Where did Hitler get the funds to invest in economic development programs such as the autobahn when the German economy was in a depression?

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Accepted answer

The funds for the Autobahn project came from the Reinhardt Program, a credit finance scheme originated by Kurt von Schleicher. The contractors who built the highways were paid not in Reichsmark, but with debentures issued by the Reich Finance Ministry which could be redeemed at a discount at certain banks that formed a work creation consortium. These banks, in turn, could redeem the credits with the Reichsbank. The Reichsbank, which collected pools of these instruments, was promised that they would be honored by the Reich Finance Ministry on a fixed schedule guaranteed by taxes.

So, in essence, the Autobahn was financed with a sort of a bond.

The first Reinhardt Program which was used for the initial finance of the Autobahn had only a limited amount credits issued under it. In 1934, further work creation projects were instituted under a second Reinhardt program. In this program, the credits were generated the same way, but instead of delivering them to the contractors, they were just paid directly as Reichsmarks. Also, the program was reduced to just being a subsidy to private investment, not full financing. The Reich Finance Ministry (RFM) was still responsible for reimbursing the Reichsbank for the amounts incurred.

You also asked about armaments. Financing re-armament was not considered "economic revitalization" by the German leaders. Unlike the two Reinhardt programs, which were highly publicized and involved popular participation, the rearmament financing was undertaken relatively quietly, almost secretely. To fund rearmament, they adopted the same basic scheme from the first Reinhardt program: a controlling agency issued bonds, these bonds were delivered to the industrialists as payment, the Reichsbank redeemed the bonds, and the government promised to reimburse the Reichsbank on a fixed schedule from tax proceeds.

The agency used in this case was not a government agency, as in the Reinhardt program, but a newly created shadow entity called Metallurgische Forschungsgesellschaft (Mefo or MEFO) which was capitalized by the several large industrial concerns, such as the Krupp steel works, that stood to benefit by it. Contractors were paid in Mefo bills which could be cashed in with the Reichsbank at any time, but were often held because they paid interest.

Further information on the economy of Germany during the 1933-1938 period can be found in the books "The Wages of Destruction" by Adam Tooze, "Hitler's Economy: Nazi Work Creation Programs, 1933-1936" by Dan Silverman and "War and Economy in the Third Reich" by R.J. Overy.

Upvote:0

MEFO was already mentioned, but the most important point is missing: Hitler was a project of the German "Elites", as Hitler laid out his plans to go to war very early - first of all in Mein Kampf, then in his speech before the "Industrieclub" in Düsseldorf. Hitler of course also promised to get them rid of the communists and the labour unions, which he did. He also persecuted the Jews, who often had to sell their assets below market value to German companies ("Aryanization"). This eliminated competition and brought opportunities to gain cheap assets. They had no reason to distrust their own scheme.

Without WW II, this scheme would have collapsed eventually - but even this would not have been too big a problem for the big corporation - the tanks they made had already been paid.
War of course averted this, as Germany could simply plunder the countries she had conquered, as well as to force people into slave labour, which benefitted the industry as well.

Upvote:3

Wow, great answers by @Tyler and @DevSolar so far. One more point to add

Once the war started, German banks were effectively put under control of the government, at which point the whole thing was moot anyway.

Not only the banks.

As of The Vampire Economy - Doing Business Under Fascism, the people who bought the bonds were not totally free to do so anyways. The author says that, essentially, this was not a free market anymore, with

  • no free acess to base materials for production,
  • no free acess to international markets,
  • no free acess to local finance options.

As an example (page 11):

Herr V. [one of the largest landowners in Eastern Prussia] learned only through bitter experience that there was no longer any court or official to protect him, and he began to fear that his estates might be expropriated. He visited his former banker, Herr Z., to whom he confessed:

I want to invest my liquid funds in a way which is safe, where they can't be touched by the State or the Party. In the old days I always refused to speculate, to buy stocks. Now I would not mind. However, I would like best to buy a farm in South-West Africa. Perhaps my next crop will be a failure and I will be blamed, accused of "sabotage," and replaced in the management of my estates by a Party ad- ministrator. I want to be prepared for such a contingency and have a place to go should the Party decide to take away my property.

The banker was compelled to inform his landowner friend that there was no such way out. The State would not allow him to leave Germany with more than ten marks. South-West Africa was closed to him; he would have to stay where he was.

Upvote:16

Actually, both the building of the Autobahn and the (somewhat more conservative but still loan-based) initiatives for their financing predate the 1933-onward reign of the NSDAP. They merely continued what others had begun.

And the funds were not that impressive either; in 1935 they amounted to only 4% of government spending. Rebuilding the military, by comparison, got 24%.

But Tyler was on the right track; the Hitler administration got a large part of their funds from uncovered bills. That they were, in fact, uncovered, was hidden by a variety of schemes.

The most prominent of these schemes (accounting for over 30% of their military spending) were Mefo bills, a promissory note. The dummy company MEFO, which only had one million RM of own capital, would pass out these bills as payment for contractors. They were formally redeemable by the Reichsbank after five years, and came with a healthy 4% interest so there was reason to hold them. Plus, banks could hide them in their balances, so shareholders would not be aware of how indebted everyone actually was.

(By 1938, the total amount of Mefo-bills amounted to ~12 (short) billion RM...)

The Autobahn, however, was to a (very) large part financed by forcing the unemployment insurance to loan their funds to the government at very low interest. Eventually this amounted to well over 3 (short) billion RM.

Once the war started, German banks were effectively put under control of the government, at which point the whole thing was moot anyway.

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