Germany’s use of deflation for political ends


On 15 July 1928 the New York Times revealed that ‘if the country’ seemed ‘to warrant it’, Hugenberg still envisaged being able to persuade the people to vote for dictatorship.

‘He is convinced, moreover, that this step can be taken legally … by expanding and strengthening the German President’s right to dissolve Parliament and appoint a dictator if the (economic) condition of the country seems to warrant it’. p.136


Germany raised its interest rates by a full 1% to 7.5% on 25 April although it prompted interest rate rises across Eastern Europe.

… The gradual return to the Gold Standard by the leading industrial nations in the 1920s (including Japan in 1929) had put a strain on world economies.

Between the beginning of June and the end of September 1929 Germany bought large quantities of gold. … By 27 September the Bank of England was so alarmed at the depletion of Britain’s gold reserves that it decided to raise interest rates.  Unfortunately this put a further strain on money markets. p.162


Brüning did not reveal to his associates in the German Labour Federation that he wanted to strengthen the President’s powers at the expense of their friends in the Reichstag.  However he did disclose that his chief aim as Chancellor would be to liberate the economy from its apparently crippling burden of reparations and foreign debt.  This would require an unpopular policy of tight credit and a rollback of all wage and salary increases since 1927, thereby allowing Germany’s exports to compete more effectively on world markets.

‘He would not be able to shield the trade unions from this time of trial’. p.174

By the summer Brüning was ready to implement his policy of tightening the economy ….   So he imposed hefty tax increases on the middle classes and the urban workers too. … A poll tax was also to be introduced to encourage regional governments to spend frugally. p.175

Germany was a much more powerful country than outsiders supposed – capable of and willing to bring chaos to the world economy in what it conceived to be its greater interest. Indeed Brüning had actually stated his intention to starve the home economy of funds and build a huge trade surplus as the best way to pressure the increasingly impoverished Allies to give Germany a reparations moratorium.

In the autumn of 1930 Brüning raised German unemployment insurance premiums to 6.5% and cut salaries for members of parliament, civil services employees, the Reichswehr, and railway employees.  p.181


On 5 June Hindenburg signed an emergency decree imposing ‘drastic’ new increases in taxation, and more cuts in salaries and unemployment benefits for the German population.  The ‘psychological effect’ produced by the Decree was similar to the ‘effect produced in England, some 17 years earlier, at the news of the outbreak of war between Great Britain and Germany on the 4 August 1914.      p.183


Modern international economic historians are almost unanimous in their view that Brüning deliberately deflated his economy between 1930 and 1932.

Winston Churchill claimed that Germany was much more threatening than people believed, declaring ‘I would very much regret to see any approximation in military strength between Germany and France’.

The German leadership … were out to reduce the power of the workers and prepared to use their distress in furtherance of what they considered to be the greater good of Germany: the abandonment of the reparations, rearmament and the acceptance by the workers of a return to what they euphemistically called ‘a Presidential regime’.     p.202

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  • How Hitler Came To Power Press Release

              How Hitler Came To Power describes how what amounted to a conspiracy of the German military and industrial cliques, manipulated Allied leaders and misrepresented the Treaty of Versailles to further their ambitions, with zero regard for the human cost.
             Germany was far stronger economically by 1929 than she had been before the First World War. How Hitler Came To Power makes the case that she was primarily responsible for the Wall Street crash. By 1931 she was the greatest exporter in the world, with a mountain of cash in the bank. Yet the German people were subjected to high taxation, mass unemployment and misinformation in the cause of ridding Germany of the shackles of Versailles and returning the country to dictatorship