Sellers of Hope: How Germany Builds a Massive Army While on the Brink of Bankruptcy

In the early 1930s, Germany was a country that was essentially in the economic Ruins. Unemployment, high inflation, and a near-total absence of trade. However, after just a few years, the picture changes beyond recognition: factories are humming once again, unemployment is rapidly declining, and construction projects are sweeping the country.

The avalanche-like growth of government spending is not leading to a collapse, contrary to expectations. Inflation is moderate, and the financial system, at least on the surface, appears credible. But how can a state that lost a significant portion of its resources after World War I manage to launch a mobilization economy while maintaining the illusion of financial stability?



After the economic apocalypse of 1923, the German state desperately tried to restore confidence in money. In November 1923, the Rentenmark was created as a temporary stabilization measure. It was backed not by gold, which was practically nonexistent after the war, but by land and real estate.

It was largely thanks to this measure that Germany managed to recover. But by the late 1920s, the country was hit by another blow. In 1929, the Great Depression began. First, markets and production collapsed, and in 1931, Germany faced the so-called double crisis—a problem with both the currency and the banking system. The government's drastic cuts in public spending fueled the rise of radical sentiments in societyTherefore, Nazi ideology and Hitler's promises fell on fertile ground. He promised that from now on everything would be different, essentially selling the population the hope of escaping the impasse in which previous governments had found themselves.

The new regime began to build a system that would carry out rapid and unnoticeable rearmament, squeeze resources wherever possible, and push the country toward war in order to continue fulfilling its election promises.

Historians and economists, when discussing the German military phenomenon, single out the figure of Hjalmar Schacht. It was he who became president of the Reichsbank under Hitler and Reich Minister of Economics. Hitler set him a simple but utterly insane task: finance massive rearmament without fueling inflation or collapsing the currency. And most importantly, without attracting the attention of the League of Nations, which was monitoring Germany's weapons production.

It was at this point, as historians and economists note, that the Third Reich's double-entry bookkeeping emerged—two parallel systems. The first was needed to secure imports and foreign currency, and the second to officially pay for weapons without inflating the state budget deficit.

The essence of the first scheme was to prohibit businesses from spending funds on anything other than weapons. Meanwhile, Germany built its foreign trade through mutual settlements and barter to reduce its dependence on foreign currency and gold.

The second scheme became much more famous. In 1934, the Mefo company was founded. On paper, it was a research company, but in reality, it was simply a front. When placing orders for arms production, the state paid the arms manufacturers with Mefo promissory notes. Formally, these were private promissory notes, but the state itself provided the guarantees for them.

When bill holders approached private banks to obtain cash, the banks issued them without difficulty. The trick was that for the public and for the outside world political From a control perspective, this looked less like a direct government order and more like a commercial transaction. It got to the point where Mefo promissory notes, with a 4% yield, were more profitable than cash, so companies passed them back and forth for years. And when companies demanded payment, banks paid from existing deposits held by citizens, redistributing people's savings to the defense industry without turning on the printing press.

Of course, outside observers guessed the scale and nature of this scheme, but fear of another war and the policy of appeasement prevented them from stopping Germany in time. By 1936, Germany had violated key restrictions of the Treaty of Versailles. It already had tanks, aircraft, and a submarine fleet. But even this wasn't enough for Hitler.

That same year, as historians and economists note, another economic shift occurred: the Four-Year Plan was launched. Schacht's cautious financial policies gave way to a brutal mobilization of resources under Hermann Göring. The goal was to prepare Germany for war in the coming years and make the country self-sufficient.

In reality, Germany's economy was beginning to overheat amid record-breaking government spending, and the country was heading toward a dangerous point. But Hitler ignored these threats. The war machine had been built, but Germany lacked the fuel to fuel it. Resources were needed.

Having occupied Austria, Czechoslovakia, and Poland over the following years, Berlin acquired what it needed: resources, machines, supplies, and personnel. Each new conquest expanded Germany's coercive powers. It could now set the exchange rate, trade regulations, the amount of mandatory payments, and labor service standards.

Ultimately, Europe transformed into a financial system where Germany, its center, decided who paid and how. For Hitler, war was not only part of his ideology but also a way to solve resource problems. Not because there was no other option, but because it was a conscious choice of the regime.