Archive/File: imt/nca/nca-02/nca-02-16-responsibility-12-03 Last-Modified: 1997/05/08 Nazi Conspiracy and Aggression, Volume Two, Chapter XIV [Page 742] C. SCHACHT PLAYED A DOMINANT ROLE IN THE CONSPIRATORS' PROGRAM OF REARMAMENT AND ECONOMIC PLANNING AND PREPARATION FOR WAR. Germany was virtually prostrate in the early part of 1933; she was faced with dwindling revenues from taxation and seemingly unable to raise money either through external or internal loans. Hitler entrusted to Schacht the task of wringing from the depressed German economy the tremendous material requirements of armed aggression, and endowed him with vast powers over every sector of German industry, commerce, and finance to carry out that task. Some of the devices which Schacht employed to fulfill his mission will now be examined. Schacht's program, as hereinafter outlined, was, by his own admissions, dedicated to the accomplishment of Hitler's armament program. In a memorandum to Hitler dated 3 May 1935 concerning the financing of armament, Schacht wrote: "The following comments are based on the assumption that the accomplishment of the armament program in regard to speed and extent, is the task of German policy, and that therefore everything else must be subordinated to this aim, although the reaching of this main goal must not be imperiled by neglecting other questions. *** '' ******* "*** all expenditures which are not urgently needed in other matters, must stop and the entire, in itself small, financial power of Germany must be concentrated toward the one goal: to arm." In a letter to General Thomas dated 29 December 1937, Schacht stated: "I have always considered a rearmament of the German people as conditio sine qua non of the establishment of a new German nation." (EC-257). Schacht's vast achievements in furtherance of the conspirators' program may conveniently be considered under four headings: (a) armament financing; (b) the "New Plan"; (c) control of production; and (d) plans and preparations for economic controls during war. (1) Armament Financing. (a) Mefo bills. The financing of the conspirators' huge rearmament program presented a twofold problem to Schacht First, was the need of obtaining funds over and above the amount which could be obtained through taxation and public loans. Sec- [Page 743] ond, was the conspirators' desire, in the early stages of rearmament, to conceal the extent of their feverish armament activities. Schacht's answer to the problem was the "mefo" bills, a scheme which he devised for the exclusive use of armament financing (EC-436). Transactions in "mefo" bills worked as follows: "mefo" bills were drawn by armament contractors and accepted by a limited liability company called the Metallurgische Forschungsgesellschaft, m.b.H. (MEFO). This company was merely a dummy organization; it had a nominal capital of only one million Reichsmarks. "Mefo" bills ran for six months, but provision was made for extensions running consecutively for three months each. The drawer could present his "mefo" bills to any German bank for discount at any time, and these banks, in turn, could rediscount the bills at the Reichsbank at any time within the last three months of their earliest maturity. The amount of "mefo" bills outstanding was a guarded state secret (EC-436). The "mefo" bill system continued to be used until 1 April 1938, when 12 billion Reichsmarks of "mefo" bills were outstanding (EC-436). This method of financing enabled the Reich to obtain credit from the Reichsbank which, under existing statutes, it could not directly have obtained. Direct lending to the Government by the Reichsbank had been limited by statute to 100 million Reichsmarks (Reichsgesetzblatt, 1924, II, p. 241). Schacht has conceded that his "mefo" bill device "enabled the Reichsbank to lend by a subterfuge to the Government what it normally or legally could not do" (3728-PS). In a speech delivered on 29 November 1938, Schacht glowingly described the credit policy of the Reichsbank of which he was the author as "It is possible that no bank of issue in peacetime carried on such a daring credit policy at the Reichsbank since the seizure of power by National Socialism. With the aid of this credit policy, however, Germany created an armament second to none, and this armament in turn made possible the results of our policy." (EC-611). The "daring credit policy," which made possible the creation of "an armament second to none," obviously embraced the "mefo" bill financing which he had contrived. (b) Use of funds of opponents of Nazi regime. In his efforts to draw upon every possible source of funds for the conspirators' rearmament program, Schacht even used the blocked funds of foreigners deposits in the Reichsbank. In his memorandum to Hitler of 3 May 1935, Schacht boasted: [Page 744] "The Reichsbank invested the major part of Reichsbank accounts owned by foreigners, and which were accessible to the Reichsbank, in armament drafts. Our armaments are, therefore, being financed partially with the assets of our political opponents." (1168-PS) . (c) Taxation and long term indebtedness. "Mefo" bills and the funds of political opponents of the conspirators were, of course, not the only sources from which Schacht drew to finance the armament program. Funds for rearmament were likewise derived from taxation and an increase in public debt -- channels through which part of national income is ordinarily diverted to public authorities. But what distinguished the conspirators' program of public indebtedness was the fact that the German capital market was completely harnessed to the expanding needs of the Nazi war machine. By a series of controls, they reduced to the minimum consistent with their rearmament program, all private issues which might have competed with Government issues for the limited funds in the capital market. Thus, the capital market was, in effect, pre-empted for Government issues (EC-497; EC-611) . During the period from 31 December /1932 to 30 June 1938, the funded debt of the Reich rose from 10.4 billion Marks to 19 billion Marks (EC-419). This large increase in funded debt was dedicated "as far as possible" to "the financing of armament and the Four-Year Plan" (EC-611 ) . (2) The New Plan. The conspirators' grandiose armament plans obviously required huge quantities of raw materials. Schacht was a proponent of the view that as much of the requisite raw materials as possible should be produced within Germany. At the same time, however, he recognized that large imports of raw materials were indispensable to the success of the conspirators' gigantic armament program. To that end, he fashioned an intricate system of controls and devices which he called the "New Plan" (Reichsgesetzblatt, 1934, I, pp. 816, 829, 864; Reichsgesetzblatt, 1935, I, p. 10). There were three main features of the "New Plan" as devised by Schacht: (1) restriction of the demand for such foreign exchange as would be used for purposes unrelated to the conspirators' rearmament program; (2) increase of the supply of foreign exchange, as a means of paying for essential imports which could not otherwise be acquired; and (3) clearing agreements and other devices obviating the need for foreign exchange. Under the [Page 745] "New Plan", economic transactions between Germany and the outside world were no longer governed by the autonomous price mechanism; they were determined by a number of Government agencies whose primary aim was to satisfy the needs of the conspirators' military economy (EC-437). Schacht accomplished the negative task of restricting the demand for foreign exchange "by various measures suspending the service on Germanys foreign indebtedness, by freezing other claims of foreigners on Germany, by a stringent system of export controls and by eliminating foreign travel and other unessential foreign expenditures." (EC-437). In order to increase the available supply of foreign exchange "Schacht repeatedly requisitioned all existing foreign ex. change reserves of German residents, required all foreign exchange arising out of current exports and other transactions to be sold to the Reichsbank, and by developing new export markets. Exports were encouraged by direct subsidies and by accepting partial payment in German foreign bonds or in restricted Marks which could be acquired by foreign importers at a substantial discount." (EC-437). A vast network of organizations was erected to effectuate these various measures. Suffice it for the present purposes to mention merely one of these organizations: the supervisory agencies (Ueberwachungsstellen). These agencies, which were under Schacht's control as Minister of Economics, decided whether given imports and exports were desirable; whether the quantities, prices, credit terms, and countries involved were satisfactory; and in short, whether any particular transaction advanced the conspirators' armament program. The overriding military purpose of the series of controls instituted under the "New Plan" is plainly shown in Schacht's letter of 5 August 1937 to Goering, wherein he said: "*** The very necessity of bringing our armament up to a certain level as rapidly as possible must place in the foreground the idea of as large returns as possible in foreign exchange and therewith the greatest possible assurance of raw material supplies, through exporting." (EC-497) There remains for consideration that aspect of the "New Plan" which involved extensive use of clearing agreements and other arrangements made by Schacht to obtain materials from abroad through the expenditure of foreign exchange. The principle of the clearing system is as follows: The importer makes a deposit [Page 746] of the purchase price in his own currency at the national clearing agency of his country, which places the same amount to the credit of the clearing agency of the exporting country. The latter institution then pays the exporter in his own currency. Thus, if trade between two countries is unequal, the clearing agency of one acquires a claim against the agency of the other. That claim, however, is satisfied only when a shift in the balance of trade gives rise to an offsetting claim. This device was used by Schacht as a means of exploiting Germany's position as Europe's largest consumer in order to acquire essential raw materials from countries which, because of the world wide economic depression, were dependent upon the German market as an outlet for their surplus products. Speaking of his system of obtaining materials abroad without the use of foreign exchange, Schacht has stated: "It has been shown that, in contrast to everything which classical national economy has hitherto taught, not the producer but the consumer is the ruling factor in economic life. And this thesis is somewhat connected with general social and political observations, because it establishes the fact that the number of consumers is considerably larger than the number of producers, a fact which exercises a not inconsiderable social and political pressure." (EC-611) Schacht's clearing agreements were particularly effective in Southeastern Europe, where agricultural exports had been considerably curtailed by competition from the more extensive and efficient overseas agriculture. The success of Schacht's ruthless use of Germany's bargaining position is indicated by the fact that by August 1937, there had been imported into Germany approximately one half billion Reichsmarks of goods in excess of the amount delivered under the clearing arrangements. In his letter to Goering dated 5 August 1937, Schacht stated: "*** in clearing transactions with countries furnishing raw materials and food products we have bought in excess of the goods we were able to deliver to these countries (namely, Southeastern Europe and Turkey) roughly one half billion RM ***." (EC-497) Thus, through this device, Schacht was able to extract huge loans from foreign countries which Germany could not have obtained through ordinary channels. The device as developed by Schacht was subsequently used during the war as a means of systematically exploiting the occupied countries of Western Europe. [Page 747] In addition to the clearing agreements, Schacht devised the system which came to be known as the "aski" accounts. This scheme likewise obviated the need for free currency (i.e. Reichsmarks freely convertible into foreign currency at the official rate-U. S. dollars, pounds sterling, etc). The system worked as follows: The German foreign exchange control administration would authorize imports of goods in specified quantities and categories on the condition that the foreign sellers agreed to accept -payment in the form of Mark credits to accounts of a special type held in German banks. These accounts were called "aski", an abbreviation of Auslander Sonderkonten fuer Inlandszahlungen (foreigners' special accounts for inland payments). The so-called "aski" Marks in such an account could be used to purchase German goods only for export to the country of the holder of the account; they could not be converted into foreign currency at the official rates of exchange. Each group of "aski" accounts formed a separate "island of exchange" in which the German authorities, under Schacht's leadership, could apply their control as the country's bargaining position in each case seemed to warrant. Schacht's ingenious devices were eminently successful. They admirably served the conspirators' need of obtaining materials which were necessary to create and maintain their war machine. On this point, Schacht has stated: "The success of the New Plan can be proved by means of a few figures. Calculated according to quantity, the import of finished products was throttled by 63 percent between 1934 and 1937. On the other hand, the import of ores was increased by 132 percent, of petroleum by 116, of grain by 12 and of rubber by 71 percent." "These figures show how much the New Plan contributed to the execution of the armament program as well as to the securing of our food." (EC-611 ) (3) Production Control. As an additional means of assuring that the conspirators' military needs would be met, Schacht adopted a host of controls over the productive mechanism of Germany, extending, inter alia, to the allocation of raw materials, regulation of productive capacity, use of abundant or synthetic substitutes in place of declining stocks of urgently needed materials, and the erection of new capacity for the production of essential commodities. The structure of regulation was built up out of thousands of decrees in which governmental agencies under [Page 748] Schacht's control issued permits, prohibitions, and instructions These decrees were the outgrowth of carefully laid plans of the Ministry of Economics, of which Schacht was the head, concerning "economic preparation for the conduct of war", and in accordance with its view that "genuine positive economic mobilization" demanded that "exact instructions for every individual commercial undertaking are laid down by a central authority' (EC-128) The plan to allocate raw materials was carried out through myriad "orders to produce" specifying that certain commodities must or must not be produced; "orders to process or use" prescribing the type and quantity of raw material which could or could not be used in the production of a given commodity; orders specifying that scarce raw materials could be used only as admixtures with more plentiful but inferior products; and other like measures. The precise details of these orders are unimportant for present purposes. Their significance lies in the fact that they were governed by a central purpose: preparation for war. In the above mentioned secret report issued in September 1934 by the Ministry of Economics it was said: "Rules are to be initiated for the allotment of scarce raw materials etc; and their use and processing for other than war, or otherwise absolutely vital, goods is prohibited." (EC-128) The military aspects of Schacht's plans to increase the production of scarce raw materials within Germany, and thereby reduce Germany's dependence upon foreign countries for materials needed in the rearmament program, are likewise revealed in the aforementioned report of the Ministry of Economics of September 1934: "The investigations initiated by the Raw Materials Commission and the measures introduced for enlarging our raw materials basis through home production as well as for furthering the production of substitute materials will directly benefit war economy preparations." (EC-128) (4) Plans and Preparations for Economic Controls During War. Pursuant to the unpublished Reich Defense Law secretly enacted on 21 May 1935, Schacht was appointed General Plenipotentiary for War Economy by Hitler. Under this law, Schacht was placed in complete charge of economic planning and preparation for war in peacetime, except for the direct production of armaments which was entrusted to the Ministry of War; and upon the outbreak of war, Schacht was to be the virtual economic dictator of Germany. His task was "to put all economic forces in [Page 749] the service of carrying on the war and to secure the life of the German people economically". In order to facilitate his task, the Ministers of Economy, Food and Agriculture, Labor, and Forestry were subordinated to him, and he was authorized "within realm of responsibility, to issue legal regulations which may deviate from existing regulations". The necessity for absolute secrecy was stressed (2261-PS). Schacht appointed Wohlthat as his deputy General Plenipotentiary for War Economy and organized a staff to carry out his directives. Schacht has admitted that he must accept full responsibility for the actions of these subordinates (3729-PS). Before his resignation in late 1937, Schacht had worked out in amazing detail his plans and preparations for the German economy in the forthcoming war. Recognizing that wartime controls, to be effective, must be based on adequate information, Schacht had directed the completion of comprehensive surveys of 180,000 industrial plants in Germany and had compiled statistics concerning ."*** the composition of the labor force as to sex, age, and training, the consumption of raw and auxiliary material, fuels, power, the productive capacity, the domestic and foreign trade as well as the supply of material and products in the beginning and at the end of the year." (EC-258) On the basis of the statistical data thus collected, plans had been formulated by the end of 1937 wherein "*** the needs of the Armed Forces and the civilian minimum needs in wartime are compared with the covering thereof by supplies and production." (EC-258) The supervisory boards, which were briefly described above in connection with the import and export controls, were charged with "preparing their orders for the regulation of war contracts and fees", and were instructed to coordinate with various Reich manpower authorities to secure "their indispensable personnel" (EC-258). Special measures were taken under Schacht's direction, to maintain "mobilization stocks" of coal and to assure their distribution in accordance with the wartime needs of armament factories and large consumers. Large "gasoline storage places" were constructed for use of the Wehrmacht and "gasoline stations and gasoline stores" were designated "for the first equipment of the troops in case of mobilization". Careful plans were also made for the allocation of power during war, and practice maneuvers were held [Page 750] in order to determine "what measures have to be taken in case places of power generation should be eliminated" (EC- 258). Evacuation plans for the removal of war materials, agricultural products, skilled workers, and animals from military zones were worked out by the Office of the Plenipotentiary for War Economy with characteristic thoroughness. Thus, "the supplies and skilled workers in the evacuation zones" were "registered, earmarked for transportation into certain salvage areas and registered with the Wehrkreiskommandos by the field offices of evacuation and salvaging plans" (EC-25) . Detailed plans for a system of rationing to become effective immediately upon mobilization had already been made by the end of 1937: "The 80 million ration cards necessary for this purpose have already been printed and deposited with the Landrats, Chief Mayors, and corresponding authorities. The further distribution of the ration cards to the individual households is prepared by these authorities to take place within 24 hours after mobilization has been ordered." (EC-258) Trusted persons whose reliability had been attested to by the Secret State Police were installed in important enterprises and charged with the execution of "measures which guarantee the maintenance of production of their enterprises in the event of mobilization". Their functions likewise extended, among other matters, to applying "for exemptions from military service" of "employees who are indispensable to their enterprise", and seeking immunity from requisition by the Wehrmacht- of all motor trucks which were needed in the enterprises to which they were assigned (EC-258). Pursuant to directives issued by Schacht as Plenipotentiary, labor authorities of the Government ascertained "the available amount of manpower, the wartime requirements of manpower and measures for the covering of the wartime needs". The wartime needs were to be met in part "by using reserve manpower (manpower theretofore used in non-essential enterprises, women, etc.)", and by making "every change of working place and every hiring of workers dependent upon the consent of the Labor Office" (EC-258)., The foregoing measures, it should be noted, are merely representative; they are not exhaustive. But enough appears to make it abundantly clear that Schacht's contribution, by any standard was an extraordinarily important one. Enough appears, moreover, to give particular emphasis to the following observations of [Page 751] the Honorable George S. Messersmith, United States Consul General in Berlin from 1930 to 1934: "It was his [Schacht's] financial ability that enabled the Nazi regime in the early days to find the financial basis for the tremendous armament program and which made it possible to carry it through. If it had not been for his efforts, and this is not a personal observation of mine only but I believe was shared and is shared by every observer at the time, the Nazi regime would have been unable to maintain itself in power and to establish its control over Germany, much less to create the enormous war machine which was necessary for its objectives in Europe and later throughout the world. "The increased industrial activity in Germany incident to rearmament made great imports of raw materials necessary while at the same time exports were decreasing. Yet by Schacht's resourcefulness, his complete financial ruthlessness, and his absolute cynicism, Schacht was able to maintain and to establish the situation for the Nazis. Unquestionably without this complete lending of his capacities to the Nazi Government and all of its ambitions, it would have been impossible for Hitler and the Nazis to develop an Armed Force sufficient to permit Germany to launch an aggressive war." (EC-451).
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