Hitler’s Finances, Schacht in his Own Words
Left: Gottfried Feder, the intellectual powerhouse that gave Hitler the anti-usury agenda he needed to get to power. But he was sidelined by Schacht and never got the opportunity to implement his ideas.
Clearly far from all were convinced by the analysis that Hitler’s finances were not at all interest-free. But recently some key quotes from Schacht’s memoires have come to my attention. They completely validate the basic premises of the article.
As a reminder, the article pointed out a number of key issues. Hitler did not really reform the German monetary system. The Reichsmark, created by the Weimar republic, continued to be the national unit. The banks continued their operations, based on usurious fractional reserve banking. Their ownership did not change. Germany did have a national debt under Hitler. In 1938 it stood at 18 billion Reichsmark, quite a sizeable sum.
Gottfried Feder was the one behind Hitler’s very strong anti-usury stance during his rise to power. But already in 1931 Hitler’s industrial backers wanted him to reign in Feder and he was completely sidelined in the aftermath of the night of the long knives.
Hjalmar Schacht, aristocrat, mason, top banker, who studied Hebrew to further his career and who was a close friend of Bank of England Chief Montague, became Reichsbank president, in charge of the economy. He solved the depression, which was caused by capital scarcity due to deflation, through the MEFO bills, that circulated between industry, banks and the Reichsbank. But he did not at all solve, or even address usury. Quite the opposite. He was the one who made sure it was business a usual for the banks.
The quotes from his memoires, ‘the Magic of Money’, posted here below, completely corroborate this analysis. He points at Feder and Strasser and interest was the issue. Feder’s interest-free money was ‘nonsense’ and his fight against private banking ‘destructive’.
It also transpires that the MEFO bills came with a 4% interest rate.
Hjalmar Schacht was the man that controlled the German economy and allowed Hitler what the Money Power wanted him to do: build an army against Russia.
Below are the quotes and as an extra the relevant paragraphs from Zarlenga’s ‘the Lost Science of Money’. Interestingly, Zarlenga links Feder to Georg Knapp, who wrote ‘the State Theory of Money’ in 1905. Knapp’s thinking is known as Chartalism and later morphed into Modern Monetary Theory. I will be coming back to MMT at a later stage, it’s making a come back, but unfortunately it does not really solve usury either.
Knapp was probably the link between American Populism in the Greenback wars of the 19th century and Europe’s anti-usury movement.
This truly was a crucial junction in humanity’s struggle against the Money Power’s Usury.
Many thanks to Mark Smith, who got to the bottom of this.
This is an old newspaper snippet, concerning the arrest of Louis de Rothschild in the aftermath of the Anschluss, when Germany and Austria were united, something both countries strongly desired.
This arrest is, understandably, construed by Revisionists as proof that Hitler was working against Rothschild.
But Louis de Rothschild was the owner of the Vienna based Krediet Anstalt, that went bust in 1931. This was a shock that was felt all over the world, quite similar to Lehman’s demise, which left a $700 billion crater in the heart of the financial system.
At the time, like today, bankers were used to getting away with this kind of stuff, and Hitler did well to arrest him.
But it was for a specific reason and cannot really be seen as particularly, let alone comprehensively, anti-Rothschild.
Extracts from Hjalmar Schacht’s 1967 book ‘The Magic of Money’
The bank supervisory authority owes its existence to a law which I instigated when I was Minister of Economic Affairs in 1934. National Socialist agitators led by Gottfried Feder had carried on a vicious campaign against private banking and against our entire currency system. Nationalisation of banks, abolition of bondage to interest payments, and introduction of state Giro ‘Feder’ money, these were the high-sounding phrases of a pressure group which aimed at the overthrow of our money and banking system. To keep this nonsense in check the president of the Reichsbank called a bankers’ council which made suggestions for tighter supervision and control over the banks. These suggestions were codified in the law of 1934, which was strengthened in 1957 by increasing the powers of the bank supervisory authority. 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 harboured by his party colleagues. – Hjalmar Schacht: The Magic of Money p 49
…by the end of March, 1933, Hitler had explained to the Reichstag ‘In principle, the German government will safeguard the interests of the German people, not by means of a state organised bureaucracy, but by means of the greatest possible furtherance of private enterprise and respect for private property’. Adolf Weber commented that ‘parts of this and some other utterances sometimes recall almost word for word the “fundamentals of German economic policy” which Schacht had promulgated a year previously’. – Hjalmar Schacht: The Magic of Money p 49
It referred in this context to the financial methods which I had used to reinvigorate the German economy when in 1934 I was re-appointed president of the Reichsbank. I shall come back to this method, here I will only say that it consisted in the discounting by the Reichsbank of bills which granted industry credit over a term of five years. The Reich itself guaranteed repayment. – Hjalmar Schacht: The Magic of Money p 50
National Socialist agitation under the leadership of Gottfried Feder was directed in great fury against private banking and against the entire currency system. Nationalisation of the banks, liberation from the bondage of interest, the introduction of a state ‘Feder’ giro money, these were the catch phrases by which an end was to be made to our monetary and banking economy. I had to try to steer Hitler away from these destructive conceptions. – Hjalmar Schacht: The Magic of Money p 154
Adolf Weber was asked to make a report by the plaintiff in my denazification process before the Ludwigsburg court. In this report he showed how I succeeded in bringing Hitler to his senses where questions of banking and currency were concerned. At the end of March, 1933 Hitler declared in the Reichstag ‘In principle, the German government will safeguard the interests of the German people, not by means of a state-organised bureaucracy, but by means of the greatest possible furtherance of private enterprise and respect for private property’. And a little later he said to his party leaders ‘It is wrong to get rid of a good economist provided he is a good economist because he is not yet a National Socialist, at least not if the National Socialist who is to take his place knows nothing about economics’. – Hjalmar Schacht: The Magic of Money p 155
The second method was the building of the autobahns, and already in the summer of 1933 work began with the building of the stretch connecting Frankfurt/Main with Darmstadt. As the number of employment opportunities grew perceptibly, the Reichsbank began to. grant direct loans for both these activities. A milliard was made available for the Reinhard programme, and 600 million for the autobahn. Both amounts were later paid back into the Reichsbank. The third method was the defence programme. The building of barracks and the equipping of troops brought orders to concerns spread over the entire country. As the cost of this part of the programme to secure employment for everyone was so great and the repayment period so long, the method by which credit was granted directly to the Reich could not be used here. There was too great a danger that the Reichsbank, in granting direct credit, would lose control of currency policy. A way had to be found which would ensure that the Reichsbank was able to restrict and limit the amount of money in circulation. It took us in the Reichsbank a year and a half to find a system which was suitable, and would still enable us to pursue a responsible currency policy. The provision of money for defence did not therefore begin until the late summer of 1934.
The system worked in the following way: a company with a paid-up capital of one million Marks was formed. A quarter of the capital was subscribed by each of the four firms Siemens, A. G. Gutehoffunungshiitte, Rheinstahl and Krupps. Suppliers who fulfilled state orders drew up bills of exchange for their goods, and these bills were accepted by the company. This company was given the registered title of Metallforschungsgesellschaft (Metal ResearchCompany, ‘MEFO’ for short), and for this reason the bills drawn on it were called MEFO bills. The Reich guaranteed all obligations entered into by MEFO, and thus also guaranteed the MEFO bills in full. In essence all the Reichsbank’ s formal requirements were met by this scheme. It was a question of financing the delivery of goods; MEFO bills were therefore commodity bills. They rested on a threefold obligation: that of drawer, acceptor and Reich. This provided the Reichsbank with every justification for discounting the bills, and, although it was put to every test by the Reichsbank’ s directorate in collaboration with the country’s best legal brains and economists, they agreed unanimously that it was valid. The Reichsbank declared itself ready to prolong the bills, which true to the form laid down were drawn on three months’ credit, to a maximum of five years if so required, and this point was new and unusual. Each bill could thus be extended by a further three months, nineteen times running. This was necessary, because the planned economic reconstruction could not be accomplished in three months, but would take a number of years. By and large such extensions by themselves were nothing new with the Reichsbank; it was quite common to prolong agricultural bills, but an extension over five years, together with a firm declaration that such extensions would be granted, that was most unusual.
One other aspect was even more unusual. The Reichsbank undertook to accept all MEFO bills at all times, irrespective of their size, number, and due date, and change them into money. The bills were discounted at a uniform rate of four per cent. By these means the MEFO bills were almost given the character of money, and interest-carrying money at that. Banks, savings banks, and firms could hold them in their safes exactly as if they were cash. Over and above this they proved to be the best of all interest-bearing liquid investments, in contrast to long-dated securities. – Hjalmar Schacht: The Magic of Money p 113
Had it not proved possible to arrange things in such a way that a large part of the issued bills would be retained by the market and thus not presented to the Reichsbank, then an excessive use of the bank-note printing presses would have been unavoidable. This danger was avoided by making the bills rediscountable at any time, and by paying four per cent interest on them.
It is foolish to neglect the positive results and achievements which the German people brought forth even under Hitler’s tyranny. This is true above all in the fields of social and economic policies. The placing of the interests of Germany as a whole before those of the provinces or municipalities, the abolition or at least reduction of class distinctions not only in monetary but also in humanitarian matters, full employment, the optimum use of leisure time, the social services, maternal and family welfare, the battle against waste, all these remain worthy of our consideration and deserve further development even if in some cases we are dealing only with a cumbersome attempt to learn by trial and error. The fact that they were instigated under National Socialist auspices does not detract from the noteworthiness. This applies particularly to the economic policies prosecuted in the ‘thirties. Adolf Weber said of them ‘all in all the economic policy of this period was thoroughly constructive. Nay, as an economist who has made a thorough study of the world’s economic problems I find it incumbent upon me to state: in all the long years between the two world wars no one in any other part of the world carried out so constructive an economic policy as we did between 1933 and 1935’. Weber made this observation not in the Hitler era, but in 1948. – Hjalmar Schacht: The Magic of Money p 82-83
“Since the bills carried four per cent interest and could be exchanged for ready money at the Reichsbank at any time, they took the place of ready cash, so to speak, and earned interest into the bargain.” – Hjalmar Schacht: ‘My First Seventy-Six Years’ p 316
Zarlenga, ‘the Lost Science of Money’
In Mein Kampf Hitler wrote:
When I listened to Gottfried Feder’s first lecture on breaking down the thralldom of interest [in June 1919], I knew at once that here we had a theoretic truth which will be of immense importance for the future of the German nation.23
Feder’s captivating ideas were about money. At the base of his monetary views was the idea 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 monetary theories 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. Right on page one, Knapp nails it:
Money is a creature of the law. A theory of money must therefore deal with legal history.
Knapp describes the invention of fiat money in these terms: “the most important achievement of economic civilization.” For Knapp, the determination of whether something was money or not was: “our test, that the money is accepted in payments made to the state [i.e., government] offices.”24
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 was probably the American Populist movement of the 1870s and the ideas that movement promoted to establish a permanent greenback system.
When the National Socialists came to power, Schacht was reappointed head of the Reichsbank, partly to reassure German big business and foreign bankers. Schacht ridiculed Feder’s 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 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.25
Konrad Heiden noted that:
Industry did not want to put economic life at the mercy of such men as Gregor Strasser or Gottfried Feder, who, marching at the head of small property owners incited to revolution, wanted to hurl a bomb at large-scale wealth. Feder announced that the coming Hitler government would create a new form of treasury bill, to be given as credits to innumerable small businessmen, enabling them to re-employ hundreds of thousands and millions of workers. Would this be inflation? Yes, said Walter Funk, one of the many experts who for the past year or two had advised Hitler – an experienced and well-known finance writer, collaborator of Hjalmar Schacht and, in Hitler’s own eyes, a guarantee that big business would treat him as an equal… Hitler decided to put an end to the public squabble by appointing Göring to [oversee the questions].
Feder’s faction was then given the four-year plan, to keep them busy.26
Feder quickly lost the battle with Schacht and the German business establishment. Perhaps he was in over his head monetarily. He wrote of his monetary plan: “Intensive study is required to master the details of this problem… a pamphlet on the subject will shortly appear, which will give our members a full explanation of this most important task…”27 But this was 1934, which means he hadn’t clearly reduced the problem to written form since 1919, over 15 years.
“When the time comes, we shall deal with these things in further detail…” Feder wrote, but indeed his party was in power, and the time had come.
Feder was put out to pasture by the National Socialists, serving as an under secretary in the Ministry of Economic Affairs, later to be transferred to commissioner for land settlement and then completely sidetracked as a lecturer at the Technische Hochschule in Berlin. 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 in late 1934.28 According to classical economic theory, Germany was broke and would have to borrow. But classical economic theory is not very accurate.