Industrialized Feudalism

I recently finished Ian Kershaw’s two-volume biography of Hitler—Hubris and Nemesis—and so I’ve naturally been thinking about WW2 a lot. As my wife can attest, I’m willing to talk anyone’s ear off about the intricacies of spring 1942 logistics in the Ukraine. But one thing this book solidified to me was the degree to which Nazi Germany was organized in quasi-feudalistic terms.

What is so fascinating about the National Socialist state is that within it existed basically two coexisting modes of government. On paper, much of the older machinery of statutes, courts, and ministries continued to operate until the very end, even after the Reichstag Fire Decree and Enabling Act destroyed the democratic Weimar system. But layered on top of that—or lurking beneath it, depending on your taste—was the party apparatus.

Ernst Fraenkel, a German labor lawyer until 1938 wrote about this idea in The Dual State, published in 1941. He called the surviving sphere of rules, courts, and predictable legal administration the “normative state” and distinguished it from the “prerogative state,” which operated above and around ordinary law, unconstrained by its guarantees. These categories though didn’t map to any exact, legible, system but were instead two modes of rule that could exist simultaneously in the same institutions.

To concretize this, let me give you two examples. The first is “Organisation Todt,” named after its director, Fritz Todt, an engineer. This organization was like a construction firm and would thus ~compete~ with the traditional government agencies, and other personalized organizations, to try and, as Kershaw likes to frame it, “work towards the Führer”—or try and achieve the goals he would have wanted to achieve if he was there himself. Todt started in 1933 as Inspector General for German Roadways, where he built the Nazi additions to the autobahn system. The Organisation Todt proper was founded in 1938 to build the Westwall, and from he essentially all military fortification work, up through the Atlantic Wall. In 1940, Todt personally collected another hat as Reich Minister for Armaments and Munitions.

On paper, each of these positions were distinct roles, but in practice they were more analogous to tendrils of Todt’s personal power. Thus, when he died in a plane accident in 1942 and was replaced by Speer, what Speer inherits is not a position as much as Todt’s entire web of responsibilities and power.

The domain of responsibility for the organization wasn’t something discrete like “construction,” but instead broadly defined as those areas where Fritz Todt, and later Speer, were the “best” administrators, and where their personal skills were “best” aligned with Hitler’s objectives.

Another example of one of these personalized organizations was Reichswerke Hermann Göring, a mega-corporation set up under Göring, one of Hitler’s inner circle and a WW1 fighter pilot. The corporation was both a part of the government and also the personal fiefdom of Göring, under which he came to control a huge share of the country’s steel and iron production. The motivation behind it was that the private sector refused to invest in the use of German iron ore, which was inferior to the ore available on the international market, but which would be essential to have built production around during a hypothetical war. Since the Nazis intended to wage said war, or at least bluff their willingness to fight it, they needed to begin preparing immediately.

This meant the state was presented with a genuine problem. The more they directly meddled with the market, by for example putting a tariff in place, the more they simply damaged steel production. But if they tried to create a regular state-run enterprise, it would face all the same problems any huge bureaucratic SOE does. Their solution was to instead give Göring access to the financial reservoirs of the state, and the corruption and wheel-oiling his close relationship with Hitler allowed, to simply build his own steel company. Göring was chosen for this role because he had a sincere knack for “getting things done” economically, and his tendency to conspicuous corruption was seen, in this case, not as a detriment but instead as a boon. If Göring succeeded in consolidating the Reich’s ore and steel production, the prize was an industrial empire with all the standing, patronage, and skimming that came with it. Whereas if he ran the company into the ground, he would face Hitler’s wrath and impoverishment. Talk about a financial incentive!

But Göring wasn’t only in charge of reorganizing German steel production. He was also put in charge of the Four Year Plan—the shifting of the economy towards autarky—as its Plenipotentiary from October 1936, a role he was handed for basically the same reason as previously. And the air force, which he had a particular passion and interest in.

Since you still had a “normal” government, the existence of these personalized fiefs naturally created overlapping and competitive systems of responsibility, where everyone was trying to win the approval of Hitler. This meant that rules would vary enormously from region to region based on who was perceived to best achieve the goals of the regime. From Hitler’s perspective, it both allowed a Darwinian system of competition to select who should lead what, as well as allowed him, as the adjudicator, to hold an indispensable role in resolving any conflict.

What is truly incredible is that, at least at first, it worked! It is popular to be a contrarian against this fact and argue that it was all a mirage, but the empirical facts are indisputable. Between 1932 and 1939, Germany went from being a quasi-failed state to one of the most powerful countries in the world. Of course, this transformation was unsustainable within the confines of Germany, and that was explicitly understood by the regime’s participants. Expanding economic dominance and gaining an ~empire~ was the active goal of every major participant, with the only real disagreement being the exact steps to be followed, and where that empire should be located.

So what I’m not claiming here is that the German economic explosion in the run-up to WW2 represented some steady-state policy playbook a developing country should run to become rich. Rather, it was a high human and physical capital society running itself raw in search of expansion and reclaiming its status as a great power.

The reason it worked is the reason it failed.

For a system like this to work, the key question is how you adjudicate the “winner.” As I mentioned earlier, in the case of Germany this was basically defined by Hitler’s personal preferences. Again, this wasn’t accidental, and his role was an avatar of the German people, who could be perceived as the spiritual manifestation of themselves, the core claim of their entire regime.

Since in the early 1930s, he has a strong preference for “guns before butter” and full employment, you see both of those goal become realized with remarkable speed.

For example, total working hours by Germans soared while consumption remained constrained below pre-Depression levels. In 1935, private consumption was 7 percent, and private investment 22 percent below those levels. While the state spending had increased by some 70 percent above 1928, almost all of it military spending. This resulted in, what any honest observer has to admit, was a spectacular military rise in the early years.

But once the UK and France called his bluff in 1939, there was no way out. Since his preferences ~were~ the state and power was held by individual networks, selected for their ability to create his preferences in reality, the Germans had no system to turn the ship around. Meaning his desire for either total victory or total destruction brought the second to Germany by the opening months of 1945.