As labor and food problems were being resolved in the most inhumane ways, another obstacle loomed. If the slim thread of German hopes rested on completing the defeat of the Red Army in 1942 and seizing the oil, food, and raw materials of European Russia vital to the confrontation with the Anglo-American powers, the offensive capacity of the Ostheer, or at least Army Group South, had to be rebuilt as quickly as possible. This, in turn, required a drastic increase in weapons production from the armaments industry, a sector of the economy that was sputtering badly as a result of a variety of overlapping problems. Just six months after his mid-July decision to reorganize the armaments industry in favor of the Luftwaffe and the navy, Hitler now had to reverse course and give priority to the army, but production lines could not simply be switched overnight. This constant shifting in weapons priorities also made the rational allocation of scarce resources difficult, especially in the absence of any clear central direction of the war economy. The welter of agencies clamoring for dominance over the war economy made things worse as it led to a confusion of responsibility and stifling bureaucratic interference. In addition, the catastrophic state of the transport system slowed the delivery of vital raw materials, especially coal, which resulted in crippling power shortages and the shutdown of numerous factories. The shortage of labor and lack of key raw materials further hampered production, especially given the reluctance to make severe cuts in the civilian sector. Even the celebrated Nazi effort of the 1930s to win the support of workers through appeals to quality German craftsmanship backfired, as antiquated modes of production resulted in the waste of scarce materials and left many firms resistant to rationalization and mass production methods. Despite having access to the resources of much of Europe, the German war economy was badly underperforming. As Fritz Todt noted in January 1942, with obvious understatement, Germany “should have been more prepared to fight a total war.”49
Reeling from the crisis in front of Moscow, German economic leaders now scrambled to put just such a system in place. On 15 January, Goering demanded a rigorous conversion to a war economy, emphasizing that the civilian sector could no longer be maintained at existing levels and that all production capacity should be concentrated on the needs of the Wehrmacht. On the twenty-first, General Thomas echoed Goering’s opinion and took the further step of calling for the German war economy to be centrally controlled. Thomas obviously expected that he would be the person given extensive powers to manage the armaments sector, but, in a blow to the military, he was outmaneuvered by Todt, who, as minister for armaments and munitions, had already taken vital steps to rationalize arms production. An advocate of doing away with the “inertia of the old,” Todt had earlier pioneered a system of industrial autonomy that left the development and production of weapons and equipment to industry. In December 1941, he sought even greater efficiencies of production by replacing what had been a cost-plus system of letting contracts, in which firms were reimbursed the full production costs as well as a profit based on a percentage of the costs, in favor of a system of fixed prices. In the former, firms had little incentive to cut costs since, the greater the expenditure, the larger the profits. With the fixed-price system, Todt introduced greater competition, forcing firms to rationalize production, reduce costs, and work more efficiently. The firm that had the lowest production costs for the same performance was now the yardstick for all others. Those firms that chose the lowest price calculated by Todt’s ministry for a particular product did not have to pay any taxes on its manufacture, while those choosing the middle price category had to pay taxes. Those electing the highest price had to prove special difficulties. Under the new system, a manufacturer who did not cut costs quickly, which, in practice, meant increasing productivity, was soon eliminated from the supply chain.50
Despite the improvements promised by his system, Todt understood that, for production levels to rise significantly, the entire German economy had to be mobilized fully for war. By the end of January, he presented Hitler, who greatly admired his talented minister, with plans for the centralization of the German armaments industry. Hitler, now aware of the gross inefficiencies of weapons production and eager to increase the output of weapons, backed the changes. On 6 February, Todt chaired the first joint meeting of all the committee chairmen in the Ministry for Armaments and Munitions, at which time he revealed that the focal point for the reorganization of production had been switched from the army to his ministry. His triumph, however, proved short-lived. Two days later, after a contentious private meeting with Hitler at Rastenburg, Todt’s plane burst into flames shortly after takeoff and crashed, killing all aboard. The nature of his death and the fact that Hitler rejected the findings of the crash investigation and personally dictated the official version led to speculation at the time and since that Todt had been murdered, although by whom remained unclear. Suspicion naturally fell on the Führer, but, even though Todt expressed doubts about the war to Hitler, he nonetheless remained a loyal and dedicated supporter who had just taken energetic efforts to reorganize war production. Speculation has also centered on the SS, but the most likely culprit was Goering, a man rapidly losing his influence and control over the economy to his ambitious rival. Goering, in fact, hurried to the Führer immediately on learning of Todt’s death in order to declare himself ready to take over the latter’s tasks, only to find Hitler already meeting with Todt’s successor, Albert Speer. The unaccustomed speed with which Hitler had named Speer the new minister of armaments only confirmed his intention to maintain the changes Todt had introduced and to avoid a relapse into the tired intrigues and rivalries that had plagued war production until now. In March, he made this clear when he finally approved the subordination of the entire economy to the needs of the war.51
Whatever the reality of Todt’s death, it now launched the meteoric rise of Albert Speer, who proceeded both to expand on and to benefit from the changes already introduced by Todt. The so-called production miracle launched by Speer in 1942 was, in fact, largely the result of a continuation of the reforms already set in motion by Todt. Key to Speer’s success was both tighter administration and central control of important physical resources such as raw materials, factory equipment, and labor as well as the standardization of production practices. Speer also introduced a system of industrial committees, a fundamental change in regulatory practice that aimed at mobilizing industry through a process of self-regulation, by which industrialists would be allowed input into the allocation of raw materials and the awarding of contracts. In April, he established the Zentrale Planung, a central planning agency that permitted the coordination of all armaments plans that came under his jurisdiction. Although the Luftwaffe and the navy retained their independence, in practice Speer cooperated closely with Erhard Milch, the head of Luftwaffe armaments programs, thus extending his influence. Speer also staffed his new offices and committees with younger men from an engineering and business background, bringing needed expertise into the design, development, and organization of weapons programs as well as allowing him to circumvent army obstruction.52