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   Nazi Conspiracy and Aggression, Volume Two, Chapter XIV
                              

                                                  [Page 742]
                                                            
C. SCHACHT PLAYED A DOMINANT ROLE IN THE CONSPIRATORS'
PROGRAM OF REARMAMENT AND ECONOMIC PLANNING AND PREPARATION
FOR WAR.

Germany was virtually prostrate in the early part of 1933;
she was faced with dwindling revenues from taxation and
seemingly unable to raise money either through external or
internal loans. Hitler entrusted to Schacht the task of
wringing from the depressed German economy the tremendous
material requirements of armed aggression, and endowed him
with vast powers over every sector of German industry,
commerce, and finance to carry out that task. Some of the
devices which Schacht employed to fulfill his mission will
now be examined.

Schacht's program, as hereinafter outlined, was, by his own
admissions, dedicated to the accomplishment of Hitler's
armament program. In a memorandum to Hitler dated 3 May 1935
concerning the financing of armament, Schacht wrote:

     "The following comments are based on the assumption
     that the accomplishment of the armament program in
     regard to speed and extent, is the task of German
     policy, and that therefore everything else must be
     subordinated to this aim, although the reaching of this
     main goal must not be imperiled by neglecting other
     questions. *** ''
     
                           *******
     
     "*** all expenditures which are not urgently needed in
     other matters, must stop and the entire, in itself
     small, financial power of Germany must be concentrated
     toward the one goal: to arm."

In a letter to General Thomas dated 29 December 1937,
Schacht stated:

     "I have always considered a rearmament of the German
     people as conditio sine qua non of the establishment of
     a new German nation." (EC-257).

Schacht's vast achievements in furtherance of the
conspirators' program may conveniently be considered under
four headings: (a) armament financing; (b) the "New Plan";
(c) control of production; and (d) plans and preparations
for economic controls during war.

(1) Armament Financing.

(a) Mefo bills. The financing of the conspirators' huge
rearmament program presented a twofold problem to Schacht
First, was the need of obtaining funds over and above the
amount which could be obtained through taxation and public
loans. Sec-

                                                  [Page 743]
                                                            
ond, was the conspirators' desire, in the early stages of
rearmament, to conceal the extent of their feverish armament
activities. Schacht's answer to the problem was the "mefo"
bills, a scheme which he devised for the exclusive use of
armament financing (EC-436).

Transactions in "mefo" bills worked as follows: "mefo" bills
were drawn by armament contractors and accepted by a limited
liability company called the Metallurgische
Forschungsgesellschaft, m.b.H. (MEFO). This company was
merely a dummy organization; it had a nominal capital of
only one million Reichsmarks. "Mefo" bills ran for six
months, but provision was made for extensions running
consecutively for three months each. The drawer could
present his "mefo" bills to any German bank for discount at
any time, and these banks, in turn, could rediscount the
bills at the Reichsbank at any time within the last three
months of their earliest maturity. The amount of "mefo"
bills outstanding was a guarded state secret (EC-436). The
"mefo" bill system continued to be used until 1 April 1938,
when 12 billion Reichsmarks of "mefo" bills were outstanding
(EC-436). This method of financing enabled the Reich to
obtain credit from the Reichsbank which, under existing
statutes, it could not directly have obtained. Direct
lending
to the Government by the Reichsbank had been limited by
statute to 100 million Reichsmarks (Reichsgesetzblatt, 1924,
II, p. 241). Schacht has conceded that his "mefo" bill
device "enabled the Reichsbank to lend by a subterfuge to
the Government what it normally or legally could not
do" (3728-PS).

In a speech delivered on 29 November 1938, Schacht glowingly
described the credit policy of the Reichsbank of which he
was the author as

     "It is possible that no bank of issue in peacetime
     carried on such a daring credit policy at the
     Reichsbank since the seizure of power by National
     Socialism. With the aid of this credit policy, however,
     Germany created an armament second to none, and this
     armament in turn made possible the results of our
     policy." (EC-611).

The "daring credit policy," which made possible the creation
of "an armament second to none," obviously embraced the
"mefo" bill financing which he had contrived.

(b) Use of funds of opponents of Nazi regime. In his efforts
to draw upon every possible source of funds for the
conspirators' rearmament program, Schacht even used the
blocked funds of foreigners deposits in the Reichsbank. In
his memorandum to Hitler of 3 May 1935, Schacht boasted:

                                                  [Page 744]
                                                            
     "The Reichsbank invested the major part of Reichsbank
     accounts owned by foreigners, and which were accessible
     to the Reichsbank, in armament drafts. Our armaments
     are, therefore, being financed partially with the
     assets of our political opponents." (1168-PS) .

(c) Taxation and long term indebtedness. "Mefo" bills and
the funds of political opponents of the conspirators were,
of course, not the only sources from which Schacht drew to
finance the armament program. Funds for rearmament were
likewise derived from taxation and an increase in public
debt -- channels through which part of national income is
ordinarily diverted to public authorities. But what
distinguished the conspirators' program of public
indebtedness was the fact that the German capital market was
completely harnessed to the expanding needs of the Nazi war
machine. By a series of controls, they reduced to the
minimum consistent with their rearmament program, all
private issues which might have competed with Government
issues for the limited funds in the capital market. Thus,
the capital market was, in effect, pre-empted for Government
issues (EC-497; EC-611) .

During the period from 31 December /1932 to 30 June 1938,
the funded debt of the Reich rose from 10.4 billion Marks to
19 billion Marks (EC-419).

This large increase in funded debt was dedicated "as far as
possible" to "the financing of armament and the Four-Year
Plan" (EC-611 ) .

(2) The New Plan. The conspirators' grandiose armament plans
obviously required huge quantities of raw materials. Schacht
was a proponent of the view that as much of the requisite
raw materials as possible should be produced within Germany.
At the same time, however, he recognized that large imports
of raw materials were indispensable to the success of the
conspirators' gigantic armament program. To that end, he
fashioned an intricate system of controls and devices which
he called the "New Plan" (Reichsgesetzblatt, 1934, I, pp.
816, 829, 864; Reichsgesetzblatt, 1935, I, p. 10).

There were three main features of the "New Plan" as devised
by Schacht: (1) restriction of the demand for such foreign
exchange as would be used for purposes unrelated to the
conspirators' rearmament program; (2) increase of the supply
of foreign exchange, as a means of paying for essential
imports which could not otherwise be acquired; and (3)
clearing agreements and other devices obviating the need for
foreign exchange. Under the

                                                  [Page 745]
                                                            
"New Plan", economic transactions between Germany and the
outside world were no longer governed by the autonomous
price mechanism; they were determined by a number of
Government agencies whose primary aim was to satisfy the
needs of the conspirators' military economy (EC-437).

Schacht accomplished the negative task of restricting the
demand for foreign exchange

     "by various measures suspending the service on Germanys
     foreign indebtedness, by freezing other claims of
     foreigners on Germany, by a stringent system of export
     controls and by eliminating foreign travel and other
     unessential foreign expenditures." (EC-437).

In order to increase the available supply of foreign
exchange

     "Schacht repeatedly requisitioned all existing foreign
     ex. change reserves of German residents, required all
     foreign exchange arising out of current exports and
     other transactions to be sold to the Reichsbank, and by
     developing new export markets. Exports were encouraged
     by direct subsidies and by accepting partial payment in
     German foreign bonds or in restricted Marks which could
     be acquired by foreign importers at a substantial
     discount." (EC-437).

A vast network of organizations was erected to effectuate
these various measures. Suffice it for the present purposes
to mention merely one of these organizations: the
supervisory agencies (Ueberwachungsstellen). These agencies,
which were under Schacht's control as Minister of Economics,
decided whether given imports and exports were desirable;
whether the quantities, prices, credit terms, and countries
involved were satisfactory; and in short, whether any
particular transaction advanced the conspirators' armament
program. The overriding military purpose of the series of
controls instituted under the "New Plan" is plainly shown in
Schacht's letter of 5 August 1937 to Goering, wherein he
said:

     "*** 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."
     (EC-497)

There remains for consideration that aspect of the "New
Plan" which involved extensive use of clearing agreements
and other arrangements made by Schacht to obtain materials
from abroad through the expenditure of foreign exchange. The
principle of the clearing system is as follows: The importer
makes a deposit

                                                  [Page 746]
                                                            
of the purchase price in his own currency at the national
clearing agency of his country, which places the same amount
to the credit of the clearing agency of the exporting
country. The latter institution then pays the exporter in
his own currency. Thus, if trade between two countries is
unequal, the clearing agency of one acquires a claim against
the agency of the other. That claim, however, is satisfied
only when a shift in the balance of trade gives rise to an
offsetting claim.

This device was used by Schacht as a means of exploiting
Germany's position as Europe's largest consumer in order to
acquire essential raw materials from countries which,
because of the world wide economic depression, were
dependent upon the German market as an outlet for their
surplus products. Speaking of his system of obtaining
materials abroad without the use of foreign exchange,
Schacht has stated:

     "It has been shown that, in contrast to everything
     which classical national economy has hitherto taught,
     not the producer but the consumer is the ruling factor
     in economic life. And this thesis is somewhat connected
     with general social and political observations, because
     it establishes the fact that the number of consumers is
     considerably larger than the number of producers, a
     fact which exercises a not inconsiderable social and
     political pressure." (EC-611)

Schacht's clearing agreements were particularly effective in
Southeastern Europe, where agricultural exports had been
considerably curtailed by competition from the more
extensive and efficient overseas agriculture. The success of
Schacht's ruthless use of Germany's bargaining position is
indicated by the fact that by August 1937, there had been
imported into Germany approximately one half billion
Reichsmarks of goods in excess of the amount delivered under
the clearing arrangements. In his letter to Goering dated 5
August 1937, Schacht stated:

     "*** 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 one half billion RM ***." (EC-497)

Thus, through this device, Schacht was able to extract huge
loans from foreign countries which Germany could not have
obtained through ordinary channels. The device as developed
by Schacht was subsequently used during the war as a means
of systematically exploiting the occupied countries of
Western Europe.

                                                  [Page 747]
                                                            
In addition to the clearing agreements, Schacht devised the
system which came to be known as the "aski" accounts. This
scheme likewise obviated the need for free currency (i.e.
Reichsmarks freely convertible into foreign currency at the
official rate-U. S. dollars, pounds sterling, etc). The
system worked as follows: The German foreign exchange
control administration would authorize imports of goods in
specified quantities and categories on the condition that
the foreign sellers agreed to accept -payment in the form of
Mark credits to accounts of a special type held in German
banks. These accounts were called "aski", an abbreviation of
Auslander Sonderkonten fuer Inlandszahlungen (foreigners'
special accounts for inland payments). The so-called "aski"
Marks in such an account could be used to purchase German
goods only for export to the country of the holder of the
account; they could not be converted into foreign currency
at the official rates of exchange. Each group of "aski"
accounts formed a separate "island of exchange" in which the
German authorities, under Schacht's leadership, could apply
their control as the country's bargaining position in each
case seemed to warrant.

Schacht's ingenious devices were eminently successful. They
admirably served the conspirators' need of obtaining
materials which were necessary to create and maintain their
war machine. On this point, Schacht has stated:

     "The success of the New Plan can be proved by means of
     a few figures. Calculated according to quantity, the
     import of finished products was throttled by 63 percent
     between 1934 and 1937. On the other hand, the import of
     ores was increased by 132 percent, of petroleum by 116,
     of grain by 12 and of rubber by 71 percent."
     
     "These figures show how much the New Plan contributed
     to the execution of the armament program as well as to
     the securing of our food." (EC-611 )

 (3) Production Control. As an additional means of assuring
that the conspirators' military needs would be met, Schacht
adopted a host of controls over the productive mechanism of
Germany, extending, inter alia, to the allocation of raw
materials, regulation of productive capacity, use of
abundant or synthetic substitutes in place of declining
stocks of urgently needed materials, and the erection of new
capacity for the production of essential commodities. The
structure of regulation was built up out of thousands of
decrees in which governmental agencies under

                                                  [Page 748]
                                                            
Schacht's control issued permits, prohibitions, and
instructions These decrees were the outgrowth of carefully
laid plans of the Ministry of Economics, of which Schacht
was the head, concerning "economic preparation for the
conduct of war", and in accordance with its view that
"genuine positive economic mobilization" demanded that
"exact instructions for every individual commercial
undertaking are laid down by a central authority' (EC-128)

The plan to allocate raw materials was carried out through
myriad "orders to produce" specifying that certain
commodities must or must not be produced; "orders to process
or use" prescribing the type and quantity of raw material
which could or could not be used in the production of a
given commodity; orders specifying that scarce raw materials
could be used only as admixtures with more plentiful but
inferior products; and other like measures. The precise
details of these orders are unimportant for present
purposes. Their significance lies in the fact that they were
governed by a central purpose: preparation for war. In the
above mentioned secret report issued in September 1934 by
the Ministry of Economics it was said:

     "Rules are to be initiated for the allotment of scarce
     raw materials etc; and their use and processing for
     other than war, or otherwise absolutely vital, goods is
     prohibited." (EC-128)

The military aspects of Schacht's plans to increase the
production of scarce raw materials within Germany, and
thereby reduce Germany's dependence upon foreign countries
for materials needed in the rearmament program, are likewise
revealed in the aforementioned report of the Ministry of
Economics of September 1934:

     "The investigations initiated by the Raw Materials
     Commission and the measures introduced for enlarging
     our raw materials basis through home production as well
     as for furthering the production of substitute
     materials will directly benefit war economy
     preparations." (EC-128)

(4) Plans and Preparations for Economic Controls During War.
Pursuant to the unpublished Reich Defense Law secretly
enacted on 21 May 1935, Schacht was appointed General
Plenipotentiary for War Economy by Hitler. Under this law,
Schacht was placed in complete charge of economic planning
and preparation for war in peacetime, except for the direct
production of armaments which was entrusted to the Ministry
of War; and upon the outbreak of war, Schacht was to be the
virtual economic dictator of Germany. His task was "to put
all economic forces in

                                                  [Page 749]
                                                            
the service of carrying on the war and to secure the life of
the German people economically". In order to facilitate his
task, the Ministers of Economy, Food and Agriculture, Labor,
and Forestry were subordinated to him, and he was authorized
"within realm of responsibility, to issue legal regulations
which may deviate from existing regulations". The necessity
for absolute secrecy was stressed (2261-PS).

Schacht appointed Wohlthat as his deputy General
Plenipotentiary for War Economy and organized a staff to
carry out his directives. Schacht has admitted that he must
accept full responsibility for the actions of these
subordinates (3729-PS).

Before his resignation in late 1937, Schacht had worked out
in amazing detail his plans and preparations for the German
economy in the forthcoming war. Recognizing that wartime
controls, to be effective, must be based on adequate
information, Schacht had directed the completion of
comprehensive surveys of 180,000 industrial plants in
Germany and had compiled statistics concerning

     ."*** the composition of the labor force as to sex,
     age, and training, the consumption of raw and auxiliary
     material, fuels, power, the productive capacity, the
     domestic and foreign trade as well as the supply of
     material and products in the beginning and at the end
     of the year." (EC-258)

On the basis of the statistical data thus collected, plans
had been formulated by the end of 1937 wherein

     "*** the needs of the Armed Forces and the civilian
     minimum needs in wartime are compared with the covering
     thereof by supplies and production." (EC-258)

The supervisory boards, which were briefly described above
in connection with the import and export controls, were
charged with "preparing their orders for the regulation of
war contracts and fees", and were instructed to coordinate
with various Reich manpower authorities to secure "their
indispensable personnel" (EC-258).

Special measures were taken under Schacht's direction, to
maintain "mobilization stocks" of coal and to assure their
distribution in accordance with the wartime needs of
armament factories and large consumers. Large "gasoline
storage places" were constructed for use of the Wehrmacht
and "gasoline stations and gasoline stores" were designated
"for the first equipment of the troops in case of
mobilization". Careful plans were also made for the
allocation of power during war, and practice maneuvers were
held

                                                  [Page 750]
                                                            
in order to determine "what measures have to be taken in
case places of power generation should be eliminated" (EC-
258).

Evacuation plans for the removal of war materials,
agricultural products, skilled workers, and animals from
military zones were worked out by the Office of the
Plenipotentiary for War Economy with characteristic
thoroughness. Thus, "the supplies and skilled workers in the
evacuation zones" were "registered, earmarked for
transportation into certain salvage areas and registered
with the Wehrkreiskommandos by the field offices of
evacuation and salvaging plans" (EC-25) .

Detailed plans for a system of rationing to become effective
immediately upon mobilization had already been made by the
end of 1937:

     "The 80 million ration cards necessary for this purpose
     have already been printed and deposited with the
     Landrats, Chief Mayors, and corresponding authorities.
     The further distribution of the ration cards to the
     individual households is prepared by these authorities
     to take place within 24 hours after mobilization has
     been ordered." (EC-258)

Trusted persons whose reliability had been attested to by
the Secret State Police were installed in important
enterprises and charged with the execution of "measures
which guarantee the maintenance of production of their
enterprises in the event of mobilization". Their functions
likewise extended, among other matters, to applying "for
exemptions from military service" of "employees who are
indispensable to their enterprise", and seeking immunity
from requisition by the Wehrmacht- of all motor trucks which
were needed in the enterprises to which they were assigned
(EC-258).

Pursuant to directives issued by Schacht as Plenipotentiary,
labor authorities of the Government ascertained "the
available amount of manpower, the wartime requirements of
manpower and measures for the covering of the wartime
needs". The wartime needs were to be met in part "by using
reserve manpower (manpower theretofore used in non-essential
enterprises, women, etc.)", and by making "every change of
working place and every hiring of workers dependent upon the
consent of the Labor Office" (EC-258).,

The foregoing measures, it should be noted, are merely
representative; they are not exhaustive. But enough appears
to make it abundantly clear that Schacht's contribution, by
any standard was an extraordinarily important one. Enough
appears, moreover, to give particular emphasis to the
following observations of

                                                  [Page 751]
                                                            
the Honorable George S. Messersmith, United States Consul
General in Berlin from 1930 to 1934:

     "It was his [Schacht's] financial ability that enabled
     the Nazi regime in the early days to find the financial
     basis for the tremendous armament program and which
     made it possible to carry it through. If it had not
     been for his efforts, and this is not a personal
     observation of mine only but I believe was shared and
     is shared by every observer at the time, the Nazi
     regime would have been unable to maintain itself in
     power and to establish its control over Germany, much
     less to create the enormous war machine which was
     necessary for its objectives in Europe and later
     throughout the world.

     "The increased industrial activity in Germany incident
     to rearmament made great imports of raw materials
     necessary while at the same time exports were
     decreasing. Yet by Schacht's resourcefulness, his
     complete financial ruthlessness, and his absolute
     cynicism, Schacht was able to maintain and to establish
     the situation for the Nazis. Unquestionably without
     this complete lending of his capacities to the Nazi
     Government and all of its ambitions, it would have been
     impossible for Hitler and the Nazis to develop an Armed
     Force sufficient to permit Germany to launch an
     aggressive war." (EC-451).
     

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