I have followed Henry C. K. Liu's writings on money, banking and international trade for over ten years, thanks

to Peter Meyers. An opponent of globalization, Liu may or may not be the greatest living economist, but I know

he is one of only a handful -- Herman Daly and Michael Chussodovsky, for example -- that I would choose to re-

regulate international trade in the best interests of the human race on this planet. This article is about Germany,

and unfortunately since this article was written Chancellor Gerhard Schröder in Germany has been replaced by

Angela Merkel, yet one more subservient minion like Nicolas Sarkozy, Barrak Obama and Gordon Brown.

If Liu's article proves to be too much reading, scroll down to the shorter related articles that follow below it.

Dick Eastman

Yakima, Washington

"Nazi economic experts understood that sovereign credit creation for purposes of job creation posed no

inflationary threat and that it would be a far more responsible policy than the conservative approach of tax

increases and welfare cuts to balance government budgets."

Nobody out­shoots Hank Liu 

Nazism and the German economic miracle 

By Henry C K Liu

The term "social market economy" was coined by one of German chancellor Ludwig Erhard's close associates,

economist Alfred Mueller-Armack, who served as secretary of state at the Economics Ministry in Bonn from

1958-63. Mueller-Armack defined social market economy as combining market freedom with social equity,

with a vigilant regulatory regime to create an equitable framework for free market processes. The success of the

social market economy made the Federal Republic of Germany the dominant component in the European

Union. Focusing on the social aspect, Erhard himself shied away from praising free markets. He felt that social

rules of the market-economy game must be adhered to as a precondition in order to prevent unbridled pursuit

of profit from gaining the upper hand.

Erhard's concept of a socially responsive regulated market economy was based on a fusion of the Bismarck

legacy of social welfare and US New Deal ideology of demand management through full employment, price

control, state subsidies, anti-trust regulations, state control of monetary stability, etc. It was aided by the

infusion of foreign capital through the Marshall Plan. It proved to be effective for rapid and strong recovery of

the West German economy via guaranteed access to the huge US market during the Cold War, culminating in

the postwar economic miracle (Wirtschaftswunder).

Ludwig Erhard 

Yet Erhard's program bore a close resemblance to the early economic strategy of the Third Reich. The main

difference was that while the Third Reich's program was one of economic nationalism, the Erhard program was

subservient to US geopolitical interests in the context of the Cold War. By relying on US capital and US

markets, chancellors Konrad Adenauer and Erhard accepted the delay of German independence from US

domination for more than half a century. In contrast, Nazi economic policy aimed at the reconstruction of the

German economy without the need for foreign capital, as a program for total and immediate national

independence.

Hitler's economic miracle 

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. In fact, German economic recovery preceded and

later enabled German rearmament, in contrast to the US economy, where constitutional roadblocks placed by

the US Supreme Court on the New Deal delayed economic recovery until US entry to World War II put the US

market economy on a war footing. While this observation is not an endorsement for Nazi philosophy, the

effectiveness of German economic policy in this period, some of which had been started during the last phase of

the Weimar Republic, is undeniable.

There were major differences between the German situation in 1933 and that in 1945. Not having been a

battlefield in World War I, Germany in 1933 was not physically in ruins, as it was in 1945. What lay in ruins

was its political and economic institutions. But in 1933, Germany not only did not have the benefit of the

Marshall Plan, it was saddled with ruinous war reparations and an inoperative credit rating. What Germany

had in 1933 was full sovereignty through which the Third Reich was able to adopt policies of economic

nationalism to full effectiveness. In 1945, Germany was deprived of sovereign power and national policies had

to be adjusted to comply with US and Soviet geopolitical intentions. Economically, the dependence on foreign

investments and credit forced West Germany into an export economy at the mercy of its main market: the

United States.

After two and a half decades of economic reform toward neo-liberal market economy, China is still unable to

accomplish in economic reconstruction what Nazi Germany managed in four years after coming to power, ie,

full employment with a vibrant economy financed with sovereign credit without the need to export, which

would challenge that of Britain, the then superpower. This is because China made the mistake of relying on

foreign investment instead of using its own sovereign credit. The penalty for China is that it has to export the

resultant wealth to pay for the foreign capital it did not need in the first place. The result after more than two

decades is that while China has become a creditor to the US to the tune of nearing China’s own gross domestic

product (GDP), it continues to have to beg the US for investment capital.

The period between World Wars I and II, like no other period in modern European economic history, saw the

success of centrally planned economies in Germany and the Soviet Union, two major states. The United States

as the dominant victor of World War II was determined to perpetuate its hegemony by suppressing national

planning everywhere to prevent the emergence of economic nationalism and socialism. It promoted global

market capitalism and neo-liberal free trade to keep all other economies subservient to the US economy. It is

the economic basis of the Pax Americana.

Stalin's New Economic Policy 

In the Soviet Union, Josef Stalin's planned economy had followed the New Economic Policy (NEP) of 1921-28.

NEP was in essence a mixed market economy; the main part of the market was in state possession (banks,

industries, foreign trade, etc), while the peripheral part was owned by collective or private entrepreneurs. NEP,

while successful, did not give the Soviet economy sufficient growth in the capital-goods sectors (ie coal, steel

and electricity, transportation, heavy industry, etc), nor did it provide adequate food for the urban population

even as the middle peasantry managed to feed itself. To overcome such structural obstacles and to combat

general economic backwardness inherited from centuries of Czarist rule, Stalin introduced central planning as

a strategy of national survival.

Starting from 1928, the Soviet economy was put under a system of planning whereby all modes of production

were socialized and foreign trade was de-emphasized in favor of an autarkic system of domestic demand and

supply. The irony was that Soviet central planning adopted much of its effective techniques from successful US

experience. It was a system of planning focused solely on unit end-results while externalizing social costs. The

key distinction was that the Soviets rejected and bypassed the corporate structure and replaced shareholders

with state ownership. Stalin brought about "revolution from above". Its main features were: strengthening of

political dictatorship in the name of the proletariat (equivalent to enhancing management authority in the US

in the name of shareholders), collectivizing kulak peasants (equivalent to agri-business development in the US),

emergency measure authority (equivalent to government bailouts and regulations in the US), introduction of a

five-year plan structure (adopted from US corporate strategic planning) and rapid expansion of urban labor

force (equivalent to urbanization in the US), and tight state control over agriculture (equivalent to farm subsidy

programs in the US), heavy industry (equivalent to defense contracts in the US) and finance (equivalent to

central banking in the US). Between 1934 and 1936 the Soviet economy achieved a spectacular economic

growth rate that continued despite political purges of Trotskyites between 1936 and 1938. Economic growth

was unfortunately interrupted by war in 1941. German invasion of the Union of Soviet Socialist Republics was

not independent of apprehension of continued Soviet economic success.

Propaganda works. It worked in the USSR, in Nazi Germany, in imperial Japan and in the capitalist US, each to

instill in the general public an acceptance of its system as being the suitable one if not the best, despite visible

shortcomings. It helped achieve optimal effectiveness and stability in the overall economy in all these countries.

Nazi Germany provided another example of successful inter-war economic planning. One of the main

differences between the Nazi and the Soviet economic systems was that the Nazis' was a mixed economy with

strict state control while the Soviets' was a state-owned economy. Furthermore, being heavily influenced by the

ideas of Walter Rathenau (1867-1922), German economic planners did not seek to build anew with

revolutionary zeal as the Russians did, but rather to reform, molding the existing form of decentralized

capitalism into a more effective centralized system with massive combines to support national aims.

The Rathenau factor 

Rathenau, German industrialist, social theorist, and statesman, was the son of Emil Rathenau (1838-1915),

founder of the gigantic German public utilities company Allgemeine Elektrizitaetsgesellschaft (AEG). He

directed the distribution of raw materials in World War I and became minister of reconstruction (1921) and

later foreign minister (1922) of the Weimar Republic. He represented Germany at the Cannes and Genoa

reparations conferences and negotiated the Treaty of Rapallo in which Germany accorded the USSR de jure

recognition, the first such recognition extended to the new Soviet government. The two signatories mutually

canceled all prewar and war debts and renounced war claims. Particularly advantageous to Germany was the

inclusion of a most-favored-nation clause and of extensive free-trade agreements. The treaty enabled the

German army, through secret agreements, to produce and perfect in the USSR weapons forbidden by the

Treaty of Versailles. A Jew, Rathenau was assassinated in 1922 by anti-Semitic nationalist fanatics who opposed

his attempts to fulfill war-reparation obligations to the Western victors. A strong nationalist who played an

important role in Germany’s war efforts in World War I, Rathenau was also a strong proponent of postwar

international cooperation and his diplomatic initiatives played a key role in breaking Germany’s postwar

diplomatic isolation.

In his writings, Rathenau criticized free-market capitalism and argued that technological change and

industrialization were pushing civilization toward a stage of high mechanization, in which the human soul

would be under threat. In an attempt to find an alternative to laissez-faire capitalism that did not involve state

socialism and Marxism, Rathenau proposed a decentralized, democratic social order, in which the workers

would have more control over production and the state would exert more control over the economy. His

translated works include In Days to Come (1921) and The New Society (1921). Despite his great contribution

to the German economy, Rathenau epitomized the living target of Adolf Hitler's accusation of internationalist

Jewish treachery that betrayed the German nation. Hitler's rejection of the loyal nationalist support of the

German Jews played an undeniable role in his own defeat. Jewish contribution to the flowering of German

economy, culture and civilization had been the strongest in any European nation. Nazi persecution of the Jews

was a strategic error more fundamental than the Nazi invasion of the USSR. The emigration of German Jews to

the West, particularly to the US, played a critical role in the defeat of Germany in World War II. It is a lesson

that the Arab nation in general and Palestinians in particular, have yet to learn.

The economic power of full employment 

From the very outset of his rule, Hitler, whose main short-term goal was the economic revival of Germany with

the help of German nationalist bankers and industrialists, won popular support of the nation. Hitler adopted

an aggressive full-employment campaign. Between January 1933 and July 1935 the number of employed

Germans rose by a half, from 11.7 million to 16.9 million. More than 5 million new jobs paying living wages

were created. Unemployment was banished from the German economy and the entire nation was productively

engaged in reconstruction. Inflation was brought under control by wage freeze and price control. Besides this,

taking into account the lessons learned during 1914-18, Hitler aimed at creating an economy that would be

independent from foreign capital and supply, and be well protected from another blockade and economic war.

For Germans, all of the above was proof that Hitler was the one who had not only brought Germany out of

economic depression but would take it directly to prosperity with new pride. German popular trust in the

Fuehrer rose dramatically.

In September 1936, British economist John Maynard Keynes, whose ideas had been credited as behind US

president Franklin Roosevelt's New Deal, prepared a preface for the German translation of his book, The

General Theory of Employment, Interest and Money. Addressing a readership of German economists, Keynes

wrote: "The theory of aggregate production, which is the point of the following book, nevertheless can be much

easier adapted to the conditions of a totalitarian state, than... under conditions of free competition and a large

degree of laissez-faire. This is one of the reasons that [justify] the fact that I call my theory a general theory.

Although I have, after all, worked it out with a view to the conditions prevailing in the Anglo-Saxon countries

where a large degree of laissez-faire still prevails, nevertheless it remains applicable to situations in which state

management is more pronounced." Keynes clearly understood that the greater the degree of state control over

any economy, the easier it would be for the government to manage the levers of monetary and fiscal policy to

manipulate macroeconomic aggregates of total output, total employment, and the general price and wage levels

for purposes of moving the overall economy into directions more to the economic-policy analyst's liking.

The radical Spartacists in Germany regrouped themselves as the Communist Party in 1920. They continued

their opposition to the liberal government of the Weimar Republic. From 1923-29, the Communists always

obtained about 10% of the seats in the Reichstag. Unlike elitist Italian Fascism, Nazism had a high regard for

the German peasant. Unlike Fascist Italy, Nazi Germany, while imposing sweeping government control over all

aspects of the economy, was not a corporate state.

In four short years, Hitler's Germany was able to turn a Germany ravaged by defeat in war and left in a state

national malaise by the liberal policies of the Weimar Republic, with a bankrupt economy weighted down by

heavy foreign war debt and the total unavailability of new foreign capital, into the strongest economy and

military power in Europe. How did Germany do it? The centerpiece was Germany’s Work Creation Program of

1933-36, which preceded its rearmament program. Neo-liberal economists everywhere seven decades later have

yet to acknowledge that employment is all that counts and living wages are the key to national prosperity. Any

economic policy that does not lead to full employment is self-deceivingly counterproductive, and any policy

that permits international wage arbitrage is treasonous. German economic policies between 1930 and 1932

were brutally deflationary, which showed total indifference to high unemployment, and in 1933 Hitler was

elected chancellor out of the socio-economic chaos.

The financing of Nazi economic-recovery programs drew upon sovereign credit creation techniques already

experimented prior to Hitler's appointment as chancellor. What changed after 1933 was the government's

willingness to create massive short-term sovereign credit and the its firm commitment to retire in full the debt

created by that credit. Short-term sovereign credit was important to change the general climate of distrust on

government credit. The quick rollover of short-term government notes created popular trust within months in

German sovereign credit domestically.

Hitler told German industrialists in May 1933 that economic recovery required action by both the state and the

private sector. The government's role was limited to encouraging private-sector investment, mainly through tax

incentives. He expressed willingness to provide substantial public funding only for highway projects, not for

industry. Investment was unlikely if consumers had no money to spend or were afraid because of job insecurity

to spend money to buy products produced, and Hitler understood that workers needed decent income to

become healthy consumers. Thus full employment was the kick-start point of the economic cycle. To combat

traditional German fear of the social consequences of appearing better off than their neighbors, Nazi

propaganda would psychologically stimulate the economy by developing a lust for life among consumers.

Hitler stressed on May 31, 1933, that the Reich budget must be balanced. A balanced budget meant reducing

expenditures on social programs, because Hitler intended to reduce business taxes to promote needed private

investment. To avoid reducing social programs, a large work program without deficit spending had to be

financed outside of the Reich budget. Hitler resorted to "pre-financing" (Vorfinanzierung) by means of "work-

creation bills" (Arbeitsbeschaffungswechseln), a classic response of using monetary measures to deal with a fiscal

dilemma.

Under the scheme of "pre-financing" with work-creation bills, the Reich Finance Ministry distributed these

WCBs (three months, renewable up to five years) to participating credit institutions and public agencies.

Contractors and suppliers who required cash to participate in work-creation projects drew bills against the

agency ordering the work or the appropriate credit institutions. These credit institutions then accepted

(assumed liability for payment of) the bills, which, now treated as commercial paper, could rediscount the bills

at the Reichsbank (central bank). The entire process of drawing, accepting and discounting WCBs provided the

cash necessary to pay the contractors and suppliers. The experience of successful rollover every three months

quickly established credit worthiness. The Reich Treasury undertook to redeem these bills, one-fifth of the total

every year, between 1934 and 1938, as the economy and tax receipts recovered. As security for the bills, the

Reich Treasury deposited with the credit institutions a corresponding amount of tax vouchers

(Steuergutscheine) or other securities. As the Treasury redeemed WCBs, the tax vouchers were to be returned to

the Treasury. Hitler increased the money supply in the German economy by creating special money for

employment.

In the US Banking Panic of 1907, J P Morgan (1837-1913) did in essence the same thing. He strong-armed US

banks to agree to settle accounts among themselves with clearinghouse certificates he issued rather than cash

and thus illegally increased the money supply without involving the government, and ended up owning a much

larger share of the financial sector paid for with his own paper, ironically with the gratitude of the government.

The difference was that the economic benefit went to Morgan personally rather than to the nation as in Nazi

Germany and the private money was used to save the banks rather than to save the unemployed.

Nazi economic experts understood that sovereign credit creation for purposes of job creation posed no

inflationary threat and that it would be a far more responsible policy than the conservative approach of tax

increases and welfare cuts to balance government budgets. The idiotic policy of monetary restraint and social-

spending reduction to balance government budgets in order to pay foreign debts is still being advocated by the

International Monetary Fund (IMF) in debtor nations around the world - except for the United States, the

world's largest debtor nation, which uses dollar hegemony as an escape hatch or, more to the point, escape

hedge. Redeeming WCBs did burden the 1934-39 Reich budget, but the decline in Reich expenditure for

welfare support and other tax subsidies as a result of full employment recovery more than offset the

redemption payments. The surplus was then used to reduce public debt and taxes further.

There were legal, political and institutional restrictions unique to Germany on the scope of the Reichsbank that

virtually dictated resources to WCBs as a way of putting 6 million unemployed Germans back to work. But the

principle of WCBs can be applied to the US or China or any other country today to combat unacceptably high

levels of unemployment. Alas, this common-sense approach is faced with firm opposition rationalized by

obscure theories of inflation in most countries. The real reason is that the banking sector can reap excess profit

by treating high unemployment as an externality in the economy that translates high unemployment and low

wages directly into corporate profits. The profit from high unemployment is kept in private hands, while the

cost of high unemployment is socialized as government expenditure.

In 1933, Hitler sought to reassure Germany’s business leadership that Nazi rule was consistent with the

preservation of the free-market system, because he needed the support of the industrialists. He could buy that

support by keeping wages down during the recovery, but any rigorous effort to curb prices and profits would

alienate the business community and slow down economic recovery. Instead, Hitler sought to restore

profitability to German business through reduced unit cost achieved by increasing output and sales volume,

rather than through a general increase in prices (Mengenkonjunktur, niche Preiskonjunktur - output boom, not

price boom). Adoption of "performance wage" (Leistungslohn - payment on a price-rate basis) increased labor

productivity, thereby driving costs down and profit up. Some upward price movements were permitted to

adjust price relationships between agricultural and manufactured products and between goods with elastic and

inelastic demands, also to prevent price wars and below-cost dumping. These principles of "output boom, not

price boom" and "performance wage" could also work in combating inflation today in many economies

generally and China specifically.

Hitler saved the German farmers from their heavy debt burden through relief programs and through

subsidized farm prices. The stable farm income came at the expenses of the middlemen institutions, but Hitler

sustained popular support by the provision of living income to consumers. Had Nazi Germany been a member

of the World Trade Organization (WTO), this option would have been foreclosed to it. Hitler sought price

stability only in sectors critical to the national economy and to the ultimate goal of rearmament. Germany had

no overall price policy until the 1936 Four Year Plan, which concentrated economic authority in the hands of

Hermann Goering for war production and put an end to regulated free-market policies.

Business managers generally make investment and employment decisions based on their judgment of the

prospect for new orders. The difference between German economic recovery under Hitler and US economic

stagnation under Roosevelt in the 1930s was the degree of uncertainty for new orders for goods. Hitler made it

clear that after 1936, a major rearmament program would make heavy demand on German durable-goods and

capital-goods industries without the need to export. With that assurance, German industry could plan

expansion with confidence. Roosevelt was unable to provide such "confidence" to industry and had to rely on

anemic market forces until after the Japanese attack on Pearl Harbor, Hawaii.

The Marshall Plan: A Trojan horse for monetary conquest 

The Marshall Plan grew out of the Truman Doctrine, proclaimed in 1947, stressing the moralistic duty of the

United States to combat communist regimes worldwide. The Marshall Plan spent US$13 billion (out of a 1947

GDP of $244 billion or 5.4%, or $632 billion in 2004 dollars) to help Europe recover economically from World

War II to keep it from communism. The money actually did not all come out of the US government's budget,

but out of US sovereign credit. The most significant aspect of the Marshall Plan was the US government

guarantee to US investors in Europe to exchange their profits denominated in weak European currencies back

into dollars at guaranteed fixed rates, backed by gold at $35 an ounce.

"to help Europe recover" 

The Marshall Plan helped establish the US dollar as the world's reserved currency at fixed exchange rates

established by the IMF, which had been created by the Bretton Woods Conference. The Marshall Plan enabled

international trade to resume and laid the foundation for dollar hegemony for more than half a century even

after the dollar was taken off gold by President Richard Nixon in 1971. While the Marshall Plan did help the

German economy recover, it was not entirely a selfless gift from the victor to the vanquished. It was more a

Trojan horse for monetary conquest. It condemned Germany’s economy to the status of a dependent satellite of

the US economy from which it has yet to free itself fully.

The Marshall Plan lent Europe the equivalent of $632 billion in 2004 dollars. Japan’s foreign-exchange reserves

alone were $830 billion at the end of September 2004. In other words, Japan was lending more to the United

States in 2004 than the Marshall Plan lent to Europe in 1947. And Japan did not get any benefits, because the

loan is denominated in dollars that the US can print at will, and dollars are useless in Japan unless reconverted

to yen, which because of dollar hegemony Japan is not in a position to do without reducing the yen money

supply, causing the Japanese economy to contract and the yen exchange rate to rise, thus hurting Japanese

export competitiveness.

West Germany’s postwar economy functioned well for several decades, and became one of Europe’s strongest.

Much of its success was due to the German tradition of strong social welfare that dated back to the days of Otto

von Bismarck a century earlier, and the system of co-determination, which gave workers in factories a voice

about their management and provided West German industries a long period of labor peace. The economics of

the Cold War also gave Germany guaranteed markets in the US. The export-oriented economy received

another boost with the creation of the European Economic Community (EEC) by the Treaty of Rome in March

1957. West Germany was one of the EEC's founding members. Since the end of the Cold War, this economic

order has been under threat from neo-liberal globalization that first attacked the developing economies in Latin

America and then the world over.

Sovereignty, finance capitalism and democracy 

Jean Bodin (1530-96), the first thinker in the West to develop the modern theory of sovereignty, held that in

every society there must be one power with the legitimate authority to give law to all others. The Edict of

Nantes issued by Henry of Navarre, the Huguenot (French Calvinist) chief, who reigned as Henry IV in 1598,

was a sovereign edict that laid the foundation of French royal absolutism of the sovereign state. The Edict

protected a Huguenot minority, composed mostly of members of the aristocracy, against popular opposition

from the Catholic peasants with the support of the papacy. Henry IV was a member of the politiques who

believed that no religious doctrine was important enough to justify ever-lasting war. He abjured the Calvinist

faith in 1593 and subjected himself to papal absolution, supposedly remarking that Paris was well worth a

Mass. He wanted to rebuild France from a war-torn economy caused by religious strife into a prosperous

nation, with "a chicken in every pot" for every French family, a phrase borrowed by Roosevelt two and a half

centuries later to describe the goal of his New Deal.

The Edict to protect the Protestant aristocrats led to the assassination of the converted Catholic king by a

Catholic fanatic in 1610. The widowed queen, Marie de Medici, a devout Catholic and scion of the celebrated

banking family of Florence, handed control of France to Cardinal Richelieu, who undertook a secular policy to

enhance the economic interest of the state with mercantilist measures, by allowing the aristocracy to engage in

maritime trade without loss of noble status, and by making it possible for merchants to become nobles through

payments to the royal exchequer. This provided a political union of the aristocracy and the bourgeois elite that

held the nation together until the French Revolution of 1789.

In 1627, the Duke of Rohan led a Huguenot rebellion from La Rochelle with English military support. Richelieu

suppressed the rebellion ruthlessly and modified the Edict of Nantes with the Peace of Alais in 1629, by

allowing the Huguenots to keep their religion but stripping them of their instruments of political power: their

fortified cities, their Protestant armies and all their military and territorial autonomy and rights. Calvinism has

been identified by social historians as the driving force behind modern capitalism.

The Age of New Monarchy in Europe laid the foundation for the age of sovereign nation-states by placing royal

authority to institute a fairer social contract above feudal rights, a development that began in the High Middle

Ages. The new monarchs presented the institution of monarchy as a progressive guarantor of law and order

and promoted hereditary monarchy as the legitimate means of transferring public power. Monarchism was

supported by the urban bourgeoisie, as it had long been victimized by the private wars and marauding excesses

of the feudal lords. The bourgeoisie was willing to pay taxes directly to the king in return for peace and royal

protection from aristocratic abuse. Its members were willing to let parliament, the stronghold of the

aristocracy, be dominated by the king who was expected to be a populist. The direct collection of popular taxes

by the king, bypassing the feudal lords, gave the king the necessary resources to maintain a standing army to

keep the feudal lords in check. These new monarchs revived Roman law, which favored the state and

incorporated the will and welfare of the people in their own persons. Direct payment of taxes to the sovereign

also ensured that future wars were fought to protect or enhance national interests, rather than at the personal

pleasure of the king. The new monarchs ruled by the mandate of the dictatorship of the bourgeoisie, just as

communist governments ruled centuries later with the mandate of the dictatorship of the proletariat. It was by

protecting the people against abuses from aristocratic special interests that the king protected himself, a

principle that escaped Louise XVI of France to his own sorrow.

Today, as the institution of democracy is supplanted by control by the moneyed class, democracy will lose its

popular mandate. What the US needs is not to spread democracy around the world, but to restore economic

democracy at home. Similarly, when the Chinese Communist Party permits neo-liberal market

fundamentalism to distant itself from its revolutionary mission of protecting the peasant masses from market

abuse, it will lose its mandate as the legitimate defender of the dictatorship of the proletariat. What China needs

is not political reform to accommodate capitalistic democracy, but a restoration of its revolutionary ideological

line in its political institutions and a renewal of populist commitment on the part of its leadership. Political

reform driven by flawed ideology is institutional suicide.

The new monarchies in Europe, by breaking down feudal tariff barriers within the kingdom, contributed to the

rise of the commercial revolution and the development of extended cross-border markets. In the rise of

capitalism, the needs of a new military not dependent on the aristocracy had been of critical importance. The

standing national armies of the new monarchs required sudden expenditures in times of war that the

traditional feudal dues and normal flow of tax revenue could not meet. Private bankers emerged to finance

wars by lending money to the kings secured by the right to collect taxes in the future from conquered lands.

The medieval prohibition of interest as usury, denounced as the sin of avarice and forbidden by canon laws,

faded in practice even as it continued to be upheld by all religions. Luther denounced "Fruggerism" in reference

to the bankers of the Holy Roman Empire. Even Calvinism only gradually made allowances on the issue of

interest.

The new monarchies, caught between fixed income and mounting expenses, were forced to devalue their

money by diluting its gold content. They began to borrow from private banks to deal with recurring monetary

crises. These monetary crises led to constitutional crises that produced absolute monarchies in Europe and the

triumph of bourgeois parliamentarianism in England. The need to find new conquered lands to repay

sovereign indebtedness gave birth to imperialism and colonialism, which the Atlantic Charter centuries later

categorically rejected in the third of its eight points of "common principles in the national policies of their

respective countries on which they base their hopes for a better future for the world". The third point stated

that "they [the US and Britain, and later the United Nations members] respect the right of all peoples to choose

the form of government under which they will live; and they wish to see sovereign rights and self-government

restored to those who have been forcibly deprived of them".

German rearmament to defend neo­imperialism 

Notwithstanding the high-sounding rhetoric of the Atlantic Charter, the outbreak of the Korean War in 1950

provided a propaganda opening for the US to impress on its submissive Western allies in the United Nations

that international communism was a clear and present danger to residual Western imperialism and colonialism

in the Third World. Under President Harry Truman, the US began to abandon its wartime anti-colonialist

posture and to solicit the help of European imperialists, particularly the British and French, to support its

global war on communism.

Colonel Harry G Summers Jr, US Army (retired), in an article in Military History magazine titled "The Korean

War: A fresh perspective", pointed out that during a post-Cold War Pentagon briefing in 1974, General Vernon

Walters, then deputy director of the Central Intelligence Agency (CIA), revealed what amounted to the

unpredictability of US policy intentions on Korea: "If a Soviet KGB spy had broken into the Pentagon or the

State Department on June 25, 1950, and gained access to our most secret files, he would have found the US had

no interest at all in Korea. But the one place he couldn't break into was the mind of Harry Truman, and two

days later America went to war over Korea."

Truman, unprepared for global leadership, insecure and paranoid, fell under the spell of Winston Churchill,

who, borrowing from Lenin, equated anti-imperialism with anti-capitalism. Churchill aimed at using the Cold

War as a device to save European imperialism by offering the fruits of neo-imperialism to the US in the name

of democracy. In taking the United States to war in Korea, Truman, in addition to placing the US firmly on the

side of imperialists, made two critical decisions that would shape future US military actions.

First, he decided to fight the war under the auspices of the United Nations, a pattern followed by president

Lyndon B Johnson in the Vietnam War in 1964, president George H W Bush in the Gulf War in 1991, by

president Bill Clinton in Bosnia-Herzegovina in 1999, and by President George W Bush in Afghanistan in 2001

and in Iraq in 2003. Second, for the first time in US military history, Truman decided to take the nation to war

without first asking Congress for a declaration of war. Using the UN Security Council resolution as his

authority, he said the conflict in Korea was not a war but a "police action". With the Soviet Union then

boycotting the Security Council, the United States was able to gain approval of UN resolutions labeling the

North Korean invasion a "breach of the peace" and urging all members to aid South Korea, notwithstanding

that both North and South Korea had been aiming for unification by force for several years.

Another consequence of the Korean War was damage to the image of the UN as a neutral world body. Secretary

General Trygve Lie was forced to resign over Soviet complaints of the way he manipulated Security Council

procedures to comply with US dictates.

Colonel Summers pointed out that, in reality, UN involvement was a facade for unilateral US action to protect

its vital interests in northeast Asia. The UN Command was just another name for General Douglas

MacArthur's US Far East Command in Tokyo. At its peak strength in July 1953, the UN Command stood at

932,539 ground troops. Republic of Korea (ROK) army and marine forces accounted for 590,911 of that force,

and US Army and Marine Corps forces for another 302,483. By comparison, other UN ground forces totaled

39,145 men, 24,085 of whom were provided by British Commonwealth Forces (Britain, Canada, Australia and

New Zealand) and 5,455 of whom came from Turkey. The troop composition was similar to that of the

"coalition of the willing" in the 2003 Iraq war. While the UN facade was detrimental to the prestige of the UN,

Truman's decision not to seek a declaration of war set a dangerous precedent in the erosion of the

constitutional power of the US Congress.

Claiming that their war-making authority rested in their power as commanders-in-chief, both Johnson and

Nixon refused to ask Congress for approval to wage war in Vietnam, a major factor in undermining popular

support for that conflict. In the entire history of the United States, only seven wars had been declared by

Congress, with World War II the last declared war. Ten other wars were not declared: the Florida Seminole

Wars, 1817-58; the Civil War, 1861-65; the Korean War, 1950-53; the Vietnam War, 1964-72; the first Gulf

War, 1991; the war on drugs, 1980s to the present; the Kosovo war, 1999; the "war on terror", 2001 to the

present; Operation Enduring Freedom (Afghanistan), 2001; and the second Gulf war (Iraq), 2003. Instead of

formal war declarations, the US Congress has issued authorizations of force. Such authorizations have included

the Gulf of Tonkin Resolution of 1964 that officially initiated US participation in the Vietnam War, and the

"use-of-force" resolution that started the 2003 Iraq war. Questions remain as to the legality of these

authorizations of force.

Ironically, the Federal Republic of Germany, whose own empire had been partitioned out of existence since the

end of World War I, was pushed to contribute financially to its own defense against Soviet threat so that its less

prosperous but victorious imperialist allies, Britain and France, could spend their hard-pressed resources to

defend their crumbling empires outside of Europe in the name of democracy.

For West Germany, five years after having lost the most devastating of all wars, this meant forming a new army,

a step unthinkable for many Germans who had just gone through de-Nazification and demilitarization

indoctrination during Allied occupation. But the worldwide "Korean War boom" of 1950 came at exactly the

right moment for an export-addicted Germany eager to capture new overseas markets. As West Germany

prospered from profits garnered from new wars to defend imperialism in Asia, the US was in a position to push

Germany into rearmament, despite the fact that German rearmament was anathema not only to German

citizens, but also to all their apprehensive neighbors, especially France. As the Korean War continued, however,

opposition to rearmament lessened within West Germany, and China’s entry into the war caused Gaullist

France, which was apprehensive of the liberating impact of Asian communism on its crumbling empire in

Southeast Asia, to revise its negative posture toward German rearmament, as long as the new German war

machine was oriented toward the east. Instead of the tradition Franco-Russian alliance against a powerful

Germany, the French began to see benefits in using the Germans to deter Soviet intentions to march toward

Paris. It was a classic balance-of-power move. Germany, deprived of sovereign authority, was at the mercy of

superpower global conflict.

To contain a newly armed Germany, French officials proposed the creation of the European Defense

Community (EDC) under the aegis of North Atlantic Treaty Organization (NATO), but with strengthened

European control, with a European Army to run in parallel with the European Steel and Coal Community that

France and Germany had formed earlier. Within the EDC context was the need to rearm West Germany to

counter the Soviet Union’s overwhelming superiority in military manpower. Adenauer quickly agreed to join

the EDC because he saw membership as likely to enhance the eventual full restoration of German sovereignty.

The treaties establishing the EDC were signed in May 1952 in Bonn by the Western Allies and West Germany.

Britain refused to be part of it, seeing its armed forces as being more important to NATO, the Commonwealth

and the special relationship with the US than to Europe.

Arguments arose over who would have ultimate control over the army - would it be the EDC or would it be the

national governments? The whole idea eventually fell apart, although West Germany was welcomed into

NATO and the West European Union (WEU) was created. Although the German Bundestag ratified the

treaties, the EDC was ultimately blocked by the French National Assembly, because it opposed putting French

troops under foreign command. The French veto meant that Adenauer's attempt to regain German sovereignty

through disguised militarism had failed and a new formula was needed to allay French fears of a strong

Germany.

The failed negotiations surrounding the planned rearmament of West Germany through the creation of the

EDC nevertheless provoked a Soviet countermeasure. After a second East German proposal for talks on a

possible unification of the two German states failed because of West Germany’s demands for free elections in

the German Democratic Republic (GDR), the Soviet Union put forth a new proposal to its wartime Western

Allies in March 1952. The Soviet Union would agree to German unification if the Oder-Neisse border were

recognized as final and if a unified Germany were to remain neutral. If the proposal were accepted, Allied

troops would leave Germany within one year, and a united neutral Germany would obtain its full sovereignty.

The offer, directed to the Western Allies rather than Germany, which, deprived of sovereignty, had no

authority to negotiate its own fate, nevertheless aroused lively public discussion in West Germany about the

country's political future. Adenauer was afraid that neutrality would mean Germany’s exclusion from US-

dominated Western Europe and that without US support, he and his conservative Christian Democrats might

not stay in power, in view of the traditional strength of the Social Democrats or, worse, the communists.

Encouraged by the United States, Adenauer demanded free elections in all of Germany as a precondition for

negotiations, a demand he knew was unacceptable to both the Soviets and East Germany, as Western-style

elections would be financed by money from the US to ensure the defeat of communist and socialist candidates,

repeating the postwar political sham in both West Germany and Japan. The Soviet Union declined and

abandoned its proposal. Adenauer was harshly criticized by the opposition for not having seized this

opportunity for unification. By allying itself with the US, West Germany sacrificed its unification with East

Germany for half a century. A divided Germany provided a balance-of-power arrangement between the two

superpowers all through the Cold War.

 Adenauer 

Adenauer's decision to turn down the Soviet proposal left Germany divided for the then foreseeable future.

West Germany was then expected to remain firmly anchored in the Western defense community. Yet doubt

remained in Washington on whether Germans would kill other Germans to protect US interests in Europe.

After plans for the EDC failed because of the French veto, negotiations were successfully concluded on the

Treaties of Paris in May 1954, which ended the Occupation Statute and made West Germany a member of the

Western European Union and of NATO. NATO was the vehicle to camouflage US geopolitical interests in

Europe with a common goal among the Western Allies against Soviet communism. On May 5, 1955, the

Federal Republic of Germany declared its sovereignty as a state and, as a new member of NATO, undertook to

contribute to the organization's defense effort by building up its own armed forces, the Bundeswehr. German

rearmament was to be camouflaged under the NATO umbrella. West German soldiers could now be counted

on to fight East German soldiers to protect Western Europe against communism. Militarism was the price the

United States extracted for granting Germany a facade of independent sovereignty, but not yet full

independence of foreign or security policy, as NATO continued to be dominated by the US, with its mission

framed by US geopolitical interests.

The buildup of the Bundeswehr met considerable popular opposition within West Germany. To avoid isolating

the army from the country's civilian and political life, as was the case historically up to the fall of the Weimar

Republic, laws were passed that guaranteed civilian control over the armed forces and gave the individual

soldier a new social status. Members of the conscription army were to be "citizens in uniform" and were

encouraged to take an active part in democratic politics, in contrast to the Junker tradition of a warrior class.

This was done to inject a measure of consideration of German domestic politics into US-dominated NATO

decision-making.

By 1955, the Soviet Union had abandoned efforts to secure a neutralized united Germany. After the Four Power

Conference in Geneva in July that year, Adenauer accepted an invitation to visit Moscow, seeking to open new

lines of communication with the East without compromising West German commitments to the West. On the

other side, Moscow wanted to exploit German apprehension of being in the front line of hostility to create a

voice of caution within NATO. In Moscow in September, Adenauer arranged for the release of 10,000 German

war prisoners in the Soviet Union. In addition, without having recognized the division of Germany or the

Oder-Neisse line as permanent, West German negotiators also established diplomatic relations with the Soviet

Union.

The Soviet Union recognized the German Democratic Republic as a sovereign state in 1954, and the two

communist countries established diplomatic relations. The Federal Republic of Germany (FRG) had not,

however, recognized the GDR. And to dissuade other countries from recognizing East Germany, Adenauer's

foreign policy adviser, Walter Hallstein, proposed that the FRG break diplomatic relations with any country

that recognized the GDR. Anti-communism was the convenient decoy from targeting the rise of neo-fascism in

a society that had won a permissive reprieve from its US conqueror's de-Nazification program. As the brilliant

German filmmaker Rainer Werner Fassbinder showed in many of his films, postwar Germany turned out to be

very much what it would have been like if the Nazis had won the war.

The Hallstein proposal was based on the West German claim that as a democratic state, it should be accepted as

the only legitimate representative of the German people. By contrast, East Germany claimed to be the

legitimate state of the German people because it was a dictatorship of the proletariat. Democracy was used as a

justification for legitimacy in the West. Israel would learn from the former persecutor of its people to use

democracy to bargain for US acceptance of its legitimacy in an Arab region, using anti-communism as currency

to secure US support, by purging the left totally from Israeli domestic politics. The Hallstein Doctrine was

adopted as a principle of West German foreign policy in September 1955 and remained in effect until the late

1960s when the idea of two German states became a reality, and Germany remained divided until the

dissolution of the USSR in 1991.

Unfortunately, whereas militarism under market capitalism stimulated economic expansion by providing

profit to private enterprise, it operated to drain prosperity under communism, which could not find a vehicle to

recycle financial energy consumed by the arms race. Militarism then was co-opted by finance capitalism as an

effective weapon against communism, which was an economic system that could only be operative in peace.

The reason war has not ended even after the global war on communism has ended with the dissolution of the

USSR is because militarism and capitalism have a mutual dependency. The end of the Cold War, while marking

the failure of peaceful communism, marked the triumph of capitalistic militarism.

Traditionally, European integration and trans-Atlantic relations have been the two key components of postwar

German foreign policy. German trans-Atlantic relations are a euphemism for German acceptance of US

dominance. Both components were strategic necessities for the Federal Republic of Germany after World War

II, and at the same time paved the way for West Germany to rejoin the European community of nations. Since

then, the US had been Germany’s protector ally both in and outside Europe. This relationship remained after

German unification.

Today, while the US and Germany continue to share similar views on a range of global issues such as terrorism,

WMD (weapons of mass destruction) proliferation and regional conflicts, there is increasing divergence on

what constitute proper policy responses to these new threats and challenges. Germany subscribes to

multilateralism as a fundamental component of its foreign policy in a multipolar world. Differences on issues

such as Iraq, Iran, the International Criminal Court, the Kyoto Protocol and the Ottawa Convention have

surfaced between the US and Germany as the latter regains more of its full sovereignty and as its domestic

politics turns centrist as opposed to US unilateralism. Strategically, German relations with China and Russia

are evolving along lines more independent from US policies.

During the Cold War, trans-Atlantic relations in the West were dominated by the need to defend the US and

Western Europe jointly against the Soviet threat. This was also the reason for US forces to remain in Europe via

NATO. With the end of the Cold War in 1989, the threat posed by the Warsaw Pact and the Soviet Union

disappeared overnight. Since then, trans-Atlantic relations have faced new challenges devoid of a common

thread.

Having contained domestic terrorism on its own soil, Germany, like many other nations, is being pressured by

the United States to join in the "global war on terrorism" as a replacement of the threat from global

communism. International terrorism, which also put a new dimension on the problem of WMD proliferation,

created a demand from the US for German military projection beyond German borders, along with regional

conflicts that allegedly had supra-regional destabilizing effects, eg the Balkans, the Middle East, Congo,

Afghanistan, India-Pakistan. This definition of supra-regional stability can involve Germany in distant

conflicts around the globe, since no regional conflict can remain isolated in an interconnected global security

network. The process of greater European integration has spilled beyond historical European borders into the

Crimea and the Balkans, the Middle East, Africa and Asia. Yet domestic threats from international terrorism

can be intensified by a country's military involvement beyond its borders, as demonstrated by the terrorist

bombing of trains in Spain in response to deployment of Spanish troops in Iraq.

As early as 1990, the European Union and the United States agreed in the Transatlantic Declaration to a closely

meshed network of twice-yearly summit consultations. The terrorist attacks of September 11, 2001, showed

that security policy and trans-Atlantic cooperation have not been removed with the end of East-West conflict.

Yet the nature of the cooperation has undergone a fundamental change: comprehensive security implies that

internal and external security threats are interconnected. There is also a historical legacy that set German

relations with Islamic nations apart from the Anglo-US legacy. Competition for the hearts and minds of Islamic

peoples had been a focus of the contest between Germany and the Western Allies in the two World Wars.

With the US drifting toward a policy of relying on its super-power to impose a global geopolitical, economic

and financial architecture to its liking, a critical divergence has emerged between the US and its NATO allies

over the need for conflict prevention and the most effective paths of conflict resolution. US responses to

terrorism threats, as manifested in its invasion and occupation of Iraq, if not Afghanistan, have created policy

rifts between the EU and the US.

With the end of the Soviet threat to Western Europe, US planners began to ask whether the United States

would always have to deploy troops and equipment to sort out Europe’s problems. Consequently, the US was

looking to Western Europe to take more responsibility for its own defense and security. It has also become

harder for US policymakers to justify spending considerable amounts of money on overseas deployments.

Equally, the US remains hesitant over overseas deployments because of experiences and lessons from the

Vietnam War. Despite being the main contributor to Operation Desert Storm in the Persian Gulf during 1991,

the later debacle of Operation Restore Hope in Somalia only reinforced US objections to its their ground forces

in international hotspots.

For the United States, modern warfare or military operations have to be conducted with minimum risk to US

lives. When the US refused to deploy peacekeepers to UN operations in Croatia and Bosnia-Herzegovina

during 1992-95, or make the ground-force option available during Operation Allied Force in Kosovo in 1999,

many Western European governments wondered whether the United States could always be counted on if

military intervention were needed in an international crisis. Many were now asking the same questions as the

French had asked years before: Why should an economically and politically powerful Western Europe not take

more responsibility for its own security, especially as there was no longer the threat from the USSR and the

Warsaw Pact?

As a result, Western Europe had begun to develop a European Security and Defense Identity (ESDI) since the

early 1990s. In 1993, the EU decided to embody parts of the Petersberg Tasks into the Treaty on the European

Union. This gave the WEU, Western Europe’s own security apparatus within NATO, a clear defined role in

humanitarian and conventional operations. The WEU was strengthened. Among other changes, this included

the appointment of a secretary general and a planning cell that were responsible for assessing and planning for

operations as they arose. The number of troops available to it was also increased. If necessary, the WEU could

call on other NATO units such as the UK/Netherlands Landing Force. It also had its own rapid-response unit,

EUROFOR, which was made up of troops from France, Italy, Spain and Portugal. It was envisaged that the

WEU would act independently or as part of a UN force in humanitarian operations in which the US would not

want to become involved. In other operations, it would act as part of NATO. Both the US and Western Europe

believed that the proposals would strengthen NATO by providing better cooperation and coordination, a

problem NATO had suffered from in multinational operations.

In 1999, however, the EU decided to revise the WEU plans. It decided to adopt the crisis-management and

conflict-prevention elements itself. The WEU would remain as an organization but would mostly concentrate

on being a contribution to NATO during a conventional war. At the European Council's Cologne Summit in

June 1999, the EU launched the Common European Security and Defense Policy (CESDP). A later summit at

Helsinki built on Cologne and defined new EU structures to undertake the crisis-management role. Both

summits also proposed an EU Rapid Reaction Force that would draw mostly on the member states'

commitments that had already been made to the WEU after the Petersberg Tasks - the force levels being agreed

at the Military Capabilities Conference in November 2000.

The EU force is not a European Army in the sense of a standing army. It follows a similar character to NATO's

Allied Command Europe (ACE) Rapid Reaction Corps (ARRC) in which certain elements of member states'

armed forces are earmarked for rapid deployment if the need arises. Only one part of the force could be

considered a standing army. In 1987, France and Germany decided to create a Security and Defense Council

(SDC) that would allow for better coordination on joint Franco-German operations as part of the WEU and

later NATO. In 1991, both countries decided to back up the SDC with a joint Franco-German brigade directly

responsible to the EU and the WEU (and NATO from 1993) - this became known as the Eurocorps. Spain,

Belgium and Luxembourg then went on to join, allowing the WEU to call on a sizable force for immediate

deployment. With its headquarters in Strasbourg, the Eurocorps has since deployed to Bosnia and Kosovo and

is likely to feature in the new EU force.

Germany goes its own way 

The EU created the European Security and Defense Policy (ESDP) to ensure independent control of its security

policy. The United States views the ESDP as an attempt to replace NATO by creating a security and defense

system free of US dominance if not involvement. Changing its Cold War role of an economic giant and a

geopolitical pigmy, drawing on the lesson of Iraq, Germany, the dominant component in the EU, has taken on

the task of trying to prevent a military confrontation between the US and Iran. The European initiative, led by

Germany, France and an ambiguously European Britain, proposes to give Iran substantial economic benefits in

exchange for Iranian commitment to cease efforts to become a nuclear power. This initiative has received little

support either from Iranian domestic politics or from the US. Washington views the European initiative with

skeptical contempt. US hawks want "regime change" and/or a "surgical strike" against Iranian nuclear facilities.

The EU views both options as ineffective, based on what has transpired in Iraq, since Iranian nuclear facilities

are both dispersed and hardened, and since the US faces a severe shortage of troops because of its aggressive

foreign policy, a problem that NATO is not at all keen to help resolve with its own troops.

German officials point out that their country's Iran initiative is a breakthrough, since for the first time in recent

memory the leading European powers are united and proactive, as well as independent from Washington, on a

major issue that threatens peace. There is sober concern about Iran playing off the US against Europe. German

officials see their role as demonstrating that there are diplomatic alternatives to a repeat of US Iraq policy in

Iran. If the EU approach to Iran should break down, the EU, being still economically dependent on the US,

would have no choice but to join the United States in economic sanctions against Iran. Diplomatically, the EU

would still be in a position to dissuade the Bush administration from pursuing a military option or seeking

Security Council action that Russia and China could be expected to oppose.

Since the end of World War II, nothing major has happened on the world stage, good or bad, unless the United

States has orchestrated it. The only two notable exceptions are chancellor Willy Brandt's efforts more than two

decades ago to engage the Soviet Union and East Germany, and British and French diplomatic efforts that

helped produce the deal to trade an end of Libyan terrorism for an end to economic and diplomatic sanctions.

Washington at first reacted negatively to both of these initiatives. European involvement in world affairs

beyond continental borders has been welcomed by Washington only when Europe served as a docile junior

partner to US geopolitical designs. On Iraq, most of Europe refused to accept this subservient role. The Iraq

war is immensely unpopular in Europe, similarly to other regions around the globe, even in Britain, which has

happily accepted the role of geopolitical water boy for US foreign policy since the end of World War II.

German domestic politics does not give Chancellor Gerhard Schroeder an option to support the Bush

administration's Iraq policy. The blatant ineptitude of recent US foreign policy, particularly in the Persian Gulf

and the Middle East, has provided a window of opportunity for European independent activism in world

affairs.

The re-election of Schroeder as chancellor of Germany with the help of the Green Party in September 2002

symbolized the end of an era in close, albeit unequal, postwar relations between the US and Germany.

Schroeder held on to power after his SPD (Sozial-demokratische Partei Deutschlands, or Social Democrat

Party), ran an intensely anti-US campaign based upon opposition to US policy on Iraq. The SPD was tied with

the conservative, pro-US CDU-CSU (Christian Democrats), each getting 38.5% of the votes in an election in

which 80% of eligible voters took part. But with the support of the Green Party's 8.6% vote, Schroeder defeated

Edmond Stoiber, the CDU candidate, by fewer than 9,000 votes over the conservative coalition, giving the SPD-

Green coalition 306 seats in the 603-seat parliament. The generally conservative German press referred to the

winning coalition derogatorily as the Red-Green Coalition. The German Greens are a party of ecology and used

to be a pacifist party until their chairman, Joschka Fischer, won a battle between the realists and the

fundamentalists and got the party to back German troops going into Kosovo.

The re-election of Schroeder has been tremendously damaging to the carefully nurtured five-decade-old US-

German alliance. After Schroeder's victory, a curt statement from the White House did not congratulate him,

or even mention him by name. It was a marked contrast to a statement congratulating French President

Jacques Chirac, with whom Washington also has serious diplomatic problems, on his May re-election. The

White House also declined to arrange a personal telephone call between Schroeder and Bush. In the view of the

US, Schroeder and key members of his cabinet played to anti-US sentiment in Germany over foreign-policy

issues during the final weeks of the campaign beyond election politics to the point of personal attacks on the US

president.

Politically, the Bush administration at the time leading up to the Iraq invasion wanted Germany to join its

international coalition to support its disastrous policy on Iraq, with diplomatic backing at the UN, and to grant

the "coalition of the willing" complete access to German airspace and allow the US and Britain full use of their

bases on German soil for offensive operations against Iraq. The White House also wanted Germany to support

more fully Washington’s "war on terrorism", especially with regard to the extradition of terrorist suspects on

German soil, even those with German citizenship, and the release of crucial evidence that could be used to help

convict them in US courts. It also wanted Germany to increase defense spending, which had fallen to just 1.5%

of its GDP, and to pay for costs associated with increased terrorism security at US bases in Germany. The US

has warned that if the German government continues to hinder US policy toward Iraq and elsewhere, such as

Iran and in the UN, Washington may conclude that Berlin is reneging on its defense-treaty obligations, which

would have serious political consequences, beyond being labeled the "old Europe ". US support for German

membership in the UN Security Council hangs in the balance.

With the creation of NATO in April 1949, the US and Germany formally became military allies. It was a

turning point for both. For the first time in its history, the United States had signed on to a permanent alliance

that linked it to Europe's defense; and for Germany, as for Italy, membership in NATO signaled a new

acceptance internationally, an important political legitimacy for a nation with an embarrassing past. It was an

alliance relationship that remained solidly operative throughout the decades of the Cold War, as a succession of

German leaders, from Konrad Adenauer to Helmut Kohl, remained determinedly pro-US in their policies. The

US views Schroeder as having placed in jeopardy this historically close relationship for shortsighted political

gain.

Germany, on the other hand, merely sees itself as finally acting as an independent nation with full sovereignty

responsive to its social-democratic heritage. The new independent Germany will support US policies that

converge with German national interests and values and opposed those that diverge from them. From this

point on, no German politician can afford to play the role of collaborator to US occupation on the Adenauer

rationalization that it would buy better treatment from the occupier. The Germans have been occupiers and

they know from first-hand experience that collaborators enjoy no respect from anyone, least of all from the

occupiers.

Schroeder has stated unequivocally that Germany would not participate in US-led military action in Iraq. In his

first successful election campaign in September 1998, he declared that "this country under my leadership is not

available for adventure". In reference to Germany’s $9 billion contribution to funding the first Gulf War,

Schroeder warned that "the time of checkbook diplomacy is over once and for all". During the Cold War,

checkbook diplomacy for West Germany meant to give money in place of sending German troops. It remains

unclear if the end of checkbook diplomacy according to Schroeder means acceptance of a revival of German

militarism or merely refusal to pay the bill for US militarism, something Saudi Arabia has never dared to do. To

buy their precarious security, the Saudis have been forced to pay all sides in complex Mid-East politics.

The first months of Schroeder's chancellorship were marked by policy disputes with his more strongly socialist

finance minister (and Social Democratic party chairman) Oskar Lafontaine, who was SPD regional chairman in

1977 and premier of the Saar in 1985. A leader of his party's "peace faction" in the early 1980s, Lafontaine

denounced Chancellor Helmut Schmidt's nuclear policy, calling for German withdrawal from NATO. He was

seen as the party's "conceptual pioneer", who would redefine its policies on unemployment and the

environment. He opposed the German reunification agreement negotiated by Chancellor Helmut Kohl, but lost

support within the SPD. Lafontaine was defeated in the December 1990 election, having survived an

assassination attempt in April. In 1995, he became national chairman of the SPD. Returned to parliament,

Lafontaine became finance minister in the Schroeder government in 1998, but clashes over policy caused him

to resign the ministry, his SPD leadership, and his parliamentary seat in March 1999.

Schroeder succeeded Lafontaine as party chairman. However, after the Social Democrats' subsequent series of

electoral defeats on the state level, Schroeder moved to shore up his standing with the left. But economic

problems forced him in 2000 to reduce individual and corporate income taxes and positioned the Social

Democrats as a "modernizing force" in German politics. Internationally, Schroeder's pursued a less EU-

centered and NATO-dependent foreign policy than his predecessor, establishing good relations with Russia

and China. He also supported the US in its "war on terrorism" in Afghanistan, which strained relations with the

Green Party, his main coalition partner.

The Social Democrats' electoral setbacks in the 2002 elections initially led Schroeder to move forward more

modestly with reforms in his second term, despite Germany’s weak economy, and late in 2003 he secured

passage of supply-side tax cuts and anti-labor laws intended to revive the economy. Rank-and-file unhappiness

with his reform program forced Schroeder to resign as party chairman in 2004.

Gerhard Schröder (with Mohammad Khatami) 

Schroeder is a firm believer of a more independent German foreign policy. For the first time since World War

II, Germany’s leaders are advocating a course based on German national interests. The general secretary of the

Social Democratic Party, Franz Muentefering, summarized this position clearly: "Independently of what the

UN decides, there must be a German way, that we must decide for ourselves what is to be done. That decision

for us means no involvement in any... conflict or war in Iraq."

Reflective of rising anti-US sentiments in Germany, campaign polemic invoked harsh criticism of US policy on

Iraq. The chancellor himself mocked the US president in election rallies, telling crowds that he would not "click

his heels" and say "ja" automatically to US foreign-policy demands or commands. Ludwig Stiegler, the Social

Democrat parliamentary leader during the election, accused Bush of acting like a Roman dictator, "as if he were

Caesar Augustus and Germany were his province Germania ". Stiegler also compared the US ambassador to

Berlin to Pyotr Abrassimow, the unpopular Soviet ambassador to East Germany prior to the fall of the Berlin

Wall.

Schroeder's justice minister, Herta Daeubler-Gmelin, compared the Bush administration's policy towards Iraq

to that of Hitler's strategy before World War II. She was quoted by the German regional newspaper

Schwabisches Tagblatt as stating: "Bush wants to divert attention from his domestic problems. It's a classic

tactic. It's one that Hitler also used." Daeubler-Gmelin also remarked that the United States "has a lousy legal

system" and that "Bush would be sitting in prison today" if new insider-trading laws had applied when the

president had worked as an oil executive. Condoleezza Rice, then the US national security adviser, condemned

the remarks as "way beyond the pale", and according to the White House, the president was "very angered" by

the comments. Schroeder sent a letter of apology to Bush. Daeubler-Gmelin denied making the comments, but

Schroeder announced that she would resign. Then defense minister Rudolf Scharping, a leading figure in the

SPD, accused Bush of wishing to remove Saddam Hussein in order to placate "a powerful - perhaps overly

powerful - Jewish lobby". Predictably, this raised vocal accusations of anti-Semitism in Washington.

Unfortunately for the United States, German opposition to US foreign policy tends to be validated by the

march of events. Accordingly, there is little prospect that Berlin is willing to compromise over the Iraq

question. Immediately after his re-election, Schroeder declared that "we have nothing to change in what we said

before the election and we will change nothing", a view backed by Green Party secretary general Reinhard

Buetikofer. Opposition to the Iraq war formed part of a wider German foreign-policy strategy - actively

pursued by Foreign Minister Joschka Fischer - of opposing key elements of the Bush administration agenda

and thinking. Like Schroeder, Fischer's roots lie in radical left-wing politics. A self-professed Marxist activist in

the late 1960s and early 1970s with a record of violent street protest, Fischer leads a party that stands on the

extreme left of the political spectrum and that is shunned as a respectable political force even in much of

Europe until recent successes at the polls. The Green Party is fundamentally opposed to the US missile defense

system and highly critical of US unilateralism on the Kyoto Protocol. With just 11 seats in the 601-seat German

parliament, the Green Party holds the balance of power and with it a great deal of influence in the governing

Red-Green coalition.

Fischer was also outspoken in his criticism of Bush's 2002 State of the Union address, which called for action to

be taken against the emerging threat posed by rogue states that were relabeled an "axis of evil". Fischer warned

the White House that the fight against terrorism was not "a blank check in and of itself to invade some country

- especially not single-handedly". In an interview with Die Welt, he criticized what he perceived to be US

unilateralism over a possible war with Iraq : "Without compelling evidence, it will not be a good idea to launch

something that will mean going it alone. The international coalition against terror does not provide a basis for

doing just anything against anybody - and certainly not by going it alone. This is the view of every European

foreign minister. For this reason, talk of the ’axis of evil' does not get us any further. Lumping Iran, North

Korea and Iraq all together, what is the point of this?... For all the differences in size and weight, alliance

partnerships between free democracies cannot be reduced to obedience; alliance partners are not satellites."

Fischer is fiercely critical of America’s policy of using military power to deal with the threat of global terrorism.

The solution, according to his view, lies in the reduction of global inequalities between rich and poor: "Chaos,

poverty and social instability form the breeding ground on which fundamentalism, hatred and terror thrive. To

tackle the new challenges, we need more than police and military missions. We need a long-term political and

economic strategy which deals especially with the forgotten conflicts, the failed states, the black holes of

lawlessness on our planet."

Fischer has opposed most of the foreign-policy initiatives under the Bush administration, with the notable

exception of the war against the Taliban in Afghanistan. In defiance of Bush's "axis of evil" speech, Fischer

openly courted close ties with Iran and North Korea, and has been a keen supporter of the EU's policy of

"constructive engagement" with what the US identifies as rogue regimes. At the same time, he is a staunch

defender of the International Criminal Court and has fiercely opposed the concept of individual EU member

states signing bilateral immunity agreements with the US. Environmental concerns have also been elevated by

Fischer to the top of the Schroeder government's international agenda, and the foreign minister declared that

Bush was making a "fatal error" by refusing to sign the Kyoto Protocol on global warming.

Germany is urging the US to remove its 150 or so land-based nuclear weapons still deployed on German soil.

"The nuclear weapons still housed in Germany are a relic from the Cold War," said Green Party leader Claudia

Roth in the Berliner Zeitung newspaper. "There is no need for them to be there. They should be removed and

destroyed."

Engaging China 

The EU is actively expanding beyond trans-Atlantic relations. The annual EU-China summits highlight not

only the burgeoning economic ties between the major European powers and China but also move toward closer

political relations. Germany, backed by France, pushed for and achieved an in-principle agreement for the EU

to work toward lifting the arms embargo imposed on China after the Tiananmen Square incident in 1989. The

arms embargo has been an obstacle to stronger strategic ties. In the lead-up to the most recent summit last

December, China branded the ban "political discrimination" and "the result of the Cold War". During his recent

visit to China, Schroeder expressed the hope that the summit would "give an important signal" for the removal

of the ban. Chirac also declared the French government in favor of rescinding the embargo during a visit to

China last October.

Washington has strongly objected to any lifting of the arms embargo. Behind the US opposition lie broader

concerns that a stronger China military, along with closer strategic relations between the EU and China, would

undermine the present US hegemony in Northeast Asia. The Bush administration lobbied EU members to

oppose the move by France and Germany to get the embargo lifted. The EU members that vocally resisted the

change are those most closely aligned to the US, notably the government in British Prime Minister Tony Blair.

Japan, a major US ally in East Asia, also urged the EU to retain the ban, with France and Germany asserting a

more independent European stance toward China. While yielding to US pressure, the EU has declared that it

"confirms its political will to continue to work towards lifting the embargo". For its part, Beijing "welcomed the

positive signal, and considered it beneficial to the sound development of the comprehensive strategic

partnership between China and the EU". The best the US can do is to slow EU-China convergence, but it

cannot stop it.

Political and strategic considerations are closely tied to trade opportunities for European corporations in

China. In 1980, China ranked 25th among the EU's trading partners. Today, it is the second-largest after the US

and growing at a faster pace. Bilateral trade between the EU and China has doubled since 1999 to 142.3 billion

euros ($180.1 billion), making the EU China's largest trade partner. A number of bilateral agreements were

signed at the seventh EU-China summit at The Hague last December 8 to accelerate economic relations. EU

Trade Commissioner Peter Mandelson summed up the mood in European capitals when he called on the EU to

"place China firmly and centrally on our radar. We must review and lift our relations with China to a new and

higher, more intense level... Europeans have to sit up and take notice because in absolute and relative terms,

China is a huge phenomenon to be reckoned with."

Germany’s central role in pushing for an end to the arms embargo is related to the fact that German

corporations have been major beneficiaries of developing EU-China ties. Germany is by far the largest EU

exporter to China, accounting for 44% of the total. Bilateral trade between China and Germany reached $43.6

billion last year - a 31% annual increase - and is expected to double by 2010. Some 2,000 German companies,

including major banks, operate in China. China is heavily reliant on imported machinery and technology,

especially from Germany and Japan, the world's two largest exporters of machine tools. Nearly two-thirds of

EU exports to China are in the category of "machinery and vehicles".

According to a research paper issued by Deutsche Bank, 80% of German investors in China are major

corporations in the automotive, steel, mechanical and chemical industries. BASF and Bayer, for instance, are

the largest chemical firms in China. Volkswagen controls about 30% of the Chinese car market, where sales

surged to five million units this year. In 2003, Volkswagen produced more cars in China than in Germany and

Chinese sales accounted for one-third of the company's global net profit. The company has unveiled plans to

invest another $6.5 billion in China to increase its annual production there to 1.6 million vehicles by 2008.

German investment in China since 1995 increased tenfold, from just 800 million Euros to 7.9 billion Euros, by

2003, making Germany China's seventh-largest foreign investor.

German hopes in China were clearly displayed during Schroeder's three-day visit there on the eve of the Hague

summit in December. Accompanied by 44 business leaders from major corporations such as DaimlerChrysler,

Siemens and Deutsche Bank, the German chancellor signed 22 agreements with the Chinese government.

These included the sale of Airbus commercial jets worth $1.3 billion, as well as $480 million in railway

locomotives and $280 million in power-generation equipment. Schroeder declared that China’s fast-growing

car industry - now dominated by German companies - could be the "engine" of China’s economic growth. He

laid the cornerstone for a new DaimlerChrysler plant in Beijing and attended the opening ceremony of the

second joint-venture factory between Volkswagen and First Auto Works, China’s largest vehicle producer, in

Changchun, in northeastern China. He told Chinese officials that German corporations were very interested

helping to "restructure" China’s northeastern heavy industries. The northeastern provinces, or Manchuria, are a

key focus of German attention. The region has been the center of China’s state-owned heavy industry.

Anti-Americanism has proved to be a useful ideology for the definition of a new European identity. It was the

attempt to defend European colonialism in the Third World, particularly in Asia and the Middle East that had

forced Europe to accept US dominance. A new definition of European identity will seek strength from anti-

Americanism in the form of anti-neo-imperialism in Asia and the Middle East. European anti-Americanism is

not just a friendly disagreement with its former senior ally; it is a widening chasm to buttress an independent

Europe. Although in the formerly communist states of Eastern Europe, the US anti-communist policies during

the Cold War can translate into pro-US sympathies today, a comparable post-Cold War bonus does not appear

to apply in the new state of a unified Germany. The social democracies in Europe seem more in tune with the

neo-communism in China than the neo-liberal supply-side market fundamentalism promoted by the United

States.

Related:

http://www.rense.com/general61/goods.htm

Hitler vs the International Bankers 

excerpt:

[Hitler] then came up with a very simple solution to put it all together. He launched a program of public works:

flood control, repairing public buildings and private residences and constructing new ones, building roads,

bridges, canals, port facilities, but most notably the famous Autobahn-the first extensive superhighway system

in the world. In so doing, he was able to put millions back to work.

How did he pay for it all? The treasury was broke. Foreign bankers wouldn't give him any credit.

What he did was simply go around the international banks and create his own banking system, based-not on

the gold standard or some other superfluous metal-but on the productivity of the German worker himself: He

introduced the work standard.

Here's how it worked. The projected cost of the various public works programs was fixed at $1 billion

Reichsmarks. An exact number of non-inflationary bills of exchange, called Labor Treasury Certificates, were

then issued against that cost.

The workers were then paid; and with their new purchasing power, they began to spend their earnings in shops

and businesses across the country, which in turn enabled these to create more jobs and hire more people.

With this as a stimulus, the German economy gradually took off. Within two years, the core unemployment

problem was licked, and the country was back on its feet. And all of this with a solid, stable currency and no

debt or inflation.

From: Ed Arlt

To: Warwick, Verne ; Eastman, Dick

Sent: Friday, March 13, 2009 4:05 AM

Subject: Germany's Economic Recovery During the Great Depression

A vast compendium of lies and myths have been created by the PTB about Hitler's Germany over the last 63

years. However, one thing that is never discussed is how Hitler brought Germany out of economic ruin and

transformed it into a world power in just 5 years. He did it by taking responsibility for creation of the nation's

money out of the hands of the Jews and put it back into the hands of the German government. Subsequently,

Germany's currency was issued debt free and interest free and the German economic miracle began.

These two facts are indisputable:

1.) The industrialized world was in the grip of the Great Depression, except for Germany.

2.) Of these countries, all of them had private national banks run by Jews, except for Germany.

The House of Rothschild declared that this economic miracle in Germany (after the disastrous hyperinflation

of the Weimar Republic) could not be allowed to continue. World Jewry could not allow this state of affairs to

continue, as it would soon become obvious that private banks, such as the Federal Reserve in America, are

always a blight on a nation's economy. Germany, following the example set by Abraham Lincoln during the

Civil War, issued a debt-free national currency. If this fact were to become public knowledge elsewhere,

people would understand that a world without parasitic Jewish bankers is a prosperous, peaceful world. Hitler

was proving this to all who understood economics!!! The Zionist International, in order to ensure that the rest

of the world would not understand this basic fact, had no choice but to plunge the world into another

catastrophic war. The Zionists declared war on Germany in 1933, a full six years before the outbreak of WWII.

Orthodox "history" books always fail to mention such significant facts. In order to cover up their guilt, the

Zionists invented the hoaxacaust, as a smokescreen for their own genocidal greed.

http://www.youtube.com/watch?v=sQECpdDjafM

================

(3)

THINKING OUTSIDE THE BOX:

HOW A BANKRUPT GERMANY SOLVED ITS

INFRASTRUCTURE PROBLEMS Ellen Brown, August 9th, 2007

http://www.webofdebt.com/articles/bankrupt-germany.php

"We were not foolish enough to try to make a currency [backed by] gold of which we had none, but for every mark that was issued we

required the equivalent of a mark's worth of work done or goods produced....we laugh at the time our national financiers held the

view that the value of a currency is regulated by the gold and securities lying in the vaults of a state bank."

- Adolf Hitler, quoted in "Hitler's Monetary System," www.rense.com, citing C. C. Veith, Citadels of

Chaos (Meador, 1949)

Guernsey wasn't the only government to solve its infrastructure problems by issuing its own money. (See E.

Brown, "Waking Up on a Minnesota Bridge," www.webofdebt.com/articles/infrastructure-crisis.php, August 4,

2007.) A more notorious model is found in post-World War I Germany. When Hitler came to power, the

country was completely, hopelessly broke. The Treaty of Versailles had imposed crushing reparations payments

on the German people, who 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 empty, and huge numbers

of homes and farms had been lost to the banks and speculators. People were living in hovels and starving.

Nothing quite like it had ever happened before - the total destruction of the national currency, wiping out

people's savings, their businesses, and the economy generally. Making matters worse, at the end of the decade

global depression hit. Germany had no choice but to succumb to debt slavery to international lenders.

Or so it seemed. Hitler and the National Socialists, who came to power in 1933, thwarted the international

banking cartel by issuing their own money. In this they took their cue from Abraham Lincoln, who funded the

American Civil War with government-issued paper money called "Greenbacks." Hitler began his national credit

program by devising a plan of public works. 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. This government-issued money wasn't backed by gold, but it was backed by something of real

value. It was essentially a receipt for labor and materials delivered to the government. Hitler said, "for every

mark that was issued we required the equivalent of a mark's worth of work done or goods produced." The

workers then spent the Certificates on other goods and services, creating more jobs for more people.

Within two years, the unemployment problem had been solved and the country was back on its feet. It had a

solid, stable currency, no debt, 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 monuments to its

success, including the famous Autobahn, the world's first extensive superhighway.1

Hjalmar Schacht, who was then head of the German central bank, is quoted in a bit of 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."2

Although Hitler has rightfully gone down in infamy in the history books, he was quite popular with the

German people, at least for a time. Stephen Zarlenga suggests in The Lost Science of Money 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.3

According to Canadian researcher Dr. Henry Makow, this may have been a chief reason Hitler had to be

stopped: he had sidestepped the international bankers and created his own money. Makow quotes from the

1938 interrogation of C. G. Rakovsky, one of the founders of Soviet Bolsevism and a Trotsky intimate, who was

tried in show trials in the USSR under Stalin. According to Rakovsky, 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 had taken the bold

step of printing 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.... If

you can, then imagine its counterrevolutionary functions.4

Economist Henry C K Liu writes of Germany's remarkable transformation:

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.5

In Billions for the Bankers, Debts for the People (1984), Sheldon Emry commented:

Germany issued debt-free and interest-free money from 1935 and on, accounting for its startling rise from the

depression to a world power in 5 years. 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.

Another Look at the Weimar Hyperinflation

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 in the complex world of economics,

things are not always as they seem. The Weimar financial crisis began with the impossible reparations

payments imposed at the Treaty of Versailles. 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."6 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. What drove the wartime inflation into hyperinflation

was speculation by foreign investors, who would sell the mark short, betting on its decreasing value. In the

manipulative device known as the short sale, speculators borrow something they don't own, sell it, then "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 with

accounting entries on the bank's books and lent at a profitable interest. 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.7

According to Schacht, then, not only did the government not cause the Weimar hyperinflation, but it was the

government that got it under control. The Reichsbank was put under strict government 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 Treasury Certificates issued Greenback-

style by the government.

Schacht actually disapproved of this government fiat 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 allowing the government to issue the money it needed had not

produced the price inflation predicted by classical economic theory. He surmised that this was because factories

were sitting idle and people were unemployed. In this he agreed with John Maynard Keynes: when the

resources were available to increase productivity, adding new money to the economy did not increase prices; it

increased goods and services. Supply and demand increased together, leaving prices unaffected.