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How was Germany able to afford the astronomical cost of rearmament in the 1930s?

Historian Roger Moorhouse considers how Germany was able to afford rearmament after the reparations laid out in the Treaty of Versailles. The short answer is that it almost didn’t...

Wehrmacht soldiers on parade, 1937
Published: December 6, 2021 at 7:54 am
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Hitler’s peacetime rearmament programme involved huge costs of over 60bn Reichsmarks, with armaments expenditure expanding from 1 per cent of GDP in 1933 to 20 per cent in 1938. This not only defied the Treaty of Versailles, it also necessitated breaking the established rules of public finance.


Given the parlous state of the German economy in 1933, financing the plan in the normal way via taxation and borrowing was not feasible, particularly as the scale of rearmament had to be kept off the government’s books.

The solution was MeFo Bills – short-term, unofficial bonds for armaments manufacturers, named after a spurious ‘front’ company and backed by the Reichsbank – which would provide around half (10bn RM) of rearmament funding prior to 1936/37. By that time, such clandestine measures were aided by the general economic upturn, which provided further funds via taxation and regular government borrowing. In all, MeFo Bills would account for around 20 per cent of the total finance required by 1939, with another 10 per cent coming from extraordinary ‘Treasury Bills’.

Through such measures, Adolf Hitler swiftly created a sophisticated military machine that would overrun Poland in 1939 and thereby start WW2. Yet the economic consequences of rearmament are less well known. Nazi policies of autarky (self-sufficiency), deficit financing and creative accounting caused huge inflationary pressures, which by early 1939 had provoked a crisis, with the Reichsbank frantically borrowing and printing hundreds of millions of Reichmarks to try and balance its books.

It has been suggested that this inflationary crisis was one of the factors that drove Hitler into war in the autumn of 1939. Whatever the truth of that assertion, it certainly forced the Nazis into a strict micro-management of the German economy, through measures that included wage freezes and price controls, which in turn would be politically facilitated by the advent of war.

Answered by Roger Moorhouse, author of Berlin at War (Bodley Head, 2010)


This article first appeared in the September 2013 issue of BBC History Magazine


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