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November 8, 2016

Did blundering U.S. politicians spark the rise of Nazi Germany?

Was Adolf Hitler Woodrow Wilson’s “love child?” Retweet

By Perry Willis [3 Points - Politicians & War]

I’ve been writing a series of articles reviewing U.S. wars and interventions. Here’s what we’ve covered so far…

Now comes…

Did U.S. policies help create Nazi Germany?

I think the answer is yes. Two things were key…

  • The harsh Versailles Treaty imposed on Germany as a result of U.S. intervention in WW1
  • The global Great Depression caused by the Federal Reserve’s monetary policy

One U.S. politician was complicit in all these things — Woodrow Wilson!

President Wilson…

  • Approved the creation of the Federal Reserve in 1913
  • Chose to enter WW1 on the side of the larger predatory empires of Britain and France, thereby giving victory to those empires, which resulted in the harsh Versailles Treaty being imposed on Germany

The Importance of the Versailles Treaty

Everyone agrees that the Versailles Treaty was a spark for the rise of the Nazi Party and for World War 2 as well. This is non-controversial. But a quick look at the 25-point Nazi Party program drives home the claim. The first two points dealt directly with the Versailles Treaty… [Out of Versailles emerges...]

  • Point #1: We demand the unification of all Germans in the Greater Germany on the basis of the people’s right to self-determination. (The Versailles Treaty cut off some ethnic Germans in the Sudetenland and the Polish Corridor.)
  • Point #2: We demand equality of rights for the German people in respect to the other nations; abrogation of the peace treaties of Versailles and St. Germain.

Responsibility for the Versailles Treaty lies primarily on Woodrow Wilson, because…

  • He honored the British blockade in WW1. This coerced Germany into unrestricted submarine warfare to sink American ships that were preferentially supplying Britain and France.
  • Wilson then used this submarine issue to urge war against Germany. It was U.S. entry into the war that broke a roughly 1,000 day stalemate, handing victory to Britain and France. That victory allowed Britain and France to impose harsh terms on Germany (the Versailles Treaty).
  • Wilson’s 14-points, with their assertions about restoring war damage, gave cover to the crushing reparations payments the Versailles Treaty inflicted on Germany. It was the economic impact of those reparations that gave the Nazi Party its first surge of support.

[Versailles The Great Inflation

Germany had to pay its war reparations somehow. Inflation was one of their strategies. They began dramatically inflating their currency in June 1921. This inflation reached its peak in 1924. That was also the time when the Nazis ran their first election campaigns. You can see from the vote totals how they started strong when the inflation crisis was still being felt but then faded as the inflation receded…

  • May 4, 1924: The Nazis received 6.5% of the vote and 32 seats out of 472 in the Reichstag.
  • December 7, 1924: Nazi votes dropped to 3% and 14 Reichstag seats (out of 493).
  • May 20, 1928: Nazi votes dropped to 2.6% and 12 seats (out of 491).

The Nazis were a tiny party and fading fast, so how did they gain total power a mere five years later?

The Federal Reserve and the start of the Great Depression

Woodrow Wilson signed the Federal Reserve Act into law on December 23, 1913. The act created a central bank that absorbed all chartered banks under its umbrella. Its purpose was to…

  • Provide a stable currency
  • Protect banks from economic shocks
  • End banking panics, recessions, and depressions

The Fed failed to maintain a stable currency almost immediately. It massively increased the money supply to fund the U.S. war effort in 1917/18. This produced some of the worst price inflation ever recorded in America. This inflation destroyed the value of savings and threatened retirement incomes. So…

When the war ended, The Fed contracted the money supply. The goal was to restore the value of the dollar and protect retirees from destitution. The Fed’s governors knew this would also cause a depression. They were willing to accept that outcome because they believed rapidly falling prices would quickly restore prosperity. They turned out to be correct.

The 1920 depression lasted only a few months. James Grant tells the story in his great book, The Forgotten Depression. The 1920 depression teaches us four lessons…

  1. The Fed can cause price inflation by expanding the money supply
  2. The Fed has the power to make prices drop by contracting the money supply
  3. A rapid reduction in the money supply can cause a depression (as it did in 1920, and again between 1930 and 1933)
  4. The depression can be short-lived if prices are allowed to drop in concert with the shrinking money supply

Understanding these points from the 1920 depression will help you see how Fed policies between 1929 and 1933 led to the rise of the Nazis. Let’s look at this story step-by-step…

First came the Roaring Twenties boom

This was a boom where the Fed seems to have actually succeeded at providing a somewhat stable currency — net price inflation for the decade was zero (as measured by current methods). But looks can be deceiving…

Economist Murray Rothbard argued that the money supply was actually rising in the late 1920s. This may not have been reflected in general prices yet, but it was surely evident in stock prices. Economist Friedrich Hayek noticed this at the time. He wrote a paper in February 1929 predicting that the Federal Reserve’s monetary expansion would lead to a crisis starting in the stock and credit markets.

And then came the bust

Hayek’s stock market prediction came true eight months later when the U.S. stock market crashed on October 29. But it’s what the Federal Reserve did next that really hurt…

The Fed shrank the money supply by one-third between 1929 and 1933!

The result was the same as in 1920 — a deep depression.

Why did the Fed do this? It isn’t clear to me. There was no need to counteract price inflation as had been the case in 1920. But what really matters is this…

  1. The result was a deep global depression
  2. The time period during which the money contraction happened was crucial — 1930 to 1933

It’s been said in various ways by various people — “when America catches a cold, the world catches the flu.” So it was between 1930 and 1933. When the Federal Reserve crashed the U.S. money supply the resulting depression spread around the globe, including to Germany.

And the date range when the money contraction happened is the precise time during which the Nazis went from tiny to huge. You can see the change in the Nazi’s vote totals…

  • September 14, 1930: The Nazis received 18.3% of the vote and 107 seats in the Reichstag (18.5% of 577 seats).
  • April 1932: Nazi Party membership reached 800,000 card-carrying members.
  • August 31, 1932: The Nazis received 37.3% of the vote and 230 seats (37.8% of 608 seats). This election made the Nazi’s the largest party in the Reichstag.
  • November 6, 1932: The Nazis received 33.1% of the vote and 196 seats (33.5% of 584 seats). Support for the Nazis had fallen a bit, but they remained the largest party in the Reichstag. It’s normal in a parliamentary system for the largest party to gain control of most government ministries. Therefore, it was only a matter of time before the Nazi’s leading position in the Reichstag resulted in the acquisition of executive power, and so…
  • January 30, 1933: President Hindenburg appointed Hitler as Chancellor, giving him ministerial control of the government.
  • March 5, 1933: The Nazis received 43.9% of the popular vote and 288 seats in the Reichstag (44.5% of 647 seats). The Nazi’s now had full control of Germany, with everything that would come to mean for the world.

The U.S. roots of Nazi power

Follow the chain of cause and effect…

  • U.S. intervention in WW1 gave victory to Britain and France, and imposed the Versailles Treaty on Germany.
  • The Versailles Treaty gave birth to the Nazi Party
  • Federal Reserve policies gave the Great Depression to the world and power to the Nazis

Run the story another way. Remove the U.S. intervention in WW1, the Versailles Treaty, and the Federal Reserve, and the Nazis would have remained a tiny party of nutjobs, barely even a footnote in history.

We’ve covered how U.S. policies helped create the Soviet Union and Nazi Germany. The next article in this series will show how U.S. involvement in WW1 helped create radical Islam.

Thank you for being an ACTIVE DC Downsizer.

Perry Willis

Co-founder, Downsize DC

Co-creator, Zero Aggression Project

P.S. Previous articles in this series include…

PPS: Here’s a list of books consulted in this series. If you buy these books using the links below, Downsize DC will get credit we can use to expand our research library. Thank you for your interest and support.

The rise of Nazi Germany

The Russian Revolution

World War 1

The Spanish-American War, the conquest of the Philippines, and Teddy Roosevelt’s betrayal of Korea…

The Mexican War

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