The Vampire Economy

Chapter XIII

FROM WORLD TRADE TO TRADE WARFARE

“The Greeks have to accept payment in mouth organs or radio sets, and in such large quantities that their demand for these articles could be satisfied for many years to come. Optical instruments which the Nazi Reich could not export elsewhere were offered to the Bulgarian peasants.”

IN THE era of world prosperity, when crises and depressions seemed merely temporary interruptions in the on-rushing stream of continued economic development, international trade relied upon a scheme of generally accepted rights, laws and customs as much as upon freedom of the seas and protection against pirates and robbers. Since the world crisis of 1929, however, the old concepts have been brushed aside and new and confusing practices are supplanting the stable relations which formerly regulated international commerce. Only fragments of the fundamental principles looked upon but a few years ago as virtually immutable are still operative. A variety of new methods and conditions have profoundly affected the former freedom of international trade. The private businessman attempts to adapt himself to the new conditions and to continue “business as usual,” but the changes, involving him in a variety of risks previously unknown, are so manifold and far-reaching, and they are sprung upon him with such alarming suddenness that he scarcely has time to consider any given situation before further changes upset his plans and negate his carefully laid precautions. He is compelled to take new risks unless he is content to sit still and retire from business. He may still hope that the new restrictions on his freedom in international trade are only temporary and will end with a happy return to the “good old times.” But such hopes are becoming more and more remote from reality. And the end is not yet in sight.

In all of the existing confusion, only one thing seems clear, namely, that a new consolidation of world trade, of its rules and conditions, has not yet been achieved. Whether or not the foreign trader will ever again find himself on safe and unshifting ground is at least problematical.

The changeover from free trade to trade subjected to protective tariffs did not begin to compare in importance with the problems confronting international trade at the present time—State regimentation and State control of foreign trade, establishment of State boards for the handling of foreign currency, export and import quotas, State measures against “flight of capital.” Such regimentation has been instituted not only in fascist States; many of these measures have likewise been adopted in those non-fascist States which were affected to an especially grave degree by the world’s economic crisis.

About 25 per cent of the world trade of today is strictly subject to exchange controls. In addition, a further sizable proportion of world commerce is hedged around by other State restrictions which drastically interfere with the free flow of commerce, subordinating it to the “tasks of the State.” Tariff regulations have lost in importance, for direct interference curbs imports far more effectively than protective tariffs. It is obvious that no country in the world can avoid being influenced by these changes. In the long run, all countries will be forced to adapt their foreign trade systems in conformity with the new situation.

State economic measures which affect only the internal market do not necessarily force other States to adopt similar measures. In international trade, however, a new policy and a new conception enforced by one country compels all other countries, or the traders of those countries, to transform their commercial habits so as to be able to meet the new competition. International trade relies on certain customs and conventions which must be equally effective everywhere. They must be respected by all participants. If, however, one group of traders defies them systematically and cannot be disciplined, then all other participants must change their methods and policies, too. A foreign trader who acts as a private businessman representing only his own firm cannot deal on an equal footing with a foreign trader who is the agent of the State. The U.S.S.R. was the first State which organized complete State control (State monopoly) of foreign trade in peacetime. This had an important effect upon international trade methods. In all other States where trade relations with the U.S.S.R. were of any importance special organizations were formed and measures adopted by the State and by private trade associations in order to regulate transactions with the U.S.S.R. Yet this was regarded as an exception and did not fundamentally change the traditional practices in foreign trade.

Today, however, the exception has largely become the rule. Japanese exporters are organized in export cartels by the State. The State restricts competition among exporters and importers. The same thing is done in Germany and Italy. Moreover, it is not only in totalitarian States that payments for imported goods have become dependent on governmental decisions. Similar regulations have been adopted in certain non-totalitarian countries. Any foreign trader exporting to such a country must make sure in advance that the State involved is willing to supply foreign currency for the payment of his goods.

Furthermore, the private trader cannot compete with the trader of another country who is subsidized or otherwise supported unless he himself receives similar support from his own government. In most countries the State has now organized special measures for the “promotion” of exports. The preservation of traditional rules and the retention of the conservative spirit on the part of certain businessmen gives an advantage to their competitors whose business transactions are directed and subsidized by their governments and who do not feel bound to traditional rules and international laws.

There are, of course, many instances where the free and independent businessman has an advantage over one who is State regimented and dependent on decisions of a government bureaucracy. But in the long run the advantages are outweighed by the superior power of a State over that of a private businessman. Trading with a firm located in a totalitarian State is peculiarly hazardous because such a firm is no longer a free agent, subject only to accepted international regulations. The actions of a firm in a totalitarian State assume what appears to be a very capricious character. This is inevitable, for the State has absolute power to modify private contracts and their execution—or nonexecution.

The situation is complicated by the extreme uncertainty and confusion which surrounds all dealings with a firm whose every activity is controlled by the State. The State-regimented foreign trader plays a dual role-he appears as a private businessman, signing contracts in the name of his “private” firm. But the fulfillment of his contracts, his buying and selling policies, depend neither on his own free will nor on the international customs and laws which were valid in a free competitive world economy. Whether fulfillment of contracts can be guaranteed or violation of contract can be prosecuted depends to a large extent on the government’s decision and on the political power of the State. This factor has been recognized by many foreign traders only after experiences which have proved costly indeed. Totalitarian States still exploit regulations developed under unrestricted competitive world trade although they have already changed these rules and laws in accordance with the “interests of the State.” The secret of the success of certain new trade methods of Nazi Germany is the belated recognition by other countries of the structural changes that have occurred in world trade. Dr. Hjalmar Schacht in particular recognized and exploited the inability of a competitive company to defend its interests efficiently in commercial deals with totalitarian States.

German foreign traders used to joke about the international trade methods of the President of the Reichsbank. One story ran as follows:

A deputation of South Sea natives was sent to the President of the Reichsbank and addressed him thus:

“Big chief of the money: Our magician has instructed us to sail from our coasts over the big sea and to come to you. May we sell our Kauri shells to you?”

The President of the Reichsbank answered:

“With pleasure, gentlemen. You merely have to exchange the shells for Fiji canoes, the Fiji canoes for moss from Iceland, this moss for Chinese dog hair, Chinese dog hair for Japanese paper napkins, and the Japanese paper napkins for Argentine flax seed. We have need of Argentine flax seed in our margarine production. In payment we shall deliver to you the finest and most modern planetarium. When your big powerful magician sees the planetarium he will be delighted at this exchange and will be impressed with the progress in the world. Yes, gentlemen, the ways of modern world economy are wunderbar.”

Hamburg and Bremen traders relate this story with a grim smile. They often are disgusted with the tricky methods used by the totalitarian State to obtain foreign raw materials without payment in foreign currency. In “payment” for the goods imported, Germany ships to her foreign customers, who are dependent on her goods, whatever articles she may happen to have in abundance regardless of whether or not the recipient wants this particular type of merchandise. Sometimes she makes no payment at all.

Primitive international trade began by barter, that is, by direct exchange of products without the use of money. These primitive practices have now been revived. When Germany resurrected barter trade, she represented it to potential foreign customers as a means of re-establishing world economic harmony which had broken down as a result of the world economic crisis. A glut of agricultural products and raw materials on the world market prevented agrarian and raw material producers from buying industrial goods. Simultaneously, industrial countries, in particular, Germany, were unable to sell their industrial products. A stalemate resulted, with Germany lacking foreign currency for the purchase of agricultural products and raw materials. Workers and machines remained idle. The finding of new ways of exchanging industrial goods for agricultural products or raw materials seemed a mere technical problem. “Barter,” that is, exchange of industrial products for agricultural products and raw materials without payment in foreign currency or gold, seemed to be a remedy by which both patients—the agricultural country and the industrial country—could be cured of their ailments. Dr. Schacht, during his trip through the Balkans in 1938, as the Nazis’ commercial agent, offered splendid schemes for the solution of the world economic crisis. “You need agricultural implements and industrial plants and material for railroads and armament. We are going to provide you with all these things,” he said. He was asked: “How shall we pay?” The answer was persuasive: “What about the natural resources of your country? We are willing to accept all your crops and your output of raw materials in payment. We shall pay you more than the world market price. We are quite ready to come in and help you develop your natural resources to the best advantage and we are able to do this.”

The solution sounded plausible. Experience, however, was to teach the agrarian and raw material producers that the world economic crisis could not be solved by reverting to more primitive methods of international trade. Barter proved extremely disappointing to Germany’s customers. Barter trade made agrarian and raw material producers dependent on the totalitarian State in unforeseen ways. Barter trade likewise became an important weapon in the hands of the totalitarian State against its competitors on the world market. This development was not apparent during the first stages of barter deals. These initial transactions were private arrangements between German importers and foreign exporters. German importers, unable to obtain sufficient foreign currency to meet their payments, could now import foreign products on a barter basis, paying surpluses due their creditors in “additional” exports of German goods. The government hoped that these private barter deals would stimulate German exports and thereby relieve the scarcity of raw materials. It was not the intention, however, that barter deals should be resorted to where the customer could pay for the manufactured articles either in foreign currency or in specie. Had this system worked in practice as its sponsors hoped, Germany would have achieved her aim of acquiring both raw materials and foreign currency.

What actually happened, however, was that barter transactions tended to supplant sales for foreign currency or specie. It was more profitable for the German exporter to arrange with the foreign buyer that payments be made in materials instead of in cash. Whatever cash payment (foreign currency) was received had to be turned over to the Reichsbank. Foreign materials, however, could be imported and sold at a handsome profit. Scarcity of foreign materials and high prices in Germany made such barter business very attractive for the German exporter and often also for the foreign importer of German goods. The barter transactions, therefore, resulted in many upsets both in Germany’s foreign trade and in her foreign currency position. Goods were imported which were not vital and could not be used for armament. Effective control of prices proved impossible and the flow of foreign currency to the Reichsbank dwindled. The resultant dislocations caused the Reich Foreign Exchange Board eventually to restrict private barter trade.1 Private barter has almost been abolished, but the methods of barter trade have not been renounced. Barter transactions have become strictly government-controlled or direct State affairs.

Along with the difficulties that Germany has experienced in solving her problems by barter deals, one must also recognize that through them she has gained certain positive advantages, though these be only of a temporary nature. The exporter who is able to get cash payment for his sales abroad is no longer allowed to make barter deals. Countries with which Germany has an export surplus—for example, England—have been excluded from barter deals altogether. In countries where Germany buys vast quantities of raw materials and agrarian products, however, barter trade is used in order to compel the foreign seller to buy German products, thus stimulating German exports at the expense of her foreign competitors. American exporters of cotton, for instance, were previously paid in “Aski marks” these could be spent only for German goods which naturally must be exported from Germany. The American exporter, therefore, became an importer and an involuntary sales agent of German goods. In spite of restrictions of barter trade, cotton could previously be exported from the United States to Germany on the basis of barter agreements. But since the introduction of “Countervailing Duties on Imports from Germany” 2 by the United States Treasury Department, all imports from Germany on a barter basis have been prohibited.

A discussion of barter trade and the blocked mark would be incomplete without mention of another aspect of their operation. With a grand gesture, the Nazi government offered to purchase from the agrarian- and raw materials-producing countries their whole crop or output, or the greater part thereof, thus solving the problem these countries had of selling on a glutted world market. The Nazi State was willing to take care of sales difficulties. It was even willing to pay a price much higher than the world market price. Only one condition was imposed: that for these materials Germany should make no payments in foreign currency. Payments were to be made in Aski or in clearance marks (Verrechnungs mark) which could be spent only for purchases of German goods within Germany. The more agricultural products and raw materials Germany bought by paying in Aski or in clearance marks, the more the other country was bound to import from Germany. When no, or insufficient, compensating purchases were made, mark funds were accumulated—a foreign credit for the German State for which it paid no interest. The greater this credit became, the more the owner of Aski or clearance marks—often foreign governments—had to import from Germany, for otherwise these mark deposits were of no use. Various governments in southeastern Europe and in South and Central America were thereby compelled to import much more from Germany than they otherwise would have done.

The Nazi authorities did not regard the excessive price paid for agrarian products as a loss, for they could pay in goods which otherwise would not have found a market and could dictate the price of these goods since the agrarian-exporting State was obliged to buy German products. This put the Nazi authorities in a strong position and enabled them to raise the price for industrial export goods.

The Nazi State did not buy coffee, tobacco and other world goods merely for consumption at home. It needed gold and foreign currency and these it could obtain by selling on the world market goods secured through barter transactions (or by payment in Aski marks). The result was astounding:—the agrarian countries which were unable to obtain sufficient foreign currency to satisfy the urgent demands of their national economy found that they were in the position of having involuntarily granted credits to the Nazi State. The Nazi State, in turn, was able to dump these articles on the world market. The agrarian countries thought they had sold products to the Nazi Reich which they could not have sold elsewhere. But it happened in a number of cases that such goods were later resold by the Nazis on the world market. The agrarian country or raw material producer might have sold its products directly on the world market—at low prices, it is true, but in return it would have received foreign currency. Instead, the foreign currency went to the Reich while the agrarian producer received nothing but Aski marks for these sales.

This was the situation that developed between Germany on one hand and on the other hand such relatively poor countries as Greece, Bulgaria, and a number of the South and Central American countries which sold to Germany most or part of their crops—coffee, grain, corn, cattle, etc.—for which the Reich paid in blocked marks. In some countries—for example, Greece and Rumania—the agrarian producer was paid by his own government in the currency of his country, and the government became the owner of clearance marks. If the government wanted to get something for the mysterious clearance marks, it had to buy German goods. But the Greek or Rumanian governments were unable to buy freely from Germany needed machinery or articles which contained a considerable percentage of scarce foreign materials. The Rumanian government was compelled instead to spend large amounts of blocked marks for the purchase of thousands of typewriters-enough to supply all the offices in Rumania for years. It had to resell these typewriters on the world market at a fraction of the cost price. Rumania, moreover, had to take the blame for dumping, although it acted only as the Reich’s involuntary sales agent. Simultaneously, in order to obtain foreign currency, the Reich sold on the world market Rumanian agricultural products as well as Brazilian coffee, obtained by barter agreements.

“Germany got the advantage of a low-value currency for her imports and of high-value currency for her exports, at the expense of the foreign owners of the blocked mark. … At present the use of blocked marks in payment of German exports has almost completely ceased, although a large part of German trade with Latin-American countries is paid for with the so-called Aski, or compensation, marks. …

“Time after time during 1937 and 1938, it was announced that Germany had succeeded in obtaining orders for delivery of industrial plant or other capital goods on a long-term credit basis. This appeared all the more astonishing since Germany’s banking resources did not allow for such generous credit terms. The explanation lies in the fact that in reality the credit transactions were financed not by Germany but by the governments, of the debtor countries. …

“In general, exporters are very cautious when granting long-term credits to customers. This is particularly true with regard to Balkan customers. In Rumania, therefore, German sellers became very popular and were able to beat foreign competition because of the generous long-term credits they granted to anybody who wanted German goods. It has been made possible for anyone in the Balkans to buy a German motorcar or bicycle against a nominal deposit and on extremely easy terms.” 3

The London Economist called this transaction the “long-term credit trick.” This “generosity” of the German seller was at the expense of the Rumanian government. The Rumanian purchaser of German goods turned over the money for the purchase not to the German seller, but to his own government. If he failed to meet his payments, the Rumanian government was the loser. Whether he paid or not, the German seller received the full price for his products from the clearance-mark deposit of the Rumanian government.

In spite of the growing foreign disillusionment with these barter deals, the Reich managed to continue its manipulations by offering considerably more than the world market price to foreign producers of agricultural products. The agrarian seller could see only that he apparently got more than he could get anywhere else.

German buyers paid about 43 per cent more than the world market price for wheat bought in southeastern Europe, and about 50 per cent more for barley. “In Poland, Germany concluded a deal for the sale of considerable machinery by signing an agreement whereby she will buy for some years agricultural products considerably above the world market prices.” 4 But whether this deal will be carried out is doubtful.

Germany’s clearing agreement with the Greek government showed a credit balance of 28 million marks in favor of Greece, but the Nazi government refused to settle this account—except by supplies of more German commodities which Greece did not need.

The same thing happened in Turkey. German buyers did not hesitate to buy all the mohair produced in Anatolia and all the nuts produced in Trabzon—and paid for them in goods or in blocked marks. In return, Turkey received German coffee mills, gramophones, radio sets and similar articles, although Turkey needed machinery. The German government sold the major part of the Turkish products for foreign currency on the world market.

The foreign owner of Aski or clearance marks often finds it impossible to buy those goods in Germany he wishes to buy. The German exchange control authorities excluded from the list of goods which can be bought with blocked marks for exports, according to a decision of July 19, 1938:

(a) Articles and commodities in which Germany has a virtual international monopoly to such extent that their export at the current high German prices requires no assistance.

(b) Goods of which there is a shortage in Germany so that their export is not favored by the German Government.

(c) Goods composed of foreign materials to such a large extent that their export is objectionable to the German Government because of the drain on Germany’s foreign balances which would result from the purchase of the materials used in their manufacture. 5

How rigorously this system is applied depends more or less on the political influence of the foreign State of which the foreign owner of the Aski marks is a citizen. American cotton exporters, for instance, are treated with more consideration than Greek or Bulgarian tobacco exporters. The Greeks have to accept payment in mouth organs or radio sets, and in such large quantities that their demand for these articles could be satisfied for many years to come. Optical instruments which the Nazi Reich could not export elsewhere were offered to the Bulgarian peasants. It has proved almost impossible, however, for those countries to purchase in Germany semimanufactured articles for their own domestic industries.

These methods of “barter” have enabled the Nazi Reich to make inroads in South American markets, especially in Brazil.

The Nazi State may consider the fact that the German share in the import trade of Latin America rose from 9.54 per cent in 1932 to 15.1 per cent in 1937 and reached almost the prewar level (16.5 per cent) as evidence of success. Latin America’s share in Germany’s import trade, however, declined from 12.2 per cent in 1913 to 8.9 per cent in 1937.6

The share of South America, as a whole, in Germany’s exports rose from 3.3 per cent in 1932 to 10 per cent in 1938 (6.0 per cent in 1929). Germany’s share of Brazil’s total imports has more than doubled in the past ten years. It rose from 10.6 per cent in 1928 to 24.4 per cent in 1938. Simultaneously the United States’ share of Brazil’s imports declined in the same period from 28 per cent to 24 per cent. In 1938, therefore, Germany exported more to Brazil than did the United States. Mr. Eugene P. Thomas, President of the National Foreign Trade Council, in New York, commented on this development as follows:

“In her purchases from Brazil, Germany bought far in excess of her domestic requirements and resold at a profit and for cash what she herself could not absorb. In payment for these goods, Germany flooded Brazil with German manufactures which Brazil was unable to absorb as rapidly as they were dumped on her market. Many of these German goods were found to be not as suitable for Brazil’s needs as American products. In her trade with Brazil, Argentina, Chile, Peru and Uruguay, Germany ran up a debit account of large proportions which she has been unable to settle. Victims of German barter methods, these Latin American countries found at the end of 1935, according to German estimates, that Germany’s debts to South America had mounted to 650 million Reichsmarks. Other authorities place the actual indebtedness at about one billion Reichsmarks. Fearing that she might be shut out of these rich reservoirs of raw materials, Germany applied high pressure methods and did not hesitate to use political propaganda to attain her economic objectives.” 7

States which permitted private traders more or less freedom in the purchase and sale of German goods—the State, however, acting as intermediary and handling the financial end of the transaction—soon found that they could exercise no control over the workings of the barter or Aski mark system. They were powerless to prevent the system from serving exclusively the interests of the totalitarian State. In self-protection they therefore refused to renew those pacts or themselves established strict State control over exports to and imports from Germany.

The greater part of the raw materials the “have not” powers need cannot be obtained by barter deals or from vassal States. It must be imported from countries where the exporter insists on payment in money he can spend on the world market or in his country. This is the reason why Germany, like Italy and Japan, is in urgent need of foreign currency or gold. The principal means through which Germany can obtain foreign currency or gold is from payments from countries where the currency still is “free,” that is, free to leave the country or return. In such countries, foreign trade, like trading in general, is still little supervised or manipulated by the State.

In totalitarian States, exporting is no longer the private concern of businessmen. They work for their own profit, but, more important, they also serve the cause of the State. The exporters of a totalitarian State appear very much like any other businessmen. Yet something has changed. They, in contrast to other businessmen, are State-regimented, but they also have ample opportunities to gain the financial assistance of the State in order to beat foreign competition. State control of exports has forced upon them a “national discipline”—a united front against foreign competition. Where they meet no foreign competition, they must raise prices to the highest degree possible; when they are faced with competition, they resort to dumping on an unprecedented scale. It is possible for them to do this because the State grants them export subsidies adequate to compensate them for the reduction in the selling price. The exporter of a totalitarian country is compelled to act as the agent of one big State trust, co-ordinating his policy with the sales policies of all other exporters, and getting full support—financially and otherwise—from his government. His foreign competitor, on the other hand, represents only his own private firm. This system has been organized on a grand scale, especially in Germany. The State exerts a strict control over the sales prices of all German exports. Any sale abroad must be registered with the Reich Foreign Exchange Board. This gives the government control of payments in foreign currency. It also enables the State to control the price policies of all German exporters. As a matter of fact, there exists a dual control of the price policies of German exporters. The German exporter must report the price for the sale of German goods abroad to the Reich Foreign Exchange Board, which was organized in 1935 by the then President of the Reichsbank, Dr. Hjalmar Schacht, as well as to the administration of the “Self-Help of German Industry.” This harmless name seldom appears in Nazi publications. It is, in fact, the innocent-sounding title of an Export Subsidy Fund. The purpose of this fund, to which all industrialists must contribute, is to subsidize exporters who otherwise could not compete on the foreign market. Subsidies are not paid in all cases, however, and the amount of the subsidy varies greatly.

A firm which applies to the Export Subsidy Fund must prove that without the subsidy it cannot sell at a profit. The firm must also indicate at what price it can sell abroad. Officials of the Fund compare this sales price with prices for similar articles made by other manufacturers. Sometimes the officials insist on a higher price than that originally quoted because the foreign buyer cannot obtain the product elsewhere at that price. During the first period of the Four-Year Plan, German exporters were subsidized either by being allowed to purchase German dollar bonds at depreciated prices or by being permitted to purchase scrip issued by the Conversion Office of the Reichsbank to foreign creditors in payment of debts. The scrip could be bought at a discount of approximately 50 per cent while it could be exchanged within Germany for its full mark value. The foreign creditor thus had to pay for the promotion and subsidizing of Germany’s export trade. This kind of export subsidy was later superseded by the special Export Subsidy Fund. While the scrip method was widely discussed, when it was in use, only little is known about the Export Subsidy Fund. No exporter is allowed even to mention its existence during private conversations with foreign business friends. Consequently the following confidential letter from a trade group is revealing:

NEW SERVICE OF THE GERMAN
CLOTHING INDUSTRY
Exportfoerderung
Berlin W 68, Kielgaustr. 4
HERAUSGEGEBEN VON DER WIRTSCHAFTSGRUPPE UND
DER REICHSVEREINIGUNG DER DEUTSCHEN
BEKLEIDUNGSINDUSTRIE

Lfg. 22

Reg. no. 13

November 5, 1937.            

Strictly confidential:

“With reference to the confidential character of the export subsidy procedure:

“Although each notice in our News Service containing an announcement about the export subsidy procedure is marked ‘Strictly Confidential,’ we have, unfortunately, observed violations of this confidence in a number of cases. Reference to ‘scrip procedure,’ ‘compensations of the Reich,’ ‘export promotion rates,’ and so on, have been discovered in the foreign correspondence of a number of firms. We again remind our members very earnestly that the confidential character of the promotion procedure must be preserved under all conditions and that a penalty is involved if it is mentioned in letters, especially to foreign countries.

“In order to avoid unpleasant measures against factory leaders and firms we request our members to examine carefully any letter sent abroad and to avoid any mention of the export promotion procedure even in conversations with foreign business friends. We urgently request that the situation be again explained to employees concerned with foreign orders.”

The turnover tax, which is collected from all industries on behalf of the Export Subsidy Fund, yielded about 1,200 million marks in 1938, approximately 25 per cent of the total value of German exports. In the spring of 1939, the Nazi Government decided to pay a State subsidy of 500 million marks into the Export Subsidy Fund for 1939-40. This secret fund will thus dispose during the year 1939-40 of 1,700 million marks, equal to about 35 per cent of Germany’s yearly exports in 1938. No subsidy is paid where the foreign buyer seems dependent on German products, as is the case where Germany has a monopoly and the foreign buyer can, therefore, be forced to pay the price dictated by the German firm. The average subsidy paid to an exporter amounts to about 40 to 45 per cent of the sales price.

The Reichsbank and other German State authorities are able to aid German exports in other ways than through the direct intervention of the Export Subsidy Fund. A German manufacturer unable to sell at a profitable price has ample opportunities for getting State financial assistance. It is impossible to determine in the case of any individual export transaction whether and to what extent it has been subsidized. The elastic evaluation of blocked, Aski, and other marks makes it possible for the Reich Foreign Exchange Board, in conjunction with the Reichsbank, to grant hidden subsidies. The foreign buyer might be accorded especially cheap Aski marks, or the German exporter might be empowered to use the foreign currency he gets from sales abroad for financing an import business. The exporter who can increase his exports above a certain volume is to receive in the future some kind of special export premium by being given a freer disposition of the extra income of foreign currency.8 This is generally very lucrative, because foreign materials are scarce and it is easy for the German importer to sell them in Germany. Or the Reichsbank might request the Price Commissar to grant a certain firm a higher sales price in Germany for some imported raw material. The extra profit derived from this import business compensates for the loss entailed in selling goods abroad at prices far below the German costs of production.

Nazi practice of export subsidizing was described by Attorney General Frank Murphy in a letter to the Secretary of the Treasury of March 18, 1939, as follows:

“An American importer desires to import into the United States from Germany certain German cameras. Before this can be done approval of the transaction must be obtained from the German exchange control authorities, without whose approval nothing can be exported from Germany. … Under an arrangement approved by the German import control authorities … a German agent acting for the American importer buys American cotton at the world price for $ 1,000 and sells it in Germany for 2,500 Reichsmarks, plus a premium of 331/3 per cent, making a total sales price of 3,333 Reichsmarks, the equivalent of $1,333. … The American importer thereupon buys cameras for $1,333 (3,333 Reichsmarks) and imports them into the United States. Thus, for cameras which cost the American importer $1,000 the German exporter is paid $1,333; with the result that the German exporter is enabled to compete unfairly with, and probably to undersell, American camera manufacturers, while the exportation to Germany of American cotton is correspondingly restricted or curtailed.”

The extent of the indirect export subsidies thus cannot be determined outside of Germany, without special knowledge of the arrangements between the Reichsbank, the Price Commissar, and the Export Subsidy Fund administration on one hand and German exporters on the other.

With a stroke of the pen, the German government can compel German industrialists to dump a certain percentage of their output on foreign markets.

“The authorities responsible for German economic policy laid special stress in the autumn of 1938 upon a call for further efforts in the export field. The Reich Minister for Economic Affairs issued a special order on November 25, 1938, which emphasized in two different ways the paramount urgency of the export business. Firms with outstanding performances to their credit in this field are to be given preferential treatment in the distribution of public contracts, while on the other hand firms which are culpably behindhand in effecting foreign sales are to be put at a disadvantage with regard both to public contracts and to the distribution of raw materials. Secondly, priority was given to export orders over all home orders, public as well as private. This latter provision is particularly important in that during the last twelve months export business has often been lost through inability to effect delivery.” 9

It became profitable for many industrialists to throw a certain volume of their production on the world market, even at a price which meant a loss to them, as this loss was more than compensated for by profits derived from armament sales at home. Opportunity to obtain this latter profit would not have been given them had they been unwilling to push sales in the foreign markets.

The stringent control of foreign trade in fascist countries and in Japan is not identical with the foreign trade monopoly of the Soviet Union. In Germany, Italy and Japan, the State determines what merchandise and how much of it is to be imported. It likewise controls and “promotes” exports but, with certain exceptions, the State as such is not directly involved in the actual purchase and sales transactions. The transactions are handled by businessmen who act in their private capacity and not as officials of the State.

The peculiar coexistence of the State and private economy, of State agencies and of State control existing side by side with private enterprises run by and for private interests, which characterizes domestic trade within Germany, is found likewise in the sphere of foreign trade. Because of the special nature of foreign trade, the clash between private and State interests in this field is even sharper than it is in the purely internal market.

The importers and exporters have advantages over traders engaged solely in domestic trade. They are dealing with foreign concerns which are not subject to the control of the totalitarian State. They cannot be watched as closely as shopkeepers in a German town. They are better informed than other businessmen about conditions abroad, and have more opportunities to evade strict State supervision.

There are many subterfuges which the German exporter or importer may employ. He may try to raise his export subsidy by asking his foreign business friend to send him letters testifying that he will buy only if a price reduction is granted and asserting that he has better offers from other countries. The extra profit derived from such an artificial price reduction will probably be divided between the German exporter and the foreign purchaser, with the exporter’s extra profit being deposited in a secret bank account abroad. This can be done, of course, only where the articles in question do not have an established market price, as in the case of complicated machinery. The German importer likewise may ask for a special commission from the foreign exporter and this he will hide from the German authorities, thereby also creating a secret reserve fund abroad.

Thus, if he is not rigorously watched, the German exporter or importer has a good opportunity, if he is so inclined, to circumvent the Nazi Government restrictions and, by quoting fictitious prices to foreign firms, to build up reserves in his personal account abroad. The Nazi Government is aware of this loophole, and therefore looks with special suspicion upon all exporters and importers. This causes innumerable hardships, for it is precisely in the field of foreign trade that there is the most urgent need for freedom of action and independence from bureaucratic control and interference.

Despite the manifold and extremely aggravating attempts of the authorities to make the exporters toe the line, it is evident from the following circular issued by the Nordmark Chamber of Commerce under date of November 15, 1937, to its members engaged in foreign trade, that many conflicts with the law do exist. Says the circular:

“With reference to foreign currency frauds, the Department of Foreign Trade has received the following letter from the Chamber of Commerce in Hamburg which should be studied with great care by all members:

“A number of arrests have been made recently in connection with cases of violations of foreign currency decrees. This has caused discussions and doubts among the businessmen as to whether the incidents really were so serious that arrests had to be made.

“… Every trader must take great pains in foreign currency affairs. … This affair will not be discussed in newspapers or other publications.

Heil Hitler!

The Executive

Subdivision of Import and Export.”

Absolute power has become a decisive factor in the relations between debtors and creditors. Dr. Schacht is reputed to have said, “It is no longer the creditor but the debtor who has the whip hand.” This is only true insofar as the debtor has sufficient power to defy the foreign creditor. The southeastern European vassal states of the Nazi Reich would certainly not improve their position were they to become the debtors of the Nazi Reich.

There exists a growing tendency to respect property rights in world trade only insofar as they can be effectively protected—either by absolute power or by retaliatory measures. Everywhere, in particular in trading with fascist countries, business morale is declining. This holds true in State as well as in private deals. Contracts are still signed and promises of payment are made, but the signatures under these contracts do not guarantee fulfillment, as they did formerly. The government officials of the totalitarian State review the completed contract and decide whether or not the pledge of the private firm is to be kept or cancelled. Of course, traditional forms are preserved, and there is no open declaration of contempt for law.

In a number of cases Import Control Boards have advised German importers to cancel contracts with foreign firms because the same goods could be bought more cheaply elsewhere, or because political or other reasons dictated that they should be purchased in another country. The German firm then must say to the firm from which it agreed to purchase that it very much regrets its inability to accept the merchandise but that it is unable to do so because it cannot obtain the requisite foreign currency or because some Nazi authority has objected to the respective barter deal. The foreign firm, in turn, can do little about such a breach of contract.

Even in controversies all parties to which reside within Germany, businessmen no longer hasten to prosecute for breach of contract. Sound as their case may be, the plaintiffs may find that the defendants have better political connections than they have, and in Nazi Germany judges are as accountable to Party secretaries as is everyone else.

When the plaintiff is a foreign firm, the German defendants are quick to avail themselves of the defense slogan “interests of the state,” so that it is almost impossible for a foreign firm to win a case in a German court. Even though a decision might conceivably be rendered in its favor, the foreign firm would have won merely a technical victory, for the Reichsbank never releases foreign currency in payment of such claims. In practice, therefore, German firms may break buying contracts abroad at will (or on the order of a commissar), should the world price drop. They are then free to repurchase elsewhere at a lower price. The situation is different only if the German firm has foreign assets rendering it vulnerable to court actions abroad and is obliged to accept the decision of a foreign court.

“Conservative” German businessmen—principally international bankers and merchants—who grew up with the traditional respect for private property and who had established international contacts with foreign bankers and foreign traders, had created “good will” which was one of the essential assets of their firms. Bankers in London or Amsterdam could reveal the names of such “conservative” businessmen who still try to adhere to former business standards and to retain the good will they have established. One and all, these individuals mourn the end of sacred, time-honored principles. But they are being superseded rapidly by businessmen who are not troubled by traditions, and the concern of the conservatives over respect for private property is not shared by the highest authorities of the fascist countries. They are, in fact, contemptuous of it.

“The development of international law is not at all desirable. … The fixing of such a goal [sanctity of property rights] is either Utopian or dictated by corresponding interests of international power groups. Jewish and liberal authors represented such an aim in Germany.” 10

The use of force to compel the fulfillment of financial obligations is not an innovation of the Nazis. They can and do claim that this principle was applied during the World War and in the Versailles Treaty. What is new is that principles customary in wartime are being applied by the Nazis to peacetime trade.

An outright return to the frank use of force is not advisable even from the point of view of those who prefer the absolute power principle to the acknowledgment of traditional rights. The open resumption of piratical methods would be a premature challenge of foreign powers. Dr. Schacht evolved an ingenious system which enabled the totalitarian State to use its power and influence abroad in varying degrees and forms, without openly disavowing traditional standards.

He introduced the system of using various kinds of marks, a system which has often been misunderstood abroad. In his “birthday” address before the Reich Economic Chamber on January 22, 1937, Dr. Schacht ridiculed foreigners who did not see the intrinsic meaning of the “devaluation” of the marks paid to them.

“When I am talking abroad about the stability of the mark, people usually laugh at me because there are so many kinds of marks, all of which have a different value. To be sure, there are many kinds of marks, all of which do differ in value, without any of them being on gold parity, since they are quoted at 20, 30, 40, 50 or 60 per cent discount. My answer to this is always exceedingly simple: ‘Yes, this applies to the mark that belongs to you; the mark that belongs to us is stable.’”11

This system can be applied in such a way that mark debts abroad are paid back at a rate of exchange which is kept artificially low, while on the other hand payments to Germany have to be made at an artificially high value.

The Nazi State prefers to differentiate according to the rule: “To every creditor according to his power-not according to our ability to pay.”

British, Dutch, Swiss and French creditors have been treated better than American creditors. The British government could effectively threaten the German government with the introduction of a “clearing system.” In that event, all British importers of German goods would have paid their bills not to the German exporter, but into a special fund directly administered by the British government. This fund then would have been used to pay: (a) exporters of British goods to Germany, and (b) British creditors who have a claim for payments from Germany. Germany would have received only whatever surplus remained after all these claims had been satisfied. This system would have been effective because Germany exports much more to Great Britain than it imports from that country. Therefore the Nazi Government conceded partial repayment of debts to British creditors. Agreements for partial payment of outstanding debts were also concluded with other foreign countries which could exert similar pressure on the Reich.

The Reich Government tried to replace the Clearing Offices established by other countries by Payment Agreements. These provide not merely for payments for exports to Germany but also for at least partial payment of outstanding German debts.12 But only those countries which could, if necessary, impose a clearing system for foreign trade with Germany have been able to conclude payment agreements.

No corresponding arrangement has been made for paying State and corporate debts due in the United States inasmuch as Germany’s imports from the United States by far exceed her exports to this country. Only in a few cases have American creditors succeeded in collecting their German debts—or at least partial payments in acknowledgment of the obligation—by effective counter-threats. The creditors of the Norddeutscher Lloyd Shipping Company, for example, were able to make an arrangement with certain German debtors as a result of a threat to attach German liners on their arrival in New York.

On March 7, 1939, the German Foreign Debts Conversion office applied to Washington for a registration statement covering a proposed issue of $70,000,000 of 3 per cent refunding bonds. The Securities and Exchange Commission insisted on having certain information in the registration statement. When this was refused by the Nazi Government, the SEC suspended the registration statement, and declared:

“The registration statement does not disclose the entire amount of floating debt of the German Government or an adequate history of defaulted obligations. … No statements of the balance of international payments of Germany for any year since 1935. … Furthermore, the registration statements have not been adequately amended to set forth requested information vital to American investors respecting present German resources of gold and foreign exchange.”

The Nazi economists claim that they are compelled to apply their new methods in world trade because the Versailles Treaty robbed them of the means with which to buy sufficient raw materials and foodstuffs. They refer to the fact that prewar Germany, like Great Britain, imported more than it exported. The import surplus was financed by “income from abroad,” mainly dividends and interest from foreign investments. Postwar Germany lost its foreign investments. It even had to pay “reparations” as well as interest and amortization on foreign credits.

This could be done only by increasing exports of industrial goods—in competition with the exporting interests of the victorious powers. Extension and modernization of Germany’s industrial machine was necessary and was made possible by the influx of foreign credits. But the world economic crisis reduced the greater part of Germany’s industries to idleness. In Germany itself, forces arose which rebelled against the loss of industrial capital which was of value only if production could be resumed. It so happened, however, that many industries which had been producing for the world market could also produce armaments for the home market. This is one of the advantages an industrial country has compared to an agrarian country. Corn, grain and fruit have value only as food. They cannot be used as bullets. Raw materials, other than foodstuffs, are useless unless manufacturing industries exist which consume raw materials. An industrial country, on the other hand, can produce peacetime goods for the world market or, if necessary, it can switch to the production of armaments which strengthen the military power of the State. Evidence of this change in Germany’s production can readily be observed by a traveler. He will easily discover the contrast between the depression in the trading ports of Hamburg and Bremen on the one hand and, on the other hand, the boom in construction in central Germany where new armament works are being erected. A world armament race completes the disruption of the international division of labor on which our world economy relies.

When State control of foreign trade was inaugurated, imports were restricted because of a lack of foreign currency and gold. Germany’s rearmament policy, however, increased her demand for foreign raw materials, and likewise decreased her ability to export industrial goods.

The major part of the raw materials imported by the Third Reich are used in such a manner that it is impossible to pay for them through increased exports. We must recall here the structural changes of Germany’s industry under the Nazis, described in previous chapters, namely, the decline of the export and consumption goods industries and the greatly increased production of armaments. The rise in capital goods production thus was due to armament manufacture and not to the increased production of machinery for export.

Germany’s industry used to rely largely on the importation of foreign raw materials and the export of manufactured goods. One of the best German economists, Professor Max Sering, who is still living in the Third Reich but who does not understand the new times, has written:

“The powerful structure of this new industrial society [prewar Germany] relied essentially on foreign countries. Germany was rich in coal, sulphate, iron and zinc ores. But the textile industry worked almost exclusively with foreign raw materials. The metallurgical, electro-technical and rubber industries, the oil, fat and timber industries, as well as the manufacturers of leather goods, were dependent on large supplies from abroad. … Therefore a large section of Germany’s industrial population worked for foreign countries and was nourished by them.” 13

Postwar Germany depended to a greater extent than prewar Germany on the export of manufactured goods to finance imports of raw materials and foodstuffs for its industrial population and to service payments of foreign debts.

A reconstruction of Germany’s industries on the pre-War pattern took place during the period from 1925 to 1929. Foreign credits were used at that time to reconstruct and extend Germany’s industrial machine, equipping it again with the most modern technical means so that Germany might regain its privileged prewar position. The world economic crisis and the consequent depression made it clear that Germany could never again become the hub of industrial world production it had been previously. The futility of its attempting to do so was not recognized by those who believed in the possibility of a new world prosperity. Industries which depended on a return to the “good old days” became idle during the depression. They could not be reawakened without a new world prosperity. Fascism seemed to give them a new chance—mass production for the State, in an effort to make the State so strong from a military point of view that it might take by force what was unobtainable by peaceful competition.

Germany’s former exporting industries became part of a gigantic military machine, prepared to turn out armaments on an unprecedented scale.

“The supreme guiding principle of foreign trade is neither a maximum volume of exports nor the exploitation of every chance for foreign trade that may be advantageous from the point of view of [comparative] costs, but primarily the satisfaction of the demand for imports as a necessary supplement to domestic production.” 14

There is a definite trend in world trade toward the formation of “blocs” of imperialist powers which draw or try to draw into their “spheres of influence” countries producing food and raw materials. The decline in Germany’s foreign trade with the United States is, therefore, rather a result of that general tendency than of a special discriminatory policy toward the United States. Moreover, there is a general tendency toward a decline of Germany’s foreign trade with industrially developed countries.

GERMAN EXPORTS AND IMPORTS15
(In per cent)

	“Industrial Countries”		Southeastern Europe		South America
	Imports	Exports	Imports	Exports	Imports	Exports
1929	39.4	49.3	4.6	5.1	8.3	5.8
1934	33.8	51.3	7.3	5.6	64	4.6
1938	28.9	36.7	10.5	13.1	11.1	8.0

(All 1938 figures included only January to September)

These figures indicate: less foreign trade with “industrial countries,” more foreign trade with “agrarian countries,” in particular, with southeastern Europe. However, the figures do not disclose whether Germany’s trade with nations in these categories is growing or decreasing; they show merely what percentage of German trade goes to each category listed.

The Reich Minister of Economics, Walter Funk, wrote in Goering’s organ, Der Vierjahresplan:

“The United States will lose Germany as a customer. … We shall find a substitute for orders from the United States in the Balkans and in Turkey, whose economic structure is better fitted to natural exchange of products with Germany.” Neither the Balkans nor Turkey, however, can export cotton or copper to an extent comparable with the United States or nearly adequate for Germany’s demands.

In spite of large subsidies, enforced export drives, and political pressure, the Nazi export offensive has scarcely enabled Germany to hold its own in world commerce, even in countries where it has expended much energy and money.

Certain of Germany’s export industries have been especially hard hit, for example, toys and leather goods. But this has not been decisive in Germany’s general decline of foreign trade caused by the world economic crisis. This decline has been intensified by Germany’s preoccupation with the production of armaments and with the production of goods for the home market. Thus we have a situation where exports have declined while industrial production has risen. German exports, in percentage of Germany’s total industrial production, have fallen from 30.9 per cent in 1931 and 22.5 per cent in 1933 to 13.1 per cent during the first half of 1938.

GERMAN EXPORTS IN PERCENTAGE OF TOTAL INDUSTRIAL PRODUCTION16

		1928	22.0		1935	15.2
		1931	30.9		1936	16.1
		1933	22.5		1937	16.2
		1934	15.9		1938	13.1

The economic policies of the State have made it more difficult than before to pay for the increased importation of raw materials by increased exports of manufactured articles. It is much more profitable for the German industrialist to work for the State, manufacturing war materials, than to work in an industry manufacturing export goods and competing on the world market.

Imports which are still vital, however, must be paid for, and in most cases without delay. There are now fewer opportunities than before for the totalitarian State to finance imports through foreign credits or loans. In addition, the Nazi State has actually obtained less foreign currency from exports than the trade figures would indicate.

The German Institute for Business Research complained that “several countries took advantage of the monopoly they practically have in certain articles and would only deliver their articles against payment in free foreign exchange. As a result, Germany, despite extensive use of bilateral payment agreements, must always be intent on securing a sufficient amount of foreign exchange.”17

“Only about one-fifth of the total income from exports has accrued to the Reichsbank in the form of foreign currency. Out of this amount had to come expenses for amortization and interest payments on foreign credits, expenses of foreign representatives, travel costs abroad, charges for foreign trade, transport costs and commissions.” 18

According to official trade figures, the Third Reich had an import surplus of 433 million marks in 1938. The deficit in foreign currency must have been much greater. Exports showed an actual decrease, yet imports of raw materials, urgently needed for armaments and as wartime reserves, had increased.

“Taking Greater Germany as a whole, moreover, the passive balance was far greater still. Imports into Ostmark [Austria] from foreign countries rose even more sharply in proportion, while exports experienced a more than average decline owing to the problems of transition and readjustment. Furthermore, in considering the special foreign exchange position of Ostmark, it must be remembered that the invisible items by means of which Austria had in previous years made good the (somewhat smaller) passive balance in respect to her commodity trade—viz., tourist traffic, transit traffic, and interest on foreign investments—probably fell during 1938.” 19

From 1937 to 1938, the volume of imports of the basic materials rose as follows:

 

Wood	35.2%
Cotton	11.0%
Building and industrial timber	22.0%
Iron ores	10.3%
Copper	39.7%
Fuels and lubricating oil	16.5%

Imports of wool, however, have considerably declined.

The Nazi State was unable to raise a foreign loan. Still, it succeeded in financing the increased imports it needed for armaments. This was made possible by the various means that can be applied only by a State which regiments and controls all economic activities. Imports of foodstuffs, for instance, were largely curtailed. This did not mean that Germany had become self-sufficient in foodstuffs, but that consumers in Germany had to reduce their standards of living. “Guns are more important than butter,” according to Goering.

Secondly, all foreign assets held by Germans (“Aryans” and “non-Aryans”) were conscripted and, in most cases, expropriated. The German owners were compensated, but with German marks at artificially high rates. They had to hand over the assets to the Reichsbank, which sold most of them abroad between 1936 and 1938. Some foreign investments were sold at a great loss due to the fact that the State bureaucrats handled the sales and that the foreign buyers were fully informed of the Reichsbank’s precarious condition. In some cases only one group of foreign capitalists (for instance, Dutch) was interested in a given German investment. Taking into account the general risk of new investments in Europe and the Reichsbank’s inability to play for time, only a portion of the ordinary value, therefore, was paid for some of these investments.

It is interesting to note that German capitalists are not generally allowed to keep the profit accruing from the artificial devaluation of the mark. A German industrialist who wishes to pay off a foreign debt has to pay the full amount of his debt to the Reichsbank, and the Reichsbank in turn deals with the foreign creditor and makes an arrangement with him providing for a “discount” varying from 20 to 80 per cent on payment in foreign currency. The profit derived as a result of this discount is kept by the Nazi State.

State officials, for example, sold German holdings in foreign shipping companies which are largely engaged in transporting German and other European goods. A foreign partner in these companies bought from the Reichsbank at a low price the shares previously held by German iron industrialists, and German capitalists no longer have a voice in their management or share in their profits. Previously, the German industrialists who were part owners of these companies received dividends from them which partially offset shipping charges. In addition, they were in a position to influence directly the rate policies of the companies in their own interests. This situation no longer obtains. Thus, in instances of this type, the Reichsbank’s sale of German holdings abroad resulted not only in a real loss, but even in increasing the deficit in the Reich’s international payments. German industrialists not infrequently felt a secret pleasure at this result, because they were angered by the enforced expropriation of their foreign holdings for the benefit of the Reichsbank. But this does not pave the way for a return to the old system of free foreign trade.

These various marks and “discounts” enable the totalitarian State to pay each foreign creditor on the basis of an individual arrangement. For this reason the Nazi State is not anxious to resort to general devaluation of the mark. Strict control of foreign currency and foreign trade keeps the domestic mark at a value different from that of the foreign mark. General devaluation of the mark would mean that every foreign creditor would be treated alike.

Clearing systems and State measures for the control of foreign trade are becoming increasingly a feature of the foreign trade of our times, but they create no new organized system of world economy.