Garry North calls Ellen Brown a fan of Hitler, likens her to Father Coughlin
Newsletter published on March 27, 2020
(1) Coronavirus emergency prompts even conservatives to switch to
Socialist Financing
(2) Gary North is a paleolibertarian Austrian School economist
(3) Garry North calls Ellen Brown a fan of Hitler, likens her to Father
Coughlin
(4) The Finance Policy of Nazi Germany: Feder, Schacht and Hitler, by
Peter Myers
(5) Schacht battled against Feder; MEFO bills paid interest - Stephen
Zarlenga
(1) Coronavirus emergency prompts even conservatives to switch to
Socialist Financing
- by Peter Myers, March 27, 2020
It is ironic that we are considering this issue during the Coronavirus
emergency, when even the Financial Times has run articles such as
"Governments must act now to avert a Depression", by Martin Wolf, and
Martin Sandbu is advocating that Central Banks should directly fund
government deficits.
Gary North insists that even at such times, the sanctity of the Free
Market must be upheld. This would mean millions of deaths and economic
ruin. It is the very Libertarianism of the USA which has allowed the
virus to get out of control, even though they had 2 months' warning from
what hapopened in China.
The USA is now the epicentre of the Covid-19 outbreak, and its death
toll is overtaking China's, even though China's population is four times
greater. Whereas China contained the outbreak within two months, the
situation in the USA looks like spiralling out of control. That's
because of the entrenched Libertarianism - governments in the USA are
weak; power resides in the Corporations, who buy Congress and fund
Presidential campaigns.
In US politics, likening anyone to Hitler is a way of smearing them, an
argumentum ad hominem. Gary North's smear of Ellen Brown is an attempt
to preserve the current financial system, with its weak government
devoted to Free Trade and endless wars rather than to rebuilding the
American economy.
If Ellen Brown notes some achievements of Hitler, that is because they
did happen, in the pre-war years. In the first four years, he reduced
unemployment from 25% to zero, at a time before military buildup.
The downside, from a Socialist viewpoint, is that the funding of
Hitler's projects was done with borrowed money. Hitler got rid of the
Socialist Left in the NSDAP - Gottlieb Feder, Otto Strasser, Gregor
Strasser and Ernst Röhm.
They had been calling for a 'second revolution', to overthrow
capitalism. But the capitalists that Hitler had relied on for funding
demanded that he get rid of the Socialist Left faction of the party. He
did so in the Night of Long Knives. Rohm and Gregor Strasser were
killed; Feder was sidelined. Otto Strasser escaped, and became the most
hated man in Europe: http://mailstar.net/otto-strasser-hitler.html.
An account of the Night of Long Knives is at
The sympathies of Ellen, Stephen Zarlenga and myself are with Feder and
the Left, not Shacht or Hitler. As Stephen Zarlenga explains in item 5
below, Hitler installed Shacht in charge of finance policy, and dumped
Feder.
Feder had been the advocate of Greenback financing, such as Ellen,
Michael Hudson and I advocate. This means that a publicly-owned national
bank funds infrastructure etc at very low interest - the way the US
funded the Second World War. It came out of that war with very low debt;
that's because when the bankers feel that their own backs are up against
the wall, they are prepared to drop the profit motive.
The Coronavirus gives us two choices: Libertarian orthodoxy such as Gary
North advocates, or a switch to Socialist financing.
(2) Gary North is a paleolibertarian Austrian School economist
Gary Kilgore North, is an American paleolibertarian writer, Austrian
School economic historian, and leading figure in the Christian
reconstructionist movement. North has authored or coauthored over fifty
books on topics including Reformed ...
Gary North -- Specific Answers
The reality of government bureaucracy is greater than the reality of a
coronavirus cure.
(3) Garry North calls Ellen Brown a fan of Hitler, likens her to Father
Coughlin
From: chris lancenet <chrislancenet@gmail.com> Subject: Ellen Brown is a
lawyer by profession, a Greenbacker by confession, and a fan of Adolph
Hitler's economics by consistency.
Ellen Brown: Hitler's Cheerleader
by Gary North
October 08, 2011
Ellen Brown is a lawyer by profession, a Greenbacker by confession, and
a fan of Adolph Hitler's economics by consistency.
She is quite open about her support for National Socialism's economics,
as I shall demonstrate. What is depressing is this: she is getting a
respectful hearing in Tea Party circles. Her book, The Web of Debt
(2006), is widely cited on the World Wide Web. As of early October,
2010, a Google search for "Ellen Brown" and "Web of Debt" generated
close to 600,000 hits. This is huge.
Here is a tactical problem. For two generations, conservatives have been
shouted down by the Left with this accusation: "Fascist!" Ellen Brown is
now making this accusation plausible. Yet the great irony is this: Ellen
Brown is a Leftist. There is nothing even remotely free market or
conservative about The Web of Debt. It is a call for a Federally funded
welfare state. She praises the New Deal. She praises John Maynard
Keynes. She has only one objection to their recommended programs:
governments borrowed money to fund them. She wants a welfare state that
is funded entirely by paper money printed by Congress. She is about as
conservative as Nancy Pelosi.
How could her ideas be getting a hearing in Tea Party circles? It's a
long story. Let me summarize it.
THE GREENBACKERS
Brown is a Greenbacker. She is open about this. Most people have never
heard of Greenbackism. It has been a fringe movement in American
political life ever since the 1860s. The Greenback Party in the 1870s
was the first American political party to come out in favor of a pure
fiat money economy, a paper money system controlled by Congress with
currency irredeemable in gold coins or silver coins.
The Greenbackers are committed to paper money. They are opposed to any
form of gold standard. They are opposed to fractional reserve banking.
They are opposed to central banking, unless the central bank is 100%
owned and controlled by Congress.
They were part of the non-Marxist Left during the late 19th century. In
the 1930s, they divided. Some of them attempted to enter the
anti-Roosevelt Right. An example was Gertrude Coogan. She was not well
known. I have written a minibook on her economics, published by the
Mises Institute: Gertrude Coogan's Bluff. You can download it for free
here.) Others joined the anti-Roosevelt Left. The most famous example
was the radio preacher, Father Charles Coughlin, who later broke with
the New Deal because he thought it was not sufficiently committed to the
welfare state. He called the New Deal "the Jew Deal." He favored the
economic policies of Hitler.
In a strange amalgam, Leftist-Populist Congressman Jerry Voorhis in 1943
persuaded Devin-Adair Books to publish his Greenbacker book, Out of
Debt, Out of Danger. In the post-War period, this tiny publishing house
became one of the three conservative publishers, along with Caxton and
Regnery.
In the early 1950s, the Greenbackers gravitated to the Right. A
Greenback publisher gained editorial control of The American Mercury, by
then a far-Right magazine that had originally been founded by H. L.
Mencken. One of its writers was George Lincoln Rockwell, who later
founded the American Nazi Party.
A series of tiny publishing houses began issuing reprints of 1930s-era
books, plus new ones. (For a short bibliography, click here. They made
little headway into the conventional Right. But within certain fringe
groups, especially antisemitic groups opposed to "the International
Jewish Bankers' Conspiracy," they gained a foothold.
This obscurity has all changed. Their market has grown exponentially
since 2008. Two reasons are Ellen Brown and Ron Paul, both of whom are
opposed to the Federal Reserve. Their opposition gave negative publicity
to the FED. This rallied the Tea Party troops. A third reason was the
economic crisis in the fall of 2008 and the Federal bailouts of the
banks. The Greenbackers are riding the growing wave of opposition to the
Federal Reserve System.
The strategic problem is this: the Tea Party movement is filled with
people who have no economic understanding. They cannot distinguish Ron
Paul's opposition to the FED, based on the gold coin standard, from
Ellen Brown's opposition, based on a fiat money standard. They are
intellectually defenseless.
GERMAN NATIONAL SOCIALISM
In 2006, Brown's 500-page book appeared. By 2008, it was in its 4th
printing. It is an attack on fractional reserve banking and the Federal
Reserve System. It began getting a hearing on the World Wide Web.
The book does not initially appear what it really is: a call to set up a
government-funded welfare state. But there are brief statements to this
effect in the early pages. Only on page 234, halfway through the book,
does she get to the point: the Nazi economy.
The German people were in such desperate straits that they relinquished
control of the country to a dictator, and in this they obviously
deviated from the "American system," which presupposed a
democratically-governed Commonwealth. But autocratic authority did give
Adolf Hitler something the American Greenbackers could only dream
about--total control of the economy. He was able to test their theories,
and he proved that they worked. At this point, anyone with an IQ above
90 should begin to smell a rat.
The Greenbackers are big advocates of Abraham Lincoln. Why? Because he
allowed the banks to suspend payments in gold in 1861. Then in 1862 and
1863, he signed into law a system of unbacked fiat money called
Greenbacks. They see him as the creator -- a would-be national savior
who was thwarted by the bankers, who had him assassinated.
They never discuss the fact that Lincoln was an advocate of fractional
reserve banking. They never mention that in January of 1863, he signed
the bill authorizing a second issue of Greenbacks, but sent Congress a
letter deploring the law. He called for a national bank act. Congress
gave it to him a month later.
With this as background, I return to Brown's discussion of National
Socialism.
Like for Lincoln, Hitler's choices were to either submit to total debt
slavery or create his own fiat money; and like Lincoln, he chose the
fiat solution. He implemented a plan of public works along the lines
proposed by Jacob Coxey and the Greenbackers in the 1890s. Projects
earmarked for funding included flood control, repair of public buildings
and private residences, and construction of new buildings, roads,
bridges, canals, and port facilities. The projected cost of the various
programs was fixed at 1 billion units of the national currency. One
billion non-inflationary bills of exchange, called Labor Treasury
Certificates, were then issued against this cost. Millions of people
were put to work on these projects, and the workers were paid with the
Treasury Certificates. The workers then spent the certificates on goods
and services, creating more jobs for more people. ...
Within two years, the unemployment problem had been solved and the
country was back on its feet. It had a solid, stable currency and no
inflation, at a time when millions of people in the United States and
other Western countries were still out of work and living on welfare.
[Web of Debt, p. 234.]
The German economic system was run by the central government. It
preserved the illusion of private property, but it was a socialist
system. The government controlled the means of production. The
government issued fiat money, and it established price and wage
controls. It set up a system of 1,600 cartels in 1933-36. Beginning in
1934, government officials set the prices of commodities, and this
resulted in shortages of most domestic commodities. The government also
expanded the power of the government over the affairs of everybody in
the society.
There have been only two major studies in English of the German economy
since 1939. One was called The Vampire Economy, and it described the
details of this centralized economic system. It was published in 1939.
You can download a copy of it free of charge here. The other is Adam
Tooze's massive study, The Wages of Destruction (2006). They both tell
the same story. (Oddly enough, both were published by Viking.)
Dr. David Gordon reviewed Tooze's book. Here are selections from his review.
As Adam Tooze has noted, Hitler in 1932 indicated his interest in
job-creation programs, and this of course required government spending.
But once in power, his interest shifted from job creation to rearmament.
This required even more government spending; and armaments rapidly
increased. The Nazi party did not adopt work creation as a key part of
its programme until the late spring of 1932, and it retained that status
for only eighteen months, until December 1933, when civilian work
creation spending was formally removed from the priority list of
Hitler's government … [Work creation] was in sharp contrast to the three
issues that truly united the nationalist right . . . the triple priority
of rearmament, repudiating Germany's foreign debts and saving German
agriculture … It was Hitler's action on these three issues not work
creation that truly marked the dividing line between the Weimar Republic
and the Third Reich. (Adam Tooze, The Wages of Destruction, Viking,
2006, pp. 24-5). . . . In effect, Germany had embarked on a Keynesian
policy: government spending became increasingly important in guiding the
economy into the military channels that Hitler wanted. . . .
Keynes himself viewed the Nazi efforts with favor. In his preface to the
German edition of The General Theory, dated September 7, 1936, Keynes
indicated that the ideas of his book could more readily be carried out
under an authoritarian regime:
Nevertheless the theory of output as a whole, which is what the
following book purports to provide, is more easily adapted to the
conditions of a totalitarian state, than is the theory of the production
and distribution of a given output under conditions of free competition
and a large measure of laissez-faire. Hitler was the head of a political
party. In English, it was called the National Socialist German Workers
Party, or "Nazi Party" for short. It was not called socialist for
nothing. To imagine that this system was anything other than socialism
is to parrot the Party Line of the Left ever since 1923. "No, no, no:
the Nazis were not really socialists." Well, if they weren't, their
policies surely resembled socialism. They believed in centralized
control over the economy, and when they got into power in 1933, they
established that control. This control grew even tighter after 1939,
because of World War II.
GUNS, NOT BUTTER
The secret of the Nazi economy was spending on war. In a study of Nazi
fiscal and monetary policy, economist Albrecht Ritschl concluded in 2000,
A critical reassessment of deficit spending during the Nazi recovery
reveals a surprisingly small role for macroeconomic policy. Both the
descriptive evidence and the results from multivariate time series
forecasts suggest that recovery from the Great Depression was mainly
driven by a rebound effect that was visible in the data already by late
1932. Up to around 1936, the German recovery was no more advanced than
that of Britain or the United States, where far less expansionary fiscal
policies were followed. However, even in Germany the fiscal impulse
generated by the budget deficit was too small to be consistent with
Keynesian demand stimulation under an income/expenditure mechanism. In
order to explain the very high, at times two-digit growth rates of GNP
during the recovery, deficits would have had to be two to five times
higher than they actually were. Apparently, recovery was due to forces
other than fiscal and monetary policy, just as in the cases of Britain
and the United States. . . . Nazi recovery appears less spectacular than
was hitherto believed. Our results also indicate that government
spending was dominated by war preparation already in a very early phase
of the Nazi recovery. I find little justification for the popular
interpretation that recovery was sparked off by non-military
work-creation and the construction of the autobahn network. Investment
in the autobahn reached sizable magnitudes only in 1936. All these
projects pale in comparison with the rapid build-up of military
expenditure, except for the year of 1933 when rearmament had not yet
really begun. To secure the desired high speed of war preparation, the
Nazi administration took early, often draconian steps to crowd out
private demand. The growth in consumer spending fell short of the
increase in national product, and the contribution of private investment
to the recovery remained unimpressive.
Strict control of private expenditure was partly achieved by maintaining
taxation at the high levels reached during the depression years.
[Deficit Spending in the Nazi Recovery, 1933-1938: A Critical
Reassessment, Institute for Empirical Research in Economics, University
of Zurich, pp. 16-17.
In short, the government created jobs in factories preparing for war.
Then it taxed workers so that they could not spend their income on
consumer goods.
Hitler was no advocate of economic growth. He was an advocate of
military expansion. Professor Tooze summarizes.
This backdrop is essential if we are to understand Hitler's refusal to
accept the liberal gospel of economic progress. Economic growth could
not be taken for granted and Hitler was by no means the only person to
say so. As we have seen, the doctrine of economic life as a field of
struggle was already fully formed in Mein Kampf and Hitler's 'Second
book'. And this Darwinian outlook was only encouraged by the subsequent
Depression. Given the density of Germany's population and Hitler's
insistence on the inevitability of conflict arising for export-led
growth, the conquest of new Lebensraum was certainly one means of
raising Germany's per capita income level. Hitler could hardly have been
more emphatic or consistent in his advocacy of this position. As we have
seen, he made a point of reiterating this belief in the very first days
of his new government in 1933. An aggressive foreign policy based on
military strength was the only real foundation of economic prosperity
(Wages of Destruction, pp. 145-46). Hitler was a mercantilist who
believed in expansion by military conquest.
A PACKAGE DEAL
Ellen Brown adds this:
While Hitler clearly deserved the opprobrium heaped on him for his later
military and racial aggressions, he was enormously popular with the
German people, at least for a time. [Web of Debt, p. 235.] Her message:
Hitler was a man of the people! She wants the United States to follow
his lead . . . but only in economic policy, of course. Not the
concentration camps. Not the war.
She does not draw the obvious conclusion, namely, that the centralized
power of the government over money, business, and labor was basic to the
power which that government imposed over the Jews and other minorities.
It is almost as if his racial tyranny and military aggression were
completely divorced from his economic views and the government's
economic policies. It should be obvious that these policies were a
package deal. Without the centralization of power over the economy, the
German government could not have exercised the tyranny that it did
exercise in all other areas of life. This was the argument of F. A.
Hayek in The Road to Serfdom (1944). It is unfortunate that Ellen Brown
does not believe in the arguments presented in that book. She dismisses
all such free market arguments as "the British System" of Adam Smith.
Her happy-face and utterly mythical welfare economy of Nazi Germany,
with its high employment, is the economy that Ellen Brown wants to see
established in the United States. She is very clear about her
intentions. Anyone who thinks that she is anything but a National
Socialist in her economic outlook does not take her words seriously.
Her ignorance of National Socialist economic practice and its results --
war and concentration camps -- is monumental. It matches her ignorance
of monetary theory. Her ignorance is a package deal.
GREENBACK ECONOMICS
To get some sense of what Greenback economics is all about, let me
survey a few of her economic errors. I list them in the order in which
they appear in Web of Debt. I do not refute them here. I have devoted
one article per error. Click any link to see the direct quotation from
Web of Debt and my refutation.
1. Governments should get out of debt by printing paper money. 2. There
is not enough gold to facilitate trade.
3. Economic scarcity is the result of greedy bankers.
4. Mercantilism's state-run economy is harmonious; the free market isn't.
5. Keynes was correct about money.
6. The New Deal made Americans richer through public works.
7. The New Deal's price controls on food were good for America.
8. Keynes was a great economist because he promoted budget deficits.
9. Rothbard's monetary theory is wrong (when you misquote it).
10. The New Deal allocated capital better than the free market did.
11. A monetary system is a national contractual agreement.
12. Falling prices and increasing productivity cause recessions under a
gold standard.
13. The government can pay off its debt with paper money with no price
inflation.
14. The government can pay off Social Security with paper money with no
price inflation.
15. Americans should trust Congress to regulate the monetary system.
16. The government should build a larger welfare state with fiat money.
17. The banking system should be run like the Post Office.
18. Banking should be run on a non-profit basis.
19. If Congress prints money, there will be no need for an income tax.
20. Gold's price fluctuates too wildly for it to serve as money.
21. It is possible to have civil government without taxes, debt, and
inflation.
GREENBACK HISTORIOGRAPHY
As implausible and garbled as Greenback economics is, it is Nobel-Prize
material when compared to the Greenbackers' version of American history.
I have been reading their books, off and on, for over 45 years. I have
found the same false stories over and over. Greenback authors rarely
verify them. They simply repeat them.
In terms of the number of utterly bogus stories, Ellen Brown's Web of
Debt surpasses anything I have ever read. It is filled with bogus quotes
from famous people. It also has its share of bloopers. Let me begin with
my favorite. She argues that the president of the Federal Reserve Bank
of New York, Benjamin Strong, met secretly in February of 1929 with the
head of the Bank of England, Montagu Norman. Together, they concluded
that a collapse of the stock market was inevitable. They decided to take
no action to prevent this. She cites no evidence for this meeting, but
she assures us that "the evidence suggests" it (p. 143). I can think of
a crucial piece of evidence that calls the story into question. Strong
died in 1928.
With this as background to Ellen Brown, historian, I now offer 30 other
examples.
1. A bogus quote from Sir Josiah Stamp on the Bank of England
2. Jefferson was a promoter of unbacked paper money.
3. Lincoln promoted debt-free paper money.
4. Colonial Pennsylvania avoided taxes by issuing paper money.
5. A bogus quote from Franklin on colonial paper money
6. Ignoring a negative statement by Franklin on the "Continentals"
7. A bogus quote from John Adams on debt as a means of conquest
8. The "Christian Bible" Prohits Interest, but not the "Jewish Bible."
9. China's medieval unbacked paper money had centuries of success.
10. England's medieval wooden "tallies" were interest-free money.
11. A bogus quote from Nathan Rothschild
12. A bogus quote from Jefferson on banks
13. Jefferson and Jackson fought the 1st Bank of the U.S.
14. The Civil War's paper money made survivors richer.
15. A bogus Lincoln quote on men and wages
16. Lincoln favored the Greenbacks over Union debt to banks.
17. The Greenbacks were pure fiat money unrelated to gold backing.
18. Two bogus quotes from Bismark on European bankers
19. International bankers defeated Lincoln in 1863 with the National
Bank Act.
20. A bogus quote from Garfield on the control over money
21. The island of Guernsey had fiat money without inflation.
22. Populism defended the interests of the common man.
23. A bogus document: "Bankers' Manifesto of 1892"
24. "Robber Barron" Capitalists raised prices and lowered quality.
25. Benjamin Strong (d. 1928) plotted with Montagu Norman in 1929.
26. Milton Friedman said that the Federal Reserve caused the Depression.
27. Hitler's National Socialism ended the Great Depression in Germany.
28. Germany's hyperinflation (1921-23) happened only after the central
bank was privatized.
29. Foreign currency speculators caused Zimbabwe's hyperinflation.
30. Gold's price rose in the 19th century
31. Shays' Rebellion (1786) took place after the Constitution was
ratified (1788).
CONCLUSION
Ellen Brown has achieved what no other Greenbacker has achieved ever
since Father Coughlin: a large national audience -- though nowhere near
the size of his audience at its peak. Her book, Web of Debt, is
universally regarded as authoritative by Greenbackers. She does not
share his antisemitism, but she shares his economic views.
Those of her disciples who read this article and who click through to
see my evidence of her errors will have a problem. They can verify for
themselves that she does not know what she is talking about in two
areas: economic theory and American history. She has used bogus quotes
to bolster her weak economic case. She cannot be trusted. Will they back
away from her and her book? Will they search for some other book that
proves the Greenback case? Or will they simply drop Greenbackism?
As for Ellen Brown, she now has four courses of action.
1. Pretend that she never read this article, on the assumption that her
followers will not see it. (Intellectually dishonewst.)
2. Burn all copies of her book and write a revised one that corrects her
oversights. (Hard work, and then I will get to reply.)
3. Burn all copies of the book and stop promoting Greenbackism. (Do
authors ever do this?)
4. Reply to me, point by point, on her Website, showing that I am 100%
wrong. (Impossible, and then I will get to reply.)
Lawyer Brown now has an opposing "counsellor": me. From now on, I will
be her lifelong tar baby. If she replies and sends me a link, I will
reply in my department: Ellen Brown: Greenbacker.
I have spend 45 years dealing with monetary cranks. She is by far the
most vulnerable of them all. It is not just that she understands neither
economics nor the basics of historical research. None of them does. What
makes her so vulnerable is that she is so visible . . . and so
consistent. She finally did what was implied by them all after 1935, but
which only Father Coughlin had the courage to do. She came to the
defense of Adoph Hitler's economy. I have waited for a target like her
for 45 years.
This is going to be fun. For me.
* * * * * * * * * * * After the publication of this article on
LewRockwell.com and my site, she ran for cover. She said that she would
no longer use Hitler's economy as an example. Nevertheless, she said
that she still believes her analysis was accurate.
This is a totally pragmatic woman.
(4) The Finance Policy of Nazi Germany: Feder, Schacht and Hitler, by
Peter Myers
- by Peter Myers, November 16, 2014
The German Workers Party was a socialist party founded by Gottfried
Feder, Anton Drexler and Karl Harer. Hitler joined it and took it over,
renaming it the NSDAP.
From Feder, Hitler learned that Governments do not need Gold to operate
an economy. As long as there are workers and resources, the economy can
operate on a "Fiat" basis. The Central Bank can create as much money as
is needed to fund employment, infrastructure and social programs. In
this respect, Rauschning was wrong and Hitler was right. Whereas
Rauschning argued that such money-creation would be inflationary, Hitler
insisted that he would control prices and wages, to stop it; and that is
what happened, the same as in the Soviet Union.
However, Hitler did not nationalize private property, as happened in the
Soviet Union. He simply placed control over private business in the
hands of a managerial bureaucracy, subject to the Government. John
Burnham's book The Managerial Revolution was the second book about the
similarity between Soviet and Nazi management of the economy. Burnham
was a Trotskyist who became a leading anti-Communist, and later worked
for the CIA.
Burnham's book was not the first on that theme. It had been preceded by
one other book, The Bureaucratisation of the World, by Bruno Rizzi
(1939). He was also a Trotskyist, who praised the Nazi economic management:
Trotsky himself commented on this book:
The theme was later taken up by Friedrich von Hayek in his book The Road
to Serfdom. He argued that the New Deal, and by extension the postwar
socialist regimes in Britain and Australia, were a slippery slope that
would lead to Totalitarianism. This was the justification for
Thatcherism and Reaganomics.
There are a lot of silly debates about whether Hitler wanted war. But
that's the wrong question. The right question is, "Did Hitler want an
Empire?" And the answer to that question is unequivally Yes. It's just
that he preferred it to fall into his lap, without fighting, as much as
possible.
Hitler makes his imperial ambition clear in Mein Kampf. It is not for
nothing that he visited the grave of Napoleon.
Stalin, not being stupid, prepared for war too. Viktor Suvorov points
out that, just before Hitler attacked Stalin, Stalin had been getting
ready to attack Hitler. Both sides had dismantled their defensive
positions. There was going to be a war between them; the only question
was who would attack first. The lesson was not lost on Moshe Dayan in 1967.
Stephen Zarlenga's book The Lost Science Of Money gives an excellent
account of Nazi finance policy. He explains how Feder was sidelined by
Schacht (and Hitler). MEFO bills paid interest (4.5%), so were not
debt-free money like Lincoln's Greenbacks - the sort Feder had advocated.
Feder's problem was that he knew the theory of money, but had no
practical experience of, say, running a bank. If you want to learn a new
skill - welding metal or grafting trees - the theory is insufficient;
you must get practical experience too. Without that, you're nothing.
That was the difference bwteeen Schacht and Feder.
Zarlenga quotes Robert de Fremery to the effect that the Gold-using
countries were operating a financial war against Germany. The British
Empire had left the Gold Standard by 1931, but was producing half the
world's Gold. Roosevelt took the US off the Gold Standard in 1933, but
the $ remained Gold-backed at $35 per ounce. These two powers did not
take kindly to Germany showing that you could bypass Gold altogether.
However, even if that was a contributing cause to the war, Hitler's
imperial ambitions were a greater cause. His racial antagonism to Slavs
was a throwback from the First World War, during which Germany had
conquered Ukraine and the other western provinces of Russia. Hitler
wanted that territory back. Just as the British called the Germans
"Huns" during that war, the Germans belittled the Slavs. It's was the
basis of Hitler's genocidal policies towards them.
(5) Schacht battled against Feder; MEFO bills paid interest - Stephen
Zarlenga
The Lost Science Of Money
by Stephen Zarlenga
American Monetary Institute, 2002
{p. 590} HITLER TAKEN BY FEDER'S MONETARY VIEWS
When World War I ended, a destitute Adolf Hitler was given an assignment
by Gennan Army intelligence to watch a tiny political group called the
German Workers Party. He attended a small meeting where Gottfried
Feder's monetary views made a very deep impression on him.
The basis of Feder's ideas was that the state should create and control
its money supply through a nationalized central bank rather than have it
created by privately owned banks, to whom interest would have to be
paid. From this view was derived the conclusion that finance had
enslaved the population by usurping the nation's control of money.
Feder's views could easily have originated from the work of German
monetary theorists such as George Knapp, whose book The State Theory of
Money (1905) is still one of the classics in the monetary area. [...]
{p. 591} Near the end of that book, Knapp casually mentions how German
monetary theorists of his day and earlier would study and discuss
American monetary theories. Thus the ultimate source of Feder's
viewpoint may have been the ideas of the American Greenback movement of
the 1870s.
Unfortunately, Feder's monetary views were mixed up with an all
consuming anti-Semitism. [...]
{p. 592} SCHACHT BATTLES FEDER
When the National Socialists came to power, Schacht was reappointed head
of the Reichsbank, partly to reassure German big business and foreign
bankers. Schacht battled against Feder's un-orthodox monetary views:
"Nationalization of banks, abolition of bondage to interest payments,
and introduction of state Giro 'Feder'money, those were the high
sounding phrases of a pressure group which aimed at the overthrow of our
{p. 593} money and banking system. To keep this nonsense in check I
called a bankers' council which made suggestions for tighter supervision
and control over the banks. These suggestions were codified in the law
of 1934 ... In the course of several discussions I succeeded in
dissuading Hitler from putting into practice the most foolish and
dangerous of the ideas on banking and currency harbored by his party
colleagues." [...]
FEDER LOST
Feder quickly lost the battle with Schacht and the German business
establishment. [...]
Feder was "put out to pasture" by the National Socialists, serving as an
under secretary in the Ministry of Economic Affairs. He was later
transferred to commissioner for land settlement, and then completely
sidetracked as a lecturer at the Technische Hochschule in Berlin.
{p. 594} BUT "FEDER MONEY" WORKED WELL
Hitler and the National Socialists came to power on January 30, 1933.
Germany's foreign exchange and gold reserves had dropped from 2.6
billion marks in late 1929, down to 409 million in late 1933, and to
only 83 million marks in late 1934. According to classical economic
theory Germany was broke and would have to borrow, but Germany was to
demonstrate that "classical" monetary theory is not very accurate.
This period of German monetary history has received far too little
attention in English. On May 1, 1933 Hitler outlined the Ist Reinhardt
Program - a four-year plan to end unemployment by attacking it on
several fronts:
o Spending I billion marks worth of "employment creation bills."
o Tax benefits for industry, agriculture, and the employment of domestic
help.
o Marriage bonus loans up to 1,000 marks and
o Government control of the money and capital markets, under Schacht.
Although elements of this program had already started under the
predecessor Von Papen and Schleicher Regimes, they had not been all out
efforts against unemployment.
On May 31st, the German government decided to issue I billion marks of
short term public works bills, designated to pay for specific
infrastructure projects:
"These were negotiable certificates paid out to employers who under-took
projects of replacement or maintenance projects. Anyone who equipped a
factory with new machines or who had his house repainted 34 could
finance his operations with these work drafts...," wrote Heiden.
These bills paid about 4 1/2% interest, and as they were taken into the
banking system, they were renewed indefinitely, and made eligible for
rediscounting by the Reichsbank. This means that they became part of the
underlying basis for the nation's money supply, along with gold and
foreign exchange and long term Government Bonds.3
The author has seen these bills referred to as "Feder money," and as
"work drafts" (Arbeits-Schatzanwersungen). Schacht later referred to
MEFO bills, mentioning no connection with Feder.
Many of the bills never found their way to the Reichsbank, since the
interest they paid was an incentive for banks and others to hold onto
them. Roberts estimated that as much as 15 billion marks worth of such
{p. 595} bills were issued. Heiden made a lower estimate:
"All in all the public Treasury poured out approximately 3 billion marks
... for projects which according to the view hitherto prevailing (e.g.
Schacht's) in those times of crisis, were senseless or at least
unnecessary ..."
Guillebaud also estimated an upper limit of 15 billion marks of all
types of bills used to finance public works in this period, but noted that:
"No exact figures exist for the circulation of employment bills, but
they can be estimated with reasonable accuracy at 1.2 billion RM at the
end of December 1933, and at 2.6 billion RM a year later."
When the process started in 1933, Reichsbank holdings of all such
instruments, including normal treasury issues, totaled 3.03 billion
marks. At the end of 1934 total holdings were 3.86 billion and at the
end of 1936 there were 4.91 billion marks.39
Thus Germany did not take the full step and create a German equivalent
to the American Greenback. The Greenbacks themselves were money, had no
interest payments due on them and did not add to any national debt.
These German infrastructure bills were a form of debt certificate,
promising to pay money; they paid interest and did add to Germany's
national debt.
But this very close money substitute still had dramatic effects.
They were an excellent way to get purchasing power into the hands of
newly employed workers. Unemployment had been at six million in 1933,
and was down to around one million at the end of 1936.
Furthermore, whereas the American Greenbacks had been spent mostly on
warfare and destruction, the "Feder money" had gone almost entirely into
public works projects, especially the construction of new middle class
housing. In 1934 there were 283,995 dwellings built com-pared to 141,265
in 1932. Then there were the thousands of kilometers of Autobahn
construction.
Thus it can be argued that the cause of Hitler's immense popularity
among Germans was that he temporarily rescued Germany from English
economic theory. For while these activities strongly benefited the
German middle and lower classes, they were of great concern to some
foreign bankers. Although Germany's move away from gold was more a
matter of necessity than choice, it still threatened "vested interests."
Robert de Fremery quotes from the June 1940 National City Bank Bulletin
which admitted that:
{p. 596} "not only the United States but other countries as well have
large vested interests in gold. The British Empire alone accounts for
nearly half of the gold output of the world, and in many other countries
gold is an important national asset. These countries would not took with
favor upon the displacement of gold as a monetary metal; and even in the
event of political changes resulting from the war these vested interests
will remain, though possibly shifted to other national jurisdictions."
The reader will notice that these "vested interest" countries were the
ones that warred with "goldless" Germany. De Fremery thought this could
have been one of the causes of the Second World War. However, that
decision may have been made earlier, and itself led to Germany being
without gold. Perhaps she was expected to borrow gold internationally,
and that would have meant external control over her domestic policies.
Her decision to use alternatives to gold, would mean that the
international financiers would be unable to exercise this control
through the international gold standard, as described in Chapter 22, and
this may have led to controlling Germany through warfare instead.
SCHACHT ATE SOME CROW OVER FEDER MONEY
Schacht clearly had to "eat crow" and swallow his own words as regards
the new monetary issues that he earlier condemned. Thirty years later he
justified his change of theory:
"... it was repeatedly asked whether the success of the MEFO bill scheme
did not mean that whenever there was a shortage of capital savings one
could compensate by replacing such capital savings with credits granted
by the central bank, and thus by money specially granted for the
purpose. The English economist J.M. Keynes has delt with the problem
theoretically, and MEFO transactions prove the practical applicability
of such an idea."
But Schacht insisted that certain conditions must exist. There had been
no stocks of raw materials; factories were empty; machines were idle and
6 '/2million willing men were unemployed: "The capital which could be
expected to result from such developments (putting men to work) was used
in advance to grant credit through the MEFO transactions.'"
SCHACHT FIRED OVER THESE MATTERS
These bills were used from 1934 to 1938. Schacht relates how he got
himself fired by refusing to continue renewing the bills:
"In January 1939, the Reichsbank handed Hitler a memorandum in which it
indicated its refusal to grant the Reich any further credits. The
{p. 597} consequences were drastic. On January 19, I was dismissed from
my office as President ... on the following day Hitler issued an edict
which ordered the Reichsbank to grant the Reich all credits for which
the Fuhrer asked. It is true the MEFO bills were now honored when they
came due, but only with the inflated money produced by the printing
presses. The second inflation had begun."
Schacht's firing was not made public for five months. His refusal to
continue financing the Reich was probably what saved him at Nuremberg. [...]
{p. 599} SCHACHT FINALLY SEES THE LIGHT
Schacht began his banking career as a believer in the gold standard, the
system then used in England and America. But by 1967, it appears he had
come to agree with some of Gottfried Feder's "unorthodox" monetary views:
"Modern paper money, the banknote is backed by its creator, the state ..."
Thus Schacht made a monetary pilgrimage similar to that of Thomas
Jefferson, Alexander Del Mar, and many others, away from the primitive
commodity view of money as metal, to an awareness of the "nominal," fiat
nature of money as being based in law.
"The granting of credit is unthinkable without a central bank. No
central bank can be allowed to act against the government of the
country. The government is over the central Bank ... A central bank
cannot allow any competition," wrote Schacht.
But then Schacht qualified this, stating that a higher law above both
the government and the central bank is the constancy of the value of
money. Stated in a more political manner, he is saying is that above
both the central bank and the government is the bondholder.
Schacht insisted that only by keeping the currency stable could the
small savers ever have a chance to accumulate substantial savings. He
rejected their use of investments as indoctrinating them into gambling.
However, the use of well managed instruments such as balanced mutual
funds can now overcome this objection. And after all, when unemployment
caused by an overly restrictive monetary policy strikes, it is the small
saver who generally suffers most.
In Summary
An examination of the German hyperinflation of 1923 shows that the
simplistic anti-governmental interpretation of the economists and
financiers is without basis. Nearly the opposite of what they contend,
was true: the hyperinflation followed the complete privatization of the
German central bank and elimination of governmental influence on it.
Again it was governmental action - this time the German govemment - not
private bankers - that rescued the monetary situation.
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