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Web of Debt

Chapter 24

“Frightened? You are talking to a man who has laughed in the face
of death, sneered at doom, and chuckled at catastrophe. I was petrified.
Then suddenly the wind changed, and the balloon floated down into
this noble city, where I was instantly proclaimed the First Wizard
Deluxe. Times being what they were, I accepted the job, retaining my
balloon for a quick getaway.”

“ The Wizard of Oz ( MGM film)

I f anyone had sneered at doom, it was the Germans after
World War I. The bold wizardry by which they pulled them-
selves out of bankruptcy to challenge the world in a second world
war rivaled the audacity of the Kansas balloonist who mesmerized
Oz. The Treaty of Versailles had imposed crushing reparations pay-
ments on Germany. The German people were expected to reimburse
the costs of the war for all participants -- costs totaling three times the
value of all the property in the country. Speculation in the German mark
had caused it to plummet, precipitating one of the worst runaway
inflations in modern times. At its peak, a wheelbarrow full of 100
billion-mark banknotes could not buy a loaf of bread. The national
treasury was completely broke, and huge numbers of homes and farms
had been lost to the banks and speculators. People were living in
hovels and starving. Nothing like it had ever happened before “ the
total destruction of the national currency, wiping out people™s sav-
ings, their businesses, and the economy generally.
What to do? The German government followed the lead of the
American Greenbackers and issued its own fiat money. Hjalmar
Schacht, then head of the German central bank, is quoted in a bit of
Chapter 24 - Sneering at Doom

wit that sums up the German version of the “Greenback” miracle. An
American banker had commented, “Dr. Schacht, you should come to
America. We™ve lots of money and that™s real banking.” Schacht
replied, “You should come to Berlin. We don™t have money. That™s
real banking.”1
The German people were in such desperate straits that they
relinquished control of the country to a dictator, and in this they
obviously deviated from the “American system,” which presupposed
a democratically-governed Commonwealth. But autocratic authority
did give Adolf Hitler something the American Greenbackers could
only dream about “ total control of the economy. He was able to test
their theories, and he proved that they worked. Like for Lincoln,
Hitler™s choices were to either submit to total debt slavery or create his
own fiat money; and like Lincoln, he chose the fiat solution. He
implemented a plan of public works along the lines proposed by Jacob
Coxey and the Greenbackers in the 1890s. Projects earmarked for
funding included flood control, repair of public buildings and private
residences, and construction of new buildings, roads, bridges, canals,
and port facilities. The projected cost of the various programs was
fixed at one billion units of the national currency. One billion non-
inflationary bills of exchange, called Labor Treasury Certificates, were
then issued against this cost. Millions of people were put to work on
these projects, and the workers were paid with the Treasury
Certificates. The workers then spent the certificates on goods and
services, creating more jobs for more people. The certificates were
also referred to as MEFO bills, or sometimes as “Feder money.” They
were not actually debt-free; they were issued as bonds, and the
government paid interest on them. But they circulated as money and
were renewable indefinitely, and they avoided the need to borrow
from international lenders or to pay off international debts.2
Within two years, the unemployment problem had been solved
and the country was back on its feet. It had a solid, stable currency
and no inflation, at a time when millions of people in the United States
and other Western countries were still out of work and living on
welfare. Germany even managed to restore foreign trade, although it
was denied foreign credit and was faced with an economic boycott
abroad. It did this by using a barter system: equipment and
commodities were exchanged directly with other countries,
circumventing the international banks. This system of direct exchange
occurred without debt and without trade deficits. Germany™s economic
experiment, like Lincoln™s, was short-lived; but it left some lasting
Web of Debt

monuments to its success, including the famous Autobahn, the world™s
first extensive superhighway.3
According to Stephen Zarlenga in The Lost Science of Money, Hitler
was exposed to the fiat-money solution when he was assigned by
German Army intelligence to watch the German Workers Party after
World War I. He attended a meeting that made a deep impression on
him, at which the views of Gottfried Feder were propounded:
The basis of Feder™s ideas was that the state should create and
control its money supply through a nationalized central bank
rather than have it created by privately owned banks, to whom
interest would have to be paid. From this view derived the
conclusion that finance had enslaved the population by usurping
the nation™s control of money.4
Zarlenga traces the idea that the state should create its own money
to German theorists who had apparently studied the earlier Ameri-
can Greenback movement. Where Feder and Hitler diverged from the
American Greenbackers was in equating the financiers who had en-
slaved the population with the ethnic race of the prominent bankers
of the day. The result was to encourage a wave of anti-semitism that
darkened Germany and blackened its leader™s name. The nineteenth
century Greenbackers saw more clearly what the true enemy was “
not an ethnic group but a financial scheme, one that transferred the
power to create money from the collective body of the people to a
private banking elite. The terrible human rights violations Germany
fell into could have been avoided by a stricter adherence to the “Ameri-
can system,” keeping the reins of power with the people themselves.
While Hitler clearly deserved the opprobrium heaped on him for
his later military and racial aggressions, he was enormously popular
with the German people, at least for a time. Zarlenga suggests that
this was because he temporarily rescued Germany from English
economic theory “ the theory that money must be borrowed against
the gold reserves of a private banking cartel rather than issued outright
by the government. Again, the reasons for war are complex; but
Zarlenga postulates one that is not found in the history books:
Perhaps [Germany] was expected to borrow gold internationally,
and that would have meant external control over her domestic
policies. Her decision to use alternatives to gold, would mean
that the international financiers would be unable to exercise this
control through the international gold standard, . . . and this
may have led to controlling Germany through warfare instead.5
Chapter 24 - Sneering at Doom

Dr. Henry Makow, a Canadian researcher, adds some evidence
for this theory. He quotes from the 1938 interrogation of C. G.
Rakovsky, one of the founders of Soviet Bolshevism and a Trotsky
intimate, who was tried in show trials in the USSR under Stalin.
Rakovsky maintained that Hitler had actually been funded by the
international bankers through their agent Hjalmar Schacht in order
to control Stalin, who had usurped power from their agent Trotsky.
But Hitler had become an even bigger threat than Stalin when he
took the bold step of creating his own money. Rakovsky said:
[Hitler] took over for himself the privilege of manufacturing
money and not only physical moneys, but also financial ones;
he took over the untouched machinery of falsification and put it
to work for the benefit of the state . . . . Are you capable of
imagining what would have come . . . if it had infected a number
of other states and brought about the creation of a period of
autarchy. If you can, then imagine its counterrevolutionary
functions . . . .6
Autarchy is a national economic policy that aims at achieving self-
sufficiency and eliminating the need for imports. Countries that take
protectionist measures and try to prevent free trade are sometimes
described as autarchical. Rakowsky™s statement recalls the editorial
attributed to the The London Times, warning that if Lincoln™s
Greenback plan were not destroyed, “that government will furnish its
own money without cost. It will pay off debts and be without a debt.
It will have all the money necessary to carry on its commerce. It will
become prosperous beyond precedent in the history of the civilized
governments of the world.” Germany was well on its way to achieving
those goals. Henry C K Liu writes of the country™s remarkable
The Nazis came to power in Germany in 1933, at a time when
its economy was in total collapse, with ruinous war-reparation
obligations and zero prospects for foreign investment or credit.
Yet through an independent monetary policy of sovereign credit
and a full-employment public-works program, the Third Reich
was able to turn a bankrupt Germany, stripped of overseas
colonies it could exploit, into the strongest economy in Europe
within four years, even before armament spending began.7
In Billions for the Bankers, Debts for the People (1984), Sheldon
Emry also credited Germany™s startling rise from bankruptcy to a world

Web of Debt

power to its decision to issue its own money. He wrote:
Germany financed its entire government and war operation from
1935 to 1945 without gold and without debt, and it took the
whole Capitalist and Communist world to destroy the German
power over Europe and bring Europe back under the heel of the
Bankers. Such history of money does not even appear in the
textbooks of public (government) schools today.
What does appear in modern textbooks is the disastrous runaway
inflation suffered in 1923 by the Weimar Republic (the common name
for the republic that governed Germany from 1919 to 1933). The
radical devaluation of the German mark is cited as the textbook
example of what can go wrong when governments are given the
unfettered power to print money. That is what it is cited for; but
again, in the complex world of economics, things are not always as
they seem . . . .

Another Look at the Weimar Hyperinflation

The Weimar financial crisis began with the crushing reparations
payments imposed at the Treaty of Versailles. Hjalmar Schacht, who
was currency commissioner for the Republic, complained:
The Treaty of Versailles is a model of ingenious measures for the
economic destruction of Germany. . . . [T]he Reich could not
find any way of holding its head above the water other than by
the inflationary expedient of printing bank notes.
That is what he said at first; but Zarlenga writes that Schacht
proceeded in his 1967 book The Magic of Money “to let the cat out of
the bag, writing in German, with some truly remarkable admissions
that shatter the ˜accepted wisdom™ the financial community has
promulgated on the German hyperinflation.”8 Schacht revealed that it
was the privately-owned Reichsbank, not the German government, that
was pumping new currency into the economy. Like the U.S. Federal
Reserve, the Reichsbank was overseen by appointed government
officials but was operated for private gain. The mark™s dramatic
devaluation began soon after the Reichsbank was “privatized,” or
delivered to private investors. What drove the wartime inflation into
hyperinflation, said Schacht, was speculation by foreign investors, who would
sell the mark short, betting on its decreasing value. Recall that in the
short sale, speculators borrow something they don™t own, sell it, then

Chapter 24 - Sneering at Doom

“cover” by buying it back at the lower price. Speculation in the German
mark was made possible because the Reichsbank made massive
amounts of currency available for borrowing, marks that were created
on demand and lent at a profitable interest to the bank. When the
Reichsbank could not keep up with the voracious demand for marks,
other private banks were allowed to create them out of nothing and
lend them at interest as well.9
According to Schacht, not only was the government not the cause
of the Weimar hyperinflation, but it was the government that got the
disaster under control. The Reichsbank was put under strict regulation,
and prompt corrective measures were taken to eliminate foreign
speculation by eliminating easy access to loans of bank-created money.
Hitler then got the country back on its feet with his MEFO bills issued
by the government.
Schacht actually disapproved of the new government-issued money
and wound up getting fired as head of the Reichsbank when he refused
to issue it, something that may have saved him at the Nuremberg trials.
But he acknowledged in his later memoirs that Feder™s theories had
worked. Allowing the government to issue the money it needed had
not produced the price inflation predicted by classical economic theory.
Schacht surmised that this was because factories were sitting idle and
people were unemployed. In this he agreed with Keynes: when the
resources were available to increase productivity, adding money to
the economy did not increase prices; it increased goods and services.
Supply and demand increased together, leaving prices unaffected.
These revelations put the notorious hyperinflations of modern
history in a different light . . . .

Web of Debt

Chapter 25

There is no subtler, no surer means of overturning the existing
basis of society than to debauch the currency. The process engages all
the hidden forces of economic law on the side of destruction, and does
it in a manner which not one man in a million is able to diagnose.


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