[PDF]Schacht Hjalmar The Black Magic Of Money

HJALMAR SCHACHT
THE MAGIC OF MONEY


Translated from the German by PAUL ERSKINE


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© HJALMAR SCHACHT 1967 :





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CONTENTS


I


o Ny Aw A l


©.


II
12
13
14
15
16


By Way of Introduction
Becoming a Banker

The Responsibilities of a Banker
A Bank’s Tasks Abroad

The First Inflation

‘The Nationalism of Currency
The Financing of War

The Second Inflation

Other People’s Money

The Third Inflation

An End to Inflation
Reflections

Development Aid

The Making of a Fortune

Is There a Schacht System?
Looking Ahead


I9
34
$2
62
75
94
109
123
142
160
172
179
193
208


21$

















1 l BY WAY OF INTRODUCTION





I have often been called a financial wizard. The French edition of
my book of memoirs 76 Jahre meines Lebens was published under the
title Memoires d'un Magicien, The American edition has the title
Confessions of the Old Wizard. Yet the truth is that nothing in the
world has so little to do with magic as dealing with money. Money
must be handled with clear and cool calculation. Anyone who does
not obey this maxim is in danger of tying himself up in all the many
ways of carning and spending money. Money can no more be
conjured into existence than the alchemists were able to make
gold, But money has many different kinds of attributes, some of them
very intricate, so that the majority of people frequently find them-
selves unable to understand certain financial transactions. For this
reason the monetary system is enveloped in a cloak of mystery,
secrecy and magic.

Money is not always synonymous with wealth. It is true that we
call well-to-do people millionaires, and thus unwittingly link this
term with the currency concept - Mark millionaire, Dollar million-
aire. But wealth is not only moncy. It makes a great difference
whether a millionaire possesses one million Deutschmarks in cash
or in his bank account, or whether he owns property of the same
value. The difference lies in the ways in which such wealth can be
used. Money may at any time be converted into other goods,
other properties, or other people’s services, but the reverse is not true.
The magic of money lies in its protean nature, which enables it to be
used at all times, in all directions and forall purposes. This constitutes
its wizardry, its secret, its mystery, its magic.

7-














8 THE MAGIC OF MONEY


Hardly any other object of human culture has been judged in so
many different and contradictory ways as has money. Here it is
praised to the skies, there it is cursed and condemned, For some it is
man’s highest good, for others it is despicable. Yet once one has
mastered certain principles, nothing is so easy as dealing with money.
The most important of these is the difference between ‘yours’ and
‘mine’. Many failings in the field of money occur not because of
any intention to deceive, but simply because those dealing with
money lose sight of the concept of property.

The fact that money can at any time take the place of other
material goods effaces its boundaries. Besides this, the fact that the
so-called double entry system of book-keeping has introduced
impersonal in addition to personal accounts, is confusing for the
inexperienced. To complicate matters, credit transactions, which are
indispensable in trade and commerce, make it possible to confound
present with future money. Borrowed. money is never property,
is never ‘mine’; it belongs to others and is thus always ‘yours’.
But even the most inexperienced are sure about one thing: money
is a possession which brings many and great advantages in its wake.
In the primitive barter economy of past ages it was difficult to
accumulate extensive wealth. It was impossible to add indefinitely
to one’s herd of cattle (pecus-pecunia), because the supply of fodder -
and accommodation was limited, and because cows aré mortal,
But with money it was and is possible to acquire anything at any
time, and to preserve it.

The invention of money was the pre-condition for the develop-
ment of the modern national economy. Money became the epitome
of property. For this reason the need to acquire money is, next to
love, the most universal of human urges. How to make money =
this. question and its attendant problems engages more of man’s
thoughts and efforts than almost anything else. The correct answer
to the question is: through work and saving. But work requires
exertion, and saving means forgoing the immediate utilisation of
income - and thus privation, loss of present comforts, This requires
a-strength of character not possessed by everyone.

For this reason men’s-thoughts turn to other ways, of making

















BY WAY OF INTRODUCTION 9


money. Such ways, requiring less effort, or at least less physical
effort, and offering much scope to human fantasy, have gradually
developed in our modern economy. People are always trying to get
something for nothing — to bet, enter lotteries, speculate on the stock
exchange, and lend their savings for interest. They speculate not
only with their own but also with borrowed money. Here the
magic of money actually becomes tangible. The amount of work
involved in these ways of making money is not very great. Men
also hope for strokes of good fortune which will make them rich,
for accidental discoveries of mineral deposits, for appreciation in the
value of land, for gifts from rich benefactors, or even for pennies
from heaven. Whichever way is chosen ‘everyone clamours for gold,
everything depends on gold’.

The significance of money as personal property is not restricted
merely to man’s normal day-to-day needs. Not only do monetary
riches permit a greater enjoyment of life by making it possible
to acquire the goods and services necessary to live, eat and dress well,
by enabling one to travel and to develop the mind and spirit, and
by affording the means necessary to employ one’s leisure to the full;
money also gives its owner power over other people, and over the
direction of social life. All goods can be bought with money.
Money buys other people’s labour which can be freely employed
for one’s own social or economic purposes. Money empowers those
who wield it to make use of personal or material forces. ‘If I can
afford six horses, is their strength not mine? They make me feel
like a real man, as if I had twenty-four legs.’ He who has money can
control the means of production — a fact which led Marx to demand
that these means of production should not be left in private hands,
but turned into public property — collective ownership.

The high-sounding sentences about Socialism which Marx linked
with his theory no longer have the meaning Marx gave them.
Since his demands have today largely been met and are accepted as
justified by nearly all political parties, these phrases are no longer
appropriate to the economic problems of our time. Today there is
hardly a politician who would not maintain that his thinking is
socially oriented. Now, the question is rather whether the means of





I0 THE MAGIC OP MONEY


production are managed more effectively by a collective enterprise
or by individual initiative. This is decided above all by results: all
efforts, whether individual or collective, must aim at achieving the
greatest possible volume of production. Collectivism, however,
excludes competition, and it is only through competition that the
most successful and the most able can exercise a decisive influence
on the social product. Competition brings the best to the top and
provides us with the means necessary to live life to the full, provides
us with money, property, and wealth.

He who makes money also wishes to benefit from it: he is not
concerned merely with creating for others, but also—and probably
principally - with improving his own lot. Therefore the problem of
the economically active society is not so much one of manipulating
the means of production, but more one of distributing the social
product. The inequalities in the distribution of the social product
which have existed for thousands of years and the contrast between
rich and poor will always remain in being. They are the difference
between the successful and the unsuccessful, between the talented
and the untalented, between the able and the incapable, between
the diligent and the indolent.

The economy is governed spiritually and intellectually by technical
and organisational ideas and institutions. New techniques, new
organisations, new combinations, are expressions. of the spirit.
They originate in the mind ofa single individual, never in a multitude
of individuals, never collectively. Even if an industrial enterprise is
subject to the decisions of a collective consortium, in each consortium
new thoughts and ideas always come from individual members,
And all depends on whether such individuals prevail over the
collective or not, that is, whether understanding and reason triumph
over natural indolence. Here, it is not a question of a mere ex-
pression of ideas, but of putting these ideas into practice. This
is difficult in any kind of group because the habitual interests and
ordinary ideas of the majority must dominate. It was with justice
therefore that philosophers and poets have said ‘Reason has always
been the preserve of the few, the majority prefers nonsense’. The
consortium is ruled by mediocrity. Every consortium deliberates








sashes die o Sei date














BY WAY OF INTRODUCTION xr


slowly and clumsily, For this reason the masses in times of emer-
gency have often, perhaps too often, granted an individual absolute
powers,

Fortunately, the saying that everyone clamours for money is
not altogether true. Making money is always bound up with risks,
He who seeks profits must be able to bear losses. To acquire riches
by legal means requires talent, diligence and the renunciation of
comforts. Most men lack these qualities. For them a moderate
income enabling them to enjoy life’s ‘simpler pleasures’ is sufficient.
They eschew risks. Security of income is worth more to them
than a possible but doubtful profit. Security of work, and provision
for illness, old age, injury and unemployment, are therefore in the
forefront of social controversy.

On the other hand, there are many people who seek goals other
than mere security of existence. It is true that this is a minimum

_ requirement of every family, yet many individuals place great
value on performing some service in the spiritual, intellectual or
social sphere, irrespective of whether or not they are rewarded..
Scientists, soldiers, civil servants, clergymen, teachers, politicians,
writers and many others fall into this category. They see their task
as fulfilling their duties in the fields chosen by or entrusted to them,
theteby satisfying a real ambition. They are the moral and spiritual
élite of political society. . It is foolish to rebuke the ambitious. ‘The
progress of the world depends on them.


On a journey through Turkey which I made with some friends in
1909 the conversation turned to out future careers. I said ‘One day
I should like to be of service to the public, provided that I am then
completely independent financially. I do not wish to be one of those
officials who live in a constant state of anxiety because their economic
existence depends on strict obedience of their superior’s dictates.
As an official I want to be able. to return to private life at any time
should my service lead me into conflicts of conscience or conviction.”
Already then’ I saw that material dependance created spiritual
bondage. He-who works only to order has no pleasure in his work,
and loses his creative powers, his initiative, his best faculties. My





2 THE MAGIC OF MONEY


assertion showed that though I did indeed wish to be financially
independent, I placed service to the public higher than the mere
making of money.

T have often put this concept to the test. When I returned to
public life after my acquittal in Nürnberg, Kaisen, the Social
Democrat president of the Senate of Bremen, tried to shame me
by calling me the highest-paid official of the Nazi regime. I was
able to shame him with the reply that when Hitler recalled me to the
post of President of the Reichsbank I voluntarily and on my own.
authority reduced my salary to a third of that I had received under
the Weimar republic.

When, in the middle of November 1923, I was made Reich
Currency Commissioner, the following conversation took place
between myself and the Salary Referee of the Reich Finance Ministry:

‘I wish to bring my secretary with me,’ I began. ‘How much will
she be paid?’

“Our secretaries receive a salary of DM (Deutschmarks) 200 per
month.’

“That doesn’t seem very much. At the bank Miss Steffeck had a
salary of DM 600 a month, What is the salary of the Reich Currency
Commissioner?’ é

‘He is paid DM 400 a month.”

‘Compared to my present income that doesn’t seem very much
either, But I have a suggestion: if you grant Miss Steffeck my salary,
as well as that due to her, she will still have DM 600. I, for my part,
will renounce my salary.’

‘Do you mean to say you will work for nothing?” asked the
government official, disconcerted.

‘On condition that you pay my secretary DM 600, yes.’

Just think of it: the man who would have the task of ending the
worst currency inflation in history was expected to be content-with
a salary of DM 400 a month! How could I, with a-family of four,
have undertaken such an office if I had not been able to defray
my living expenses out of savings: I gave up my highly-paid post
as principal of one of the four largest German banks, I resigned from
over seventy lucrative positions on supervisory boards, all because




















BY WAY OF INTRODUCTION 13


an ideal drew me on. I could do so only because out of my own
resources I had made provision for a normal civilised life.

But it is not merely economic power which can be bought with
monetary riches. Much more significant, and often also more fatal,
is the influence of money on a man’s spirit and character. Here I
leave aside all cases of direct bribery and corruption, and ‘will
speak only of everyday occurrences. In all democracies members
of parliament are elected by the public. Freedom of speech and
opinion is one of the fandamentals of political life, Public expressions
of opinion have the aim — and cannot have any other ~ of gaining
adherents for one’s opinions, and thereby achieving a party majority.
As long as political bodies were small, this was a simple task; with
today’s masses it is difficult. Nowadays one can reach the voter only
by means of the mass communication media. The necessary propa-
ganda is spread by meetings, the press, radio, television, and political
pamphlets. For all of which vast sums of money are required.
He who can dispense the largest sum of money has the best chance
of gaining supporters. Since dominance over public opinion offers
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