Chapter One (From: ACCOUNT SETTLED, DR. HJALMAR SCHACHT, 1949)
IMPOTENT DEMOCRACY
IT was in 1923 that I gave up my position as principal
of the Darmstaedter und Nationalbank to take public
office as Reich’s Currency Controller. Colleagues reminded
me that twelve years before I had expressed the
wish to put my abilities at the service of the community.
But I had stressed that I should not wish to do so before I
was financially independent, for I never wanted to give up
my freedom of thought and action. I did not want to be a
dependent official but a creative collaborator.
Financial independence is a fundamental requisite for
any prominent statesman. The power to deprive a man of
his livelihood, or even only to put obstacles in the way of
his career or source of income, was one of the most common
forms of pressure applied by Hitler. Latent resistance
to the Hitler regime lasted a long time amongst the officials
of the old Civil Service of the Reich, but it was broken in
the end by such means. It ceased almost altogether when
judges and higher officials lost their traditional immunity
from dismissal. A statesman whose livelihood is dependent
on his salary inevitably finds himself involved in an internal
conflict when he observes that his own material interests,
and therefore those of his family, are threatened by
the loss of his official position as soon as his opinions and
convictions diverge from the official view. I was unwilling
ever to expose myself to such an eventuality. My freedom
of thought and conscience were never to be for hire.
It was a few years after the first world war, when Germany
was at the peak of the inflation period, that the
opportunity first arose for me to enter the service of the
State. By the autumn of 1923 the unrestricted depreciation
of the currency had reached such a pitch that it threatened
to break up the whole structure of Germany’s national
life. Wage-earners’ wives were in despair. ‘Whenever they
went out to buy food they were involved in a hopeless
struggle against the depreciation of the mark. The wages
of their menfolk ran through their fingers like water even
when, as was finally the case, they were paid daily. In this
extraordinarily difficult situation the authorities called
upon me to put a stop to the depreciation of the mark and
stabilise the currency. I did not turn a deaf ear to this
appeal. I gave up a profitable career and a safe position,
but my work was successful. I re-established Germany’s
currency. The German worker once again received a wage
with a stable purchasing power. The threat to social
stability was averted. For a while my name was in everyone’s
mouth, and the Democratic politicians thoroughly
exploited my success to bolster up their own policy.
However, in the long run no one who has anything to do
with money professionally can hope to remain popular.
You will find names like Wrangel and Roon in any German
history book, but you will usually look in vain for
names like Georg von Siemens or David Hansemann [Leading German bankers and financiers of the middle nineties—Trans.] .
And yet the work of von Siemens and Hansemann was no
less important than that of Wrangel and Roon. Oddly
enough, for the average citizen there is something very
mysterious and incomprehensible about finance. The
only thing about it which is quite clear to everyone is its
importance. The obvious essential is that money should retain its purchasing power. Above all, it must allow people
the chance to save, to put aside wealth for future use. It
must therefore maintain its value in relation to all other
commodities. The greater the number of people who, in
the course of historical development, are excluded from
the possession of landed property, the more important it is
that the value of money should remain stable, because only
then can they store up the product of their labours and
preserve the property they have acquired. Money, in
short, must retain its value; it must be sterling.
That money is sometimes cheap and sometimes dear;
that it is worth more in our youth than in later years; that
the relation between the value of money and the value of
commodities changes constantly—these are problems
which are difficult for the average man to understand, and
he cannot protect himself without help against his ignorance.
During the terrible period of inflation after the first
world war the Reichsbank was overwhelmed with thousands
of suggestions, plans and schemes for stabilising the
currency. Engineers in particular were much to the fore.
For some reason or other the arithmetical nature of finance
seems to inspire the mathematically-minded, and their
efforts always tend in the one direction, towards the creation
of an automatically functioning solution operating
according to fixed mathematical rules. But the currency
problem is not a problem which can be solved according
to fixed rules. If it were, then perhaps a capable professor
of mathematics would be the best financier after all.
Monetary policy is not an exact science but an art. As such
it is a sphere which will always remain mysterious to the
man who is not capable of mastering that art, while appearing
simplicity itself to the man who is. The art
of monetary policy consists in keeping the relationship
between the value of money and the value of the other
commodities as steady as possible. Part of this art consists
in constantly observing and correctly judging not only the
movements of money but also the production and consumption
of other commodities. Therefore it is essential
that the financier should have a wide knowledge of national
and international economic affairs. This is all the more
necessary because economic conditions, costs of production,
etc., are constantly being changed by technical inventions
and new organisational measures.
The fact that I, of all people, who have always been
regarded as a representative of the individualistic economic
conception, should have been called in to assist a Social-
Democratic Government, was entirely due to the broad-
mindedness and enlightenment of Fritz Ebert, who was
at that time Reich’s President. ‘When I reminded him
before my appointment that I was not a Socialist, he
replied with a smile: “That’s quite beside the point. The
question is: do you think you can solve the problem?” He
was right: that was all that mattered. I replied in the
affirmative, and I am happy to say that under Ebert’s
gis the Social-Democratic Government of the day gave
me a completely free hand to carry through my stabilisation
policy. In later years, unfortunately, it seriously interfered
with my plans.
German Social Democracy had enjoyed its heyday in
the nineties under the leadership of Bebel, Wilhelm Liebknecht
and Voilmar. It had won great victories in the
political struggle. I believe that, on the whole, no other
working class throughout the world succeeded in achieving
such a high average standard of living as did the
German. The Social-Democratic leaders who followed the
great men of those earlier days were not of the same high
quality. Ebert was the only man amongst them who really
had the calibre of a statesman. Those who occupied the
leading positions around him were generally no more than
capable trade-union secretaries—such personally estimable
men as Otto Braun, Severing, Loebe, Hermann
Mueller and others. The much-praised talent of the Germans
for organisation, which was naturally shared by the
Social Democratic Party, has one great disadvantage, a tendency
towards excessive bureaucracy, a tendency which
spells death to all initiative. The original drive and vigour
of German Social Democracy was weakened by this flaw.
But everything depends on initiative, on the ability to
seize an opportunity, on vigorous action. All those currency
projects which embody new ideas and suggestions
for establishing automatically functioning principles are
fruitless. It is not a question of the percentage of gold or
bills behind the notes in circulation, or of note control, or
the discount rate, but simply and solely a matter of the
temperature and the pulse of economic life. In monetary
policy, just as in medical therapy, correct diagnosis is the
secret of successful treatment. All that is required after
that is vigour and determination in carrying out the
recovery plan.
In the inflation of 1923 there were three main measures
which were decisive to the stabilisation of the mark. They
were the abolition of private paper currency; the diminution
of the volume of legal means of payment; and the
credit bar.
As the volume of bank-notes officially issued by the
Reichsbank proved unable to keep pace with the rapid
rate of currency depreciation, and a shortage of notes
developed everywhere, both municipal administrations
and large-scale industrial undertakings began to print
their own paper money, which nominally had the same
value as the notes officially issued by the Reichsbank.
Naturally, this unofficial paper money depreciated at the
same rate as the official notes printed by the Reichsbank,
and the printing of such paper money thus proved a very
profitable business, since when it was issued its value was
considerably higher than when it was later redeemed. This
unofficial paper money was, of course, not legal tender,
but if economic life was not to break down altogether then
the banks, including the Reichsbank itself, had to accept
it in just the same way as they accepted the official notes.
Some firms ruthlessly exploited the situation by paying
in the biggest possible sums of the money they had themselves
printed to one branch of the Reichsbank whilst
drawing out an equivalent sum at a neighbouring branch
in official bank-notes, which were, of course, the only
legal tender and could therefore be used abroad, or, at
least, could be used abroad more readily than the unofficially
printed paper money. Director Schlitter of the
Deutsche Bank once gave me an illustration of the cynical
callousness with which this private printing of paper
money was carried on. Schlitter once went to a conference
with old August Thyssen, the iron and steel magnate, who
was as acquisitive as he was cunning. On the way Schlitter
brought the conversation round to the question of this
emergency currency and observed cautiously:
“Herr Thyssen, we have so much of your paper money
In hand; what’s really going to happen to it?”
At first Thyssen made no reply, but then after a while
when they were both about to get out of the car, he said:
“That’s an interesting point, Herr Schlitter: what is
going to happen to it?”
My first measure as Reich’s Currency Controller was
to issue instructions that no more of this emergency
currency was to be accepted by the Reichsbank. This
undermined the entire basis of the private issue of currency.
Notes which the Reichsbank refused to accept were
valueless. This first measure was quite sufficient to make
me very unpopular both with the municipalities and with
the large-scale industrial undertakings. For the latter the
fact that the blow was delivered by a man whom they
regarded as one of themselves, the Director of a big bank,
added insult to injury. I was practically mobbed. They
threatened me; they pleaded with me; they painted the
probable consequences in the most violent colours. But I
remained adamant. I was determined at all costs to put
an end to the misery of the great masses of Germany’s
working people and to guarantee them a stable wage once
more.
My second measure was directed against speculation in
foreign exchange. On November 20th, 1923, the Reichsbank
had let the exchange rate of the United States dollar
climb to 42 billion marks with the firm intention of maintaining
it at that level. However, private speculators continued
to buy dollars at an even higher rate. The groups
who indulged in this speculation did not believe that I
would succeed in keeping the exchange rate at its official
level, and so they merrily went on buying foreign exchange
on a rising market, paying up to 12 billion dollars ‘per
Termin’, which meant that at the end of the month the
dollars had to be paid for with legal tender, that is to say,
with Reichsbank notes. When settlement day came round
at the end of the month the dollar purchasers needed
marks from the Reichsbank to meet their commitments,
but the Reichsbank refused to give them Reichsbank
notes and handed out Rentenbank notes instead. This
Rentenbank had been established as an auxiliary institution
to assist in the stabilisation of the mark, and the notes
it issued did not have the character of official bank-notes.
In short, they were not normal legal tender. But naturally,
the foreign groups who had sold the dollars demanded payment
in money which was legal tender, and the German
dollar purchasers were now unable to comply. Nothing
remained for them but to sell their stores of foreign
currency to the Reichsbank which now secured dollars
which had been bought speculatively for as much as
iz billion marks at the official rate of 42 billion marks.
Speculators lost many millions on this unprofitable transaction.
Naturally, my unpopularity was greatly increased,
but the well-being of the great mass of the German people
meant more to me than the troubles of individual speculators.
The dollar rate of exchange, officially fixed by the
Reichsbank at 42 billion marks, had to be maintained at
all costs. I was not prepared to allow private speculation
to drive it up again. It was, in fact, held.
The third of the decisive measures adopted to put an
end to inflation came into operation at the beginning of
April, 1921.. Big business interests had once again used the
excessive credits they had asked for and obtained to start
hoarding foreign exchange. In order to make them realise
once and for all that they must subordinate their operations
to the monetary policy of the Reichsbank, I suddenly
barred all further credit against bills. In normal times
these bills were the usual means of obtaining credit from
the Reichsbank. It was unprecedented that the Reichsbank
should refuse to discount good commercial bills. When its
credit was called on to an excessive degree, that is to say,
when too many bills were presented, the Reichsbank
would merely raise the discount rate, and continue to
raise it, until the deduction was more than the bill holders
cared to pay and they preferred to do without the credit.
However, in times of currency depreciation such as we
had just experienced, this discount screw necessarily failed
to operate effectively. It did not matter in the least whether
the presenter of a bill had to pay io or i per cent
discount when within a few weeks, or even within a few
days, money itself would depreciate by 50 per cent and
even more. This was the reason why I did not have
recourse to the usual method of raising the discount rate,
but adopted instead the harsh but only really effective
means of blocking all credit. The measure was immediately
successful. To the extent that business interests
needed money they had to surrender their hoarded sums
of foreign exchange to the Reichsbank, and within the
space of two months equilibrium had been restored so
successfully that throughout my whole subsequent period
of office the mark remained stable. Big business interests
had been brought to realise not only that the Reichsbank
was stronger than they were, but that it was now determined
to use its strength vigorously whenever necessary.
All in all, this struggle with the speculators over the
rate of exchange lasted eight months. It was waged with
vigour and determination, and private interests were ruthlessly
ignored in the interests of the community as a
whole. My victory did not make me popular with the
private interests concerned, but it saved Germany from
the toils of inflation. Even the experts did not always
grasp my methods, which contradicted every classical
theory, and the great mass of the people naturally failed
to understand the significance of what was taking place.
Even to-day I still receive letters blaming me for the
currency depreciation which followed the first world war,
or abusing me for not having treated the old red-stamped
thousand-mark notes better than the later green-stamped
ones, and so on. It was in this period that the press first
dubbed me a ‘Financial Wizard’, because in money
matters in particular the simple and the natural is the most
difficult for people to grasp.
As long as I remained President of the Reichsbank,
whether under a democratic regime or under Hitler, Germany’s
currency remained stable no matter how great her
economic difficulties. It is true that I had to resign on
two occasions, but each time it was in face of a crisis
which had not been brought about by me, but against
which I had given repeated warnings, and which finally
occurred solely because my monetary and finance policy
was not carried out. The first crisis was due to excessive
borrowings abroad by the democratic regime, and the second
to excessive Government expenditure under Hitler. The
indictment at the Nuremburg proceedings charged me with
having resigned my position as President of the Reichsbank
under Hitler in order to evade my responsibility.
The reproach is perfectly justified, but ought not to be a
reproach. A man can be responsible only for things which
are within his control. That was not the case with me
either in 1930 when I resigned, or in 1939 when I resigned
again under Hitler. On each of those occasions official
policy worked against me and against the currency. If I
had consented to tolerate that I should have deserved
reproach. As all my previous warnings had been ignored,
nothing remained open to me but to emphasise them by
my resignation. My opposition to the policy of the
government was in vain; I had to give way to higher
powers.
By the peace terms dictated at Versailles and by the
subsequent so-called Dawes Plan, Germany was burdened
with an obligation to pay milliards of marks annually to
her former enemies. These payments were to be made
not in marks but in foreign exchange. However, the only
way in which Germany could obtain foreign exchange
was through her export trade. Now a very considerable
portion of her export revenue was paid out again to obtain
the foodstuffs and raw materials she needed. In view of
the difficulties placed in the way of Germany’s export
trade by other countries export revenue was hardly
sufficient to make the necessary purchases of foodstuffs
and raw materials, and it was certainly not sufficient to
pay the milliards required for reparations as well. The
German democratic governments in the second half of the
twenties thought they could gain time if they took up
credits abroad to pay the milliards of marks required for
reparations and essential imports of foodstuffs and raw
materials, and therefore they had recourse to constant borrowings.
Not only the individual Laender and municipalities,
but also private firms were encouraged by the
government to take up loans abroad. With these foreign
loans, which were naturally made in foreign exchange,
Germany’s democratic governments paid the milliards of
marks required annually for reparations account, and also
for such imports as could not be paid for from export
revenues.
In those years loans poured into Germany like a flood,
and it was perhaps inevitable that they were not always
used for purchasing only essential imports, and that in
fact many non-essential things were imported. Now this
operated against the over-riding necessity for economy
which should still have been the chief principle of Germany’s
economic system and, in addition, the importation
of these non-essential goods unfavourably affected the
interests of her own manufacturing industries. In the six
years from i 924 to 1930 Germany borrowed as much
from abroad as the United States had borrowed in the
forty years before the first world war. If this foreign money
had come into Germany in the form of long-term capital
investments there would have been much less objection to
the process. But in the form of credit, and particularly in
the form of short-term credit, this indebtedness was a
constant danger. Foreign exchange had now to be obtained
not only to pay for essential imports of foodstuffs
and raw materials and to pay reparations, but also to make
interest and amortisation payments on these foreign loans
and credits. Germany’s export industries were unable to
shoulder such a burden because they could not find
adequate markets abroad.
From i 924 onwards I constantly opposed the taking of
foreign credit and the acceptance of foreign loans, and I
did so not only confidentially in my official relations with
governmental circles, but also publicly. Of course, all the
immediate beneficiaries of these loans, the industrialists,
the municipal administrations, the Laender governments
and the Reich’s Government itself, were against me.
Democratic governments were unable to make up their
minds to give up this system of borrowing, because it
brought temporary relief. They could not, or would not,
see that in the end it must inevitably lead to financial
collapse.
As late as May 27th, 1930, just a year before Germany
broke down financially under the burden of her foreign
indebtedness, Tarnow, the official spokesman of the parliamentary
Social Democratic Party, declared: “Above all,
the strangling of the municipalities in the matter of
foreign credits was a mistake.” Later on the leader of the
Centre (Catholic) Party, Bruening, adopted a more reasonable
attitude. Addressing the Reichstag as Reich’s Chancellor
on October i3th, 1931, he declared that in previous
years there had been an inflation of credit from abroad
which had turned men’s heads, thrown a smoke screen
over everything, and led to a growth of public and private
indebtedness which the German people must now reduce
at all costs. Referring to something I had said two days
before in a speech at the meeting of the so-called ‘Harzburger
Front’, Bruening added: “One of the gentlemen
who was in Harzburg has told us before that we have built
up our economic system to a great extent on short-term
borrowed money.” Unfortunately this clarity of vision
was given to the Centre Party too late. Just a year before
this session of the Reichstag, Bruening had himself taken
up an American loan of 125 million dollars, or 500 million
Reich’s marks, to be paid back in three annual instalments,
although even then it was clear that this would be impossible.
As on many other occasions, I once again expressed my
views before the Commission of Inquiry into the monetary
and credit system appointed by the Reichstag in the
autumn of 1926, when I made the following remarks concerning
the question of foreign credits: “The primary
result of the present great volume of foreign credit is a
steady increase in the annual total of interest and amortisation
payments which burdens our economic system; that
is to say, our balance of payments, which looks extremely
favourable at the moment owing to the great influx of
foreign capital, must grow steadily worse throughout the
coming years, when we shall be called upon to make
interest and amortisation payments abroad. Economically
speaking the position is that the borrowers, whether they
are individual industrialists, limited liability companies,
municipalities, or even the Reich itself have contracted
debts abroad without being in a position to meet the
annual payments in foreign exchange from their own
resources, and in fact they have done so in the hope that
at the crucial moment the German economic system
as a whole will provide them with the foreign exchange
necessary to make these interest and amortisation payments.
This is a hope and an expectation which must,
of course, prove completely illusory, for if we are not
to—day in a position to provide the requisite foreign
payments from our own economic resources in the form
of foreign exchange obtained from our export surplus
and our foreign earnings, then it is naturally quite out
of the question that we shall be able to do so in the
future.”
Laymen are not always able to understand such complexities
because they think: money is money. The reparation
burden imposed on Germany seriously raised the
so-called transfer problem for the first time in modern
history: the problem, that is to say, of turning the money
of one country into the money of another. The characteristic
of foreign money is that it can only be spent abroad.
With an American dollar you can buy things only in the
United States and nowhere else. Of course, the layman
will immediately retort that he can always find someone
in Germany to take his dollar, and that is true, but he does
not realise that in the last resort his dollar will be accepted
only by people who have something to pay for in the
United States. All the banks and agents who buy dollars
in Germany are only middle men acting for those who
receive dollars from the United States and those who need
dollars to pay for goods, or meet debts, in the United
States.
I concluded my remarks before the Commission of
Inquiry with the words: “In consequence, for the past
two and a half years the Reichsbank has drawn the attention
of business interests to the danger of unlimited
foreign credits.” In the years which followed I repeated
this warning every few months, not only to the government
but publicly. I pointed out again and again that a
highly-developed industrial country with a powerful productive
machine did not need foreign credits at all except
to obtain such raw materials for its industries and such
foodstuffs for its people as were not produced, or not
produced in sufficient quantities, at home, and that these
foreign credits must not exceed the sum of foreign exchange
obtained by its export trade. Normally speaking,
all highly-developed industrial countries provide money
for the granting of credits abroad, and they do not take
money on credit from abroad except for the limited
purposes I have described. This form of foreign credit
must always cancel itself out in short-term industrial
export turnover.
Unfortunately my warnings were not heeded by Germany’s
business interests, her municipalities, or her government.
The system of lavish borrowing was so convenient
that I was roundly condemned for attempting to
disturb it. And yet anyone could calculate with the greatest
ease the moment when this foreign-loan system must break
down. The borrowed money was used in part for reparations
payments, and in part for the purchase of foreign goods.
Germany’s export revenues were not large enough to meet
all her foreign commitments. The financial expert could
therefore see the day coming with certainty when foreign
capitalists would finally realise the truth of the matter and
the influx of foreign credit would cease. The German
debtor, lacking sufficient commodity exports, would then
begin to sell the German mark abroad in order to meet
his foreign indebtedness. And that would inevitably lead
to currency depreciation. The stability of the mark was
once again at stake, and it was the German government
which endangered it.
The dependence of Germany’s currency on foreign
countries and on the mistaken financial policy of her
democratic governments made the question of foreign
credits the centre of Reichsbank policy again and again
and led to constant conflicts between the Reichsbank and
the government. Finally, in the summer of 1929 the
Reichsbank openly opposed a project for the floating of a
Reich’s loan through an American banking house. A few
months later there was again an open conflict on the same
matter and this, taken together with my objection to a
falsification of the Young Plan which the Reich’s Government
had consented to, led me to tender my resignation.
In left-wing political circles my resistance to this tinkering
with the Young Plan was looked on with a very
jaundiced eye, and my resignation from the government
of the day was condemned as a betrayal of democracy.
It is therefore necessary to repeat the official declaration
of the Reich’s Government on the matter. On March 7th,
1930, the Reich’s Finance Minister Moldenhauer declared
in the Reichstag: “All negotiations with Schacht were
conducted in a thoroughly friendly spirit, and I personally
have never had any serious dispute with him . . . Dr.
Schacht is taking this step because he no longer feels able
to take responsibility for the Young Plan. No one can deny
that in doing so he is causing the government a certain
embarrassment at the moment. . . I regret his resignation,
but I recognise that he has chosen the path that a man in
his situation had to choose.”
Foreign credits contributed not a little to the growth
of unemployment in Germany. As the money obtained
by means of these loans could be used only for the purchase
of foreign goods it meant that many home producers
of such goods were put out of business. Germany’s purchasing
power was certainly increased for the time being
by these loans, but only abroad, and not at home. The
short-sightedness of such a policy was almost incredible.
For a long time, too, foreign countries failed to grasp
the essentials of the situation. Without going any further
into the matter they relied on Germany’s sense of responsibility.
Even at the so-called Young Conference in Paris in
the summer of 1929 the general tendency was still to make
Germany ‘credit-worthy’, and this, of course, though it
made a continuation of reparations payments possible for
a while, in the long run still further increased her burden.
And even at the second conference at The Hague at the
beginning of 1930 the proposed Young Loan was coupled
with a railway and postal loan for the Reich, which meant
a continuation of the foreign-loan system. In the meantime,
however, both bankers and the general public had
become distrustful, particularly as the main condition of
the Young Plan—that it should be accepted or rejected
as a whole and none of its parts rejected separately—was
ignored by the Conference. The Young Loan turned out
to be an unqualified financial failure for the bank consortium
which floated it.
As the whole foreign-credit policy was outside my
sphere of influence, and as all my attempts to persuade
the government to abandon the policy of taking up foreign
loans proved unsuccessful, nothing remained for me to
do but to resign my position as President of the Reichsbank.
I had constantly warned both Germany and foreign
countries, and I was now unwilling and unable to take
any responsibility for measures over which I had no
influence and which undermined the basis of my own
currency policy. The same conflict between government
policy and Reichsbank policy arose again in 1938 under
Hitler and also led to my resignation. I resigned my
position as President of the Reichsbank in March, 1930,
and the expected financial collapse took place in the
summer of 1931.
Even at that time I had not confined myself merely to
seeking to influence my own government, but I had constantly
sought to convince foreign governmental circles
that it was impossible for Germany to pay reparations in
foreign exchange. Now that I was free of all official
restrictions I took up the struggle against the burden of
reparations with redoubled zeal. In the years after my
first resignation from the position of President of the
Reichsbank up to the time when I again accepted the
position I wrote many articles on the reparations problem
and delivered numerous speeches and lectures, not only
in Germany but in other countries, including Switzerland,
Denmark, Sweden, Roumania, Italy, and the United
States. In particular, in the autunm of 1930 I toured the
United States and delivered fifty lectures in an endeavour
to drive home the insolubility of the reparations problem.
In consequence, in June, 1931, President Hoover succeeded
in putting through a one-year moratorium for
reparations payments, and this was followed in July, 1932,
by the Lausanne Agreement, as a result of which reparations
were practically abolished.
Later on Hitler tried to denigrate this Lausanne Agreement,
but he made false statements and gave inaccurate
figures. The Lausanne Agreement between Germany and
the reparations powers provided for the complete abolition
of all reparations obligations with the exception of a
reserved sum of three milliard marks. When one considers
that Germany’s reparations obligations under the Versailles
Treaty amounted to 120 milliard marks, and that
even the Dawes and Young Plans provided for the payment
of approximately two milliard marks annually for
more than a generation, one can estimate the great progress
represented by the Lausanne Agreement towards a
solution of the reparations problem. Even the final sum
of three milliard marks existed only on paper and there
was no likelihood of its ever being translated into reality,
since a condition of payment was that the international
money market should be prepared to grant Germany a
loan of the same amount. No one in Lausanne supposed
that there would ever be any prospect of this. The agreement
included the whole provision merely in order, as
the Chinese say, to save the face of the reparations powers.
Their representatives were unwilling to return home completely
empty-handed. In any case, the fact which must
be placed on record is that the reparations problem was
settled before Hitler came to power. It was the first
diplomatic success of a German government before Hitler,
but it came too late. The writ for new Reichstag elections
had already been issued and shortly after the signing of
the Lausanne Agreement the General Election resulted
in a decisive victory for Hitler, giving him 230 seats in
the new Reichstag.
Just as the democratic governments showed no understanding
for my struggle against the acceptance of foreign
loans, so they showed none for my struggle against reparations.
Even during the Young Conference in the summer
of 1929 the government repeatedly left me and my collaborators
in the lurch. After I had signed the Young
Plan the government knowingly and deliberately left me
in complete ignorance of certain concessions which had
been made to the former enemy powers contrary to the
provisions of the Young Plan. When in New York in
October, 1930, I announced for the first time that the
continued payment of reparations would in all probability
soon become impossible, the Reich’s Government promptly
issued a public disavowal. And when in March, 1931, a
journalist in Stockholm asked me what I would do if I
became Reich’s Chancellor the next day and I answered
that my first action would be to stop the payment of
reparations, I was once again promptly and publicly
rebuked by the German Government.
I quote only these few examples. They show that the
democratic governments neither understood the situation
nor had the courage and determination to act. In the
meantime Germany’s economic situation deteriorated
rapidly. Within three months of my declaration in Stockholm,
Hoover took the initiative and proclaimed a one-
year reparations moratorium. Unemployment figures rose
higher and higher and increasingly burdened the Reich’s
budget, whilst at the same time, in consequence of the
decline of production, government revenue from taxation
steadily decreased. Reich’s Chancellor Bruening began to
reduce government expenditure ruthlessly. Wages and
salaries were cut. During the year 1932 the official unemployment
figure topped the six million mark. In 1932 the
average stock-exchange quotation for Reich and Laender
loans sank to 63 per cent, and for municipal loans actually
as low as 51 per cent. Within the short space of five years
world foreign trade suffered the same fate as Germany’s
foreign trade and declined to one-third of the record
volume of 1929. After the financial collapse in the summer
of 1931 Germany’s currency had to be artificially maintained
by means of a moratorium for foreign payments.
In reality it had ceased to function internationally at all.
The fact that Germany’s democratic governments had
shown themselves completely helpless in face of this
development, was the cause of Hitler’s unparalleled
electoral victory in July, 1932. Democratic governments
had not succeeded in bringing about any economic
recovery at home and they were unable to secure aid, or
even encouragement, from abroad. The Hoover moratorium,
which, incidentally, also came much too late, was
merely the confirmation of an already existing fact. Is it
therefore surprising that the German people sank deeper
and deeper into despair? In the end there were six and
a half million unemployed. That meant that in the industrial
districts every third, and often every second family,
had no income and was dependent on State support.
Material standards were depressed to a very low level,
and spiritual apathy set in. Men and women lost their
dignity as human beings and all confidence in themselves
as individuals. A political movement which promised to
show the way out of such a material and spiritual impasse
was sure of a tremendous following. On the other hand,
a Democracy which could offer no way out, despite the
fact that it had full power, was committing political
suicide.
The first indication of this became evident at the
Reichstag elections in September 1930. The small parliamentary
National Socialist Party in the Reichstag suddenly
jumped from 12 to io8 members. It may seem astonishing
that it was National Socialism and not Communism which
profited chiefly by the situation but this was due to the
basic sound common sense of the German people even
in their direst need. It should be recalled that National
Socialism first appeared on the political scene as a right-
wing radical movement, and it was only many years later
that the party betrayed its original programme. It was not
so much that the electors unconsciously preferred the
national standpoint to the international; they were primarily
attracted by the support given to religion, the
maintenance of property, the encouragement of private
enterprise and the emphasis on personal values. Communism,
on the other hand, wanted to remove religion from
the sphere of government, and its general attitude towards
personality, family and property ran counter to the natural
feelings of the German people. When National Socialism
announced: ‘We take our stand on the basis of positive
Christianity’, that naturally sounded more attractive in
the ears of the German people than the Communist slogan
‘Religion is a private matter’. Karl Mueller hits the nail
on the head in the introduction to his church history when
he writes: “From the dawn of history religion has not
been merely the private affair of the individual or the
family, but the affair of the whole people and the State
as well. The well-being of all classes of the community
depends on the right religion, and thus the whole of life
in all its stages, in all its regular phases and unusual
occurrences, in all its joy and happiness, its sorrows and
sufferings, is imbued with and enshrined in religious
customs and usages. All culture, both material and
spiritual, is indissolubly connected with religion.” Hitler
saw this more clearly than his Communist opponents, and
he used it to his own advantage. It was only much later
that his attitude in this respect was seen to be equally
fraudulent, but in the meantime he profited from the
deception.
When I returned from my United States tour at the
beginning of December, 1930, a friend of mine, the bank
director, Herr von Stauss, invited me to come to his house
to meet Goering, and I went. About four weeks later I
also accepted an invitation from Goering to come to his
house to meet Hitler, for I felt a very understandable
desire to have a closer look at the man who had succeeded
in creating such a striking political movement in so short
a space of time.
At that time Goering was living in a moderate-sized
flat in the Schoneberg quarter of Berlin, furnished in solid
German middle-class fashion. Frau Goering, his first wife,
who provided us with a simple evening meal, made a very
good impression on me. Unfortunately she suffered from
serious heart trouble. Hitler arrived only after the meal
was over. Apart from myself and my wife there was only
one other guest present, and that was Fritz Thyssen. The
talk consisted of a two-hour speech by Hitler, but it
contained nothing calculated to shock us. Everything he
said revolved around the two points which were closest
to the heart of all Germans, namely the recovery of
political equality with foreign nations, and the problem of
how to provide the six and a half million unemployed
with work. The first problem could be solved only by
building up a German army big enough to protect us from
violent political invasions such as the occupation of the
Ruhr, and to ward off new threats. For the moment a
beginning could be made with the solution of the second
problem only by government intervention, that is to say,
by building roads, erecting houses, reclaiming barren land
and so on, as well as by the work involved in re-armament.
It was a programme such as any political party in Germany
might have adopted. Even Social Democracy had always
been in favour of a defensive force. At the Nuremberg
Trials the former Reich’s Minister of the Interior, Carl
Severing, had to admit that the disarmament clauses of
the Versailles Treaty had first been violated as early on
as 1933, and that with the approval of the Social Democratic
Government of the day.
Hitler’s whole speech showed that there was no question
of any particularly new ideas or proposals, but merely of
the will and the determination to act. His remarks contained
nothing fundamentally new or revolutionary, but
they did indicate the will to take action. Outwardly both
Hitler and Goering were simple and restrained. There
was nothing at all to indicate that one day Goering’s
ambition would run to entertaining scores of guests with
the finest and choicest foods served up on golden dishes
instead of giving them pea-soup on ordinary plates.
Nothing that I heard at this meeting remotely tempted
me to join Hitler’s party. Apart from the vigour of its
propaganda there was nothing new in it, and that did not
constitute a programme. Certainly, the effect of this propagandistic
vigour on the great mass of the electorate was
not to be under-estimated. An examination of Hitler’s
party programme showed that most of its demands could
readily be accepted by any party. But cannot as much be
said of most political programmes? All of them say they
want the best for the greatest possible number. There
was even a certain spiritual poverty visible in the National
Socialist programme. For instance, economic problems
were treated very sketchily. ‘Public interest goes before
private interest’, and ‘The breaking of interest slavery’,
two simple slogans, almost exhausted the economic part
of the programme. Neither was of any real significance
but each had a tremendous emotional appeal. Anyone
could attach what meaning he liked to them. Their
attitude to the Jewish question was undoubtedly extravagant,
but on the other hand the student of the party
programme was soothed by the assurance that Jews were
to be granted the same legal rights and guarantees as
foreigners, and were to be allowed to go into business,
practise as doctors, work as teachers, manage landed
estate and so on. There was nothing in the programme, or
in any other manifestos of the Party, to indicate that later
on the Jews would be denied all such rights. On the
contrary, such a violation of legal principles seemed to be
in flagrant contradiction to the party programme. There
was also no indication whatever in the programme of any
extension of German rule to non-German territory. All
that was mentioned was the question of Germany’s
colonies.
Hitler’s book Mein Kampf was in a different category
from the party programme. It was not an official party
document but a militant propaganda piece. It was only
after Hitler’s accession to power that the book enjoyed
such enormous sales, thanks largely to official encouragement.
Prior to that, its circulation had not been very great.
For popular mass propaganda the style of the book is
much too ponderous, quite apart from the fact that one
can only regard it as an assault on the German language.
Hardly ten per cent of those who owned a copy of this
book can even have read it, much less have understood it.
However, the title of the book, its size and the comprehensive
nature of its table of contents conveyed the
impression to the masses that here was a keen brain
confronting and analysing major social and political
problems and presenting well-founded conclusions. The
ignorant and the uneducated were not in a position to
recognize the semi-literacy of it all.
What remained with me as a permanent impression
from the evening spent with Hitler, was some conception
of the temperament of the man, and this enabled me to
understand the growth of the National Socialist movement
better than I could have done merely from the existing
economic and political circumstances. This Hitler had an
infectious élan and a vigorous determination which, if once
it could be exercised from the seats of the mighty, would
not waste much time with theoretical considerations, but
would get down to practical action at once. Unless the
democratic governments themselves took vigorous action,
then Hitler’s strength as an agitator was bound to tell.
The only action I took as a result of my meeting with
Hitler was to go to Reich’s Chancellor Bruening and give
it as my opinion that as the National Socialists were
already the second strongest party in the Reichstag, he
should take them into the government and introduce
them to the practical tasks and responsibilities of governing.
From what Hitler had said at our meeting I had no
doubt that at that time, the beginning of 1931, he would
have been prepared to enter the government. But it was
impossible to persuade Bruening to take action. It was a
full year before he began to see reason, and then it was
too late. By that time Hitler’s following had grown so tremendously
that he was no longer willing to play second
fiddle. In Nuremberg the former Reich’s Finance
Minister von Krosigk gave evidence to the effect that in
the spring of 1932 Bruening had observed that it was time
the National Socialists were introduced to the responsibilities
of government; they could not be left in the
opposition for ever. My suggestion along the same lines
in March 1931 was turned down by Bruening. He was
always too late.
Thus nothing remained for me to do but wait. I did
not enter into any closer relations with Hitler or Goering.
I remained aloof from the party, though from time to
time I made the acquaintance of this or that party member.
I never had a very high regard for party politics. Even as
a young man, at the age of twenty-six and later, I
repeatedly refused safe Reichstag seats, and when I
helped to found the Democratic Party in 1919, I still
refused a seat in parliament.
The economic situation of Germany had not been
improved by the after effects of the financial collapse in
the summer of 1931. Again and again, hopes of diplomatic
success had to be postponed. Certain conservative circles
exploited this situation to bring the Reich’s Chancellor
into discredit with the Reich’s President, and at the end
of May 1932, Bruening was forced to resign. During the
financial crisis he had once again approached me for
advice. It was the collapse of the policy of foreign
borrowing, that I had foreseen and prophesied, which
brought about the financial crisis. In the autumn of 1930
Bruening once again succeeded in obtaining a dollar loan
of 125 million dollars, or 500 million marks, from the
United States, and with this sum he hoped to be able
to counter the effects of the great increase in the National
Sodalist poll. I was in the United States at the time and
I heard there of the successful conclusion of the negotiations
for the loan, of which I had been told nothing while
I was in Germany. I found myself in the embarrassing
situation which confronts every man who opposes the
policy of his own government and goes abroad: should I
publicly declare my opposition to the action of my
government or not? Where was the dividing line between
a true concern for the well-being of my country and a
form of high treason? It was a problem which later
frequently troubled my allies in the resistance to Hitler.
The leading spirit in the loan consortium, who was a
personal friend of mine, naturally asked me whether I
thought the loan was a wise and sound piece of business.
All I could answer was: “As far as its soundness is
concerned, I believe that one day you will see your money
again, but perhaps the maturity dates will have to be
altered. As for the wisdom of the matter, all political
loans strike me as questionable.”
That was the last foreign loan Germany received. Six
months later the Oesterreichische Kreditanstalt in Vienna
collapsed, and foreign creditors then realised that their
German investments were in danger. Long-term loans
could not, of course, be cancelled, but over and above
these loans there were a great number of current short-
term credits. Wherever possible notice was now given to
end these credits, and when they fell due they were not
renewed. German debtors thereupon approached the
Reichsbank with big demands for foreign exchange in
order to meet their obligations. They had plenty of
German money at their disposal, so they were by no
means bankrupt, but the Reichsbank now had to sacrifice
its gold and foreign exchange. When I resigned my
position as President of the Reichsbank in the spring of
1930 I left behind no less than three milliard marks in
gold and foreign exchange. That was considerably more
than the Reichsbank had ever held even before the first
world war. This fund was now tapped for their benefit
and it began to melt away like snow in the sun.
The Governors of the Reichsbank, with Luther at
their head, believed that the best way to stop a run on
the Treasury was to pay out promptly, but they overlooked
the fact that what might well be true of inland
payments was not true of foreign payments. At home the
bank-note presses could pile up an inexhaustible reserve
to meet whatever payments might become necessary,
but where foreign demands were concerned the Reichsbank
had only a limited reserve of foreign exchange at
its disposal, and, in addition, its size was publicly recorded
every week in the official statement of the Reichsbank.
In this way foreign creditors could readily follow the
weekly diminution of Germany’s foreign-exchange resources
and calculate for themselves just how long it
would be before they were exhausted. The result was a
real run because all Germany’s creditors were anxious to
get their money back as quickly as possible before the
reserves were exhausted. No one wanted to be too late
and have to go away empty handed. Everyone raced like
mad to get out of the trap before its jaws closed.
A statement of the Reich’s Statistical Office shows the
magnitude of the demands made by foreign creditors
which the Reichsbank had to meet. For the end of September
1930, the statement gives a total short-term credit
figure owed by Germany to foreign countries of between
io8 and ii 8 milliard marks, of which 83 milliard marks
were due from banks alone. Gold and foreign-exchange
reserves totalling three milliard marks in the hands of the
Reichsbank did not mean much compared with such an
enormous volume of short-term indebtedness at a time
of tottering confidence.
It would have been wise and just to do voluntarily and
in good time what could easily be foreseen as inevitable,
namely to stop all repayments. It would have been wise
because to deprive the Reichsbank of all its gold and
foreign exchange was a great threat to the currency, and
it would have been just because as things stood creditors
whose demands happened to mature earlier were unfairly
favoured at the expense of those whose demands matured
later. The devil, as the proverb says, takes the hindmost.
At a conference which took place on June 3rd, 1931, at the
Weisser Hirsch in Dresden I publicly suggested that this
sort of thing should be prevented, but the Reichsbank
ignored my advice.
The Darmstaedter und Nationalbank, the so-called
Danatbank, was more heavily involved in this business
than any other German bank, and as it had invested the
proceeds in German assets which were not readily convertible,
it not only lacked foreign exchange, but was
unable even to raise sufficient German money to buy the
foreign exchange it needed to meet its foreign liabilities.
In the middle of July, 1931, it suspended payments. It
was in this situation that I was summoned by Bruening.
I took part in a stormy session under Bruening’s chairmanship
at which the representatives of the various
Ministries engaged in confused and hopeless debates. In
vain I strove to persuade them to accept my view that
the Danatbank should be left to go into liquidation and
that its big creditors should recoup themselves as far as
they were able from its assets at the risk of receiving less
than twenty shillings in the pound, whilst small depositors
should have their claims met in full up to a maximum of
approximately xo,ooo marks each either by a bank consortium
or by the State.
Whenever such cases arose, I have always maintained
that a large-scale capitalist, and, in fact, any large-scale
creditor, ought to know for himself how to invest his
money, and where to invest it, and that he should therefore
be left to take the consequences. Small creditors, on the
other hand, are often ignorant and therefore their interests
require special protection. Such cases should be judged
less from a legal than from a social standpoint. I took the
same attitude in 1924, after the inflation, when the
question of revalorizing mortgage deeds and debentures
was under discussion. I was opposed to a formalistic
revalorization according to abstract principles, and in
favour of giving priority to the claims of socially weaker
elements. My social ideas were rejected then just as they
were rejected once again in the case of the Danatbank,
whose troubles were largely of its own making. At the
expense of the community, big creditors received the
same proportion as small creditors and a new leaden
weight was added to the crushing burden Germany
already had to carry.
This new experience naturally did not increase my
willingness to co-operate in the carrying out of such a
policy and I therefore refused Bruening’s appeal to me to
accept the Herculean task of cleaning up this Augean
stable. I refused to change my mind even when Reich’s
President Hindenburg sent Meissner [ ‘Staatssekretar’, Meissner’s official German title, is not the
equivalent of our ‘Secretary of State’; it signifies rather the Head
of a Department .—Trans.], the Chief of his
Presidial Chancellory, to try and persuade me. I pointed
out that the Reichsbank was the appropriate body for
carrying out such a task and that it would be wrong to create two overlapping authorities. My real reason was
that I had no desire to carry out decisions which had been
adopted against my advice.
