Secret Reports on Nazi Germany by Neumann Franz; Marcuse Herbert; Kirchheimer Otto

Author:Neumann, Franz; Marcuse, Herbert; Kirchheimer, Otto
Language: eng
Format: epub
Publisher: Princeton University Press
Published: 2013-04-14T16:00:00+00:00

21

FRANZ NEUMANN

THE PROBLEM OF INFLATION IN GERMANY

(OCTOBER 16, 1944)

Editor’s note: R&A 1657. Neumann’s authorship is indicated in a letter dated December 10,1943, from Eugene Anderson to Carl Schorske (RG 226, entry 60, box 1: Projects Committee Correspondence).

The document also indicates the participation of Rudolf Eisenberg, member of the Central European Section and specialist in economic and fiscal policy, in the drafting of the report.

Classification: Confidential

I. Experience of 1914–1924

A. The War Financing and Its Defects

In 1914 the German government based its war finance program on the assumption that the war would be short. No additional taxation was introduced. Loans were considered sufficient to cover the total war expenses.1 The government obtained the necessary cash by discounting treasury notes with the Reichsbank which, in turn, sold these notes to banks and large business firms. Every six months loans were floated to redeem the treasury notes. The political and fiscal organization of the country made it nearly impossible to raise taxes for war purposes. The states refused to let the Reich collect income taxes, and the Social Democratic party would not consent to the increase of consumption taxes without a simultaneous increase of direct taxes.

Mobilization and initial war expenses, in the summer of 1914, were financed by the issue of two billion marks in Reichsbank notes against treasury notes. The note issue facilities of the Reichsbank were enlarged and special loan offices (Darlehenskassen) established to cooperate with the Reichsbank and make credit easily available to local government bodies and private enterprise.2 The notes of the loan offices were used as cover for bank notes. In order to facilitate the conversion of the economy to war production, the government paid high prices for all deliveries and thus started a general boom. A great liquidity of the money and capital market resulted from the discounting of treasury notes by the Reichsbank, but the expectation that all war expenses could be covered by bond issues was not realized. The amount of loans subscribed to by the public, partly with the help of bank credit, permitted repayment of only a portion of the treasury notes outstanding at the time of the loan issue, and the short-term debt increased steadily3. Moreover, the Reichsbank did not succeed in selling much more than one-half of the treasury notes to the public. An inflationary expansion of the note circulation resulted from its growing portfolio of treasury notes. Out of the total war expenditure, some 144 billion marks, the government raised about two-thirds by bond issues and one-third by treasury notes, but no tax receipts were used to cover war expenses.

The issuance of additional paper currency exceeded by far the amount of gold and silver coin withdrawn from circulation. The total amount of currency increased by approximately the same amount which the Reichsbank put at the disposal of the government by discounting treasury notes for its own account (see table on p. 000). Deposits on checking accounts with the Reichsbank also increased considerably. By the end of 1915 the general price level had risen 50 percent.

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