Money Creation for Public in Germany – Moving Beyond Weimar (A History of Public Money Creation, Part 6)

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Many economists have a misunderstanding of what caused hyperinflation in the Weimar Republic. More importantly, many economists have overlooked the times when Public Money Creation was used to successfully grow the German economy.

Throughout history, governments have used their ability to create money to fund public spending. While none of these policies were called, “People’s QE”, “Strategic QE”, “Sovereign “Money Creation”, or “Helicopter Money” (what Positive Money collectively refers to as Public Money Creation), they shared the common trait of using newly created state money to finance government spending, rather than relying on commercial banks to create new money through lending.

Significantly, the times when Public Money Creation has resulted in high inflation or even hyperinflation (inflation of over 50% a year) have been well documented. However, the times when governments have created money in a careful and responsible manner to grow the economy are usually ignored or overlooked.

In our previous posts on this topic, we showed that theory and analysis have been dispensed with at the expense of this widespread misconception. We showed that misleading conclusions have been drawn from the case studies of Public Money Creation creation in Zimbabwe and the Weimar Republic. We also showed that Public Money Creation happened in the places you least expect, the ancient Roman and Chinese empires and the former British colony of Pennsylvania and the island of Guernsey. In our most recent post, we looked at why Japan was so successful at thwarting the global recession of the 1930s.

Today we discuss Public Money Creation in Germany in the earlier part of the 1930s. We approach all case studies from a scientific line of enquiry, so as to draw the relevant policy lessons for Public Money Creation. Clearly, we do not support the actions of Nazi Germany. In reviewing the case study of Germany in the 1930s, we merely aim to demonstrate how state-led money creation was used to successfully grow the economy (before it was used to finance military expenditure).


Germany (1930s)

It is rare to read an economic textbook discussing government money creation without seeing a reference made to the Weimar Republic and how hyperinflation wrecked the German economy. Interestingly, the Post-Weimar monetary system and how a bankrupt Germany (without any colonies to exploit) became Europe’s strongest economy in less than four years (before extensive military spending began) is often neglected in economic textbooks.

According to acclaimed authors such as Ellen Brown (2010) and Henry Liu (2005), when Adolf Hitler and the National Socialist party gained power, the German economy was in dire straits and external debt levels due to WWI were skyrocketing. The German people were forced, through the Treaty of Versailles, to make reparation payments amounting to approximately three times the value of all German property. The German economy was also still suffering from the 1929 global recession and the collapse in the German Mark in 1923 (which had all but destroyed the national currency, private sector savings and the economy as a whole).

The state of the economy meant there was little scope for both foreign investment and foreign lending. To kick-start an economic recovery the German state began issuing its own fiat money. The government’s newly created money would be used to fund a large-scale public infrastructure plan, which encompassed projects such as repairing and maintaining public buildings and existing public infrastructure, as well as building new roads and highways, bridges, canals, and harbours. The budget for the infrastructure programme did not exceed one billion units of the domestic currency. To pay for the programme, the government issued Treasury Certificates. Brown (2010) explains:

“One billion non-inflationary bills of exchange, called Labor Treasury Certificates, were then issued against this cost. Millions of people were put to work on these projects, and the workers were paid with the Treasury Certificates. The workers then spent the certificates on goods and services, creating more jobs for more people…They were not actually debt-free; they were issued as bonds, and the government paid interest on them. But they circulated as money and were renewable indefinitely, and they avoided the need to borrow from international lenders or to pay off international debts” (p. 230)

This sovereign credit creation programme leads Brown (2010) to suggest that in less than two years the German economy was up and running again. Whilst millions of people in the U.S. and other Western countries were out of work, in Germany the ‘unemployment problem had been largely solved’. Indeed, between January 1933 and July 1935 the number of people in employment increased from 11.7 million to 16.9 million. Moreover, the national currency had stabilised; there was no inflation and no new external debt obligations.

In just a few years, Germany went from one of Europe’s weakest economies to one of the world’s strongest. While eventually the money creating powers of the state were used for warfare, there is good reason to believe that the German economy was thriving before extensive resources were diverted towards military expenditure. Renowned economist Henry Liu writes:

“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…”

This is an important case study – it shows that Public Money Creation can have a huge positive impact even on an economy that is in dire straits. Democratising money and banking is key to our proposed Sovereign Money system.

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Frank Van Lerven

Frank is our Research and Policy Analyst, and is responsible for our research on current events. Frank also leads our research in Public Money Creation and Quantitative Easing. Prior to working on the availability of credit under a Sovereign Money system, Frank also researched issues related to the 1844 Bank Charter Act and its implications for contemporary monetary policy. With a Research Master’s in Advanced Political Economy (cum laude) and a BA in African Development Studies, Frank is especially interested in how Western financial systems (and models) influence developing economies.
  • JohnB

    See also, Philip Pilkington’s analysis of Nazi Germany’s use of MEFO bills – and the genius foreign exchange policies of Hjalmer Scacht:

    MEFO Bills, and Oeffa before them, followed a very similar template to the Treasury Certificates you mention.

    When you look at Germany’s success at using a full-employment-based public works program, to revitalize their whole economy, it’s worth seeing that this is what the Job Guarantee proposal by MMT’ers would provide – it’s a far superior option, to the Basic Income (though they are not mutually exclusive) – which, the Basic Income, has its own very significant dangers (it can be used as a trojan-horse for pursuing elite policy interests).

    • RJ

      The MMT job guarantee belongs in the past. It is one reason why I wonder whether MMT is actually controlled opposition. Their papers are excellent but the JG is so stupid it borders on deliberate sabotage. It would destroy any hope of MMT being accepted and discredit totally MMT and everything it stands for.

      • JohnB

        You make a lot of negative statements about the JG – but don’t explain the reasoning behind any of them – can you elaborate on the specific issues the JG policy has, which support your negative statements?

        • James Murray


          Do not bother with RJ.

          He has a history over many months of throwing in unsupported assertions to spread confusion and have readers to the blog use up energy treating him (or her?) as a serious commentator.

          He has used up my normal curtesy in blogs

          RJ Troll or twerp – you choose.

    • Vince Richardson

      I liked that link,very good thanks.

    • mikeboulton

      But Note the Speenhamland system. where subsidising low wages made poverty far worse. This is a danger with Basic Income.

  • James Murray

    Again, a major hurdle we have is to sell the idea of controlled, fiat money to the Chancellor and his Treasury.
    Politically, Osborne may feel that he cannot take up an idea that is so close to Corbyn’s ‘People QE’.

    In fact, it is termed as such in Frank van Leaven’s excellent series on the subject and, as Jeremy Corbyn has taken the phrase as his own, it is unlikely the average Conservative MP, or minister, would read any further past the headline with that term.

    For my part, I would stop beating Osborne with the PQE stick as it is not fruitless.

    I would begin to emphasise the politically effects of at least trying out an injection of Sovereign Money – as explained in the blog

    Here is explained how putting just £10bn of SMC – Sovereign Money Creation – into the real economy would have been a much cheaper alternative to the £375 billion of QE, creating jobs and growth while lowering at the same time.

    Regretfully, even if our PM movement is avowedly apolitical, I do get the impression that a majority of PM’ers are on the left of the political spectrum.
    I say ‘regretfully’ as this may mean that there may be an aversion to ‘helping’ the Tories to make their economy a success.

    However, the important objective is to persuade the Govt, any Govt of whatever colour, just to try the £10 billion injection as in the above link.
    If the Tories gain an amazing result that allows them to bask in their cleverness, it will be worth it.

    I believe is completely wrong to keep SMC as some sort of left wing shibboleth.

    So, I was quite pleased to read about how the Nazi fascists were able to use their Labour Treasury Certificates as fiat money.
    It showed how SMC can be politically neutral.

  • Angelswithdirtyfaces

    This article reads somewhat misleadingly. It really is a poor example of Keynesianism in action. Hyperinflation occurred well before Hitler came to power – over ten years earlier in the early 20s and was actually caused by invasion and occupation of the Ruhr and an ensuing General Strike by German workers then compelled the Weimar Republic to print money to pay them. After the 1929 crash the Americans called in its major loans to Germany – that caused massive unemployment pre Hitler. When Hitler became Chancellor In January 1933 he did start the massive autobahn construction and other public works – but much of the state investment went into direct military spending or had military goals. As Jews and women were discounted from unemployment figures, and there was compulsory military service the idea that there was full employment is more Nazi propaganda than realiity.

    • Vince Richardson

      Interesting points,were women included in employment figures prior to this?Jews not being considered unemployed would have changed the figures,but any idea by what amount?What does strike me is that they turned a very weak economy into a powerhouse in quite a short time,without much apparent outside help.Of course German natural resources were at hand.The US made similar progress once it went into military/ war producing mode.That appears to be a common factor.

      Propaganda aside,which no doubt there was,this was still quite an outsanding achievement on an purely economic basis.Of course one has to be very careful not to use National Socialism as a good example of how to improve an economy,but economic lesson can still be learnt.

      • James Murray

        Yes, I agree Vince.
        Mr Dirty Faces appears to look at the reasons behind the crash just before Hitler and not how the the Nazis were able to finance their quick climb out of the crisis to pay for the number of new jobs and public works.

  • Vince Richardson

    Typo; should be “reparation payments” not “repatriation payments”.

    • PJM

      Thanks, Vince — the correction has been made.

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