Military, strategic, and power-political arguments for expansion were underpinned by economic considerations. By late 1938, the pressures of the forced rearmament programme were making themselves acutely felt. The policy of ‘rearm, whatever the cost’ was now plainly showing itself to be sustainable only in the short term. Bottlenecks were building up in crucial areas of the economy.26 Lack of coherent and comprehensive economic planning exacerbated them. Expansion into Austria, with its well developed industrial areas around Vienna, Steyr, north Styria, and the Sudetenland, a relatively well industrialized part of Czechoslovakia, had eased matters somewhat. The unemployed from these additions to the Reich were swiftly put to work. New sources of skilled labour became available. Existing industrial plant could be extended into armaments factories, as in the huge steel complex erected at Linz by the state-run Reichswerke Hermann Göring. Iron ore from Austria and high-quality lignite from the Sudetenland were valuable for synthetic fuel production. The Sudeten area also yielded stocks of tungsten and uranium ore, which Germany had not previously possessed.27 In economic terms, expansion in 1938 had given German industry a significant boost. But further expansion was necessary if the tensions built into the overheated armaments-driven economy were not to reach explosion point. The Four-Year Plan had been implicitly directed at offloading the costs of German rearmament on to the areas of Europe to be exploited after a successful war.28 By 1938–9, it was absolutely evident that further expansion could not be postponed indefinitely if the economic impasses were to be surmounted.
When Göring met the members of the Reich Defence Council (Reichsverteidigungsrat) at its first meeting on 18 November 1938, he told them: ‘Gentlemen, the financial situation looks very critical.’29 The following month, Goebbels noted in his diary: ‘The financial situation of the Reich is catastrophic. We must look for new ways. It cannot go on like this. Otherwise we will be faced with inflation.’30 Indeed, the massive rearmament programme, stimulating increased demand from full employment, but without commensurate expansion of consumer goods, was intrinsically inflationary.31 Price controls and the threat of draconian punishment had contained inflationary pressures so far. But they could not be kept in check indefinitely. In early January 1939, the Reichsbank Directorate sent Hitler a submission, supported by eight signatories, demanding financial restraint to avoid the ‘threatening danger of inflation’.32 Hitler’s reaction was: ‘That is mutiny!’ Twelve days later, Schacht was sacked as President of the Reichsbank.33
But the Cassandra voices were not exaggerating. Nor would the problem go away by sacking Schacht. The insatiable demand for raw materials at the same time that consumer demand in the wake of the armaments boom was rising had left public finances in a desolate state. By the time of Schacht’s dismissal, the national debt had tripled since Hitler’s takeover of power. The Ministry of Economics concluded that it would simply have to be written off after the war. Hitler was aware of the problem, even if he did not understand its technicalities. He ordered a reduction in the Wehrmacht’s expenditure in the first quarter of 1939 — an order which the army simply ignored.34 A way of addressing the problem through more conventional fiscal policies and a reversal to an export-led re-entry into the international economy could not, of course, be entertained. The decision to reject such a course had been taken in 1936. There was now no turning back.
