Hjalmar Schacht : Nazi Germany

Hjalmar Schacht : Nazi Germany

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Hjalmar Horace Greeley Schacht, the son of a salesman, was born in Tinglev, Germany, on 22nd January, 1877. His father had lived in the United States and named his son after the radical journalist, Horace Greeley and a prominent campaigner in America against slavery.

Schacht studied medicine in Kiel, philology in Munich and political science Berlin before taking a degree in economics in 1899.

He joined the Dresdner Bank and during the First World War was financial consultant for the German occupation government in Belgium. In 1916 he became a director of the German National Bank.

In 1923 he became Reich currency commissioner and was praised for bringing Germany's inflation under control. Schacht was rewarded by being appointed president of the Reichsbank. In 1929 he headed the German delegation that negotiated the Young Plan.

Schacht developed right-wing political ideas and in 1930 was converted to fascism after reading Mein Kampf. In January, 1931 Hermann Goering arranged a meeting with Adolf Hitler. Schacht agreed to raise funds for the Nazi Party. Schacht, who had good contacts with Germany's industrialists persuaded Albert Voegler (United Steel Works) Gustav Krupp and Alfried Krupp to join people such as Fritz Thyssen, Emile Kirdorf, Carl Bechstein and Hugo Bruckmann in providing money for the party.

In November, 1932, Schacht organized the letter signed by Germany's leading industrialists that urged Paul von Hindenburg to appoint Adolf Hitler as chancellor. This was successful and on 20th February, 1933, Schacht arranged a meeting of the Association of German Industrialists that raised 3 million marks for the Nazi Party in the forthcoming election.

After Adolf Hitler passed his Enabling Bill Schacht toured the United States where he made forty speeches, appeared on radio and wrote several articles for American newsletters where he claimed that Hitler would soon return Germany to democracy. He met Franklin D. Roosevelt but made a bad impression on the president who later described him as "extremely arrogant".

In August, 1934, Hitler appointed Schacht as his minister of economics. Deeply influenced by the economic ideas of John Maynard Keynes and Roosevelt's New Deal, Schacht encouraged Hitler to introduce a programme of public works, including the building of the Autobahnen.

Schacht also introduced the New Plan which rigorously controlled everything that was imported into Germany. This involved negotiating a series of bilateral trade agreements including one with the Soviet Union in 1935.

Like other Nazis Schacht was extremely hostile to Germany's Jewish population. In one speech he argued that "the Jews must realize that their influence in Germany has disappeared for all time." In 1934 he arranged with the World Zionist Organization, a deal where German Jews could pay 15,000 reichmarks to emigrate to Palestine. It is estimated that over the next four years over 170,000 reached Palestine under this agreement.

Schacht disagreed with what he called "unlawful activities" against Jews and in August, 1935 made a speech denouncing Julius Streicher and the articles he had been writing in Der Stuermer. He pointed out that Jews had fought bravely in the German Army in the First World War and deserved to be treated fairly.

Schacht also had doubts about the large amounts of money being spent on armaments. He warned Hitler that he was building armed forces far beyond the country's economic capacity. He found it increasingly difficult working under Hermann Goering who fully supported the government's policy on military spending. As Goering told Schacht "If the Fuehrer wishes it then two times two are five."

In November, 1937, Schacht resigned as minister of economics. However, he remained as President of the Reichsbank where he continued to oppose excessive expenditures for armaments. Hitler eventually removed Schacht from power in January, 1939.

During the Second World War he was approached by Hans Dohnanyi and Erwin von Witzleben to become involved in plots against Hitler. Schacht refused but in 1944 he was arrested and charged with being involved in the July Plot. He was sent to Dachau Concentration Camp but was still alive at the end of the war.

Arrested by the Allies he was accused of crimes against humanity at the Nuremberg War Crimes Trial. He was found not guilty but the German government had him re-arrested and charged him with other offences. He was sentenced to eight years imprisonment but he was freed on 2nd September, 1948.

On his release he formed his own bank in Dusseldorf. He also advised several foreign governments including Gamal Nasser in Egypt. Hjalmar Schacht died in Munich on 4th June, 1970.

After the many rumours that we had heard about Hitler and the published criticisms we had read about him, we were pleasantly impressed. His appearance was neither pretentious nor affected.

Our talk quickly turned to political and economic problems. His skill in exposition was most striking. Everything he said he stated as incontrovertible truth; nevertheless, his ideas were not unreasonable.

My so-called foreign friends do neither me nor the situation nor themselves any good when they try to bring me into opposition to the allegedly impossible National Socialist economic theories and declare me to some extent the protector of economic reason. I can assure you that everything I say and do has the complete approval of the Fuehrer and that I would not say or do anything that does not have his approval.

The Jews must realize that their influence in Germany has disappeared for all time. We wish to keep our people and our culture pure and distinctive, just as the Jews have always demanded this of themselves. But the solution of these problems must be brought about under state leadership, and cannot be left to unregulated individual actions, which have a disturbing influence on the national economy, and which have therefore been repeatedly forbidden by governmental as well as Party agencies.

The economy is a very sensitive organism. Every disturbance, from whatever direction it may come, acts as sand in the machine. Since our economy is closely allied with that of foreign countries, not one of us can be indifferent to what consequences these disturbances can have at home and abroad.

The repeated announcements that the Russian resistance was definitely broken have been proved to be untrue. Allied supplies of arms to Russia, and the manpower reserves of Russia have been sufficient to bring continuous counter-attacks against our Eastern Front.

My answer to your defeatist letter, that undermines the powers of resistance of the German people, is that I expel you herewith from the Prussian State Council.

I looked towards the dock. In two rows often they sat: Goring, reduced to wearing a plain, ill-fitting grey uniform - no medals now - alert and attentive, vigorously nodding his head in agreement or shaking it in denial; Hess, with his pale pinched face; von Ribbentrop, always busy writing notes; Keitel and Jodi, the soldiers, staring silently and sullenly ahead; Schacht, the businessman, whose relationship with the Nazis had been more turbulent, and who had distaste etched into his face at having to sit in public with such unpleasant people; von Papen and von Neurath, politicians both but still the diplomats, polished and immaculate. These all stood out. But how unimpressive were Seyss-Inquart, who had betrayed Austria and ruled occupied Holland; Rosenberg and Fritsche, the propagandists; and von Schirach, formerly a fanatical and dangerous young zealot, but now a visibly broken man. For a time, the whole free world had quaked before these men. Ultimately, however, they had brought not glory, but ruin and misery, to their own land and its people. We had lived in their shadow for a decade, but now history was free to deliver a final verdict upon them.

When the court adjourned for a quarter of an hour, I saw the Nazi leaders arguing heatedly among themselves about the evidence they had heard: evidence which had been gathered from every corner of Europe, from the Chancelleries and concentration camps, from the occupied countries and from Germany itself, of how the Nazis plunged the world into war, led Germany to its undoing and brought themselves, at last, into the dock in that Court House in Nuremberg.


SCHACHT PLAN , Nazi plan to finance Jewish emigration from Germany, conceived in the wake of the *Kristallnacht by Hjalmar Schacht, minister of economics and president of the Reichsbank, and Hans Fishboeck, state secretary in the Reich Ministry of Finance. The plan was in consonance with two major goals of German policy prior to the "Final Solution" – the forced emigration of Jews and the expropriation of their property. This plan was not the first suggestion of a policy of mutual interest, beneficial to both the German state and to a significantly lesser extent to the Jews – though the possibility of emigration was of inestimable value the longer the Nazis were in power. In 1933, the *Haavara agreement was struck, enabling Jews to leave Germany and go to Palestine with at least some assets. Under the Schacht plan, those German Jews wishing to emigrate could not take their property with them, for it had been confiscated by the Reich authorities, who compensated them with government bonds at the lowest interest. The planners tried to capitalize on the concern shown by foreign Jewish bodies and international refugee organizations and link the facility of transfer of Jewish assets to the promotion of German exports. They wanted foreign Jewish bodies to raise a loan of rm 1,500,000 in foreign currency (then equivalent to $600,000) to enable the resettlement of emigrants. Other essentials of the plan called for placing 25% of the Jewish property in Germany and Austria in a trust fund. The assets were to be gradually converted into cash and transferred only if Germany's foreign exchange would permit, or sooner in the form of "supplementary" exports. The remaining 75% was to remain at Germany's disposal to be used to maintain Jews before their emigration or those unable to emigrate. This fund was to finance the emigration of 150,000 able-bodied Jews and 250,000 dependents in the course of three years. Schacht claimed that *Hitler and *Goering had assented to his plan. *Ribbentrop opposed it for personal and political reasons and did his best to frustrate it. To implement it, Schacht negotiated with George Rublee, the director of the Intergovernmental Committee of Refugees, who had formerly conceived his own plan for linking emigration to German exports, with the Reich as the debtor of the foreign loan, but agreed to the emigrants being the debtors. Rublee's committee planned to proceed through two committees, one on a governmental level and the second of private individuals. Jewish leaders approached by Rublee opposed the second committee, to give the lie to the Nazi propaganda of a world Jewish financial body. They believed that the whole problem should he considered by governments exclusively. The experts of the governments concerned with Jewish immigration objected to making confiscated Jewish property the basis for increasing German exports. Rublee ran into further difficulty in finding governments that were ready to accept Jewish immigrants in great numbers. Schacht was dismissed at the beginning of 1939, but the Nazis continued the negotiations. Rublee, who sincerely believed in the plan as a means to help the Jews, resigned because of the difficulties he encountered. The negotiations between his successors and the Nazi government dragged on until their disruption with the outbreak of World War ii, when emigration became impossible.


Early life

Schacht was born in Tingleff, Schleswig-Holstein, to William Leonhard Ludwig Maximillian Schacht and Danish baroness Constanze Justine Sophie von Eggers. His parents, who had spent years in the United States, originally decided on the name Horace Greeley Schacht, in honor of the American journalist Horace Greeley. However, they yielded to the insistence of the Schacht family grandmother, who firmly believed the child's given name should be Danish. Schacht studied medicine, philology and political science before earning a doctorate in economics in 1899 — his thesis was on mercantilism.

He joined the Dresdner Bank in 1903, where he became deputy director from 1908 to 1915. He was then a member of the committee of direction of the German National Bank for the next seven years, until 1922, and after its merger with the Darmstädter und Nationalbank, a member of the Danatbank's committee of direction. In 1905, while on a business trip to the United States with board members of the Dresdner Bank, Schacht met the famous American banker J. P. Morgan, as well as U.S. President Theodore Roosevelt.

The Weltkrieg

During the Weltkrieg, Schacht was tasked to serve on the staff of General von Lumm, the Banking Commissioner for Occupied Belgium (now Flanders-Wallonia). Schacht was responsible for organising the financing of Germany's purchasing policy within the country, and was summarily dismissed by General von Lumm when it was discovered that he had used his previous employer, the Dresdner Bank, to channel the note remittances for nearly 500 million francs of Belgian national bonds destined to pay for the requisitions. Subsequent to Schacht's dismissal from the public service, he resumed a brief stint at the Dresdner Bank, before moving on to various positions within rival establishments.

President of the Reichsbank

In 1923, Schacht applied and was rejected for the position of head of the Reichsbank, largely as a result of his dismissal from von Lumm's service. It took almost eight years for the next opportunity to arise for Schacht. In 1930, mereley months after the Reichstag election, Karl Helfferich, decided to step back from the position of president of the Reichsbank, unhappy with the policies of Tilo von Wilmowsky. Schacht quickly applied once more and with the help of Chancellor Kuno von Westarp, who hoped to convince a few liberals around Schacht to join the conservative faction, therefore endorsed Schacht to the Kaiser. Wilhelm II appointed him as president of the Reichsbank, however neither Schacht nor any other NLP deputy joined Westarps Reichstag faction.

Philip Pilkington: Hjalmar Schacht, Mefo Bills and the Restoration of the German Economy 1933-1939

Yves here. I’m a big fan of economic history (and mystified that contemporary economists so rarely take interest in it). Pilkington describes an illuminating and oft-neglected chapter.

By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil. Originally posted at Fixing the Economists

So, I was doing a bit of that aimless reading one so often does on the internet and I came across the transcript from the trial of Hjalmar Schacht at Nuremberg after the war. Schacht was, of course, the chief architect of Nazi economic policy and the inventor of the infamous Mefo bill, which we shall discuss in more detail below. The transcript is fascinating because it includes a nice overview of Nazi economic policy during the war and the years of rearmament.

I’ll give some context first of all. As is well-known, after WWI the allies had banned the defeated Germany from having a size-able standing army. In the 1930s, however, after the election of Hitler in 1933 the allies moved more and more to appease the Nazi regime and effectively looked the other way as the Nazis rearmed. But rearmament still had to be done under something of a cloak of darkness. One of the restrictions on Germany was that the government was only allowed to borrow 100m Reichsmark from the Reichsbank (the German central bank at the time). With such a budget limit in place Germany could not obtain the funds needed to rearm. So Hitler turned to Schacht who was, with the notable exception of Albert Speer, one of the only higher-ups in Germany at the time with any degree of intelligence.

The first step, of course, was to obtain financing. In order to do this Schacht introduced the Mefo bill which the Nuremberg prosecution described as such,

Transactions in “mefo” bills worked as follows: “mefo” bills were drawn by armament contractors and accepted by a limited liability company called the Metallurgische Forschungsgesellschaft, m.b.H. (MEFO). This company was merely a dummy organization it had a nominal capital of only one million Reichsmarks. “Mefo” bills ran for six months, but provision was made for extensions running consecutively for three months each. The drawer could present his “mefo” bills to any German bank for discount at any time, and these banks, in turn, could rediscount the bills at the Reichsbank at any time within the last three months of their earliest maturity.

It was not a terribly complex plan. The military contractors were paid in bills of exchange issued by a shell company. These contractors would then take the bills to a private German bank which would then gladly turn over cash to the holder because they knew that they could then hand the Mefo bill to the Reichsbank which would in turn convert it into cash using their money-issuing powers.

The resulting spending resulted in the German economic boom that took place under Hitler. Here is a nice graph from Erwin Mahe that compares the growth and inflation in Nazi Germany to that in the Netherlands in those dark years:

This is an incredible story from an economic point-of-view. After Hitler’s election in 1933 the Nazis were able to sustain between about 8-10% GDP for five years running with an inflation rate that would be the envy of the Bank of England and other inflation-targeters today. Now, we know how this growth was financed — that is, by money issuance — but how was it achieved? Here we turn back to the Nuremberg transcripts.

Well, first of all the capital markets were brought firmly under control so that rearmament became priority number one. The prosecution explains,

By a series of controls, they reduced to the minimum consistent with their rearmament program, all private issues which might have competed with Government issues for the limited funds in the capital market. Thus, the capital market was, in effect, pre-empted for Government issues.

Next Schacht seized control over the foreign exchange market to ensure that only those goods that were truly needed for the war machine — such as raw materials — were imported. This was referred to as the ‘New Plan’.

There were three main features of the “New Plan” as devised by Schacht: (1) restriction of the demand for such foreign exchange as would be used for purposes unrelated to the conspirators’ rearmament program (2) increase of the supply of foreign exchange, as a means of paying for essential imports which could not otherwise be acquired and (3) clearing agreements and other devices obviating the need for foreign exchange… These agencies, which were under Schacht’s control as Minister of Economics, decided whether given imports and exports were desirable whether the quantities, prices, credit terms, and countries involved were satisfactory and in short, whether any particular transaction advanced the conspirators’ armament program.

In addition to this Schacht took advantage of the clearing system that existed (and basically still exists) and allowed other countries’ exporters to send Germany raw materials in exchange for claims on the German clearing house. These claims are then only paid when Germany stops running a trade deficit and begins running a trade surplus. What follows is an amazing moment in Nuremberg where the truth of the international clearing system is laid bare for all to see.

The principle of the clearing system is as follows: The importer makes a deposit of the purchase price in his own currency at the national clearing agency of his country, which places the same amount to the credit of the clearing agency of the exporting country. The latter institution then pays the exporter in his own currency. Thus, if trade between two countries is unequal, the clearing agency of one acquires a claim against the agency of the other. That claim, however, is satisfied only when a shift in the balance of trade gives rise to an offsetting claim.

And why did the other countries’ clearing houses turn the other cheek and accept claims that may never be paid? Well, ask yourselves why China pegs its currency to the dollar and you’ll likely come up with the answer: they desperately want to take advantage of the aggregate demand provided by the foreign consumer. Here is the Nuremberg prosecutor making a far more savvy economic argument than many modern commentators manage in their lifetime,

This device was used by Schacht as a means of exploiting Germany’s position as Europe’s largest consumer in order to acquire essential raw materials from countries which, because of the world wide economic depression, were dependent upon the German market as an outlet for their surplus products.

How did Schacht dare to take what must have seemed to others to be enormous policy risks by bending both the domestic and international monetary system to the will of the Nazis? Because, it seems, Schacht was a very sophisticated economist who was not only far ahead economists in his own time but is also far ahead of most economists in ours. Here is a quote from Schacht… the Keynesian,

It has been shown that, in contrast to everything which classical national economy has hitherto taught, not the producer but the consumer is the ruling factor in economic life.

I believe what Schacht is here getting at that, as Keynesian economists know well, it is the demand-side of the economy which is important in most respects. The supply-side — the producer — is of secondary importance.

Schacht also invented what was called the ‘aski’ system to ensure that money paid for imports was then only spent on German exports. This seems to have been done through negotiation and, despite the sometimes moronic trade laws that exist in our world today, would certainly be worth another look by development economists should we ever move into a more enlightened future.

This scheme likewise obviated the need for free currency (i.e. Reichsmarks freely convertible into foreign currency at the official rate-U. S. dollars, pounds sterling, etc). The system worked as follows: The German foreign exchange control administration would authorize imports of goods in specified quantities and categories on the condition that the foreign sellers agreed to accept payment in the form of Mark credits to accounts of a special type held in German banks. These accounts were called “aski”, an abbreviation of Auslander Sonderkonten fuer Inlandszahlungen (foreigners’ special accounts for inland payments). The so-called “aski” Marks in such an account could be used to purchase German goods only for export to the country of the holder of the account they could not be converted into foreign currency at the official rates of exchange. Each group of “aski” accounts formed a separate “island of exchange” in which the German authorities, under Schacht’s leadership, could apply their control as the country’s bargaining position in each case seemed to warrant.

Schacht’s ‘New Plan’ for the foreign sector of the German economy was enormously successful and probably contributed significantly to the low inflation in Germany in those years noted above. But what was going on at home? We know that Schacht had suppressed the capital market in what can only be described as the ultimate historical instance of ‘crowding out’ and we know that he had freed up the fiscal system to be used in any way he pleased but what was going on in domestic industry? It is to this we now turn.

Well, this is a rather simple story and can be told in a single paragraph: Schacht basically turned the German economy into a control economy. Here it is probably best to allow the Nuremberg prosecution to explain,

Schacht adopted a host of controls over the productive mechanism of Germany, extending, inter alia, to the allocation of raw materials, regulation of productive capacity, use of abundant or synthetic substitutes in place of declining stocks of urgently needed materials, and the erection of new capacity for the production of essential commodities. The structure of regulation was built up out of thousands of decrees in which governmental agencies under Schacht’s control issued permits, prohibitions, and instructions These decrees were the outgrowth of carefully laid plans of the Ministry of Economics, of which Schacht was the head, concerning “economic preparation for the conduct of war”, and in accordance with its view that “genuine positive economic mobilization” demanded that “exact instructions for every individual commercial undertaking are laid down by a central authority’.

All in all there is much that can be learned from Germany’s experience in the 1930s. While their attempts to control production and consumption directly are probably not suitable outside of warfare or rearmament Schacht’s monetary manipulations were, by any standard, rather ingenious. They were also extremely brave in that they had never been tried before and Schacht was not, so far as I can see, working off any truly articulated Keynesian theory. Rather he was working from the basis of intuition — an intuition, it should be noted, that was rather sharp.

So, what happened then to Schacht? Well, it turns out that he was not the monster those he worked for undoubtedly were. Even the prosecution conceded that “he was not in complete sympathy with that aspect of the Nazi Party’s program which involved the wholesale extermination of the Jews” and that he “gave aid and comfort to individual Jews who sought to escape the indignities generally inflicted upon Jews in Nazi Germany”. That is more than can be said of many German soldiers and officers who went home to their families after the war. Nor was Schacht an official member of the Nazi party, in fact he was a former liberal politician.

The Soviets, who wanted to convict Schacht, saw him as the man who had, through his economic genius, facilitated the growth of the Nazi war machine. The British, on the other hand, saw him as another instance of a common character type: an ambitious functionary who tied himself to the power structure in Nazi Germany while maintaining his distance and they favoured acquittal. In their own way, both sides were probably correct. But Schacht was acquitted and he went on to found a bank and give economic advice to developing countries. My guess is that this advice was far superior to that given by modern day economists.

Anybody who knows anything about those years would tell you that Germany engaged in a very limited military expansion of its machine power when compared to the total French ,Russian and British(naval) forces.
For example – If we look at total tank production vs French production the Germans merely produced lighter tanks in greater volume or seized tanks from Skoda works later in the 1930s.

This was the very reason for its Blitzkreig tactics – it did not have the resources for a long war.

Reading authors such as Len Deighton or Clark one gets a very different impression of German machine military capacity only rectified by Speer much later in the war.
Before that time both the UK and Russia had engaged in a much more standardized & larger production process.
We can see quite clearly that Germany was a fiefdom of various tiny corporate bodies competing for a very small share of total economic output when compared to the UK.
Looking back now it seems Germany only increased production much later in the war after imposing a proto Euro system on the continent.

Bill Still has a different take on Schacht although he still thinks Germany was a military powerhouse again mistaking tactical success for strategic ability.

I am not sure on Stills accuracy but what we know for a fact is that Germany used the resources of France ,eastern Russia etc in a very different fashion from the UK & its colonies.

Germany lost the war because it did not engage in total war.
Germany remained in a colonial mindset until Speer – while England junked the colonial mindset during total war periods ,throwing everything it had against the enemy.

How is this relevant to the post? Pilkington wasn’t writing a military history.

Please stay on topic. You regularly use post to offer very lengthy commentary that is at best tangentially relevant. A little is fine, a steady diet is not.

Schacht used debt instruments to sustain private consumption as the military machine was growing in Germany.
If private consumption tanked in Germany during the 30s then the population may not have been so enthusiastic for miltary parades.
Again he duped the populace into thinking they could have both guns and butter.

I think its very relevant.

I don’t have the link, but about a year ago someone on Brad DeLong’s site took Niall Ferguson to task for not knowing about Schacht and how he saved the German economy. Schacht told Hitler to ignore the WWI reparation payments because it drained the German economy, and to concentrate instead on helping the German people who were devastated by WWI. Schacht believed in Hitler until 1938/39. (I’m doing this from memory, and the dates could be faulty.) Nevertheless, Schacht was effective, and he turned the German economy around then he became disillusioned with Hitler and his aims, and it led to his incarceration at a concentration camp and his eventual clearance, after accusations, at the Nuremberg trials. This history is not in dispute. But you cast a pall over Schacht that I think is unwarranted.

Oh, I don’t know. I think “useful idiot,” and maybe especially “technocratic useful idiot” is a very important concept and one that should be developed far more than it is.

It is true that it is too easy to identify useful idiots after the fact, but if prospective useful idiots, and maybe especially prospective technocratic useful idiots, recognized the fullness of their potential in the first place we wouldn’t have arrive at the point where they’ve actually lived up to it.

So Schacht grew the economy via debt issuance , not money issuance.
This is why the German state of the late 1930s (even up to 1942) could have both bread and butter in contrast to the UK although with its colonies more or less intact.
With a more national money based system you need to make a choice …….

How is this argument applicable today ?
We are in massive debt already.
Well perhaps if we look at the German state today we can make a analogy.
The modern German state & the eastern lands now builds the tanks (cars) of the modern neo Keynesian state(where war like products are now sold for private consumption) but if you can no longer expand tank (car) production what do you do ?
You contract butter consumption in the periphery………….so as to continue with your tank (car) production.

We can see how Germany lost the war now.
There was a inertia in private consumption patterns which made the switch over to a full war economy difficult.
This can be seen in the Autobahn programme which the Prussian officer staff resisted because of its heavy use of raw materials which could be directed elsewhere into the war economy.

Today we have a inertia in the production process of the neo keynesian economy
In simple terms we can no longer sustain this 100 year old Keynesian war economy experiment without again destroying millions of lives.

These them here are the facts :
The German army utilized nearly twice as many horses (2.7million vs 1.4 million) as the first world war.
By the Winter of 1943/44 only 16 % of German divisions were fully motorized.

The British fought a capital heavy war of air and sea power while the Germans threw man and horse flesh into the battle.
This was a failure of the financial and industrial system of Germany if the aim was to build a war economy.

The British fought the capital-heavy war because from June 1940 to June 1944 it was the only sort of war they could fight, except in N. Africa and Italy.
PP might have related the aski agreements to German economic imperialism in southeastern Europe, which relied heavily on bilateral trade arrangements involving raw materials–Rumanian oil a particular target–in return for German manufactured products.

“it was the only sort of war they could fight”
exactly …….plans for a capital intensive war were made in the UK many years before its outbreak.

British Strategic preparations for total war began in the early 30.
By 1936 Bomber command had formed .
Bomber command was not a tactical fighting machine designed for war in France.
They could have made other choices.
But the people behind Chamberlain made the decisions many years before the war started.
The Bomber factories took 5 to 6 years to build but they started in 1936 .

My point is Schacht did not aid the German war machine during the 30s.
The German economy was much more consumerist then the UK.
This carried through into the war.

If you define a economy by its military strength as the Germans did in the 30s and yet are unable to produce the goods needed for such a war then your objective has been a failure.
Phil talks about monetary stuff as if it were real goods.
As if John Law was the perfect man to raise a army…..
In wars of this period it comes down to production and in the final anylasis Germany could not produce the goods in quantity despite having seized geographical areas of arms production even before Sep 1939.

People mix up tactical blunders in Norway and France with the war economy but France had more then enough Tanks and aircraft of quality to fight.
In one case 200 French aircraft remained in Tours for the entire Battle of France !!

Hitler delayed optimizing the German economy for war output until the failure of the Wehrmacht to capture Moscow in the winter of 1941. Until then he had assumed the war was going to be short – and it very nearly was.

Now as for your point regarding horses and motorization, full motorization of the German army -or even a large part of it- was completely beyond Germany’s industrial capacity, even if Hitler had committed to maximize military production from the start. The postwar myths about German mechanization stemmed in part from the fact that while the mechanized forces only accounted for about 15% of the divisions mobilized by Germany at the start of the war they played a decisive part in the early campaigns, and frankly also because it was comforting (if untrue) for the Allies to believe that the early string of humiliations they endured was due to being outgunned rather than outgeneraled and outfought.

The Western Allies achieved something approximating a mostly mechanized army in the campaign in Northwestern Europe in 1944-5, and they could do this because the US’ industrial capacity was vastly greater than Germany’s (the British army in 1944-5 being equipped to a significant extent with American materiel).

In fact if you want to understand the course of the Second World War all you really have to do is compare the industrial output of the Allies (mainly the US and USSR) with that of Germany (the output of Germany’s allies being almost insignificant). On that basis alone the war could hardly have ended otherwise.

But I cant remember any WW2 movies with nazis on horseback!

You should write a book on the subject instead of hijacking other people’s blogs.

The British fought a capital-intensive war because they fielded a very small and rather awkward and underwhelming army. They also did it because they had access to vast material, industrial, and financial credits from the US and Canada (Canada’s role in Britain’s ability to fight WWII is critically underrated). Germany could not get away with having a smaller army than Britain and France combined. She also feared a Soviet attack (which some Russian authorities now say Stalin was planning for 1942). So you are comparing apples to oranges. The best modern works on the subject are Maiolo’s Cry Havoc and Tooze’s Wages of Destruction. I’d check both before making any sweeping comments about German rearmament and strategic policy.

yes I am familiar with Bomber Command and the Canadian connection for training as well as raw materials. starts( 21.50)
“As soon as Hitler took power in 33 we saw the war coming…… started when I was 11”

The German army was of course the senior service for the Germans……..if so where was the Tanks & more importantly the trucks ?
It just does not fit.
To believe the mythology of German propaganda from that time is not a accurate historical exercise.
Germany was a series of craftwork shops in the 30s……my question is why and most importantly why did they not prepare for a long war given the past experience of the Great war.
German mass production was a emergency measure late the war but it was built into the UK system from 36 !!

Hitler wanted maximum strength as early as possible so that the period of vulnerability to outside intervention was reduced to a minimum. That meant many infantry divisions right away. This lead to the “rearmament in breadth” versus “rearmament in depth” argument that the “depth” side lost in Germany. It must be remembered that a crucial difference between Chamberlain and Churchill was over this very issue, and it was Chamberlain who most ardently fought for rearmament in depth, i.e. lots of initial investment in plant and equipment, not so much in day-to-day armaments manufacture. The British accepted fewer planes today so as to produce more planes tomorrow. And historians of a certain stripe, who just don’t get it, have been ignorantly holding that against Chamberlain for 75 years.

Also at 51 minutes…….”that was the only war we could fight”

I think the relevance is clear enough. There’s too much emphasis on Schacht but point taken. Galbraith said that the reason the German successes in overcoming the depression are consigned to intellectual oblivion is that Hitler cannot be accused of anything good, aside from autobahnen.

Hitler had contempt for bourgeois values and associated traditional finance with a Jewish plot to enslave humanity, so people with heterodox (Keynesian) ideas were able to put them into practice full tilt.

What an odd post about a rancid opportunist who changed his stripes so often it’s impossible to assess what he stood for and also what he actually accomplished.

Schacht was was known as Hitler’s banker, but Hitler later fired him.

Schacht was a committed fascist who found the NAZI’s repugnant, yet his patron was none other than Hermann Goering–aka “Schacht’s Guardian Angel”.

Schacht was a committed Freemason (in the Scottish Chapter of all things). He was straight out of the JP Morgan School exemplifying the Rise of the Financier to dominate modern life.

And while Pilikington lauds Schacht’s brave experimentation, Schacht is on record here defending the Gold Standard explicitly warning against the dangers of frisky central banker experimentation:,209926

He even continued to defend the Gold Standard in his autobiography written in the 1950s, btw.

[Speaking of which one cannot help but raise an eyebrow at his use of “Wizard” in the autobiography, especially with Schacht’s Freemason affiliation.

Yes, it is true: Hitler did not trust Schacht, so maybe his heart was in the right place. But here’s Hitler describing Schacht:

“It was its consulate skill at swindling other people which made him indispensible at the time. After all, see that the whole gang of financiers as a bunch of cooks, what possible point was there at being scrupulously honest with them. Before each meeting of the International Bank at Basle half the world was anxious to know whether Schacht would attend or not. It was only after the assurance that he would be there, that the Jew bankers of the entire world packed their bags and prepared to attend. In spite of his ability I could never trust Schacht, for I have often seen how his face lit up when he succeeded in swindling someone out of a 100 marks note.”

That’s just funny. Schacht, evidently was too sleazy for even Hitler.

Maybe none of this is relevant to our current economic plight except that when Pilkington writes about the “ingenious” exercise of control over the German Economy, this inevitably leads to somebody being in charge. Too often, we’re left with a contorted, ethically-free Freemason like Schacht.

Finally, I think a more interesting article on Schacht can be found here:

From the Market Monetarist article:

“Central banks and central banks alone determines inflation, deflation, the price level and nominal GDP.”

Lol! Do you buy into this stuff?

lol. I for one take an almost mechanical look at an article like this, it doesn’t matter if he went home and shot puppies what matters is what did they do and not do economically just as if one wants to look at how Stalin turned the Soviet Union into a superpower almost overnight, yes he did some evil things but he also created one of the most comprehensive unlimited no limits welfare systems the world has seen and people shouldn’t let there feelings about a person get in the way of a full analyses of what went on or what they did weather they like the person or not.

And as a side note this is why economics should be almost considered a religion because people analyze and make decisions based on how they feel and there emotions rather than rational decision making which is why we come up with the unfounded government should be run like a business meme and homeless people must die because feeding them doesn’t add to the bottom line.

And sometimes a government is needed to do things rather than wait for the private sector to do it as we can see with the 3rd world but people have this belief that the public sector is evil so we will just sit around and wait till the private sector builds a car factory and computer chip plant in Bangladesh.

Call me when that happens.

Didn’t Robert Rubin do this too, create a demand for Chinese goods and pay for it with money that could only be used to buy US exports? Keeping inflation down by domestic rationing? It wasn’t a true wartime economy, but we had had a peculiar wartime economy of guns and butter since at least LBJ, which bankrupted us in the 70s – and the MIC still remained (and remains) the core of the economy. So this use of demand for imports to drive an economy goes back to Schacht, and no earlier? I find that hard to believe considering the very long history of human warfare.

I have read that US foreign aid programs are run that way. The money is designated so that American products must be bought when accepting it. So that, say, Mozambique accepts American aid and its health department isn’t allowed to buy cheaper generic drugs but must buy name brand American pharmaceuticals at much higher price.
I believe Marshall plan money was similar.
the other fact is that yes, the US has been running a military based stimulated economy since WW2. I also think that is why the various stimulus programs haven’t had the effect they wanted since the initial stimulus effect is the most effective and that was already used up. So in the 80s, the US unions were broken so we wouldnt’t have the price wage stagflation of the 70s and debt was used to keep the economy growing. Now we are at the end of both and neither more debt or more stimulus is going to fix this broken economy.

Yves, It wasn’t neglected by Laiquat Ahmed in his The Lords of Finance. But you are right for the most part. Some have even said that history in a real science isn’t necessary, and as economics, in their lights, is a real science, economic history becomes an irrelevance. There are so many ways in which this perspective is deeply wrong, and the field suffers as a consequence.

Economics, done right, is a social science and therefore different in essential respects from physics, which they are doing their best to imitate, albeit inevitably inadequately.

To say that economic history is irrelevant is like saying that layers of sediment are irrelevant to geology, that fossils are irrelevant to biology, that ice cores are irrelevant to climate science. Etc., etc.

Great examples, Min. I wish I had thought of them myself.

Currency controls were imposed in July 1931, effectively taking Germany off of the gold standard a full 18 months before Hitler became Chancellor. This freed the Reichsbank to to pursue expansionary monetary policy, which according to Peter Temin, it had started by at least the summer of 1932.

.Germany’s industrial production reached bottom in August 1932 and had already increased 6.8% by January 1933, the month Hitler entered office.

By April 1934, when Germany issued its first MEFO bill, and started running its first “large” deficit (about 5.4% of GDP in FY1934 according Albrecht Ritschl, counting the “shadow” budget), industrial production was already 45.8% above the level it had been in August 1932. Hjamar Schacht only became Economic Minister in addition to being Reichsbank President in August 1934. Thus by the time he presented his “New Plan” the following month, the economic recovery was already well underway.

According to Robert Hetzel unemployment averaged 13.8% for all of 1934, already down sharply from the 28.1% rate it averaged in 1932. As Barry Eichengreen and others have noted, Nazi Germany’s introduction of expansionary fiscal policy in 1934 proved to be rather anticlimactic.

P.S. What about the Netherlands? The order of economic recovery from the Great Depression followed in the exact order that countries devalued their currencies or detached from the gold standard. The Netherlands was part of the “gold bloc” of countries (i.e. France, Italy and Poland) that devalued late in October 1936.

P.P.S. The industrial production data comes from the League of Nations.

There were a lot of things Germany did policy wise that helped production that I doubt would have happened without it such as providing small farming communities with a community tractor they could share and use for free usually under the supervision of the mayor and they also did provide and make sure industry received the machines they needed.

Yes, Hitler got all the credit for something that had started before he took over. Given the size of the fall in the economy before the recovery began, they were bound to have a huge re-bound once growth started again.

This sounds right. Money from the US was pouring into Germany in an attempt to create a firewall against soviet communism, beginning in the 20s. Germany was up for grabs by all the industrialists of the capitalist world. So what Schacht did was ordinary fascism to prevent that inflow from reaching German citizens, and going into the war for profit enterprise already underway. I do not like to conflate MMT, using sovereign money to run the business of the nation without resorting to international financial cartels, with military dictatorship finance.

this was a reply to sadowski

This is another example of US’s misguided foreign policy resulting in horrific consequences for the citizens of the countries it uses as pawns/shields eg Iran, Iraq, Afghamistan, South Africa, Korea, etc…shameful

“I do not like to conflate MMT, using sovereign money to run the business of the nation without resorting to international financial cartels, with military dictatorship finance.”

What if financial cartels and militarization are the business of the nation?

“I believe what Schacht is here getting at that, as Keynesian economists know well, it is the demand-side of the economy which is important in most respects. The supply-side — the producer — is of secondary importance.”
Or to put it another way – A Keynesian (in this case war) economist wishes to create scarcity via capital overproduction.
This must create inflation as goods are either destroyed or depreciate over time.

Like many Keynesians he picks a too short a time period to analyze inflation trends , 5 years ?
But perhaps also there was much less German capital overproduction then the propaganda would lead us to believe , it certainly does not show up in German war machine production numbers as it was mostly marching bands……(wages = beer)
France was engaged in a equal if not bigger Rearmament post 1938 and yet……..

People have no memory of that time but France was considered the most powerful army in Europe until the fall.
People have a completely skewed version of events on the ground.
People were shocked at the fall of France for a reason.
It was the biggest fish in the western European pond.

Again look at the data ………….Where were the German tanks ?

wow…hitler was “elected” in 1933…how soon before the world starts suggesting JFK committed suicide and had jackies father shoot him from the grassy knoll…

there was an election in 1933 where the nazis LOST the election and had such a bad showing they were going to lose all their ministries in the government…so they got some drunk half retarded brain dead guy to take the fall for goering having arranged for the burning of the Reichstag…

but the schacht school of finance was simple…

take money from others outside your country…refuse to pay it…create a currency

rentenmark…act like its worth something when it is nothing but barter script, and call
the bluff of your neighbors and laugh at their refusal to force you to pay your bills

do it again(1931-32)…refusing to pay the lowered bills, crash the economy…put a stooge in power who barks alot and makes it sound like he might fart in your direction if you dare ask for your money back…bully up and take some small piece of land to call the bluff of your neighbors…and then use the money you saved to buy enough gasoline to invade your neighbors, take their assets and claim you are doing this to defend against communism and other “hidden foes”

when that runs out of steam, invade more countries and then if one fights back(like the greeks did against muso and adolfo) starve them to death(first holocaust was against greeks, at least 400K starved the first winter) to scare the new slaves oops, I meant the citizens of new rome…

the only thing schacht proved is that all you need backing a currency is bullets…
to enforce your refusal to pay your bills…

Suffice to say if the Weimar Republic had tried any if this, the banking/finance groups would unite to ensure it would never happen. In fact, they might even enable limitless money printing to bring about the downfall of a democratic experiment. Wait … that’s a story for another time.

This history also demonstrates the international cooperation needed to support the rise of the fascists in Europe. The Germans/Schacht didn’t figure out some clever way to get around the system, international finance worked together to rejigger the system to avoid public detection.

That is interesting history. Basically, renouncing old debts, creating new debts, imposing capital controls, throwing up trade barriers, directing resources toward military production, implementing compulsory military conscription, pursuing foreign expansion/aggression, and so forth, helped spur a short-term economic rebound that ended in cataclysmic social collapse as the enablers of power lost influence with the psychopathic authoritarians running the show?

I agree very much that there are some important lessons to learn from political economy in Germany of the 1930s.

Philip, does the third reich system of payment for infrastructure projects in labor certificates relate to this at all?

Thanks for putting up this post. Dr. Schacht was a fascinating figure, closely associated with the rentenmark and the ending of German hyperinflation long before Hitler became Chancellor, and later an extraordinarily agile and open-minded economic manager who wrestled with problems we should probably now think of as problems of development economics (capital scarcity, managing balance of payments/trade problems, the role of dirigisme) with extraordinary ingenuity. I don’t know whether he was a “good guy” or a “bad guy” – probably just a sentimentalist about the good old Hohenzollern days. Lots of Hitler supporters were like that.

Hjalmar Schacht is released from the court, IMT, Nuremberg Germany, 1945-1946

Nuremberg (Germany)--history, Nazis--Germany--history--20th Century, Nuremberg Trial of Major German War Criminals 1945-1946, Hjalmar Schacht, Dr. Rudolf Dix, Dr. Herbert Kraus, Dr. Gustav Steinbauer,


Hjalmar Schacht is released from the court at the end of the trial. Schacht (sitting in center) was a German economist, banker, liberal politician, and co-founder of the German Democratic Party. He became a supporter of Adolf Hitler and the Nazi Party, and served in Hitler's government as President of the Reichsbank and Minister of Economics. Schacht was forced out of the government by disagreements with Hitler and other prominent Nazis by 1936, and had no role during World War II. He became a fringe member of the German Resistance to Hitler and was imprisoned by the Nazis at Dachau. After the war, he was tried at Nuremberg but was acquitted. He is pictured with his counsel, Dr. Gustav Steinbauer (standing with pipe), Dr. Rudolf Dix (sitting next to Schacht) and Professor Dr. Herbert Kraus (in back).


20th Century, Nuremberg Germany, 1945-1946


The Robert H. Jackson Center


Ray D'Addario, U.S. Army Pictorial Service, World War II


This Digital Image may be used for educational fair use purposes only. Prior written permission is required for other use.

Hjalmar Horace Greeley Schacht

Wall Street involvement with Hitler's Germany highlights two Germans with Wall Street connections -- Hjalmar Schacht and Putzi Hanfstaengl. The latter was a friend of Hitler and Roosevelt who played a suspiciously prominent role in the incident that brought Hitler to the peak of dictatorial power -- the Reichstag fire of 1933. [12]

The early history of Hjalmar Schacht, and in particular his role in the Soviet Union after the Bolshevik Revolution of 1917, was described in my earlier book, "Wall Street and the Bolshevik Revolution". The elder Schacht had worked at the Berlin office of the Equitable Trust Company of New York in the early twentieth century. Hjalmar was born in Germany rather than New York only by the accident of his mother's illness, which required the family to return to Germany. Brother William Schacht was an American-born citizen. To record his American origins, Hjalmar's middle names were designated "Horace Greeley" after the well-known Democrat politician. Consequently, Hjalmar spoke fluent English and the post-war interrogation of Schacht in Project Dustbin was conducted in both German and English.

The point to be made is that the Schacht family had its origins in New York, worked for the prominent Wall Street financial house of Equitable Trust (which was controlled by the Morgan firm), and throughout his life Hjalmar retained these Wall Street connections. [13] Newspapers and contemporary sources record repeated visits with Owen Young of General Electric William Farish, chairman of Standard Oil of New Jersey and their banking counterparts. In brief, Schacht was a member of the international financial elite that wields its power behind the scenes through the political apparatus of a nation. He is a key link between the Wall Street elite and Hitler's inner circle.

This book is divided into two major parts. Part One records the buildup of German cartels through the Dawes and Young Plans in the 1920s. These cartels were the major supporters of Hitler and Naziism and were directly responsible for bringing the Nazis to power in 1933. The roles of American I. G. Farben, General Electric, Standard Oil of New Jersey, Ford, and other U.S. firms is outlined. Part Two presents the known documentary evidence on the financing of Hitler, complete with photographic reproduction of the bank transfer slips used to transfer funds from Farben, General Electric, and other firms to Hitler, through Hjalmar Horace Greeley Schacht.

Hitler’s domestic policies between 1933 and 1939

The German people had suffered badly during both the First World War and the Depression and a large part of Hitler’s appeal was to make Germany’s economy powerful and self-sufficient, a term known as autarky and enforce tariffs on imports.

When the Nazis came to power unemployment in Germany was close to 30%. The Nazi government started to continue the economic policies introduced by the government of Weimar Republic in 1932 in order to combat the effects of the Depression. Hitler appointed Hjalmar Schacht, as President of the Reichsbank in 1933 and Minister of Economics in 1934.

The policies the Nazis inherited included a large Public works programs such as the construction of the Autobahn network in order to stimulate the economy and reduce unemployment. These were programs planned to be implemented by the Weimar Republic but the Nazis appropriated as their own after seizing power.

In the 1930s, when the Nazis seized power in Germany anyone who dared to speak out against Hitler and his policies was subjected to intimidation, incarceration, and, in some cases, execution. As a result, Hitler faced almost no resistance.

All political parties were outlawed in July 1933. The Nazi Party was the only one allowed to exist, effectively turning Germany into a one-party state and destroying democracy. As a result, in 1933, when a new Reichstag election was held, the Nazis received 92 percent of the vote.

As for women, Hitler believed women’s lives should revolve around the three ‘Ks’: Kinder, Küche, Kirche (Children, Kitchen, and Church). He expected them to stay at home, look after the family and produce children in order to secure the future of the Aryan race.

The Nazis believed the Germans were the Aryans “Master Race” and categorized other races as sub-human. The gypsies and Jews were regarded as such. The Nazis regarded that all other groups were inferior to the Aryans and they were a threat to the purity of the “Master Race”. So the Nazis sought to eliminate the Jews, Gypsies and physically disabled Germans.

Young people were very important to the Nazis. Boys and girls were encouraged to join the Hitler Youth, the Nazis’ youth organization from the age of 10. The Nazis set out to influencing the beliefs of young Germans through reforming the education system. To reflect Nazi philosophy and goals, they modified the core curriculum to emphasize athletics, history, and racial science as the most important subjects.

In addition, the Nazis introduced new textbooks which were often racist, and promoted ideas such the need for Lebensraum. Young people were indoctrinated in the political and racial ideas of Nazism in schools. The aim was to brainwash children into embracing Nazi ideas without question.

Great emphasis was placed on who the teachers were. Jewish teachers and teachers with unfavorable political views were fired under the Restoration of the Professional Civil Service Act of April 7, 1933.

The Culpability of Hjalmar Schacht: Part 2

W hen Hjalmar Schacht was appointed the Minister of Economics by Hitler in 1934, he set off to tighten his grip on the economy through a series of radical policies, whose ultimate objective was to rebuild the German military. The New Plan reflected the fact that as much as obtaining autarchy — economic self-sufficiency — was important, raw materials still needed to be imported for arms manufacturing. There was minimal reliance on other countries, as there were no extra foreign currencies entering the country. Acquiring ninety percent autarchy, measured by the amount of goods that needed to be imported from and sold outside the country, during Schacht’s tenure already showed that Germany was relatively stable and increasingly less affected by external economic turbulence. Germany was Europe’s largest consumer at a time when the overwhelming majority of nations on the continent succumbed to the effects of the 1930s global economic depression. This was good news for Hitler, as Schact’s ability to control industrial production , implement currency control and other means to direct money flowing into Germany, as well as his ability to mobilize millions of workers to public works projects in Operation Reinhardt (Weitz 1997) show that a totalitarian government provides the most stability and economic control compared to other systems in countries such as France and Italy. History has shown that a population is often willing to trade its freedom for a little more stability in life

By 1937, Germany’s imports were worth 500 million Reichsmarks more than they should have received, due to the new clearing system. This is more capital for military expenditure. In the midst of the confusion as to Hitler’s growing ambitions in Europe, Schacht borrowed enormous amounts of capital from neighboring Western European countries, Leveraging their status as Europe’s largest consumer at the time Germany used the aski accounts — which countries were paid in instead of a real currency and could only be used to purchase German exports to the country of the “aski marks’” holder, since they could not be converted into a major international currency — to force other nations into importing only German products. About one fifth of all German imports in 1935 were paid for in this arm-twisting manner (Weitz 1997). This scheme yielded the desired results from 1934 to 1937, the import of petroleum increased by 116 percent, rubber by 71 percent, of finished products by 63 percent, of grain by 12 percent, and of ores by 132 percent. The New Plan was a great step towards German autarchy..

Hitler’s goal of establishing an even stronger German state inspired Schacht’s policies on the war economy ( Wehrwirtschaft ). Appointed as General of the Plenipotentiary War Economy by Hitler through the Reich Defense Law of 1935, Schacht became the virtual economic dictator of Germany he controlled all economic planning and preparation for war. His strategy revolved around putting “all economic forces in the service of carrying on the war and to secure the life of the German people economically.” Under the law, the Ministry of Economics was placed higher in the government’s hierarchy than the Ministries of Food and Agriculture, Labor, and Forestry. Schacht had to accept sole responsibility for his counterparts in those departments. Always meticulous, Schacht ordered intensive statistical studies on topics such as “the composition of the labor force as to sex, age, and training, the consumption of raw and auxiliary material, fuels, power, the productive capacity, the domestic and foreign trade as well as the supply of material and products in the beginning and at the end of the year.”

“German and American soldiers training at an undisclosed location. As Minister of Economics, Hjalmar Schacht planned for the war economy by enacting real-life military exercises that involved troops as well as civilians.” German-American training by heraldpost is licensed under CC BY-NC 2.0

Schacht’s dedication to his policies shined through his careful planning. He held real-life military maneuvers to determine where equipment and power sources should be placed so they would continue to function even when accidents (i.e., power shortage) occurred. When necessary, evacuation of military troops and equipment, technicians, and livestock were all worked out to the smallest detail each entity was marked and registered with the Wehrkreiskommandos by the field offices of evacuation and salvaging plans. Schacht had a plan to take care of German civilians too. Within twenty-four hours of troop mobilization, authorities would distribute the eighty million food cards throughout the country, for the purpose of food rationing.

Placing one individual in charge of such an important aspect of the German wartime economy was rather risky, since he would have to be wholehearted in his acceptance of Nazi philosophy. The return, however, would be a great increase in efficiency for Germany. The hierarchical nature of the ministry system decreased the probability of inter-ministry conflicts, . Schacht’s detailed preparatory efforts proved to be extremely useful to Germany once the war began. The plans described “the needs of the Armed Forces and the civilian minimum needs in wartime…compared with the covering thereof by supplies and production.” Furthermore, necessary resources, such as fuel, were available for war at the spur of the moment for example, “mobilization stocks” of coal were designated for armament factories and large consumers “gasoline storage places” were built for the army, and gasoline stations and stocks were marked “for the first equipment of the troops in case of mobilization.” These precautions would prevent chaos and confusion at times of war, for everyone would know where to go and what to do — as demonstrated by the speed of the 1939 invasion of Poland, which mobilized 1.5 million troops and 2,750 tanks in just over one month.

Strangely, one of Schacht’s economic plans involved political opponents to invest in the Nazi party. How was that possible? As the president of the Reichsbank, he had the power to control the flow of the money that had been deposited in the bank. By interfering with the capital of any account, including those belonging to Hitler’s critics, Schacht redirected funds to arms manufacturers. He confirmed the plan with Hitler in 1935: “The Reichsbank invested the major part of Reichsbank accounts owned by foreigners, and which were accessible to the Reichsbank, armament drafts. Our armaments are, therefore, being financed partially with the assets of our opponents.”

A master of monetary diversion, Schacht accomplished similar feats as the Minister of Economics. Like any country, wartime Germany received most of its income through taxes and public debt (Weitz 1997). Schacht, during his tenure, increased the public debt from 10.4 billion marks in 1932 to a stunning 19 billion marks six years later. The extra cash, in return, was discreetly transferred to the Nazi’s rearmament program and Hermann Göring’s Four Year Plan, which was later revised as the Three Year Plan. Schacht was on hand to make sure that no money was diverted to the private sector.

“The Reichsbank building in Berlin, which suffered extensive damage during World War II, now houses part of the Foreign Office. Hjalmar Schacht concurrently served as President of the Reichsbank during his tenure as Minister of Economics.” Berlin – Reichsbank / Auswärtiges by corno.fulgur75 is licensed under CC BY 2.0

Early on in his term, Schacht introduced the Mefo bonds, This scheme was based on the establishment of the Mefo Corporation ( Metallurgische Forschung GmbH – Metallurgical Research Company). Initially funded by a nominal capital of one million Reichsmarks, the Mefo Corporation distributed bonds that paid four percent interest and matured in five years to four leading industrial companies: Gutehoffnungshütte, Krupp, Rheinstahl, and Siemens. The bonds were redeemable at any time and their payment was guaranteed by the Reichsbank, which in turn was backed by the Foreign Conversion Fund.

The Mefo bills clearly served an underlying cause that the Mefo corporation was capitalized with one million marks should have raised an eyebrow. As it would later come to light, they were part of a larger scheme for rearmament much of the money ended up in large government contracts for that purpose. The Mefo company was really a middleman. After military contractors received payments by the government in Mefo bonds, they turned to Mefo, which in turn helped these manufacturers to obtain cash from the Reichsbank, including the four percent interest that the bonds offered. As previously mentioned, these payments were guaranteed, so the bank could draw capital out of the corporate capital reserves, which were supposedly used for emergencies only. The popularity of the Mefo bond helped to raise much needed money for rearmament the original one million mark bonds reached twelve billion marks four years later, in 1936.

Another desirable side-effect was, of course, the creation of employment Schacht called the Mefo plan “an inventive way of priming industrial production and wiping out unemployment” – as reported by Weitz (1997, p. 158). Many observers, most of whom are apparently cynics, believe it “a well-camouflaged ruse for cranking up armament production without much visible accountancy or unduly alarming the outside world.” Like the various taxation methods and usage of bank investments, the Mefo bills helped finance the German rearmament program, which supported the Nazis’ primary foreign objective – turning the country back into a major military power.

Considering that Schacht’s policies drawn up in such a short period of time, it is hard to deny his relevance and contribution to the Nazi party. George S. Messersmith, the US Consul General in Berlin from 1930 to 1934, shared this view :

It was [Schacht’s] financial ability that enabled the Nazi regime in the early days to find the financial basis for the tremendous armament program and which made it possible to carry it through. If it had not been for his efforts, and this is not a personal observation of mine only but I believe was shared and is shared by every observer at the time, the Nazi regime would have been unable to maintain itself in power and to establish its control over Germany, much less to create the enormous war machine which was necessary for its objectives in Europe and later throughout the world.

John Weitz, a historian and former intelligence officer for the United States in the war, observed that, from the beginning, “the Reichsbank [had] been aware of the fact that a successful foreign policy can be attained only by the reconstruction of the German armed forces” (Weitz 1997, p. 158) Schacht represented this belief, which permeated throughout his economic policies. They strengthened Hitler’s totalitarian rule indirectly by financial and social means. To put it simply as a Business Week article at the time, Schacht “[played] a dominant role in formulating government economic and financial policy” in Germany (Weitz 1997, p. 145).

Featured Image Credit: File:Hjalmar Schacht.jpg by Vmmmsh at Wikimedia Commons

Deuel, Wallace. 1942. People Under Hitler . New York: Harcourt, Brace and Company, 1942.

Goldston, Robert. 1967. The Life and Death of Nazi Germany . London: Phoenix House, 1967.

McVay, Ken. 2019. The Nizkor Project: Nazi Conspiracy & Aggression, Volume II, Chapter XVL . .

The Nazi Years: A Documentary History , ed. Joachimm Remak. 1969. Englewood Cliffs: Prentice-Hall.

Tolischus, Otto. 1969. “Hitler Tightens His Control.” Nazis and Fascists in Europe, 1918-1945 , ed. John Weiss. Chicago: Quadrangle Books.

Weitz, John. 1997. Hitler’s Banker . Toronto: Little, Brown and Company.

Schacht supported public-works programs, most notably the construction of autobahnen (highways) to attempt to alleviate unemployment – policies which had been instituted in Germany by von Schleicher’s government in late 1932, and had in turn influenced Roosevelt’s policies.

The Four Year Plan was a series of economic measures initiated by Adolf Hitler in Nazi Germany in 1936. The primary purpose of the Four Year Plan was to provide for the rearmament of Germany, and to prepare the country for self-sufficiency in four years, from 1936 to 1940.


Hitler strived to achieve autarky (self-sufficiency) during his leadership to benefit and prepare Germany for a time of war. A number of economic plans were introduced as part of Germany’s self-sufficiency attempt.

“The New Plan”

Hjalmar Schacht had been appointed as Minister of the Economy. He introduced the plan referred to as “The New Plan”. This plan had four key points:

ii. To cut government welfare spending

iii. To establish international trade agreements

iv. To channel government spending into a range of industries

This plan helped the German economy to recover within 2 years, however Hitler put pressure on Schacht to make rearmament a key issue. Schacht was against this and resigned.

“Four-Year Plan”

Herman Goering also wanted Germany to be self-sufficient. He was appointed in 1936 and created the “Four-Year Plan” in an attempt to achieve autarky. Goering hoped to:

i. Place private industries under governmental control

iii. Set high targets for the production of food and materials

iv. Have industries develop substitutes for raw materials not available in Germany

How successful was autarky?

By 1939, Germany still imported 1/3 of its required raw materials. Although government income had increased from 10 billion marks in 1928 to 15 billion in 1939, expenditure had also increased from 12 billion marks in 1928 to over 30 billion in 1939. Government debt now stood at 40 billion marks. However, there was greater industry production in Germany due to unemployment supposedly dropping from 6.1 million in January 1933 to 302,000 in January 1939.

Hitler was now determined that self-sufficiency could only be achieved by conquering other countries to gain access to their raw materials. He turned to Albert Speer to organise a Total War Economy.

Watch the video: How to Pronounce Hjalmar Schacht? CORRECTLY (May 2022).


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