On the German Financial Crisis of 1935-1936

Bogumil,

How are things going with you? I hope that this message reaches you in good health.

My decision to finish that paper ahead of time has finally paid off. Over the past few weeks, I discovered additional information related to your area of research that put the rest of my conclusions into perspective. I was also able to figure out why Hermann Göring advocated for German-Soviet trade relations conductive to realizing a détente between the German Reich and the Soviet Union. The signing of the Molotov-Ribbentrop Pact, contrary to what the readers of our blogs may be expecting, was not that détente. In fact, the détente was the diplomatic alternative to the Molotov-Ribbentrop Pact.  

That was the conclusion of the author who wrote “A Soviet Bid for Coexistence with Nazi Germany, 1935-1937: The Kandelaki Affair.” I found two other authors who arrived at similar conclusions:

“Foreign Exchange Crisis of 1936”: https://www.jstor.org/stable/40748563

“Karl Schnurre and the Evolution of Nazi-Soviet Relations, 1936-1941”: https://www.jstor.org/stable/1432205

What brought Göring to entertain this proposal was a “Balance of Payments Crisis” that struck the German Reich around late 1935 and early 1936. After it became apparent to that the Germans will no longer abide by the terms of the Versailles Treaty, the Allies levied “economic boycotts” (the precursor to today’s economic sanctions) in retaliation. German financial institutions were deprived of foreign currencies to facilitate payments for raw materials imported from outside the German-speaking world. As foreign currency reserves ran low, the economic recovery of the German Reich was at risk of being ruined. Without foreign currencies, the German Reich cannot import raw materials to sustain the German economy and the rearmament of the German armed forces. The Reich Ministry of Agriculture even reported in 1935 that because of a poor harvest and overpopulation of pigs, they requested foreign currencies to start importing foodstuffs.

Consequently, the NSDAP found itself caught in the middle of a three-way dispute between the Reich Ministry of Agriculture, the Reich Ministry of War, and the Reich Ministry of Economics. They warned that the economic recovery was at risk of being derailed from people were smuggling foreign currencies into the German Reich, rising food prices, and looming raw materials shortages. Together with German rearmament, these issues were gradually compounding to create Currency Depreciation in the Value of the German Reichsmark. Hjalmar Schacht and Hermann Göring were specifically chosen by Hitler to resolve the Balance of Payments Crisis.

In short, to solve the Balance of Payments Crisis, Schacht and Göring had the following options:

  • Scale back German rearmament.
  • Implement rationing and price controls.
  • Reduce the government expenditures and devalue the Reichsmark.
  • Develop self-sufficiency in the German Reich.
  • Acquire more foreign currencies by increasing exports to other nations.

The NSDAP refused to go along with the first and second proposals, fearing that those options will infuriate the German people and the armed forces. Schacht argued for spending cuts and devaluation, whereas Göring advocated for greater self-sufficiency by commissioning a governmental study that would later recommend the “Four-Year Plan.” Both men eventually concluded that the best way to address the Balance of Payments Crisis, continue the rearmament, and sustain the economy at the same time was to build better trade relations with the Soviet Union. If there was anything that Stalin refused to export to the German Reich, importing from the Kuomintang or the Imperial Japanese will suffice.

This brings me to the CPSU, which chose to develop a working dialogue with the NSDAP prior to 1939 because they realized that the Balance of Payments Crisis will not help the KPD seize power in the German Reich. Thanks to the Soviet archives, historians in the 1990s were debating exactly what sort of relationship the CPSU had with the NSDAP. The Soviet perspective of the CPSU’s relations with the NSDAP is so complicated that the historians at the time coalesced around four competing historiographical schools of thought. To quote the second source:

“(1) The Soviet Union as the friend of Collective Security and the League of Nations rebuffed the German advances.

(2) The Soviet Union preferred to cooperate with the West in securing peace but was willing to listen to German proposals because of Western appeasement.

(3) The Soviet Union preferred to expand its territory in alliance with other dissatisfied powers, such as Nazi Germany, but found itself fitfully cooperating with the West because of Hitler’s intransigence.

(4) The Soviet Union pressed for an agreement in order to use Nazi Germany to foment war and thereby export revolution and expand the USSR, but was rejected by the Germans.”

The first school argued that the CPSU were staunchly opposed to the NSDAP, whereas the fourth school insisted that the CPSU was initially supportive of the NSDAP prior to Operation Barbarossa. The author, citing the diplomacy conducted by Reich Foreign Ministry’s Dr. Karl Schnurre, believed that the CPSU’s true stances where somewhere between the second and third schools of thought. The CPSU was willing to work with either the NSDAP or the Western Allies. Although that does not guarantee the possibility of the Soviet Union joining the Axis Powers or the Allied Powers, it does, however, imply that the CPSU could be persuaded to support either.

The best analogy that I found to be the most appropriate was the Chinese position on the subject of Korean Reunification because China has its own reasons to support and oppose that proposal.

Signed,

-DAH



Categories: Philosophy

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