1933, Berlin is hit hard by the global great depression. With 30% of the German working age population unemployed, soup kitchen lines like this are everywhere. Fast forward to Berlin in 1939. It’s Hitler’s birthday. Unemployment is close to 0%, the soup kitchens are gone and instead we see Hitler’s new army with thousands of state of the art tanks, howitzers, half-tracks and hundreds of modern fighters and bombers.
This army —that would soon humiliate the Belgian, Dutch, Nordic, Polish, British and French forces— had bee n built up from virtually nothing in 6 years, despite Germany’s limited access to crucial raw materials such as iron ore, rubber, and oil.
This seemingly impossible transformation, this ‘economic miracle’ that fueled such devastation, was not accidental. It was meticulously engineered by one man, Hjalmar Schacht.
A man who would earn the nickname ‘the Dark wizard of international finance’ due to his highly unorthodox tricks that allowed Nazi Germany to seemingly defy economic gravity.
So, how did he do it? And, what can we learn from the Nazi economic miracle today? In this video, I’ll tell you not just WHAT tricks Schacht used to rebuild to German economy, but also HOW this fundamentally reshaped global power AND why it’s economic situation pushed Germany to war. Finally, I’ll tell the story of how Hjalmar Schacht, who started out as a center left democrat ended up working for the Nazi’s, and why, despite his economic miracle, he ultimately ended up in a concentration camp.
This is:
The economic miracle that killed millions
To truly understand the Nazi economic miracle, we need to understand what came before it: Imperial Germany, the Great War, and the Weimar republic. This story starts in the early 20th century.
The British Empire is still the dominant global superpower. But, it increasingly found itself challenged by a new European powerhouse: imperial Germany, which was formed in 1871.
Just 6 years later, Hjalmar Schacht, son of a German merchant and Danish Baroness, was born in the north German state Schleswig-Holstein. An intelligent and rather ambitious man, he had a successful academic career, obtaining a PhD in economics from Kiel university. After that, he quickly moved up the ranks of Germany’s second largest bank, the Dresdner bank, to eventually become its vice director.
When the first world war started, Schacht, who was a nationalist, briefly served as a financial consultant to the German occupational forces in Belgium.
In early 1918, it looked like Germany could still win. However, the German war economy had a fatal weakness: a lack of natural resources necessary for war such as oil, rubber, and iron ore. Therefore, throughout the war, an Allied naval blockade seriously hurt the German war effort. The real problem however came when a series of bad harvest caused food shortages that could not be remedied by imports due to the Allied blockade.
As a consequence, the German people rebelled in 1918, overthrowing the German Kaiser. This was the end of Imperial Germany. The new German republic came to be known as the Weimar republic, named after the city where its constitution was drafted.
For Schacht, the end of the war meant a return to his civilian career as a German banker. Germany now being a democracy enabled Schacht to also dip his toes into politics, as he became a founding member of the center-left liberal party, the German Democratic Party. This party was later merged into the centrist [German People’s Party](https://en.wikipedia.org/wiki/German_Democratic_Party), which would eventually enlist Schacht to fight hyperinflation.
Indeed, today, most people know the Weimar republic from the famous Weimar hyperinflation of 1923, during which German money essentially became worthless, due to excessive money creation by the state. What is perhaps less well known though is that the German central bank, the Reichsbank, did not allow this to happen because they did not understand basic economics.
The real reason is the Weimar government would turn to the printing press is that it was facing two problems that were so big that they would ruin the German economy anyway.
The first was a so-called international balance of payment crisis. where the central bank runs out of foreign exchange reserves, such as gold or widely accepted currencies like the Dollar or Pound. In the early 1920s, the Reichsbank’s reserve dynamics worked as follows. First, the Reichsbank obtained foreign currency if Germany exported. Second, it gave foreign currency to importers on request. Finally, it would earn foreign currency on foreign investment and pay foreign currency to foreign investors or lenders.
Running out of reserves would be a death sentence to the German economy because then the Reichsbank could no longer help factories to import raw material to keep its industry running.
In the early 1920s, the Treaty of Versailles, which Weimar Germany had signed to end the war, created a severe balance of payments crisis in three ways. First, the treaty reduced export earnings, as the British seized the German merchant fleet, and French and Belgian troops occupied Germany’s industrial heartland, the Ruhr, where workers stopped working in protest. Second, the Versailles treaty increased Germany’s need to import, as Germany lost resource rich territories. Finally, worst of all, the treaty stipulated that Germany had to pay reparations in foreign currency to compensate for damages in Allied nations. These reparations were worth about 2.5% of Germany’s GDP, quickly depleting the reserves of the Reichsbank.
Conventional economics suggests that Germany could solve this problem in three ways.
The first is that it could theoretically export much more to earn reserves. However, in practice, this is a slow process as building a competitive export industry takes decades. Second, it could, in theory, default on its reparation payments. But, in practice, with Allied armies at its doorstep, and the German army in a sorry state, this was no option either. Therefore, there was just one practical option left: cut imports. This, however, is easier said than done because most imports are done by private citizens and firms, not the government. On top of that, cutting imports would be a disaster for Germany’s economy and exporters which relied on crucial raw material imports like iron ore, petroleum, rubber and other metals.
To make matters worse, the Weimar government had to deal with a second crisis: a massive war debt owed to the German people. While France had largely financed the war through increased taxes, the German Kaiser had done so by borrowing a lot from his citizens. The Weimar republic had gotten rid of the Kaiser, but not of his gigantic war debts.
Conventional economics tells us that the Weimar government now had two options to deal with this debt.
The first was extreme austerity, cutting back on government spending or raising taxes by a lot. The second option was defaulting on all of its debts and payments obligations. However, given that the previous government had just been overturned in a popular revolution, the Weimar government didn’t feel it could stop paying workers that were protesting against the Belgian and French occupation of the Ruhr industrial area.
So, the Weimar government turned to the printing press not because it didn’t understand basic economics. But, rather because it had no good option As anyone with a basic education in economics will tell you, rapidly creating money, while not creating a more productive economy at the same time, will lead to a rapid decline in the value of money: inflation.
However, newly printed money did help the Weimar government survive. Using newly created money to buy gold on international markets, allowed it to continue to pay reparations. Of course, every time it did this, the value of the German currency relative to gold would fall, increasing the cost of imports. Similarly, every time the Weimar government printed money to pay German workers who were not making products, this would cause prices for basic goods to rapidly increase. As a consequence, inflation got higher and higher, until it was so high that it was considered hyperinflation.
Hyperinflation made doing business in Germany very difficult indeed. But, it did keep unemployment relatively low as there was so much money sloshing around.
It also solved Germany’s second economic problem as in just a few years its massive war debt was inflated away. However, at the same time German savings and pensions were inflated away as well. Predictably, Germans were not happy. Therefore, in 1923, they voted in a new government, led by the German’s people party, which brough in an none other than Hjalmar Schacht to fix the German economy.
So, how did he do it? How did Schacht stop German hyperinflation?
First, Schacht prepared for a new currency to be introduced. This would get rid of a lot of zeros. However, it didn’t change the underlying economic situation. Since hyperinflation had already inflated away the local debt, Schacht only had to solve Germany’s balance of payments crisis which was mainly caused by reparations. As a central banker, he could not fix this by himself. So, with his allies in government, he negotiated the so-called Dawes plan, which reduced reparation payments till Germany’s economy recovered.
Without high debt and without the immediate threat of reparations, there was no more reason to print money. Inflation thus rapidly fell. And, as the economy stabilized, Germany became a very attractive country to invest in, especially for foreign investors. The investment boom that followed led to the so-called golden age of Weimar, in which Germany’s economy thrived.
However, below the surface, trouble was brewing. As Germany’s economy recovered its reparation payments increased. Luckily, due to the fact that foreign investments were bringing in so many new reserves, and that exports were booming thanks to a booming global economy, the German balance of payments was doing just fine in the 1920s.
Sadly, in 1929 when the US stock market collapsed, Germany was especially vulnerable for two reasons. First, Wall Street loans to Germany came to an abrupt end. Second, German exports also collapsed as the US and UK turned to protectionism to protect local jobs. Therefore, Weimar Germany was again facing a massive balance of payments crisis.
But, with the devastating consequences of hyperinflation still fresh in German memories, printing money was now not an option. Due to rising protectionism, increasing exports was also not an option. So, if the government wanted to avoid cutting crucial imports, which would devastate German industry, Schacht had to get a good deal on reparations. Sadly, he failed to get Germany the deal that he believed it needed. Therefore, in 1930, Hjalmar Schacht resigned as president of the Reichsbank.
With reparations draining Reic hsbank reserves, the next Weimar government now only had one option left: crashing the economy.
JOERI. But, hold on, this sounds strange doesn’t it. Why would a government deliberately crash its economy? Well, it’s simple. The government doesn’t directly control imports… but it can make people so poor that they can’t import much anymore. END JOERI
After all, the biggest importers are typically people and companies. A liberal government cannot control them directly. However, it can make them poorer, by crashing the economy through harsh austerity: raising taxes and cutting spending. The poorer the people, the less they import, the more reserves available to the central bank to pay.. in this case reparations and debts to Wall Street, London, Amsterdam and Zurich.
Of course, the downside of an engineered depression is not inflation, but rather massive unemployment and poverty.
This is why lines for soup kitchens became such a common sight in Berlin. Of course, if you impoverish voters, they won’t keep voting for you. Instead, they will go to parties that promise radical change, such as Germany’s communist party on the far-left and the Nazi party far-right.
One of those radicalized people was Hjalmar Schacht, who in 1931 appeared alongside Hitler at a far-right rally to criticize the Weimar government for their ‘spineless’ reparation policies.
Of course, the Weimar government realized that sky high unemployment was not politically sustainable. Therefore, it kept trying to solve the balance of payments crisis through negotiations with the Allies. And, believe it or not, in 1932, it actually succeeded, negotiating a 90% reduction of its reparations debt at the Lausanne conference. Meanwhile, to reboot its economy, the Weimar government made plans to soon start its first ‘work’ creation program, to get the nation working again. Slowly but surely, this seemed to be working, soup kitchen lines got shorter and shorter. And, in 1932, The Economist’s Berlin correspondent wrote that ‘for the first time for three or four years’, the German bourgeoisie could see ‘a glimmer of economic light’.
Yet, it was too little too late. In 1932 the Nazi’s became Germany’s biggest political party. And, after a lot of political maneuvering, they transformed Germany’s democracy into a dictatorship. Hitler was the new dictator, or Fuhrer, of Germany, and he brought in none other than Hjalmar Schacht to once again fix the German economy.
Chapter 2 1933 - 1936 Schacht’s economic miracle
As the new Reichsbank president and economy minister for the Nazi’s, Hjalmar Schacht faced three massive challenges.
The first was that he needed to get Germans working again. The second was that Hitler wanted a massive army. And, the third was that Germany still faced the same massive balance of payments problem that twice crashed the Weimar economy. The Reichsbank was bleeding 400 Million marks in foreign exchange reserves because Germans were importing 4.2 billions reichsmarks worth of goods and, while reparations w ere no more, Germany still had to pay 1 billion each year to service its debt to private investors in Wall Street, London, Amsterdam, and Zurich. Meanwhile, Germany’s exports only brough in 4.8 bn Reichsmarks in foreign exchange.
On top of that, the balance of payments crisis become worse if Schacht delivered on the first and second goals. After all, employed Germans import more than unemployed ones, and creating a massive army from scratch meant massively increasing natural resource imports.
Yet, as we can see here, in the streets of Berlin in 1939, Schacht got it done. The soup kitchens were gone. Almost all Germans were working. It’s economy was stronger than ever, and Hitler was parading around his brand new army. This army had thousands of modern tanks, built with tons of steel, smelted from tons of imported iron ore. This army had thousands of trucks and half-tracks, driving on tires that were made from imported rubber. This army had thousands of bombers and fighters, whose frames were made from imported aluminum. Finally, all of these mechanized machines were moving on billions of imported gallons of fuel.
On its own, Nazi Germany’s economic recovery was impressive, but not a miracle. The US performed about equally well.
On its own, Germany’s rearmament was impressive. But, not a miracle. Germany’s military production would eventually be eclipsed by its adversaries.
But, given that, unlike its adversaries, Germany had very few natural resources AND a history of massive balance of payments crises, I think it is fair to call Schacht’s combined achievement of his three objectives an economic miracle He got a a rapid economic recovery, a massive army build-up and no inflation or balance of payments crisis . So, what was his secret?
To get it done, Schacht used 8 highly unconventional economic tools that would earn him the nickname the dark wizard of international finance.
First, Schacht used a classic tool to get German workers, working again. Famously, US president Franklin D Roosevelt got the US out of the depression through his massive ‘new deal’ spending package, letting the government borrow to fund massive public works. In Nazi Germany, Schacht had a similar plan —called the Neue Plan— which is German for new plan. From the Weimar hyperinflation experience, we have seen that government money printing CAN be an extremely destructive force. However, all that money sloshing around meant that German unemployment was at its lowest during hyperinflation, close to zero.
More money in the economy equals more spending. More spending creates more job opportunities, which means more people that are producing stuff. Monetary theory teaches us that —if the supply of money increases at the same rate as production— there will be no inflation. Of course, in practice, it is incredibly difficult to get this fine balance right.
However, in 1933, the German economy was clearly underutilized. Unemployment was sky high. Factories were running at 50% capacity. So, when Schacht got into office, the solution was a no-brainer: just let the government borrow from its own citizens and spend more to activate all of these unused, idle resources. On the surface, the Neue plan was very similar to Roosevelt’s new deal. The Nazi’s just invested in a bunch of borrowed money in autobahn’s and other public works. That’s what they wanted the world to believe. In reality, this was only the case in 1933. After that, local government and central government civilian spending were largely replaced by a massive increase in military spending.
This was very risky because it was forbidden by the Versailles treaty. The Nazi’s genuinely feared an Allied invasion if they found out about rearmament too early. Therefore, they enlisted Schacht to hide the surge in military spending. To do so, he set up a shell company called Metallurgische Forschungsgesellschaft —which translates to Mettalurgic research company. This shell company would place massive military orders with German industry. But, crucially, it would not pay for this with money. Instead it would give them a debt certificate known as the MeFo bill. However, behind the scenes Schacht guaranteed these bills could always be sold to the Reichsbank. Thus, essentially, the government was borrowing massively. But, on paper it was all done by a private German company.
With his Neue Plan, Schacht had rebooted the German economy in the same way that FDR had done it in the US, through massive government spending.
However, that was just on the surface. There were 2 crucial differences. The first was that Schacht spent most of that new money on the military. The second was that he hid most spending through a shell company.
So, Schacht’s first tool was basically hidden deficit spending. But, as the German government spent more and more money on re-arming itself, unemployment got lower and lower. This meant that, after a few years, German workers could increasingly ask for higher wages, causing inflation. At least… if it wasn’t for Schacht’s next unorthodox tool: wage controls
Wage controls essentially meant that the state intervened in the labor market to prevent wages from rising too much. Despite claiming to work in the interest of German workers, when the Nazi’s came to power they quickly outlawed labor unions and replaced it with their own general labor union: the German labor front. But, rather than advocating for pay rises, the German Labor front worked hard to prevent wage increases. Therefore, while the German economy grew a lot on paper, most Germans did not profit from Schacht’s economic ‘miracle’ as their wages remained relatively stagnant.
But, even with wages relatively stagnant, Nazi Germany’s fully employed workforce still had a lot more money to spend. Therefore, Schacht’s wage controls were not enough to fully control inflation. This is where Schacht’s third tool came in, price controls.
Price controls are essentially the government saying that prices in a certain category cannot rise by too much. However, because there are tens of thousands of prices in the economy, Schacht’s new office for price formation introduced price controls gradually. Whenever there were big price hikes in important categories, such as textiles, he would introduce price controls there. Then, if there were new price spikes in other categories, the Nazi’s would introduce more.
So, Schacht got unemployment down to almost zero without causing inflation by combining big government spending on the military with wage and price controls.
Of course, controlling inflation like this DOES NOT solve the fundamental problem of overheating your economy. It just shifts the problem elsewhere. So, instead of inflation, ordinary Germans simply got stagnant wages due to wage controls and shortages in several sectors such as textiles due to price controls. After all, prices go up in response to demand being greater than production. Schacht essentially outlawed price increases. But, since higher prices reduce demand, this meant that inflation was simply replaced with shortages.
But, if there are shortages, and prices don’t work anymore. Then, how did strategic industries get resources. Did they just have to get lucky?
For strategic sectors like steel and coal, Schacht’s answer came in the form of his fourth unorthodox economic tool: quotas. This meant that his bureaucrats increasingly determined which sector got important resources like steel and coal.
Unless, of course, Germans imported goods… which they now again had the money to do. This leads us back to Germany’s every returning economic problem, a terrible balance of payments situation. Indeed in 1933, despite the Weimar government cancellation of reparations, Schacht was still losing about 400 million Reichsmark worth in foreign exchange each year, mostly due to debt repayments.
Thus, Schacht’s obvious first solution was to get rid of Germany’s remaining debts, most of which were owed to the US, UK, Netherlands and Switzerland.
This is where Schacht’s would first show his ruthless side. In 1934, he announced that Germany would simply default on these debts. Of course, by doing that, he insured that nobody would ever lend money to the Nazi’s again. However, given that it was still the great depression, nobody was doing much overseas lending anyway…. at least that was the gamble. This backfired. By defaulting on all Germany’s debts, Schacht had overplayed his hand. The affected nations responded by sanctioning Germany, refusing to buy German exports. To avoid a balance of payments crisis, Schacht backtracked… partially by cutting deals with the Netherlands, Switzerland, and the UK to keep paying these debts in exchange for a favorable trade deal. However, crucially, Schacht did not cut a deal with the US. This was the cost of US protectionism at the time. You see, through sky high tariffs, the US had already destroyed German exports to the US. Therefore, the US had little leverage over Germany. So, Schacht’s fifth unorthodox tool was a selective debt-default.
Because the US was Germany’s largest creditor, this bought him some time. But, it didn’t solve his balance of payments crisis, as German imports soared due to Germany’s booming economy.
This is why Schacht needed a sixth tool: capital controls. Practically, capital controls meant that German importers could no longer just access foreign exchange reserves to buy products abroad. Instead, they had to go through Schacht’s ever extending bureaucracy, filling in forms telling the Reichsbank exactly why they needed foreign exchange.
However, even after completely controlling imports, Schacht still had not solved Germany’s balance of payments problem for two reasons… The first was that thanks to American and British currency devaluations, German exporters were suddenly no longer competitive. The obvious solution to this problem was to devalue the Reichsmark. But, because the Nazi’s wanted to avoid inflation at all cost, this option was out of the question. Therefore, Schacht needed yet another unorthodox trick, which was … simply subsidizing exporters.
Together with improving global markets throughout the 1930s, this did actually stabilize German exports. But, of course, it was rather expensive for the German government.
The second big threat to Schacht’s meticulously controlled balance of payments was the Nazi’s brutal treatment of the Jews. While, Nazi’s like Heinrich Himmler were ‘encouraging’ Jews to emigrate through violence and intimidation, Schacht saw this as a massive problem. Schacht’s economic logic was brutally simple. German Jews had an estimated wealth 8bn Reichsmarks. The Reichsbank had 100M worth of foreign exchange reserves.
If all Jews did actually emigrate and convert their assets to foreign currency, the Reichsbank would run out of reserves. This brings us to Schacht’s final unorthodox economic tool: personal capital controls, allowing people that wanted to go abroad to only take 50k Reichsmarks in assets with them.
The ultimate consequence of Schacht’s brutal economic logic was that many jews stayed behind in a country that would go on to commit genocide on them. So, much like how he solved inflation, Schacht’s ‘solution’ to Germany’s recurring balance of payments crisis was a massive reduction of German freedom. Along with deciding what wages could be paid, what prices could be set and who could get critical resources, his ever expanding bureaucracy now decided what could be imported as well.
Now, it’s important to stress that this was not really in Schacht’s nature. After all, just decades ago he had co-founded a liberal party. Therefore, he likely viewed these tools as a necessary evil, given Germany’s extreme reliance on foreign natural resources.
At first, In 1934, when so many Germans were out of a job, Schacht could easily expand spending on both the military and civilian sectors without causing inflation or a balance of payments crisis.
However, once the German economy was fully activated. Money was no longer the problem. At this point resources like steel, labor and foreign exchange reserves were the real limit on Germany’s military expansion. Therefore, from 1935, Schacht started using his bureaucratic machine to increasingly squeeze the civilian sector in favor of military production. For example, from this point on, Schacht started to squeeze the textiles sector by limiting cotton, wool and leather imports to save foreign currency. Of course, this meant less clothing could be made in Germany. To prevent clothing from becoming too expensive, Schacht rapidly enforced price controls on them, leading to shortages. Not surprisingly, the Nazi economic miracle only lasted for 1 year for the German textiles industry.
Another example is that fate of the German construction sector, which was a major user of steel. To make more steel available for the military, Schacht squeezed civilian construction by reducing local government budgets, limiting their steel quotas and making it much more difficult for banks to provide mortgages. This meant much more steel was now available for the military. But, it also made Germany’s massive housing shortage much worse.
(JOERI) So, Schacht’s military build-up seemed like a miracle because using regular economic tools, there was no way he could have done it. Instead, he had to use 8 highly unorthodox tools. Germany’s economic miracle was powered by massive government spending on the military. Meanwhile, scarce resources were meticulously controlled by Schacht’s ever expanding bureaucracy, controlling domestic and international quantities and prices. But, hey wait a minute, massive government control that sounds a lot like communism… doesn’t it. But, didn’t the Nazi’s hate communists? Where they secretly a bunch of communists? No. Not quite. END JOERI
After all, unlike in the Soviet Union, Germany’s business elites kept their ownership over the means of production. In fact, thanks to massive government spending, they made more money than ever.
Yet, for Germany’s business elite, this did come at the cost of freedom, Schacht and the Nazi’s radically increased their control over German businesses by forcing them to join Nazi controlled business associations. Business tycoons who dared to defy the Nazi state faced severe consequences. For example, legendary aircraft maker Hugo Junkers lost his business after declining to help the Nazi’s. Even tycoons who initially supported the Nazi’s were not safe. For example, steel Barron Fritz Thyssen, who was an early Nazi backer. still ended up in a concentration camp.
And, believe it or not, this would eventually happen to Schacht as well, which leads us to the final chapter in our story, which is
The fall of Schacht 1936 - 1945
Starting in 1935, 2 things happened that would lead Hjalmar Schacht’s fall from grace. The first was in 1935, when the Nazi’s announced to the world they were re-arming, officially breaking the Treaty of Versailles.
And, while Schacht’s MeFo bills continued to be issued, this did mean that, in principle, Schacht and his secretive financial trick was no longer needed. More crucially, the announcement meant that Germany’s adversaries accelerated their own re-armament. And, as we have seen, the British Empire, Soviet Union, and especially the US had far more people, natural resources, and arable land than Germany. These powers would therefore inevitably outproduce the German war economy if given enough time.
Therefore, if a massive war between Germany these powers was inevitable. The cold economic logic is that in 1936, Germany only had a few years left in which it would have the upper hand when it comes to its war economy. If it wanted to fight the US and British Empire in the long term, it would need resources and land that were only available in the east— Lebensraum.
JOERI This gets us to the big difference between Hitler and Schacht END JOERI
Both men felt that manipulating the German economy to re-arm was a necessary evil. However, while Schacht only wanted to restore Germany to its pre-war glory, Hitler believed that a total war against America was inevitable because he viewed its leader as a puppet of a global Jewish conspiracy against Germany. Therefore, while for Schacht it was time to ease economic manipulation and massive spending in the late 30s, from Hitler’s point of view, Germany’s war economy was just getting started.
This leads us the second event that spelled the end for Schacht, Hitler’s announcement of a Soviet style 4 year plan in 1936. This plan had two goals: (1) make Germany’s army as strong as needed for total war, (2) make Germany self-sufficient such that it’s war could not be stopped by an allied blockade, as it had been in the first world war.
The four year plan directly undermined Schacht’s authority as economy minister by giving the prominent Nazi Hermann Göring the role of Reich Plenipotentiary, who was placed above the economy, defense, and agricultural ministers. In his new role, Göring immediately got to work pushing the German war economy harder and harder, using the very tools that Schacht had introduced.
Feeling that ever more increased spending would overheat the German economy, Schacht went to Hitler to voice his concerns. However, this was futile. After all, Hitler believed rivalry with the US was inescapable. Therefore, Germany needed to prepare to invade the Soviet Union to secure land and crucial resources. For this, more spending was needed, not less. If Schacht wasn’t willing to do it, Göring would.
Essentially made powerless by Göring, Schacht therefore resigned as economy minister in 1937.
Yet, he remained Reichsbank president for the Nazi’s. In this role, he remained committed to easing Germany’s balance of payments problem. In fact, Schacht still had 2 tricks left up his sleeve. First, as Germany became stronger, he increasingly started bullying smaller eastern European nations like oil rich Romania for cheaper oil. Second, he oversaw the take-over of Austrian foreign exchange reserves during the 1938 Anschluss, which along with the capture of Austrian natural resources like iron ore helped Germany sustain its massive re-armament program for just a bit longer.
This plunder of foreign resources along with ever increasing government control over the economy was the template the Nazi’s would follow for the remainder of the war.
But, it would be without Schacht, who was relieved by Hitler from his presidency of the Reichsbank early 1939, clearing the way for ever more military spending. To prevent inflation, this was then followed by ever more extensive price and import controls.
So, this impressive parade to celebrate Hitler’s birthday in 1939, it was largely a result of Schacht’s economic tricks. But, Schacht himself is not there besides Hitler.
Hitler keeps him around as a minister without duties. But, Schacht’s fall from grace isn’t done yet. In 1944 the gestapo would arrest him for an alleged role in a plot to assassinate Hitler. He would then spend the rest of the war in a concentration camp. After being freed by Allied soldiers, he would stand trial at Nuremberg alongside prominent Nazi’s like Hermann Göring, and his later successor as economy minister Albert Speer. Yet, unlike these Nazi economy ministers, Schacht would NOT be found guilty of war crimes. He would be sentenced to 8 years of hard labor by a German denazification camp. But, he would be released early in 1948. He would then found his own bank in Düsseldorf, write a book: “the magic of money”, and serve as a financial consultant for several countries. Ultimately, Schacht would die in 1970, at the age of 93.
As for the Nazi war economy, it would be pushed quite a bit further than ever by Göring and later even further when Hitler’s architect Albert Speer became economy minister. To push it even further the nazi’s made extensive use of resources they captured from other nations. To deal with labor shortages they would increasingly turn to forced labor and terror.
But, it would not be enough. The Nazi’s war economy would be massively outproduced, in some categories by the British, in most categories by the Soviets and in ALL categories by the Americans.
In the end, the sad truth is that Schacht’s economic miracle enabled the killing of millions. Another sad truth is that, as the world once again falls into ever more hostile blocks, it could be more and more likely that we see the return of many of Schacht’s oppressive policies, as nations increasingly set out to enlist economists to control their economies to maximize war output. Yet, as we’ve seen with Schacht, it’s dangerous to throw your lot in with people eager for war and conquest. Schacht helped the Nazi with the hope of seeing his country be restored to its former glory. Yet, instead, he would see it destroyed and cut into two pieces instead.
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