The under-performance of the early-war German economy

[Tom from Cornwall]

Potgiesser (Die RB im Ostfeldzug P 58 ) gives 11899 Germans and 633935 non Germans working on the railways in the East on January 1 1943 and on page 142 1,370,000 Germans working on the railways in the Reich in April 1944 .

Thanks. It looks like Ferguson was right about the number.

RB may have been a make-work program in '33-'35 but by '39 - and throughout the war - every bit of its effort was needed (and then some).

But I would agree with TMP in that the vast majority of the increase in labour employed by the RB seems to have been used productively and expansion after 1939 seems to have been driven by an increase in workload.

No idea what Ferguson is on about. Probably his inveterate rightwing disposition causes him to think of public infrastructure as a profit sector rather than, say, public infrastructure.

Which, along with his dense polemic writing style and a seemingly obsessive desire to show off how clever he is, is one of the reasons I've never got to the end of any of his books and why The Cash Nexus has gone to the charity shop.

Regards

Tom

[TheMarcksPlan]

For those reading along, I want to make explicit something implicit in my replies to KDF33 so far. I will then suggest an area relevant to our differences that urgently needs further research.

He proposes to evaluate German productivity based on armaments output per armaments worker; I argue that a focus on the armaments sector misses most of the actual work input to armaments and can warp our view of productivity within the armaments sector. To illustrate the first point, an example:

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

Suppose that aircraft final assembly plants join only two components: the propeller and everything else. And suppose that in 1940, German final assembly involves, per airplane, 2 workers attaching the propeller and 10 working a lightbulb so the others can see.

Along comes a young architect/Rustungsgenie who points out that it only takes 2 Germans to screw in a lightbulb. Final assembly now requires 4 workers instead of 12; in-factory final armaments productivity has tripled.

But if total armaments output also triples, the lightbulb story explains virtually nothing about what happened: somebody else built 3x as many "non-propeller" and propeller aircraft components, clearly the component-builders did most of the work. A historiography focused on when Germany answered "how many Germans to screw in a lightbulb?", and on whether the young architect or someone else came up with the answer, would be missing the important issues.

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

Obviously the example is exaggerated but I see a similar trend in much of the historiography. Scherner's articles, for example, focus almost exclusively on final assembly plants.

As Hans Kehrl pointed out to Wagenfuhr regarding his attempted statistical enumeration of German labor usage (discussion cited above), absent labor statistics for the mass of small contractors building subcomponents for final assembly and for large subcontractors, labor statistics can cover only ~1/4 of the work devoted to armaments production (plus perhaps raw materials-producing labor).

The German word for subcomponents - "Zulieferung" - appears rarely but with hints at a central importance:

• In Wages of Destruction (p.598), Tooze singles out a Zulieferung crisis stemming from RAF's Ruhr Campaign as explaining the halt in armaments production increases for the 14 months following January 1943. This is a massive revision to the historical CBO narrative but the most development of the idea I've seen is a few tweets between Tooze and Mark Harrison. Tooze cites documents from Zentral Plannung which I hope to obtain after NARA reopens.
• In this obscure (to me) interrogation by the British Intelligence Objective Subcommittee, Wagenfuhr states that Speer's central focus for the entire second half of 1942 was Zulieferungen and that they were the bottleneck in '42/'43.
• The industrial "rings" of the Todt/Speer ministry contained only three sub-committees, one for Zulieferungen.

Budrass/Scherner/Streb show in "Fixed Price Contracts" that outsourcing (e.g. buying subcomponents) became increasingly prevalent in the aircraft industry.

It's easy to imagine Zulieferungen manufacturing being highly responsive to rationalization measures: these would likely have been smaller non-military firms drawn towards war production by mobilization but lacking the relationships to know what to build and technical knowledge on how to build it. Todt's industrial "rings" would have provided an entree into military contracts and the technical advice to fulfill them. By comparison, the already-sophisticated large armaments firms and their pre-existing suppliers would benefit less from the "rings." Of course that narrative would have to be backed by firm/industry-specific quantitative research.

along with his dense polemic writing style and a seemingly obsessive desire to show off how clever he is, is one of the reasons I've never got to the end of any of his books and why The Cash Nexus has gone to the charity shop.

Same. He's a frequent hate-read on contemporary politics, when I want to gauge the posh reactionary take.

[TheMarcksPlan]

In Wages of Destruction (p.598), Tooze singles out a Zulieferung crisis stemming from RAF's Ruhr Campaign as explaining the halt in armaments production increases for the 14 months following January 1943. This is a massive revision to the historical CBO narrative but the most development of the idea I've seen is a few tweets between Tooze and Mark Harrison.

Correction: Harrison addresses Tooze's argument in his most recent article, stating:

While the pause is beyond doubt, and the link is reasonable, the
underlying data suggest a more complex story. A major factor in the pause
was a slowdown of aircraft production. This was due partly to the
destruction of Germany’s main aluminium processing plant in
Ludwigshafen, far from the Ruhr (O’Brien 2015a: 298), and partly to the
ongoing dispersal of the aircraft industry. Both were results of Allied
bombing, although not of the Ruhr district.

Harrison's O'Brien cite is to How the War was Won, which states:

In July of that year [1943], the Giulini aluminum processing factory
in Ludwigshafen was hit.134 This one attack reduced German annual
production of alumina by 27,000 tons (or of finished aluminum by
13,000 tons).

O'Brien cites General Arnold's self-serving "The Contribution of Airpower to the Defeat of Germany" at FN 134. We can check that against the USSBS report on the Giulini Brothers aluminum plant in Ludwigshafen:

5. Despite the fact that damage to the plant as a whole was fairly extensive, the alumina unit suffered vital damage in only two raids. In the 21 September 1944 raid, the resulting four-week shutdown of the Bayer unit caused a production loss of about 1,000 tons of alumina. The 18 February 1945 raid caused extensive physical loss by the destruction of the alumina reduction pilot plant, but bauxite reduction was virtually unaffected.

No significant 1943 damage to aluminum production. The report also notes Allied intelligence over-estimating the plant's importance:

The alumina production capacity of Gebrüder Giulini GmbH was determined to be 22 per cent of the German total, as opposed to the 60 per cent production reported in Intelligence information

...so we have Harrison citing O'Brien citing Arnold, who relied on inaccurate wartime intelligence (and/or just wanted to justify his wartime role). O'Brien tends to relate uncritically a lot of since-debunked material on bombing effects (e.g. destruction of Panzer Lehr by AAF in Normandy); this seems another example. O'Brien doesn't even get the month right: Giulini was hit (inconsequentially) in August '43, not July. No 1943 raid devastated German aluminum production in Ludwigshafen; Tooze's original point re Zulieferungskrise remains without valid challenge.

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

Returning to Harrison's point re aircraft production dispersal, I see no evidence that 1943 was the key year - certainly not in January. USSBS Aircraft Industry report highlights February 1944 as the beginning of general dispersal, prior to that it notes intra-site dispersal as a distinguishing feature of German aircraft production. Just for example, the report states:

The floor area figure became very difficult to
appraise after general dispersal had been undertaken in 1944

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

So the Zulieferungskrise is an issue on which two famous authors are demonstrably wrong (O'Brien, Harrison) and on which one (Tooze) fails to follow the implications of his own groundbreaking research. More scholarship needed.

[historygeek2021]

Okay now let me pivot to defending Tooze’s corrections of GSWW v.5, which are important.

From WoD:

As we have seen, authorized profits under the existing guidelines were not in fact calculated as a percentage of costs, but as a percentage of capital employed.43 And the cost accounting guidelines were certainly strict.44 From the point of view of the new rationalization agenda, the essential flaw of the pre-Speer system was not that it allowed producers to inflate costs and prices as they liked. Nor was it devoid of incentives to efficiency. Once a price had been agreed, it was fixed and contractors thus had every incentive to cut costs.45 … Where the system clearly did sacrifice efficiency was in failing to require the less efficient producers to meet the prevailing 'best practice price'. P.565

Unlike Tooze, GSWW’s authors are not trained economists nor lawyers. They therefore did not understand that to really grasp a contractual arrangement you have to look at contract terms; you can’t accept a generalized description.

Tooze's analysis is interesting, especially the part about the industry accumulating substantial profits in the 1940-41 period, but I don't think it's a refutation of the inherent inefficiency of the cost-plus system that every other commentator has accepted. Scherner is clear that the introduction of fixed price contracts was the most important factor in improving efficiency in aircraft production:

https://www.jstor.org/stable/27771572?r ... b_contents

Even if there remains some incentive to reduce costs under the cost-plus system, it will not be as great as with a fixed-price system, free of Wehrmacht auditors who will impose a price reduction as soon as a firm finds a way to cut costs. Also, Tooze is a historian, not an economist. And the authors of GSWW don't make much of the cost-plus vs fixed price issue, their narrative is simply descriptive of the documents and events of the period. Overy is the one who emphasized the cost-plus issue, but Scherner agrees with him.

Tooze goes on to cast great doubt on the generally accepted productivity metrics, calling them a “statistical illusion” in both WoD and “No Room for Miracles” (cited/linked in OP). Tooze is absolutely right that the older narrative is overstated – Speer juiced his stats by, e.g., selecting January 42 as his baseline. But Tooze is not correct that productivity did not increase, as Scherner recognizes and as demonstrated by topline output/input stats (see above).

It seems to me that the inefficiency was in the German government, not the German (and foreign) workers. The efficiency of the workers would naturally increase in a gradual, continuous manner through learning-by-doing - that seems like a rather obvious point and I don't understand why Tooze thinks it's some sort of incredible breakthrough he discovered. But the German government's management of the economy was a chaotic mess and stayed that way for most of the war. Speer only partially alleviated that issue.

Capital goods exports declined only 20% by ’42.

Actually exports increased from 1940 to 1942, but this is because this table includes shipments of goods to occupied Europe as exports. As explained in the narrative, Hitler wanted to build up the economy of certain occupied zones. Thus, "exports" of farm machinery tripled from 1940-1942 because Hitler wanted the Ukraine to be Germany's breadbasket. I think the more useful figure is for exports of machine tools, Germany's primary export business (aside from coal). This figure falls almost in half from 1940 to 1942. Given that machine tool production stayed flat over this period (see page 47), this indicates a declining need to export to non-occupied countries in order to obtain raw materials/foreign currency. Moreover, the more important comparison is with 1944, when the "armaments miracle" supposedly occurred. In that year, exports across nearly all capital goods plummeted, freeing up German industry to manufacture armaments.

https://babel.hathitrust.org/cgi/pt?id= ... 1up&seq=59

Overrated significance. From “Flexibility and Mass Production at War: Aircraft Manufacture in Britain, the United States, and Germany, 1939-1945” by Zeitlin:

The received contrast between craft traditionalism and mass production modernism in wartime aircraft manufacture is misleading from the German as well as the Allied perspective.

German aircraft manufacturing techniques "corresponded rather closely with American practice," including the use of "moving belts, with the work along them carefully planned at definite stations"; the main difference was that "operations were broken up among buildings in the same location or dispersed over a wide area" as a defensive measure against bombing attacks.

like their British and American counterparts, German aircraft manufacturers devised innovative techniques for realizing some of the benefits of large-scale production without excessive loss of flexibility

This is just the aircraft industry. We all know that was the newest and most efficient armaments industry in Germany. The rest of the armaments industry relied predominantly on multi-purpose machine tools. See USSBS:

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

Again overrated. From Zeitlin:

In both Anglo-Saxon powers, similarly, frequent design changes demanded a substantial measure of adaptability in aircraft manufactur ing methods. In the United States, as we have seen, aircraft firms modified standard line-production techniques to obtain greater flexibil ity, while in Britain a large proportion of aircraft components were turned out in batches small enough to make bench methods more economical than full mass-production tooling

This is again, just the aircraft industry and doesn't say anything about Germany. The Allies produced 299,500 combat aircraft against only 65,000 from Germany. Clearly whatever they were doing was working a lot better than what the Germans were doing. From USSBS:

USSBS Henschel.png (194.93 KiB) Viewed 4967 times

I am advancing my own view: That “Blitzkrieg theory” of radical under-mobilization must be rejected, while a softer version of under-mobilization can’t be ignored. Critically, under-mobilization related to both input quantity and rationalization, as each measure faced similar political constraints (these are not conflicting narratives, as the Overy-Millward debate suggested). Political constraints were easily shoved aside, however, once the magnitude of the Eastern Front became apparent in winter ’41-42. Again, everything about WW2’s course depended on Hitler not taking the Soviet Union seriously.

…of course to make that entire case I’d have to write my own book.

I generally agree with your view. Tooze uses a lot of weasel words to avoid having to address your proposal (e.g., in No Room for Miracles, he says, "German resources were in fact heavily committed to the war from the outset"). "Heavily committed" tells us nothing. You have shown with Table 1-8 from Harrison that Germany was less mobilized than Britain in 1940 and 1941, but this is the type of analysis that Tooze avoids because he wants a simple narrative he can sell to a popular audience. Which brings me back to that boring account of the German armaments bureaucracy in DRZW Volume 5 - the German armaments/economic bureaucracy was such a mess, it would have been the biggest hurdle for Hitler to overcome even if he had ordered greater mobilization in 1940. In the OTL he resorted to putting his friends in charge of the economy (first Goring, then Todt, then Speer) rather than competent ministers. I don't doubt that Germany could have produced enough equipment to meet the conditions for some of your Eastern Front ATLs, it just would have taken a great deal of effort by Hitler to find the right friends who could cut through the bureaucracy. But at the same time, he can't even give his friends too much power, because then they could become a threat to him. Thus, even after the winter crisis of 41/42, Speer's scope of authority was limited. And this (the chaotic German government and Hitler's reliance on his friends), will be an obstacle in any ATL because it was an inherent feature of the German government on which Hitler's rule depended. Democracies that have institutions in place for the peaceful transfer of power and an independent civil service will always have an advantage over dictatorships in this regard.

[TheMarcksPlan]

Scherner is clear that the introduction of fixed price contracts was the most important factor in improving efficiency in aircraft production

Are you getting that from the order of words in the title? The authors are clear that learning effects were the central factor.

Tooze's analysis is interesting, especially the part about the industry accumulating substantial profits in the 1940-41 period, but I don't think it's a refutation of the inherent inefficiency of the cost-plus system that every other commentator has accepted.

It's a devastating refutation of the typically-quoted facts, if "capital plus" and not "cost plus" was the default contract rule (outside aviation). I'm locating Tooze's cites to investigate...

But Tooze doesn't properly analyze the implications. "Capital plus" is massive source of behavioral distortion, albeit different from "cost plus": it means that a firm that produces more from a set capital stock (e.g. by using double shifts) makes no more total profit (and may make less).

While "capital plus" retains incentive to produce cheaply, it also removes incentive to produce more.

If true, this is MASSIVE, FUNDAMENTAL revision to our picture of firm-level behavior in Germany. I am very interested to explore it. We would expect a "capital plus" firm to have too much capital (exactly what we see) while using workers efficiently in war production (minimizing costs) and diverting the workers thereby conserved to other profit lines (again, exactly what we see).

As often with Tooze, his scholarship has here suggested something tantalizing. But its investigation would contradict his ideological goal so he doesn't follow up.

Tooze is a historian, not an economist.

He's an economic historian and is trained in economics/statistics; Mueller is not. https://adamtooze.com/bio/

Regardless, my point is that Tooze's analysis looks for quantitative evaluation of claimed causal effects whereas Mueller/GSWW don't. Mueller is content to narrate administrative phenomena and imply that they had statistically significant effects. While I find Mueller's implicit statistical effects plausible - I take them more seriously than does Tooze - nowhere in GSWW is there quantitative evaluation of the costs of polycracy generally and of its particular pathologies. Thus more research is needed.

It seems to me that the inefficiency was in the German government, not the German (and foreign) workers.

What does that mean in quantitative or even specific narrative terms? Government officials obviously were not directly engaged in production; thus government inefficiency resided at the level of allocation, planning, etc. So to make the polycracy thesis stick (again I find it plausible but quantitatively under-proved), we'd need to show - for example - that workers/resources weren't where they should have been. Alternatively, we'd need to show that firms were using inefficient practices despite government orders otherwise.

There is some quantitative support along these lines - most saliently the above-quoted Todt ministry report on firms not using war-allocated workers for war production. That large piece of evidence suggests that early-war productivity deficits may have related significantly - perhaps largely - to private firms' unwillingness to commit to war production, a phenomenon perhaps especially apparent between France and Barbarossa when everyone expected an imminent return to peacetime production.

To investigate further the firm-related inefficiency hypothesis, we'd need much more intra-firm data. Here there's a big lacuna. The NARA T-series, for example, contains an archive of documents for the Flick Konzern but not a great deal else. Chapter 19 of Economies under Occupation (Boldorf and Okazaki eds), for example, contains the following description of the state of research:

Our knowledge about investments, profits and the conditions of the depreciation
allowance but also about the economic performance and the organization of
occupied factories is still surprisingly low. The study therefore focuses on three
relatively well-researched companies: the Flick concern, Krupp and the Gutehoffnungshütte (GHH).

...while the chapter is focused on occupied factories only, the research-dearth extends to company levels for all but the three named companies, while basically all large German companies were involved in occupied countries.

Company-specific research is a fruitful avenue; it's what underlies Budrass/Scherner/Streb article "Fixed Price Contracts etc." So far, however, such research has only been conducted by researchers seeking to debunk the Speer myth, one of the least-interesting topics in WW2 historiography.

I think the more useful figure is for exports of machine tools, Germany's primary export business (aside from coal). This figure falls almost in half from 1940 to 1942.

But it's still high in 1940-41, which is the only truly interesting under-mobilization period IMO (1942 being probably too late for industrial investment decisions to have averted German defeat).

This is just the aircraft industry.

This is again, just the aircraft industry and doesn't say anything about Germany.

That's all we were talking about. Again, I agree that more research (especially firm-specific) is needed outside the aircraft industry.

The Allies produced 299,500 combat aircraft against only 65,000 from Germany. Clearly whatever they were doing was working a lot better than what the Germans were doing

That's far too gross a level of analysis to say anything interesting. A (value-based) delta to German wartime production of <1% could have decided the war (at least in the East) had it come in '40/'41. That delta isn't significant to statements like yours.

the German armaments/economic bureaucracy was such a mess, it would have been the biggest hurdle for Hitler to overcome even if he had ordered greater mobilization in 1940

I agree with you (with Mueller) on the mess point; disagree as follows:

• (1) that the mess has been sufficiently proven in its quantitative/causal effects,
• (2) that firm-level decisions based on short-war expectations seem at least as likely as "mess" to have had decisive impacts,
• (3) even granting messiness, clear dictates from Hitler nearly always had clear directional effects on Nazi bureaucracy and industry. https://en.wikipedia.org/wiki/Ian_Kersh ... 22_concept

As GSWW amply narrates, Hitler's signaled to the bureaucracy and to industry during '39-'41 that he did not prioritize absolute mobilization, that Gauleiter requests for leniency and business objections to rationalization programs (e.g. closure campaign) would be accommodated and would carry no adverse political consequences.

Clear signals from Hitler that he desired maximal mobilization - rebuffing Gauleiters, closing inefficient business, penalizing firm officers for mis-using workers - would have caused industry and bureaucracy to "work towards the Fuehrer" in pursuit of maximal mobilization as happened (at least to a greater extent than hitherto) after the 41/42 Winter Crisis. Whether they work towards a revised Hitler in a messy or efficient manner makes little difference.

Thus, even after the winter crisis of 41/42, Speer's scope of authority was limited. And this (the chaotic German government and Hitler's reliance on his friends), will be an obstacle in any ATL because it was an inherent feature of the German government on which Hitler's rule depended.

Can't emphasize enough that the minimal conditions for German victory are not eliminating aspects of Nazi dysfunction that persisted throughout the war, only eliminating earlier those barriers that Hitler successfully eliminated once he had to take the SU seriously. 1942 production levels were far short of the German production frontier yet 1942 levels in 1940/41 would have made defeating the SU a foregone conclusion.

[historygeek2021]

Are you getting that from the order of words in the title? The authors are clear that learning effects were the central factor.

The authors state throughout the article that fixed-price contracts provided the most important incentive for aircraft manufacturers to reduce costs. Page 125: "We have already stressed that the introduction of fixed-price contracts in spring 1937 was the most important precondition for sustainable productivity growth in the German aircraft industry, because this regulatory reform motivated armament manufacturers to raise their profits by cost reduction."

It's a devastating refutation of the typically-quoted facts, if "capital plus" and not "cost plus" was the default contract rule (outside aviation). I'm locating Tooze's cites to investigate...

But Tooze doesn't properly analyze the implications. "Capital plus" is massive source of behavioral distortion, albeit different from "cost plus": it means that a firm that produces more from a set capital stock (e.g. by using double shifts) makes no more total profit (and may make less).

While "capital plus" retains incentive to produce cheaply, it also removes incentive to produce more.

If true, this is MASSIVE, FUNDAMENTAL revision to our picture of firm-level behavior in Germany. I am very interested to explore it. We would expect a "capital plus" firm to have too much capital (exactly what we see) while using workers efficiently in war production (minimizing costs) and diverting the workers thereby conserved to other profit lines (again, exactly what we see).

As often with Tooze, his scholarship has here suggested something tantalizing. But its investigation would contradict his ideological goal so he doesn't follow up.

Tooze doesn't say "capital plus". He says contracts were negotiated to cover the firm's costs, and in addition provide the firm with a fixed return on capital employed. Have you seen any author besides Tooze who thinks these contracts provided the same (or close to the same) incentive to reduce costs and increase productivity as fixed-price contracts?

He's an economic historian and is trained in economics/statistics; Mueller is not. https://adamtooze.com/bio/

Regardless, my point is that Tooze's analysis looks for quantitative evaluation of claimed causal effects whereas Mueller/GSWW don't. Mueller is content to narrate administrative phenomena and imply that they had statistically significant effects. While I find Mueller's implicit statistical effects plausible - I take them more seriously than does Tooze - nowhere in GSWW is there quantitative evaluation of the costs of polycracy generally and of its particular pathologies. Thus more research is needed.

Tooze has a BA in economics. Bachelors level economics is a joke major that pre-med students add on to buff their applications. I seriously doubt Müller is any less competent in economics and statistics than Tooze. You don't get to be one of the premier scholars in the world by being ignorant of related fields of study. And the idea that someone like Müller is incapable of grasping the difference between a profit calculated on the basis of direct costs vs capital is laughable and derailing from an otherwise good discussion.

What does that mean in quantitative or even specific narrative terms? Government officials obviously were not directly engaged in production; thus government inefficiency resided at the level of allocation, planning, etc. So to make the polycracy thesis stick (again I find it plausible but quantitatively under-proved), we'd need to show - for example - that workers/resources weren't where they should have been. Alternatively, we'd need to show that firms were using inefficient practices despite government orders otherwise.

There is some quantitative support along these lines - most saliently the above-quoted Todt ministry report on firms not using war-allocated workers for war production. That large piece of evidence suggests that early-war productivity deficits may have related significantly - perhaps largely - to private firms' unwillingness to commit to war production, a phenomenon perhaps especially apparent between France and Barbarossa when everyone expected an imminent return to peacetime production.

To investigate further the firm-related inefficiency hypothesis, we'd need much more intra-firm data. Here there's a big lacuna. The NARA T-series, for example, contains an archive of documents for the Flick Konzern but not a great deal else. Chapter 19 of Economies under Occupation (Boldorf and Okazaki eds), for example, contains the following description of the state of research:

Our knowledge about investments, profits and the conditions of the depreciation
allowance but also about the economic performance and the organization of
occupied factories is still surprisingly low. The study therefore focuses on three
relatively well-researched companies: the Flick concern, Krupp and the Gutehoffnungshütte (GHH).

...while the chapter is focused on occupied factories only, the research-dearth extends to company levels for all but the three named companies, while basically all large German companies were involved in occupied countries.

Company-specific research is a fruitful avenue; it's what underlies Budrass/Scherner/Streb article "Fixed Price Contracts etc." So far, however, such research has only been conducted by researchers seeking to debunk the Speer myth, one of the least-interesting topics in WW2 historiography.

It seems to me that the quantitative effects of the German government's inefficient planning and decision making can only be observed on a case by case basis. There are plenty of examples in USSBS: (1) firms were routinely allocated more steel than they needed for armaments production, and used the excess to manufacture "civilian" goods, (2) the decision in 1941 to cut back army munitions production in 1941 led to a decline in artillery production, and artillery production did not return to its 1941 levels until November 1943, and (3) the Henschel factory example I pasted in my previous comment. There is also the well known poor planning by the Luftwaffe leadership, resulting in wasted effort on failed projects like the Me-210 and He-177, and the overproduction of bombers when it should have been obvious that more fighters were needed. Tooze criticizes Milch for continuing to mass produce the Bf-109 in the final years of the war. If the Bf-109G was as bad as Tooze says, it reflects a failure in Luftwaffe leadership to plan for next-generation fighters and invest in the capital needed to produce them before it was too late.

I can give my input on a quantitative analysis of particular decisions on a case by case basis, like we did for the number of panzers in your eastern front ATL, but I'll leave the sophisticated statistical analyses for the Toozes and Scherners of the world.

But it's still high in 1940-41, which is the only truly interesting under-mobilization period IMO (1942 being probably too late for industrial investment decisions to have averted German defeat).

The point is that Germany needed to export more in 1940-41 in order to obtain raw materials. Aside from the inefficient German bureaucracy, the lack of raw materials and the need to export seems to be the biggest constraint to greater early war mobilization.

This is just the aircraft industry.

This is again, just the aircraft industry and doesn't say anything about Germany.

That's all we were talking about. Again, I agree that more research (especially firm-specific) is needed outside the aircraft industry.

No, I made a general observation about German manufacturing processes, and you responded by pointing out the efficiency of the aircraft industry.

The Allies produced 299,500 combat aircraft against only 65,000 from Germany. Clearly whatever they were doing was working a lot better than what the Germans were doing

That's far too gross a level of analysis to say anything interesting. A (value-based) delta to German wartime production of <1% could have decided the war (at least in the East) had it come in '40/'41. That delta isn't significant to statements like yours.

Actually it's very interesting. It shows that Allied air production was far beyond anything Germany could ever hope to accomplish. The small changes in production we're talking about in this thread through greater mobilization or better efficiency ultimately would not have mattered. Germany would have been overwhelmed. But that's already been discussed to the limit on this forum: viewtopic.php?f=11&t=253448

I agree with you (with Mueller) on the mess point; disagree as follows:

• (1) that the mess has been sufficiently proven in its quantitative/causal effects,
• (2) that firm-level decisions based on short-war expectations seem at least as likely as "mess" to have had decisive impacts,
• (3) even granting messiness, clear dictates from Hitler nearly always had clear directional effects on Nazi bureaucracy and industry. https://en.wikipedia.org/wiki/Ian_Kersh ... 22_concept

As GSWW amply narrates, Hitler's signaled to the bureaucracy and to industry during '39-'41 that he did not prioritize absolute mobilization, that Gauleiter requests for leniency and business objections to rationalization programs (e.g. closure campaign) would be accommodated and would carry no adverse political consequences.

Clear signals from Hitler that he desired maximal mobilization - rebuffing Gauleiters, closing inefficient business, penalizing firm officers for mis-using workers - would have caused industry and bureaucracy to "work towards the Fuehrer" in pursuit of maximal mobilization as happened (at least to a greater extent than hitherto) after the 41/42 Winter Crisis. Whether they work towards a revised Hitler in a messy or efficient manner makes little difference.

I think it's clear they would have worked in a "messy" manner, with the OTL level of infighting, and that this would have limited the effects of greater mobilization. By how much is impossible for any of us to say, it's just a qualitative observation we need to keep in mind when discussing this topic.

Also, the lack of a competent bureaucracy doesn't just limit the overall quantity of armaments output, it also limits the overall effectiveness of the output because there is no clear, rational decision making procedure for analyzing what armaments are needed and in what quantities. Thus, as mentioned above, the incompetence of the Luftwaffe leadership led to the failure to produce enough fighters of sufficient quantity late in the war. And the competition leads to people like Dönitz sucking away resources on pipe dreams like the Type XXI. There might be greater overall output in response to a directive from Hitler, but without a clear overall plan that recognizes the particular types of armaments that Germany needs to win the war, it will ultimately by fruitless. And it isn't plausible that Hitler's intuition will figure out exactly what armaments Germany needs to produce.

Can't emphasize enough that the minimal conditions for German victory are not eliminating aspects of Nazi dysfunction that persisted throughout the war, only eliminating earlier those barriers that Hitler successfully eliminated once he had to take the SU seriously. 1942 production levels were far short of the German production frontier yet 1942 levels in 1940/41 would have made defeating the SU a foregone conclusion.

Note, however, that even after Hitler started to take the SU seriously, it took until November 1943 for Germany to get back to its peak 1941 level of artillery production. That seems like a good quantitative example of the deficiencies in production that can occur even if there is a very clear directive for higher mobilization. https://babel.hathitrust.org/cgi/pt?id= ... up&seq=155

[TheMarcksPlan]

Page 125: "We have already stressed that the introduction of fixed-price contracts in spring 1937 was the most important precondition for sustainable productivity growth in the German aircraft industry, because this regulatory reform motivated armament manufacturers to raise their profits by cost reduction."

I can see the point you were making. Contract form is a necessary condition of efficiency increase but the story of how these increases came about relates to learning effects etc. Same difference, I was imagining a disagreement.

Tooze doesn't say "capital plus". He says contracts were negotiated to cover the firm's costs, and in addition provide the firm with a fixed return on capital employed.

Here's the quote I'm using from WoD:

As we have seen, authorized profits under the existing guidelines were not
in fact calculated as a percentage of costs, but as a percentage of capital
employed. p.565

...does Tooze also say that contracts were negotiated to cover costs? The quote refers to earlier discussion of the issue ("As we have seen") but I can't remember where in WoD that would be and it's a big book...

By "capital plus" I mean that profit was tied to the amount of capital used - thus creating an incentive to be capital-heavy (as German armaments manufacture was).

If non-capital costs were covered as well, that reduces my impression of incentive to economize on recurring costs. But only slightly: A firm would choose between having its non-capital (e.g. labor) costs covered (i.e. zero profit) for inefficient armaments production or to use labor for profitable production elsewhere (e.g. the non-war production that the Todt ministry's audit found pervasive for so-called "armaments workers" mis-allocated by firms).

Have you seen any author besides Tooze who thinks these contracts provided the same (or close to the same) incentive to reduce costs and increase productivity as fixed-price contracts?

That's not my point. I'm arguing that a "capital plus" contractual structure would incentivize capital-heavy production, regardless of whether it incentivized efficiency on non-recurring costs.

As always, I don't care whether other authors have arrived at my conclusions if I find my conclusions supported by evidence and analysis.

Tooze has a BA in economics... I seriously doubt Müller is any less competent in economics and statistics than Tooze. You don't get to be one of the premier scholars in the world by being ignorant of related fields of study.

You can download Tooze's complete CV from his website. His Ph.D. is in economic history/governance from the London School of Economics, his first book on statistics.

Anyway our name-calling about scholars and majors is besides the point I'm making: Tooze/Scherner seek quantification of their points in terms of output and productivity; Mueller does not. As you say:

I'll leave the sophisticated statistical analyses for the Toozes and Scherners of the world.

...and Mueller appears to think the same. I started this thread by defending Mueller against Tooze - I'm more on Rolf-Dieter's side than Adam's but they have different core competencies.

It seems to me that the quantitative effects of the German government's inefficient planning and decision making can only be observed on a case by case basis. There are plenty of examples in USSBS: (1) firms were routinely allocated more steel than they needed for armaments production, and used the excess to manufacture "civilian" goods,

Again my overall position is to defend Mueller from Tooze so nothing to disagree with here in general.

...but point (1) relates to my rebuttal of:

the lack of raw materials and the need to export seems to be the biggest constraint to greater early war mobilization.

Obviously if firms don't divert war-allocated raw materials (and labor) to civilian production, this resolves some constraint. There's general recognition that German armaments manufacture "rationalized" its materials usage.

This is another example of a main thread-theme: that so-called "rationalization" can also be analyzed as "mobilization", that these concepts are not as opposed as portrayed by the Millward vs. Overy/Mueller debate.

It shows that Allied air production was far beyond anything Germany could ever hope to accomplish.

I will politely decline this discussion other than to note I am not convinced and that an AHF thread is not the final word (especially not one locked by the mods).

even after Hitler started to take the SU seriously, it took until November 1943 for Germany to get back to its peak 1941 level

Early ammo peak was 3Q 1940 per USSBS; maintaining that level would have enabled >2x the Ostheer ammo expenditure.

[TheMarcksPlan]

Note, however, that even after Hitler started to take the SU seriously, it took until November 1943 for Germany to get back to its peak 1941 level of artillery production. That seems like a good quantitative example of the deficiencies in production that can occur even if there is a very clear directive for higher mobilization. https://babel.hathitrust.org/cgi/pt?id= ... up&seq=155

Also I've addressed the ammo issue elsewhere in a post based on my own primary research. As discussed there, Germany was fully aware that pre-Barbarossa cutbacks in ammo production would take years to reverse. It makes no sense unless you realize that conquering Russia would take a few months and then there'd be no serious opponents for the Heer for several years.

[historygeek2021]

...does Tooze also say that contracts were negotiated to cover costs? The quote refers to earlier discussion of the issue ("As we have seen") but I can't remember where in WoD that would be and it's a big book...

Yes:

Under the LSOe, prices were set on the basis of estimated costs, plus a rate of profit, normally 5 per cent, calculated not as a percentage of these costs, but on the capital employed.

Tooze, Adam. The Wages of Destruction (pp. 495-496). Penguin Publishing Group. Kindle Edition.

By "capital plus" I mean that profit was tied to the amount of capital used - thus creating an incentive to be capital-heavy (as German armaments manufacture was).

If non-capital costs were covered as well, that reduces my impression of incentive to economize on recurring costs. But only slightly: A firm would choose between having its non-capital (e.g. labor) costs covered (i.e. zero profit) for inefficient armaments production or to use labor for profitable production elsewhere (e.g. the non-war production that the Todt ministry's audit found pervasive for so-called "armaments workers" mis-allocated by firms).

I'm arguing that a "capital plus" contractual structure would incentivize capital-heavy production, regardless of whether it incentivized efficiency on non-recurring costs.

I see now. That is an astute observation that warrants further investigation. With profits calculated on the basis of capital employed, firms were incentivized to load up on capital more than may have been needed to maximize armaments production.

As always, I don't care whether other authors have arrived at my conclusions if I find my conclusions supported by evidence and analysis.

Nevertheless, it is relevant for everyone reading the thread if other authors have analyzed Tooze's claims and agreed/disagreed with them. If you find any such resources, please share them, and I will do likewise.

You can download Tooze's complete CV from his website. His Ph.D. is in economic history/governance from the London School of Economics, his first book on statistics.

It's a history book about the history of statistics in Germany. Tooze is a historian. All of his professorships have been in history. Like most competent academics, including Müller, he is capable of discussing statistics intelligently. What we're both not a fan of is Tooze cherrypicking data to construct a narrative that can make him look like he's made a groundbreaking discovery. Müller, at least in DRZW, simply gives us the facts, something we both appreciate more than contrived statistical studies.

Obviously if firms don't divert war-allocated raw materials (and labor) to civilian production, this resolves some constraint. There's general recognition that German armaments manufacture "rationalized" its materials usage.

This is another example of a main thread-theme: that so-called "rationalization" can also be analyzed as "mobilization", that these concepts are not as opposed as portrayed by the Millward vs. Overy/Mueller debate.

Yes, agreed. But rationalization of materials usage takes time to figure out, so when we get into particular timelines of ATLs, we might be cutting it close on whether they can figure it out in time.

Early ammo peak was 3Q 1940 per USSBS; maintaining that level would have enabled >2x the Ostheer ammo expenditure.

Also I've addressed the ammo issue elsewhere in a post based on my own primary research. As discussed there, Germany was fully aware that pre-Barbarossa cutbacks in ammo production would take years to reverse. It makes no sense unless you realize that conquering Russia would take a few months and then there'd be no serious opponents for the Heer for several years.

The Germans were able to exceed peak 1940 ammo levels by 2Q 1942 (the decision having been made after the Moscow debacle), so maybe the memo you found from the German Armaments Office is actually a good example of German bureaucratic incompetence.

https://babel.hathitrust.org/cgi/pt?id= ... up&seq=193

[TheMarcksPlan]

Yes:

Danke

I see now. That is an astute observation that warrants further investigation. With profits calculated on the basis of capital employed, firms were incentivized to load up on capital more than may have been needed to maximize armaments production.

Firms would be not only capital-heavy but also passive, lacking any incentive to produce more from a given capital stock because profit varied only with that capital stock. Here I'm thinking of a public-private model of economic management in which entrepreneurial initiative - based on higher profit expectations for higher output - is essential. The public-private model was certainly true of American production but also for some aspects of German production (see e.g. Todt's Rings and Speer's concept of self-management). To the extent that German firms couldn't make more profit by producing more from a given capital stock, this critical virtue of an efficient production system was undercut.

It's one reason why I say upthread that Georg Thomas's conception of profit being irrelevant to war production was disastrous. Concededly, it's a Mueller-style insight lacking quantification.

Nevertheless, it is relevant for everyone reading the thread

Right, will share if I find.

Müller, at least in DRZW, simply gives us the facts, something we both appreciate more than contrived statistical studies.

Yes yes... but we also both appreciate Tooze/Scherner-style quantitative analysis. Liars can use statistics but it at least opens them up to exposure as liars. Non-quantified analysis is largely unfalsifiable.

rationalization of materials usage takes time to figure out

...unless the rationalization measure (or is it mobilization measure?) is simply "stop using U-boat steel for your yacht - or visit Himmler's office." Seems a pretty quick fix.

[TheMarcksPlan]

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



Let me explain:

• Spreadsheet works by taking the overall Industry+Transport+Power sectors as the baseline, using Table 5 from USSBS Germany Report. The Industry sector covers basic materials, mining, and metal working. So everything that goes into armaments, including raw materials, falls under it. Column D.
• Column E gives a delta to foreign workers in industry. Here I've assumed 1mil extra by May 31, 1941 and 2mil by May '42. Rate of increase constant.
• Column F is a reference for OTL foreign industrial workers - given in USSBS only on May 31's.
• Column G the ATL:OTL delta for drafted German workers. In some ATL's (for example), more Germans are available to Wehrmacht earlier due to foreign labor.
• Column H gives total ATL industrial labor force.
• Column I gives a % delta to industrial labor force - ATL:OTL.

Next is the analytical group:

• Column N gives the OTL % of industrial production that was armaments production (from Eichholtz).
• Column O restates our ATL industrial labor force in % of raw bodies.
• Column P postulates a value for new foreign worker productivity as a % of OTL baseline workers. This is initially low but gradually rises to OTL ~70% of German workers (then rises slightly above it because not all OTL workers were German).
• Column Q specifies the % of additional output going to armaments. This is high but not quite 100% because I'm assuming some output for consumption by foreign workers.
• Column R then gives additional production by additional foreign workers (product of O * P * R ) as a fraction of total armaments output (Column N).

As you can see, we can rapidly achieve 10% higher armaments output (October-November '40 in this version) even while assuming a gradual ramp-up of worker recruitment and low initial worker productivity.

This will collide with many folks' intuition but should not: This is exactly what happened after the Moscow/Winter Crisis when Germany began mobilizing foreign workers intensively. Because armaments output was only 16% of industrial production in 1941, by devoting a relatively small delta of total resources to armaments production, Germany was able rapidly to escalate its armaments output in 1942.

A 50% delta to armaments production required only 8% of industrial output.

By mid-42, Germany can be producing >50% more armaments than OTL if it has 2mil more foreign workers.

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

We must realize that for Germany, armaments production was a small part of military expenditure. This can be seen readily in a graph from Mark Harrison in "Resource Mobilization for WW2":



Were the military budget only arms and men, Germany spent 44% of military budget on arms.

But food, transport, accommodation, non-arms equipment (field kitchens, tents, uniforms, shoes, bridging, general engineering, etc.) was at least as great for Wehrmacht as was pay, especially considering relatively poor soldier pay (recall that military labor wasn't sold on a free market).

Once the Wehrmacht's manpower crested (around latter '42), most increases in military expenditure went to armaments production rather than pay and non-arms equipment/services. This is another simple explanation for the "armaments miracle."

[History Learner]

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



Let me explain:

• Spreadsheet works by taking the overall Industry+Transport+Power sectors as the baseline, using Table 5 from USSBS Germany Report. The Industry sector covers basic materials, mining, and metal working. So everything that goes into armaments, including raw materials, falls under it. Column D.
• Column E gives a delta to foreign workers in industry. Here I've assumed 1mil extra by May 31, 1941 and 2mil by May '42. Rate of increase constant.
• Column F is a reference for OTL foreign industrial workers - given in USSBS only on May 31's.
• Column G the ATL:OTL delta for drafted German workers. In some ATL's (for example), more Germans are available to Wehrmacht earlier due to foreign labor.
• Column H gives total ATL industrial labor force.
• Column I gives a % delta to industrial labor force - ATL:OTL.

Next is the analytical group:

• Column N gives the OTL % of industrial production that was armaments production (from Eichholtz).
• Column O restates our ATL industrial labor force in % of raw bodies.
• Column P postulates a value for new foreign worker productivity as a % of OTL baseline workers. This is initially low but gradually rises to OTL ~70% of German workers (then rises slightly above it because not all OTL workers were German).
• Column Q specifies the % of additional output going to armaments. This is high but not quite 100% because I'm assuming some output for consumption by foreign workers.
• Column R then gives additional production by additional foreign workers (product of O * P * R ) as a fraction of total armaments output (Column N).

As you can see, we can rapidly achieve 10% higher armaments output (October-November '40 in this version) even while assuming a gradual ramp-up of worker recruitment and low initial worker productivity.

This will collide with many folks' intuition but should not: This is exactly what happened after the Moscow/Winter Crisis when Germany began mobilizing foreign workers intensively. Because armaments output was only 16% of industrial production in 1941, by devoting a relatively small delta of total resources to armaments production, Germany was able rapidly to escalate its armaments output in 1942.

A 50% delta to armaments production required only 8% of industrial output.

By mid-42, Germany can be producing >50% more armaments than OTL if it has 2mil more foreign workers.

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

We must realize that for Germany, armaments production was a small part of military expenditure. This can be seen readily in a graph from Mark Harrison in "Resource Mobilization for WW2":



Were the military budget only arms and men, Germany spent 44% of military budget on arms.

But food, transport, accommodation, non-arms equipment (field kitchens, tents, uniforms, shoes, bridging, general engineering, etc.) was at least as great for Wehrmacht as was pay, especially considering relatively poor soldier pay (recall that military labor wasn't sold on a free market).

Once the Wehrmacht's manpower crested (around latter '42), most increases in military expenditure went to armaments production rather than pay and non-arms equipment/services. This is another simple explanation for the "armaments miracle."

Excellent work! Also increasingly confirms my suspicion that Vichy France ended up being a net negative for the Germans.

[TheMarcksPlan]

increasingly confirms my suspicion that Vichy France ended up being a net negative for the Germans.

How so? Do you mean Hitler's efforts to court Petain/Laval as Allies, which arguably caused reluctance to increase exploitation?

If so, true but not it doesn't render Vichy net negative IMO. Vichy provided Nazis with a police and workforce that was disturbingly adept at maintaining order and production. Same was true in most of the West. Absent a collaborating government, France might have produced along the lines of Eastern Europe where Hitler destroyed civil institutions and reaped much less in absolute and % GDP terms.

Had Hitler taken the SU seriously, however, the relative importance in 1940 of courting an anti-British ally versus an anti-Soviet labor and production source would have altered - as it did after Moscow.

Thanks for the kind words, btw.

[History Learner]

How so? Do you mean Hitler's efforts to court Petain/Laval as Allies, which arguably caused reluctance to increase exploitation?

If so, true but not it doesn't render Vichy net negative IMO. Vichy provided Nazis with a police and workforce that was disturbingly adept at maintaining order and production. Same was true in most of the West. Absent a collaborating government, France might have produced along the lines of Eastern Europe where Hitler destroyed civil institutions and reaped much less in absolute and % GDP terms.

Had Hitler taken the SU seriously, however, the relative importance in 1940 of courting an anti-British ally versus an anti-Soviet labor and production source would have altered - as it did after Moscow.

Thanks for the kind words, btw.

To clarify, are you saying no Vichy is worth it in terms of getting more resources in the 1940-1941 timeframe for the USSR or saying a Vichy which Hitler isn't trying as much to court? If the former, why do you consider it Eastern level of resources, given the examples of Belgium and the Netherlands?

[TheMarcksPlan]

are you saying

I'm saying that not having Vichy - the "France fights on" hypo you've suggested elsewhere - would have made getting labor and outsourced production (which was significant) from France very difficult.

Taking Vichy as a given, the relatively easy occupation of the early years was, if motivated by a desire to gain an anti-British ally, not wise. Had Hitler taken the SU seriously, his choices in '40/41 would have been different. He would have put the screws to the labor force earlier, just as he did later after Moscow.

The point about Eastern Europe is that everywhere in the West the Germans had a coherent state apparatus that largely preserved order and production. It's reasonable to suppose, IMO, that absent those state apparatuses production (German exploitation of it more importantly) would have been closer to Eastern European levels.