Berlin, 24 December 1935. Behrenstr. 43.
The Reich and Prussian Economics Minister
SECRET COMMAND MATTER
To the Reich War Minister:
From letter Aktz. 66 b 9950 W wi (II a) of 29 November I gather that an increased Wehrmacht demand for copper and lead is anticipated, and that to about double the previous consumption. This concerns only the current needs, while the equally urgent stockpiling is not contained in the figures. You expect me to obtain the necessary foreign currencies for these requirements. I respectfully reply that I see no possibility of this under the prevailing circumstances. I proceed here from the assumption that not only copper and lead, but also other materials are involved in the increased demand for raw materials, and I should be grateful if I could obtain from you an estimate of your deficit in the other principal raw materials.
In all previous conferences with the Fuehrer and Reich Chancellor, as well as with the leading military agencies, I have expressed the conviction that it would be possible to provide foreign currencies and raw materials until 1 April 1936, for armament on the scale maintained thus far. Although this program of mine has been made extremely difficult by our cultural policy, which is encountering opposition throughout the world, as well as by our agrarian policy, and will continue to be made difficult, I still hope to be able to realize my original anticipations. If a degree of armament going beyond these is now demanded, it is, of course, quite far from me to deny or change my advocacy of the greatest possible armament, expressed for years, before and since the seizure of power; but it is my duty to point out the economic limitations to this policy.
The gold and foreign-currency reserve of the Reichsbank today amounts to 88 million RM. I should only like to point out the political and military impossibility of trying actively to master foreign political decisions with such a low reserve of foreign currencies. A reducing of the foreign-currency reserve, which has already been commenced owing to the food supply difficulties, involves, however, the danger that the population will be filled with distrust, not so much about the stability of the currency as because of the fact that our food supply difficulties will thereby become manifest.
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In the conference with the Fuehrer and Reich Chancellor of the 26th of last month I gave'an exact account of the receipt and use of foreign currencies. The estimate there presented gave the following picture for the six months from October 1935 to March 1936:
Industrial requirements (including armament Food requirements (minimum, probably more) Other Imports (so-called commercial-policy imports)
1,288 Mil. RM 474 Mil. RM
390 Mil. RM
2,152 Mil. RM
In contrast thereto, at the same time, means of payment to foreign countries estimated at 1,776 million RM are available, so that there is a deficit of 376 million RM. The task of providing coverage for this deficit is an enormous one and quite uncertain of success. In addition, we already owe about 30 million RM in foreign currencies to foreign countries in overdue payments of the Reich Railways (Polish Corridor), the Reich Postal System, and the foreign-currency agencies, and furthermore must in the near future make available about 35 million RM in foreign currencies for the Saar Territory (Roman Convention) and for Danzig.
The additional copper and lead requirements imposed by you now demand alone approximately 3 million RM monthly. To these must be added the additional requirements of other raw materials on which I am still awaiting a tabulated statement from you. To these direct additional requirements must be added the indirect requirements for the accessory industries (Zulieferungsindustrien) and the requirements of those raw materials which are needed for military structures, as well as for the housing, food and clothing of the workers belonging to those industries.
Alongside of this additional industrial demand for foreign currencies, I fear, precisely during the coming year, an increased demand from the food sector. Already, the receipt of industrial raw materials has considerably declined in proportion to the agrarian imports. Imports of live animals and foodstuffs has risen considerably in the last few months, while industrial raw material imports have only with difficulty been kept at the previous level. As late as the spring of this year, the Reich Food Ministry estimated the foreign cash demands for fats for the second half year of 1935 at 300-400 thou. RM per work day, but already on 4 October a special expenditure of 3 million RM of foreign cash was demanded, and on 28 November new foreign cash demands amounting to 12.4 million RM, were made in addition to the cur-
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rent work-day assignment of 400,000 RM. For the month of January 1936, indeed, 690,000 RM per work day were demanded.
It is obvious that such estimates, which are being changed every moment, upset the whole foreign-currency procurement policy and must make my task almost hopeless. After the fodder harvest, already in the fall of 1934, was declared to be extremely scant; after the hog censuses at the beginning of March and the beginning of June 1935 made it very clear that the stocks were going down; after we had nevertheless entered the new harvest of 1935 with the unusually high grain reserve of 3.3 million tons instead of having used a part of it to fatten hogs; and after we had read, as late as 14 July 1935 an article entitled: "Hog Flood Finally Avoided" in the weekly newspaper of the Kurmark Peasant Union, which designated a recession in the stocks of hogs, especially middle-aged animals, as an "especially gratifying result"; there would appear to be justification for the question whether the above-mentioned mis-estimates do not have fundamental causes. In view of the uncertainty as to how much additional foreign currency the Reich Food Ministry will demand, I am unable, in any case, to make a sure prediction as to whether even the carrying out of the previous program up to 1 April 1936 will succeed with respect to foreign currencies and raw materials.
In the field of trade policy, too, the agrarian mis-estimates have produced regrettable consequences. In the fall of 1934, I could have negotiated extraordinarily favorable opportunities for raw material purchases in some South American countries, if I had been able to promise these countries to take even small consignments of frozen meat. This chance was spoiled by the resistance of the Reich Food Ministry. Yet exactly one year later, the same ministry suddenly raised an urgent cry for frozen meat imports, and I could not trade these imports off as compensation, but had to jeopardize a part of the industrial raw material imports in order to import frozen meat. A similar situation arose with the importation of cattle and hogs demanded by the Food Ministry in the fall of this year, when not enough time was left me to exploit these things from the viewpoint of commercial policy.
The picture of the hampering of my trade and foreign-currency policy would, however, not be complete if I did not point again and again to the cultural-policy hindrances, which keep alive throughout the world resistance to and dislike for business connections with us. The economic and legal treatment of the Jews, the anti-church movement of certain party organizations and the
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legal arbitrariness associated with the Gestapo form a detriment to our armament task, which, by the application of more reasonable methods, could at least be considerably diminished without sacrificing the objective.
If we have nevertheless succeeded in raising our raw materials imports in 2 years from 26 million tons to over 40 million tons, this was due only to the commercial-policy shifts imposed by the New Plan, which made possible an increase in our exports to some regions of the world; and it was furthermore only possible through the well-known export subsidies which weigh upon our economy. The longer and more broadly our cultural and legal-policy methods take effect out in the world, the fewer are the prospects of continuing the heretofore successful course in our trade policy.
An internal deviation through restriction of the raw material imports of certain industries, for example the cotton industry, in favor of metal imports, is also intolerable for reasons of internal policy, since this would lead at once to discharges of workers and to an increase in the cost of living. A restriction of the textile industry would, moreover, hit precisely those workers who are already on short hours. Furthermore, a saving of foreign currencies for other raw material imports than metals would lead to undesirable repercussions upon our exports. Exportation, however, is the indispensable basis of all foreign-currency and raw-material procurement, including armament.
Charged with the conduct of affairs:
Signed: Dr. HJALMAR SCHACHT President of the Reichsbank Direktorium.