Copy.
RK 717—B 11 Jan. 1939
recorded Berlin
DAY MONTH YEAR TIME Main Telegraph Office
executed 10/1 2020 11/1
Telegraph Service of the German Reich Telegram from Berlin FD 112/109 10 2002
TO the Fuehrer and Reichs Chancellor
Berlin
The Subscription to the fourth Reich loan of 1938 which ended yesterday did not bring the expected results despite special propaganda. Of the amount of RM. 1500 Millions, taken over by the Reich Loan Committee, a partial amount of RM 415 millions could not be placed through public subscriptions. Of this shortage approximately RM. 275 Millions will be subscribed to through the credit facilities of the Savings Banks and Associations. The banks represented in the Loan Committee hope to be able to sell gradually the balance of RM. 140 millions. The already unsatisfactory result is too further impaired by the fact that approximately RM. 160 Millions of previous loans had to be serviced during the subscription period.
Signed: Dr. Schacht
[Notes written in longhand on document.]
Respectfully submitted to the Reich Minister
[Initialed]
Vorg. RK 707 B LB S. Ang.v. 14,1 Miss Buge [Initialed]
1. [one word illegible]
1 photostat
remains with the Files
2. Presented to the Fuehrer today
3. Illegible Initials
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EC-369
Berlin SW111, 7 Jan.1939
The President of the Reichsbank Directory
Confidential Reichsbank matter.
To The Fuehrer and Reich Chancellor
Berlin
The Reichsbank, for a long time, has pointed out the dangers to the currency resulting from overstraining of public expenditures and of short term credits. At the end of 1938, the currency and financial position has reached a danger point, which compels us to ask for measures which make it possible to master the threatening danger of inflation.
From the beginning the Reichsbank has been aware of the fact that a successful foreign policy can be attained only by the reconstruction of the German armed forces. It (the Reichsbank) therefore assumed to a very great extent the responsibility to finance the rearmament in spite of the inherent dangers to the currency. The justification thereof was the necessity—which pushed all other considerations into the background—to carry through the armament at once, out of nothing and furthermore under camouflage, which made a respect-commanding foreign policy possible.
In carrying out this program it was decisive to prevent signs of inflation, because an inflation would not only have undermined the confidence in the National Socialistic leadership, but also because nothing can be gained materially through an inflation. At best, an inflation can deceive for a very short time the unexperienced broad masses as to the declining purchasing power of money, but leads then very quickly to an all the greater disappointment. Economically it leads to the destruction of liquid capital funds, it disorganizes the tax revenues and with them the total finances of the state, it undermines the desire to save and therefore renders impossible the placement of government loans, it raises the cost of imported necessary goods and will stop the clearing machinery and its great advantages, so that finally foreign trade comes to a stop.
In order to prevent signs of inflation, the Reichsbank, from the beginning, has insisted on two fundamental requirements:
1. a control over the money and investment market
2. a control of prices and wages.
In connection with the latter, the first signer of this letter as minister of economy, has urged the reinstatement of a price controller (after the discontinuance of the price control offices
427
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headed by Dr. Goerdeler), who was then newly appointed in the person of Gauletier Josef Wagner.
The other requirement has been taken care of by a decision of the cabinet in May 1933, which provided for a control committee presided over by the president of the Reichsbank.
The control over the money and investment market was intended to serve 2 purposes: first, the consolidation of short-term Reich obligations in the investment market and second, the placement of short-term Reich notes (Mefo-acceptances etc.) in the money-market. The use of the money-market made it possible to place approximately RM 6 Milliarden Mefo-acceptances outside the Reichsbank, in addition to the Mefo-acceptances of approximately RM 6 Millarden which the Reichsbank carried in its portfolio, without burdening the money circulation. This was possible as the Reichsbank declared itself ready to cash at any time Mefo-acceptances, so that the available cash funds of the German economy could find in these acceptances a continuously renewing investment, however temporary.
These two controls over the money and investment market on the one hand and over wages and prices on the other hand operated (functioned) fairly satisfactorily, so long as the German economy had not arrived at the point of full employment. The production costs remained low due to greater utilization of the productive capacity and industry could cover its working capital requirements from rising operating profits without availing itself of the investment market to any large extent. The effectiveness of the controls however had to decline the closer the German economy neared the point of full and overemployment. The expansion of industrial plants, the employment of unskilled labor and lower productivity due to longer working hours, increased the costs of production, exhausted operating profits and forced industry more and more to replenish its financial requirements in the open investment market, which until then could be held available mainly for the financial requirements of the Reich. The investment market therefore was bound to fail for the increased requirements.
The overemployment of the economy was accompanied by scarcity of materials and labor and by a lowering of the quality. At the same time the relative production of consumer goods for daily needs lagged, so that the problem arose of increased total wages against a smaller quantity of consumer goods. Fast growing wages and price increases were the causes of this development. Of course the past increases of prices and wages differentiate. There are a number of goods for which prices have been
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maintained or probably even were lowered a little and there are labor groups which were not affected by the wave of wage increases for instance certain groups of the textile industry. However among other labor- and merchandise-groups, wage- and price-increases took place which especially lately assumed very extraordinary proportions. These increases become especially evident during the last 10 months of 1938. Beginning in March and through the period of the Austrian and Sudetenland invasion and the actions connected therewith, the wage- and price structure totally fell apart. Also, it is regrettable that a slackening or even a return to the former basis is not noticeable after the termination of our foreign political actions.
In regard to investments in stock on hand to which must be added the stock for armaments, the price increases are due to the excess of orders and the pressure for quick production. These demands have caused the failure of all planning by the authorities placing the orders, as well as the firms executing them. The parties placing the orders force the manufacturers to corner material and labor which has caused an excessive price- and wage racket because of the shortage of material and labor. In the field of consumer goods increases in prices were due to lack of sufficient quantity and quality. Especially in the field of daily requirements for the home and clothing, the lack of supply and above all the decline of quality is most evident. Children clothes, workers clothes etc., which formerly lasted for years last now only months, but cost the same or even more than the former good merchandise. On top of it, the well paid laborer overbids the less fortunate worker, which creates much ill feeling especially as far as food is concerned.
The currency however is endangered to a decisive degree by the unrestricted public expenditures. The unlimited growth of the government expenditures nullifies each attempt for an orderly budget, it brings the government finances to the verge of bankruptcy despite a tremendous increase in taxes and it undermines the Noten-bank and the currency. There is no "recipe" for system of financial or money technic, regardless how ingenious or well thought out it may be, there are no organization or control measures, which would be effective enough, to prevent the disastrous effects on the currency caused by a policy of unlimited expenditures. No note-issuing bank is capable of maintaining the currency standard against an inflationary policy of expenditures by the government.
Due to Treasury deficits running into billions [Milliarden], the Minister of Finance, during the last months, was continu-
693260—46—28
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ously placed in the position to declare insolvency or to cover the deficit in the Reich finances through inflationary means of using the printing press (to issue money). Unfortunately, the Reichsbank can prevent this in the following field. The above-mentioned placement of approximately RM 6 Milliarclen MEFO acceptance-Bills in the money market was possible only with the promise of the Reichsbank to honor them (The MEFO acceptance-Bills) at any time (against cash). Should it be necessary for the Minister of Finance because of excessive expenditures, to draw funds from the institutions with which MEFO acceptance-Bills have been placed, then these acceptances will be presented to the Notenbank and will cause an inflationary increase of money in circulation. The ingenious and risky structure, which the Reichsbank organized to finance the armament, is consequently being shaken in its very foundation.
Furthermore to prevent the danger of inflation, provisions had been made, to redeem the MEFO acceptance-Bills 5 years from date of issuance. We are however faced with the fact that approximately RM 3 Milliarde?i of such acceptances, cannot now be paid, though they will be due in 1939. Thus one of the most important correctives to prevent inflation, becomes ineffective, and one of the basic conditions, under which the early financing of the government expenditures through the Notenbank seemed bearable no longer exists.
The overall German exchange position at the present is therefore as follows:
1. Foreign: gold or foreign exchange reserves of the Reichsbank are no more in existence. The unfavorable balance of imports over exports is increasing fast. Exports no longer equal the value of our necessary imports. The reserves, created through the annexation of Austria and the requisition of foreign securities and domestic gold coins, are exhausted. The receipts for foreign exchange, which were issued by the control office [Devisenstellen] at the time of importation, are today, to a greater part, not covered by actual income of foreign exchange and therefore run the risk, that some day they cannot be paid due to lack of foreign exchange. Therefore the last foreign credit to cover our imports of goods would then be ruined.
2. Domestic: the assets of the Reichsbank consist almost in total of government securities (mainly MEFO acceptance-Bills). The Notenh&rik (note issuing bank) is therefore totally blocked and will not be in the position to grant the necessary credits when so required by commerce and industry. Exclusive of the Reichsbank, there are approximately RM 6 Milliarden MEFO accept-EC-369
ahce-Bills which can be discounted against cash payment at any time at the Reichsbank, which fact represents a continuous danger to the currency.
On January 1, 1933, the currency in circulation amounted to 3560 Million Reichsmark. Up to March 1, 1938 it increased to 5278 Million Reichsmark. This increase of approximately 1,7 Milliarden Reichsmark in more than 5 years did not cause any mistrust in the currency policy, because during the same period the production of German industry almost doubled and there was not only an increase in the production of capital goods but also in the production of consumer goods.
From March 1, to December 31, 1938, however, the currency circulation rose to 8,223 Reichsmark, that is without including 2 Milliarden Reichsmark required for Austria and the Sudetenland. It therefore increased during the last 10 months more than during the preceding 5 years. The relationship of currency in circulation to the production of consumer goods alone is of vital importance to the stability of the currency value. Provided the currency circulation increases faster than the consumer goods production then an increased purchasing power is available to the total number of consumers against a lesser amount of goods offered, which must cause prices to rise. Covering the expended money with real estate, securities, etc., cannot retain the currency value as is clearly evidenced by the history of the assignate money of the French Revolution where in spite of forced rates, severe penalties, etc., a complete depreciation of currency oc-cured.
While an increase of public expenditures during the two great actions in Austria [Ostmark] and Sudentenland was a matter of necessity, the fact, that after the termination of these actions a reduction of the expenditures is not noticeable, makes it now our imperative duty to pay attention to the effects on the currency, because all indications are that a further extension of the expenditures is planned.
It is not our duty to prove to what extent an unrestrained policy of expenditures is compatible with the income and savings of the German economy or with the social requirements of the population. However it is our responsibility, to draw attention to the fact that a further use of the Reichsbank, be it direct or through requisitioning of the money market otherwise, is not compatible with a sound currency policy, but must lead direct to the road of inflation. The undersigned directors of the Reichsbank agree that, while they have gladly cooperated to attain the great goal, it is now time to put a stop to it. An in-
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crease in the production of goods is not possible by the increase of paper money (scraps of paper). By increasing the circulation of money and in view of the already fully taxed and even overtaxed German industry, one can only increase prices and wages but not production. '
We are convinced that the effects on the currency caused by the policy of the last 10 months can be mended and that the danger of inflation again can be eliminated by strict maintenance of balance budget. The Fuehrer and Reich Chancellor, himself, has publicly rejected, again and again, an inflation as foolish and fruitless (useless). We therefore ask for the following measures:
1. The Reich as well as all the other public offices must not incur expenditures, or assume gua/ranties and obligations that can not be covered by taxes or by those funds which can be raised through loans without disturbing the longterm investment market.
2. In order to carry out these measures effectively, full financial control over all public expenditures must be restored to the Reich Minister of Finance.
3. The price and wage control must be rendered effective. The existing mismanagement must be eliminated.
4. The use of the money and investment market must be at the sole discretion of the Reichsbank.
(signed) Reichsbank-Directory Dr. Hjalmar Schacht Dreyse Pocke Ehnhard Puhl
[illegible] Blessing
Reich Chancellery
Rk 11 B g now RK 717 b, 707 B
Berlin, January 14, 1939
Secret
1. to
a. Mr. Reich Minister of Economy Funk—personally!—
b. Mr. Secretary of State Reinhardt c/o Mr. Government Counsel Guendel—personally!—
re a. Dear Mr. Reich Minister! re b. Dear Mr. Secretary of State.
see RK 1628
Brk
Kpl./Brk
14.1. enclosed in each one copy [initials]
With reference to the long distance telephone conversation, which Mr. Reich Minister Dr. Lammers had with you, I am
EC-369
pleased to enclose, by order of the Reich Minister, the photostat of a petition addressed to the Fuehrer by the directors of the Reichsbank, which please keep confidential.
Heil Hitler Respectfully yours Signed : Kritzinger
Ministerialdirektor
2. after making copies
Obediently submitted to the Reichminister for his information 3 Z.d.Vorg (N.d.H.Min.Dir.Kritzinger)
8 initials
Reich Minister
s RK 1628 B II
Berlin, January 19, 1939
1
RK 27 B g Rs :
how RK 1628 B
secret matter of state To the Fuehrer and Reich Chancellor
Respectfully submitted together with the two certificates of dismissal for the Reichsbank President,
Reichsminister Dr. Schacht.
I was unable today to reach Dr. Schacht via long distance, but I informed him by telegram and his housekeeper by messenger, that you, my Fuehrer, are expecting him tomorrow morning at 9 o'clock. y2 Bg 19.1 Bg.
one copy submitted to Min. Dir. Dr. Meerwald
2. 2 telegrams of the Reich service: Reichsbank President
Dr. Schacht
a. Berlin SW 111 Reichsbank ' .
b. Berlin-Dahlem, Vogelsang 9
Fuehrer expects you tomorrow Friday morning nine o'clock Reichsminister and Chief of the Reichschancellery
Dr. Lammers (N.d.H.RMin.)
3. Z.d.A.
EC-369
Copy of Telegram (German Reich Post)
To Reichsbank President Dr. Schacht Reichsbank Berlin C 111 During the night free of charge Reich Chancellery
Fuehrer expects you tomorrow Friday morning 9 o'clock
Reichminister and Chief of the Reich Chancellery
Dr. Lammers
19.1.39
at 23.35 o'clock transmitted by telephone to the Main Telegraph office
initialed 19/1
belongs to file RK 27 Bg. Rs
Copy
Reich Minister Berlin, January 20, 1939
RK 1628 B
1. The Fuehrer has today signed the enclosed decree.
It will not be published '
2. T® the Reichsbank Directory Berlin SW 111 enclose—1—photostat
I am pleased to enclose, in photostat, a decree by the Fuehrer dated January 19, 1939 of which please take notice.
At the same time I have the honor to inform you that the Fuehrer has recalled from office the President of the Reichsbank Dr. Hjalmar Schacht in accordance with paragraph 6 section 7 of the banking act and has appointed to the presidency of the Reichsbank, Walther Funk, who retains his office as Reich Economic Minister.
The Fuehrer has further recalled from their offices, the members of the Reichsbank Directory, Vice-President Dreyse and Reichsbank Director Huelse.
[handwritten note]:
"A copy of the letter covering 1 and 2 has today at 11 o'clock been handed by me to Mr. Vice President Dreyse" [initialed]
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Copy
RK 1628 B
3. To Mr. Vice President of the Reichsbank Directory Dreyse Berlin SW 111
Dear Mr. President:
The Fuehrer has recalled you from your offices as member of the Reichsbank Directory in accordance with paragraph 6 section 7 of the banking act.
Please allow me to enclose the certificate of your dismissal
Heil Hitler
. Respectfully yours
enclose 1 copy.
4. To the member of the Reichsbank Directory Mr. Reichsbank Director Huelse Berlin SW 111
Dear Mr. Reichsbank Director (same as 3) enclose 1 copy
5. a. Mr. Min. Dir. Kritzinger [initialed]
b. Mr. Reichscabinet Counsel Dr. W . . . [initialed] please take notice.
6. Z.d.A. (N.d.H.RMin.)
nr/ nnn-o Jan. 10, 1939 (stamped)
now RK 707B ' /
1 enclosure (double) Secret!
REICHSBANK-DIRECTORY
Berlin, SW 111, Jan. 7, 1989 Respectfully submitted to Reich Minister
[initials illegible]
We are pleased to enclose a petition to the Fuehrer and Reich Chancellor signed by the members of our board which you will please submit to the Fuehrer at your earliest convenience. We enclose a special copy for your own information.
Reichsbank Directory (signed) Dr. Hjalmar Schacht Dreyse Miss Buge [some words illegible]
Pencil notes:
1. Presented today to the Fuehrer
2. Decision of the Fuehrer appears in the enclosed decree of the Fuehrer today and the dismissal and appointment documents dated Jan. 20, 1939.
3. Illegible initials
To the Reich Minister Dr. Lammers, Chief of Reich Chancellery, Berchtesgaden
Bank 12 [illegible pencil notes]
436
TRANSLATION ÔF DOCUMENT EC-376
Copy
The Reichs and Prussian Minister of Economics
Berlin, 11 December 1936 W 8, 43 Behrenstr.
T4 12
G.O. GW 14.12.36.
To All Supervisory Offices,
(Excerpt I—VI)
To remove all doubts I once more notify you about the co-operation with the office for German raw and synthetic materials, with the Reichs Commissioner for price control and with the business groups for distribution of raw materials of the president of cabinet council Supreme Commander Goering who is the deputy-in-charge of the Four Year Plan, as follows:
The supervisory offices are obliged to accept instructions from me only. They must answer all official inquiries of the office for German raw materials in order to give any information at any time to the fullest extent. If requests are directed by the office for German raw 'and synthetic material, the Reichs commissioner for price control or the business groups for distribution of raw materials to the supervisory agencies with which these offices agree in accordance with instructions and directives given by me, I herewith authorize the supervisory offices to take the necessary measures for themselves. In case doubts should result from requests of the above offices and these doubts cannot be removed by oral negotiations with the specialized workers of that office, I should immediately be informed. I then will order in each case the necessary steps to be taken.
Charged with the business management
(signed) Dr. Hjalmar Schacht
President of the Reichsbank.