The under-performance of the early-war German economy

[TheMarcksPlan]

A quick spreadsheet to illustrate the impact of earlier German mobilization of foreign labor on armaments production:

Now I'm going to revise this spreadsheet to include another aspect of German under-mobilization for which proof and quantification is fairly bulletproof: Firms using supposedly war-mobilized workers on civilian and other low-priority work. GSWW v.5/1 has the goods:

In a sample study of 3,027 firms devoted either
wholly or in at least one department of their factories to armaments products,
the Reich ministry for weapons and ammunition established in March 1941
that, of the 2.2 million employees in these concerns, 680,000 (34.5 per cent)
were working for the special stage and a further 730,000 (37.2 per cent) for
stage Ia. However, more than half a million workers (28.3 per cent) were still
employed, even at this point, in other production, including civilian consumer
goods and a few export orders.192 It is not surprising that the General Army
Office, to which these and similar earlier surveys were also known, introduced
its own measures to check the reserved occupation positions. p.912

As I've discussed upthread, Tooze claims this fact undercuts the "inefficiency hypothesis" while failing to consider whether it partially revives an under-mobilization theory. Let's not worry whether this falls under inefficiency or under-mobilization; the fact is something like 28% of German armaments industry was re-routed by private firms out of armaments work (the study didn't cover quite the entire German armaments industry but let's assume it's representative). The General Army Office was familiar with this phenomenon, surely others were as well - OF COURSE some private businesses cared more for profit than patriotism.

Now let's suppose that Hitler orders stringent measures against these practices, beginning from June '40 when his political capital is unlimited. GSWW describes later penalties against firms hoarding or misallocating workers. v.5/1, p.1099. The mobilization/rationalization effect would be gradual and imperfect rather than instantaneous. If one million workers were misallocated in June 40, let's mobilize/rationalize them over the next year, adding 83k workers to armaments output per month. The effect quantified below, in conjunction with earlier mobilization of foreign labor:



The spreadsheet works as the last one did: The percentage of workers added is measured against the German industrial workforce*. Percentage of workers added to industry gives a delta to industrial output, after a productivity adjustment for foreign workers (Column P). Industrial output delta, divided by % of OTL armaments in industrial production (16% in 40-41, per Eichholtz), gives a delta to armaments output (Column R).

*I have estimated total German industrial workforce at 12mil during this period by inflating USSBS statistics to cover Greater Germany.

As shown, a delta to armaments-producing workforce representing <10% of total industrial workforce gets nearly 50% greater armaments output by the end of 1940. Armaments delta (ATL:OTL) reaches 90% in Fall '41 before declining somewhat in proportion to OTL (because OTL German output started to rise).

How is this possible? Again because German military expenditures and production were not primarily for armaments. Soldier's pay exceeded armaments production until 1943, while non-armaments military production (basic equipment) took more workers than any Wehrmacht branch's armaments programs in 1940. Any delta to early-war German armaments production, measured in economy-wide terms, would have had outsized impact on armaments production.

The scheme can be seen advancing the "armaments miracle" forward by a year, which intuitively isn't very difficult to imagine.

-----------------------------

How might this cash out in terms of force generation?

Below is a spreadsheet that takes the ATL delta to OTL armaments production and apportions to successive expansions of output from May '40. First, tanks production increases by 50% over OTL from May '40 (light blue). Then from July, motorized vehicles increase by 50% over OTL (dark blue). From August, army weapons increase by 20% over OTL (light green). From September, army ammunition increases by an amount equal to 10% of OTL armaments production (army ammo output varied a lot over this period so I'm using 10% as a flat figure) - dark green colum. This program would easily double's Ostheer's ammo supply for Barbarossa, plus more mechanized divisions, plus equipping some second-rate divs as first-rate ones, plus probably some leftover to trade with Romania for more oil.

Even after all these army program expansions, by September there's still significant excess productive capacity. So from October, all shipbuilding (inc. submarines) doubles over OTL (orange column). Even with more shipbuilding, however, there's still extra capacity. Thereafter, all deltas to OTL production over army+navy go to aircraft, resulting in >doubling aircraft output (red column).



--------------------------------------------

Note that, because this is a delta to the entire industrial sector, while the output delta is to armaments only, the labor delta is to the whole industrial sector as needed. So extra labor goes not just to Junkers and Rheinmetal final assembly sites, also to steel factories, to mines, and to suppliers. Steel and other raw material allocations therefore increase as well.

[historygeek2021]

Note that, because this is a delta to the entire industrial sector, while the output delta is to armaments only, the labor delta is to the whole industrial sector as needed. So extra labor goes not just to Junkers and Rheinmetal final assembly sites, also to steel factories, to mines, and to suppliers. Steel and other raw material allocations therefore increase as well.

It's not clear where all these extra workers are coming from. Can you explain?

Also, Germany relied on imports for a lot of raw materials, particularly iron, manganese, nickel, copper and oil. Are you suggesting that workers in export industries will increase by an amount sufficient to enable imports of these raw materials to increase by the needed amount? Are Germany's suppliers willing and capable of raising deliveries of raw materials by the needed amount?

[TheMarcksPlan]

It's not clear where all these extra workers are coming from. Can you explain?

Two categories: foreign and domestic.

Domestic workers "come from" civilian production lines within firms that were misallocating them - as found by the Todt ministry's survey in early '41 (but known to the General Army Office much earlier). Todt's survey found at least 28% misallocated. As the nominal number working on Wehrmacht contracts was at least 3.7mil in '40'/'41, I use 1mil workers as those misallocated. Intra-firm misallocation wasn't the only issue - failure to press home the closure campaign (discussed in OP and here) also figures. As does maintaining programs like Autobahn construction. Taken together, I see at least 1mil workers functionally not mobilized for war production who should have been (most of whom were officially war workers).

Foreign workers come from the various occupied territories. As discussed here, Sauckel got another 250k from France just via pressure in late '42, prior to compulsory service. Hitler freed 200k Dutch PoW without asking for workers in exchange. Polish labor was not tapped out, it increased by 700k between Sept 41 and August 44, for example. Between late '42 and '43, Germany added 745k workers from Western Europe.

Taking all these together, I see 1mil more than OTL by mid-41 as a significant underestimate of what Germany would have added, had she really tried. I don't want to specify exact national compositions, as there would be several feasible versions.

Again the spreadsheet is just to give shape to possibilities (provided the stronger-Barbarossa-enabling minimum program is met). Because I (lazily) assigned all residuals to aircraft production after late '40, Germany is building 2.5x the aircraft by '42. They don't have enough fuel for them though, so probably even more ships and flak instead (or more synthgas plants).

Also, Germany relied on imports for a lot of raw materials, particularly iron, manganese, nickel, copper and oil. Are you suggesting that workers in export industries will increase by an amount sufficient to enable imports of these raw materials to increase by the needed amount? Are Germany's suppliers willing and capable of raising deliveries of raw materials by the needed amount?

Not exactly sure on that, several options - again general shape rather than a fine production program. Some would come from increased exports. Some from increased labor allocation to, e.g. Salzgitter and Alsace ore mines. The latter carries a productivity penalty vs. OTL averages. But its magnitude is so small that I'm not worried about it - knock off a month of extra Uboat production if needed.

Why do I think it's a small factor? Because the raw materials allocations to armaments industries were small in this period anyway. Army consumed 334k tons of steel in 2Q '40 (USSBS Germany Table 69), for example - 9% of German production (Table 70). My program delta is, say, 30% delta to army consumption or 2.7% of total German steel production. All Mining+Foundary/mills workforces were at most 11% of industrial workforce (Table 9, using the lower total figure); a 30% productivity penalty applied to 2.7% of 11% of industrial workforce production is a 0.09% overall impact (.3 * .027 * .11). And that's using a much larger workforce than was actually involved in steel production.

It's a good question though. I just think it's a minor factor and that, weighed against IMO conservative projections about how many more laborers Germany could have mobilized, doesn't change the picture.

[Boby]

Did Todt in this document used the word "misallocated" (in german) or you are playing fantasy with numbers?

[TheMarcksPlan]

Another important point regarding earlier mobilization regards productivity. Upthread we discuss the 1941 productivity dip apparent in topline German statistics. Tooze calls this a "statistical illusion," KDF33 explains why:

1941 creates a statistical illusion, given that it saw (1) the re-tooling of the fighter aircraft plants, (2) the artificially-deflated production of ammunition and (3) the shutdown of army weapons production in the 2nd half of the year.

A premature switch away from army production, while planning to fight the world's largest army and country, helped torpedo German productivity. Germany avoids (2) and (3) by maintaining high ammo and army weapons output in my sketched counterfactual.

This is another reason why the earlier mobilization counterfactual sketched above is an underestimate.

[TheMarcksPlan]

Posted a new thread relevant to this discussion, but which I thought was sufficiently important for separate discussion.

Summary: The "learning by doing" narrative is likely far overstated and potentially just wrong. WW2 German economic historiography has, AFAICS, completely missed this important revision in the more specialized industrial economics literature.

[Nyanko]

This book review here presents perhaps the most sober view of the German war economy:

https://www.jstor.org/stable/1925424?se ... b_contents

" By today's standards, Germany's war production in
the early years of the war may appear surprisingly
low, but her army and air force were at that time
the best-equipped in the world, and her level of
production was more than sufficient to meet the
rates of battle wastage that could then have been
anticipated. Her civilian sacrifices were moderate
in comparison with what the Russian and even the
British people later had to bear; but the Nazis,
during the years of preparation from I933 to I939,
went farther in mobilizing resources for war pur-
poses than any other country had ever done in
peacetime. If Germany in the early war years was
on a semipeacetime footing, it was because in her
peacetime preparation for war, she had already
reached a semiwar basis. The German generals
have testified, almost without exception, that their
defeats, both in the East and in the West, were not
due to deficiency of armaments. Perhaps the main
cause of Germany's defeat is not to be found in the
economic field at all, but in a much more basic
shortage-a shortage of German manpower of
military age. Such a shortage, if it exists, cannot
always be offset by increasing war production, be-
cause every increase in the mechanization of armies
requires a heavy diversion of military manpower
from combat tasks to "rear echelon" supply and
maintenance duties. Roundaboutness, by itself, is
no more inherently productive in fighting battles
than in producing goods. If this is the case, neither
economic mismanagement nor even the over-all
limitations of the German economy can explain
Germany's defeat. Too little and too late may
seem a plausible description of Germany's wartime
economic effort, but this reviewer finds little evi-
dence that more and sooner would have appreci-
ably affected the course of the war." Page 3

[ljadw]

This book review here presents perhaps the most sober view of the German war economy:

https://www.jstor.org/stable/1925424?se ... b_contents

" By today's standards, Germany's war production in
the early years of the war may appear surprisingly
low, but her army and air force were at that time
the best-equipped in the world, and her level of
production was more than sufficient to meet the
rates of battle wastage that could then have been
anticipated. Her civilian sacrifices were moderate
in comparison with what the Russian and even the
British people later had to bear; but the Nazis,
during the years of preparation from I933 to I939,
went farther in mobilizing resources for war pur-
poses than any other country had ever done in
peacetime. If Germany in the early war years was
on a semipeacetime footing, it was because in her
peacetime preparation for war, she had already
reached a semiwar basis. The German generals
have testified, almost without exception, that their
defeats, both in the East and in the West, were not
due to deficiency of armaments. Perhaps the main
cause of Germany's defeat is not to be found in the
economic field at all, but in a much more basic
shortage-a shortage of German manpower of
military age. Such a shortage, if it exists, cannot
always be offset by increasing war production, be-
cause every increase in the mechanization of armies
requires a heavy diversion of military manpower
from combat tasks to "rear echelon" supply and
maintenance duties. Roundaboutness, by itself, is
no more inherently productive in fighting battles
than in producing goods. If this is the case, neither
economic mismanagement nor even the over-all
limitations of the German economy can explain
Germany's defeat. Too little and too late may
seem a plausible description of Germany's wartime
economic effort, but this reviewer finds little evi-
dence that more and sooner would have appreci-
ably affected the course of the war." Page 3

Given their postwar lies, there is no reason at all to believe even one worth of what did say the German generals .

[historygeek2021]

This book review here presents perhaps the most sober view of the German war economy:

https://www.jstor.org/stable/1925424?se ... b_contents

" By today's standards, Germany's war production in
the early years of the war may appear surprisingly
low, but her army and air force were at that time
the best-equipped in the world, and her level of
production was more than sufficient to meet the
rates of battle wastage that could then have been
anticipated. Her civilian sacrifices were moderate
in comparison with what the Russian and even the
British people later had to bear; but the Nazis,
during the years of preparation from I933 to I939,
went farther in mobilizing resources for war pur-
poses than any other country had ever done in
peacetime. If Germany in the early war years was
on a semipeacetime footing, it was because in her
peacetime preparation for war, she had already
reached a semiwar basis. The German generals
have testified, almost without exception, that their
defeats, both in the East and in the West, were not
due to deficiency of armaments. Perhaps the main
cause of Germany's defeat is not to be found in the
economic field at all, but in a much more basic
shortage-a shortage of German manpower of
military age. Such a shortage, if it exists, cannot
always be offset by increasing war production, be-
cause every increase in the mechanization of armies
requires a heavy diversion of military manpower
from combat tasks to "rear echelon" supply and
maintenance duties. Roundaboutness, by itself, is
no more inherently productive in fighting battles
than in producing goods. If this is the case, neither
economic mismanagement nor even the over-all
limitations of the German economy can explain
Germany's defeat. Too little and too late may
seem a plausible description of Germany's wartime
economic effort, but this reviewer finds little evi-
dence that more and sooner would have appreci-
ably affected the course of the war." Page 3

Great find. Hard to believe that Despres wrote this in 1946, and Tooze acts like he's the first one to come up with this thesis 60 years later. Tooze doesn't mention Despres once in Wages of Destruction.

[TheMarcksPlan]

This book review here presents perhaps the most sober view of the German war economy:

The view may be sober but it’s demonstrably wrong on economics, expressing a standard postwar view of the German economy. Despres then expresses a counterfactual view on the military significance of his economic conclusion – this view is very problematic as well. Let me address each component separately.

Economics

Despres here expresses the standard USSBS/Milward view that Germany had a “semipeacetime” war economy and a “semiwar” peacetime economy. He even goes so far as to say that Germany’s “civilian sacrifices were moderate in comparison with what the Russian and even the British people later had to bear.” These views have been thoroughly debunked by the later scholars discussed in my OP (Overy, Mueller, Tooze, Scherner, etc.).

Germany in fact mobilized to a degree broadly in line with Britain in 1939-40. As I argue throughout this thread, however, German mobilization and armaments output stalled after France’s defeat for several reasons – the biggest being an underestimation of the Soviet Union.

Counterfactual analysis

Despres cites the German generals in concluding that Germany’s supposed lower mobilization did not impact the war’s outcome:

The German generals
have testified, almost without exception, that their
defeats, both in the East and in the West, were not
due to deficiency of armaments.

I am not familiar with the specific statements he has in mind but it’s of little matter. The German generals were, in economic/strategic matters, children incapable of addressing a question of this scope. Contemporary scholarly opinion nearly unanimously backs this judgment – see for instance Sonke Neitzel’s works regarding the lack of strategic thinking in the German army.

Before I go further, I’ll note as an aside that too much is made of the German generals’ lack of strategic acuity. Generals advise on strategy but do not make it. George Marshall didn’t decide when the Allies invaded Europe; FDR did. Alanbrooke didn’t decide on a Mediterranean strategy, Churchill did. Having children as some of your strategic advisers is bad but does not ensure childish decisions. Hitler decided Germany’s grand strategic questions largely on his own, often without any prompting by his generals (e.g. attacking Russia) or in contravention of their near unanimous recommendations (Kiev vs. Moscow in 1941).

On the merits of Despres’ counterfactual – what if Germany mobilized more? – I couldn’t disagree more. For significantly less than 1% of its GDP, Germany could have augmented its 1941 army to a degree sufficient to ensure success against the Soviet Union (as I’ve argued here). If we take Despres’ priors and suppose that Germany could have doubled its early war armaments output, then German victory against the Soviet Union in 1941-42 is so clear as to constitute epistemic certainty.

I’ll address one more specific assertion by Despres:

Perhaps the main
cause of Germany's defeat is not to be found in the
economic field at all, but in a much more basic
shortage-a shortage of German manpower of
military age. Such a shortage, if it exists, cannot
always be offset by increasing war production, be-
cause every increase in the mechanization of armies
requires a heavy diversion of military manpower
from combat tasks to "rear echelon" supply and
maintenance duties. Roundaboutness, by itself, is
no more inherently productive in fighting battles
than in producing goods.

To the extent Despres believes that German mechanization required extremely high manpower he’s simply wrong. A German panzer division had fewer men than a German infantry division but considerably more combat value. Despres probably wasn’t aware that Germany’s substitute for mechanization – horses – was not particularly efficient in modern war (though its inefficiency can also be greatly exaggerated).

Re manpower shortage overall, note that Germany’s military contained more men in late 1944 than at the start of Barbarossa, despite millions of intervening losses. Germany accomplished this by substituting foreign labor for domestic in the economy, while shifting domestic labor to the military.

Germany’s failure to do this substitution earlier is the most obvious fact to which most WW2 historiography is completely blind.

Hard to believe that Despres wrote this in 1946, and Tooze acts like he's the first one to come up with this thesis 60 years later. Tooze doesn't mention Despres once in Wages of Destruction.

See above. Despres is diametrically opposed to Tooze on economics. They come to the same result (Germany could not have won) via irreconcilable premises.

Despres accepts economics that Tooze emphatically debunks but says economics didn’t matter militarily (because a materially stronger Wehrmacht would still have lost, per those strategically brilliant German generals).

Tooze debunks the economics that Despres accepts, obviating the military counterfactual that Despres rejects.

[historygeek2021]

the Nazis,
during the years of preparation from I933 to I939,
went farther in mobilizing resources for war pur-
poses than any other country had ever done in
peacetime. If Germany in the early war years was
on a semipeacetime footing, it was because in her
peacetime preparation for war, she had already
reached a semiwar basis

This is the exact same point that Tooze makes.

Likewise, Despres' point that Germany focused too much on armament in depth is the same point that Overy makes.

[TheMarcksPlan]

the Nazis,
during the years of preparation from I933 to I939,
went farther in mobilizing resources for war pur-
poses than any other country had ever done in
peacetime. If Germany in the early war years was
on a semipeacetime footing, it was because in her
peacetime preparation for war, she had already
reached a semiwar basis

This is the exact same point that Tooze makes.

Likewise, Despres' point that Germany focused too much on armament in depth is the same point that Overy makes.

Maybe we're disagreeing on where Tooze and Despres agree/disagree.

Do you think Tooze would agree that in the early war years Germany had a "semi-war" or "semi-peacetime" economy?

‐-‐-----------

Tooze would agree on the semi-war prewar economy but that's not at all novel, not at all why he wrote a book.

[historygeek2021]

No, but neither does Despres. He says "if" Germany had a peacetime economy, which is the position of the book he's reviewing (USSBS), and which he tears to pieces in his review.

[TheMarcksPlan]

No, but neither does Despres. He says "if" Germany had a peacetime economy, which is the position of the book he's reviewing (USSBS), and which he tears to pieces in his review.

Would Tooze agree with the following from Despres?:

Her [Germany's] civilian sacrifices were moderate
in comparison with what the Russian and even the
British people later had to bear

It is true, of course, that if Germany's leaders
had recognized earlier the situation which they were
going to face, they might, perhaps, have tightened
civilian belts further and expanded their war production both in depth and in width

These are diametrically opposed to Tooze's thesis. Even reading Despres' "If" as a hedge, the above context makes clear that he doesn't dispute that there was slack in the German economy compared to its enemies' economies.

I'd agree that Despres prefigures some important later realizations (too much width vs. depth actually, contra Thomas). He also makes a point that I never see economists/historians/anyone make (to my great frustration): that armaments production was a very small part of the German war economy:

Government expenditures increased further from
45 billion reichsmarks in I939 to 89 billion in I94I;
expenditure on finished munitions was only I2 billion in I94I.

------------------------------------------------------------------

I take Tooze's main point as I laid out way back in the OP: Germany was maximally mobilized by 1940 and there was no "missed opportunity" for German war mobilization. I don't find anywhere that Despres disagrees with that on economic grounds.

[historygeek2021]

I actually think Tooze would agree that there was room for Germany to increase its mobilization in the early years of the war. He never says that Germany was maximally mobilized. He uses weasel words to indicate that Germany was significantly mobilized, but stops short of saying that there was no room for further mobilization early on in the war. The central thesis of Tooze is that the increase in German armaments production was continuous and gradual over the course of the war, due to the massive investment in the armaments sector that Hitler made before and during the war. Tooze, at least, seems to think this is novel, because he never cites anyone as having advanced this theory before, even though Despres said essentially the same thing 60 years earlier. It's likely that Tooze simply never read Despres' short review of the USSBS, and they both arrived at similar conclusions.