Nazi’s food prices and Fractional Reserve Banking

The prices of food and other basic consumer goods are rising and the large retailer food chains find themselves under attack from media and politicians.

The soaring food prices under and after the first world war.

Interestingly the Nazi’s devoted a separate point out for 25 to the big warehouses in their 1920 program.

From their program

“16 We demand the creation and maintenance of a healthy middle class, the immediate communalizing of big department stores, and their lease at a cheap rate to small traders, and that the utmost consideration shall be shown to all small traders in the placing of State and municiple orders. ”

The background was soaring food prices and the shortages following the First World War and the following rage against the “profiteers.” The same rage helped Lenin to power in the 1917 revolution.

But the cause of the soaring prices were the German war economy directing production towards war related industries. The main cause of the shortages was the price controls making products unavailable altogether. And the war was fought by the government and not by the big department stores.

Why the governements are debt financing.

The German war effort was for a large part debt financed (as opposed to tax financed).  The banking system created debt to finance by governments war bonds. Economically this is similar to the current situation where the governments are debt financing the expenses to the welfare state.

With a sound banking system the interest rates would quickly rise as the government lends people’s savings to finance the war. As people’s savings dwindled it would soon be impossible to lend at all. The politicians would be forced to rice taxes. But taxes are visible and unpopular. Soon  the politicians would be forced to negotiate a peace. ( God forbid how humiliating!! )

How the governments are debt financing

To prevent the rising interest rates and the end of debt financing the government’s advisers has invented Fractional Reserve Banking (FRB).

With FRB the debt is created out of nothing and the inherent limitation of previous saving is removed. With FRB debt financing wars can continue endlessly. Conscription and FRB allowed the war to go on for years slaughtering millions of soldiers and send a prewar prosperous Europe into medieval poverty manifesting itself in people dying from diseases in medieval quantities.

The effect of FRB banking on consumer prices

The granting of a FRB loan (loan created out of thin air) as opposed to a “save first” loan has the effect of rising prices of consumer goods:

The reason is that in a “save first” loan the money is made unavailable to the lender. Thus the lender is unable to consume. The ability to consume is transferred from the lender to the borrower for the duration of the loan. The granting of the loan creates no extra demand for consumable goods.

This is opposed to the case of a FRB loan when the new debt and money is coming into existence out of nothing. The FRB loan is creating an extra (monetary) demand for consumable goods and the prices of consumable goods will rice by law.

How the Nazi’s scapegoated the retail chains and the big department stores.

We saw the Nazi’s scapegoated the “big department stores” and the chains in their propaganda on their rice to power in the 1920’s. When they came to power in 1933 they started a huge program of deficit spending with almost 50% of their expenses covered by deficit spending. The predictable result was rising prices of consumer goods. The Nazi’s would of course neither fix the problem by curbing their spending nor taking the blame for the consequences of their policies.

The chains where scapegoated in the propaganda and in practical politics in various ways:

  • “Marriage loans” where not allowed to be redeemed in department stores.
  • Department stores were banned from advertizing 1933 onwards.
  • The enforced price controls through the Reich Price Commissioner
  • Often the police did nothing to prevent the brown shirts throwing stones against and plundering the stores.

History repeats

Stones are again being thrown to the stores, the politicians are again discussing the high prices

History repeats itself in a very disturbing way.The scapegoating are continuing and the real causes of the problems remains unfixed.

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Filed under: on July 3, 2011 at 10:50 am Comments Off

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