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-
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:
"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 ) .
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