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But it took time to solve the crisis. In the meantime, 1934 was a difficult year. Millions were still unemployed. The supply of consumer goods was uncertain. The harvest was awful, but stocks from the previous year covered that; nonetheless, the RNS fixed higher food prices. The Gestapo registered a gloomy and apathetic mood in the public with minor expressions of dissent appearing. Goebbels ran a campaign against “rubbishers and critics” but it proved counterproductive.
This reflected on the power struggle within the regime. Conservatives were dissatisfied while leftist elements demanded a more populist direction and criticized the RWM. Internal tensions burst out in the Night of the Long Knives, through which the main wing of the party cemented its power.
1936-37
Hitler now had an orderly house: unemployment was low, the economy was booming and there was little dissent. Compared to the Soviet purges and Japanese and Italian warmongering, Germany had a positive international image and this was boosted by the Olympics. International trade recovered and Western powers tried to restore international cooperation.
A memorandum by Carl Goerdeler expounded on an alternative path Germany could now take, and a Reichsbank paper shed more light on some of its proposals. It would now be possible to devaluate the Reichsmark. On the short term this would produce unemployment, but the byzantine trade bureaucracy would become unnecessary and ill will over the subsidies would end. Upon recovery German goods could compete on equal terms on the world market. A devaluation, however, would require fiscal discipline, ruling out an acceleration of the pace of rearmament. Now in line with other powers, Germany could, at the cost of concessions on matters such as Jews, the Church and the rule of law, reap the fruits of closer relations with the West and even usher a new age of international cooperation.
Tooze argues even the concessions would be unnecessary because of appeasement. A related course was followed by France, which devalued.
Instead, Hitler chose to double down on his present course, for the same reasons he had chosen to take it in the first place. Compromise was impossible and Germany must be ready for a war around 1940. The Rhineland was remilitarized. The Wehrmacht drafted more ambitious expansion plans and resources would be secured through the Four Year Plan. With its own bureaucracy and funding, it’d increase the production of iron, synthetic fuel and the new technology of synthetic rubber. Goering was placed in charge, and this is when he gets relevant in the book. Interestingly enough, until then he had a reputation as a conservative, pro-business figure and was resented by populists.
The first faults appeared between militarists and pro-business elements who feared the economic effects of rearming too fast. Schacht began to lose favor.
Though the Four Year Plan would replace imports that would still take time and the Wehrmacht demanded more and more foreign exchange in the meantime. In the metallurgic industry, a crisis in steel supply was imminent, so production for the domestic market was reduced in November. This would produce inflation, so prices were suppressed and a steel rationing system created in the following months. The industry clashed and lost to Goering on expanding processing capacity for iron ore.
Imports were still very hard to come by and the Wehrmacht received a smaller ration than it wanted. Lacking resources, armaments output stagnated. The military buildup had hit a wall.
In November a more immediate solution to steel scarcity was found in the decision to maximize the use of existing capacity. Goering began to conscript private holdings of foreign assets as a non-renewable source of foreign exchange.