Schacht's economic strategy & the New Plan

Who was Hjalmar Schacht?

A financier, president of the Reichsbank, 1933-39, and minister of economics 1934-37.

What did Schacht follow to bring about recovery?

He followed a policy of public investment, largely by the state, which spent heavily.

What did Schacht’s policy of public investment result in?

Policy of deficit financing (borrowing).

Name 4 policies that Schacht adopted.

• setting interest rates at a low level.

• rescheduling debts of local authorities.

• giving assistance to farmers and small businesses.

• introducing public works, such as public building, motorways, land reclamation and reforestation.

What happened to government expenditure as a result of his policies?

Government expenditure rose by 70% from 1933 to 1936.

What happened to unemployment as a result of his policies?

Unemployment fell, and although fears about inflation did not materialise, a balance of trade deficit did occur, as Germany imported more raw materials and failed to increase its exports, which meant the country was short of money.

What was the debate over where money should be spent?

Whether it should be spent on consumer goods or rearmament.

This debate led to the appointment of Schacht.

What did Schacht introduce and when?

Introduced the ‘New Plan’ in September 1934.

What did the New Plan mean the government had control over?

Gave government control over all trade, tariffs, capital and currency exchange.

What did the ‘New Plan’ mean the government decided?

Government decided which imports were allowed, with priority given to heavy industry.

What did the New Plan meant was signed?

Bilateral trade treaties, particularly with South-East Europe and South America.

What did the New Plan mean that Germany bought?

Germany bought goods on the condition that Reichsmarks were used to buy German goods.

What was introduced under the ‘New Plan’?

Mefo bills.

However, what was the problem with the ‘New Plan’?

It only hid the balance of payment problem, and by 1936 this was getting worse.

What did Schact want to reduce with the ‘New Plan’?

Wanted to reduce arms expenditure and increase the production of industrial goods to sell.

Resulted in the ‘guns or butter’ debate.

What was important about bilateral trade agreements?

German purchases were paid for in Reichsmarks, which countries then had to use to buy German goods.

What did Schacht’s rapid increase in spending create?

The prospect of inflation, but was avoided through introduction of Mefo bills.

What were mefo bills used to do?

Raise funds by offering them at a 4% interest rate on the money market.

What happened to the balance of payments problem despite the raising of funds for rearmament?

This demand created for imports meant balance of payments problem was worsening by 1936.

What did Schacht argue about arms expenditure?

That it should be reduced and increase productions of industrial goods so there would be more to sell.

How did Hitler react to Schacht’s argument about arms expenditure?

He rejected this and appointed Goring as Commissioner for Raw Materials and Currency.