Another question in the monetary field was that of prices paid to arms producers. The Reich had to simultaneously lower costs and give industrialists a profit incentive to increase efficiency. Since the Sudeten crisis the pricing of public contracts was determined by the LSOe system. Prices were set by estimated costs plus a profit margin (normally 5%) calculated not over costs but over capital employed. Once agreed, prices were fixed.
In 1940 Todt modified this to “stimulate the appetites” of businessmen: in the case of ammunition, the lowest-cost producers were given standard prices.
But as a whole prices were not standardized through the whole board. This was appropriate for the early war, when new producers were entering the arms market and authorities needed flexibility to reach all of them.
The system did succeed in encouraging industrialists to lower production costs. The point of contention was that they were making too much profit, which the Reich had to “claw back”. The topic came up in 1940 and was brought to fore in November 1941, when Reich price commissioner Josef Wagner proposed to raise 2 billion Reichsmarks by cutting profit rates and in the future defining standard prices. He was opposed by industrialists, who were represented by Wilhelm Zangen, head of the Reich Group for Industry. Wagner resigned due to unrelated intrigue with the SS.
Discussion continued and pricing reform was portrayed as one of the central pillars of Speer’s miracle, though it began months before his appointment. Producers were now paid in standard prices and could keep profits they made by reducing costs were theirs to keep. It is commonly said, and a talking point in Speer’s propaganda, that the LSOe system was inefficient and did not encourage producers to cut costs. This is incorrect. The innovation was standardization and a lesser need for bureaucratic oversight, but even then there was a reason not to standardize in the early war.
The “claw back” was made in an tax over profits 50% higher than those earned in 1938, favoring older armaments producers. It was applied mildly and overall the compromise achieved did not greatly cream off business profits. Speer couldn’t care less about inflation and gave workers and producers generous monetary rewards.

By 1941-42, while the matter of pricing was settled, authorities detected an expansion of barter and black market trade and an inflationary threat. Barter was under a code restricting it to between households. Goebbels launched a successful propaganda attack on the black market over the winter. Fiscal authorities encouraged savings and raised revenue by increasing corporation tax (from 40% in mid 1941 to 55% in January 1945) and a one-off prepayment of 10 years of the Hauszinssteuer, the Weimar tax on property (see Living standards). Meanwhile occupation revenue also increased. Tax revenue covered 54% of expenditure in 1942 and 44% in 1943. The Reich’s economic stability was secure for the moment. This achievement of the Reichsbank, RFM and RWM has little appreciation, but Speer’s “miracle” could not have happened without it.
This did not last. The state’s capacity to raise revenue and impose rationing and controls was overwhelmed by the burden of its expenditure, which hit 99,4 billion Reichsmarks in the fifth year of the war. Inflation began to creep in, starting from the periphery of Germany’s empire. In 1942 prices rose sharply through the Balkans. In 1943 the economies of Western Europe disintegrated under the weight of occupation costs. In Germany tax revenue stagnated, ever less consumer goods were on the market, financial institutions could not absorb all of the government’s debt and the black market steadily grew as morale withered away from 1943 onwards.