The Downside of Imperial Collapse
When Empires or Great Powers Fall, Chaos and War Rise
AFTER six months of war the riddle is still the same: Can the Allies defeat Nazi Germany by their blockade, or can she become self-supporting in safety behind the Siegfried Line? Strategists and statisticians are busy checking and rechecking the facts and estimating the potentialities. Nobody can prove what the final issue will be. But one can ascertain the range of probabilities.
At first sight it seems as though history were repeating itself in a cycle of only twenty-five years. Again Great Britain and France are fighting Germany on the Western Front; again they are trying to throttle her by a naval blockade; again Mitteleuropa is in the German grasp. But at closer range the contours look different. In 1914 the war came as a surprise after an era of forty-four years of peace. A large accumulation of invisible reserves was ready for mobilization by both sides when the struggle began. This time, though Nazi Germany has built up and is operating a highly perfected totalitarian fortress economy, she lacks the dormant reserves normally carried over from a long era of peace. Further, Alsace-Lorraine, Belgium and northern France are not, this time, in her hands. Even the Saar coal and iron region lies almost idle, within range of the Maginot Line guns. Offsetting these disadvantages, the whole German machinery of planning, rationing and requisitioning became fully operative from the first day of war. This happened last time only after the war had been going on for two years. Our conclusion must be that although Germany is weaker today in economic assets than she was in 1914, she is relatively stronger in utilizing them. Her substance is smaller, but her effective exploitation of it is greater.
To answer the question whether Germany is blockade-proof, as her leaders claim, we must check over the critical items in her economy. She now has at her disposal, counting the populations of Austria, Czecho-Slovakia and German-controlled Poland, an industrial labor force of some 35 million employed persons. Her aggregate of industries has a larger export capacity than that of Great Britain.[i] These industries are highly versatile and adaptable. They are located near rich coal deposits, they are supplied with abundant electric power, and the plants are up-to-date. The army of workers is highly skilled, and is directed by the necessary technicians. A unified system of railways, supplemented by partly finished super-highways, unites the country in all directions.
Germany's rise from an agrarian country to the position of England's chief industrial competitor was not achieved without incurring a deficit in foodstuffs. That is why ever since the World War there has been one drive after another in Germany to increase domestic food supplies. Pampered by the Government, German farmers today are producing more grain and grass, more sugar beet and potatoes, more milk and pork than ever before. Under peacetime conditions, about 87 percent of all the food consumed in Germany is now grown on German farms, compared with some 75 percent in 1914. The chemical industry provides a tremendous supply of fertilizer at low cost. The nitrate industry is on an export basis. The World War pitifully depleted the German cattle herd; in 1920 there were 20 percent fewer cows than in 1913, a decrease of 2 million head. But today the cattle situation is better than ever before. The number of pigs and the slaughter-weight of pigs reached an all-time high in 1939. German agriculture may be said to be in as good trim as German industry.[ii] After the successful Blitzkrieg in Poland the most productive parts of that country agriculturally and industrially (except the oil wells) fell to Germany.
From the day the Nazis began to menace Europe with war various foreign experts have been busy comforting frightened nations by pointing out that Germany was financially weak, was bound to go bankrupt soon, and that this would be followed rapidly by the deterioration of the political situation. If anything has become increasingly clear in the complex Nazi riddle it is the nonsense of all this complacent self-deception. Granted that Germany's finances are greatly strained, it remains true that her financial situation will not interfere seriously with her capacity to live through a long war. The public debt has been rising at an accelerating rate ever since the Nazis came to power; but the tremendous increases in production and in tax revenues have permitted the Government to avoid a crisis.
A major part of the rising public debt has gradually been converted from short-term to long-term paper by diverting a large fraction of private and industrial savings into the state coffers. To be sure, the public debt continues to rise, and at an increasing rate. By the middle of the summer of 1939 the Reich, the states, the provinces, and local communities had incurred a debt estimated at around 60 billion Marks; of this, more than 40 billion Marks were publicly recorded obligations of the Reich alone. In August 1939 the Reich indebtedness increased by 1.3 billions; in September by another 1.4 billions. If we take 1.5 billions as the present normal monthly wartime deficit, then the debt of the Reich by the autumn of 1940 would amount to 58 or 60 billions. This means that the public debt would total at least 80 billion Marks, just about one year's national income at the recent high line.
Yet in spite of this trend, which naturally looks thoroughly unsound to a financier, it would be most misleading to assume that Hitler will lose the war because he is "bankrupt." His economists are now introducing a tremendous new levy on labor incomes by paying wages partly in "saving scrip" instead of in cash. This scrip can only be deposited in savings accounts, whence it is promptly drafted for government obligations. The government balance sheet may be improved also in many other ways. The interest rate on bonds may be reduced arbitrarily, or the total volume of outstanding bonds may be shrunk by forcing the holders to exchange new bonds for old at a ratio of one for two -- or any ratio. In other words, the Government can default on its bonds whenever this seems expedient. The Führer may even call together bank presidents and industrialists to celebrate some national sacrifice by making a magnificent bonfire of bonds -- with decorations handed out for every 100 millions Marks' worth burned.
According to Hitler, Germany from March 1933 to the summer of 1939 spent 90 billion Marks for armaments, or 18 billion Marks a year. This stupendous sum absorbed all of the tax and duty revenues of the period; and 20 billion Marks had to be borrowed in addition. No wonder that in 1938 a higher national income than in 1928 left the population with a 10 percent smaller money income for consumption, and an even smaller real purchasing power. And yet, no internal financial dilemma will wreck the Nazi machine. Financial wizards can continue to juggle money from private into public accounts. But bookkeeping cannot supply the country with physical goods which are missing. The weak points in Germany's economic and financial situation are her import requirements and the means at her disposal to pay for them.
During the World War, the food shortage in the long run had a disastrous effect on public morale and army stamina. Today the situation is very different. In the present war, food is the dictator's least cause for headache. Ever since the country was put on a definite war footing in 1933 no efforts have been spared to prepare the food supply to meet the supreme emergency. The farmers of Germany, Austria, Czecho-Slovakia and western Poland will probably produce sufficient bread grain, potatoes, meat, milk and summer vegetables; and if additional feed grain should be needed, it presumably can be imported from the Balkans. Large stocks of bread grains in particular were accumulated before the war broke out. The only really important gap between supply and demand is in the domain of edible and industrial fats.
In recent years Germany has imported the equivalent of over a million tons of fats and oils. Several hundred thousand tons of oils were imported in the form of 2 million tons of oilseeds, which, along with the oil, carried twice as much feed protein. Half of the oilseed and oil came from Manchuria, and the rest from the Philippines, the Netherlands East Indies and Africa. These imports are now cut off by the blockade. Some 80,000 tons of whale oil were caught in the Antarctic by a newly-built whaling fleet. These ships are now tied up in German ports.
What is the food dictator's recipe for meeting the resulting shortage? It is as follows:
Coal byproducts have been developed as substitutes for soap. At the same time, soap consumption has been throttled down by rationing to a fraction of what it was in peacetime. The two measures together will save from 300,000 to 400,000 tons of fats and oils a year. Milk consumption has also been decreased by rationing, hence more milk is churned to butter. All edible fats will be rationed severely. To supplement the domestic output of butter, lard and bacon these commodities are purchased in Holland, Switzerland, the neutral countries around the Baltic, and in the Balkans. More potatoes will be planted in Poland; and Polish potatoes and grain surpluses will be used to fatten hogs. Contracts for growing rapeseed and soybeans for German account are being offered to Balkan farmers. Some modest imports of oilseed are expected from Russia. In sum, a thorough check-up on all the available sources of imports and on the prospects of domestic agriculture indicates that the deficit of a million tons of fats will be bridged over somehow, though with a very unpleasant shortage of soap and a somewhat less severe strain on supplies of edible fats.
The only remaining problem, that of supplying the German farmer with sufficient feed protein for the livestock herd, has already been solved to a considerable degree. Instead of feeding livestock with natural plant protein from oilseeds, bran or yeast, or with animal protein like fish meal, blood meal or meat scraps, they are fed a mixture of natural products and synthetic components of proteins, like urea and amino acids. These are derived from the air in the huge "Leuna Works," which also produce the bulk of the nitrogen for fertilizer and gunpowder. The cows, sheep, pigs and horses may not like this bill of fare; but in an emergency "the devil feasts on flies."
In comparison with the fairly satisfactory food situation, the shortage of industrial raw materials is very troubling to the German economic general staff. True, Germany's industrial capacity is one of her great war assets; but since only 65 percent of the necessary raw materials are produced domestically and in her occupied territories, her staying power depends on an ability to procure the balance by shifting purchases from blockaded areas to those which are still accessible.
The catalogue of raw materials which Germany must import includes: (1) ores and metals; (2) petroleum, gasoline and lubricants; (3) wood and wood pulp; (4) textile fibers; (5) rubber. In 1938 various countries which now are inaccessible supplied large portions of her total imports, as follows: France: iron ore, 23 percent; copper ore, 24 percent; phosphate ore, 30 percent; pig iron, 38 percent. United States: phosphates, 50 percent; sulphur, 31 percent. Spain: pyrites, 62 percent; pig iron, 12 percent. British Empire: copper, 35 percent; nickel, 48 percent; aluminum, 40 percent. Bolivia: tin ore, 97 percent. British and Dutch Empires: tin, 88 percent.
If peacetime consumption levels are to be maintained, all these purchases must be shifted to accessible continental states and Russia. The prospects are that by a great effort Germany can obtain most of what she needs of these ores and metals, except copper. Iron ore will be scarce, but by working poorer ores, increasing imports from Sweden, utilizing better the Austrian and Slovak ores, and leaning more on scrap many gaps may be filled. Domestic production provides 10 million tons and Swedish imports another 10 million. The remaining necessary 10 million may in part be scraped together from Belgium, Luxembourg and Norway, and in part supplanted by domestic scrap iron or by pig iron imported from neighboring countries. Copper will be largely replaced by aluminum, produced from Hungarian and Jugoslav bauxite. Furthermore, there are considerable war reserves of certain materials not required in large bulk, such as the nonferrous alloys. Some 750,000 tons of manganese ore may be imported from the Ukraine.
The situation in textile fibers, timber and rubber presents less of an emergency. Cotton and wool are no longer available from their former sources, but various artificial cellulose fibers replace much of the former imports. Recovery of every thread of existing wool, cotton, flax or hemp scrap will help a bit; so will various small imports. Meanwhile, all southeastern Europe has already begun to increase their flocks of sheep and their acreage of flax and hemp. Radical rationing of civilian consumption will close the gap. Since both Ersatz fibers and nitrocellulose gunpowder are made from wood, Germany's consumption of timber is bound to increase. But the conquered territories have large forest areas which can be over-cut, and the Baltic countries and Russia can supply the rest. There remains rubber. During the World War, too, Germany was cut off from rubber supplies; yet she fought for four years. This time her chemists have conquered rubber, as they earlier conquered indigo, nitrates, silk, cotton, flax, petroleum, coffee, quinine, and soap. According to the latest commercial news, synthetic rubber called "Buna," carrying German patents, is being produced from coal or petroleum and will soon be on the United States market. Germany formerly used about 120,000 tons of rubber and rubber equivalents per year, about two-thirds being imported. German Buna production probably now reaches about 60,000 tons a year. The deficit of some 60,000 tons must be met by purchases from the restricted supplies of adjacent neutrals, by a hurried expansion of domestic Buna production, and by rationing.
Next to the iron shortage the most crucial German problem is the shortage in petroleum, gasoline and lubricants. For the twelve months preceding the outbreak of war, Germany consumed in the neighborhood of 8 million tons of oil in its various forms, derivatives and substitutes. As the result of intensive research and tremendous efforts, domestic production of motor fuel from German oil wells, hydrogenated coal, cracked crude oil, compressed illuminating gas, liquid gas, benzol and spirits, supplemented by the use of wood as gasoline engine fuel, reached in all the equivalent of about 3½ million tons of oil. The other 4½ million tons were imported, close to 80 percent of it from North and South America. If we assume that Germany can keep her oil consumption at the 1938-39 level, she would have to obtain some 4 million tons on the Continent. If Rumania supplied 3 million tons, the Russian-occupied Polish wells might take care of the rest. This, however, is the shining face of the coin. Its reverse side (in case of active warfare) will be shown later.
In all surveys of this sort Soviet Russia is an enigma. But a careful check-up, item by item, shows that her own needs and transport difficulties will preclude her helping Germany on a large scale even if she wished. Collectivization abolished horses in Russia; she now is dependent on gasoline and can spare less for export. The transport problem involved was indicated by Professor Bruce Hopper in these pages recently.[iii] During the peak year of German-Russian trade, 1931-32, Russia exported to Germany only 400 million Marks' worth of all sorts of goods. The minimum of what Germany needs today is at least ten times as great. The calculations in the present article therefore excluded Russia as a source of supply likely to weaken the blockade except to an insignificant extent.
We must complicate the calculation once again before we approach an answer to our great riddle. Everything said so far has been based on the assumption that Germany's total requirements of food, feed and raw materials can be kept within the limits of actual prewar consumption. This means that Germany will continue to watch the ramparts of the Siegfried Line, maintain the mine fields and the patrol of the North Sea, and sink as many vessels as possible in British waters by attack on, above, or below the surface. From the standpoint of economic strategy, this is the method of warfare best suited to the precarious German situation. Submarine and aërial attacks on merchant vessels and mine sowing from airplanes do not cost much in raw materials. With the use of private automobiles reduced to 15 percent of the prewar traffic, and with practically all ocean shipping idle, enough gasoline will be saved to supply the air squadrons needed for this limited activity so long as the prewar rate of supply can be maintained.
But the whole situation changes if this war -- the "second bore war," as one Englishman called it -- becomes a really large-scale struggle on land and in the air. Competent German authorities estimate the total oil requirements in land operations comparable with those of 1917-18, and on a front only 600 miles in length, as between 12 and 20 million tons a year. By dint of supreme efforts at home and in buying abroad, as indicated above, it may be possible to secure the normal peacetime requirements of 8 million tons. To provide an additional 5 million tons per annum seems impossible. To find an additional 13 million tons is out of the question. Merely on the score of oil, then, Germany obviously is incapable of conducting full-scale land operations over an extended period.[iv] Furthermore, great battles, requiring long artillery preparation and heavy barrages, would exhaust the coal, steel, iron, cannon and ammunition industries. Germany therefore must avoid them.
The question remains why England and France have avoided them so far also. The answer is partly that it is a slow business to get a democratic country with a more or less free economic system ready for war. Both nations are still girding themselves for war, and every day adds momentum to their efforts. The more time they have to build up a clear superiority, the more clearly is their victory assured. And yet, if the war is not to drag on for many years, a decision must be sought on the battlefield. The Allies may choose to hasten the shortage of certain raw materials in Germany by forcing her to engage in a dreaded two-front war by attacking her through the Balkans.
As we have seen, Germany theoretically can manœuvre through her troubles provided she can obtain certain imports from accessible countries. The practical question is how she can pay for purchases there. Here again it must be realized that a ruthless totalitarian régime can achieve what a less desperate form of government would rule out as impossible. The Nazis can pay for imports in various ways, mainly through stimulating their export industries. Increased purchases by Germany create more purchasing power for German goods. To be sure, the total volume of exports to nearby neutral countries, even if forced to the utmost, will still leave a wide gap of unpaid bills if German import needs are to be satisfied. But in addition to paying in goods, Germany has for emergency use a hoard of gold and foreign exchange which may amount to 600 or 700 million Marks. A more important asset consists of the German capital investments and properties abroad, which may be worth 5 to 6 billion Marks. Ships may be sold; art treasures also. Promissory notes will be offered. As a last resort, clearing accounts can simply be overdrawn. Faced with the threat, "Deliver, or else!" most Balkan countries will feel obliged to yield so long as the Allies are not able to provide adequate military support in the emergency that might follow a refusal. To sum up, it is improbable that Germany will face really crippling difficulties in buying raw materials for the next two years.
These shifts mean the transfer of much of the task of transport from ocean shipping lanes and ports to the German railroads. In the single year between Munich and the invasion of Poland, the Reichsbahn expanded its lines from 34,000 miles to 45,000 miles -- more than the French and British mileage combined. The Polish railway stations, depots and bridges, and a good part of the tracks, were systematically demolished by the invading German armies, and had to be rebuilt. In Germany proper, the railways have been overstrained for years by party rallies, army transport, the high-speed construction of the Westwall, and the reshuffling of industries under the Four-Year Plan. If, contrary to expectations, Russia should really attempt to ship large amounts of oil, grain, oilseed, lumber or ore into Germany, this will add to the task of the German railroads. And the difference in gauge requires the reloading of every freight car where the two systems connect. The railways may well prove the point of least resistance in the whole German economic system.
Along with this crucial weakness another factor not in itself economic deserves attention. As the World War showed, economic distress does not lead to the sudden collapse of a great industrial nation. There merely is a gradual accumulation of minor frictions and sufferings. When and where they will begin to undermine the foundations first is hard to foresee. What is sure is that the ceaseless strain finally weakens the resistance of the toughest people. From 1933 to 1939, Hitler and his henchmen whipped Germany into a state of super-preparedness for war. For seven years the whole nation has lived in a state of mobilization, pepped up with the tonic of propaganda and honors, judiciously interspersed with doses of terror. Which is to say that the Nazis have been wearing out men as well as machines.
The majority of the responsible and sane Germans who toil to exhaustion to keep the wheels of the Third Reich going must consider and reconsider, waking and in their nightmares, the question how Germany can avoid fearful disaster at the end of, at the most, two years. They see their country in a trap. If Germany decides to outlast the Allies in a sit-down war of nerves, the final economic collapse can be postponed and the men in the army will, for the time being, be spared. But then the war will be lost nevertheless. In the third or fourth year the British and French empires will be able to crush the Nazis by superior military power. If the Nazis decide to try a Blitzkrieg thrust against England through Holland, or against France through Holland and Belgium or Switzerland, or directly through the Maginot Line, or drive in desperation into the Balkans, they will find themselves strangled before long in the network of their economic artificialities. A major offensive lasting several months can only end in stoppages, breakdowns and collapse.
In conclusion, then, it seems a fair guess that, viewed solely from the economic angle, Nazi Germany is relatively blockade-proof up to two years, or a bit longer, provided her strategy continues to be that of a defensive war conducted by her relatively small navy and by airforce attacks upon England's lines of supply. It also seems that this situation will play eventually into the hands of the Allies. They can wait until Germany's internal deterioration, of which the first signals already show in the railroad system, forces her either into revolution or to make peace on the Allied terms. However, unforeseeable shifts in alignment may impel the Allies to decide the war earlier by breaking German resistance through the use of overwhelming military superiority. After all, it was Waterloo and not Trafalgar that delivered Europe from Napoleon.
[i] The German steel output in 1938 was 120 percent higher than that of Great Britain and half that of the United States.
[ii] The conquest of Austria and Czecho-Slovakia has given Germany important new agricultural and forestry resources, but they do not amount to much one way or the other on the food balance-sheet, because Czecho-Slovakia had a small surplus and Austria a small deficit.
[iii] "How Much Can and Will Russia Aid Germany?" FOREIGN AFFAIRS, January 1940.
[iv] On the other hand, it is possible that in a long period of sit-down warfare Germany might save sufficient oil and artillery ammunition to launch a short but terrific thrust at a certain weak spot in the enemy's lines or a dash through neutral countries. A Blitzkrieg lasting only a few weeks is the military strategist's only answer to important scarcities in supplies.