18 January 1915 – Reichsbank

Until the Great War, the German Reichsbank produced a stable Goldmark currency. But the global wartime gold crisis and the British blockade are inflating the nation’s legal tender, affecting imperial purchasing power at the very moment that the Kaiser must finance a long and expensive military conflict. Today’s newspapers report that Hermann Kühn, State Secretary of the Reichs Treasury, has reportedly resigned for personal reasons. Western press commentary finds the explanation questionable, seeing the move as a sign that Germany will finance the war with debt instead of taxes.

Kühn had instituted the German nation’s first income tax in 1913, a year after replacing Adolf Wermuth, who resigned when his proposed inheritance tax was rejected by the Chancellor. The choice of Karl Helfferich to replace Kühn is indeed a sign that the Great War has ended the brief progressive thaw in German politics that so threatened the right, which now sets wartime policy — and directs postwar aims. As an official in the Kaiser’s wartime government, Helfferich is issued a uniform, underscoring the full militarization of Germany’s regime.

Meanwhile, Paul von Hindenburg is already working the new Secretary today for support in his bureaucratic war. He is trying to outflank Erich von Falkenhayn, the Chief of the General Staff, in a bid to replace his rival and turn the German war effort towards Russia. Hindenburg and his right hand man, Erich von Ludendorff, promise victory through maneuver on the Eastern Front.

Contrary to conspiracy theories about the Great War, its outbreak was a disaster for western capitalism. Via the Guardian

Contrary to conspiracy theories about the Great War, its outbreak was a disaster for western capitalism. Via the Guardian

One of the most abiding responses to the Great War is an abiding suspicion of central banks and progressive taxation. Implied, and often baldly stated in these narratives, is a notion that the US Federal Reserve and the 16th Amendment, which authorizes an income tax, are themselves somehow responsible for the outbreak of war, or at least for exacerbating the conflict. This gets the truth precisely backwards: America’s central banking system and income tax were hardly intended for wartime emergency, but they have been already been crucial in meeting the challenge of a global economic recession caused by the war.

Indeed, the Austrian diplomatic ultimatum in July short-circuited a financial system that was hardly prepared or positioned for it, causing the longest trading outage in the history of Wall Street. To be sure, in 1915 London and Paris are exerting their full financial power to achieve victory, while the younger, less financially-equipped German Empire has difficulty selling its war credit instruments in New York. But that is a function of Germany’s general image problem: seen as the uncivilized aggressor, their strategic position is regarded as impossible.

Hindenburg and Ludendorff do not conceive of war as a mere material problem of resources and production (Materialschlacht), stressing the power of human will to surpass such mundane considerations. Their success at enlisting the incoming Secretary of the Riechs Treasury is emblematic of the severe rightward shift in the nation’s political center of gravity, a trend that will eventually produce the world’s most infamous fascism.

By way of the paranoid style, Helfferich’s role in financing the first German Materialschlacht of the 20th Century has also been projected on all modern central banking systems, holding them responsible for a war that domestic German militarists wanted precisely in order to put a stop to such liberal nonsense as open borders, old age pensions, and health insurance programs. It is a perverse and deluded mythology that would blame such democratic, pacifistic spending priorities for what is in fact the madness of authoritarian nationalism reacting against those objectives.

Karl Helfferich

In 1906, Karl Helfferich was named director of the Anatolian Railway, a Berlin-to-Baghdad railroad project at the heart of the Kaiser’s plans for the Middle East that was financed by Deutsche Bank, which he later headed. His wartime policies produced inflation

Speaking to Helmuth von Moltke, the disgraced former Chief of Staff who seeks a comeback by way of Hindenburg’s coup, Ludendorff says that while his alpha partner still refers to an omnipotent monarchy, he prefers to speak of a ‘fatherland.’ Ludendorff is a conscious advocate of German nationalism — and a smooth publicity hound, constantly inflating his personal legend along with his mentor’s. Much of the mythology of the Great War, including the ‘stab in the back’ that blames fickle public confidence for what are in fact German material failures on a modern battlefield, is his creation.

Ludendorff’s back channel disrespect is not entirely misplaced. The crisis they have spurred in the government, and even within the imperial family, cripples the Kaiser’s leadership as Supreme War Lord. Wilhelm promotes Falkenhayn to General of Infantry; Falkenhayn remains his Chief of Staff, but resigns as War Minister. Begging Hindenburg to stay on, the imperial monarch retreats into a moody bubble, more removed than ever from the daily business of running an empire at war. Three new corps are sent east to satisfy his rebellious generals…for now.

The Eastern Front campaigns of Hindenburg and Ludendorff also create and exacerbate an ethnic and cultural upheaval of Eastern Europe, which in turn drives the Nazi response to human displacement and a porous border. Helfferich will go on to lead the German National People’s Party (DNVP), a conservative authoritarian opposition party to the postwar Weimar Republic, the Treaty of Versailles, and reparations.