Financing the German Economy during the Second World War

The study deals with financing state expenditures and war economy of the Third Reich during the Second World War. Based on macroeconomic analysis of economic development in relation to the concept of total war, the changes in the German economy allowing Nazis’ war efforts to continue are analyzed. The effect of replacing private interests with government goals manifested in volume and structure of household consumption and firms’ investments, distorted industrial production and labour market, etc. The study points out changes in the development of financial (and partially nonfinancial) coverage of abnormally growing budgetary expenditures of central government after 1939. Special attention is paid to the analysis of financing war expenditures in Germany, including revenue from occupied territories and the role of the financial system. Especially, for more intensive debt financing was underway since the non-debt ways were not sufficient enough from 1943. An important finding, inter alia, is that growing government debt was for the most part covered from domestic sources, such as retracting savings from the financial system and excessive money creation. Within domestic economy the German government preferred “hidden” sources of funding over public issues of state bonds. On average, about a half of government outlays during the war were covered by non-debt resources – taxes, customs, or payments of occupational costs.