The Reich’s Finances Had Been Spiraling Towards Disaster Because the Reichsbank Engaged in an “Inflationary Creation of Money”

Within days of the Munich agreement, the Reichsbank economics department drafted a memorandum, which, though it was never circulated outside the offices of the central bank, nevertheless deserves to stand as the final monument to Hjalmar Schacht’s career in the Third Reich: ‘With the incorporation of the Sudetenland into the Reich,’ the Reichsbank declared, ‘the Fuehrer has completed a task that is without parallel in history. In barely five years of National Socialist rule, Germany has achieved military freedom, sovereign control of its territory and the incorporation of the Saarland, Austria and the Sudetenland. It has thereby turned itself from a political non-valeur into the pre-eminent power in continental Europe.’ Hitler had achieved the ultimate goal of German nationalism, the establishment of Grossdeutschland, something which had eluded even Bismarck, and he had done so without provoking war. This extraordinary national resurrection was above all based on a gigantic armaments effort, which had been managed in such a way as to give full employment to the German people whilst avoiding the curse of inflation. This too was a unique historical accomplishment.

But, in the autumn of 1938, at the moment of Hitler’s greatest triumph, the economic foundations of his success were in question. The Reichsbank was forced to acknowledge that despite its best efforts, there was ‘no longer . . . complete stability of the German currency’. ‘An inflation of the Reichsmark’ had begun, even if this was ‘not yet fully apparent’. This was an admission that Schacht repeated a few weeks later in a report to the Capital Market Committee (Kapitalmarktauschuss) — the committee of the RFM [Reichsfinanzministerium (Finance Ministry)], RWM [Reichswirtschaftsministerium (Ministry of Economic Affairs)] and Reichsbank which oversaw the raising of funds on the German financial markets. In front of his colleagues, Schacht openly stated: ‘It cannot be denied . . . that we are already on the threshold of inflation.’ To restore the Reichsmark to a state worthy of a great power, Germany needed a restoration of monetary and fiscal stability. Since the spring of 1938, the Reich’s finances had been spiralling towards disaster. For months the Finance Ministry had been living ‘from hand to mouth’ and the Reichsbank had been forced into an ‘inflationary creation of money’.

—Adam Tooze, The Wages of Destruction: The Making and Breaking of the Nazi Economy (London: Penguin Books, 2007), 285-286.