World War II: National Economies

Nazi industry
Figure 1.--The Germans loved photography. We thus have enumeravle snapshots of Hitler Youth boys during the 1930s lining up marching down German streets. What we do not see on German streets is many cars and trucks. And in small towns and villages wer commonlysee more horse-drown carts than trucks. Even in Berlin and other large German cities, the streets are rarely crowded wuith motor vehicles. The reason for this that there were not all that mny cars in Germany. Berlin was Germany's largest city with 4 million people, yet there were only a little more than 50,000 cars in Berlin. (Today there are 1.2 million cars.) This was because few Germans could aford cars, for many a bicycle was a major purchase. And this impacted Germany's industrial development. Hitler launched the war with an economy that had aimited capability of producuing motor vehicles and a Wehrmach that still relied heavily on draft amimals.

The Axis allied with the Soviet Union at the time of World War II had succeeded in gaining the balance of military power in the world. After the fall of France, if the NAZIs and Soviets had been able to coexist, the Allies would have not had the military power to reenter the Continent. This is in sharp contrat to the economies of the the Axis countries. The two largesteconomies of the world were the United States ($66 billion annual output) and Britain ($21 billion). Britain and France ($12 billion) had a national output nearly double that of Germany ($18 billion). The Soviet Union ($15 billion) has a national output roughly comparble to Germany. Italy had an especially weak economy for a country preparing for war. [Clark and Maddison] Data on Japan was not included in the studies we consulted, but would be a fraction of the major world powers. The German numbers are somewhat misleading. Germany had some of the leading world corporations with cutting edge technology. The Germans had not, however, developed American mass production techniques especially in the autimotive indusyry, in part because of the relatively small size of the domestic market. The most productive German automobile manufacturer was Opel, asubsiduary of General Motors. And whole the Germans had many advanced corporations, a sizeable part of the manufactured output was produced by small or medium-sized companies operationg what might be called workshops. Germany also had a relatively inefficent agricultural sector. Despite its vaunted reputation, the average American had an income and life-style beyond the imagination of the average German. And that economic difference affected the military power that the two ecomnomies were capable of generating. The same economic situation also described Britain and France to varying degrees, but both had more efficent agricultural sectors as well as empires with access to raw materials. The Soviet Union was much less economically developed than Western Europe, but as aresult of Stalin's policies had expnded heavy industry. American companies had helped expand Soviet production of cars and trucks. And the Soviet Union like the Germans had concentrated on military production. Unlike the Germans, the Soviets had vast deposits of natural resources, especially oil. The German military successes before (especially the occupation of Czechoslovakia) and in the early phase of the War (especially the Low Countries and France) significantly expanded Germany's economic power base.

World Economy

World economic data gives us the ability to compare the economies of the belligerant nations. This gives us a rough idea of the ability of each country to wage war. The data has to be treated with some cution. The American and most of the European data seems reasonably straight forward, especiually the countries with freely convertable currencies. These countries had statistical systems tht were not contrilled by totalitarian political parties determined to generate propaganda and economic performance was part of their legitimacy. So impressive economic data was a proaganda tool. In addition, how to evlauate the value of output so as to compare the value of output when the currency is not freely convertable. This means that the Soviet and the German data has to be treated with some caution. another problem in using value data is labor cost. Soviet and Japanese labor costs, for example, were minima while American labor costs were substantial. Assessing the economic contribution of occupied countries is also a problem-although Italy and France are accounted for. Even so, the availble data is probably good enough to make rough comparisons and is more or less born out by living stndards nd production data like steel tinnage and numbrs of actual weaons (artillery, olnes ships, tanks, etc.). Several countries had a desire to go to War and fundamentally alter the interntional system (Germany, Italy, Japan, and the Soviet Union). None of these countries, however, had the ability to wage a world war, especially a prolonged war of attrition. The only country that had that capability was the United States. America had an economy twice the size of even a 1939 enlarged Germany and about six times larger than Japan (1939). And that differentil was even greater as the War pogressed, despite German increases as a result of their stunning military conquests (1940). In addition to gross production, America had within its border or through trade access to all the strategic materials and a unparalled industril capacity to produce the implements of war. In particular it was the world's major producer of petroleum. In addition its had an agricultural capacity to not only feed itself, but its Allies as well. Thus it had the capability to not only wage a two-front war, but war on world-wide basis on multiple battlefields. And once American production was combined with Bitish technology as well as and Soviet production, Hitler and his evil empire were doomed. Germany might have won a short war if Britain nd the siviets capitulated, but once he failed to defeat the RAF (September 1940) and the Red Army (December 1941), the war was lost for the NAZIs just as the stnd of the French Army on the Marne doomed the Germans in World War I. It would take over 3 years and the tragedy of millions of lives, but inevitably the massive industrial power of the enemies he made would leave German cities masive piles of rubble and Hitler dead and unmourned in his dank, dreary bunker.

Individual Countries

We are developing information on each of the World war II belligrant nations. For the most part the major European belligerants (Britain, France, Germany, and the Soviers were rouhly evenly matched and had the economy and technology to build formidble militaries. German victoris erly inthe war was because of the mssive pending Hitler authorized when seizing power as well as a higly professionl military. Germany did not have a larger economy than Britain and France, but it began massive spending in 1933 which gve them a huge advantage byb1939. The Germans were aided by Italy, Hyngary, and Romania as well as exploiting the occupied countries after launching the war. Britain was aided by its Empire. The major outlyers were Jaoan and the United states. Japan was the only industrial power in Asia, but was not in the same league the Europeans let alone the United stes. The country only becme a formidable power becuse it poured huge amounts of money into arms (1920s-30s) which America and Britain were limiting defense spending. Once the NAZIs and Soviets became locked in a life and death struggle in the east nd the red army syrbived theunitial NAZI blow, the War would be settled by the United States nd it massive economy. The only question becme how rapidly the united states could convert its formidable industrial power to War abd beung theresult floot of weapons abd equipmnt to bear in the NAZI War Machine. Even while neutral American began aidinn Britain and the soviets, but it was only the Japanese attack onnPearl Hrbor tht gave President Roosevelt the ability to fully convert the the economy for war. And the first call he mase was to General Motors Pressident William Knudsen, one of the 'Economic Royalists' he had been criticising for 8 years as part of his New Deal effort to end the Depression.


The United States by an enormous margin had the world's largest and most efficient economy. The United States ($66 billion annual output) included a massive industrial output as well as agriculture and raw materials. Especially important was America's oil production. The United States thus at the time of World War II was the only country with the economic capacity to wage war on a global scale. It was also the country least willing to wage war. Large numbers of American had pacifist geelings, esoecially the large German population in the Midwest, or opposed to getting involved in another European war fo a range of reasons. As a result, when war broke out in Europe the United States did not have a substantial army, let alone producing weapons in large quantities. The United States had engaged in limited naval construction and some development of planes. Even in 1941, however, American factories were turning out mostly car using large quantiires of steel, copper, and cromium rather than tanks and other military vehicles. The United States did not bgin to significantly increase military spending until the fall of France (June 1940), and even then the increases were still relatively modest. Hitler reached the same conclusion as the German High Command in World War I, he could complete his conquest of Europe before the United States could mobilize its substantial industial potential for war. After Pearl Harbor, the samne indutrialists that had been accused of war profiteering during World War II stepped forward to turn the Arsenal of Democracy into the most formibable war engune in human history. Within a very short period of time, America emerged from ddepression and unemployment to booming factories and alabor shortage. Presidebnt Roosevelt who had been accusing these men of being 'econimic royalists' personally recruited them tio transform the American economy. The United States not only had a vast industrial establishment, but copious natural resources, including oil, and ahuge agricultural potential. The United States financed the war effort by borrowing. There were a series of well-publicized bond drives. This not only generated money for the war effort, but helped to tampen down inflation.


Britain ($22 billion) had the second largest world economy. Britain and France ($12 billion) had a national output nearly double that of Germany ($18 billion). The British in cooperation with France could have built a military capable of stopping the Germans. Primeminister Chamberlain was, however, primarily concerned with preventing awar through negotiation rather than preparing to fight a war or even pursue it aggresively once Hitler launched the War. Britain not only had a substantial indusyrial base, but a very important research and technical establishment capable of developing modern weaponry. As a result, defeating Britian was essential in any German war plan. Hitler wanted to do so, but his focus from the ealiest days in Munich with the fledgling NAZI Party was on the East. And when the Luftwaffe failed to bend Britain to his will (JUly-September 1940), he could not resist delaying the titantic conflict in the East that he was determined to launch. As it played out, however, Britain did not have the capability to manufacture many of the weaponry and equipments its scientists developed. But America did, and this began even before America entered the War. America provided the economic aid Britain needed to continue the War through Lend Lease. And Britain provided America with aide range of research results on adanced weapons systems. Thiswas especially important because American arms research and development programs were relatively limited before the War. British industry was similr to German industry in that it has two destinct sectors. Yere were highly modern corporations using advanced technology nd production methods. There was also a less modern sector more like workshops. Unlike Germany, Britain had a fairly efficent agricultural sector. And another difference from Germany was that the Empire provided British industry access to raw materials--aslong as the Royal Navy could keep the sea lanes open. .


The Manchu (Qing) Dynasty finally fell (1912). China had been in turmoil for some time as a weakened imperial regime lost control of the country. The turmoil that followed the fall of the Imperial regime and the attempts of Republican forces to gain control further disrupted economic activity. The Republican era was a period of great turmoil and domestic disorder. Sun Yatsen and the new Chinese Republic were able to overthrow the Imperial regime, but not hold China together. Former imperial generals seized provincial areas. They fought with each other and the central Republican authority. In addition, the Jpanese after Worlkd war I became increasingly af=ggressive, insisting on their 21 Points. Students organized boycotts of Jspanese ptoducts, infuristing the Japanese. Chinese Republicans hoped that with the overthrow of the Manchu, that they could begin developing a modern economy. This did not prove posible of the warlords. Some areas descended into chaos and economic collapse. Eventually Chang Kai-shek and the Kuomingtang (KMT) finally seized control and both ended foreign control of treaty ports (except Hong Kong and Shanghai) and brought the war lords under control. They also defeated the Communists, almost destroying them. Mao's Communists would latter escape by the Long March into remote Yan'an, Shgaanxi. With the defeat of the War Lords, Chang began what is often described as the Nanjing decade (1927–37) for a united China. China made some economic progress during this time, including industrial expansion. Unlike Japan, China had made little progress in industrualization and was largely an agricultural society. Given the domestic threat from the Communists and the international threat from the Japanese wjo seized Manchuria (1931), the Government focused on industrial expansion on arms produvtion, mostly small arms. Despite continuing civil war with the Communists and Japanese aggression (Manchuria), China experienced a decade of relative prosperity. The KMT Government il war and Japanese aggression. The government began to stabilize tax collection, plan a national budget, and promote important construction and infrastructure projects, especilly communications and railroads. The KMT conceived ambitious national plans. The Communists after their post-War victory, dismissed the KMT as corrupt and backward. Actually until the Japanese invasion, China was making economic progress. The country's market economy was operating and China was growing economically. [Chow] This ended with the Japanese invasion of China proper (1937). Chang had attempted to avoid war wih Jpan knowing that agricultural China was not strong enough to effectivly resist. The Japanese forced his hand. Japan pursued its invasion of China with increbible brutality. The Rape of Nanking was a attricity without parallel. Large areas of China were laid waist. Even so, the Japanese were unable to defeat the Nationalists (KMT) who withdrew into the interior. Gradually, however, the Japanese seized more and more important agricultural land. This had two devestating effects. The Natioinlists wre increasingly unable to feed the population in the areas it cintrolled, espcially as refugees poured in fleeing the Japanese. Anbd the KNT behave increasingly ruthlessly seizing preasants for military service and crops to feed its army. This laid the conditions for a Communistvictory after the defeat of Japan.


The Dominions had relatively small populations, but fairly advanced economies: Australia ($3 billion), Canada ($5 billion), New Zealand ($1 billion), and South Africa (probably about $1-2 billion). Together, they had economies totally about $10 billion, substantially increasing the British economic potential and often not included in comparing the Allied economic potential compared to the Germans, at least before the Germans launched the War and occupied much of Europe. Canada played an especially important role in keeping Britain in the War, located as it was close to Bitain. It not only provided lage quantities of food from its Prarie Provinces, but had a sizeable industrial plant, tied into the Anerican industrial Midwest. That capacoyy would be converted to a war footing and used to build arms. Especially important was the large numbers of ships, primarily small escorts which played a key role in the Battle of the Atantic. In addition to the Dominions, the rest of the Empire, especially India, provided even greater economic power to the British.


France ($12 billion) even after the Versailles settlement had an economy much smller than that of Germany. Only with Britain as an ally could France hope to srand up to Germany. Even so it had a substabntial indusrtial sector that produced military equipment of high quality. French armor, artillery, and aircraft were competive with comparable German equipment. French military planning was, however, defensive. Huge resources were committed to building the Maginot Line rather than a large aur force and armored divisions. It would be fauly military doctrine rather than wepons quality that led to the German victory (June 1940). Thus France's substantial economic capacity was appropriated by the Germans. France had a substantial agricultural sector. France would become the most important support for the German war economy of all the captive countries. And Pétain adopted a policy of collaboration, essentially buying NAZI goodwill by cooperating with the German exploitation of the French economy.


Hitler launched World War II with the world's third largest ecomomy. The German numbers are somewhat misleading. Germany ($18 billion) had some of the leading world corporations with cutting edge technology. The Germans also had a very substantial research and devlopment capability. This can be seen in the number of Germans winning Nobel prizes. Ironically, the German anti-Semetic campaign would drive many leding scientists (espcilly phsicists) to Britain and America which would eventually aid the Allied war effort. The Germans despite their industrial and scientific prowess had not, however, developed American mass production techniques especially in the autimotive industry, in part because of the relatively small size of the domestic market. German war production would be affected by this. The Germans produced some of the fimest wepons of the War. They were often beautifully engineered, but complicated to produce and maintain in the field. American abd Soviet weapons and vehicles were often less technically refied, but easier to mass pioduce and maintain in the field. The most productive German automobile manufacturer was Opel, asubsiduary of General Motors. And whole the Germans had many advanced corporations, a sizeable part of the manufactured output was produced by small or medium-sized companies operating what might be called workshops. Armaments Minister Speer immeduately upon his appointment (1942), launched an effort to ratiinalizae this compicated system of s,all companies to increase production. Germany also had a relatively inefficent agricultural sector. Despite its vaunted reputation, the average America had an income and life-style beyond the imagination of the average German. And that economic difference affected the military power that the two ecomnomies were capable of generating.


Italy ($5 billion) had an especially weak economy for a country preparing for war with major world powers. [Clark and Maddison] The GDP was the smallest of all the major beligerant powers. And like Grmany nd Japan, was lacking in most natural resources. There was industry in the north, but much of the south was largely agricultural and in some areas virtually medieval. Not only was Italy primarily agricultural, but the country's agriculture was inefficent with low percapita output. Italy had a sunstantial population, but percapita income was far below the other major European countries. And 15 years of Fascist rule did very little to improve the Italian economy and pre pare it for war. It was not for lsck of effort. Mussolini understood very well that he would have to grow the economy if Italy was to become a major world power. Mussolini and the Fascists advocated the corporate state. He saw the Fascist state as acting as a mediator between the workers, capitalists and other interest groups. He attempted to institutionally incorporate them into the ruling mechanism, limiting their freedom of action--especially that of the workers. With the onset of the Depression in America, some New Dealers were impressed with Mussolini's idea of a corporate state. This was because they shared his rejection of free market mechanisms. Mussolini believed that the state could manage a complex modern economy better than market forces. Mussolini attacking the power of the trade unions so he could control them. And then he launchd a series of 'battles'. The first was the Battle for Births. They were followed by three economic battles: the Battle for Land, the Battle of the Lira, and he Battle for Grain.


Japan in the early-20th century was the only industrial power in Asia. The Mejii Restoration had begun with agicultural reforms in a country with no modern industry (1868). Japan's new leaders were, however, acutely aware that to ward off the well-armed Europeans and the Western colonization underway in China, the country would have to industrialize. Japan needed industry so it could supply its military with the implements of modern warfare. The Japanese made impressive progress in building an industrial base. Japan's economy was not, however, fully industrialized and had many potential weaknesses for a country planning war with the great powers. Japan was still largely agricultural and even so, the domestic harvests did not fully supply the country's food needs. Rice and other food stuffs had to be imported to supply the domestic population which had significantly increased in the late-19th and early-20th century. The Japanese while the only industrial power in Asia, had an industrial and related scientific establishment a fraction of the size of the European powers, let alone the United States. It had a higher percapita income than the rest of Asia, but only a fraction of Europe and America. This mean that Japanese industrialists had to look overseas for markets. Perhaps the weakest leg of Japan's econonomy was the virtual absence of the natural resources need to supply and sustain an industrial economy. The Japanese even before the military seized power with the Mejii Restoration, decided to use its new industril power to build an overseas empite. This began with the First Sino-Japanese War (1894-95) and the seizur of Korea (1909). World War I (1914-18) btought more overseas territories. The invasion of Manchuria/Manchuko was the further enlarged the growing Japanese Empire, but was first step toward World war II, but brought needed new resources. Japan's Empire (Formosa/Taiwan, Korea, Pacific islands, Manchuria, and parts of northern China) did enlrge its captive market nd provided important resources. Japan was able to obtain large quantities of coal and food from Korea, Manchukuo, and regions of occupied China. The need to enlrge and maintain the Empire convinced Japanese leaders that a large military force was needed. Japanese civilians leaders were unaware until iy was too late of the monster thry were creating. Japan's aggresive expanionism brought it into conlict with the great powers, first Russia (1904-05), but after World War I, the Soviet Union, America and Britain. The Japanese, both civilians and military, widely believed that establishing and enlarging a substantial empire was a matter of political and economic necessity. A large empire would prevent histile states from strangling Japan by blocking its access to food and vital naturalresources by cutting its sea-lanes. The Depression and foreign restrictions on imports further strngthened Japanese economic nationalism.

Soviet Union

The Soviet Union because it was such a closed society is difficult to compare with other countries, but assessments suggest that it had a total national output roughly comparble to Germany (about $15 billion). The Soviet Union was, however, much less economically developed than Western Europe. And Soviet enterprises were extremely inefficent as we saw after the disolutiin of the Soviet Union decades later. Because of the larger population, percapita income was only a fraction of European levels and living standards even lower because of the inefficencies in the economy. Soviet statistics show continued economic expansion during the Depression years of the 1930s. We are unsure just how to interpret these ststistics. As a result of Stalin's policies, beginning with the First Five Year Plan (1928), the Soviet Union had significntly expanded heavy industry, but seriously weakened its agricultural base. American companies had helped expand Soviet production of cars and trucks, importabt in preparing for a mechnized war. And the Soviet Union even before the NAZIs seized power in Germany had concentrated on military production. An extremely large share of national income was being directed to the military, meaning that the country had the largest army in the world and heavily armed with modern weapons. Unlike the Germans, the Soviets had vast deposits of natural resources, especially oil. Obtaining raw materials, unlike the situation in Germany, was not a major factor in Stalin's decesion to ally himself and his country with Hitler and the NAZIs to launch World War II (1939). Stalin's calculation was based on power politics and ideology. The Soviet Union on paper was better prepared for war than most countries. But Stalin's purge of the Red Army has seriously weaked the country's military. And various strategic and domestic policies made the country dangerously vulnerable. In addition, while heavily armed, many Soviet weapons, especially tanks and aircraft, were obsolete, but kept in service. The Soviet Union after the German invasion (June 1941) suffered enormous losses in men and material. Some 4.5 million men were killed or captured. The Soviets managed to move important war industries east of the Urals beyond the range of Luftwaffe bombers. It took time, however, to being the industries back on line. They began forming large numbers of new divisions. There were enormous shortages, especially in 1942 as the war plants moved east were not yet back on line. While poorly trained at first, they managed to stop the vaunted Whermacht in its tracks--albeit deep in the country. Food proved a critical matter as the Germans occupied much of the riches farm land and major grain producing regions of the country. As the Soviets began to resume production, the United States began to deliver important Lend Lease shipments. The Soviet Union after Britain were the largest recipients of Lend Lease aid. As with Britain, Lend Lease was just a fraction of overall Soviet output, but it nit only plugged in major defincies in the the Soviet war economy, but assisted the Soviets in increasing their production.

Occupied Europe

The German military successes before (especially the occupation of Czechoslovakia $3 billion) and in the early phase of the War (especially the Low Countries and France) significantly expanded Germany's economic power base. The economic capacities of the occupied countries were substantial: Austria ($2 billion), Belgium ($2 billion), Denmark ($1 billion), France ($12 billion), Greece ($1 billion), the Netherlands ($3 billion), Norway (probably about $0.5 billion), Poland ($3 billion), and Yugoslavia (probably $1-2 billion). The success of the German war effort in large maure would hinge on effectively utilizing the economic capacity of the captive nations. France played an especially important role in the German war economy. The Germans occupied the western Sovioet Union including the Ukraine (1941-43). Contrary to Hitler's expectations, this contributed very little to the German war economy. The German were not interested in restarting indisyrial production to any extent and the Soviets had ecacuated many industries east. The Germans were inyerested in raw materials, but Soviet demolituon work made getting mines and oil fields up and running difficult. The Soviet scorched earth policy also reduced agricultural production. The harvests in the Eat, however, barely covered the needs of the Wehrmact deployed there and relative small quantities of food were as a result shipped back to the Reich.

Axis Allies

Axis allies added to the German war effort. All but the Soviet Union, however, had relatively small economies. The single most important ironically was the Soviet Union which shipped massive quantities of raw materials to the Reich under the terms of the NAZI-Soviet Non-Aggression Pact until the the Germans invaded (June 1941). The NAZI Axis allies included Hungary ($1 billion), Bulgaria $0.5 billion), and Romania ($1 billion). Romania was especially importyant because of the Plesti oil fields. It is probably mote accurate to classify Austria as a NAZI ally rather than an occupied country, but either way it had a relativeky small economy. Finland (about 1 billion) was a co-beligerant against the Soviet Union. The small economies of the Axis allies and their limited industrial sectors meant that their armies were not well arned, especially with artillery and armor as well as aircraft. They fielded substantial fiorces, but were poorly armed. The Germans had trouble properly equipping their own forces and thus could not adequately equip their allies. There was another factor involved. Hitler did not his allies to well equipped. Well equipped allies were independent and more difficult to control.

Occupied Countries


Several neutral countries contributed to the German war effort in various ways. Some like Spain supported the Germans, but others like SWeden and Switzerland faced invasion if they did not cooperate with the Germans. Their economies were not fully at German's disposal: Portugal, Sweden, Switzerland ($2 billion), and Turkey. Sweden was important as a supplier of iron ore. Switzerland was the neutral economy which was most significanly integrated in the German war economy.

Reason for Disparity

We find that all too often that the disparities between countries is all too often a given. It is imprtant to note why America had such a large economy, despite the fact that a ventury earlier, the United States was an agricultural society with vurtually no industry. actually this disparity only developed in theclate 19th century. britain had an entire Empire toassis it. The Soviets had all the resources availavle to America as well as theBread Basket of Europe, some of the most productive agricultural land in the world. And even in comparison to the major Euopean countries, not only was american industry more efficent than the Europeans, but its workers better paid. This is why the Europeans came to America n such numbers. The answer is freeom. No where in the world did people enjoy political (democracy) and economic (capitalism) freedom so abudently. It is why freedom ultimately destroyed the great toralitarian powers of the 20th century, although it wuld take the Cold war to destroy the Soviet Union. Of course Britain and France were democratic and capitalstic, but there were greater limits on both than in America. We are working on a History of Freedom to address these nd other issues.


Clark, Colin. Clark's economic work in the 1930s was reassessed by Angus Madison. The data he compiled had differences, but essentially made the same point. Namely that Germany launched World War II with a relatively small economy not prepared for global war. A. Madison, "Quantifying and interpreting world development: Macromeasurement before and after Colin Clark," Australian Economic History Review Vol. 44 (2004). Another good source on World War II economics is Madison, The World Economy: A Millennial Perspective (Paris, 2001).

Chow, Gregory C. China's Economic Transformation (2007), 2nd ed.


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Created: 6:42 AM 12/8/2012
Last updated: 5:29 PM 1/31/2015