UNDER STRAIN

Evening Post, Volume CXXVIII, Issue 135, 5 December 1939, Page 16

UNDER STRAIN

GERMANY'S FINANCE

PEOPLE'S FEAR OF INFLATION

CONCEALED METHODS

(By Air Mail—From "The Post's" London Representative.)

LONDON, November 10.

Even before war broke out, there were ominous signs of strain in the German financial system. The Nazi leaders have always been chary of publishing statistics about the nation's financial affairs, but even the figures which they were willing to release showed the reality of the strain. The note circulation had increased by onethird from autumn, 1938, to summer," 1939—an increase which was certainly in part inflationary. ' Even after the successful raids on the Austrian and Czecho-Slovakian s National Banks, there was an acute lack of gold and., foreign assets. The rates of taxation had been increased to such an extent that business men we::e openly complaining and <■ the • workers were grumbling. The, Government loans had been so unsuccessful that the Government had been forced to announce that it did not propose to issue any more. ..Prices of commodities were rigorously pegged, but the quality was falling fast, and what was in effect a concealed inflation1 was in progress. Even more significant were the changes which had been taking place in Nazi personnel. The redoubtable Dr. Schacht vanished from the. Governmental scene, and it was credibly rumoured that he was entirely put .of sympathy with the Nazis' financial policy. There was the strange incident ot the Cologne speech of Dr. Brinkmamv Schacht's successor, who declared to a private audience that "the Treasury js empty .. ." an incident.which culminated in the "nervous breakdown" of Dr. Brinkmann, and his removal to a "nursing home." Even before the war the tremendous increase in Government activity. and the tremendous Treasury deficit, were causing the more intelligent of the Nazi leaders great concern. It was an open secret that the leadership V was hopelessly divided, and that energetic reforms were needed. l The outbreak of war made a bad matter worse. Already new troubles are accumulating, and the signs of inflation become more and more plain. FOUR, ALTERNATIVES. The nature of the problem is evident. The Budget deficit is increasing fast. There are only four ways, in which it can be covered: — 1. By increasing, taxation. This has already been done. The income tax has been increased by 50 per cent.; — with a maximum of 85 perl cent.—a ad the tax on wages has been substantially increased. There is a limit to which taxation can be raised, and the Nazis appear to have reached it. 2. By, loan. ;, But here the Nazis are in serious difficulty for the German public show no willingness to invest their meagre savings in Government bonds. Loans will in any case yield little, for the German investor has little confidence in Government securities. 3. The commandeering of private property. Already progress has been made in this direction. The property of Jews and opponents of the Govern, ment has been confiscated; certain foreigners' property has been confiscated; millions of marks' worth of properly in the conquered regions -has been confiscated. It is reported that the assets of certain savings institutions have been commandeered. Measures of this kind, however, will hardly increase confidence in the regime. 4. Inflation. The Budget can be balanced simply by printing banknotes. In, the course of last year, this method has been adopted to a limited extent. The dangers of this method are evident, for no controls of prices, however stringent, can resist inflationary pressure. Concealed inflationary methods can be adopted, such as the further reduction of the quality of consumers' goods at the same prices, or the tacit toleration of "premiums" over the official price. Moreover, the viovernmerit' may inflate by hidden devices, such as the plan last March by which the Govern r ment was allowed to pay for two-fifths of its contracts in' tax certificates "'.instead of cash. POSITION FULL OF DANGER. But these concealed methods of inflation are bound to be publicly noticed sooner or later. The consumer is already seriously perturbed by the reduction in quality, and the pressure upon the "maximum prices" is shown by the constant flow of cases in which shopkeepersl are heavily fined for raising prices. The plan for payment in tax certificates has already broken down, for industrialists have no confidence in the tax certificates, so that their market value has fallen to 94 per cent, of their face value. All this, nieans that the position is potentially highly inflationary and is full of danger for the Nazi authorities. In Germany, the man in the street fears inflation more than anything else, remembering the appalling catastrophe of 1923, when the mark was quoted at thousands of milliards to the dollar. If the German citizen loses confidence in the currency, and if ope/i signs of inflation appear, then no regimentation can prevent panic. The Nazis are in a dilemma. Eithey the must increase taxation, which is already oppressively high. Or they must confiscate property all over the Reich. Or they must proceed to openly inflationary measures. . These alternatives are equally objectionable and are politically equally dangerous. Confronted by them, the authorities will assuredly wriggle ingeniously. Their power to control the system is very great; and from 1933 onwards they have displayed great ingenuity in their handling of difficult financial positions. But each time one financial hurdle has been successfully overcome, the next is correspondingly more difficult. To say that the German economic structure is on the verge of collapse would be premature. But the Nazis are assuredly facing the gravest difficulties, and whatever they do will open the door to further difficulties for the German financial structure and the Nazi regime. .