708 The Finance Policy of Nazi Germany: Feder, Schacht and Hitler

The Finance Policy of Nazi Germany: Feder, Schacht and Hitler

Newsletter published on 16 November 2014

This material is at http://mailstar.net/Feder-Schacht-Hitler.doc

(1) The Finance Policy of Nazi Germany: Feder, Schacht and Hitler
(2) Hitler sided with Schacht, sidelined Feder under Schmitt, an
Insurance magnate
(3) Hitler repudiates Feder, before gaining power, in HITLER SPEAKS
(4) Schacht battled against Feder; MEFO bills paid interest - Stephen
Zarlenga
(5) British Empire left the Gold Standard by 1931
(6) Gold-holding US & Britain destabilized Germany's "Fiat" economy -
Robert de Fremery

(1) The Finance Policy of Nazi Germany: Feder, Schacht and Hitler
- 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:
http://www.marxists.org/archive/rizzi/bureaucratisation/index.htm

Trotsky himself commented on this book:
http://www.marxists.org/archive/trotsky/1939/09/ussr-war.htm

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.

(2) Hitler sided with Schacht, sidelined Feder under Schmitt, an
Insurance magnate

http://spartacus-educational.com/GERfeder.htm

Gottfried Feder

[...] Throughout the 1920s Feder was a leader of the anti-capitalist
wing of the Nazi Party. In 1924 he was elected to the Reichstag. He put
forward his views in Das Programm der NSDAP (1931), Kampf gegen die
Hochfinannz (1933) and Die Juden (1933) where he expressed his
anti-semitic views.

As Feder held the important post of chairman of the party's economic
council, his anti-capitalist views led to a decline in financial support
from Germany's major industrialists. Hjalmar Schacht warned Hitler that
Feder's economic planning apparatus would ruin the German economy. After
pressure from figures such as Albert Voegler, Gustav Krupp, Friedrich
Flick, Fritz Thyssen and Emile Kirdorf, Hitler decided to move the party
away from Feder's left-wing economic theories.

When Adolf Hitler became chancellor in 1933 he appointed Feder as
Under-Secretary at the Ministry of Economics. Feder was disappointed
that he had not been given a more senior position. Konrad Heiden pointed
out that Feder also had to serve under someone who completely opposed
his economic policies: "The post of under-secretary was an humiliating
position ... His new superior was almost a stranger to the party, but
familiar to the stock exchange... he was Doctor Karl Schmitt, general
director of the largest German insurance company. A more pronounced
representative of rapacious capital would have been hard to find;
Schmitt had spent his life lending money and collecting interest; he had
literally bought his way into the National Socialist Movement by giving
the party generous aid in hard times."

Feder continued to campaign for nationalization, profit-sharing, the
abolition of unearned incomes and the "thraldom of interest". Hitler
refused to do this.

(3) Hitler repudiates Feder, before gaining power, in HITLER SPEAKS

HITLER SPEAKS: Conversations of 1932-34 recorded by Hermann Rauschning

http://mailstar.net/Hitler-Speaks-Rauschning.doc

{p. 29} THE PLAN IN THE DRAWER

Hitler's questions as to the position in Danzig led us directly to the
economic problems. [...] the party's two economic and technical experts,
the civil engineers Feder and Lawaczek, whose curious theories,
propounded in "intellectual gatherings," invited the ridicule of
economists and caused acute embarrassment to all intelligent party
members. I therefore asked Hitler, whose relations with Feder were not
at the time known to me, about the possibility of financing the economic
program. I could not see, I remarked, that Feder's theory was anything
but financing by means of an inflation.

"How do you mean?" said Hitler, eyeing me with displeasure. "I am not
worrying about financing our program. You may safely leave that to me.
As long as speculators are kept out, there are no difficulties."

"But," I ventured to interpose, "it will not be possible to keep prices
stable if the creation of employment is financed thus. Feder's money
theory will also have an inflationary effect."

"You get inflation if you want inflation," Hitler retorted angrily.
"Inflation is lack of discipline - lack of discipline in the buyers, and
lack of discipline in the sellers. I will see to it that prices remain
stable. That is what my S.A. is for. Woe to the men who raise prices! We
need no legal instruments for that. It will be done by the party alone.
You shall see— if our S.A . once clean up a shop, such things will not
happen a second time."

{p. 30} "Besides," Hitler continued, "I do not worry about the theories
of Feder and Lawaczek. I have a gift for tracing back all theories to
their roots in reality. I have nothing to do with pipe-dreams. You need
not take this man Feder and his associates literally, even though
officially the party does so. Let them talk as they please. When I am in
power, I shall see to it that they do no mischief. If these men cause
confusion, Forster, you will no longer allow them to speak. These people
cannot think simply. Everything has got to be complicated. I have the
gift of simplification, and then everything works itself out.
Difficulties exist only in the imagination!"

Hitler's repudiation of Feder was at that time new to me. It was
interesting as an indication of Hitler's supremacy over his entourage. [...]

(4) 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:

• Spending I billion marks worth of "employment creation bills."

• Tax benefits for industry, agriculture, and the employment of domestic
help.

• Marriage bonus loans up to 1,000 marks and

• 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.

(5) British Empire left the Gold Standard by 1931

{but the British Empire continued to produce half the world's Gold after
that - see next item}

http://en.wikipedia.org/wiki/Gold_standard

In September 19, 1931, speculative attacks on the pound forced Britain
to abandon the gold standard. [...]  The British benefited from this
departure. They could now use monetary policy to stimulate the economy.
Australia and New Zealand had already left the standard and Canada
quickly followed suit. [...]

Some economic historians, such as Barry Eichengreen, blame the gold
standard of the 1920s for prolonging the economic depression which
started in 1929 and lasted for about a decade.[28] Adherence to the gold
standard prevented the Federal Reserve from expanding the money supply
to stimulate the economy, fund insolvent banks and fund government
deficits that could "prime the pump" for an expansion. Once off the gold
standard, it became free to engage in such money creation.  The gold
standard limited the flexibility of the central banks' monetary policy
by limiting their ability to expand the money supply.

This page was last modified on 16 October 2014 at 22:40.

(6) Gold-holding US & Britain destabilized Germany's "Fiat" economy -
Robert de Fremery

http://www.cooperativeindividualism.org/fremery-robert-de_money-and-freedom-1955-07.html

Money and Freedom

An Application of Natural Laws to the Problem of Money -- The Disastrous
Economic and Political Consequences of our Unsound Monetary System -- A
Suggested Remedy

Robert de Fremery
[CHAPTER VII: "Shall We Return To A Gold Standard -- Now?"]

[...] There is also good reason for believing that some of the friction
existing between countries prior to the outbreak of the second world war
may have had its roots in the gold-credit mechanism. In this connection,
the following quotation from the National City Bank Bulletin deserves
careful scrutiny:

"A second important reason why gold is unlikely to lose its value is
that not only the United States, but other countries as well have large
vested interests in gold. The British Empire alone accounts for nearly
half the gold output of the world, and in many other countries gold
production is an important national asset. These countries would not
look 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." (p. 70) (Italics added)

It will be remembered that Germany had made an effort to get out from
under the gold standard during the 1930s. She had carried on quite an
experiment with "fiat" money. (See quotation from Dr. B. M. Anderson,
Jr.). Now if the gold standard countries "would not look with favor upon
the displacement of gold as a monetary metal," it is reasonable to
suppose they had tried to hinder the success of Germany's experiment.
And the obvious way to hinder the success of that experiment would have
been to discount Germany's currency in such a way as to discourage
businessmen in other countries from accepting that currency. That would
have forced the Germans to engage in barter agreements -- which is what
actually happened. And since barter is, at best, a long step backward in
the economic development of the world, it is reasonable to suppose that
the increasing tensions resulting from such unsatisfactory arrangements
would have been conducive to the outbreak of war.

It can be argued, of course, that it was perfectly natural for the
bankers of the gold-standard countries to discount Germany's currency if
it was not redeemable in gold. That would have been in accordance with
the way the international gold standard is supposed to work. But let's
face the fact that such a system leads to friction between those
countries that wish to keep the gold standard and those countries that
wish to free themselves from the tyranny of the gold standard.

It can also be argued that Germany was forced to barter because of her
fiat money -- the implication being that if the gold standard were
abandoned by all countries, then all foreign trade would have to be done
by barter arrangements. But that is not so. Germany was forced to barter
because of the clash between the international gold standard and
Germany's system of a national "fiat" money that was independent of the
gold standard. If there were no international gold-standard, there would
have been no clash and therefore no necessity for barter. International
trade would have been regulated by mild changes in exchange rates
reflecting changes in the supply of, and demand for, various currencies
as determined by change in the volume of imports and exports of the
countries concerned. Exchange rates would then always reflect
supply-and-demand relationships between imports and exports rather than
reflecting the degree to which currencies are convertible into gold. (A
fuller discussion of this subject is given later.)

So to those who try to blame the breakdown of the gold-credit system on
wars, we have a perfect right to say that there would be less tension in
the world, and more genuine cooperation between countries, and therefore
less chance of wars breaking out, if the gold-credit system were
abandoned by all countries.