War Financing and Debt Consolidation

With a study on finances and sovereign debt increase awareness and reputation of Ludwig Erhard. His memorandum of 1943-44, based on the assumption that Germany would lose the war, posed a high personal risk to the author. However, the memorandum is hardly suitable as a special testimony to courage and resistance in the “Third Reich” par excellence; Other post-war plans – not only of opponents of the Nazi regime – circulating in the war-weary German Reich, no longer reckoned with the much-proclaimed “final victory”. Erhard’s study, however, can be interpreted as an important document on the history of the Federal Republic and the Social Market Economy, as for example Günter Schmölders in the commented facsimile edition 1) of the 1977 memorandum.

Anyone who reads the memorandum and hopes to find comprehensive information on the social market economy, however, will put the text aside rather disillusioned. In the study – she was one of several commissioned by the Reichsgruppe Industrie on various economic issues – it is not primarily about post-war economic order. Only from the pages 250 ff. (Of 268 pages) and in the outlook from page 262 are also groundbreaking comments on the future economic order. After the brief digression in regulatory considerations, Erhard writes on page 253 but himself: “In the following, it is now again linked to the financial perspective …”

War Financing and Debt Consolidation

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The financial analysis carefully examines the financing of Reich spending under the Nazi regime. As far back as 1938, at least 60 percent came from tax revenue and 40 percent from borrowing. Only in the following years did loans become more and more prominent. Although Ludwig Erhard could use due to the secrecy regulations no official official numbers, he estimated “the entire public debt after consolidation at the end of the war” with 400 billion Reichsmark – compared to 390 billion Reich debt bound at the end of the war – almost correctly. The new indebtedness of the Reich took place, unlike in the First World War, almost “noiseless”. All savings banks and banks had to acquire compulsory debt of the Reich, that is, Saving amounts and private balances were secretly skimmed off in favor of the Reichskasse. With this and with the “simplified” alternative financing through the Reichsbank, war costs of around 1,250 billion Reichsmark were levied, which directed corresponding goods and labor into warfare. The memorandum deals in detail with how to neutralize the resulting purchasing power surplus after the war and to initiate and manage the development of normal market conditions.

Neutralize the purchasing power

A financial adjustment of this situation had to reduce the excess purchasing power “to the extent of the German people free to meet the demand of the social product”. A solution that is at least broadly equitable would require the conversion of private money and capital claims on warrants into government debt of different categories and maturities. Erhard’s foresight of the functional relationships between economic and socio-political necessities is particularly evident in the fact that in his proposals he gives a central role to the questions of a “fair burden-sharing” – ie of burden-sharing.

Although the Erhard study – like others – was ignored in the chaos at the end of the “Third Reich” and in the confusion and uncertainties of the new beginning: his memorandum led after all to a rather unusual professional career gaining momentum. The once commercial apprentice from the Franconian town of Fürth arrives in the new Federal Republic in the highest political offices and is a world traveler in terms of social market economy.