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Military government weekly information bulletin
No. 23 (January 1946)

Highlights of policy,   pp. 4-9 PDF (2.6 MB)

Page 5

is forbidden in the United States because
industrial stock shares are not a con-
pletely stable or liquid investment. Their
value fluctuates from day to day. If a,
bank buys industrial shares with a de-
positor's money on one day, there is no
guarantee that it can sell the shares for
the same amount when the depositor
comes to withdraw his money on the next.
Furthermore, the banks in Germany ac-
tually created money to make investments
in industry. All banks have the unique
characteristic of being able to lend mo-
ney they do not have. This is because
people are content to accept a bank's
promise to pay, in the form of a deposit
slip or check. A borrower therefore
usually receives a deposit, uses it to
make payments by checks, and thechecks
in turn are simply deposited in another
bank account. No cash actually changes
hands. The result is that money is creat-
ed out of thin air.
The Germans used this system togreat
advantage. Not having a minimum reserve
law, (which would prevent the banks from
lending out more than a safe percentage of
their cash) the German bankers loaned out
their money until their reserves fell to six
per cent or less of the cash!on hand. This in-
creased their ability to make industrial
investments but left just enough cash
to meet dailytransactions. This low work-
ing margin caused the banks to be
very sensitive to economic disturbances.
To make these banks more stable and to
provide even greater money creating pow-
ers, the banks tended to combine into
large semi-monopolistic units dominated
by centralized banks, with headquarters
in Berlin and branches throughout the
country. The most important of these are
the so-called "Big Five" banks, theDeut-
sche, Dresdner, and Commerz banks, the
Berliner Handelsgeslellschaft and the
Reichs-Kredit-Ges ellschaft.
But all this increased money-creating
efficiency demanded general stability if
it was to survive. If depositors suddenly
lost confidence and demanded cash,there
was bound to be a collapse. The banking
system would not have enough cash to
meet the demands. Therefore, the banks
had to protect the apparent value of their
non-liquid industrial investments. This
was done by placing their own people on
industrial Boards of Directors, and by
encouraging the formation of industrial
cartels and trusts. Firms which refused
-to join the cartels or other combinations,
or which threatened the value of some
large bank investment by producinggoods
cheaply, could not get credit, and there-
fore found it impossible to continue in
business. When banks were heavilycom-
mitted in two firms in the same business,
they encouraged the two firms to combine
rather than lose money by competing.
Thus the banks were part of the great
concentration of economic power inGer-
many, and the chief instigators of that
concentration. The concentration of eco-
nomic power was one of the first steps
in the mobilization of Germany, and was
one of the reasons Germany was able to
organize and support World War IL.
Between the two wars, secret industrial
armament was carried on in Germany.
Money was provided for this by the large
banks. The German bankers, in their cap-
acity as directors a!nd owners of many
of the most important industries, parti-
cipated in the quiet and long-drawn-out
preparations for war. To many bankers,
the advent of Hitler meant salvation. It
meant the industrial prosperity which al-
vays goes with rearmament, and    the
rescue of the assets of their banks which
were frozen in industrial firms. It is not
surprising that the two most prominent
bankers in Germany    Dr. Schacht and
Baron von Schroider    were early and
generous supporters of Hitler.
Under the nazi regime, the banking
system played an indispensable part in
financing war. Its great money-creating

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