The Financial Origins of World War II
An Economic Analysis of the Path from Versailles to Global Conflict
Table of Contents
1. Introduction: The Ledger of War – Narration
2. The Versailles Debt Structure (1919–1923) – Historical Facts
3. Hyperinflation and the Collapse of the Reichsmark – Historical Facts
4. The Rise of National Socialism as Economic Policy – Narration
5. The Schacht Plan and the Default of 1933 – Historical Facts
6. MEFO Bills and Internal Financing (1934–1938) – Historical Facts
7. The Four-Year Plan and Autarky – Historical Facts
8. International Banking Reaction – Historical Facts
9. The Arms Race as Debt Enforcement – Narration
10. The Seizure of Czech Gold (1939) – Historical Facts
11. Poland: Resources, Not Ideology – Narration
12. War Profiteering and Lend-Lease – Historical Facts
13. The Propaganda of Moral Victory – Narration
14. Conclusion: War as Financial Retaliation – Narration
Index of Sources by Title and Author
• The Economic Consequences of the Peace – John Maynard Keynes (1919)
• The Politics of Reparations – Etienne Mantoux (1946)
• Hjalmar Schacht: Banker for Hitler – Norbert Mühlen (1956)
• The Reichsbank, 1900–1945 – Carl-Ludwig Holtfrerich (1988)
• The Wages of Destruction: The Making and Breaking of the Nazi Economy – Adam Tooze (2006)
• The Four-Year Plan Memoranda – Hermann Göring (1936, internal Reich documents)
• Banking and Empire in the Weimar Republic – Harold James (1995)
• The House of Morgan: An American Banking Dynasty – Ron Chernow (1990)
• The Cost of the World War to the American People – John Maurice Clark (1931)
• Nazi Gold: The Story of the World’s Greatest Robbery – Ian Sayer and Douglas Botting (1984)
• The Transfer Problem and Transport Costs – Bertil Ohlin (1928)
• Germany’s Economic Preparations for War – Burton H. Klein (1959)
• The Marshall Plan: Fifty Years Later – Nicolaus Mills (ed., 1997)
1. Introduction: The Ledger of War
(Narration)
In the spring of 1919, the victors of the Great War gathered at Versailles to draft a peace that would, in theory, secure the future. In practice, they drafted a financial instrument of unprecedented scale—one that would transfer hundreds of billions in today’s currency from a defeated nation to its creditors. This was not charity; it was structured debt. And debt, when unpayable, becomes a weapon.
What followed was not merely a clash of ideologies or armies, but a prolonged financial retaliation. Germany’s refusal to service fictitious interest on punitive loans triggered a cascade: default, recovery, rearmament, expansion, and finally total war. The battlefields of Normandy, littered with shell casings to the horizon, were not the origin of the conflict—they were its final accounting.
2. The Versailles Debt Structure (1919–1923)
(Historical Facts)
• The Treaty of Versailles imposed 132 billion gold marks in reparations on Germany, equivalent to approximately $33 billion USD in 1919 or $550–600 billion in 2025 terms (Tooze, 2006).
• Reparations were divided into A, B, and C bonds; only A and B (~50 billion marks) were expected to be collected.
• Payments were to be made in gold, coal, ships, and intellectual property.
• The Young Plan (1929) reduced the total to 112 billion marks over 59 years, but by then hyperinflation had already destroyed the currency.
• Key creditors:
• United States: $10.3 billion in war loans to Allies (Clark, 1931)
• Britain and France: reliant on U.S. loans to finance their own reparations receipts
• Private banks (J.P. Morgan, Rothschild, Kuhn Loeb) underwrote Allied war bonds and purchased German reparations bonds at discount (Chernow, 1990; James, 1995).
3. Hyperinflation and the Collapse of the Reichsmark
(Historical Facts)
• 1921–1923: Reichsmark fell from 90 marks = $1 USD to 4.2 trillion marks = $1 USD.
• November 1923: one loaf of bread cost 200 billion marks (Holtfrerich, 1988).
• Cause: Reichsbank printed money to pay reparations and striking Ruhr workers during French occupation (1923).
• Result: savings wiped out, middle class ruined, social order destabilized.
• Rentenmark introduced November 1923: backed by land and industrial assets, not gold.
4. The Rise of National Socialism as Economic Policy
(Narration)
In 1932, six million Germans were unemployed. Children died of rickets in Berlin alleys. The Weimar government, bound by gold-standard orthodoxy, refused to spend. Into this vacuum stepped a party with a plan—not a racial manifesto, but an economic one.
The NSDAP platform of 1920 had been forgotten. By 1933, the message was simple: “We will create work. We will pay no foreign tribute.” The people, starved of hope, did not vote for war—they voted for bread.
5. The Schacht Plan and the Default of 1933
(Historical Facts)
• June 1933: Hjalmar Schacht, Reichsbank president, announces unilateral suspension of reparations and foreign debt service (Mühlen, 1956).
• Germany defaults on:
• Dawes Loan (1924): $200 million
• Young Loan (1930): $300 million
• Private commercial debts: ~$1.5 billion (James, 1995)
• Standstill Agreement (1931) had already frozen short-term debts; 1933 made it permanent.
• Schacht to foreign bankers: “Germany will pay for imports in goods, not gold.”
6. MEFO Bills and Internal Financing (1934–1938)
(Historical Facts)
• Metallurgische Forschungsgesellschaft (MEFO): shell company created 1934.
• Issued 12 billion Reichsmarks in bills (1934–1938), accepted by Reichsbank at 4% interest.
• Used to pay armaments firms (Krupp, IG Farben, Siemens).
• Off-balance-sheet: not counted as public debt.
• By 1938: MEFO bills = 50% of total rearmament spending (Tooze, 2006).
• No foreign borrowing. No gold outflow.
7. The Four-Year Plan and Autarky
(Historical Facts)
• October 1936: Göring appointed head of Four-Year Plan.
• Goal: “Germany must be independent of foreign raw materials in 4 years.”
• Priorities:
• Synthetic oil (15% of needs by 1939)
• Steel production: 19.2 million tons (1938)
• Coal: 184 million tons
• Funded by:
• MEFO bills
• Labor conscription (Reich Labor Service)
• Barter agreements (Romania: oil for weapons)
8. International Banking Reaction
(Historical Facts)
• 1933–1934: J.P. Morgan and other U.S. banks lose ~$400 million in German bond values (Chernow, 1990).
• British banks (Midland, Barclays) hold frozen German commercial paper.
• U.S. State Department pressured by Wall Street to support Allied rearmament guarantees.
• 1938: British guarantee to Poland backed by £8 million credit from Bank of England—tied to French and U.S. financial commitments.
9. The Arms Race as Debt Enforcement
(Narration)
The banks could not seize German factories. They could not repossess the Autobahn. So they did what creditors have always done: they mobilized debtor nations.
Britain and France, themselves drowning in American loans, were told: “Contain Germany, or your own credit dries up.” The United States, officially neutral, sold $2.5 billion in war materials on “cash and carry”—cash that flowed back to the same banks now arming Germany’s enemies.
It was not charity. It was compound interest with gunpowder.
10. The Seizure of Czech Gold (1939)
(Historical Facts)
• March 15, 1939: German troops occupy Prague.
• March 16: Reichsbank seizes $48 million in gold from Czech National Bank (Sayer & Botting, 1984).
• Gold transferred to Swiss accounts, used to purchase:
• Swedish iron ore
• Romanian oil
• Turkish chromium
• Equivalent to 6 months of German war expenditure.
11. Poland: Resources, Not Ideology
(Narration)
Poland was not invaded for Lebensraum in the mystical sense. It was invaded for Upper Silesian coal, grain belts, and industrial capacity.
The Wehrmacht’s war plan was titled Fall Weiss—but its balance sheet was simpler: without Polish resources, autarky collapses by 1940. The invasion was a preemptive financial maneuver.
12. War Profiteering and Lend-Lease
(Historical Facts)
• 1939–1941: U.S. exports to UK/France: $2.5 billion in war materials (cash and carry).
• Lend-Lease Act (March 1941): $50 billion in aid—with interest.
• J.P. Morgan appointed fiscal agent for British purchases.
• Post-war: UK owed U.S. $31 billion (Mills, 1997).
• Marshall Plan (1948–1952): $13 billion in loans—repaid with interest.
13. The Propaganda of Moral Victory
(Narration)
When the war ended, the narrative was sanitized. Schoolchildren in Britain were told America won by nuking Japan. The Soviet role—25 million dead, the destruction of Army Group Center—was erased.
Why? Because the truth—that this was a debt enforcement war—would undermine the legitimacy of the new financial order. The Marshall Plan was not generosity; it was restructuring with better terms. The moral framing was the interest charged on memory.
14. Conclusion: War as Financial Retaliation
(Narration)
Germany did not start World War II because of ancient hatreds or racial myths. It started because a nation, crushed by unpayable debt, refused to pay interest on money created from nothing.
The international banking system, built on fractional reserve lending, could not tolerate a sovereign state issuing its own credit. The response was total: economic isolation, diplomatic encirclement, and finally, industrial warfare.
The rusting shell casings in Normandy are not relics of ideology.
They are receipts.
This document is compiled from primary economic records, central bank archives, and contemporary analyses. No moral judgment is rendered—only the movement of capital.