Descent into the Abyss

Although the free fall of the Weimar republic into hyperinflation began in earnest in late August – early September of 1921, its seeds were planted almost exactly seven years earlier.

To pay for the exorbitant costs of fighting the Great War (which Germany was forced into by Serbia, Russia and France – roughly in that order), Germany had no other choice but to suspended the gold standard (the convertibility of its currency to gold) almost immediately after the outbreak of war.

Unlike France, which imposed its first income tax to pay for the war (a politically risky but financially prudent move), Kaiser Wilhelm II and the German parliament decided unanimously to fund the war entirely by public borrowing (i.e. by taking loans from banks and issuing government bonds).

They hoped (as it turned out, incorrectly) that the German government it would be able to pay off its debt to banks and investors by winning the war, annexing resource-rich industrial territory in the West (France, Belgium, Netherlands) and East (in Russia) and imposing massive reparations on the defeated Allies.

Which was a politically comfortable but financially very risky move. Leading financial experts, such as Hjalmar Schacht (who subsequently implemented highly successful) believed it to be far too risky as it could lead (and did lead) to radical currency devaluation and even to hyperinflation.

The abject failure of this financing strategy did not deter Adolf Hitler from pursuing essentially the same strategy prior to and during World War 2 (and thus driving the Third Reich to near-bankruptcy). Which forced Schacht to resign from his positions of Minister of Economics and President of the Reichsbank.

Imperial Germany (the Second Reich) lost the Great War (by committing astonishing blunders such as the Zimmerman Telegram), lost 14% of its territory (and 12.5% of its population) ceded to other nations under the terms of the outright criminal Treaty of Versailles and was stuck with 132 billion marks (US $442 billion in current money) of reparations to the victorious Allies.

To make thing worse (in fact, much worse), Weimar Republic was stuck with the massive war debt that it could not afford (other than printing money and thus fueling runaway inflation). Not exactly the result Kaiser and his government expected in 1914.

However, Germany was significantly helped by two factors – (1) skilled financial management by Finance Minister Matthias Erzberger and (2) the fact that the Western Front battles took place outside of Germany (in France and Belgium), Germany came out of the war with practically of its industrial infrastructure intact.

Consequently, during the first half of 1921, German mark was relatively stable at roughly 90 marks to the US dollar.

And then all hell broke loose.

On May 5^th, 1921, victorious Allies issues the so-called London Schedule of Payments (aptly called the London Ultimatum). According to the terms of this ultimatum, World War I reparations had to be paid only in gold, foreign currency or in kind coal, timber, chemical dyes, pharmaceuticals, livestock, agricultural machines, construction materials, and factory machinery.

Although Germany still possessed formidable industrial capacity, it simply did not have enough of “the above” to pay the required reparations (which was political racketeering, plain and simple).

It did meet the first payment of US$ 250 million when it came due in June of 1921, but after that it had no other choice but to print money on a massive scale to buy the foreign currency needed to meet its reparation obligations.

As the mark sank in international markets, more and more marks were required to buy the foreign currency that was demanded by the Reparations Commission. Foodstuffs were almost eight times more expensive in 1921 as they had been at the end of the war. By the next year they would be over 130 times more expensive. It was the beginning of an economic and social nightmare that will last for three long years.

Nightmare engineered (some said deliberately, although I doubt that it was the case) by the same victorious Allies that already robbed Germany at gunpoint in Versailles two years earlier.

Predictably, it radically strengthened the appeal, popularity and power of radical nationalists that called for immediate liberation of Germany from the shackles of the Treaty of Versailles, righting the wrongs committed by the Allied powers and severely punishing the wrongdoers (both internal and external).

Including the appeal, popularity and power of Adolf Hitler and his Nazi party. Who could no longer ignore economic issues that were rapidly becoming not only the most important ones for his audience. But just about the only important ones – at least for the time being.

However, his audience will not be satisfied with just talk. It needed action. It needed someone who will seize power in Germany and solve these damn problems once and for all. It did not want a public speaker – no matter how hypnotic – it needed a political leader. The Führer of the nation.

Hitler – inspired by his now deepest belief (supported by more and more members of his party) that he was the Chosen One, the German Messiah – had exactly the same desire.

However, although by that time he already decided on the general strategy (seize power in Bavaria and then use this semi-autonomous state to come to power in the whole Weimar Republic), did not have a clear vision of the specifics.

Hence, although the authorities in Munich and Berlin considered him a serious political threat, stating that “it’s not impossible that they [i.e. Hitler and his Nazis] will try a putsch here before long, using the mounting inflation as an excuse”, in reality he was not ready to do that yet.

Until October 29^th, 1922 when another right-wing, nationalist, populist and fascist leader – in another country – showed him how it could (and very probably should) be done.

Il Duce. Benito Amilcare Andrea Mussolini.

Hitler’s Views on Economic Issues

Prior to mid-1921, Adolf Hitler did not speak much – privately or publicly – on economic issues (i.e., pretty much ignored them). And for a good reason – actually, for three very good reasons.

First, he knew (i.e. admitted at least to himself) that he did not know squat about economics. In reality, he knew little about just about any subject (except music, art and architecture) – politics (foreign and domestic), social issues, education… you name it.

But unlike with economics, he sincerely (and erroneously) believed that he was an expert on all these issues (or at least knew enough to speak publicly, confidently and authoritatively about them).

Second, he knew that economic issues (except the most primitive and elementary ones) do not resonate with his audience (that knew next to nothing and did not really want to know about “the big economic picture”).

It could easily (and wholeheartedly) relate to the need to right the wrongs of the Treaty of Versailles (and punish the wrongdoers), fight and win the existential war with Bolshevism.

As well as to the need to restore German power and glory and transform it into a global economic, political and military superpower. And, of course, to obtain the necessary Lebensraum in the East to adequately support the (hopefully) fast-growing German population and to make sure that the horrors of the Blockade and hunger of 1917-19 never happen again.

The only economic issue that they will like to hear about (and would even applaud to) was Hitler’s demand – and promise – to eliminate Jews from German economic life.

In other words, to (1) confiscate (considerable) Jewish assets and distribute them among “Aryans” – i.e. Germans; and (2) to fire Jews from lucrative jobs in business, academia, government service, etc. – and give these jobs to Germans.

After Nazis came to power in 1933, they promptly delivered on both promises – it is estimated that about 15% (i.e. one-sixth) of financing for German economic miracle of 1933-38 and for the subsequent war effort came from assets seized from the Jews in Germany and on occupied territories.

Initially Hitler knew little about Marxism (let alone Bolshevism – its Russian incarnation) so he initially framed the existential war in purely racial terms – as the war with the (mythical) “Jewish race”.

However, after he developed a close ideological relationship with Alfred Rosenberg who was a first-hand witness of horrible atrocities and economic devastation committed by the Russian Bolsheviks – and especially after the Polish-Soviet war of 1920 (which almost resulted in invasion and occupation of Germany by the Red Army), Hitler began to reframe this war as the existential war with “Jewish Bolshevism”, considering the latter as a key part of a (mythical) “global Jewish conspiracy”.

Hitler spoke in April and again in June 1920 of Russia being destroyed by the Jews, but it was only in his Rosenheim speech on July 21^st that he explicitly married the images of Marxism, Bolshevism, and the Soviet system in Russia to the brutality of Jewish rule, for which he saw Social Democracy (and “red uprisings” of 1919-20) preparing the ground in Germany.

These images appear to have provided the catalyst to the merger of antisemitism and anti-Marxism (anti-Bolshevism) in his ‘worldview’ – an identity which, once forged, never disappeared.

Third, while he firmly believed that he will be able to deliver on all other promises himself (i.e. lead and manage the corresponding “quantum leap” projects), he was well aware that he will not be able to do so in economics (i.e. transform Germany into a global economic superpower).

He had to hire the right professionals and essentially give them cart-blanche to do whatever needs to be done to accomplish these quantum leaps. And that’s exactly what he did after the Enabling Act of March 1933 gave him an absolute power in Germany.

However, it did not mean that Adolf Hitler did not have at least some general views on economic issues. He did. And (not surprisingly), these views were fundamentally nationalist and profoundly socialist. And, of course, the views of a genuine patriot (albeit of a picture-perfect national-sociopath).

Hitler’s economic views and principles (obviously) stemmed from his vision of an ideal, classless, nationalist and genuinely happy society (i.e. the one where every citizen is genuinely happy).

Hitler acknowledge and accepted that genuine happiness required an optimal balance between giving and receiving; between creating aggregate value (financial, functional, emotional and spiritual) and consuming aggregate value; between producing goods and services and consuming them; between serving the society and being served by it.

However, he (correctly) deeply and sincerely believed that for a genuinely happy person giving is more important than receiving; serving than being served; creating aggregate value than consuming it and producing goods and services than consuming me.

A surprisingly Christian view, if you ask me. With three key differences, however. First, while Christians believe that the key to happiness and salvation is serving the whole humanity, Hitler insisted that one must serve exclusively “his people” (i.e. individuals of his/her nationality/”race”).

Second (which is actually related to the first), Adolf Hitler no less sincerely believed that genuine happiness requires not serving individuals of other nations (“races”) but brutally (even destructively) exploiting them, getting the most out of their land, labor and capital in terms of aggregate value and given back next to nothing (ideally, nothing at all).

Combined with the goal of obtaining Lebensraum in the East, this belief resulted in the principle of “predatory colonialism”. “Classic colonialists” (British, French, Spanish, Portuguese and Russians) who, although consumed natural and human resources of conquered territories and nations, they also built roads, schools, hospitals, established highly efficient government systems, eliminated horrible practices of cannibalism and human sacrifice, etc.

In other words, they created enormous amounts of aggregate value (hence it is a big question whether they consumed more than they created or the other way around).

Hitler’s “predatory colonialism” was pure consumption (and thus pure destruction – quick and comprehensive). And thus simply stupid as you can not get anything of value from a destroyed land of which there is a very much limited supply in our world.

Third, Hitler’s economic views were inseparable from his fundamental doctrine of an “existential racial war”. Consequently, he viewed every German man (worker, manager, entrepreneur, teacher, scientist, government servant, etc.) as a soldier in this existential (and thus all-important) racial war. And every woman – as his dedicated, committed, loyal and efficient Helferin (“helper”).

On the “home front”, Hitler’s economic views were surprisingly healthy and even noble. With the exception of a “racial war” part, of course; however, if you replace the mythical “racial war” (i.e. “existential war with the Jewish race”) with the very real existential war with Bolshevism, everything will fall into a very noble and harmonious place.

Hitler firmly believed (and subsequently preached) that every German worker must work not only for his employer – his commanding general (in Hitler’s opinion a woman were supposed to stay at home, take care of her husband and raise children) but for his Germany as well. Thus making a contribution not only to the bottom line of his company but also to the all-important victory in the existential racial war.

In other words, in his by no means humble opinion, every German worker was not just a worker, but a very important soldier in the Greater German Army. And thus motivated not only by money (his wages and bonuses) and the noble need to serve his employer, but by even nobler drive – genuine patriotism.

Adolf Hitler firmly believed that every German manager must work not only for his employer – his commanding general (the idea of a female manager was a complete anathema to Hitler) and for his subordinates (his “soldiers”), but for his Germany as well.

Thus making a contribution not only to the bottom line of his company (and well-being of his subordinates) but also to the all-important victory in the existential racial war.

In other words, in Hitler’s opinion, every German manager was not just a manager, but a very important officer in the Greater German Army. And thus motivated not only by money (his wages and bonuses) and the noble need to serve his employer, but by even nobler drive – genuine patriotism.

Hitler firmly believed that every German entrepreneur must start his business (for Hitler, the idea of a female entrepreneur was simply blasphemous) not only to make money, create value by satisfying aggregate needs of its customers and employees and creating jobs for German workers, but to provide a very important service for Germany.

Thus making a contribution not only to the bottom line of his company (and well-being of his customers and employees) but also to the all-important victory in the existential racial war.

In other words, in Hitler’s opinion, every German entrepreneur (business owner) was not just an entrepreneur, but a very important general in the Greater German Army. And thus motivated not only by money (his profits and free cash flows) and the noble need to serve his customers and his employees, but by even nobler drive – genuine patriotism.

Hitler firmly believed that every German investor must invest in the German business (in his opinion, investments in foreign businesses was tantamount to high treason) not only to make money, create value by satisfying aggregate needs of its customers and employees and creating jobs for German workers, but to provide a very important service for Germany.

Thus making a contribution not only to the bottom line of his company (and well-being of his customers and employees) but also to the all-important victory in the existential racial war.

In other words, in Hitler’s opinion, every German investor was not just an investor, but a very important general in the Greater German Army. And thus motivated not only by money (his return-on-investment) and the noble need to serve his customers and his employees, but by even nobler drive – genuine patriotism.

Hence, Adolf Hitler distinguished between two kinds of capital (and thus two kinds of investors) – productive (that invested in real sector with an explicit purpose of creating aggregate value) and parasitic (speculative) that invested for the sole purpose of making money (often “from the thin air”).

He incorrectly associated productive capital with German (“Aryan”) investors and parasitic – with Jewish investors. In reality, there were plenty of Jewish investors who were very much productive investors and a lot of very Aryan investors who were unquestionably parasitic ones.

Hitler firmly believed that every German banker must make loans to German individuals and business (in his opinion, loans to foreign individuals and organizations was tantamount to high treason) not only to make money, create value by satisfying aggregate needs of its debtors and employees and creating jobs for German workers, but to provide a very important service for Germany.

Thus making a contribution not only to the bottom line of his (there was no such thing as a female banker in Hitler’s world) corporate borrowers (and well-being of his individual borrowers) but also to the all-important victory in the existential racial war.

In other words, in Hitler’s opinion, every German banker was not just a banker, but a very important officer in the Greater German Army. And thus motivated not only by money (his interest income) and the noble need to serve his customers and his employees, but by even nobler drive – genuine patriotism.

Consequently, Adolf Hitler (having a fundamentally military mentality and worldview) viewed all German men as soldiers, NCOs, officers and generals (and field marshals) in one German army united by a common purpose – fight and win an existential war with “Jewish Bolshevism” (the latter was perfectly correct, the former – fundamentally wrong).

Which eliminated all class conflict right then and there. This worldview explained why Hitler considered Bolshevism an existential threat – with its ideology of “class struggle” it automatically led to a destructive and murderous civil war (which devastated Russia in 1918-22). And thus was high treason of the worst possible kind.

However, in the fall of 1921 Adolf Hitler had no other choice but to begin speaking on economic issues – because these issues rapidly became not just the most important ones for his audience, but the vital ones. Even the existential ones.

Because Germany was rapidly descending into an abyss. The economic abyss.