A neo-Nazi told me Hitler backed Germany's currency with German labour, and that is what fuelled the Third Reich's rise. How true is This?

by [deleted]

[deleted]

kieslowskifan

Not surprisingly, a neonazi has no idea what they are talking about.

The stability of the Reichsmark under Hitler is not all that surprising because the Third Reich adapted various schemes to ensure their massive rearmament did not cause hyperinflation. Some of this involved bartering with other countries for strategic raw materials with finished goods, usually weapons, in lieu of hard currency. Another stratagem was to pay for rearmament under a shell company. The president of the Reichsbank Hjalmar Schacht set up the Metallurgische Forschungsgesellschaft (Metallurgical Research Corporation) which would be backed up the the Reichsbank. The government then use MEFO bills to pay armaments firms for their goods, which the firms then kept for their high rates of interest. The MEFOs were a form of IOUs that kept the German government technically solvent and obscured the true level of the deficit the Third Reich was holding. The Reichsbank was loaning money to the government at an extravagant rate but keeping everything under the table through a shell corporation. Wages and price freezes in 1936 further gave the illusion that there was a stability to the economic system.

The reality was this was an economic house of cards waiting to crash down. Schacht and even some of the armaments firms recognized this was an unsustainable policy over the long-term by the late 1930s. The MEFO bills might have been a short-term expedient, but the government was increasingly using them as a permanent solution. The Reichsbank issued a moratorium on the MEFO bills in early 1938, which prompted a major cash flow crisis within the Reich. This in turn led to a fall in the German stock market and raises in taxes. The aggressiveness of German expansion in this period was partly because of the knowledge that German finances were on such shaky ground. It also helps explain the atavistic predatory nature of German occupation as they rushed to seize the currencies and gold reserves of the countries they occupied. The parallel system of financing in the 1930s had left a massive hole in the Reich's economy and stealing other nations' wealth as well as that of Jews was one way to avoid reckoning with this fact.

In short, Nazi economic "planning" was not really planning, but a series of short-term expedients strung together past the point of rational sense. By avoiding inflation in the main currency, the Third Reich created a different set of economic problems that were even more damaging than inflation. It was fiscally reckless but also completely in line with Hitler's own poor understanding of economics.

Sources

Overy, R. J. The Nazi Economic Recovery 1932-1938. Cambridge: Cambridge University Press, 2003.

Tooze, Adam. The Wages of Destruction: The Making and Breaking of the Nazi Economy. London: Penguin, 2008.

King_of_Men

Your correspondent is probably thinking of this statement by Hitler:

We were not foolish enough to try to make a currency [backed by] gold of which we had none, but for every mark that was issued we required the equivalent of a mark's worth of work done or goods produced. . . we laugh at the time our national financiers held the view that the value of a currency is regulated by the gold and securities lying in the vaults of a state bank.

This refers to the program of public works, including the Autobahns, that Hitler started to try to fix the Depression. I find on the web a number of claims that, having no precious metals, the Nazi government issued one billion "Labour Treasury Certificates" and paid the public-projects workers in these, which then became a new currency; to say that they were "backed by" labour is clearly wrong, since they could not be taken to a bank and exchanged for a fixed amount of work, but one might say that they were "based on" labour. However, all the sources I can find talking about this scheme are, honestly, somewhat dodgy websites (except for the ones saying that there's no evidence of any such paper being issued), and they all seem to use exactly the same wording, especially this phrase:

One billion non-inflationary bills of exchange

This suggests to me a single source that has been uncritically copied across the Web. I suspect that studying the "Labour Treasury Certificates" is more a question of recent conspiracy theory than of Nazi history.