps (just about all of them were soon released).

Thereafter, the SA predictably became overshadowed by the SS, and by 1939 had little (if any) remaining significance in the Nazi Party and in the Third Reich in general.

Hitler’s Economic Program (2)

346px-Hjalmar_SchachtBy itself, budget deficit (even a large one in absolute terms) is not really such a big deal. After all, these days just about every developed nation (with a notable exception of Germany) – the United States, China, Japan, France, Great Britain, Italy, Spain, etc. – runs a substantial budget deficit and has already accumulated an impressive national debt.

These deficits are not considered a major problem, because it is believed that government spending increases gross domestic product (market value of all the final goods and services produced annually in the country in question). In other words, fuels economic growth.

Which in a law-abiding country (and the Nazi Germany was very much so – Gestapo and Kripo took good care of that) automatically increases government tax revenue, enabling the latter to pay off public debt.

Provided, of course, that the latter (and budget deficit) stays within “common economic sense”. Which in the Third Reich was not the case – Adolf Hitler’s Mission was to win the existential war, not to keep the government books in balance. When the very existence of the nation was at stake, who cared about the damn financial accounts? Hitler and the Nazis obviously did not – and justifiably so.

As borrowings on international financial markets (now-standard means of financing government budget deficits), getting loans from foreign banks, printing money, and (God forbid) defaulting on its domestic debt were out of the question, Adolf Hitler had to resort to other ways and means of paying off massive government debts. Alas, to mostly criminal ones.

The obvious benevolent source of funds (successfully used in Italy by Il Duce) was large-scale privatization. Unfortunately, it was just about the only legitimate one – all other ones were very much criminal (if not outright murderous).

Despite all his hysterics about “the existential Jewish threat”, “racial war”, etc., one of the key reasons behind Hitler’s Judenrein project was a purely financial one. The fundamental objective of this project was to physically deport Jews somewhere outside Germany (and subsequently German-controlled territories) robbing them of all their valuables.

Which could then be used for either direct financing of German economic recovery or for paying off government debt accumulated by runaway deficit financing of economic growth.

There was another – far more sinister – idea that was actually implemented, believe it or not. Force Jews to lend money and other valuables to the Nazi government and then… kill them. A very common method used by the organized crime characters to deal with creditors. Which made Nazi state a very much criminal organization (in some ways not unlike the proverbial Mafia).

Like just about all other Nazi crimes, this one was a monumental blunder. It is a well-established fact that Jews are the most efficient and productive nation by far (in terms of creating aggregate value – financial, functional and emotional).

Which Jewish (forced) immigrants from Germany proved beyond the reasonable doubt in Palestine in the 1930s, performing an economic miracle quite comparable to (and in many ways more impressive than) the one performed by the Nazis in Germany at the same time.

Consequently, Germany would have been far better off using its Jews (and then the Jews on German-occupied territories as well) to generate financial, functional and emotional value than robbing, deporting and murdering them.

Especially given the fact that even the diehard Nazis knew that the tales about the “fabulous riches of the Jews” were just that – fairy tales. In reality, valuables taken from the Jews essentially at gunpoint (i.e. proceeds from armed robberies of the latter) were not nearly enough to pay off the mammoth national debt accumulated by the Nazis through their economic revival and rearmament programs (let alone wartime military spending).

Nazis desperately needed another source – and they quickly found it (most likely, it was known to them all along). Making someone else pay off their debts. This “someone else” included not only population of German-occupied territories (i.e. essentially German colonies in Europe) but also their allies – Italy, Romania, Bulgaria, Hungary, Slovakia and Croatia.

I will cover these crimes (and these were crimes indeed) in sufficient detail in the chapter devoted to Hitler’s crimes. In this section I will only touch a few key points.

Financial exploitation of occupied territories was mostly simple and straightforward (although Nazis did employ some highly creative financial schemes).

First, grab as many valuables as possible; sell them in the open market (domestic or international) and use the proceeds to pay off government debt. Second, exchange government bonds for land, buildings, other real estate or shares in businesses in German-occupied territories (i.e. colonies).

Third, force the population of newly-acquired colonies to work essentially for food, clothing and shelter; import products (foodstuffs mostly) into Germany; print money to pay off government debt and then use these products to “cover” printed money (thus balancing demand with supply and putting a firm check on inflation).

Financial exploitation of German allies was far more subtle and creative but was surprisingly explicit. Nazi message to their allies was cut and dry, plain and simple, loud and clear:

“We save you from being conquered and destroyed by the Bolsheviks and you must in return pay us with your money and with the blood of your soldiers”

As Nazis did not view their occupied territories in Western Europe as colonies (the latter was reserved to occupied territories in the East), their message to the citizens of France, Benelux countries, Denmark, Norway and Greece was essentially the same (sans “blood of your soldiers”).

However, even in these transactions (let alone in ones with neutral nations – also critically important for the Nazis), Hitler and his government had to solve one no less critical problem – catastrophic lack of foreign currency.

It is estimated that for its foreign trade to function properly, the country in question had to have sufficient reserves of foreign currency for six months. In 1933-34 Germany often had the reserves for six days. Making foreign trade work under such constraints was a genuine miracle.

The ways to deal with this potentially crippling problem, were obvious. Establish tight import controls (all imports had to be approved by a special government agency). Institute tight foreign exchange controls so that no individual or organization could take precious foreign currency out of the country over a very small limit.

Convince foreign vendors to sell their goods for Reichsmarks – and then use proceeds to buy German goods (thus fueling economic growth in the Reich). Develop and sign extensive barter agreements with foreign nations, essentially exchanging their goods for the German ones.

This was Hitler’s economic program in a nutshell. However, to make it and thus his Quantensprung – his economic miracle – a reality, he needed someone who would become his “economic tsar”, the “Führer of German economy”. Someone who would take responsibility for reviving the German economy, eliminating unemployment, getting Germany out of Great Depression and implementing a gargantuan rearmament program.

Fortunately for Adolf Hitler and Germany, there was exactly such a man in the Reich. Hjalmar Horace Greeley Schacht – a 56-year old (a very senior citizen by the standards of youngish Nazi leadership) prominent economist, banker and politician (in 1918 he was one of the founders of the centrist German Democratic Party (it was dissolved in 1930, way before Hitler came to power).

Hjalmar Schacht had impeccable credentials for this job. A half-German, half-Danish aristocrat (his mother was Baroness Constanze Justine Sophie von Eggers), he studied political science (among other subjects) at universities of Munich, Leipzig, Berlin and Paris before finally earning a Ph. D. in economics at a University of Kiel.

His doctorate thesis was on mercantilism – national economic policy designed to maximize the exports of a nation. A very appropriate topic for Germany in 1933 which desperately needed to earn (or at least conserve) foreign currency.

In addition to extensive banking experience in Germany (he rose to the position of a deputy director at Dresdner Bank – then one of the largest German banks), and in government service (he was the Banking Commissioner for Occupied Belgium and subsequently the currency commissioner in Weimar Republic), he had extensive – and very high-level – connections in international finance.

Which included the famous American banker J. P. Morgan, as well as U.S. president Theodore Roosevelt. And the Governor of the Bank of England, Montagu Norman, was so close to the Schacht family that he was godfather to one of Schacht’s grandchildren.

After his economic policies helped battle German hyperinflation and stabilize the German mark, Schacht was appointed president of the Reichsbank at the requests of then-President Friedrich Ebert and then-Chancellor Gustav Stresemann.

Like Adolf Hitler, Schacht was firmly committed to restoring German power and glory and making again a global political, economic and military superpower. By 1930, he became convinced that Weimar Republic would never be able to achieve this all-important objective and began slowly but surely drifting towards the Nazis (who in his opinion would – if they ever come in power in Germany).

Although he never officially joined the Nazi party, Schacht helped to raise funds for the Nazis. After the July 1932 elections, in which the NSDAP won more than a third of the seats, Schacht was one of those who organized a petition of industrial leaders requesting that president Hindenburg appoint Hitler as Chancellor.

On March 17th, 1933 (even before the Enabling Act gave him essentially absolute power in Germany), Adolf Hitler re-appointed Schacht as Reichsbank president (on March 7th, 1930 the latter resigned from this position over disagreement with then-Chancellor over payment of war reparations).

But it was obviously not enough. To make Schacht the genuine “Führer of German Economy” (in full accord with all-important Führerprinzip), Hitler had to make the banker Reich Minister of Economics as well.

And, of course provide him with the necessary support. Which would become possible only after crushing the opposition to the Nazis, transforming the Weimar Republic into a centralized Führerstaat and developing and implementing a mighty and omnipresent propaganda system.


Hitler’s Economic Program (1)

IMG_0258One of the many common misconceptions about Adolf Hitler is that he knew next to nothing about economics. In reality, he knew enough to (a) understand the “Mussolini Blueprint” – successful economic reforms implemented by Il Duce; (2) figure out how to adapt this blueprint to very different situation in Germany; (3) hire the best individual to the position of the “economic Führer” of the Third Reich; (4) control the latter and provide him with the necessary support; and (5) replace him with the more appropriate one once the initial Mission was accomplished.

Eliminating unemployment (i.e. bringing the German workforce to the state of full employment) was the most fundamental need and demand of German citizens. And, therefore, it became Hitler’s top priority, his job #1.

One did not have to have a Ph. D. in economics (facts, logic and common sense were enough) to figure out that the only way to quickly reduce (and subsequently eliminate) unemployment in Germany in 1933 was by massive government spending. Primarily on civilian projects.

For a very simple reason – although radical expansion of German armed forces and of the armaments industry were (obviously) highly efficient ways to radically reduce unemployment, in spring of 1933 Hitler (and Germany) were still not strong enough politically and economically to openly violate the terms of the Treaty of Versailles.

Hence the bulk of massive government spending had to go into construction (expansion of public and residential building), transportation (building roads and increasing production of motor vehicles), land reclamation (creating additional agricultural land) and reforestation.

As the Reich government did not have (and will not have) the financial resources needed to underwrite such a massive public spending program, it had to take the road of deficit financing.

The hyperinflation of 1921-23 was still fresh in German (and Hitler’s) memories so covering the budget deficit by printing money was, obviously, out of the question. So was borrowing abroad.

German economic recovery (the so-called “Golden Era” of the Weimar Republic) in 1924-29 was financed by loans provided by American banks through the Dawes Plan (adopted in 1924) and the Young Plan (adopted in August of 1929).

However, after these banks have been hurt (and hurt severely) by the Wall Street Crash of October 24th, 1929 and subsequent Great Depression, they predictably withdrew their loans to German companies (and to Germany in general). Which immediately sent German economy into a tailspin creating severe problems that Adolf Hitler now had to fix.

Hence, the Nazi government had to restrict itself only to domestic sources of funds for covering the inevitably massive budget deficits. The other three were (obviously) borrowing from banks, corporations and individuals. Ideally in a form of government bonds (interest-bearing securities) that could be used as “parallel currencies” until they mature and will be repaid in full from the state budget.

There was no need to create a specific incentive for German businesses to invest in these government bonds – the budget will simply pay them with the latter for the jobs done for the government.

Because these bonds were designed as the essentially “industrial currency” (a very common instrument to finance rapid economic growth), the business in question will be able to pay its suppliers or creditors with this “currency” and so on.

Borrowing from individuals was a different matter entirely. To motivate Germans to invest into government bonds, Hitler had to first make them trust the German government with their money. Not a small feat after hyperinflation, Great Depression and other economic calamities.

And then to carefully managing consumption, making sure that (a) German households consume enough goods and services for a comfortable lifestyle; and (b) still have enough disposable income to invest into government bonds.

The latter essentially meant making certain items simply inaccessible to the majority of Germans so that they had nothing to spend a certain share of their income on other than investing into government bonds (i.e. on savings). And, of course, conducting a massive propaganda campaign promoting savings and investments.

Obviously, managing consumption required tight control over wages and prices (making Nazi Germany not exactly a market economy). This control was needed anyway – to avoid inflation (the word that scared Germans more than Count Dracula and Frankenstein monster combined).

Now the trillion-Reichsmark (literally) question was how on Earth Hitler’s government would be able to pay off these gargantuan debts once they come due (and sooner or later they obviously will).