The Nazi economy — work, rearmament and self-sufficiency
When Hitler took power in January 1933 there were six million unemployed Germans. By 1939 official unemployment was under 200,000. Nazi propaganda presented this as a miracle. The reality was more complicated: the figures depended on who was counted, work creation was largely a side-effect of rearmament, and consumers paid for the recovery in lower wages, longer hours and shortages of basic goods. This lesson tracks the Nazi economy from Schacht's New Plan in 1934 to the Four Year Plan of 1936 and the choices behind the slogan ‘guns or butter’.
Schacht's New Plan, 1934
The first phase of recovery was managed by Hjalmar Schacht, a conservative banker who had helped end the 1923 hyperinflation. Schacht became Reichsbank President in March 1933 and Economics Minister in August 1934. His New Plan tackled three problems at once: shortage of foreign exchange, dependence on imports, and mass unemployment.
Schacht imposed strict import controls and signed bilateral trade agreements with Balkan states (Yugoslavia, Romania, Bulgaria), paying for raw materials in blocked Reichsmarks rather than hard currency. He used Mefo bills — promissory notes issued by a shell company — to disguise the true scale of military spending. By 1936 unemployment was down to 1.6 million, and under a million the following year. But Schacht warned Hitler that rearmament was now outrunning what the economy could support without inflation. Hitler was unimpressed.
Official German unemployment fell from six million in 1933 to 1.6 million by 1936 and under a million by 1937, reaching a few hundred thousand by 1939. The figures are flattering: Jews dismissed under the April 1933 civil service law, women pushed out of professions, political prisoners and the 1.4 million conscripted from 1935 were all redefined out of the count.
Public Works and the Reich Labour Service
Job creation began before Hitler took power, but the Nazis claimed credit and expanded it. The most visible programme was the autobahn network: 7,000 kilometres planned, 3,000 km completed by 1938. Around 125,000 men worked on autobahn construction at peak. Other programmes included public housing, draining marshes, planting forests and building government offices.
From 1935 the RAD (Reichsarbeitsdienst) made six months of labour service compulsory for young men aged 18–25. It paid pocket money rather than a wage, lived under quasi-military discipline, and worked on agricultural drainage, road-building and forestry. From 1939 it was extended to women too. The RAD was a labour scheme, a propaganda spectacle and a pre-conscription training pipeline rolled into one.
In March 1935 Hitler announced conscription in defiance of the Treaty of Versailles, raising the army from 100,000 to 550,000 by 1936. Conscription alone removed roughly 1.4 million young men from the unemployment count. Rearmament also pulled steel, chemicals, coal and engineering firms back into mass production: military spending rose from 1% of GDP in 1933 to around 18% by 1938. Krupp, Thyssen and IG Farben all expanded sharply. The recovery was real for these firms; for consumers it meant their resources were diverted to weapons. The historiographical debate over whether the Nazis ‘solved’ unemployment turns on whether you count conscripts and dismissed Jews and women as employed, unemployed, or simply absent from the figures.
The Four Year Plan, 1936
In August 1936 Hitler issued a secret memorandum demanding that ‘the German army must be operational and the German economy fit for war within four years’. He put Hermann Goring — not Schacht — in charge of a new Four Year Plan. The aim was autarky: economic self-sufficiency that would let Germany fight a war without depending on imports.
The Plan poured investment into synthetic substitutes — synthetic oil from coal, synthetic rubber (Buna), artificial textiles. New plants were built at Leuna and Schkopau. Steel production was forced through new plants at Salzgitter (the Hermann Goring Werke). Imports of consumer goods were squeezed. By 1939 Germany still imported a third of its raw materials. Autarky was a goal, not a reality. But arms production rose sharply: by 1939 Germany was producing 8,000 aircraft a year. Schacht resigned as Economics Minister in November 1937, warning Hitler that the country was running out of foreign exchange.
Strength Through Joy and Beauty of Labour
For workers, the Nazis offered carrots as well as sticks. The German Labour Front (DAF) under Robert Ley ran two flagship organisations. Strength Through Joy (KdF) offered cheap holidays, theatre trips, sports events and concerts. By 1938 ten million Germans had taken a KdF holiday — mostly day trips, but cruises to Madeira and Norway also ran. Beauty of Labour (SdA) improved factory canteens, washrooms and lighting.
The famous KdF promise was the Volkswagen — the ‘people's car’ that workers could buy through a savings scheme launched in 1938. Roughly 336,000 Germans paid in. Not one civilian Volkswagen was delivered before 1945; the factory was switched to making the Kubelwagen for the army. Like much of Nazi welfare, KdF combined real benefits, real propaganda value and an undertow of state fraud.
Drawbacks for Workers and Consumers
Behind the propaganda, ordinary German workers paid in three currencies. First, real wages fell or stagnated for most of the 1930s — not until 1938 did average industrial wages match 1928 levels. The DAF set wages; strikes were illegal; workbooks restricted job changes from 1935. Second, the working week lengthened — from 43 hours in 1933 to over 49 by 1939, with bonus pay for overtime gradually eroded. Third, consumer goods were rationed in all but name — meat, butter, dairy and textiles were all in short supply by 1939 because resources had gone into arms.
Goring put the choice plainly in 1936: ‘Guns will make us powerful; butter will only make us fat.’ The Nazi economy delivered on guns. It did not deliver on butter.
Two competing answers. The official answer is yes — six million in 1933 to under 200,000 in 1939. The qualified answer is partial — subtract roughly 1.4 million conscripts, perhaps half a million Jews dismissed under the April 1933 law, women redefined out of full-time work, and political prisoners in the camps, and the figure of true productive employment is much smaller. Historians of the Nazi economy (Tooze; Overy) generally accept the recovery was real but driven by rearmament rather than productive demand — an ‘armaments boom’ that could only end in war or collapse.
By 1938 around 18% of German GDP went to the military, up from 1% in 1933. Average industrial wages did not match 1928 levels until 1938, the working week stretched to over 49 hours, and consumer goods were rationed in all but name. The economy worked — for armaments. It did not work for consumers.