COPY
Reich and Prussian Ministry of Economy General Consultant
Berlin, W. 8, 2 April 1937 Behrenstr. 43 Telephone: A6 4351
Please refer to above heading and subject in future correspondence
Secret
My dear Colonel,
Herewith enclosed I send you privately a copy of a letter written by President of the Reichsbank, Dr. Schacht, to Prime Minister General Goering, for your confidential information.
Heil Hitler!
Very truly yours,
[signed] Blessing.
To Colonel Thomas,
General Staff Corps.
To Prime Minister General Goering
Commissioner for the Four Year Plan. 2 April 1937.
SECRET
My dear Prime Minister:
You were kind enough to send a letter to me, dated March 24, written by the Reich Commissioner for price control to you, in order that I may voice my opinion. I return this letter herewith and desire to make the following comments:
I fully agree with the Commissioner for price control that we should exploit by all means the present chances for export trade. Further, I agree with him when he says that "Germany-at present does not take nearly sufficient advantage of the present situation in world trade, either to the fullest possible extent or with the greatest possible energy". As a matter of fact the obstacles which the world trade presented to the German export trade in the past, have become much fewer, particularly in the last few months. Caused by the international armament boom the purchasing power of the raw material producing countries has markedly increased and their desire to purchase industrial investment goods and finished products has risen. Long planned building projects like constructions of railroads, electric power plants,
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foundries and rolling mills, new construction or enlargement of factories, replacements of plants, long delayed during times of crises are now being carried out everywhere speedily. As a result, the prices for a number of German export products have risen considerably. This is especially true for products of the iron producing and foundry industries, for machine tools, special products of the precision type and optical instruments, as well as for the sale of cellulose and for mills producing paper. These signs of revival on the world market, however, do not concern at present the products of the glass, ceramics, wood products, by far the largest part of the iron and sheet iron and metal products (hardware) industries, textile amd clothing, large fields of machine construction, especially textile machinery and paper producing machinery. The same applies for great investment transactions for which strong international competition exists since countries which usually compete for such items on the world market, such as Italy and Czecho-Slovakia, use their unutilized capacities exclusively for export purposes.
If, therefore, in the face of such developments on the world market, the value of German export has not increased more, then the reason is not, as the Reich Commissioner for price control assumes, that my export policy was not adopted fast enough to-a new situation; on the contrary the fault lies with handicaps of a decisive nature which the German export industry experiences from within. I do not wish to burden you, my dear Prime Minister, with particular instances, of which I could cite many, but I would like to confine myself to a short description of these handicaps:
a. German economy brought into high gear through armament and the Four Year Plan very frequently induces the German manufacturer to neglect exports in favor of lucrative domestic business with risk.
b. Although the supervising agencies under me have strict orders to give priority in the distribution of raw material destined for export shipments, the lack of raw material for export orders becomes more and more noticeable. In many cases it does not help the firms engaged in the export business if they merely get the raw material required for an immediate foreign order, because they cannot break even without having at the same time domestic business for which raw material is not available in sufficient quantities. A further point is that in the industries which make semimanufactured goods or parts, it is impossible to ascertain whether the raw material contained in such parts is destined for foreign
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or domestic markets. In these industries, therefore, special raw material difficulties appear which make the exportation of the final product more difficult.
c. Armament and Four Year Plan have absorbed so many skilled workers that an extraordinarily serious lack of suitable labor has arisen for the production of articles for export. This applies especially to those industries which have the greatest chances to export.
d. Extent and urgency of army orders and recently also of the orders for the Four Year Plan have taxed the capacity of the German industry to such an extent that for the fulfillment of export orders insufficient or no facilities at all remain.
As a result, German industry has to delay delivery for export to such an extent that foreign buyers prefer to buy in Switzerland, Sweden, Belgium, the United States and Czecho-Slovakia. Frequently time of delivery agreed upon cannot be kept, a fact which must destroy the confidence in the German businessman as to his desire and capability to deliver the goods.
Aside from the export difficulties already mentioned, doubts have recently arisen with firms engaged in the export business as to whether the point of view always represented by me, namely that export business has priority over domestic business, was still valid. The Office for German Raw and Synthetic Material has recently repeatedly expressed the opinion to a large circle of business men that the principle of priority supply for export shipments which was in force until now and has been formerly acknowledged by you in the Inner Cabinet has been abandoned or would not be enforced any more to its fullest extent. Aside from the fact that such contradictory orders cause uncertainty and unrest in economic life, it is obvious that a number of firms see in the opinion of the Office for German Raw and Synthetic Material a welcome opportunity to refuse export orders which are less desirable on account of the greater risk and effort involved.
If I understand the letter of the Reich Commissioner for price control correctly, he seems to be of the opinion that we have accepted lower prices for our export products than we could have achieved with the prevailing tendencies of increasing prices in the world market and through this the proceeds of foreign exchange have been reduced. May I first of all state that it is incorrect that there is a scarcity of goods practically all over the world. As I have already explained, the boom is different in various categories of goods. Whereas in some categories, as for example in semi-finished iron parts, machine tools, precision instruments,
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optical products and cellulose, as well as in paper products, there exists a definite scarcity, there has been no boom in a number of other export goods. Therefore, one cannot generalize the boom which is most intense in very important fields, and it would be wrong to assume that in a short time the prices in foreign markets would generally surpass the German domestic prices. To cite an example, may I point to the fact that the unutilized capacities of the English and Japanese textile industries are still exercising a constant pressure upon the textile markets of the world.
In all fields where tendencies of increasing prices were noticed, I took immediate steps in order to obtain higher prices for our export goods. You will know, Mr. Prime Minister, that in 1935 I set up a price control agency for each export group, altogether 25, whose main duty it is to secure the highest prevailing prices for German export goods. These control agencies constantly watch over the export, compare the prices, and report about possible changes of export subsidies. Thanks to the activities of these control agencies, the customary cut price policy by German exporters competing against each other has been limited to the lowest possible extent. Only with the help of the control agencies was it possible to give that flexibility which was necessary in order to adjust constantly the prices in accordance with the price developments of the world markets. Due to our extremely scarce foreign exchange situation, we could however not afford to change the German export prices abruptly, because we must avoid by all means even a temporary stoppage of our exports. Nevertheless, we have, in all fields in which price increases were noticed or could be expected with some certainty, cut or even cancelled the subsidies without delay. Just to cite a few examples, in August .1936 the export subsidies for pile-planking iron were reduced from 24% to 10%, on 31st October 1936, the subsidies for ship profiles from 17% to 8%, on 24th November 1936, the rates for grooving machines, free-form-forged-prices and quality bar iron from 26% to 15%. In the last few weeks, the subsidies for the entire iron producing field (plates, pipes; mine tracks and so forth) have been considerably reduced, or even cancelled. In the same manner have subsidies been considerably reduced or cancelled in the field of the machine industry, and especially where it was at all possible likewise in the field of special products of precision and optical industries. Compared to this, the possibilities for reductions of export subsidies in the field of the iron, sheet iron, and metal goods industries (finished goods) and the ceramic
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industries have been insignificant. For automobiles a reduction was not yet possible at all because the foreign automobile manufacturers have not yet raised their prices. When the Reich Commissioner for price control says that there is "not enough pressure applied against the entire export industry", then I would like ' to retort that in my opinion there is no better pressure than the fact that the exporter profits by his export business. This principle has of late conquered even the food-administration. Unfortunately, it happens frequently that the export prices, despite the improvements in various fields, cannot compete with the prices ' which are paid by the Army for their orders. Due to the fact that export subsidies are paid on the amount received from exports, the present system offers already an incentive for the exporter to get the highest possible foreign prices because thus he receives higher subsidies. Furthermore, the export prices unfortunately do not increase so generally and not to that extent above the domestic prices as supposed by the Reich Commissioner for price control, because in that case no pressure would be necessary in order to induce the German exporter to export and get bigger prices. Apart from the pressure already applied by the apparatus of the control agencies, I cannot see what kind of pressure could yet be invented in order to help the exporters to receive better export prices.
Although I do not quite agree with the Reich Commissioner for price control in regard to the export price question, I understand and share the deep concern which the Reich Commissioner for price control entertains with regard to the future German export developments. Rearmament and the policy of procuring employment up to the end of 1936 have been made possible by trade-political measures (new Plan), by decreasing non-essential imports in favor of essential imports, and in addition, by the stocks in hand and by imports of raw materials which were much larger than formerly. This policy was also successful because the extraordinarily good harvest in 1933 and the average harvests of 1934 and 1935 did not necessitate extraordinary imports for food purposes. The continuation of the armament policy and the execution of the Four Year Plan, which makes considerably larger demands for raw material than the procurement of employment policies of the years, 1933/1936 were jeopardized by the end of 1936 because on one hand the domestic stocks of raw materials were exhausted and because furthermore the imports from abroad, despite favorable results from exports, were not large enough to satisfy the increased demands.
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At this moment, in accordance with , your instructions, it has been undertaken to draw upon the substance of the German property abroad, with the aim of furthering the armament program and of carrying out the Four Year Plan. You, most honored Prime Minister, proceeded in this matter from the consideration that the decrease of Germany's foreign requirements would be vindicated by the fact that the German economy would strengthen its self-sufficiency by the investments to be provided by the Four Year Plan. To this let me remark that in spite of the increase of internal raw material production, the import requirements frequently do not only become less but become greater. Thus, in spite of the increase of internal production of light motor fuels from 570,000 tons in the year 1933 to 1,240,000 tons in the year 1936, the import of 922,000 tons (1933) rose to 1,208,000 tons (1936) because consumption rose from 1,491,000 tons (1933) to 2,448,000 tons (1936). The figures for crude oil (Gasoel) are the following: internal production 1933—60,000 tons, 1936—110,000; import 1933—490,000 tons, 1936—1,125,000 tons; consumption 1933—550,000 tons, 1936—1,235,000 tons.
The resort to German foreign property values has up till now had the following results:
a. Foreign exchange receipts from sale of
securities 130 million RM
b. Gold intake 25 million RM
c. Speeded up collection of outstanding export
and import claims from capital shares 227 million RM
Total: 382 million RM
Up till now this sum has been disposed of as follows :
a. For the total food sector 153 million RM
b. For the industrial sector to cover the most
pressing need in the first half year 1937 173 million RM
c. For the return of land arrears, Spanish
observation committee (Spanischer Ueber-wachungsausschuss) pp. 21 million RM
Total: 347 million RM
There is, according to this, a balance of 35 million RM.
The comparatively favorable results which were achieved during the last few months in the collection of foreign property values must not lead one beyond that, apart from the fact that the possibilities still existing here are no longer very great. At
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first the more easily realizable stocks were called upon, in order to achieve quick results; in addition the speeded up collection of outstanding export claims means that later continuous foreign exchange returns are decreased by the earlier deductions. I do not share the conception that one could achieve higher amounts by a legalized confiscation of foreign securities. To be sure, the securities can be transferred by confiscation into the hands of the Reichsbank or some other agency; but the possibility of their disposal in foreign countries is more likely to be reduced by the foreign countermeasures which are to be feared, particularly those of our creditor nations.
At the present tempo and rate of foreign exchange consumption, the proceeds from previous special collections will be used up at the latest by the end of 1937, to which the partially exorbitant increase of raw materials contributes decisively. At this I completely disregard possible unexpected events which could occur in the food sector. Thus, toward the end of 1937 we will have reached a situation in which we can fall back neither upon inner raw material supplies nor upon receipt from foreign property values of the German people. Then we are forced to derive the necessary import requirements only from the proceeds of our export activities, that is, we can carry out only as much of our programs as remains on hand after deduction of the necessary food requirement, for the import of industrial raw materials from export proceeds. The decisive problem is therefore the export problem.
As I have already set forth above, the possibility definitely exists for Germany, from the point of view of the world market, to considerably extend her exports at comparatively good prices at the expense of her competitors—here I entirely agree with the Reich Commissioner for prices—and thereby decisively to better her current foreign exchange and raw material situation, and in fact, much more as the ability of our competitors to deliver is considerably impaired in exactly those spheres which have been cornered by the world boom by preoccupation with its own armament. This applies particularly to Germany's main competitor: England.
These unusual possibilities for export, existing perhaps only for a comparatively short period, cannot be taken advantage of by Germany under the present circumstances because the internal obstacles to German export set forth above stand in the way.
In the present situation, lately made more acute by the fact that individual instructions have been issued by the Office for
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German Raw Materials and Synthetic Materials, as well as the procurement agencies of the branches of the Wehrmacht, to the effect that export orders are to be postponed, one must consider that export chances in the world market not only cannot be taken advantage of, but that on the contrary, one must count on a decrease of German export in the second half of 1937. [pencilled marginal note by Keitel: "this would be very regrettable!"] I therefore have fears that export proceeds and therewith the possibilities for imports will become less at the same moment that incomes from foreign property values will no longer be available. I do not have to emphasize that by such a development not only the carrying out of the Four Year Plan is jeopardized, but that the continuation of armament is made questionable, and in fact that much more if the result of the next harvest should make larger import requirements necessary. That such a development would influence the freedom of our foreign political dealings is self-evident.
I therefore emphasize, just as the Reich Commissioner for prices, my conviction that we should take advantage of the chance offered to us by the world market. I am therefore of the opinion that we should promote our export with all resources, by temporary decrease of armament, and that further, with reference to the Four Year Plan, we should solve only those problems which appear the most pressing [pencilled marginal note by Keitel: "But we are doing that already!"] Among these I include the gasoline program, the buna program, and the program of developing internal resources of ores, insofar as this development does not of itself require large amounts of raw material which must be withheld from export.
On the other hand all other measures of the Four Year Plan should be postponed for the time being. I am convinced that by such a policy, our export could be increased so greatly that our exhausted stock-piles would experience a certain improvement and that the resumption of a strengthened armament would again be possible in the not-too-distant future from the point of view of the raw material situation. To what extent a temporary postponement of armament would have military advantages, I am unable to judge. Yet I would suppose that such a pause in armament would not only have advantages for the training of officers and men, which has yet to be done, but that this pause would afford an opportunity to survey the technical results of previous armament and to perfect the technical aspect of armament.
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I would be thankful, most honored Prime Minister, if you would consider present developments from these viewpoints.
To President Dr. Schacht with the request for acknowledgment.
Honorable Prime Minister!
On the occasion of the last conference accorded me, on Wednesday, the 17th of this month, I referred to the question of export, and along with it our faulty methods of action. In almost every general council meeting since the middle of November, I have called attention to the price development of the world market and continuously pressed the gentlemen of the Ministry of Economy, to take advantage of the openly changing situation with stress, for the benefit of the German export and a completely substantial increase of our export price. Unfortunately I had time and again to observe along with the gentlemen of the R.W.M. also in other various kinds of transactions, that they didn't believe the opening developments of the world market would last for any length of time, and for that reason they took a hesitating attitude, which, according to my opinion, did not contribute to Germany's advantage in the export price.
In the meantime they have changed in the Ministry of Economy to a certain degree and try now to catch up with export prices.
My latest findings, which on my part are never based on theory, but are explained by facts, have strengthened by conviction that the present situation of the world market is not being taken advantage of to the full extent and with all possible energy on the part of Germany. It is beyond doubt that in the whole world, scarcity in nearly all goods prevails and at present prices are offered which only a few weeks ago were believed to be impossible. I do not mean to include in these prices the prices for
Heil Hitler! Your respectful (Hjalmar Schacht).
Prime Minister General GOERING
[signed] GOERING Berlin, W. 8, 24 March 1937. Leipziger Platz 7.
Commissioner for the Four Year Plan Reich Commissioner for Price Control
T.—Nr. pers.
Prime Minister General GOERING Berlin W 8
Leipziger Strasse 3 PERSONAL!
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products which are needed everywhere. At the present we are no longer very far removed from the moment in which the prices for goods on the world market will exceed our prices within Germany. This fact already is beginning to appear variously. Thus a German export deal for paper to the Far East at the price of about 24 RM for 100 kg was concluded while the normal price within Germany is around 20 RM or 21 RM.
The various gentlemen who have been active in export for years and whom I know as extraordinarily active confirm to me continuously that we are very well in the position to drive up our prices for finished goods to be exported.
In my opinion, this demand will not be realized to the full extent on all sides because sufficient pressure does not stand behind the entire exporting industry and because appropriate measures are not used.
In this case our export subsidies play a very important role. As you well know the difference between the domestic price and foreign price striven for in the export is paid to the export firm through this subsidiary agency. With all its disadvantages which are necessarily brought about in such a procedure, it was without doubt desirable in the past.
Today we must change this procedure according to my opinion, slowly and surely and with a steadily increasing tempo. Pressure must be exerted on the exporting firms, to force them to agree on prices for the goods, which as soon as possible must be adjusted to our normal domestic prices.
Even though I may not be able to present in this letter these matters in their entirety, which must be considered here, I nevertheless believe I have made it sufficiently clear as to the way with which they must be dealt, in order to extract the utmost for Germany from the present world market development.
I am convinced that in this manner we may attain many millions more foreign currency.
In this connection I think it necessary to point out a second train of thought, time and again defended by me. We must succeed in repressing home consumption in several fields, thereby freeing goods for an increased export with energetic leadership and continued pressure on the economy in the next 6 months, which will be for our benefit towards the end of the year and during the year 1938 in the form of great gains in foreign currency, and which will then place us in a position to buy the products needed for Germany against cash on the world market. According to my reckoning, one will be able towards the end of this year
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to buy foreign currency for cash everywhere, because the present boom in quantities and prices naturally will cause an expansion of production of raw materials, etc. If the unexpected rise of today goes down in the coming year, contrary to expectations, it would only be a gain for us, because then we would be able to buy at considerably better terms with our great foreign currency surplus of this year.
If I speak of the restraint of domestic consumption for some goods, I cite in this respect as an example our present paper consumption in Germany. From the year 1935 to 1936 our domestic consumption of paper per capita has risen from 29.76 kg to 33.27 kg, even though the consumption of paper for the press, on the other hand, in 1932 and other years still stands at 10—12% lower. We can today strive for prices for paper—as already mentioned above—which are better than our domestic prices. I have presented two vital points in general with these representations, which must receive the strongest consideration on the part of Germany, and should influence most strongly our political trade position with respect to export in order that we can make use of a situation in 1937/1938, which today no one indeed can overlook. On concluding I still deem it necessary to mention something. The present price development, which is also set before all things for finished goods on the world market to a great extent, will last longer because England too is extraordinarily interested in this. In this way England wants to reduce her cost of rearmament to a great extent. She has always bought her raw materials for this and perhaps also for the next year, in as much as they were accessible at all, for foreign currency at substantially more favorable prices, and has assured herself priorities and attained gains by means of the highest possible prices for half-finished and finished goods, which substantially ease the total mobilization costs. Today it is presumed by all that there will be a longer duration of the present development, because of which we must prepare appropriately, as far as export is concerned, for more than a full year.
Heil Hitler!
Your very obedient [signed] WAGNER (Gauleiter JOSEF WAGNER
—Reich Price Commissioner 1936/42)
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