Under his secret appointment as Plenipotentiary-General of the War Economy, Schacht had the express function of placing all economic forces of the nation in the services of the Nazi war machine. The secret defense law of 21 May 1935 in effect gave Schacht charge of the entire war economy. In case of war he was to be virtual economic dictator of Germany. His task was to place all economic forces into service for the conduct of war and to secure economically the life of the German people. The Ministers of Economics, Food, Agriculture, Labor, and Forestry, as well as all Reich agencies directly under the Fuehrer, were subordinated to him. He was to be responsible for the financing as well as for the conduct of the war; and he was further authorized to issue ordinances within his sphere of responsibility, even if these deviated from existing laws. (2261-PS)
The rearmament of Germany proceeded at a rapid pace. By summer of 1935 the Nazi conspirators were emboldened to make plans for the reoccupation of the Rhineland, and at the tenth meeting of the working committee of the council the question of measures to be taken in connection with the proposed reoccupation of the Rhineland was discussed.
At that meeting, on 26 June 1935, it was said that the Rhineland required special treatment because of the assurances given by Hitler to the French that no military action was being undertaken in the demilitarized zone. Among the matters requiring special treatment was the preparation of economic mobilization, a task specifically entrusted to Schacht as secret Plenipotentiary for the War Economy. In this connection it was stated:
“* * * Since political entanglements abroad must be avoided at present under all circumstances, only these preparatory measures that are urgently necessary may be carried out. The existence of such preparations, or the intention of them must be kept in strictest secrecy in the zone itself as well as in the rest of the Reich.” (EC-405)
Preparations of various types were thereupon discussed.
The rapid success of German rearmament is attributable to the work of Schacht. In the fall of 1934, the Nazi conspirators announced the “New Plan”, which aimed at the control of imports and exports in order to obtain the raw materials needed for armaments and the foreign currency required to sustain the armament program. The “New Plan” was the creation of Schacht. Under the plan, Schacht controlled imports by extending the system of supervisory boards for import control, which was previously limited to the main groups of raw materials, to all goods imported into Germany. The requirement of licenses for imports enabled the Nazi conspirators to restrict imports to those commodities which served their war aims.
Subsequently, in February 1935, the Devisen Law was passed (Reichsgesetzblatt 1935, I, 105). Under it, all transactions involving foreign exchange were subject to the approval of Devisenstellen (Foreign Exchange Control Offices). By thus controlling the disposition of foreign exchange, the conspirators were able to manipulate foreign trade so as to serve their ends.
Every aspect of the German economy was geared to war under the guidance of the Nazi conspirators, particularly Schacht. In a study of the economic mobilization for war as of 30 September 1934, it was stated that steps had already been taken to build up stock piles, to construct new facilities for the production of scarce goods, to redeploy industry to secure areas, and to control fiscal and trade policies. The task of stock piling, it was announced, had been hampered by the requirement of secrecy and camouflage. Reserves of automobile fuels and stocks of coal were accumulated, and the production of synthetic oil was accelerated. Civilian supply was purposely organized so that most plants would be working for the German Armed Forces. Studies were made of the possibility of barter trade with supposedly neutral countries in case of war. (EC-128)
Financing of the armament program presented a difficult problem for the conspirators. In 1934 and 1935, the German economy could by no possibility have raised funds for the Nazis’ extensive rearmament program through taxes and public loans. From the outset, the armament program involved “the engagement of the last reserves.” Moreover, apart from the problem of raising the huge sums required to sustain this program, the Nazi conspirators were exceedingly anxious, in the early stages, to conceal the extent of their armament activities.
After considering various techniques of financing the armament program, Schacht proposed the use of “mefo” bills. One of the primary advantages of this method was the fact that through its use figures indicating the extent of rearmament, which would have become public through the use of other methods, could be kept secret. “Mefo” bills were used exclusively for armament financing. Transactions in “mefo” bills worked as follows: “Mefo” bills were drawn by armament contractors and accepted by a limited liability company. The spelling of the word “mefo” is taken from the name of this company, Metallurgische Forschungsgesellschaft, m.b.h. (MEFO). This company had a nominal capital of one million Reichsmarks and was merely a dummy organization. The bills were received by all German banks for possible rediscounting with the Reichsbank. The bills were guaranteed by the Reich. Their secrecy was assured by the fact that they appeared neither in the published statements of the Reichsbank nor in the budget figures.