The Reich and Prussian Minister of Economics
Berlin W 8, 5 Aug., 1937 Behrenstr. 43.
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gan to function) domestic production of raw materials from 1934 to 1936 was developed as follows:
1933, tons 1936, tons rise in %
[marginal note in pencil:] Lead (from German ore) 52,000 60,000 15
PLEIGER fZinc (from German -1 ore) 106,000 130,000 23
SCHEMATOS . [Aluminum 18,900 97,500 416
PLEIGER [Iron ore (home re- i quirement) [iron ore (Fe-content) 2,550,000 928,700 6,812,000 2,140,000 167 130
PLEIGER (Anthracite coal *110 "158 44
[Motor fuels and oils. 915,000 2,039,000 123
KELSOL [ Rayon 28,000 46,100 60
[Cellulose wool 4,000 46,300 1057
1 Million.
The import of raw and semi-finished materials during the same period was increased from 26 millions to not less than 46 millions by the new trade policies inaugurated by me. It is already evident from this comparison that the more rapidly effective chance for an increase of our raw material supply lay in foreign trade. This was taken cognizance of by me through a transfer of pur export to countries supplying raw materials and by suitable management of the accounting system with a view to avoiding cash payment of foreign exchange. In conjunction with the increase of internal production of raw materials, which naturally could only take effect more slowly, it was important that a disturbance of the capital market as well as of the labor market should be avoided. Prerequisites for the success of rearmament were, on one hand, stable wages and prices and, on the other hand, concentration of all profits and savings toward financing the Reich. Therefore, by the initiative of my ministry, the particular powers of private industry were harnessed for the increase of domestic raw material production.
Financing of Armaments.
The greatest possible commitment of industry to self-financing and the central supervision and exploitation of the money and capital market for the tremendous requirements of armament have made possible the maintenance of German currency up to
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now. The confidence of savings investors in the stability of our money value has even permitted a not inconsiderable part of the financing to be undertaken by long-term national loans. A threat to this policy arises from wages which are already experiencing considerable increases in numerous regions and plants due to the unregulated competition of the construction and armament industries for the labor market, which has led to a price-elevating increase in the use of everyday consumer goods.
The Food Situation.
An aggravation of the currency and raw materials policy has arisen from the agricultural sector. Contrary to the oft-repeated public affirmations of the competent government agencies the food situation of the German people is becoming constantly less satisfactory. In the years 1933-1936 the harvest steadily declined. Counting potatoes along with grain, the average harvest proceeds for the years 1931/33 were about 34.7 million tons and for the years 1934/36 only 32.8 million tons. The figures based on a three-year average make it quite evident that it is not merely a matter of unfavorable weather conditions. Far rather it is the agrarian market and production policies which have failed. Besides, the agriculturally useful land surface has decreased 2.1% in the period 1933-1936, the tillable surface for grain even 4.1%, due to the numerous uses of land for other purposes, such as by the Wehrmacht, for factory sites, sports, highway construction, etc. The efforts of the Reich Food Commission for a decreased dependence on foreign countries have therefore had no success; rather this still increases because of the growth of the population and the increase of consumption. The harvest estimate with reference to bread and feed grain for the current year is again 800,000 tons less, compared to "the previous year. The foreign currency requirements for food purposes have therefore, despite all production battles, not grown less but rather increased. It is particularly regrettable that the food sector has repeatedly been the victim of miscalculations which have not only seriously impaired our foreign currency reserves but also destroyed opportunities for trade policy negotiations by the sudden need for importing certain foodstuffs.
Trade Policies.
In spite of this, trade policies have shown themselves to be the only favorable factor, even in the realm of food.
In 1934, when I took over the Ministry of Economics, German exports amounted to 4,167 million RM. They rose to 4,270 million RM in 1935, 4,768 RM in 1936, and to 2,711 million RM
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for the first half year of 1937 (compared to 2,242 million RM in the first half year of 1936). Whereas I was faced with an import surplus of 284 million RM in 1934 my first year in office, this unfavorable balance changed as early as 1935 into an export surplus of 111 million RM, which increased further in 1936 to 550 million RM, and to 192 million RM for the first half of 1937 (as against 131 million RM for the first half of 1936). In this way, funds were procured not only for the enormous increase in our importing of raw materials but also for the supplementation of our food supply from abroad.
Foreign Debts.
Trade policies are further complicated by the foreign debts contracted during the Weimar period (Systemzeit). Following the announcement of our moratorium, in the summer of 1933, the creditor nations made repeated efforts to exact the interest from us by applying pressure through commercial policies. By means of constantly renewed negotiations, more severe trade pressure against us has been averted; in fact, we even succeeded in the course of time in materially lowering with the consent of various countries the rate of interest owed them, which according to the agreements averaged 6%. Our trade policy is always exposed to the danger of serious injury, however, should we become unable to transfer at least these reduced sums of interest abroad. A further hindrance to our foreign trade lies in the fact that in clearing transactions with countries furnishing raw materials and food products we have bought in excess of the goods we were able to deliver to these countries (namely Southeastern Europe and Turkey) roughly y2 billion RM. These countries hesitate, therefore, to make further deliveries to us as long as this balance can not be taken care of. Furthermore, a number of countries are raising difficulties because we are no longer in a position to furnish them certain raw and semi-finished materials which we urgently need for our own use.
Four Year Plan.
The Four Year Plan was intended to help relieve all these difficulties. The aim and the idea of the Four Year Plan were and remain entirely correct and necessary. It stands, essentially, for the application of increased energy to the efforts already undertaken by my ministry since 1934 with the results shown in the above statistics. As you will remember, I welcomed it when your energy, my dear Prime Minister, was recruited by the Fuehrer for these tasks, and from the very beginning I gave you my most loyal support and cooperation, with the particular plea that I be
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given a hearing from time to time, since I believed that my more than thirty years of experience in economic life, half of them in public service, could be of value to you. I can only regret that you have made so little use of my offer. .1 have of course promised the Fuehrer and Reich Chancellor my fullest cooperation likewise, at the same time drawing to his attention the fact that the investment in materials required under the Four Year Plan for the current provisioning of our industry, and thereby for the tempo of our industry, and thereby for the tempo of our rearmament, must result in raw material shortages. In regard to this the Fuehrer directed: "One does just what one can." This directive means that the work performed and the material investment made in the carrying out of the Four Year Plan should not be in excess of what is consonant with the course of our economy. (Marginal note: Fuehrer Memorandum). This is what determines the limitations of the program and the scope and tempo of the Four Year Plan. The Fuehrer has recognized, at all times, that Germany cannot be made independent of foreign sources for certain raw materials and especially for food within the foreseeable future and that all efforts toward that end must require a considerable length of time, even if they had prospects of success, during which time the German people must continue to be fed and employed. This has impelled me to cover the deficiencies through my foreign trade policy. [Interlineal note: Neumann].
Increasing of Exports.
In the meantime, I have repeatedly stressed the need of increased exports and have worked to bring it about. The very necessity of bringing our armament up to a certain level as rapidly as possible must- place in the foreground the idea of as large returns as possible in foreign exchange and therewith, the greatest possible assurance of raw material supplies, through exporting. On the other hand, the undue claims made upon our industry by domestic orders are naturally prejudicial to the willingness to export. I have urged again and again that industrial exports be increased and that exaggerated demands should not be made upon industry in the placing of State orders, but I have never received proper support from your staff, although I realize that you yoúrself have repeatedly taken the opportunity to support my standpoint. I have indicated above to what degree the Ministry of Economics has succeeded in increasing exports and, also, therefore, raw material imports. The prospects for a further increase of exports are not unfavorable. But the undue
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drain upon raw materials, as well as labor resources, for public construction projects, rearmament, and the- Four Year Plan, threatens, in spite of the favorable chances, to bring about a decline in our exports, a decline already apparent here and there. I want to point out quite clearly that, if the foreign currency [Devisen] which we receive from export becomes less, the necessary result is that the import of raw materials must become less and more gaps must appear in the supply not only of building activity and armament but also, of course, of the Four Year Plan.
Warnings. '
This view of the economic situation which I have explained above, I have held from the first moment of my collaboration. I have never tired of pointing out the dangers which result for Germany from this situation.
On October 18th, 1934 (a few weeks after I had taken over the Ministry for Economics), in a discussion under the presidency of the Fuehrer and Reichschancellor, I, for the first time in a responsible position, pointed out there the large gap between our assets in foreign currency and our requirements of foreign currency and explained the critical situation of our raw material supplies and foodstuffs. In the beginning of May 1935, I presented two memoranda to the Fuehrer in which I pointed out the necessity of the careful nursing of our commercial relations with foreign countries as well as the necessity for a unified financial control at home, if the rearmament program was to succeed. Later on, I considered it my duty to point again and again, on every occasion, to the economic limits which are imposed upon us by our raw material and foodstuff potentials. I have never made a secret of the fact that I considered and still consider our agrarian policies inadequate. You and other gentlemen were present, when I reported to the Fuehrer in November 1935 the exact statistics especially about our situation with respect to foreign, currency, and already then I stated that at least 250 million Reichsmarks in foreign currency were lacking for the period alone from October 1935 until March 1936 for carrying out the program at that time. The same calculations have been repeated by me at many occasions later on.
Foreign Currency Situation.
While our main objective, actordingly, had to consist of increasing the current income of foreign exchange through export, at the same time increasing our domestic raw materials, you, my dear Prime Minister, as one of your first measures after the execution of the Four Year Plan had been assigned to you by
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the Fuehrer, ordered the seizure of foreign bonds in German possession, as well as the speedy collection of German merchandise credits and the conversion into cash to the greatest possible extent of German interests abroad. You have thereby undertaken an encroachment on capital elements, the interests and dividends of which furnished a regular revenue in foreign currency, that is now missing in our current receipts of foreign currency. The objections which were made from foreign economic reasons on my part against coercive measures in the field into which you had entered could, indeed, have .been avoided with your approval by conducting the whole project in private negotiations on the part of the Reich Bank. However, my fundamental objections were not removed, namely, that this last foreign currency reserve of the German people should not be used unless a real emergency should arise (famine, political conflicts or something like that). It was and is an unbearable thought for me to have to face such an economic or political risk without any reserve of gold or foreign currency. The total amount of foreign currency produced by this special project is about % billion Reichsmarks and has in the meantime has been completely spent. I should like to point out especially that it has not been used for the purposes of the Four Year Plan, but for the current import of raw materials and foodstuffs in order to maintain our nutrition and our industrial employment as much as possible.
Your Suggestion of July 28th, This Year.
You now also want to seize and use up the balance of the foreign securities which have not yet been collected. Here I must again give even stronger expression to all my earlier objections concerning the psychological effects of a seizure by force (counter measures abroad, exposure of our critical situation, shaking the confidence of even national security owners etc.). Since it is obviously far from my intention to hinder your decisions, I have ordered the Reich Bank to put the technical material for the execution of your project at your disposal. But I want to express clearly that I must refuse to take any responsibility for these policies. I consider it especially irresponsible, in every respect, that such last reserves are being used up, without supplying any other provisions for emergencies in coming years, and before the results of the Four Year Plan have actually become evident in a practical way.
Extraction of Iron Ore.
I now come to your order of July 23rd of this year, my dear Prime Minister, and state that this new project has ensued,
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without your having consulted with me, at all. I furthermore state that this project encroaches upon my own projects about which your office has been instructed in detail by my officials. According to that, the first ore extraction plan which is known to you has been more or less fulfilled. This plan was in effect up to the end of 1936 and was agreed upon by the owners of the mines and the mining department of my Ministry. After that, the owners of the mines had promised an increase of the production which up to a short time ago came close to the figure your office requested. The greatly increased demands recently made by you were not discussed with me at all. The company never lacked readiness to do the utmost in order to promote iron ore production. If the point of view of economy is to be eliminated, the plant would even then still be substantially more economical if operated by the company itself, namely by utilizing its already existing installations and equipment together with a subsidy from the State, than if the entire plant were to be newly organized by the Reich at its expense.
The Question of Costs.
That brings me to the question of cost. Lacking more detailed information from you, I must limit myself to the statement that your proposal would obviously entail the expenditure of many hundreds of millions of Reichsmarks, for which, according to information furnished me by the Reich Ministry of Finance, no financial provisions exist as yet. I can claim for myself that, for the tasks of the Four Year Plan also, I have not refused my cooperation in the field of financial policy within the limits of reason. I recall that I not only financed the first plants of the Lignite-Gasoline, Inc. [Braunkohle-Benzin A.G.], which were constructed three years ago, but that I have also taken care of the financial aspects of the many plants, now in the process of construction, for extracting gasoline from lignite as well as from anthracite coal, and of the new electric power plants, and the enlargement of existing ones. But I am not in a position to raise the financial means for projects, the effectiveness of which cannot be anticipated any more than their extent, or the length of their period of productivity. To make banknotes and ledger credits available does not mean that raw materials and foodstuffs are simultaneously made available. With paper one can neither bake bread nor cast guns. Investing raw materials and manpower in new enterprises on the scale planned by you must cause a further reduction of raw material allocations to those factories working for export, or producing consumer goods for
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the people. The scarcity of a good many consumer goods is already making itself felt in public life today. It cannot be eliminated by increasing the amount of money or credit in circulation. If the output of consumer goods diminishes while the amount of money and credit increases, the inevitably consequence is an increase in the price of consumer goods and devaluation of the currency, leading eventually to inflation.
Concluding Remarks.
I ask you to believe me, my dear Prime Minister, that it is not my intention at all to wish to impede your policies in any way ' whatsoever. I offer no opinion, either, whether my views, which deviate from your economic policy, are correct or not. I have full sympathy for your activities. I do believe, however, that in a totalitarian state it is wholly impossible to conduct an economic policy divided against itself. You will recall that already months ago I stated to you that uniformity of economic policy is. indispensable for its success, and that I suggested that you have the Reich Ministry of Economics transferred to you. I have explained above that I believe your foreign exchange policy, your policy regarding production, and your financial policy to be unsound, and that I am not in a position to share the responsibility for them. The fact that you constantly intervene with the policies of the Ministry of Economics in all these fields, must, however, create the impression that I also advocate these policies of yours. This has now openly become a matter of debate because of your Mining Ordinance, since the Mining Administration is subordinate to me in all its parts. It is wholly untenable to give the economic groups affected thereby, who ask my opinion of your ordinance, an opportunity to allege contradictions within the economic leadership of the Reich Cabinet. For that reason I have today given a report to the Fuehrer and Reich Chancellor.
I remain, with greatest esteem and with Heil Hitler!
Yours most sincerely (sgd) Hjalmar Schacht '
PS: The Reich Minister of War will receive a copy of this letter.