Fascism in Germany. Robin Blick 1975
Such economic stability as was enjoyed by German monopoly capitalism between 1924 and the onset of the world crisis five years later had its origins in the enormous political reverse suffered by the working class in the autumn of 1923. Entirely involuntarily (and in complete contrast to the Social Democrats, who consciously worked to preserve the rule of the bourgeoisie), the KPD leadership had, by its vacillations at the moment when the necessity of preparing the revolutionary insurrection was posed point-blank, given a new lease of life to a class that had begun to doubt its own prospects of survival. Even the normally sanguine Schacht wrote, some four years after the crisis, that:
... not since the spring of 1919 had Germany been so close to the peril of Bolshevisation as in these weeks. It is hard for foreigners to form a conception of the excitement within the country at this time. Germany was then completely isolated. All who held any leading position in the business or public life of the country tortured their brains, day out, to find a remedy for the position. 
This was the judgement he adhered to in later years, stating in his autobiography that September 1923:
... found Germany in the grip of a fever that threatened to undermine her last vestige of strength. In Saxony, Thuringia and Bavaria riots broke out everywhere. Hitler was tub-thumping in the south. The Communist – Social Democratic Zeigner Government in Saxony gave the Red terror a free hand. In Hamburg street fights raged all day and 15 policemen and 65 civilians were killed. The danger of a Communist upheaval was imminent. I felt it my duty to evacuate my family from this hell’s kitchen and packed them off to Switzerland so that I myself might not be hindered by personal considerations were I to be drawn into the whirlpool. 
Papen was no more optimistic, as he confesses in his autobiography:
I became conscious at a very early stage of the hopeless inability of the National and State Parliaments to take decisive steps to deal with this social disaster [of inflation]... Without a firm backbone of authority Germany was gradually sinking into the depths. As early as September 1923 I wrote a pamphlet with the title Dictatorship or Parliament?. My thesis was that Germany was on the brink of collapse  and that salvation would not be forthcoming through mechanical parliamentary methods or the sterile clash of rigid party doctrines. I called for a government of independent, responsible people... who would use the last remnants of state authority to impose solutions designed to meet the emergency of the times... It is only too easy to forget the desperate German internal situation at the time. The currency had collapsed, a Communist government had been set up in Saxony, the Socialists were engaged in violent political warfare against the hundred-thousand-man Reichswehr and the Communists were making a renewed attempt to seize power by illegal means... 
And finally there is the estimation made of the 1923 crisis by the SPD Berlin Police Chief Albert Grzesinski that ‘in October 1923, the Communists planned another uprising which, due to the economic crisis, had a fair chance of success because conditions were desperate’.  And as a reformist, Grzesinski would have been more sensitive than most to those shifts in the consciousness of the proletariat away from the politics of compromise and class collaboration which herald every great revolutionary crisis.
All the conditions which for Lenin constituted a revolutionary situation  were present in Germany in the late summer of 1923. Already beset by a profound crisis in its relations with France, the German ruling class was also deeply divided as to how to cope with the hourly accelerating inflation and the political upheavals which accompanied it, a conflict which, in the cases of Bavaria and the Rhineland, expressed itself through the politics of particularism and even separatism. And just as at the time of the Kapp Putsch, but now at a far greater pitch of intensity, the factional struggle within the ruling class reverberated throughout the state machine, even disrupting relations within that normally highly homogenous caste, the German general staff. Wide layers of the petit-bourgeoisie, whose savings and fixed incomes were losing value by the minute as the mark plunged towards its November nadir, no longer trusted the old bourgeois and ‘national’ parties to defend their interests. Many in their despair turned towards the bogus anti-capitalism of the volkisch and Nazi right, but such was the ferment in this highly volatile social layer that it would have in all probability been possible either to win over or to neutralise the bulk of the working petit-bourgeoisie to the side of the working class (as had been proved at the time of the Kapp Putsch) if the KPD had established itself in the heat of the crisis as a party whose revolutionary propaganda and agitation was matched by deeds.
Finally, there was the active, ‘negating’ force in the crisis, the German proletariat itself. Over the previous five years it had provided ample testimony of not only its political maturity and organisational capacities, but its readiness to fight, and if necessary to risk death, to defend its past gains and go forward to win state power. In the space of these five years, the German working class had passed through more phases of struggle than previous generations had experienced in a lifetime. From the establishment of councils in November 1918 its most advanced layers attempted to seize power in a series of bitter armed clashes with troops under the leadership of the ‘government socialists’. There then ensued a period of bitter disillusionment with the SPD on the part of millions of workers who had been amongst its most loyal supporters over previous years and decades. The treachery of the reformists after the Kapp Putsch accelerated this leftwards impulse within the proletariat, a current which did not for the most part flow directly into the KPD, but indirectly, through the USPD, whose centrist leaders, after the party’s unification with the KPD in October 1920, then made their way back into the womb of Social Democracy, taking with them a sizable minority of the USPD’s more conservative-minded workers. After the adventure of March 1921, the KPD then set about winning the majority of the proletariat to its banner, a task which, greatly facilitated by the onset of the Ruhr crisis, was on the verge of completion when paralysis gripped the Brandler – Thalheimer leadership after the formation of the KPD-SPD coalitions in Saxony and Thuringia.
This truly tragic squandering of the resources and energies of the German proletariat cast its shadow across the future path of the revolutionary struggle not only in Germany but throughout Europe from Britain in the west to the Soviet Union in the east. And by the same token, it marked a turning point in the fortunes of the German and European bourgeoisie. Now free to dispense with the services of the Nazis and their paramilitary allies, the bourgeoisie began to feel firm ground under its feet for the first time in many months, and, in a broader sense, since the summer of 1914. Such was the dialectic of revolution and counter-revolution. The economic crisis of 1923 had created all the conditions necessary for the overthrow of the bourgeoisie save that of the subjective factor – revolutionary leadership. Now the latter’s absence – more accurately, deficiencies – in turn created the political conditions which enabled this same bourgeoisie not merely to salvage what had only weeks before seemed irrevocably lost, but over the next three years, so to consolidate and restructure its economy that industry reached a level of output that despite Germany’s postwar territorial losses, in most departments more than matched its performance in the immediate prewar period. Lenin had hoped that this restoration of German industrial might would take place on the basis of socialist property relations, thus making possible the creation of the politico-economic union which he had envisaged in early 1918, and which Lloyd George had so feared following the end of the war. But since it unfolded on the foundations of capitalist property relations, this revival of the German economy inevitably generated once again, though of course in a greatly changed context, the same tensions between the main imperialist powers and combinations that had precipitated the war of 1914-18. They flowed from the potentially explosive antagonism between the productive forces developed by capitalism on the one hand, and, on the other, the barriers erected against their further expansion by not only the capitalist mode of production, but the bourgeois nation state. Germany’s defeat in 1918, since it had not led to a victorious proletarian revolution, only postponed a violent renewal of these contradictions. In contrast, however, with the tempestuous industrial growth which took place under Bismarck and Wilhelm II, the post-1923 boom did not derive so much from any great internal economic strength possessed by German capitalism as from the massive intervention by United States imperialism in the affairs of the European continent. Within weeks of the passing of the revolutionary crisis, moves were afoot both in Germany and internationally to place the economy on a stable footing. Three days after the collapse of the Hitler Putsch, Stresemann’s Finance Minister Dr Hans Luther invited Schacht (who was then a director of the big Danatbank) to devote all his considerable skill and energies to the task of stabilising Germany’s chaotic currency situation. The next day, 13 November, Schacht assumed the new post of Commissioner for National Currency, with a brief to employ whatever methods he saw fit ‘in all matters touching the question of money and credit’. 
Meanwhile, Stresemann’s government, deprived of the support of the Social Democrats on the left and the Nationalists on the right, fell on 23 November after losing a vote of confidence (the SPD found itself unable to remain in a cabinet that had sanctioned the removal by military means of legally elected Social Democratic governments in Saxony and Thuringia, while the DNVP was still opposed to Stresemann over his refusal to join their proposed right-wing bloc against the centre and left parties, also bitterly condemning him for his policy of seeking a détente with France). The result was a more rightist government under Dr Wilhelm Marx of the Catholic Centre Party, being a coalition of Ministers from the DDP, the Centre, the DVP and the BVP (Bavarian People’s Party). 
After an initial attempt by the Junker DNVP financial expert Karl Helfferich to introduce a stopgap mark whose value would be tied to the price of rye (blocked by the Social Democrats, who quite rightly saw it as a move to enhance the power of the agrarians), Stresemann had secured the introduction of the so-called Rentenmark, which while theoretically equal to the value of the gold mark (which had remained unaffected by the inflation) would be covered by a mortgage on all German landed property. This meant that the new mark could be exchanged on demand for an identical amount in mortgage bonds, thus restoring much-needed confidence to the currency. Schacht, however, was anxious to place the mark on a more stable footing (even land values were subject to wide variations), his goal being the restoration of the old gold mark. The death of the Reichsbank President Havenstein on 20 November led somewhat fortuitously to Schacht’s appointment to this enormously influential post two days later, and it was in this new capacity that Schacht travelled to London to secure Bank of England backing from Montagu Norman for his projected Golddiskontobank, which would be entirely based on gold. The bank’s main function would be to finance the heavy industries of the Ruhr, which had been hard hit by the French occupation and the consequent economic and political unrest. Norman agreed to make available for the proposed bank a sum of 100 million marks, to be paid in sterling, and at an interest of only five per cent (the going rate in Germany was twice that amount). The deal between the Presidents of the English and German central banks, concluded on 2 January 1924, marked another turning point in the recovery of German big business.
Norman’s decision to aid his former imperialist rivals was taken with one eye on the conference shortly to convene in Paris under the chairmanship of the US banker General Charles Dawes. The abject failure of military methods to secure the prompt payment of reparations, and the disastrous repercussions such strong-arm tactics had on German economic and political life, had led to a reconsideration of Allied policy towards Germany. Reparations were still to be paid, but there was now a realisation that Germany could only pay insofar as its resources and capacities were harnessed to the full. Hence the adoption of the Dawes scheme, whereby credits would be granted by foreign bankers to Germany in order to revitalise its economy and so make possible the payment of reparations. Far-sighted statesmen also saw the urgent need, after the recent revolutionary events in Germany and elsewhere in Europe, to mitigate class tensions throughout the continent by aiding a policy of industrial expansion and concessions to the working class. In the words of the US Secretary of State Hughes, ‘there can be no economic recuperation in Europe unless Germany recuperates’, and the first consideration of the Dawes Plan (as it became known) was to end the period of turmoil and uncertainty that had characterised Germany’s first five postwar years.
This dramatic turn in the relationship between Europe and the United States, one which profoundly influenced the subsequent course and forms of the class struggle in Germany, had been predicted by Trotsky in a series of articles and speeches developing the slogan of the ‘United Socialist States of Europe’ as the revolutionary solution to the economic, political, national and cultural problems besetting the continent that had cradled both capitalism and its Marxist polar opposite. Trotsky warned all Communists that they ignored the might of American imperialism at their peril. The trans-Atlantic colossus could only be confronted by a Europe united by proletarian revolution:
... until recently we have failed to differentiate adequately between Europe and America. And the slow development of Communism in America might have inspired some pessimistic ideas to the effect that so far as the revolution is concerned Europe must wait for America. Not at all! Europe cannot wait... if the revolution in Europe is postponed for many decades, it would signify the elimination of Europe generally as a cultural force. It is nowhere written that the European proletariat must keep waiting until the American proletariat learns not to succumb to the lies of its triply depraved bourgeoisie... At the present time the American bourgeoisie is deliberately keeping Europe in a condition of decay. Glutted with European blood and gold the American bourgeoisie issues orders to the whole world, sends its plenipotentiaries to conferences who are bound by no commitments... The European bourgeoisie, not only of Germany and France but also Britain, begs on its hind legs before the American bourgeoisie which drained Europe in wartime by its support, by its loans, by its gold, and which now keeps Europe in the throes of death-agony. 
And if the European proletariat found its most mortal enemies in Washington and New York, then its most loyal and self-sacrificing allies lay to the east, in Moscow:
Two courses are possible: either the European proletariat remains terrorised by the American boot, or the European proletariat is backed by the Russian workers and peasants, and thus assured of grain during the difficult days and months of revolution. That is why each economic success in agriculture is a revolutionary deed. 
But should this struggle to establish the unity of Europe by means of proletarian revolution and with the aid of the Soviet workers and peasants fail, then the way would be clear for American imperialism to dictate its terms to an exhausted bourgeoisie and a defeated proletariat alike: ‘America is standing aloof from Europe, tranquilly biding her time until Europe’s economic agony has reached such a pitch as will make it easy to step in and buy up Europe.’  Hence the urgent need, argued Trotsky in the summer of 1923, to impress on the consciousness of the advanced workers the necessity of fixing as their revolutionary goal not merely the defeat of capitalism in their ‘own’ country, but the creation of a federation of socialist states that would ultimately embrace and unite all Europe. ‘Socialism in one country’ was as unreal and reactionary a programme in Germany as it became under Stalin in the USSR:
France cannot stand apart from Germany, nor can Germany stand aloof from France... The European continent in the present state of the development of the productive forces is an economic unit... as was proved in the terrible catastrophe of the world war, and again by the mad paroxysm of the Ruhr occupation. Europe is not a geographical term, Europe is an economic term... Just as federation was long ago recognised as essential for the Balkan peninsula, so now the time has arrived for stating definitely and clearly that federation is essential for Balkanised Europe... the very danger arising from the USA (which is spurring the destruction of Europe, and is ready to step in as Europe’s master) furnishes a very substantial bond for uniting the peoples of Europe who are ruining one another, into a ‘European United States of Workers and Peasants’. 
It was with this slogan that Trotsky concretised programmatically the perspectives flowing from the uneven development of the class struggle in the Old and New Worlds, at the same time making it abundantly clear that ‘this opposition between Europe and the United States stems organically from the differences in the objective situations in the European countries and of the mighty trans-Atlantic republic, and is not in any way directed against the international solidarity of the proletariat, or against the interests of the revolution in America’.  (It therefore had nothing in common with the Stalinist-inspired anti-Americanism of the ‘Cold War’ period.)
The American intervention in Europe followed almost exactly the itinerary mapped out by Trotsky. It did not suffice for fascism to triumph in Italy, nor bloody counter-revolution in Hungary and Bulgaria. These defeats, important though they were for both imperialism and the international working class, had been inflicted on the proletariat at the extremities of the continent. US finance capital continued to ‘stand aloof’ from Europe until the outcome of the strategic struggle in its German heartland had been decided for the foreseeable future. But when the time came to intervene, the operation was carried out on a truly gargantuan and typically American scale. Through such agencies as the Dawes Plan, and by exploiting the political leverage of war debts and reparations payments, United States monopoly capitalism sought to transform its role of arbiter between Europe’s main imperialist rivals (a role it assumed in the last year of the First World War) into that of banker and policeman of the entire continent. 
Under the Dawes Plan, Germany’s reparations were rescheduled, and largely American loans made available to aid their payment, the terms of both being finalised in the London Agreement of 30 August 1924. Germany was to make annual payments starting at 1000 million gold marks and rising by the fifth year to 2500 million marks. From then onwards until their intended completion some 40 to 50 years later, payments would vary from this sum when the world price of gold either fell or rose by more than 10 per cent. Onerous though these terms were, what irked the nationalist middle classes and the big bourgeoisie most, and later provided excellent grist for the Nazi propaganda mill, was the Allied decision to take over the control of Germany’s state railway system, and to seize all its profits as additional tribute. (This naked plunder went hand-in-hand with enforced mortgages on private industrial undertakings with a working capital of more than 50 000 marks.)
With practically the entire Germany economy now pledged as security against the proposed loans, there was no shortage of subscribers to what a year previously would have been regarded as a suicidal financial undertaking. Of the initial Dawes Plan loan of 800 million marks, 110 million was raised in New York, being oversubscribed to the tune of 1000 per cent! And the loan was underwritten by the titan of American finance, JP Morgan. Carried forward on the crest of its internal industrial boom,  US capitalism poured its dollars into Germany at an incredible rate, the flood reaching its high point in 1928, when 153.8 million dollars made the journey from Wall Street to the Berlin Bourse. In the five years between 1924 and 1928, of the 15 000 million marks borrowed by Germany from foreign investors, over half was raised on the US capital market. (Ironically, in view of their original purpose, Germany’s loans were almost double the sum paid in reparations to the Allies!)
Into whose accounts were these vast quantities of money paid? Only a portion of the loans went to the German government to enable it to meet its reparations and other foreign commitments, which of course included the servicing of debts already contracted. There were two other major borrowers, destined, when the American well ran dry, to confront each other as bitter enemies. From the outset of the Dawes Plan, the biggest German monopolies  saw US credits as a quick and easy means of raising the funds necessary to renew and modernise their plant, which because of the war and the ensuing economic and political crises, had either become obsolescent or run down. As for the third main borrower, the Social Democratic municipal authorities and state governments, American loans were employed to finance a whole series of social reforms and undertakings that would otherwise have proved impossible to carry through on a capitalist basis with revenues raised from purely domestic sources. German Social Democracy proceeded to build its ‘socialism in one municipality’ by permission of General Dawes, the blessings of JP Morgan and with the dollars of Wall Street financiers!
The hyper-inflation of 1923 temporarily impoverished wide layers of the middle class whose wealth consisted mainly of savings, or income on fixed pensions or dividends. But for a far smaller number, it was a boon, even if one that proved to be short-lived. Owners of large industrial concerns found that their fortunes – since they were mostly tied up in property and not liquid cash – increased in inverse proportion to the decline in the value of the mark, while their debts fell in direct proportion to the rate of inflation. Tycoons such as the insatiable Stinnes, while in no way being responsible for the inflation, exploited it to extend the range and size of their holdings. The shaky nature of these ventures became obvious, however, once the currency was stabilised, since debts contracted during the inflation now had to be honoured in gold marks. The Stinnes empire,  the prime example of this type of debt-financed undertaking, only outlived its owner by a year, collapsing in June 1925.
Its failure, together with the collapse of a series of similarly unsound and artificially assembled concerns, precipitated a new crisis in German industry, which over the previous year had been enjoying its first real postwar period of prosperity. Demand had been greatly stimulated by the sudden influx of foreign credits, and swelled by government compensation paid to those who had lost their savings during the 1923 inflation, and the majority of firms found that in this market situation they could make reasonable profits without investing in new plant and machinery. Heavy demand ensured that prices remained high, thus masking grave structural and capital deficiencies of many large monopolies. The short boom gave way to a sharp downturn of production in September 1925 as domestic demand fell away, exposing the high unit costs of firms that had previously been enjoying record postwar profits and sales. From this crisis came the initial impetus towards the rationalisation and further monopolisation of entire branches of the German economy.
Reichsbank President Schacht had long seen the need for such measures, though he by no means approved of the means by which they were financed.  As early as October 1902, he had advocated the development of vertical monopolies or trusts in order to reduce by as much as possible the production costs of German industry, thereby rendering it more competitive on the world’s markets. The disadvantage of a cartel was its deliberate policy of maintaining high prices, which in turn dispensed with the need to cut costs and maximise the exploitation of the labour force. By the same token, small or medium firms had to be liquidated since their inability to produce at the same low unit costs as their larger cartel partners forced up overall prices. In 1908, Schacht cited the example of the electricity generating industry to show how the old cartel system was beginning to act as a brake on the further development of the German economy, and
... pointed out the colossal waste among the concerns engaged in electricity generation, whereby the innumerable little local electric works have the last word... By contrast I advocated a concentration of production in large generating stations with the aim of cheapening consumption, bringing electric policy under a single state leadership and combining public control with private enterprise. 
The cartel system therefore generated tensions between the primary and power producers and the manufacturers of finished goods, who were being compelled to pay exorbitant prices for their raw materials and power supplies. As a banker standing outside, or rather above, this struggle, Schacht was possibly better placed to formulate a policy representing the long-term interests of the monopoly bourgeoisie as a whole. But it was only in 1925 that the first serious attempts were made to cut away the dead wood that had accumulated under the protective umbrella of the cartel system. In that year, the Chemical Trust IG Farben was formed out of no fewer than six separate concerns, a merger which gave the new company a 100 per cent monopoly in synthetic dyes, and a near-total monopoly in other products ranging from rayon to fertilisers, synthetic nitrogen, dynamite, photography, potash, aluminium, jute, and even pottery. During the First World War, Germany’s chronic lack of certain basic raw materials – the most important being oil – had led to direct government support for the chemical industry in its attempts to develop synthetic substitutes. This tradition was continued under the Weimar Republic, and raised to its hideous apogee in the murderous partnership between IG Farben and the Third Reich, symbolised by the employment of Jewish slave labour at the firm’s Buna plant in the shadow of the chimneys of the Auschwitz death camp.
The year of 1925 also saw the beginning of a series of mergers in shipping. The Roland, Hamburg-Bremen-Afrika and Horn lines fused with the North German Lloyd, while the following year, the Deutsche-Australische and Kosmos lines were absorbed by North German Lloyd’s main rival, Hamburg America. Finally in 1927, all the Mediterranean lines merged into a single group, with the result that Germany’s merchant fleet of nearly two million tons was now organised by no more than five shipping companies. At the same time, air travel was rationalised under the government-backed company Lufthansa.
In the Ruhr, steps were also taken to achieve economies of scale and modernisation of plant through the creation in 1926 of the Vereinigte Stahlwerke (United Steel Works) under the aegis of Friedrich Flick, who rivalled Stinnes both in his predilection for stock market manipulations and hatred for organised labour. (He was a contributor to Nazi Party funds in 1932, and later shared in the plunder of occupied territories from the USSR to France.) Fused in the new concern were the interests of the Thyssen, Stinnes, Phoenix AG and Otto Wolff groups. Members ceded their interests to the company and in return received a proportional amount of its shares. Thus the old Rhein-Elbe-Union, which in December 1926 fused into the Gelsenkirchner Bergwerksgesellschaft, received 39.5 per cent of the new share issue, with 26 per cent going to the Phoenix group, where Wolff was prominent, another 26 per cent to Thyssen, and 8.5 per cent to the Rheinische Stahlwerke, also partly owned by Otto Wolff (IG Farben also acquired an interest in the new concern by virtue of its 51 per cent holding in the last named firm). Flick exercised control over this iron and steel empire by means of a hierarchy of minority share-holdings in its constituent groups. Flick’s original firm, the Charlottenhutte AG, in which he had a 44 per cent controlling interest, also exercised control over the Gelsenkirchner. In its turn, the Gelsenkirchner dominated, by virtue of its 39.5 per cent share holding and a series of complex financial manoeuvres within its other member companies, the entire steel trust. The extent of the Vereinigte Stahlwerke’s grip on German heavy industry is illustrated by the following figures, which give the proportions of national production accounted for by the newly-formed monopoly: coal: 36 per cent; pig iron: 48 per cent; hoop iron: 49 per cent; bar iron: 42 per cent; semi-finished steel: 56 per cent; thick plates: 47 per cent; tubes: 50 per cent; wire rods: 39 per cent.
Coal mining was even more tightly organised, with the Rhine-Westphalian syndicate increasing its share of total German coal production from 66.7 per cent in 1920 to 77.9 per cent by 1925, and coke production from 61.3 per cent in 1913 to 90 per cent by 1930.
Electrical engineering was already highly monopolised prior to 1914, with two firms – AEG and Siemens-Schukert – accounting for 80 per cent production in this sphere. There was therefore little scope for further concentration, though both concerns did move into the radio and film industries after the end of the war. Banking, however, presented an altogether different picture, with a steady reduction in the number of big banks and an equally steady increase in their size and deposits. Through a series of mergers, the prewar Berlin ‘big nine’ shrunk to seven in 1924, five in 1929, and four in 1931. In 1913, the ‘big nine’ accounted for just under 50 per cent of the 10 billion marks held by all German banks, while in 1929 the five biggest banks held 11.4 billion of a total deposit of 17.5 billion marks – that is, 67.5 per cent.
Rationalisation and monopolisation were not confined to heavy industry and banking. For example, four syndicates in the cement industry shared by agreement between 85 to 90 per cent of Germany’s cement output, while a similar process of concentration was under way in other medium and light industries. These newly amalgamated economic units not only commanded enormous material resources, but dominated whole armies of workers. Thus by 1929, the Flick concern employed 177 000 workers, AEG 60 000, Krupps 90 000 and IG Farben 148 000 (in 1936). Immense power also became concentrated in the hands of a tiny group of industrial and banking magnates, even more than had been the case in the prewar period of monopolisation. In the basic industries (coal, iron, steel and potassium) 19 persons or families owned fortunes amounting to 810 million marks, while in manufacturing, 11 persons or families owned 210 million marks. Taking industry as a whole, 42 persons and families aggregated 1.25 billion marks, and in finance, 110 owned 3.4 billion marks.  Also greatly enhanced was the role of the major banks in industry. As we have seen, centralisation of the banking system accompanied rationalisation and monopolisation in industry, and these twin processes inevitably led to an even greater representation by the big banks on the boards of industrial companies. The number of big bank directors sitting on the supervisory boards of industrial firms almost doubled from 751 in 1903 to 1484 by 1932.
Rationalisation consisted of a great deal more than simply the merging of banks or industrial concerns. It also involved the planned reduction in the amount of productive units, the least efficient being closed down and production concentrated in the most advanced. With largely foreign loans and funds realised as a result of the sale of unwanted assets, technological innovations and improvements were then carried out in line with the latest theories on plant and labour utilisation. Rationalisation became an industrial philosophy bent towards one aim – the maximisation of profit on capital employed by the most ruthless reduction of costs. A German writer on rationalisation, J Gerhardt, considered that:
... the productive process in the factory must be organised, having due regard to the configuration of demand, to lower costs, and all rationalisation consists singly and solely in the elimination of costs... the immediate purpose of rationalisation in a competitive economy is not to increase the production of goods, to produce them cheaper and to better their quality, but to increase profit. [Emphasis added]
RV Holzer, another authority on rationalisation, echoed these sentiments when he wrote in 1928 that:
... the purpose of every private undertaking is profit, and every action undertaken, and every step forward which the employer will make, has the sole purpose of maintaining or increasing profits. If here and there social and ethical considerations appear as the basis for decision and policies [as they did in Nazi ideology – RB], so these must drop into the background... Singly and solely to increase dividends should be the purpose of every larger measure, and consequently must be the basis for the rationalisation of every enterprise. 
And since German industry was engaged in a bitter trade war to recover overseas markets lost during and after the war, greater emphasis was placed on cost reduction than price maintenance. A Ruhr mine-owner summed up the central aim of rationalisation when he declared it to be ‘the increase of productivity and profitability by the reduction of working costs, with prices remaining at the same level, or actually falling’ [emphasis added].
To see how rationalisation worked out in practice, it is necessary to study the impact its application made on a specific branch of industry. On the eve of rationalisation, in 1925, the bituminous coal industry employed 557 087 workers in 343 concerns, at an average of 1624 workers per firm. When the world crisis brought it to a sudden end in 1929, 266 firms employed 517 401 workers, an average of 1945 per concern. So much for concentration, which proceeded at a far greater pace during these five years than in any other comparable period. But did monopolisation, and its attendant emphasis on cost reduction and optimum utilisation of labour power, succeed in its aim of increasing output per worker and the value created per worker? With production rising from 150 million tons in 1925 to 163 million tons in 1929, and with a declining labour force due to rationalisation, output per worker did indeed increase – from 238 tons annually in 1925 to 315 tons in 1929. Likewise value created per worker increased over the same period from 3416 marks annually to 4794.
Larger firms were, of course, better placed to exploit the advantages of rationalisation through economies of scale, and cost-cutting as a result of vertical integration. Thus the Flick combine, in the financial year 1926-27, aggregated an output of 26 million tons for its various products ranging from coal to crude and rolled steel, while employing a labour force of 183 000 wage workers. By 1929-30, with production slightly down to 25.7 million tons, the labour force had been cut to 144 000. Labour productivity had therefore increased from 148 tons per worker annually to nearly 192 tons.
Such drastic reductions in the labour force of the major industries had an immediate effect on the unemployment rate. The number of workers employed in industry actually fell from 9.4 million in 1925 (the peak of the pre-rationalisation boom) to 8.7 million in 1928, the year in which industrial output in the Weimar Republic reached its maximum. And since redundancies tended to occur in those industries and plants where labour was strongly organised, the trade unions were particularly hard hit by rationalisation. The year of 1926 was especially lean, with the proportion of trade unionists out of work increasing from 6.7 per cent to 18 per cent. 
These then were the major advantages accruing to German big business as a direct result of its rationalisation and concentration of industry and banking between 1925 and 1928. But these measures were far from ensuring a prolonged period of stability and prosperity for German capitalism. Firstly it should be pointed out that quite apart from their excessive reliance on foreign (mainly US) credits to finance their modernisation programmes,  the trusts depended on a steadily rising demand for their products to keep their plant utilisation at or near the optimum point, and therefore their costs at a minimum. Heavy industry in particular found its fortunes directly linked to the state of the world market, since its produce was either directly exported, or was purchased by the equally export-oriented German manufacturing industry.
So while world trade, sustained by the roaring US boom, continued to expand, the basically precarious position of the German economy remained masked. Exports in finished manufactures (an industry which enjoyed the full advantages of rationalisation since the latter not only cut manufacturers’ costs, but those of their raw materials suppliers) exceeded the best prewar levels, rising from 6630 million marks in 1925 to 7550 million in 1927. The strategic importance of manufacturing for the German economy is self-evident when we note that in 1927, the total value of all German exports was 10 224 million marks! A contraction in demand either in Europe or the USA on the one hand, or a drying up of the sources of foreign credit on the other, would obviously plunge German industry into a profound organic crisis.
There were, however, other tendencies towards crisis that emerged even prior to the world slump of 1929. Rationalisation and concentration inevitably led to what Marx termed the increased organic composition of capital,  a process whereby money expended on labour power (variable capital) declines proportionally to that laid out on the means of production, raw materials, etc (constant capital). The never-ending quest of the employer for lower costs drives him to seek ways of increasing the productivity of labour by more efficient work-organisation and technical innovation. In turn, this means that less living labour power is poured into each newly-created commodity, or, conversely, that the same amount of labour power now spreads itself over a greater number of commodities. This is indeed one of the aims of all rationalisation procedures. But herein lies the great contradiction of the capitalist mode of production. In seeking to produce as cheaply as possible, the employer of necessity tends to reduce the amount of surplus value contained to the individual commodity, and realised upon its sale. Unless the rate of surplus value is increased (either in relative terms, by shortening that portion of the working day in which the worker reproduces the value of his own labour power – that is, wages – or absolutely, by lengthening the working day), the rate of profit will tend to fall (the rate of profit being the percentage return on capital employed). In fact, it may continue to fall even if the rate of surplus value is increased.
While Marx speaks of the tendency for different rates of profit (this being the result of varying organic composition of capitals) to equalise themselves around the average rate of profit for the aggregate of capitals, it is important to remember that this is a tendency, and can be counteracted for considerable periods of time by other factors. Different rates of profit tend to become equal as a result of a struggle between capitals, in which those with the lower rate of profit (that is, where the organic composition of capital is highest, the rate of surplus value being the same) seek to appropriate a portion of the surplus value accruing to capitals where the rate of profit is above the average. This can be done by the owners of capitals with a low profit rate raising their prices above the value embodied within them in human labour time, thereby increasing the return on their invested capital. But since no new real values are created by mere price manipulations, the net result of this practice (which today would be called inflationary) is simply to increase the prices paid by the purchasers of this capitalist’s commodities, whether they be means of production, in which case they become part of the costs of another capitalist, or consumption goods, thereby necessitating greater expenditure on the part of the workers.
Though rationalisation cut the production costs of German industry, enabling it to compete more effectively on the world market, it simultaneously reduced the proportion of capital expenditure which created its profits. With a lending rate of about seven per cent on its loans from the United States, industry therefore came under severe pressure to defend its profit margins, as can be gathered from the average rates of profit in the following branches of industry in the period 1924-27: coal and iron: 3.8 per cent; chemicals: 4.3 per cent; machine production: 6.2 per cent; electrical engineering: 6.7 per cent; artificial silk: 9.9 per cent; breweries: 11.6 per cent. (The average for industry as a whole was 7.6 per cent while dividends between 1925 and 1927 averaged 5.0 per cent, compared with 8.4 per cent in the last prewar year). What surely stands out is the precarious position of Germany’s two primary producing industries, coal and iron, for any disruption of production here would clearly have immediate repercussions throughout the entire economy, as indeed proved to be the case after 1929. Mining and steel production were also the two industries whose organic composition of capital was highest, reflected in its exceedingly low rate of profit, so that, in turn, this low rate of profit inhibited capital accumulation, and threw the trusts into even greater dependence on the banks and foreign loans for new investment.
Since as the figures already quoted suggest, it is in heavy industry where the lowest rates of profit are normally found, and where, therefore, the pressures will be most compelling to force them up  by raising the prices of the final product, it also follows that if, as in the case of the Ruhr coal, iron and steel industry, the producers are organised in trusts and monopolies, buyers will either have to accept these increased prices or cease or curtail production through a lack of raw materials, fuel and means of production. If such capitalists producing consumer goods absorb these price increases charged by the capitalists with a lower rate of profit, then it must necessarily lead to a reduction in their mass profit, and hence rate of profit. Or they can pass the increased cost on in the form of higher prices, which will then have to be met by the consumer, who will, more often than not, be a worker. In his turn, if he is organised in a trade union, and the political regime of the country concerned permits such action, the worker will then seek to protect his own standard of living (which is at once threatened, if not undermined, by such price increases in the necessities of life) by securing a higher price for the sale of his own labour power, either through collective bargaining or, if this proves unsuccessful, strike action. And so, unless the second capitalist does indeed absorb the price increase charged by the first, the wheel has turned full circle. Our original capitalist, after securing an increase in the mass and rate of his profit by the device of raising the prices of his products above their value, now discovers the rate declining again as his mounting wages bill erodes his mass of profit. He must either put up his prices once again, thus making his product less competitive, or he must absorb the increase in wages which he has conceded (on pain of strike action or loss of some of his labour force to higher-paid firms) to his workers. We can therefore see that attempts to maintain or increase profit rates by the expedient of price increases are counter-productive and therefore inflationary where capitalists producing consumer goods are able to recoup the portion of surplus value appropriated by the heavy industrialist through the simple device of charging higher prices to the consumer, and where the workers respond in kind by demanding and winning higher wages. Nazi Germany provides us with the classic case of heavy industry seeking, and for a time successfully, to overcome the problem of low profit rates by ensuring, through the intervention of the state, that neither light industry nor the working class is able to take the measures outlined above in order to defend their profit rates and real wages respectively. Trade unions had to be destroyed, and with them the bargaining power of the proletariat, before serious inroads could be made on this most pressing problem of German heavy industry. Likewise the consumer-oriented capitalists had to be expropriated politically and allotted a far more humble share in the total surplus value extracted from the working class. Nor must we overlook the strategic imperialist considerations of such a policy. The Third Reich valued iron smelters, coal producers and the makers of tanks far more than it did artificial silk manufacturers.
And even should the capitalist class succeed, either by improved technology which cheapens the price of the necessities of life (and therefore of labour power) or by depressing the wages and living standards of the masses, in raising the rate of surplus value (that is, in shortening the portion of the working day during which the worker reproduces the value equivalent of his own wages), then this by no means removes the basis of this antagonism. If technology is improved, then this means that more constant capital and less living human labour will be required to produce the same or even more commodities. Therefore the organic composition of capital rises, while the mass of surplus value may fall, even though the rate has risen. The final result will be a decline in the rate of profit. Likewise with a cut in the consumption of the masses. This will, as the experience of Nazi Germany has shown, produce a sharp increase in the accumulation fund of the capitalists, which will return to them in the form of increased profits (since the wages fund has now been reduced). However in the next cycle of production, this extra revenue reappears, no longer as additional profit increasing the capitalists’ rate of profit (as it did on the previous cycle) but as capital only a small portion of which, if any, will be variable capital, and therefore capable of expanding rather than reproducing its value. Thus yet again, the basic tendency of the rate of profit to fall reasserts itself, and the capitalist is once more driven to seek fresh measures to arrest its decline. And there is in fact no long-term solution that can overcome this contradiction on the basis of the capitalist mode of production, since the latter’s driving force is not the creation of use values for human needs, but exchange values for profit.
We must say at this juncture that the foregoing is by no means a digression from our central investigation, which is to unravel those social, political and economic forces and processes which culminated in the victory of National Socialism. These ‘chemically pure’ abstractions, derived from the labour theory of value, assume a living, concrete character when employed to illuminate the problems confronting German heavy industry in the Weimar Republic, and help to establish on a rigorous scientific basis the reasons why its leaders were finally compelled to turn towards fascism in an attempt to overcome them.
Profitability and the formation of new capital were also undermined from another quarter. As we have stressed on many occasions, the German bourgeoisie was only able to cling onto the state power in the winter of 1918-19 through making a series of concessions which while not renouncing the principle of private property in the means of production (it was in fact implicitly upheld by Article 153 of the Weimar Constitution), imposed severe financial burdens on employers by compelling them to contribute heavily to state social welfare schemes for their workers. Government, state and communal (municipal) expenditure on social welfare had, by 1926, increased nearly fourfold on the last prewar year, an indication of the degree to which even the most reactionary employers had been forced to retreat – temporarily – from their stand of intransigent opposition to ‘Marxist'-inspired social legislation. Differences frequently came to light in the leadership of the Federation of German industries as to what to adopt towards the trade unions. Paul Silverberg, an advocate of collaboration with the reformist leaders – on very well-defined terms – outlined his views on this question to a meeting of the Federation on 4 September 1926:
... it must be fully and gratefully recognised that the old trade unions... have earned great credit by their cooperation in leading back to constitutionalism that revolutionary movement of workers and soldiers... We would hope that the present so-called clearing up will not stop here. One should recognise that the overwhelming majority of the German working class give their political allegiance to the SPD and a minority to the Centre Party... It is intolerable and shameful that such a large party as the SPD should remain more or less in irresponsible opposition. It has been said that one cannot govern against the workers. If this is so, one must face up to the consequences – one cannot govern without the Social Democrats, they must be brought into responsible cooperation. And they will perish as a party if they do not make up their minds to this effect. We say this on the assumption that the Social Democrats have the courage to learn the lesson of history – they have neither the power, the vigour nor the capability to rule and lead the state. It is not done by filling the streets with muscle and shouting. We live in a world organised on capitalist economics and culture. If the SPD will abandon its radical doctrines and the disruptive politics of the streets, they will be able to join with the employers in leading Germany and the German economy once again to success.
And this, remember, was a speech made in the middle of a boom by a relative liberal! Silverberg was something of a lone wolf amongst the big industrialists, who were bitterly critical of the then ruling all-bourgeois coalition under Dr Marx. They passed a resolution at the same meeting condemning the government for its failure to respond ‘even to those suggestions which had almost unanimous approval in economic circles and authoritative quarters’. The Federation, obviously troubled by the continued lack of funds for investment, also renewed:
... its demand for a final settlement of the question of financial compensation with a view to the reduction of the burden of taxation nationally and locally to facilitate the essential creation of new capital and restore the profitability of the economy. The Federation [the resolution went on] recognising the necessity of making provision for those not able to work, is nevertheless apprehensive about too generous distribution of social benefits. It warns against the premature repeal of a labour law and for premature restriction of hours of work. This could make our country, heavily burdened as it is with reparation payments, uncompetitive in world markets.
To what extent Weimar’s social legislation further eroded the already slender profit margins of heavy industry can be seen from the examples of three Ruhr combines. In 1926, the following companies paid these proportions of their total profits to the government in the form of either taxes or social welfare contributions: Vereinigte Stahlwerke: 55 per cent; Klöckner: 46 per cent; Krupp AG: 77 per cent. 
Bearing in mind that in addition to the burdens imposed on industrialists and agrarians by the republic’s welfare programmes, Social Democratic administrations in the states and communes were borrowing heavily from abroad to finance their own social reforms for the working class, we can appreciate why Schacht, as President of the Reichsbank and therefore responsible for Germany’s solvency, openly doubted, from a capitalist point of view, the wisdom of this policy being pursued by the SPD. The truth of the matter was that German capitalism was in no position to make such far-reaching concessions to the proletariat:
While every effort must be made... not to allow a setback of civilisation... there is at the same time an absolute necessity for the very greatest economy in public expenditure. If public institutions are to be financed at all with foreign capital, it must only be those which contribute in the first instance to increasing the level of production of the country, and not such as serve mere luxury or avoidable increases of consumption. [Sic!] The Reichsbank has been continuously at pains to diffuse such views and to make them effective... It goes without saying that borrowed capital, which is invested in the improvement of production, can only be paid off in the course of time by annual payments out of regular profits. Herein lies the need for differentiation in the manner of employment of the capital. Only capital which is productively invested will yield the required payments. Foreign loans contracted for unproductive consumption or luxury purposes will only be tolerable if the general increase in production is large enough to make it possible to finance this amortisation out of the surplus and savings of the national product as a whole. 
We should bear in mind that by ‘luxuries’ and ‘avoidable consumption’ Schacht (who three years after he wrote these lines, went over to the Nazis) meant Social Democratic expenditure on clinics, nurseries, cultural facilities, adult workers’ education, welfare for the poor and unemployed, etc. All these projects had either to be severely curtailed or scrapped, Schacht argued, if German big business was to regain its lost European supremacy and former colonies. 
Finally, there was the highly controversial issue of wages. Here too, the legacy of the November Revolution continued to plague agrarian and industrialist alike. The enhanced bargaining power of the trade unions (codified both in the November 1918 Working Agreement and Articles 159 and 165 of the constitution), together with a policy of government support for the maintenance of wage rates, prevented heavy industry indulging in the kind of wage cutting necessary to combat declining profit margins and compensate for greatly increased expenditures on loan repayments, taxes and welfare contributions, not to speak of the national levies imposed by reparations. With wages now subject, in the event of a dispute, to the veto of a referee appointed by the Labour Ministry, and most cabinets dependent for their survival on the toleration, if not open support, of Social Democracy, the practice of awarding what were known in industrialist circles as ‘political wages’ became an established one for the duration of the boom.
Wage rates were subject to the upwards pressure of trade union militancy, but not to the reverse pressure of unemployment, as can be seen from the following table:
|Real Wages (per cent of 1913)|
|1923||58||72||(summer) 140 000|
|1926||91||101||2 000 000|
The cumulative effect of all these factors was to divert that proportion of the national income which would have otherwise accrued to capital in the form of new investment, into public expenditure on social services and increased private consumption (especially by the lower income groups who gained from the rise in real wages) on the one hand, and repayment and servicing of foreign loans on the other.  Only under the rule of the Nazis, whose destruction of the trade unions removed wage rates from the realm of collective bargaining and market demand, did this trend become reversed. From a peak of 64 per cent in 1932, the share of wages and salaries in the national income declined, after five years of Nazi tyranny over the working class, to 57 per cent in 1938. Gross investment (which hinged to a large extent on the ratio of distribution of the national income between labour and capital) meanwhile rose from 18 per cent in 1928, and after a record low of nine per cent in 1932, to 23 per cent by 1937.
Since all these contradictions were concentrated most acutely at the heavy industrial core of the German economy, it was from here that the greatest pressures were mounted to break the resistance of organised labour as a necessary prelude to wage cutting, increased exploitation of labour and the severe curtailment of expenditure on welfare schemes. Certainly, the balance of forces both within the Reichstag and successive cabinets between 1924 and 1928 favoured such an aggressive policy by the leaders of heavy industry. The elections of May 1924 gave a clear majority to the main bourgeois – agrarian parties, placing further strains on the already fragile Weimar alliance of the SPD, Centre and DDP. Deputies in the new Reichstag were distributed as follows: SPD 100; KPD 62; Centre 64; BVP 21; DDP 28; DVP 45; DNVP 95; Landbund (a purely agrarian splinter from the DNVP which by this time was coming more under the influence of ultra-reactionary industrialists led by Hugenberg, a director of Krupp AG) 10; Economic Party 10; Racist Bloc (dominated by the NSDAP) 32. Despite the record vote for the KPD – 3.7 million – and the impressive electoral debut of the Nazis – 1.8 million votes – the underlying trend was towards the bourgeois centre. Had the elections been held six months earlier in the wake of the 1923 autumn crisis, support for the poles of revolution and counter-revolution would have been appreciably greater, and by the same token, markedly smaller for the SPD on the left and the main bourgeois parties on the right. This movement away from the extremes towards the centre continued at the elections held seven months later on 7 December. The KPD vote fell away by 900 000, while that of the Social Democrats rose by 1.8 million to give the SPD 131 Reichstag deputies. On the right, this process of stabilisation appears at first sight to be contradicted by the increased vote for the DNVP (up by 0.5 million), a party which had still to declare its loyalty to the Republic (even though certain of its leaders were prepared to enter an all-bourgeois cabinet that leaned firmly to the right). In contrast to the elections of June 1920, when the DNVP gained at the expense of parties to its left (that is, the DDP and the DVP) on 4 May 1924, the main source of its increment was former Nazi voters edging their way back to the mainstream of nationalist politics (not all the Nazi party’s lost 0.9 million votes accrued to the DNVP however, since the Economic Party, only slightly less strident in its anti-Semitic and anti-capitalist demagogy than the NSDAP, increased its vote by more than 300 000). At the same time, and as part of this trend towards bourgeois consolidation, the DVP also gained votes, as did even the DDP, confirming the point made in Chapter XIII that for most of the lifetime of the Weimar Republic, even the more conservative and nationalist layers of the petit-bourgeoisie were by no means irrevocably committed to militant anti-Marxism. 
As a result of these two election victories for the bourgeois centre and right, Germany between 1924 and 1928 was ruled by a series of coalitions which completely excluded the representatives of the SPD. The policy of Schacht and Stresemann had been vindicated. Moreover, with the Centre Party and the DDP discreetly disengaging themselves from their weakened Social Democratic partner, the road was now clear for the entry of the DNVP into a rightwards-oriented bourgeois – Junker cabinet. First under Dr Hans Luther in 1925, and then under Wilhelm Marx of the Centre Party throughout 1927 and until the appointment of the Social Democrat Hermann Müller as chancellor in June 1928, the ultra-reactionaries of the DNVP exercised a powerful grip on the conduct of government affairs.
Yet when armed with what must have seemed to them to be a clear mandate from the electorate to redress the balance of class and political forces within the republic, the spokesmen of heavy industry and the agrarians found themselves unable to convert their undoubted parliamentary supremacy into the degree of domination over the proletariat which they had exercised and enjoyed under the Empire. In other words, they encountered precisely the same apparently intractable obstacle that had thwarted Kapp’s attempt to undo all the modest gains of the November Revolution – the power of the organised labour movement. Frustration with Stresemann’s moderate policy had already led early in 1924 to the defection of a sizable group of rightists (including the Ruhr industrialists Klonne, Sorge, Becker and, of course, the ubiquitous Quaatz and Vögler) to the DNVP, where under the aggressive leadership of press magnate and former Ruhr industrialist Alfred Hugenberg, the party was progressively weakening its exclusive ties with the big agrarians and transforming itself primarily into an ultra-reactionary mouthpiece of heavy industry. Nor was this all. While the Vögler group made its way towards or into the DNVP, another faction within the DVP made a determined bid to take over the leadership of the party, which they deemed to be heading for ruin under Stresemann’s chairmanship. Flick, and until his death on 10 April 1924, Stinnes, attempted to blackmail Stresemann by threatening to cut off heavy industry’s much-needed financial contributions to the party’s treasury, a move which Stresemann only narrowly averted at the DVP congress in March.
There were other pointers as to the direction of thinking among leaders of industry. Dr Carl Duisberg, whom we first saw in 1918 advocating a policy of uninhibited collaboration with the Social Democrats, spoke in very different terms when he addressed the 1925 conference of the Federation of Germany Industry, the republic’s most influential business organisation:
Be united, united, united. This should be the uninterrupted call to the parties in the Reichstag. We hope that our words of today will work, and will find the strong man who will finally bring everyone under one umbrella, for he is always necessary for us Germans as we have seen in the case of Bismarck.
But the only Bismarck on the horizon was the ageing former Field Marshal Paul von Hindenburg, who in the same year was elected successor to the deceased Ebert as President of the republic. While his undisguised monarchist sympathies rendered him a potentially pliant tool in the hands of the extreme right, Hindenburg was obviously incapable of introducing under his own auspices the reforms desired by industrialists like Duisberg:
If Germany is again to be great, all classes of our people must come to the realisation that leaders are necessary who can act without concern for the caprices of the masses... it is to be hoped that there will be found in Germany the necessary number of such personalities who will be the leaders of that nation. Only then will she rise from the deepest misery to her former greatness... There is no doubt that the German economy can only exist and fulfil its duties, if the burden of salaries, wages, taxes, freights and – not least – impositions for social security, which it must carry, are limited. German trade unions must from now on hold as their primary duty giving consideration, together with employers, to increasing production. The wage and salary question... [will no longer be] of exclusive importance as it unfortunately still is today.
We can recognise here not only the language of political reaction, but of rationalisation, which in the case of Duisberg, as with many fellow monopoly capitalists, and bankers such as Schacht, became fused with the former into a single bitterly anti-working-class doctrine. Still lacking however, were the political forces willing and able to make these reactionary plans of dictatorship and increased exploitation of the proletariat a reality. The political problems of heavy industry were highlighted in 1927 by the enactment of legislation guaranteeing regular weekly benefits to the unemployed. Ironically, this measure, which angered wide circles of the German business world because of its violation of the bourgeois principle of ‘self-help’, was approved by a cabinet which contained no fewer than four representatives of the DNVP, and another two from the DVP. Between them, they outnumbered their Catholic and non-party cabinet partners, and could have, theoretically, blocked the proposed legislation by threatening either to vote it down or withdraw from the cabinet. In the event they did neither, and the bill became law on 16 July 1927. Already smarting under the burdens imposed by existing social welfare payments, the new act convinced a group of heavy industrialists that continued retreats before the power of organised labour were placing the profitability of the whole economy at risk. Under the leadership of Vögler of the Flick Steel Combine and Paul Reusch of Gute Hoffnungshutte steel works, they took control of the highly influential North-West Group of the Association of German Iron and Steel Industries, and proceeded to use it as a base from which to launch their offensive against the workers of the Ruhr. At the 1927 conference of the Federation of German Industry, this same faction blocked a proposal by the liberal Jewish banker Paul Silverberg, speaking for the ‘moderates’, to resume the long-since abandoned collaboration with the ADGB. That same year, in August, Reusch and Vögler formed their Ruhrlade, a circle of 12 Ruhr industrialists who met monthly on an informal basis to discuss common economic and political problems, and to prepare for what they considered to be a decisive battle with the Ruhr workers over the renewal of their 1928 wage contracts. And a year earlier, Reusch, together with industrialist Robert Bosch, had founded his ‘League for the Renewal of the Reich’, which had as its aim the ‘reform’ of the Weimar Constitution along more authoritarian lines. In its inaugural manifesto, the League declared:
In the hour of danger, there can be no other slogan but that of strengthening the state. The imperial government must have decision-making powers in relation to all the general important questions. Apart from foreign policy, law and military affairs, it is concerned with finance and all other determinative economic issues. Such an empire must have the power that once built the old empire and that should now serve the common cause.
Here we have the beginnings not only of a move towards the subversion of the existing Weimar Constitution, which upheld the right of the state and communal authorities to undertake a wide range of social and economic reforms (something that obviously provoked opposition from industrial and financial circles), but of a renewal of imperialist-colonialist tendencies within the monopoly bourgeoisie. These were succinctly summarised by Schacht when he wrote in 1927 that:
It must be possible to make some colonial territory available for settlement and exploitation by the German people, so as to provide Germany with the possibility of regular emigration and to facilitate the solution of the problem of her food supply. 
But once again, the question was – how? Just as the monopolist bourgeoisie lacked the internal political reserves to impose a crushing defeat on its domestic foes, so it lacked the military means with which to regain what it had lost in the world war. Fears concerning the durability of the boom (which began to gain currency after 1927)  and an increasing awareness that the time was drawing near when the leaders of the economy would have to claim back from the working class what it had been compelled, on pain of expropriation, to yield in 1918 and 1919, now became allied with a growing restiveness about German capitalism’s subordinate position in European politics, an inferiority which was in potentially explosive contradiction with Germany’s economic and especially industrial preponderance in the continent.
This chronic imbalance can be depicted graphically, measuring Germany against its main imperialist rival, France. (All figures are for 1929 unless otherwise stated.)
|Motive Power in Industry||million HP||(1925) 18.1||(1926) 11.7|
|Share of World Industrial Production||per cent||12.6||7.6|
|Steel Output||million tons||16.2||9.7|
|Export of Manufactured Goods||billion $||2.34||1.23|
|Foreign Investments||billion Fr||(1930) 5.0||(1930) 31.4|
|Merchant Fleet||million tons||4.1||3.4|
|Navy, total tonnage||thousand tons||99.6||552.3|
|Population of Colonies||million inhabitants||–||65.1|
Thus Germany had either re-established or maintained its prewar supremacy over France in every sphere except that of foreign investment, which showed a catastrophic decline from its pre-1914 peak of 44.0 billion francs. And this related directly to those factors in which France now towered over Germany – namely in the military and colonial spheres. Defeat in 1918 led inexorably to German capital being driven out of regions where it had already established itself, and exclusion from others where Allied capital was already supreme. Disarmed and diplomatically isolated, post-1918 German imperialism again found itself hemmed in on all sides, very much as it had done towards the close of the Bismarck era, only now the terms forced on the country’s leaders at Versailles denied it the means to clear a new road in Europe and overseas for German capital. To break this deadlock, German imperialism required a regime which while relentlessly pursuing a policy of militarisation of the population and rearmament, switched its strategic orientation away from yet another debilitating collision with the Entente powers, and towards the Soviet east, where far from meeting with their opposition, a German offensive could justifiably expect to win the approval of the Allied imperialists.
The acuteness of this contradiction could not but imprint itself on the consciousness of the heavy industrialists; one of whom, Gustav Krupp, declared:
We need markets, but the markets of the world are closed to us. Great Britain has erected tariff walls. In France, Italy, Sweden, the Balkans, in fact everywhere, German trade is up against barriers which little by little are becoming insuperable.
Which was precisely the point being hammered home by Hitler in a series of speeches to right-wing business and political leaders during the rationalisation period (for example, his address to the Hamburg National Club in February 1926) and in the sequel to Mein Kampf, written in 1928, which is largely devoted to foreign policy questions:
The more market difficulties increase, the more bitterly will the struggle for the remaining ones be waged. Although the primary weapons of this struggle lie in pricing and in the quality of the goods with which the nations competitively try to undersell each other, in the end the ultimate weapons even here lie in the sword... If a really vigorous people believes that it cannot conquer another with peaceful means, or if an economically weak people does not wish to let itself be killed off by an economically stronger one... then in both cases the vapours of economic phraseology will be suddenly torn asunder and war, that is, the continuation of politics by other means, steps into its place.
Those who do not understand this:
... open the way to decay in which the inner strength of such a people swiftly disappears, all racial and moral and folk values are earmarked for destruction, ideals are undermined, and in the end the prerequisites which a people urgently needs in order to take upon itself the ultimate consequences of the struggle for world markets is eliminated. Weakened by a vicious pacifism, peoples will no longer be ready to fight for markets for their [sic!] good with the shedding of their blood... The sword had to stand before the plough and an army before economics. 
As the reader will readily appreciate, this is a purely imperialist programme, arrived at on the basis of what was, given Hitler’s quasi-mystical political conceptions, a basically correct estimation of the economic dilemmas confronting German industry in the postwar era.
All save one of the conditions necessary for the forging of an alliance between big business and the Nazis were therefore maturing in Germany at the precise moment when the boom was at its peak. All conditions save one. And Wall Street was to provide it.
Two episodes which occurred in the period of – for Weimar Germany – relative political stability between 1924 and 1928 serve to indicate how little the ruling class had succeeded in resolving the internal political differences which had manifested themselves so starkly in the Kapp Putsch and again in the great crisis of 1923. And they also provided ample evidence that temporary economic prosperity and the abatement of the revolutionary threat had done little or nothing to reconcile the hard core of Junkers and heavy industrialists to the political system established by the November Revolution, nor to the prominent role that the workers’ movement played within it. The death of President Ebert on 28 February 1925 brought both of these questions to the fore, since the ruling class was neither able to agree on a single candidate to oppose those of the workers’ parties, nor to formulate a common political programme on which such a candidate could campaign.
This disunity had indeed already evidenced itself before Ebert’s death, since with a new Presidential election pending in the summer of 1925, representatives of the right-wing parties (DVP, DNVP, BVP and Economic Party) had met on 12 February to agree on a joint ‘national’ candidate. The rift was reflected first of all in the three names put forward at the meeting. Only one could be properly termed a ‘civilian’ – the DVP Mayor of the Ruhr town of Duisberg, Dr Karl Jarres. The other two were Army Chief of Staff von Seeckt and Defence Minister Otto Gessler. So even in a period of relative tranquillity, the General Staff sought to sustain and protect its role of arbiter, even to the extent of running its own candidate for President of the Reich. But such a move was sure to cause great unease not only among the working class, which had bitter memories of the role of the military at the time of the Kapp crisis, and again in 1923, but liberal-democratic circles of the middle and ruling class. The choice of candidate was further complicated by the religious question, since even the ultra-right-wing Bavarian Catholics of the BVP could not bring themselves to endorse a Protestant nomination for the Presidency. The national bloc therefore began to disintegrate as the elections, scheduled for 29 March, approached. Consequently, the ruling class, or rather its various warring factions, presented to the electorate no less than four candidates: Jarres (who emerged, after protracted negotiations between the DVP and DNVP, as the main ‘national’ candidate), Wilhelm Marx of the Centre Party, Dr Heinrich Held, Minister President of Bavaria and a leader of the BVP, and Dr Willy Hellpach of the DDP. And for good measure, the Nazis and their volkisch allies ran General Ludendorff.
For the working class the choice was much less complicated. They could vote for either Otto Braun, the Social Democratic Minister President of Prussia, or the Communist Party leader Ernst Thälmann. With such fragmentation on the right, it was scarcely surprising that no candidate secured a clear majority at the first ballot. Jarres, as expected, won the votes that in a Reichstag election would have gone to his two main sponsors, the DVP and the DNVP (he in fact secured 10.7 million). Party loyalties also prevailed in the cases of Marx, Hellpach and Held, with 3.8, 1.5 and 1.0 million votes respectively. The further decline in the fortunes of the Nazis was reflected in the paltry 200 000 votes cast for their candidate, Ludendorff.
On the left, the temporary consolidation of Social Democracy at the expense of the KPD, which first became visible in the Reichstag elections of December 1924, gathered pace, with Braun receiving 7.8 million votes against Thälmann’s 1.8 (less than half the vote won by the KPD in the Reichstag elections a year previously). Under the provisions laid down by an act of 1920, new Presidential elections had to be held, in which the winner did not require an absolute majority. At once, a regroupment took place in both the Social Democratic left, and the bourgeois centre and right. A Popular Front-style Weimar coalition was hastily assembled between the reformists and the bourgeois democrats and Catholics, with Marx as its candidate. In theory, if the voting preferences of the first election were reproduced at the second, then Marx could expect to garner at least 13 million votes, enough to give him a clear lead of several millions over the best candidate of a splintered right. The ‘Reich bloc’ obviously required a more commanding figure than the nondescript and relatively unknown Jarres to rally the middle-class masses to the national banner and the good fight against godless Marxism and the alien spirit of parliamentary democracy. For this was precisely the intention of those who prevailed upon Hindenburg to emerge from military retirement, at the age of 78, to run for Presidency of Europe’s most crisis-prone state. Now, the Reich bloc hoped (with some justification) that party labels and programmes would be cast aside by all ‘national’ Germans. In electing the victor of Tannenberg, they would not be voting for a party, nor even a man, but a symbol of a lost imperial past that under his leadership could be recaptured. The popular front Republican bloc proved itself utterly impotent in the face of such a mobilisation of all that was backward, mystical and reactionary in the petit-bourgeoisie. All they could offer the middle class was the same souped-up version of parliamentary democracy that had alienated wide layers of the middle class from Social Democracy and liberalism in the first years of the republic. Bourgeois and Social Democratic ‘moderation’ proved itself powerless to prevent the election of the man who eight years later presided over the liquidation of both bourgeois democracy and the SPD. In the second ballot, held on 26 April, Marx succeeded in slightly increasing the vote of the Republican bloc to 13.7 million. But it was not enough. Hindenburg trumped him by just under one million votes, and even though this did not give him an overall majority (Thälmann on this occasion receiving 1.9 million), it was enough to place the enormously powerful office of President in the hands of the national right. But he remained a symbol, rather than an instrument, of its unity, for even amongst the parties which had endorsed his candidature, there was unease that Hindenburg’s election would irrevocably drive the Social Democrats into opposition, possibly attracting to them a section of the bourgeois democrats and Catholics. Stresemann, for one, reasoned thus, only becoming reconciled, in the best traditions of German liberalism, to the new President when it became clear that the Social Democrats were in fact contemplating no such drastic action. And Hindenburg was adroit enough in his early months of office not to give the SPD and its bourgeois allies any grounds for abandoning their policy of ‘toleration’ of the centre-right coalitions that ruled Germany between 1924 and 1928. Stresemann noted in his diary that the new President ‘makes a powerful impression... For the time being I don’t have the feeling that Hindenburg will be under the influence of any political camarilla, at least not consciously.’ The significance of Hindenburg’s election was given an altogether different evaluation by an aspiring member of the ‘political camarilla’, von Papen. Very much in keeping with his own rigidly authoritarian views, he had dissociated himself from his party’s own candidate, the Catholic Marx, and had come out openly in support of Hindenburg the Protestant:
With some friends I issued a declaration in the middle of April 1925... we pointed out that important sections of the population had lost faith in the type of society sought by the Weimar Coalition [here Papen was quite right – RB], based as it was, to too great an extent, on rationalistic and atheistic premises... Calling for a return to the old Christian conception of government, we proclaimed once again Germany’s historical duty to act as the watchman and bulwark of the Western tradition in the heart of Europe. We felt that the election of such a God-fearing and devout personality as Hindenburg would provide the best guarantee for a return to this fundamental policy. 
Papen had also entertained high hopes of von Seeckt, who on several occasions before his resignation as chief of staff in 1926 had exerted a decisive influence on the course of German politics:
I have always regretted that at this critical point in our history [Papen refers here to the crisis of the autumn of 1923, when the army assumed emergency powers to deal with the revolutionary threat in central Germany – RB] Seeckt did not make up his mind to bring order and authority into the chaotic state of our affairs... how much better it would have been if the task of organising [sic! – an obvious euphemism for destroying – RB] a working democracy had been entrusted to a man whose whole nature was opposed to dictatorship and war. 
But we know from Seeckt’s expressed views on the role of the army in politics that while he considered it to be an indispensable support to established authority, it should never seek to initiate a drastic change of regime. 
But many among the ruling class were slow to learn this axiom of counter-revolutionary strategy, as the crisis precipitated by the referendum on the expropriation of the former royal houses a year later revealed.
Ironically, this second crisis arose in part as a result of the frustration felt by extreme right-wing Junker and industrialist circles with the first year of Hindenburg’s rule. We should remember that his election had been preceded by the formation of the first truly ‘national’ cabinet, containing five DNVP ministers, two each from the Centre and the DVP, and for the first time since the short-lived Müller government, which held office from the fall of Kapp to August 1920, no representatives of the bourgeois radicals, the DDP. But, as we have already noted, this cabinet, even when enjoying the obvious advantage of working under a President who made no attempt to conceal his ultra-reactionary, monarchist views, could make very little headway in its proclaimed task of eroding the more objectionable political features of the Weimar system, and redressing the balance of power against the workers’ movement. Sharp divergences over foreign policy, with the DNVP opposing closer relations with France, and Foreign Minister Stresemann’s DVP generally favouring them, strained relations between the two main coalition partners, who parted company on 26 October 1925, following the Locarno Conference with the Allied powers. The DNVP, after less than a year of sharing office, went over to their accustomed position once more, thus greatly adding to the crisis already maturing over the controversial question of the princes’ property.
While the November Revolution – contrary to the wishes of Ebert – ended the reign of the Hohenzollerns, successive republican governments, even when they contained Social Democratic ministers, did nothing to challenge the privileges of the royal houses, whose enormous wealth had been filched from the German people over centuries of absolutist rule. Only in a few instances did state governments expropriate the princes without compensation, a measure which was later declared to be illegal as it violated article 153 of the Weimar (republican) Constitution. Partly because it involved the still-vexed question of the monarch, but also because it challenged the right of private property in land (the main form of the princes’ wealth) the Communist Party’s campaign to secure a national referendum on the issue aroused intense feelings on both sides of the class divide, finally precipitating a crisis of near-Kapp proportions. The government crisis began in January 1926, when following a period of nearly two months without a Chancellor (Luther had resigned after the withdrawal of the DNVP from the cabinet the previous October, and no successor to him had been found), a group of Junkers and industrialists formulated a plan to fill the void created by Luther’s departure with an extra-parliamentary dictatorship resting only on the authority of the President. Hindenburg, however, pre-empted such a move by reappointing Luther Chancellor on 20 January 1926, who then proceeded to form a cabinet which leaned back to the centre, excluding the DNVP and including three representatives of the DDP. Over the next few days Hindenburg was subjected to considerable pressure from the usual ultra-rightist circles, for whom the influential and arch-reactionary Junker Oldenburg-Januschau, a close friend of the President, acted as chief spokesman. But to no avail. Hindenburg was not prepared to overturn the constitution and risk plunging Germany once more into civil war. The reaction from the far right was immediate and harsh. The Berliner Börsen Zeitung, a semi-official organ of finance capital, closely linked with the army leadership, was especially biting. It declared, on 23 January, that ‘the hope that our venerable President would succeed in unifying the multitude of centrifugal elements in our people, as he so ardently wishes, has not been fulfilled...’. The President’s failure to provide Germany with the leadership it required called for drastic action, since by parliamentary methods, ‘one cannot force 60 million individuals into one direction, the individualistic German needs strong government’. (Precisely the message being hammered home by industrial leaders such as Duisberg, Vögler and company.) So if the President was unwilling or unable to act as those who had secured his election desired, then other ways had to be found. It was at this point that the KPD referendum campaign, which had been initiated in November 1925, began to play the central part in the gathering crisis. Such was the support it won amongst non-party and Social Democratic workers that the SPD leadership found it impossible to oppose the referendum. By 17 March, more than 12.5 million signatures had been collected in support of the proposed referendum on the expropriation of the princes, and many must have been from people who had not voted for either the KPD or the SPD in the December 1924 Reichstag elections, since on that occasion, the two workers’ parties aggregated only 10.6 million votes. Clearly, a section of the middle class were being drawn into the campaign, one in which, significantly, the KPD and the SPD were collaborating quite closely. Many on the right sensed the danger implicit in the success of the KPD’s agitation against the princes. Hindenburg’s old general staff comrades petitioned him to assume dictatorial powers, with or without the sanction of Article 48, while on 14 May 1926, the ex-emperor’s son, the Crown Prince Wilhelm (later to become a fervent Nazi and storm trooper) wrote to the President that the:
... attacks on our Hohenzollern family against the judiciary and landed property, ultimately against all property, are but a systematic preparation for the Bolshevisation of Germany. There is still time for a determined government ready to apply its power ruthlessly to fight these destructive tendencies. But time is running out. If nothing is done, I see us being plunged into a bloody civil war, whose outcome is quite unpredictable. [Emphasis added]
The Crown Prince’s frantic tone, and his anguished call for a ‘determined government’, were quite understandable. How could the new Luther cabinet ‘apply its power ruthlessly’ when three members of a party – the DDP – that was supporting the expropriation of the princes sat in it? The letter was a clear hint to the President that moves were afoot to unseat what the far right considered to be a weak-kneed government, and replace it by one not dependent for its survival on parliamentary majorities or the approval of the electorate. And such indeed was the case.
As an unrepentant monarchist, Hindenburg also had strong feelings about the referendum, declaring in a letter that it was:
... a great injustice, and also an exhibition of a regrettable lack of traditional sentiment... The legal recognition of property is the very foundation of a constitutional state, and the proposal of expropriation offends the principle of morality and justice.
Count Westarp, the DNVP leader, also stressed the connection between the campaign against monarchy and the property question:
Beyond the proper issue of a fight against private property, the agitation was primarily directed against the cause of monarchism, to tear the monarchic idea firmly and irrevocably out of the hearts of our people.
Hindenburg also made his sympathies known on another highly controversial and emotionally-charged issue which flared up at this time – that of the naval flag. The Weimar Constitution had already compromised on this issue – one of enormous symbolical and indeed mystical significance for the monarchist right – by specifying a merchant ensign in the old imperial colours of red, white and black, with the Republic’s colours – red-black-gold – tucked away in one corner of the flag. But even this did not satisfy the die-hard monarchists. They prevailed upon Luther to sanction and submit to the President a decree instructing all German embassies and consulates outside Europe to display the merchant ensign alongside the flag of the Republic, as well as on German ships in European seaports. When the decree became law on 5 May, the storm that at once erupted around Luther’s head quickly forced him to resign, after losing a vote of confidence by the narrow margin of 176 to 146, with the SPD and their DDP allies voting against, and the DNVP abstaining. Thus Germany once again found itself without a government, not only for lack of a unified bourgeois policy and leadership, but because for the first time in more than two years, the working class was now beginning to take the offensive again, albeit on a seemingly secondary question. It was at this moment that the ultra-right, led by among others, Hugenberg of the DNVP (who in the same year had denounced universal suffrage as a ‘crime’), the Pan-German League Chairman Class, and Vögler of the Steel Trust, decided to strike their blow. Many of the details of what followed remain obscure to this day, but the general shape of the plan seems to have been a more discreet version of the Kapp Putsch, in which on this occasion the plotters hoped to exploit both the President’s undoubted good will and the paralysis endemic in government quarters. In the event, the coup never got off the ground. Counter-measures were already in hand in Prussia, which came under the control of the Social Democratic state administration and its Interior Minister, Carl Severing. Otto Braun authorised a series of raids on the homes of leading Ruhr industrialists, including that of Vögler, and much incriminating material was in fact discovered, including plans for the dissolution of parliament (the pretext for which would have been the unearthing of a fictitious Communist plot to stage a revolution). Death sentences were to be handed out to all those who resisted the new regime or attempted to revive the overthrown one, and there were proposals for coordinating army action with that of right-wing paramilitary groups (such as the Stahlhelm) to suppress the anticipated working-class resistance to the coup. Stresemann (against whom the intended putsch was in part directed) leaves us a tantalisingly incomplete account of the events surrounding its preparation and detection.
The initial moves in the direction of a right-wing coup seem to have been made towards the end of 1925. An entry in Stresemann’s diary for 16 December records that:
... at the present meeting of the Association of German Iron and Steel Manufacturers, Herr Dr Reichart [a DNVP Reichstag deputy and business manager of the Association who together with Stinnes in November 1918 negotiated the Working Agreement with the ADGB – RB] after the servants had left the room, made the following statement about the formation of the government: the great coalition would not succeed [that is, it would prove impossible to form a Weimar coalition of Social Democrats, the Centre, DDP and DVP – RB]. The central government to follow would possess neither a majority nor sufficient authority. Nothing else remained but to govern on the basis of Article 48 and not to summon the Reichstag again until there were 13 months in the year. Borsig and Grobler agreed with R’s remarks. R insisted it was necessary to get the President’s [that is, Hindenburg’s] support for this view. A series of deputations must, therefore, be sent to Hindenburg to put these considerations before him. Baumer was to represent the Association of German Iron and Steel Manufacturers, because he could exercise most influence on Hindenburg, and was the best speaker. 
It also appears possible, though the evidence is far more circumstantial, that the Prussian Social Democrats were taking their own counter-measures to pre-empt such a rightist coup:
‘Von Campe [DVP fraction leader in the Prussian Landtag (state parliament) – RB] gave me the following information: A German Nationalist [DNVP] deputy had told him that in the Prussian Ministry of State all preparations had been made for a Prussian dictatorship. In the Reich there was nothing for it but to govern on the basis of Article 48, Prussia was for this development. In the Prussian Ministry of the Interior all preparations had been made for concentrating the entire political power on [SPD Interior Minister Carl] Severing. The deputy in question had expressed the hope that the DVP would not in that case stand on the side of the Social Democrats. I told Herr von Campe that the whole statement seemed to be very improbable in that form. But I could very well imagine that having regard to the extraordinary increase in the numbers of the Communists these preparations had been made in Prussia so as to be able to take measures in case of any serious unrest arising from intensified unemployment [now standing at around the two million mark – RB]. 
The next specific reference Stresemann makes to the activities of this right-wing group of industrialists is on 11 May, when he notes that raids carried out by the Prussian police in Berlin on the homes of known ultra-rightists had unearthed plans for the installation of an open dictatorship. The houses of prominent Ruhr industrialists were obviously among those searched, since on 3 June, at a meeting of the Reich Committee for Trade and Industry of the DVP, held at Erfurt, charges were made against Stresemann that he had either approved or supported the Prussian Social Democrats’ moves to bloc the proposed coup, and had even connived at the visits paid to the industrialists’ homes which had been authorised by Dr Abbeg, a leading official in the Prussian Ministry of the Interior. Naturally, these immensely rich and powerful capitalists were enraged, not only by the frustration of their coup, but the humiliation they had been made to endure at the hands of the Social Democrats, who remained in their eyes plebeian upstarts and traitors. And therefore we can also appreciate Stresemann’s eagerness to refute this accusation, since it seemed to accord with the long-standing grievance of the Ruhr industrialists that the DVP chairman was ‘soft’ on the ‘Marxists’. Stresemann replied that in a telephone conversation on the day of the raids with the Berlin Police Vice-President, Dr Friedensburg, ‘there was no mention of forthcoming domiciliary visits to the leading magnates of the Rhenish-Westphalian industry...’. 
Although Stresemann was not privy to the counter-measures of the Prussian Social Democrats, he was better informed of the activities of the Ruhr rightists. A memo, dated 3 June 1926, records that a:
Herr Dr F explained in some detail that a large coup had been contemplated, the ultimate aim of which was to remove the President [who had by this time, because of his reluctance to violate the constitution, become an obstacle to the projected overturn – RB] and appoint a Reich Commissar, who should in his turn appoint Commissars in all the constituent states and rule as a dictator, with his directory and without a parliament. As regards methods, Dr F said that the intention was, when the occasion arose, to capture Berlin, in conjunction with sections of the Reichswehr, and he referred to the so-called emergency decree, and the measures therein contemplated against those who opposed the new regime. 
Dr F did not name the proposed new Chancellor:
... but ... merely remarked that I [Stresemann] would be surprised if I knew who was contemplated for the post. However, he gave me the names of the other members of the directory: Hugenberg, Mohl, Luning, etc... I assumed from the very detailed information given me by Dr F... that we had been directly confronted with a catastrophe... 
Needless to say, Hugenberg had claimed for himself the Ministry of Economics. Stresemann speaks of a ‘catastrophe’, and by this he clearly means a repeat version of the Kapp Putsch, whose near-certain failure could have driven the Social Democrats into opposition. This thought had been uppermost in his mind throughout the last six or more years of his life (he died in 1929), and determined the course of his relations with not only the Ruhr industrialists, who never became reconciled to the SPD’s influential role in the Weimar Republic, but representatives of the military opposition. For example, an entry of 28 February records a visit paid on Stresemann by Captain Erhardt, who, ostensibly, came to thank him for his efforts in securing an amnesty for the participants in the Kapp Putsch. The former Free Corps officer and ex-Nazi (he had broken with Hitler after the Munich Putsch, when the latter opted for a legal struggle against Weimar) said to Stresemann that ‘at the next elections we must combine under the watchword: United nationals against the non-nationals’, to which Stresemann, who correctly understood this slogan to mean a renewed offensive against not only the KPD but the SPD, replied that the Social Democrats ‘had done wholly national work’. 
Stresemann’s account is interesting for two reasons. It indicates how deep were the divisions within the German ruling class between some of its leading political representatives, of whom Stresemann was among the most gifted and experienced, and the big employers, who were demanding and even actively preparing a more openly dictatorial form of government; and at the same time, the even more sharp antagonisms between the big bourgeoisie and the Social Democrats, the latter even being compelled to employ police and emergency measures to protect themselves from a rightist coup (though never for one moment seeking to rally their millions of working-class supporters to defend the gains of the November Revolution).
The final vote for the referendum held on 20 June 1926 confirmed the trend detectable in the signature-collecting campaign of three months before. Then, the proposal to expropriate the princes without any compensation had secured the support of 12.5 million people. By 20 June, another three million had joined them, proving that the measure had attracted, in the face of a non-stop propaganda barrage from practically the entire bourgeois press, the backing of layers of the petit-bourgeoisie who had not associated themselves with the workers’ movement in any way since the earliest days of the November Revolution and the Weimar Republic. In little more than a year, the middle-class masses who rallied in their millions to Hindenburg had been split, and a sizable proportion of them won to support a measure which was known to be strongly opposed by the President himself. Although failing to win the required number of votes (more than half the total German electorate), in a straightforward choice between republic and monarchy, and on the even more fundamental issue of the rights of private property, the workers’ movement had, despite its deep principled divisions, succeeded in rallying more support for its campaign against the princes than had Hindenburg in the Presidential election of April 1925. This is a factor of some historical significance, and one that not even Trotsky gives its due weight. Of Hindenburg’s election he says the following:
Conservatives, Nationalists, Monarchists, all the enemies of the November Revolution, put Hindenburg in the post of Reichspräsident the first time in 1925. Not only the workers but also the parties of the bourgeoisie voted against the Hohenzollern marshal. But Hindenburg won. He was supported by the masses of the petit-bourgeoisie moving towards Hitler. 
Neither of these statements is accurate. Hindenburg, as we have seen, was the candidate of the anti-Weimar bourgeoisie as well as of the Junker monarchists. His candidature was endorsed by the heavy industrialists of the DVP and DNVP, and opposed by the Catholic Centre (but not by Papen’s group) and the bourgeois democrats. In other words, the ruling class divided over the Presidency. Nor can one simply say that the millions of petit-bourgeois who voted for Hindenburg in April 1925 were ‘moving towards Hitler’. In 1926, a not insignificant proportion of those who had voted for Hindenburg the previous year (and for Hitler between 1930 and 1933) move perceptibly leftwards, a trend that continued up to and in the Reichstag elections of 1928. The votes of 1925 and 1926 therefore must not be taken isolation from one another. Between them, they indicated the alternative routes along which the middle class masses can travel – with the monopolies as an anti-labour militia, or with the proletariat against their monopolist exploiters and fascist deceivers.
Surely one could not desire better proof that the German middle class need not have become the foot-soldiers of the Nazi counter-revolution, and that under a genuine Communist leadership that fought to establish a principled unity of the working class against fascism and all forms of reaction, its best elements could have been won to revolutionary socialism? This is the main historical lesson that has to be distilled from the election of Hindenburg and the crisis of the princes’ referendum.
1. H Schacht, The Stabilisation of the Mark (London, 1927), p 76.
2. H Schacht, My First Seventy-Six Years (London, 1955), p 177.
3. In common with leading non-Marxist historians (the most important being Werner T Angress, Stillborn Revolution (Princeton, 1963) and EH Carr, The Interregnum (London, 1954), the latest Stalinist history of the Communist International denies that a revolutionary situation existed in Germany in 1923: ‘The Party’s leadership overestimated the degree of readiness of the masses for the decisive battles and the rate at which the revolutionary crisis was building up.’ (Outline History of the Communist International (Moscow, 1971), p 195) This volume was produced by a group of Soviet authors headed by AI Sobolev, and with the assistance of a team of former Comintern officials and journalists, among them the British Stalinists Andrew Rothstein and Palme Dutt. As we have already noted, Palme Dutt has a vested interest in proving that Germany was not ripe for revolution in the early 1920s. Admitting this would be tantamount to a confession of harbouring ‘vulgar Marxist’ and ‘Trotskyist’ views. Yet such heresies succeeded in infiltrating the columns of Pravda, which on 25 May 1924, declared: ‘It is clear that in October 1923, during the unprecedented economic crisis, during the complete disintegration of the middle classes, during a frightful confusion in the ranks of the Social Democracy resulting from the powerful and sharp contradiction within the bourgeoisie itself and an unprecedented militant mood of the proletarian masses in the industrial centres, the Communist Party had the majority of the population on its side. It could and should have fought and had all the chances of success.’
4. F von Papen, Memoirs (London, 1952), pp 102-20.
5. A Grzesinski, Inside Germany (New York, 1939), p 106.
6. Lenin listed these as follows: ‘... for a revolution to take place, it is essential, first, that a majority of workers (or at least a majority of the class-conscious, thinking and politically active workers) should fully realise that revolution is necessary, and that they should be prepared to die for it; second, that the ruling classes should be going through a government crisis, which draws even the most backward masses into politics... weakens the government, and makes it possible for the revolutionaries rapidly to overthrow it.’ (VI Lenin, ‘"Left-Wing” Communism’, Collected Works, Volume 31, p 85)
7. Schacht, My First Seventy-Six Years, p 180.
8. Exclusion from the new cabinet did not prevent the SPD voting for an enabling act which empowered the Marx government to implement, without the consent of the Reichstag, any and all measures ‘which it deemed necessary and useful in alleviating the distress of people and Reich’. It was a formulation almost identical to that of Hitler’s enabling act which, with only the SPD voting against, ushered in the Third Reich on 23 March 1933. Once again, an instance of the Social Democrats making a rod for their own backs.
9. LD Trotsky, ‘Report on the Fourth World Congress’ (28 December 1922, delivered to a meeting of the Communist fraction of the Tenth All-Union Congress of the Soviets, with non-party delegates attending), The First Five Years of the Comintern, Volume 2 (New York, 1953), pp 317-28.
10. Trotsky, ‘Report on the Fourth World Congress’, The First Five Years of the Comintern, Volume 2, p 329.
11. LD Trotsky, ‘Is the Time Ripe for the Slogan: The United States of Europe?’ (first published in Pravda, 30 June 1923), The First Five Years of the Comintern, Volume 2, p 342.
12. Trotsky, ‘Is the Time Ripe for the Slogan: The United States of Europe?’, The First Five Years of the Comintern, Volume 2, pp 342-43.
13. Trotsky, ‘Is the Time Ripe for the Slogan: The United States of Europe?’, The First Five Years of the Comintern, Volume 2, p 344.
14. Again it was Trotsky who paid the closest attention to this new factor in European and world politics, devoting many articles and speeches to the problem of the relations between Europe and America in the period between 1924 and 1926. In July 1924 he pin-pointed the main aims of US strategy in Europe; aims that, the more they were realised, undermined the very political and economic stability that the US was seeking: ‘What does American capitalism want? ... It is seeking, we are told, stability; it wants to restore the European market; it wants to make Europe solvent. How? ... After all, American capitalism is compelled not to render Europe capable of competition; it cannot allow England, and all the more so France and Germany, particularly Germany, to regain the world markets inasmuch as American capitalism finds itself hemmed in, because it is now an exporting capitalism – exporting both commodities and capital. American capitalism is seeking the position of world domination; it wants to establish an American imperialist autocracy over our planet... What will it do with Europe? It must, they say, pacify Europe. How? Under its hegemony... This means that Europe will be permitted to rise again, but within limits set in advance, with certain restricted sections of the world market allotted to it... This is its aim. It will slice up the markets; it will regulate the activity of the European financiers and industrialists... It wants to put capitalist Europe on rations.’ (LD Trotsky, ‘Perspectives of Development’ (a speech to workers, 28 July 1924, printed in Izvestia, 5 August 1924), Europe and America (Ceylon, 1951), p 16)
15. The US gross national product rose from 73.3 billion dollars in 1920 to 104.4 billion in 1929, while its foreign debt of nearly four billion dollars in 1914 had by 1929 been transformed into a credit of twice that amount.
16. Among firms taking up US loans, chiefly through the mediation of the house of Morgan, were Krupp AG (which obtained three), Thyssen and the Flick combine which borrowed for a single concern the gigantic sum of 124 million dollars, which at the prevailing rate of exchanges amounted to roughly four times that amount in marks. US monopolies were quick to exploit their new position as Germany’s creditors, to secure a footing in the country’s economy. Thus Westinghouse acquired an interest in Siemens, and its powerful rival the General Electric Company one in AEG. Opel, Germany’s largest car firm, was purchased by General Motors (whose banker just happened to be... Morgan). The Dawes Plan became the instrument whereby a small but immensely powerful group of corporations linked up with their opposite numbers in Germany, forging trade, technical and even political links that endured up to and even beyond the outbreak of war between the Third Reich and the United States.
17. The Stinnes Empire, which in modern economic parlance would be termed a ‘conglomerate’, was founded by Hugo’s grandfather, Matthias Stinnes, the owner of a Rhine shipping firm. By 1914, his grandson had branched out from shipping into iron and coal mining, steel production and electric power supply, controlling by a network of interlocking share blocs, the Deutsch-Luxemburgische Bergwerks-gesellschaft and the Rheinisch-Westfalische Elektrizitats Gesellschaft. In 1918, Stinnes broke into ocean shipping, previously the monopoly of the two Hamburg-based lines, the North German Lloyd and the Hamburg-America Line. Government compensation for losses incurred as a result of war reparations and the seizure of Alsace and Lorraine by France enabled him to widen his interests even further, buying a holding in the iron and steel concern, the Gelsenkirchner Bergwerksgesellschaft, and the Siemens-Shuckert electrical engineering firm. Stinnes extended his monopolies both vertically and horizontally, buying entire forests in East Prussia for pit-prop timber for his coal mines, and at the same time enabling him to move into the paper production industry and so on to printing and then newspaper publication, eventually controlling an immense propaganda machine of no fewer than 150 newspapers and periodicals ranging from the semi-official Deutsche Allgemeine Zeitung through the more ‘popular’ mass press to the satirical Kladeradatsch. In 1920, Stinnes joined with a group of equally reactionary tycoons – Vögler, Kirdorf and Siemens being the most prominent – to found the Siemens-Rheinelbe-Shuckert Union, a trust whose vertical and horizontal tentacles reached out into virtually every sector of the German economy. At its peak, the Stinnes empire accounted for one-eighth of Germany’s industrial production.
18. ‘Industry was in desperate need not only of money for the purchase of raw materials; it cried out for capital to invest in the restoration and improvement of its means of production. To expect this capital to accrue from even the most economical management and from the thriftiness of the population was a waste of time. A much quicker result could be achieved from the proceeds of a foreign loan. In the course of the next few years a considerable proportion of business firms had incurred debts on foreign loans.’ (Schacht, My First Seventy-Six Years, p 217) Schacht’s continual campaigning against what amounted to a policy of economic and social concessions to the working class (financed largely by US loans) led him after 1929 to seek an alliance with the Nazis against the labour movement, which stubbornly refused to be reduced to conditions of ‘thriftiness’ in order that big business should continue to prosper.
19. Schacht, My First Seventy-Six Years, p 95.
20. Krupp topped the wealth league in heavy industry, with a personal fortune of 200 million marks, followed by Petscheck, 150 million, Thyssen, Haniel Wolff and Ottmar Strauss, each with 50 million. In manufacturing, von Opel (of the car firm of the same name) headed the list with 120 million marks, while Siemens followed him with 20 million.
21. Which brings to mind a guiding principle of the founder of modern ‘work study’ methods, Frederick Taylor, who in his Shop Management (London, 1919) wrote that ‘all employers should bear in mind that each shop exists first and last and all of the time for the purpose of paying dividends to its owners’ (p 143). Taylor, and even more, Henry Ford, were taken as models for emulation by modernising and rationalising German employers. Nor were trade union leaders immune from the work study contagion. ADGB Chairman Theodore Leipart sat on the board of the Kaiser Wilhelm Institute for Labour Physiology in Dortmund, presided over by Dr Edgar Aler, a leading researcher into the new science of labour physiology, while in 1920, a 17-man ADGB delegation visited the USA to study mass production techniques, returning home convinced that Henry Ford was pioneering a new economic order. The German Metal Workers Union declared that the unions ‘do not oppose the conscious merging of similar industrial establishments, under the stress of technical progress, into concerns and superstate organisations, since these are preparatory steps to the coming socialistic communal economy’. The SPD Vorwärts was no less opportunist in adapting to the growing power of the big monopolies, saying of Stinnes that he brought ‘capitalism into the chrysalis stage, from which one day the socialist economy will emerge as a full grown butterfly. Let us not disturb him in his work. Socialists may yet acclaim him as one of their greatest men.’ It was not socialism, but its counter-revolutionary opposite, fascism, that emerged from the monopoly capitalist ‘chrysalis’, as Vorwärts was later to discover.
22. Total unemployment figures for the period were: 1924: 0.4 million; 1925: 0.2 million; 1926: 2.0 million; 1927: 0.35 million; 1928: 0.6 million. Not surprisingly, the year of the most intense rationalisation and monopoly concentration was also one in which the jobless rate climbed to its highest point before the onset of the great crisis in 1929-30.
23. Of the 1.8 milliard marks loaned up to 1928 by overseas investors to private industrial undertakings in Germany, 0.8 milliards was borrowed by the mining and steel combines, and another 0.4 milliards by the electrical engineering industry. And overall the German economy was dependent on foreign loans to a remarkable degree for its capital accumulation. In 1927, an especially good year for domestic investment, German-owned accumulated capital was less than twice that imported from abroad, 7.6 milliard marks as against 4.4. Once again we can see that the foreign capital market – principally that of the USA – was a prime factor in not only stabilising the German economy, but in sustaining its growth.
24. The relevant sections of Marx’s Capital are to be found in Parts II, ‘Conversion of Profit into Average Profit’ and III, ‘The Law of the Tendency of the Rate of Profit to Fall’, Capital, Volume 3 (Moscow, 1962), pp 140-261.
25. Marx also refers to another means of equalising the profit rate, namely the migration of capitals away from areas where the rate of profit is low to those where it is higher. Yet here, too, the capitalist can encounter a series of pitfalls. Firstly capital tied up in heavy industries such as mining or steel does not lend itself to employment elsewhere. The capitalist must therefore either find a buyer (unlikely in view of its low rate of profit, unless the state is prepared to nationalise his firm with good compensation, as in the case of the British Labour government of 1945-50) or, as in a period of acute depression, sell it off as scrap. Then there is a further difficulty, concerning not so much the individual capitalist as the entire class of employers. If capital migrates from industries producing the means of production (department I) to those producing consumption goods (department II) in the search for a higher rate of profit, then this will tend to disrupt the equilibrium between these two intimately interrelated spheres of production, causing a famine in the means of production, and an overproduction of consumption goods.
26. Landed property-owners found Weimar’s social welfare legislation no less irksome. A survey of nine Westphalian farms showed that whereas in 1913-14, taxes and social contributions amounted to but 20.36 per cent of their income, in 1925-26 this ratio had tripled to 64.57 per cent. Here indeed was common economic and political ground for an alliance between agrarians and industrialists against the Weimar Republic.
27. Schacht, The Stabilisation of the Mark, pp 220-28, emphasis added.
28. Not that Schacht failed to appreciate the force of circumstances that led to such a policy being adopted by the Social Democrats: ‘The end of the war had been attended in Germany itself by revolutionary portents and had raised revolutionary [that is, Social Democratic – RB] politicians to posts of responsibility. Revolutionaries, however, are only kept within bounds if the masses can perceive some outward advantages to themselves. Instead of making up their minds, after their defeat, to live and manage on the most modest and economical basis, everyone succumbed to the demands for increased standards of living and a good time in general. At the head and front were the municipal corporations with a preponderance of Social Democratic circles and those with similar tendencies.’ (Schacht, My First Seventy-Five Years, pp 217-18) Elsewhere Schacht recalled that ‘the battle for votes impelled all parties without exception, but especially those of the left, to let as much foreign money as possible into the country in order to create cultural and social comforts for the people’ (H Schacht, The Magic of Money (London, 1967), p 47).
29. At the peak of the postwar boom, in 1928, 67.7 per cent of the national income was distributed in the form of wages, salaries and pensions, while of the remainder, 30.4 per cent, accrued to the owners of property. This marked a drastic diminution of capital’s share in the national product, which in 1913 had been 49.7 per cent as against 48.3 per cent to wages, salaries and pensions. In the crisis which began in 1929, big business found such a division of the spoils of labour intolerable. National Socialism was the means it used to restore the return on capital which it enjoyed in the last years of Imperial Germany.
30. This steady movement away from right-wing extremism continued right up to the onset of the 1929 crisis. In the Reichstag elections of 20 May 1928, in which the two workers’ parties polled 39.4 per cent of the total vote (SPD 9.1 million, KPD 3.3 million) the DNVP voted declined by nearly 1.9 million, while the Nazis slipped yet again to 810 000. It was only due to the failure of the KPD leadership to unite the working class behind a policy of revolutionary struggle against monopoly capitalism that drove the petit-bourgeois masses back towards the right and into the eager embrace of the Nazis.
31. Schacht, The Stabilisation of the Mark, p 244.
32. In November 1928, at a time when reformists were still sunning themselves in the boom, and SPD theoreticians such as Rudolf Hilferding were writing about the merits of a crisis-free ‘organised capitalism’, Stresemann warned: ‘I must ask you all to remember that during the past years we have been living on borrowed money. If a crisis were to arise and the Americans call in their short-term loans we should be faced with bankruptcy.’ Which is exactly what did happen a year later.
33. Hitler’s Secret Book (New York, 1961), pp 22, 99.
34. F von Papen, Memoirs, p 108.
35. Von Papen, Memoirs, p 121.
36. We must always remember that this principle does not apply to countries such as Chile and Greece – to cite but two recent examples – where the organised proletariat comprises a small proportion of the population, and where, therefore, a truly Nazi-style mass mobilisation of the petit-bourgeoisie against the labour movement is not absolutely essential for the overturn of bourgeois democratic or Popular Front-type governments; though in Chile, wide sections of the middle class alienated from the Allende government did provide invaluable support for the military during the first days and weeks of their coup.
37. G Stresemann, Diaries, Letters and Papers, Volume 2 (London, 1935-40), pp 364-65.
38. Stresemann, Diaries, Letters and Papers, Volume 2, p 365.
39. Stresemann, Diaries, Letters and Papers, Volume 2, p 384.
40. Stresemann, Diaries, Letters and Papers, Volume 2, p 385.
41. Stresemann, Diaries, Letters and Papers, Volume 2, p 385.
42. Stresemann, Diaries, Letters and Papers, Volume 2, p 390.
43. LD Trotsky, ‘The German Puzzle’ (August 1932), The Struggle Against Fascism in Germany (New York, 1971), p 269.