Foreword: The Economic Base Determines the Superstructure - 1939 was the bump in the road for Nazi Germany
There is an old saying that "the economic base determines the superstructure". From ancient times to the present, all the great actions of mankind are inseparable from the economy behind them. If before the First World War, Germany fought against Britain and France because of its seizure of the world market, then on the eve of World War II, the motivation for a series of German actions was more of an internal economic problem. This is also Hitler's choice to continue to take the risk of pulling the world into the abyss in 1939 when he had already achieved an economic miracle and had put Germany back in the midst of the world's great powers through a series of diplomatic adventures.
Chapter 1: The Origins of Evil – Why the Great Depression hit Germany so hard
Anyone who studied economics or finance was no stranger to 1929. The aftermath of the collapse of the U.S. stock market in 1929 was so widespread that today a random textbook would basically say something like "The Great Depression of 1929-1933 led to the rise to power of the Nazi Party in Germany." But why, in this global catastrophe, only Germany had a Nazi party in all the major powers?
The First World War ended in the humiliating defeat of the German Empire, and its successor, Weimar Germany, as a product of the "Versailles Contract", naturally had a weak legal rationality (the product of defeat, enemy support, etc.), and in order to suppress the resentment of the internal right, the army and the people, it had to get the economy up, and the people had money so that they would not make trouble. In the same way, the Allies are well aware of this, except for France, the two hundred and five old men who want to bring in the Saar today and the Ruhr tomorrow, Britain and the United States really spared no effort in supporting the Weimar government, because they saw that Germany's reparations, with Germany's own strength, did not know when (132 billion gold marks of reparations - -!). equivalent to $33 billion). If you don't fatten this "hen", you don't want to take away the eggs it lays.
In order to improve the economy, on September 1, 1924, the Allies and Germany signed an agreement, known as the "Dawes Plan" (later upgraded to the "Younge Plan"), in which the Allies first borrowed 800 million gold marks to help the Reichsbank stabilize the value of the currency, and at the same time stipulated a package of reparations that increased by amount (after all, it is not realistic for you to let people take so much money out) to help Germany issue government bonds to finance and stabilize the economy. In order to better help Germany recover its economy (of course, the purpose is not pure, the ultimate goal is to fatten the chickens and lay eggs), from 1925 onwards, the United States began to continuously inject capital into the German banking system, mainly in the form of loans, from 1925 to 1929, the United States issued a total of 6.12 billion gold marks to Germany, accounting for 34% of its total loans to Europe (this only counts long-term loans, other short-term loans, currency swaps, etc. are not counted). But to be honest, the United States during this period of foreign loans, the return is much higher than the domestic, the so-called unprofitable early, put 6.47% yield does not earn, bored at home to earn 4.84% interest rate, the funds are not so stupid (Federal Reserve, 1934 report).
The fifth column makes it clear that the money the United States lends to Germany accounts for the majority of its investment in Europe
By early 1929, 26.9 percent of German public bonds were held by foreign investors, i.e. foreign debt accounted for 5.2 percent of Germany's national income, of which 55.2 percent were dollar bonds and 11.5 percent were pound bonds. It can be said that the United States has supported half of Germany's foreign financing. By 1928, Germany's exports had exceeded the highest value in pre-war 1913, and the inflow of hot money not only made the capital market hot, but also the capitalists began to expand capital expenditure and produce more commodities to sell to the international market through various debt + equity financing methods. However, the thriving situation could not hide the fact that the German economy in Weimar was overly dependent on foreign capital and foreign trade and its own domestic demand was insufficient, but in order to benefit the people and suppress the army in a short period of time, the German government of Weimar chose this fastest and most labor-saving way. Of course, no one expected that the collapse would come so quickly, and October 1929 would come.
The dress of German women during the German boom in Weimar was fashionable at the time, and compared with recent days, it was not at all outdated
On October 24, 1929, "Black Thursday", a day remembered by history, Wall Street saw for the first time what it meant to "fly down three thousand feet" (more seen in the future, and it is not strange that it is not strange), and the Dow Jones index fell by 11%. On the "Black Monday" and "Black Tuesday" that followed, the market plunged 23 percent in two days, declaring the great Bull Market on Wall Street since 1928 completely shattered in just a few days. What follows is an overall lack of liquidity, in short, a lack of money everywhere (selling stocks, running on banks, holding cash). Of course, simple capital market problems may be easy to handle, but once they are related to trade, the problem becomes serious. Here are two more sentences to give you a better understanding of the process of the Great Depression.
On October 24, the Pittsburgh News headlined the dow jones plunge
At that time, the international market was still the core of the gold standard, and the currencies of various countries were anchored to gold (which meant that you could go to the bank with money for gold). The great boom in the stock market in 1928 absorbed too much liquidity, and if the money remained in the stock market, the problem was not big, but when the bubble burst and everyone thought that currency + gold was the best choice, the first reaction of countries was to stop the outflow of gold. At this time, the "Smoot-Hawley Tariff Act", which the Republican Party of the United States has been pushing for, was passed, which was originally intended to protect domestic industry and protect jobs, but in fact triggered an unexpected vicious chain reaction.
After the introduction of the Smoot-Hawley Tariff Act, the level of U.S. tariffs has increased significantly
Latin American countries were the first to find that they could not export agricultural products to the United States smoothly, and then faced the risk of economic system collapse and gold outflow, so they immediately announced that they would abandon the gold standard. Then, unable to break through the U.S. market and facing the squeeze of the German-Austrian customs union, France's loan to Austria led to the bankruptcy of Credit-Anstalt (the largest commercial bank in Austria-Hungary).
On 11 May 1931, the Austrian Bank of Credit Altstadt declared bankruptcy
The bankruptcy of the Ainstate Credit Bank opened a chain of collapse in the European financial system, and the liquidity of small countries such as Hungary and the Czech Republic was drained by international capital in a short time. Then the crisis spread to Germany, which lost 1.4 billion gold marks in just one week in mid-June 1931. Under the gold standard system, money = gold, and in times of crisis, storing gold is the instinctive choice of everyone, so as European countries began to increase their gold reserves in case of the unexpected, the amount of free-flowing money in the international world began to decrease, and the liquidity in the market dried up rapidly. By July 1931, Britain was overwhelmed, facing a government deficit of £140 million, and the existing gold standard system had tied up Britain's fiscal adjustment capacity, so it decisively announced its departure from the gold standard, followed by 25 countries around the world announcing their withdrawal. The United States was unable to stand alone, and finally on June 5, 1933, it officially announced that it would break away from the pegging of the US dollar and gold.
The Presidential Decree of April 5, 1933 in the United States requires everyone to hand over gold coins, gold bars and other gold objects to the Federal Reserve
All of this was a disastrous blow to Weimar Germany, which was overly dependent on foreign capital and foreign trade. In particular, at that time, 70.6% of German government bonds were dependent on American loans, and germans found that as the liquidity of the entire country's financial market dried up, not only the entire economy in Germany had problems, but also the government operations. Even with the help of the "Dawes Plan", Germany successfully won a 59-year reparations cycle and a reduction of nearly 2/3 of the annual reparations, which is still far from quenching the thirst. As a result, under the cycle of international investors (mainly the United States) taking out loans--- germany's foreign debt was paid early--- debtors went bankrupt--- the national liquidity problems--- the economy collapsed, and unemployment was high, Weimar Germany ushered in its own doom.
Germany's industrial output fell by 40% in 3 years, the unemployment rate rose to 35%, and 6.1 million people were unemployed. But note that the vast majority of the collapse actually occurred in 31-32 years, when the global gold standard we mentioned above disintegrated on a large scale.
It was in this context that the Weimar government's so-called "Golden Decade" came to an end. At that time, Germany, looking out, mourning, people are not happy, the real wage index in 1932, down 70% from the peak of 1928, in 1930, Berlin's robbery cases increased by 24%.
Economic crises are often accompanied by political crises, and the Prime Minister who came to power in 1930 was Heinrich. Brunin, from the time he proposed a motion rejected in July 1930 (raising taxes to help the poor), for the next 2 years, there was not a single effective response bill passed in the Reichstag. Later, the parliamentarians simply did not come to the meeting, and it was useless to come, and they could not do anything but quarrel, so in 1930 the parliament held 94 meetings, and in 1932 there were 13 meetings, and on average, they only met once a month. Estimated to be too difficult to endure, Heinrich. Brunin stepped down in May 1932. The political situation was gray, the people's grievances were boiling, the ultra-left and far-right forces were taking advantage of the opportunity to absorb the votes, and in the chaos, an inconspicuous small party gradually emerged, and in the July 1932 general election, it soared to the sky, and completed the earth-shattering transformation in 2 years: the Nazi Party rose.
It was precisely because in the 1932 election that the Communists were also very popular, so there was the later "Congress Arson Case"
Chapter Two: Schacht's "New Plan"—The Ambitious Practice of "Keynesianism."
To this day, there are still many people who talk about the economic policies of the Nazi Party after coming to power in 1933 and before the outbreak of World War II in 1939. They simply repeat the superficial data, the unemployment rate has fallen to near zero (300,000 unemployed in Germany in 39 years, compared to more than 5 million in 33 years), the GNP growth rate averaging 9% per year, and so on. But Hitler and his staff, for years 33 to 39, had been playing an unsustainable trick that made the first half of Hitler's political career brilliant and eventually pushed him into the fire pit.
The Fuehrer's happiest time in the eyes of everyone
For the convenience of everyone's understanding, a brief introduction to Keynesianism. This is a school of economics that advocates the adoption of expansionary economic policies by the state to promote economic growth by increasing demand. That is, to expand government spending, implement deficit finance, stimulate the economy, and maintain prosperity (excerpt from Baidu Encyclopedia). To put it simply, the government spends money to create demand, create jobs, and dominate the direction of economic development. Doesn't that sound like a planned economy? Indeed, the left hand side of Keynesianism is the planned economy, and the right hand side is the free market economy. Adam Smith hoped that the "invisible hand" of the free market would guide the development of human economic activity, but the occurrence of the "Great Depression" proved that the "invisible hand" would not only guide people forward, but also could slap you twice. To control this "invisible hand" from disorder to order, government intervention is needed, and Keynes proposed that government intervention is necessary and government money is spent, creating demand when there is no demand, and guiding demand when demand deviates. So the core of Keynesianism is "creating demand."
Maynard Keynes, a master economist on Time Magazine, led an era of economic theory change
The needs created by the general government are familiar to our people: road construction, bridge construction and other large infrastructure; direct orders from state-owned enterprises; and the needs of the military. You will find that it is difficult for the government to create a small demand for subdivisions, especially those at the same level as consumer goods, because government dominance inherently means that it is difficult to refine, so it is generally concentrated in the field of large-scale investment.
The chief designer of Nazi Germany's "Keynes Plan" was named Yama. Schacht, please remember this man, because he was the first person to successfully put the Keynesian ideas into practice (if we don't count the Soviet Union), it can be said that without him, there would be no "economic miracle" that Hitler later called, and even many of the investment strategies in Roosevelt's New Deal were based on his original plan, the "New Plan".
The founder of the economic structure of Nazi Germany - Yama. Schacht, can be called the "ghost talent" in the field of economics
At the heart of the "new plan" are several points: stabilizing market confidence; creating new demand; and reducing unemployment.
In March 1933, with Hitler in power, Schacht was nominated as governor of the central bank, and he immediately proposed that trade associations be banned and workers' wages frozen. Now it seems that these two measures are tantamount to voting suicide, but at the time, the business field regarded it as a positive, because the turmoil of the Great Depression made people miss the stability of the business environment infinitely, after all, in the turmoil, jobs were gone, and there was talk of promotion and salary increase. Schacht cleverly took advantage of people's stability-seeking mentality and created a stable platform for a series of policy "combination fists" for his future.
The second trick of Schacht's New Deal was to create jobs. The Nazis rose to power in the Great Depression, and voters elected Hitler for bread and jobs, so whatever the Nazi Party did in the years to come, we have to admit that in the first few years after these people came to power, they were indeed single-minded in fulfilling their campaign promises. In order to create jobs and reduce unemployment, Schacht advocated the overall expansion of government investment. After he was designated Minister of Economy by Hitler in August 1934, he proposed the Operation Reinhardt, which was planned to invest more than 1 billion marks over the next three years led by the government to provide direct employment opportunities through the renovation of factories and the renovation of urban areas, and to drive the recovery of the real estate market. Then, in order to cooperate with the "Rhinehart Operation", Schacht expanded and accelerated the construction plan of the "Reichsautobahn" (Reichsautobahn), which had begun on a small scale, with an initial investment of 600 million marks and an overall planning of 7,000 kilometers of highways (later expanded to 12,000 kilometers after the merger of Austria and Sudetend).
The Fuehrer himself went into battle to shovel the earth
The Imperial Highway from Munich to Salzburg looks equivalent to our provincial highway level today
Schacht's dazzling series of combination punches had a whirlwind-like effect on Germany's dismal job market. For example, the "Imperial Highway" program, in 1936, there were already 130,000 people directly on the various highway construction sites, and 270,000 people indirectly serving road construction (such as concrete mixing, stone transportation, etc.), by 1938, the number of people directly building roads had increased to 220,000, and more than 500,000 people were engaged in various auxiliary work. Schacht's New Deal, in 1935, successfully absorbed 2 million jobs, by 1936, created another 2.9 million jobs, and by 1937, the number of unemployed in the country fell to 912,300, a three-year decline of 85%. The figure below is taken from the "Economic Yearbook" of the Third Reich of Germany, and it can be seen that from 33 to 38 years, the Nazi government invested a lot of money in transportation, reaching a total of 14.2 billion marks, of which 47% invested in road construction, which is 5.5 times higher than the investment of Weimar Germany in the past 10 years.
Autobahn is high-speed power, and as you can see, by 1938, it had accounted for the majority of transportation investment
With the successful implementation of the "Empire Highway" plan, Schacht has promoted a series of central government-led investments, from large manufacturing, to real estate, to large transportation. From the table below we can see that from 1933 to 1938, the fixed asset investment in Nazi Germany increased by almost 300%, of which the large manufacturing industry increased by 610% (including the military industry), municipal investment increased by 470%, real estate investment increased by 131%, and transportation investment increased by 190%. But amazingly, investment in agriculture has grown by less than 100 percent, which has a lot to do with the inability of agriculture to absorb jobs quickly.
A very good table that systematically lists German investments in various sectors from 32 to 38 years, and the monetary unit is a billion Reichsmarks
Stimulated by central-led investment, Germany's economy quickly emerged from its trough, unemployment fell sharply, people's food and clothing were guaranteed, Schacht's methods looked like a panacea, and the Nazi Party's approval ratings repeatedly reached new highs (of course, the Führer's series of operations in 1933-1934 also eliminated competitors).
Chapter Three: Nuwa Patches the Heavens — "Tinkerer" Shacht
The book numbers are good, but Schacht, who is well versed in economics, is well aware of the problems of his "new plan", the limited market and population of Nazi Germany itself, which leads to the inherent shortcomings of "Keynesianism" in its application, and large-scale investment will bring a series of problems, the most obvious of which are two: inflation and trade deficits. Inflation is mainly due to the fact that money will eventually flow into the pockets of capitalists and enter the pockets of workers in the form of wages. As the number of unemployed people declines, the labor gap will appear, passively pushing the wage level upwards. With the increase in the number of banknotes in everyone's wallet, consumer demand will naturally increase, and the price level of the whole society will rise. Germany experienced "great inflation" in 1923, when superinflation made all Germans look at each other, and inflation would increase the pressure on the German currency, forcing the central bank to either let it go (which is impossible) or raise interest rates, which in turn made the overall social financing costs rise, which was not conducive to economic recovery. To solve this problem, Schacht adopted a very flattering approach: one was the wage freeze we mentioned earlier, which now seemed prescient and alleviated the pressure on wage increases to some extent; the other was the use of the Reichsarbeitsdienst-RAD.
The coat of arms of the RAD, consisting of ears of wheat and shovels
Founded in June 1935, RAD, with militarized management as the core and the purpose of participating in infrastructure construction, initially only recruited young men aged 18-25, and paid them a very low salary every month (that is, dozens of marks, sent directly home), but the minimum working period was 6 months (you can stay in it all the time). This organization generally undertakes various government projects, municipal facilities construction, etc., such as the 36th Berlin Olympic Stadium. The existence of the labor corps is equivalent to finding something for young people to do when the burden is the lightest (there is no old or young). Young people do not need high wages, but they are energetic and simple-minded, and with a little encouragement of patriotic enthusiasm, there are many responders. By the end of 1935, the Servitude Corps had employed 200,000 people, and by 38 years, that number had grown to nearly 400,000. In this way, Schacht successfully solved the problem of wage costs while providing sufficient labor for Nazi investment in fixed assets.
In the early days of Nazi Germany, the RAD was indispensable, their uniforms were very similar to the SA, and their "weapon" was the shovel
Another problem facing Schacht is the trade deficit. Large-scale investment requires a large number of raw materials, from the most basic cement sand and gravel, to ore, to grain, etc., Germany's own volume can not provide enough raw materials, so it can only import. But imports need foreign exchange, and foreign exchange needs to be saved a little, either through exports to earn, or by attracting foreign capital to direct investment or buy German government bonds, but these demand for Germany's blowout are a drop in the bucket. The immediate consequence of this is a persistent trade deficit, which in turn will lead to a depreciation of the local currency, which in turn will affect the confidence of foreign investors in Germany. So Schacht sacrificed another killing move: trade control.
Schacht laid down three rules for the German trade sector:
1) Imports that are not related to core investment (armaments, infrastructure, etc.) will not be approved;
2) Encourage foreign exchange inflows, increase the issuance of foreign debt, set a ceiling for debt interest repayment, and expand the scope of foreign investment varieties;
3) Refine the clearing system for the trade target countries and reduce the use of foreign exchange.
Specifically, Schacht has changed the trade system that was originally freely settled according to market prices into a trade censorship system that was audited by multiple departments of the Nazi government, and if you want to do business with Germany, you must first prove that the goods you sell are the most lacking in Germany. According to the American historian David Hayward, Schacht's approach was "... We will do our best to extend the repayment period of foreign debt, freeze the channels for foreign capital withdrawal, and strictly control a series of acts that require the consumption of foreign exchange, such as imports and travel." From 1 September 1934 onwards, Germany began to implement a full import rationing system, and any import must wait for the same amount of foreign exchange to be deposited into the central bank before it can occur (which means that the actual market clearing is invalid). Stricter measures are still to come, and Germany then requires that the import value of any country's trade behavior must be equal to the export value, that is, if Germany exports 100 million marks of goods to the United States this year, then this year Germany can only buy 100 million marks of goods from the United States, and the demand can only wait until the next year.
As a result of the strict import system, Germany's international trade became extremely purposeful, and any country that did not meet Germany's trade needs was excluded from the list of trade objects. Previously, Germany's trade with Western Europe and the United States was mainly diversified trade, and in the eyes of the Nazi government, this waste of foreign exchange was simply unbearable. Gradually, Nazi Germany's trading partners began to shift across the board to countries that exported a single, such as the Balkans, such as South America. Taking cotton as an example, in 1933, 3/4 of Germany's cotton imports came from the United States, and by 1935, this proportion fell to 1/4, and the vacancy was filled by south American, Egyptian and other countries. Ironically, in order to protect their billions of dollars (pounds sterling, francs, etc.) of investment in Germany, the West could only turn a blind eye to such naked trade interference by Nazi Germany.
After solving the problems of inflation and trade deficits, Schacht faced another headache: lack of money. Under the modern economic system, although the currency has been decoupled from gold (PS, after decoupling the gold standard, Western countries feel that after a long drought, they can finally open up the printing of money), but the central bank still has to maintain restraint on the issuance of currency, crazy printing money can only be cool for a while, and the end of printing money is the "crematorium". Schacht still understands this, so having central banks issue treasuries is not a lasting time to solve the problem. Eventually, Schacht came up with two options: privatization and MEFO bill. In the end, these two things played a very important role in kicking Germany into the abyss.
In the picture is the voucher obtained after buying the Nazi German government bond, which is equivalent to our treasury bill
Chapter Four: Privatization Against the Tide --- the Union of Nazi Germany and the Industrial Giants
Privatization was an absolute maverick presence in Germany at that time, because while the rest of the world was busy acquiring small businesses on the verge of bankruptcy and consolidating state-owned enterprises, the German government dominated a series of privatizations of state-owned enterprises from 1933 onwards.
In 1934, for example, the German government, which was still building roads, sold its preferred shares of Deutsche Reichsbahn worth 224 million marks in one fell swoop. In 1936, the German government sold half of its shares in Vereinigte Stahlwerke A.G. to Fritz. Thyssen (German steel kings, now you can see the elevator thyssenkrupp brand is their home), the price of 100 million marks. In the banking sector, during the Great Depression, the German government dominated a series of integrations and acquisitions of Commerzbank, and by 1934, while Schacht was in charge of the central bank, he made a statistic that 70% of the shares of all the largest commercial banks in Germany were directly or indirectly held by the Imperial Government. This phenomenon changed rapidly from 1935 onwards, with 57 million marks sold for the state-owned shares of Deutsche Commerz-Bank, 50 million marks for deutsche Bank privatization, and 141 million marks for the state-owned shares of Dresdner Bank. In shipbuilding and public facility services, there has been a similar large-scale privatization.
Why? The main reason is lack of money! Gemà Bel of the University of Barcelona made an estimate, using the data published by Germany and the estimated German budget for the year (Germany has not published detailed budget figures since 1934), to obtain the following figures, that is, at the lowest level, 1.37% of Germany's fiscal revenues in 34-38 years came from privatization.
This proportion seems to be very small, but we need to look at it horizontally, after all, the situation of large-scale asset sales by governments is not always visible. Compared with the level of the EU-15 countries in 1997-2000, Nazi Germany's privatization revenue in 1934-1938 was basically in the lower and middle levels of the EU (but after excluding relatively poor countries such as Portugal, Greece, and Iceland, it actually reached the EU average level). But if one considers that the privatization process in Europe at the end of the 20th century was closely aligned with liberal economic policies, while the privatization of Nazi Germany was entirely from the perspective of obtaining profits, then its privatization began in 1934 is not insignificant.
Privatization, while the most immediate benefit to the Government of Nazi Germany, also brought a by-product: the greater control of society by large corporations. We are familiar with the privatization of companies that have the ability to take over during this period: Krupp, Thyssen Steel, Faben Chemical, Siemens, Heinkel and many more. These companies not only took over a large number of government assets, but also participated in a large number of public services, they subcontracted government contracts to enterprises like RAD, controlled institutions such as the National Socialist People's Welfare Organization (National Socialist Welfare Organization) (National Welfare Organization) (National Welfare Organization) and other institutions closely related to the welfare of the people, and had inextricable entanglements with the top level of the Nazi Party, invisibly grasping the lifeblood of various fields of the country. So we'll see later how the Nazis were giving back to these industrial and commercial giants with more practical benefits.
Icons of these German industrial arms giants
Chapter 5: Pandora's Temptation --- The Mefour Coupon
The MEFO bill is another manifestation of Schacht's "genius" and a stepping stone to the door that binds the Nazis and the military industry together. As we said earlier, a lot of investment in Germany is concentrated in manufacturing, infrastructure and so on. Concentrated investment in these two general directions is essentially no problem, and it can indeed absorb a large number of unemployed people in the short term. But there are two sides to everything, you have to take advantage of the benefits, and you have to bear the disadvantages. Infrastructure itself does not produce real value, but more to reduce the non-essential friction of economic operation, reduce various hidden costs (such as railways and highways will speed up logistics, reduce transportation costs, etc.), and the manufacturing industry needs to sell products before it can produce benefits. The problem was that at that time, there was a serious oversupply in the field of international trade, everyone was struggling in the aftermath of the Great Depression, and there was no such a big market in Germany to consume the goods produced, and everything took time to see a clear improvement. But the Nazis were so desperate to prove to voters that their economic measures were correct, so they didn't have the patience to wait. Moreover, the Nazi Party also faced pressure from the army after coming to power, and these military masters not only looked down on the Nazi Party from mud legs, but also shouted every day to revive the former prestige of the German army. Under double pressure, the Nazi Party chose a simple and crude road to revitalize the economy: to do the military industry!
Feng. The German officer corps in Weimar under Seckert generally retained the style of the German army of World War I, and these people had a great influence on nazi Germany's road to rearmament
As we all know, the military industry does not produce any practical value, and is only useful for protecting yourself and at the same time breaking something for everyone to vent. But the military industry is the only industry that can convince almost everyone: a field that produces things for emergency but does not really consume them. Hitler's government took advantage of the popular approach to the "Versailles Contract" and the desire to rearmament, and directed a large amount of money into the military industry. In 1937, 42 percent of the German GNP came from arms-related fields, and in 1939, more than 75 percent of Germany's fiscal expenditure was spent on rearmament. But economic prosperity driven by the military industry, like a needle of drugs, only gets short-term "illusions", holding a bunch of arms that do not produce any value, and eventually everyone will find that they still have to go hungry. In order to maintain the "illusion" of nothingness, a larger dose of "drug" is necessary: money! Nazi Germany needed more money, on the one hand, they relied on normal on-balance sheet financing, such as bonds, etc., but the amount was far from enough to meet the military investment, so they could only think of ways from outside the balance sheet. From 1933 to 1939, nearly half of Germany's arms investment was not financed on a balance sheet, the so-called MEFO bill.
In 1934 Schacht promoted the establishment of a shell company: Metallurgische Forschungsgesellschaft, which had a registered capital of only 250,000 marks, led by the Ministry of Defense, guaranteed by the central bank, with a joint investment of 1 billion marks by Krupp, Siemens, Rheinmetall and Gutehoffnungshütte. This company exists for only one purpose, bypassing the central bank's statements and issuing commercial promissory notes to pay for orders against military enterprises. Because it has the endorsement of the central bank, the initial maximum renewal period is set at 6 months (the longest duration is 5 years, each renewal is 3 months, please pay special attention to this!). ), and there is an annualized interest rate of 4%, the theoretical risk is nearly zero, the yield is higher than other commercial promissory notes, so its function is basically equivalent to money, which can be circulated in various fields. The note, later known as the MEFO bill, was issued from 1934 to 1938, with more than 12 billion marks issued, compared with 19 billion marks for German government bonds in the same period.
How Macford coupons work
On the one hand, the existence of Meifu bonds has successfully solved the problem of financing difficulties for the German government, on the other hand, because it is not included in the list, it is also difficult for countries such as britain and France to track the actual government expenditure in Germany. This disguised expansion of government credit has, to a certain extent, closely bound the relationship between Krupp and other arms giants and the Nazi government, and the two sides have become both prosperous and lost. However, Meifu coupons are ultimately a kind of borrowing, and repayment of principal and interest is its ultimate destination. At the same time, because of the endorsement of the central bank, if the principal and interest payments could not be repaid, the Nazi government would face a very high political cost, so please remember the previous paragraph: the maximum duration is 5 years!
Chapter Six: The Medicine Cannot Be Stopped--- the release of the "Four-Year Plan" and the removal of Schacht
In his bones, Schacht is still an economist in the Western tradition, and in his plan, Germany must first solve the problem of unemployment before it can solve the problem of economic structure. So that's why he used "strong medicine" to adjust the German economy during the period of 1933-35. But he is well aware that relying solely on government investment is unlikely to last (at least as the traditional Western economists believe it is), that Germany's current economic policy is deformed, and that the ultimate path is a market economy and free trade.
Fast forward to mid-1935, when crises began to erupt in the field of forex. Schacht found that even with strict controls on imports, foreign exchange losses remain frightening. The following table briefly describes the trade deficit in the agricultural and industrial sectors in Germany in 1935, when the overall trade deficit was 510 million marks, of which the agricultural gap was 22% and the industrial gap was 30%. If this problem is not solved, sooner or later it will affect domestic liquidity.
Schacht advocated a change in the current deformed economic structure and the gradual opening up of export and import restrictions, especially in agriculture. He points out that the so-called "battle of production" of the previous two years has proved to be fundamentally unsuccessful, encouraging self-sufficiency while ignoring the fact that Germany's resource endowments cannot provide enough agricultural products; similarly, the "Autarky", the self-sufficient economic system advocated by the government in earlier years, is now proving to be unrealistic, and Germany lacks the necessary raw materials for internal circulation. The following figure, from the paper by Mark Spoerer and Jochen Streb, clearly shows that in the 35 to 36 years, in the per capita consumption account, except for products such as milk, butter, pork and other products increased slightly compared with the 27-28 Weimar German period, other agricultural products fell to varying degrees. This is not unusual, in history, the German region was a net importer of agricultural products after industrialization, when the Second German Empire, with 10% more land than Nazi Germany to feed about 15 million people less than Nazi Germany, in the end it is still impossible to resist, and now Hitler asks everyone to stop importing, tighten the belt to eat potatoes, the quality of life does not decline.
Hitler's response was to set up a committee, with Schacht, Karl, Blomberg and Goering as commissioners, to coordinate imports and exports with full authority. But Schacht's proposal met with resistance in the committee: Karl, who was from the Nazi Party, essentially despised the liberal Schachter, Blomberg, as a representative of the military, naturally supported the rearmament, and Goering was bent on taking Schacht's positions as economy minister and central bank governor. It can be said that the purpose of the existence of this committee was to shut the mouth of Schacht, so from its establishment in July 1935 to the middle of 1936, no agreement was reached. Contradictions in raw materials, especially agriculture, are increasing day by day. The chart below gives us a more intuitive comparison, the gap between Germany's grain needs for fat production and the quota for actual imports over a period of 35 to 36 years, from the basic balance in April 35 to the shortage in September 36 of almost 200,000 tons.
Of course, we cannot ignore the influence of the arms giants, whose proposal is essentially to shake their foundations and steal their jobs, so the support that Schacht has received at the top of Germany is a foregone conclusion.
While the strife continued, the German army was already beginning to feel the effects of a lack of raw materials. In August 1936, the Army Headquarters provided Hitler with a detailed report on the demand for raw materials for production, which pointed out that the shortage of raw materials such as copper and lead imports had seriously affected the production of ammunition, with the full production rate in July being only 88%, falling to 76% in August, and expected to drop to 70% by September; the lack of rubber imports resulted in the monthly production of 2,000 trucks being completed only 80%; the Navy reported that the construction of submarines had to be postponed due to the lack of raw materials such as copper. While Schacht was painstakingly exhorting Hitler to slow down the pace of investment in the military industry, Goering had begun to force the palace. Goering secretly met with Albert in March 36. General Kesselring (the brother who held the rank of Field Marshal but did the work of the Army and beat up the Allies in Italy in '43) told him that he had been appointed as the inspector of the oil industry, and kesselring conveyed to the army system that Goering had seized the power of oil and sought the support of the military. With Schacht's submission of the "Foreign Exchange Use Plan of 1937" rejected by Hitler, the Nazi Party finally began to seek to replace the "noisy" old man. Goering, who had repeatedly vowed that "once he was in charge of the economy, he could quickly and effectively control the trade deficit" was pushed to the forefront as a life-saving straw. As we shall see, this was not the first time that Goering boasted of the sea and then pit the Fuehrer, he could not control his habit of talking big, and eventually changed his surname from "Herman" to "Meyer" in the mouths of the vast number of military fans (Hermann Goering once set up a big flag: "No enemy bomber can reach the Ruhr industrial area." If one of them got to Ruhr, my name wouldn't be Goering. You can call me Meyer").
Members of the Economic Commission, from left to right: Shacht, Goering, Blomberg and Karl
In late August, Hitler submitted a 12-page memorandum to the Top of the Nazi Party, which was believed to be the origin of the so-called "Four-Year Plan" and also announced the collapse of Schacht's economic policies. In the memorandum, Hitler simply and crudely summarized the current foreign exchange and economic difficulties in Germany's "contradiction between limited land and a large population", which corresponds perfectly to his view in Mein Kampf that "the german sword is used to open up the territory for Germany's plough".
In order to resolve this fundamental contradiction, on the one hand, military production must not stop, he asked the German army to be ready for battle in the next four years to deal with the "Bolshevik threat" (he seems to have automatically ignored that there was still a Poland between Germany and the Soviet Union); at the same time, he proposed that Germany's short-term goal was to achieve most of the self-sufficiency in the industrial field, and then this self-sufficiency plan was refined into a large-scale expansion and reconstruction of 15 industrial fields, including electrolytic aluminum, synthetic rubber, synthetic fuels, According to the calculations of the German economic department (of course, not Schachter-led), these projects could save Nazi Germany 598 million marks of foreign exchange per year, but the Fuehrer seems to have automatically ignored the final failure of the "Autarky" movement that began in 1934. In the face of the huge costs that will be incurred in the launch of these projects, on the one hand, Germany needs to rely on off-balance sheet financing businesses such as Meifu bonds to tear down the eastern wall to make up for the western wall, on the other hand, Hitler also mentioned that "the government needs to become resolute and ruthless, and the government will have the right to confiscate and confiscate the property of any potential enemy of the government".
A rare picture of Goering and Schacht in the same frame, PS, and Goering is a drug heavy dependence patient
On September 4, Goering read out the memorandum at a committee of four, without any discussion or vote, and in centralized Germany, the Führer's words were orders, "the Führer's orders must be carried out without hesitation" Goering summed up his statement. Subsequently, the "4-year plan office" was established, with Goering as the chief of staff. This office operates completely independently of the Ministry of Economy and is fully responsible for the areas of the economy covered by the 4-year plan, which is basically equivalent to emptying Schacht's position. The "4-Year Plan Office" is so infamous because until the end of its existence in 1940, it was still responsible for the plundering of resources in the occupied areas of Europe by Nazi Germany, and fought with the SS Himmler for the dominance of those concentration camps and labor camps. Of course, we must also understand that Goering has many hobbies, from fine wine to beauty, from calligraphy and painting to antiques, but economics is definitely not among them, and Goering's understanding of economics is basically limited to: you have to give me what I want, otherwise I will collapse you, so it is not unusual for his office to do those things that are organized for personal gain, enriched by private money, and enslaved all kinds of people in the occupied areas.
Driven by the four-year plan, Germany has built a large number of factories of unprecedented scale, which are themselves profitable (insufficient demand), but the British Foreign Office personnel who came to visit directly exclaimed that "this is obviously preparing for war".
Finally, let's look at the fate of the "Chief Economist of Nazi Germany" Shacht, in November 1937, the shacht, who had been basically hollowed out, stepped down from the post of minister of economy, but still retained the position of governor of the central bank until January 1939, and history will give him some opportunities to show his face, but that is all.
Chapter Seven: The Beginning of the Storm --- the End of the Merger from Germany and Austria to Czechoslovakia
Generally speaking, we think that the best time for the Fuehrer to live is 38-39 years, because during this time, he is "exhaustive", which means that politicians throughout Europe are toyed with by him. But in fact, if as a national leader, he is full of thoughts of fighting and killing, this leader is estimated to be difficult to do for a long time, why? Because the root of your life is still the living standards of the people, the degree of economic development. Human society has long passed the era of relying solely on war and plunder, and what the Mongols can do can only be done in that era. In 38-39 years, if you look at the report card of the German economy, you will find that Hitler was actually under pressure. The following figure is a comparative chart of German fiscal expenditure and revenue from 33 to 37 years, and we can find that the German government's fiscal deficit has increased year after year, and it basically relies on debt to survive. By 38 years, the situation was even worse (we put the specific chart below), and the government deficit soared to more than 10 billion Imperial Marks (and the Mefford coupon is also included here).
At the same time, the aftershocks of the Great Depression came again, and the United States experienced a second economic crisis in 1937. Thanks to "Keynesianism," Roosevelt's New Deal was as successful as Schacht's new plan, and from 34 years on, the United States quickly emerged from the crisis. But similar formulas, the results are also similar, in addition to not as extreme as Nazi Germany's "dry military industry" and huge trade deficit, the United States is also facing weak domestic demand, relying on government chicken blood, global trade protectionism led to the continuous shrinking of foreign trade and other problems. Coupled with the nationwide strikes caused by the wage bill, the U.S. economy began to stall, and the unemployment rate increased rapidly from 14.3% in 1937 to 19% in 38 years. And this state has not improved, until the outbreak of World War II, huge military orders to save the US economy, so to some extent, it is the Fuehrer's riots that saved Roosevelt's political reputation. The economic crisis in the United States soon spilled over around the world, the price of industrial goods fell sharply, and the liquidity of financial markets began to be insufficient, and the Fuehrer faced a similar scenario for 29 years.
Beginning on March 5, 1933, Roosevelt began his first fireside talk during his administration, telling the public about his "New Deal strategy" and effectively appeasing the anxious hearts of ordinary people
On March 5, 1933, Roosevelt began his first fireside talk during his administration, telling the public about his "New Deal strategy", which effectively soothed the anxious hearts of the common people
The second small peak of unemployment in the figure is the second economic crisis in 37-39 years
Lack of money, lack of money everywhere, what to do? The easiest way: grab!
In March 1938, Germany and Austria merged, politically, fulfilling the Führer's long-cherished wish to change from a foreigner to a true German . Militarily, it expanded Germany's power and completed the encirclement of Czechoslovakia; economically, the Fuehrer stared at the gold and foreign exchange in the Austrian basket. Throughout 1938, the Bundesbank took over and transferred more than $100 million (1938 value) of gold from Austria, in addition to nearly $100 million in foreign exchange that Germany laughed at, of which about 500 million Reichsmarks were involved. Although there is not much money, but the ant legs are also meat, the lack of money and crazy fuehrer will naturally not let go.
The Austrian people warmly welcomed the German annexation of Austria, known as "Anschluss"
After the looting of Austria, the Fuehrers set their sights on the country again. The Jews had long been classified by Hitler in Mein Kampf as a people to be eliminated quickly, so even if they were still Germans in law, the money in their pockets would have long been remembered. With the help of the von Rattle Incident of 7 November 1938, Hitler instructed Goebbels to agitate for nationwide attacks on Jews to pave the way for his future de jure deprivation of Jews of their right to subsistence and property rights. The Kristallnacht of 9-10 November 1938 marked the beginning of Nazi Germany's full-scale anti-Semitic campaign, and the bloody massacres and exterminations of the future could be said to have all begun on this day. As a powerful figure in coordinating the economy, Goering spared no effort to encourage Hitler to completely loot the property of the Jews.
At this time, Schacht, who was still the governor of the central bank, stepped forward and persuaded Hitler that if he wanted to deprive the Jews of their property, they might as well eat well. He proposed that Jewish property be used as collateral for trust and bonds issued to finance the government, a financing method that would be used by any country willing to accept Jewish immigrants, so that the seizure of Jewish property could be more gently taken without violating international human rights provisions. Arguably this was the last chance for millions of Jews in Europe to survive, and Hitler agreed to follow the plan, but the first country Schacht sought to negotiate was Britain, a country that had always given priority only to its own interests. The British were worried that "the things such as machinery and equipment that the Jews brought out of their homes would cause protests by British manufacturers and promote German exports." Eventually, Goering, who saw Schacht's embarrassment, once again blew hitler the wind and completely rejected Schacht's plan.
Kristallnacht in 1938
In this way, the opportunity for Jews to legally immigrate on a large scale was lost, and they immediately faced not only more than 1 billion Reichsmarks of "indemnities" (their own stores were smashed and paid to the people who smashed them), but also 6 million marks of insurance losses (who let your shop be smashed, let the insurance company lose). This is only the first step, and Goering and others want to squeeze more than just this little money out of the Jews. Soon, labor camps such as Dachau (Dachau was previously set up to hold political prisoners, and if you entered before 1938, congratulations, the survival rate is very high, and the rest will be miserable) was fully upgraded to concentration camps, and eventually death camps.
Beginning in 1939 and ending in 1945, more than 6 million Jews disappeared into history after being plundered and reduced to ashes in a crematorium. Nazi Germany directly squeezed more than 23 billion Reich marks from Jews (2008 Israeli government report), not counting the 28 billion marks of income indirectly lost by Jews as a result of the Holocaust and the 9.5 billion marks of wages that were not paid for working as slave labor. Folks, don't really think of Hitler and his people as simple perverted murderers and psychopaths, the motives of these people to do things are often inseparable from people's clichés: money. The tragedy of the Jews at that time was that they were generally affluent, but their culture and religion were divorced from European culture and religion, so it was easy for the people at the bottom of Europe to be incited to hate them. With a government that is good at inciting racial hatred and lacking money, their fate is thus determined.
The Words "Labor Brings Freedom" on the gate of the Dachau concentration camp are particularly ironic, and in 1939 the mass detention of Jews began here, with few survivors
After robbing Austria and then robbing the Jews, after robbing the Jews, Nazi Germany's eyes naturally fell on Czechoslovakia, after all, looking at China, there are only a few rich countries. With our previous understanding, we can understand why Czechoslovakia, which seemed harmless to humans and animals at that time, must be dismembered, and you reason with others, who have already targeted your pockets. Thus, from the Treaty of Munich in September 1938 to the complete dismemberment of Czechoslovakia by Germany in March of the following year, Hitler went farther and farther down the road of robbery for the sake of holes in the economic statement. In 1939, Germany plundered a total of 110 million marks worth of gold and more than 300 million marks of foreign exchange from the Czech Republic, and if you count the well-built factories in Skoda, Hitler's vote is really worth it.
In March 1939, Nazi Germany annexed Czechoslovakia and German troops moved into Prague
By March 1939 the fully complete German Third Reich had become a Central European monster, and the industrial bonuses of Austria and the Czech Republic had made it the second largest in production capacity in Europe (the first was the old maozi).
Like all robbers and gamblers, the excitement is always followed by a sense of loss that has more holes to fill, and at the same time, they will also chant: I will take it away. But in fact, such people are either crushed to pieces or put on the bottom of the prison, and very few people take it, because they have become accustomed to a life of unearned gain, accustomed to being a parasite. Germany in 1938 was such a state, with the success of the Fuehrer's repeated adventures, not only the top brass of the Nazi Party drifted, but also the whole nation, since it was so easy to get money, since we could live by enslaving others, why not do a big vote?
Chapter 8: Countdown to Self-Detonation--- the Third Reich, which is heading for the end
The time finally came to 1939, the "Keynesian" player Roosevelt on the other side of the ocean was skillfully concerned about the situation in Europe, although the economic pressure in the past two years was a mess, but he was waiting for a moment, waiting for the "crazy man" on the other side of the bank to finally showdown, liberate himself from the predicament, and completely sweep away the isolationist sentiment that flourished in the United States.
Here, Shacht, the former "economic helmsman" of the Third Reich, finally resigned his last position in the Nazi government in January: governor of the central bank. He never dreamed that the "Keynesian economics" that he had introduced to Germany would eventually evolve into a monster that he did not know. Although this monster still relies on billions of marks of central investment every year to maintain a GNP growth rate of more than 8%, the proportion of the output value of the military industry in the body has exceeded 60%, just like a monster with thick hands but an underdeveloped heart. Shacht, of course, knew that there was only one way to destroy him, and it was time to leave a government that could no longer heed any of his advice.
In 1939, the biggest thunder in the German finances, apart from the old problems we talked about, was the Mefford coupons that the Nazis had always relied on. In fact, since 1938, the increase in Meifu coupons has been very small, why? Can't sell anymore. Do you remember a time mentioned in the previous chapter? 5 years. This time is a curse on Nazi Germany, in these 5 years, in order to tear down the East Wall to make up for the West Wall, Hitler used 3 months to renew his life countless times, but don't forget that the contract was written, the maximum duration of "5 years", you can not change this. As the deadline approached, all investors watched the attitude of the Nazi government.
Note that the Mefo bill column, there will be no new releases in 38-39 years
Back in August 1934, when the first Meafu coupon was officially issued, Schacht did not expect that Hitler intended to use this coupon to prolong his life for such a long time, in essence, this form of off-balance sheet financing is particularly like the non-standard business of today's trust, real estate companies can take advantage of this for a while, but if you want to cool a lifetime, it is a little too naïve.
By August 1939, when the tianli Meifu bonds were due (the cumulative issuance was 12 billion marks, it was estimated that there was a slight repayment in the middle, but the maturity was almost more than 10 billion), and the German government found that it not only did not have any reserves, but still had a deficit of more than 1 billion marks per year. What to do, can you pay the bills? No, although the Nazi Party is shameless, they also know that you can play a rogue on the outside world, and if you have no credibility at home, the people will be able to rise up the next day and throw these corrupt officials into the Rhine.
The essence of The Macfort bonds is a bond guaranteed by the state credit, the repayment of principal and interest is written in the contract, and a large number of workers' wages, spare parts manufacturers' order payments are linked to the Meifu bonds, once the Nazi government announced the extension, in essence, it meant the bankruptcy of the German Central Bank's credit. This is a move that affects the whole body, especially at a time when the German government as a whole is no longer able to make ends meet, and the bankruptcy of the central bank may trigger disastrous consequences. Moreover, the direct beneficiaries of the Mefford coupons were the arms giants, and these people could not be offended by your Nazi Party?
In steel ambition 4, YY's 36-year German civil war, if Germany's credit bankruptcy in '39, it is estimated that the civil war form will not necessarily be better than the situation of P Society YY
The best way is for the German government to raise a sum of money through foreign debt, and after it has been paid, it will issue new coupons, ten or fifteen years, and then pay back the foreign debt and continue to play this game. In fact, August-September 1939 was a hurdle, and in the past, the Fuehrer estimated that he could still wave for a few years, but on this occasion, he was swept away by the fuehrer's various diplomatic tumultuous operations in previous years. Because of Germany's poor diplomatic credibility, all kinds of tearing up agreements, annexing neighboring countries, and withdrawing from the League of Nations have made the Western countries hate it to the bone, not to say that Britain and France will not lend a penny to Hitler, that is, Roosevelt will not pay a penny (I am waiting for you to explode, how can I help you continue to live). Not only will they not lend you money, soon they will all start to withdraw, but the lice are not itchy, anyway, so it will go down ironclad bankruptcy, the Nazi government still cares about your foreign loans?
Germany, which had lost every opportunity, once again came to the crossroads of fate, unlike Wilhelm II 25 years ago, Hitler had two dangerous paths: one blew himself up and died, reshaping a Germany with bloody turmoil and civil war, and the Nazi Party turned into powder; the other desperate, continuing to go to the end on the road of plundering neighboring countries, hoping to use military victory to bring political continuation and kill the creditors outside (although according to historical records, Hitler did not expect that Britain and France would declare war on it.) I also hope that I will be able to succeed in my adventure like the last time in the Czech Republic). The Fuehrer and his supporters will not choose the lofty plan of self-detonation at all, they will only drag the whole world with them into the "gates of hell".
On August 31, 1939, Hitler announced the full implementation of the "White Plan" for the invasion of Poland, and the next day the second world officially broke out.
Postscript: The good warriors of the past are first invincible, so that the enemy can be victorious
Before the First World War, Germany's diplomacy was a mess, losing Bismarck was like losing its soul, and playing a good hand of cards; on the eve of World War II, Germany's foreign policy could not be said to be very successful, but it took advantage of the Western countries' fear of war and eagerness to make money, but in the end it became the culprit of the war, and fundamentally the deformed economic system inherited from Weimar Germany was not effectively improved.
"Keynesianism" and "water release strategy" are really who uses who is cool in the context of breaking away from the gold standard system, but once addicted to this, it is bound to lead to more deformed economic structure. The Nazi Party's eagerness to curry favor with voters, while believing that blackmail by force could be tried and tested, eventually led it to go further and further down the government's expansionary investment path, investing in a bunch of projects that did not produce positive returns.
Finally, the example of Meifu coupons tells us that the internal laws of the economy do not change because of the cleverness of some people, and you can deceive for a while, but you can't hide from it for a lifetime. Off-balance sheet financing is essentially the devil, both out of the control of the economic sector and prone to becoming a tool for enrichment in favoritism and fraud, which cannot be relied upon for a long time.
Sun Tzu's Art of War: "Those who were good at fighting in the past were first invincible, so that the enemy could be victorious." Invincible in oneself, victorious in the enemy. Therefore, those who are good at fighting can be invincible, and they cannot make the enemy victorious. This sentence is used to describe Germany before World War II is really very appropriate, the same use of Keynesian Roosevelt, "Gou" until Hitler himself exposed flaws, only in the self-explosion of Nazi Germany successfully out of the second economic crisis, through The Second World War completely laid the status of a global power.
bibliography:
Deficit Spending In The Nazi Recovery, 1933-1938: A Critical Reassessment : Albrecht Ritschl
Soviet And Nazi Economic Planning In The 1930s：Feter Temin
The Nazi Fiscal Cliff: Unsustainable Financial Practices Before World War Ii：Parker Abt
Industrial Investment In Nazi Germany: The Forgotten Wartime Boom：Jonas Scherner
Autarchy , Market Disintegration , And Health : The Mortality And Nutritional Crisis In Nazi Germany , 1933-1937：Jörg B Aten & Andrea Wagner
Against The Mainstream: Nazi Privatization In 1930s Germany：Germà Bel
American "Reparations" To Germany, 1919-33: Implications For The Third -World Debt Crisis：Stephen A. Schuker
The Culpability Of Hjalmar Schacht: How Hjalmar Schacht Seized The German Economy To Prepare For War：Gary Lai
A Commentary On Europe`S Looted Gold,1938-1945: Arthur L. Smith,Jr
Foreign Exchange Crisis Of 1936：Arthur Schweitzer
The Reichsautobahn: Symbol For The Third Reich：James D. Shand