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The Wages of Destruction: The Making and Breaking of the Nazi Economy: There's a pop history view of Nazi Germany where their policies initially led to high economic growth, and Germany ended up with a modern, mechanized army that they used to crush neighboring countries, until Soviet manpower and American military equipment finally turned the tide. This book is a helpful corrective: much of that story is completely backwards, though Germany did manage to put itself into a few situations where the part of the front where the fighting happened was where their newest tanks and best troops were. But the whole process was a lot more slapdash and incoherent than it might look.

One way to look at Germany's economic history in this time period is to consider the classic postwar growth model, applied to best effect in East Asia. That model was: use land reform to break up big agricultural estates and give the people working the land a bigger incentive to produce more food; take advantage of that increase in calories per acre to encourage labor-intensive export industries like textiles; use the foreign exchange from selling textiles to invest in heavy industry; move up the value chain from steel and chemicals to cars, machine tools, electrical equipment, etc., and probably level out somewhere in the upper reaches of middle-income status.

Germany in 1933 had many of the ingredients for that: a big and inefficient agricultural sector, some promising heavy industry, a great education system that could train the engineers and administrators necessary to run a modern economy. They also had a high unemployment rate, industrial overcapacity, and a housing shortage, all of which are helpful ingredients for a fiscally-dominant policy of deficit spending in order to promote investment in useful products (i.e. new housing) while stimulating demand. Unfortunately, they were run by a regime that had a number of crazy views, which a) precluded sensible policy, and b) made them a global pariah subject to retaliatory tariffs and constantly facing the risk that their raw material imports would be cut off. So, instead of betting on comparative advantage and benefiting from global capital flows, Nazi Germany followed an autarkic approach where they carefully controlled their imports in order to limit the leakage of hard currency.

Democracies are superficially a more politicized way to organize a country than totalitarian dictatorships with a cult of personality, but that's partly an illusion; dictatorships have internal politics, too, just of an opaque kind. The pragmatic thing for the German economy was to deemphasize farming, which was not going to be Germany's long-term comparative advantage. But farmers supported the Nazis, and the Nazi narrative celebrated independent small-scale farmers more than it did factory workers and engineering professors. The Junker elite, with their massive agricultural estates in Prussia, were also a key interest group. So the Nazis imposed various sweeping controls on both the prices of agricultural products and the ownership of farms, but didn't break up ownership of the big ones, and basically froze that sector of the German economy in time.

They did invest significant amounts in industry, but most of this was for aircraft, guns, and (especially) ammunition. So in the prewar period, the German economy grew fast, but household consumption stagnated: incremental output per hour meant that they could support a bigger and better-armed Wehrmacht while holding output constant, and that's what they chose to do.

Throughout the story, one of the pressing concerns is foreign exchange: Germany needed hard currency to buy imports, but had few ways to get it, and constantly risked credit crises when they funded deficit spending through the banking system. Reading about how they managed a program of massive infrastructure investment (the autobahn, fortifications on the French border) and a huge rearmament spree led to a sort of state-driven financial engineering equivalent to the demoscene, i.e. coming up with as many clever tricks as possible in the face of arbitrary constraints. Some of this involved finding places where the state could borrow, or could constrain consumption (they convinced a huge number of Germans to put down big deposits for cheap Volkswagens, which never actually ended up getting produced). In some cases, they recreated older forms of financial chicanery: at one point, Germany had defaulted on its debts, but still wanted to trade with its neighbors, and used reduced tariff barriers as an indirect means of paying them some return on their loans—this is exactly the structure that the Peruzzi and Bardi companies used in the 14th century in order to get around usury restrictions—if they lent a Duke 1,000 florins, instead of charging 8% interest they'd just get an 80-florin reduction in tariffs each year.

Internal economic policy had an element of insane whimsy to it that occasionally worked well (they built the autobahn) but often turned out to borrow from the future at a steep interest rate (the autobahn was funded in part by taking resources away from the Reichsbahn, the state railroad, which led to snarled transportation by the time hostilities started). For a while, Germany had an aggressive program of building new housing, but they tapered that off because the military needed so much steel and labor.

Constrained financial flows were both a cause and effect of a more literal, tangible view of the economy. Britain and the US could afford to think of a global market where they might source different raw materials from different places, build some manufactured goods themselves and trade for other things they needed. Nazi Germany tended to look at things in a more direct way, where their food supply, for example, was not whatever they could buy on the global market but whatever they could produce within their borders. (Private Empire, a book at Exxon, has a fascinating scene in which American and Chinese policymakers have exactly this disagreement—the Americans are, willfully or not, oblivious to the fact that a global market for raw materials exists only for the countries America permits it to.) Conquering a substantial portion of Eastern Europe, and depopulating it, was the only way to make their model work.

There's a weird dynamic with how Nazi Germany talked about war internally and externally. Their basic view seemed to be that Germany could be invaded at any time by its larger and better-armed rivals, who were overreacting to Mein Kampf's explicit claim that Germany needed to invade its neighbors. So they had no choice but to go ahead and invade their neighbors. Their early war plans were fairly long-term, with lots of plans to be at full strength in different parts of the military in the mid and even late 1940s. Then they realized that neighboring countries were making the flagrantly provocative decision to also arm themselves in order to fight a belligerent neighbor with a massive military. It's always striking to look back at Germany's history over this period and see it as a sequence of lopsidedly bad bets that all happened to work—every threat, annexation, and invasion all the way through Barbarossa had some element of a bluff, and because many of these decisions were made hastily and under a great deal of uncertainty, they came as a surprise because they just didn't make sense. The last big gamble was that Germany could secure a food source, oil, and manufacturing capacity by invading the USSR, and this had to work because there's no going back from invading a country with which you've recently signed a non-aggression pact. The only plausible endgame was for Germany to win a quick war and become an autarkic hermit kingdom. And that invasion had to happen very fast, because there simply wasn't enough transportation infrastructure to supply the German army once it got deep into Russian territory. There just wasn't a plausible compromise between a Reich that annexed most of Western Russia and a Reich that completely collapsed.

The sense this book gives is that if you run the simulation 100 times from 1933, almost all of them lead to an outcome where the war either doesn't start or ends earlier. Hitler could only really function in an unstable world where he could keep everyone guessing, and as soon as there was any sense of inevitability, his bluffs would start getting called. Germany wasn't materially capable of winning a world war, and the geopolitical situation at the time meant that there was little chance that they could fight a more limited conflict than that.

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