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This presentation appears in the January 10, 2003 issue of Executive Intelligence Review.

The Lautenbach Plan
And Its Consequences

by Helga Zepp-LaRouche

Here is the translated speech by Helga Zepp-LaRouche, chairman of the Solidarity Civil Rights Movement (Bürgerrechtsbewegung Solidarität, or BüSo), to EIR's seminar in Berlin, on Dec. 18, 2002.

I would like to speak today on the subject of the economic debate which occurred during the early 1930s—which is normally a taboo subject nowadays. What I hope will become clear from what I shall say: One of the most astounding phenomena is the fact that today, virtually not a word is spoken about the discussions which went on during the early 1930s, and the fact that hardly anyone today knows anything about those discussions.

Today, the system of globalization, of the free-market economy, is hopelessly bankrupt. And anyone who has not yet recognized that fact, I would ask them to please read a speech by one of the U.S. Federal Reserve governors, a man by the name of Ben S. Bernanke, who a few weeks ago delivered an astounding speech which, at the moment, is the hottest topic among all the top insiders in London, Wall Street, and Zurich, because he committed the absolutely monstrous violation of a taboo, by saying that today, with all our modern tools for increasing the money supply, it is much simpler to create liquidity in so many ways, than it was during the times when one needed an old-fashioned printing press in order to print the stuff; and that this is basically possible today through all sorts of electronic means. And by doing so, he basically blurted out the marketeers' best-kept secret up to now, namely, that if the system is reaching the end of its rope, and a domino effect is becoming a real threat, with large banks going bankrupt, mega-corporations going bankrupt, bubbles popping, and then the so-called aggregate risk—i.e., if one market sector goes bankrupt, then, because of the interconnectedness of all market segments, the entire global system blows up—that then, the last remaining resort, is to print money, just as the Reichsbank did in 1923. Only with the difference that, back then, as you know, it was confined to Germany, whereas today, because of globalization, the effect is worldwide. And as we ought to recall from past history, hyperinflation—because this Mr. Bernanke was talking about nothing else but that—is what robs the man in the street, the little people, of their last scrap of savings. Hyperinflation gobbles it all up.

And that's precisely where we're at right now. Latin America was already mentioned: Argentina has halted its payments on its foreign debt, and has said, "We're not going to pay any more." Now, that was only $800 million, but the important aspect of it, was its effect as a signal that the country is facing the utter disintegration of its territory, and so they have said, "That's it! No more!"

The situation in Brazil is dramatic. On Jan. 1, the new President, "Lula" da Silva, will be sworn into office. There is rampant hysteria over what Brazil is going to do with its $500 billion foreign debt. My husband was right, when he said that no other country is a better demonstration of how hopelessly, unsalvageably bankrupt this system is. Because Brazil has two options: Either it capitulates, and makes an attempt to fulfill the IMF conditionalities, in which case it will, in short order, go the way of Argentina, i.e., the country will collapse; or, it will say "No!"—and in that case the IMF is equally finished, because the sheer amount of [Brazil's] indebtedness, $500 billion, is enough to bring some mega-banks in the United States, but also in Spain and elsewhere, to their knees.

But in Japan it's even worse: bank crisis, depression everywhere you look.

The actual epicenter of the crisis shifted to the United States some time ago. America's infrastructure is disintegrating, and it is facing the prospect of no longer having a railway or airway system, because if United Airlines, which declared bankruptcy last Monday, goes the same way as Pan Am, Braniff, and other airlines, then it's well on its way to being liquidated, and—well, I guess you'll still be able to get around the country in a Greyhound bus, or on foot, but that might not be particularly efficient! The collapse of the dollar was already mentioned. We are currently basically in the final weeks—my husband has said, very courageously (as he normally is, anyway) that the world financial system is so far gone in its collapse, that we're talking about a matter of weeks, about January, about only a few months. And this is, without a doubt, what is shaping the main dynamics of the economic crisis here in Germany—even though, of course, there do also exist some home-made problems as well, which have to do with the general cultural paradigm-shift over the past 35 years.

Danger of 'Emergency Decrees'

You will recall that about one month after the election, the re-election of the Schröder government, comparisons with the Brüning government were being made, on the one side, by Mr. [Oskar] Lafontaine [of the Social Democratic Party], who said that [German Finance Minster Hans] Eichel's austerity policy is the same as what Brüning did—and Heinrich Brüning is the person who paved the way for Hitler, [is the person] whose austerity policy brought on the collapse of the Weimar Republic.

But Brüning has also been brought up by the right-wing populist Prof. Arnulf Baring, who even went so far as to call for the trashing of Germany's Constitution, demanding that the Basic Law be revised, because unfortunately it does not contain an Article 48—i.e., the clause which made it possible for Brüning to issue his Emergency Decrees. And Baring also called for people to take to the streets, and to man the barricades in order to topple the current government. So, he's been quite the radical.

I would like to examine this historical period a bit more closely. All this might perhaps be well-known to some of you, but I shall say some things that are perhaps not so well-known to you. Back then, during the era of Müller, of the Müller government, and through Brüning, to Franz von Papen, to Kurt von Schleicher, the failure of democracy was quite evident to all, because no party in the Reichstag had a concept of how to deal with the collapse of the liberal system. And part and parcel of this liberal system, was, of course, the war reparations payments which Germany had to pay. At the point when the grand coalition under Müller collapsed, this led to a series of presidial regimes, each of which failed in turn. And von Schleicher, who theoretically could have averted the catastrophe, came into power much too late, in December 1932, at a point when the Anglo-Americans' pressure on Hjalmar Schacht to bring Hitler to power, was much too great, and the situation was just too far gone to change course.

We're in a similar situation today: None of the parties has any idea what to do. The systemic collapse today is far worse than the Great Depression of the 1930s, but there are certain parallels: We've taken the charts of stock prices from 1918 to 1940, and have superimposed these onto those from 1980 to the present, and in fact the curves match perfectly.

But the systemic crisis today is far, far worse. Two continents have already collapsed de facto—Africa, and we are already witnessing the traumatic disintegration of Latin America. Back then, America was the biggest lender; today, on the other hand, America is the biggest debtor in financial market history.

The danger, therefore, is that chaos, or even a revamped version of Article 48, or perhaps a dictatorship, is looming on the horizon.

Defend the Schröder Government

I would therefore like to set this forth at the outset: Our position is to seek to defend this Schröder government—not because Schröder's economic policies are any great shakes, but because in the present constellation of forces, Germany, and even Schröder himself, with all his problems, has become the fulcrum of opposition to a new Brüning policy. And therefore we must see to it, that we change Schröder's policies, and not replace him altogether.

Because what's at stake here, is quite clear: Schröder himself is still undecided. He can decide this way, or that way: He can, like Thomas Schmidt (whose past is extremely interesting, by the way, in the 1960s and 1970s), who writes today in the Frankfurter Allgemeine Zeitung, that if Schröder, with cool calculation, sets into motion the systematic undermining of the social state, then he couldn't be touched by his competition, and so he should show leadership in dismantling the social state—so proposes Thomas.

Because you must consider the fact that none other than an individual by the name of Peregrine Worsthorne—who, interestingly, is the stepson of Montagu Norman, the man who financed Hitler and brought him to power, the former head of the Bank of England—wrote already back on April 2, 1996, in the Sunday Telegraph: "I'm not saying that we must move directly from the social state into a police state," but "welfarism is an idea whose time has passed.... For many of 'our people,' life in the late 20th and in the 21st Century will be repulsive, brutal, and short as well." And this, of course, is a reference to the life-shortening health-care reforms which enter the picture whenever the social-welfare state starts being dismantled.

A very interesting article was written on Nov. 24 of this year by a certain Prof. Herbert Giersch in Welt am Sonntag. Professor Giersch was formerly one of the "Five Wise Men," headed up the World Economic Institute in Kiel, and is a neo-liberal of the Mont Pelerin Society stripe; but nevertheless, he writes the following in his article on the current economic situation:

"Seventy years ago, when the worldwide economic crisis erupted, a group of noted economists of various persuasions, including Wagemann, Woytinsky, Baade, Lautenbach, Lombard, Loewe, and Lederer, sought to build enthusiasm among the political class and in public opinion, for its policy of active government expenditures. Quite probably it could have cost the National Socialists their victory in the Summer of 1932."

I don't know whether it's clear to you, what a tremendous bombshell that statement is. It means that for the first time, a so-called regular professor—albeit a retired one, but still a quite regular one—has stated something which before then has only been stated in that precise form by Mr. LaRouche, by myself, and by the BüSo generally, namely, that if Germany's economic policy had been changed in time, Hitler's rise to power could have been prevented.

One would assume that this is a theme which would be of great interest in Germany—so one would assume. Because at the time, there existed a broad coalition of social forces—the so-called reformers, whose members during the early 1930s included the General German Trade Union Alliance (Allgemeine Deutsche Gewerkschaftsbund, ADGB), and also a group of economists around such people as [Wilhelm] Lautenbach—who at the time was a high official in the Economics Ministry—but also industrial bankers—all of whom were proposing varying concepts of how unemployment could be eliminated through the generation of productive credit.

And let us recall that at precisely the same time, namely around 1933, Franklin D. Roosevelt in America was implementing his New Deal policy, which included productive credit generation, and led America out of the Depression. One can truly say today, that if the same policy had won the day in Germany—that is, the policy which Woytinsky and Lautenbach were urging—Hitler would not have seized power, and World War II probably wouldn't have had to occur.

And this makes it all the more astounding, that this economic debate, which raged from 1930 to 1932, is almost completely swept under the rug in Germany today. Instead we get the widespread myth that it was the Nazis, and Hjalmar Schacht and Hitler, whose job-creation programs succeeded in eliminating unemployment. Nothing can be further from the truth—as I shall now elaborate.

The Woytinsky Program

On June 28, 1928, Müller formed his grand coalition. The stock market crashed in 1929, and in 1930 a crisis erupted within the coalition over how to finance unemployment insurance, leading to Müller's resignation. In March 1930, there were 537,000 more unemployed than there had been in March 1929. Then, on March 30, President Paul von Hindenburg assigned Brüning the task of forming a new coalition government. After Brüning entered office, the annual increase in unemployment climbed to 1,432,000 in April, and then, after the first Emergency Decrees, to 2 million. After Brüning implemented further deflationary measures in December 1930, unemployment in March 1931 was 2.8 million higher than it had been in March 1929. On Dec. 8, 1931 there was yet another Emergency Decree, which included wage cuts by up to 10%, drastic price cuts, and a 6% ceiling on interest rates. And the number of unemployed kept on rising, to 6 million in March 1932.

On the heels of this came the election victory of the NSDAP [National Socialist German Workers Party, or Nazis], which on July 31 won 37.4% of the popular vote, entitling them to 230 seats in the Reichstag, making them the country's strongest political force.

During this period of high drama, stretching from 1930 up through early 1933, there were various forces which presented ideas on how to revive the economy. The most important role was that played, on the one side, by the General German Trade Union Alliance, which had approximately 5 million members, making it the biggest single organization in Germany: 80% of all organized workers belonged to it. And the leading intellect behind these proposals was Wladimir Woytinsky, who was chief of the ADGB's Statistical Department, and who had emigrated to Germany from St. Petersburg in 1922, and who had been leading the Statistical Department since 1929.

In the spring of 1931, Woytinsky proposed an international program to end the economic crisis. To begin with, he asserted the idea that Brüning's deflation policy was only making the crisis worse. He wrote a number of articles about this, and in 1931 he published a book, in which he pointed out the qualitatively new character of the worldwide economic crisis, whereby the so-called automatic capitalist mechanisms no longer functioned, but whereby only anti-deflation measures could be agreed upon by consenting nations, thereby making it possible to increase purchasing power. And this additional purchasing power would have to be applied productively, i.e., put toward the creation of new jobs in public projects.

Woytinsky harshly attacked the mania for cutting wages and social services (today we could call it the "Eichel-cutting mania"[1]), and on March 9, 1931 there was an executive board meeting of the ADGB, at which Fritz Tarnow, chairman of the Woodworkers Union and ADGB plenipotentiary for job-creation programs, along with Wilhelm Eggert, called for an international program to end the world economic crisis.

Woytinsky published his first major articles in June 1931, in the theoretical journal Die Arbeit, where he pleaded with the ADGB to adopt an active economic policy. He wrote:

"Labor organizations that rely on the self-healing forces of the capitalist economic order, run the risk of slowly bleeding to death. For some years now, Germany's working people have been waging a difficult, defensive struggle, and the worse the crisis becomes, the more unfavorable the conditions will become under which that fight is waged. Our labor organizations have lost their freedom to maneuver; no longer can they choose either the time or the objective of their conflict with the adversary. They are forced, each time, to fight whenever and wherever it best suits the other side....

"Targetted, far-reaching measures to revive the economy have never been more necessary than they are right now. The labor movement needs an economic-policy action program, which can show workers and other layers of the population, that the Social Democracy and the trade unions see a way out of the economic abyss. But at present, we have no economic-policy action program; all that we have, is a list of social demands, which we try our best to get adopted. We have definite positions on assorted individual economic policy questions. But a program, this we don't have!"

He then demands that the ADGB take a proactive stance on economic policy—i.e., instead of a passive "meteorological" attitude of mere observation, an active attitude such as in the practice of medicine, whose task is to heal the sick, to reduce suffering, and to halt the spread of disease; and economic research ought to be guided by similar objectives. There must be "factors brought into play, which will spur every entrepreneur to expand their field of economic activity. In accordance with this, we must explore opportunities to complement inadequate economic initiatives taken by private firms, with public job creation." Agreements must be made among nations for increasing purchasing power. What is required, is a creative offensive, and not merely defensive skirmishes.

To counter the argument that such an active intervention would be inflationary, Woytinsky wrote:

"But, on similar grounds, in the treatment of a serious, life-threatening illness, one would rule out the administration of a medicine, solely because it is a poison. The physician, however, does not hesitate to use various poisons as medicines.... If the physician had to renounce all use of poisonous substances as medicines, he would be condemned to the same impotence as that of an economic policy which, out of fear of inflation, rejects all anti-deflationary measures out of hand."

And thus the only remaining option is an active conjunctural policy which takes on the worldwide economic crisis. And therefore, a worldwide economic policy is required.

He writes: "All nations are suffering because the world economy is sick. Therefore they must all concentrate their powers upon taking joint action to overcome the world crisis." Today, we would call this the Eurasian Land-Bridge.

In Point 3 of this action program, he writes:

"No country is ... harder hit by the worldwide crisis, than Germany is; and within Germany, working people are the class that suffers most from the economic depression. In keeping with this, it is Germany which must take the initiative in forceful international policy to combat the world crisis, and the German working class (trade unions and Social Democracy) must claim and assume the role of conveyor of the idea of an activist world economic policy."

In Point 6 he writes:

"The funds freed up by international money-creation policies, must be applied toward job creation, and for the realization of a grand plan for European reconstruction."

That's the 1930s version of what we proposed for Europe in 1989 with the Productive Triangle, and of what the Eurasian Land-Bridge represents for Europe today.

On Dec. 31, 1931, Woytinsky, Fritz Tarnow, chairman of the Woodworkers Union, and Fritz Baade, the agricultural policy spokesman of the Social Democratic Party (SPD) faction in the Reichstag, published their "Theses on Combatting the Economic Crisis," and presented them to the ADGB's executive committee. It contained the proposal to create new jobs for 1 million unemployed, and to that end, a sum of 2 billion reichsmarks was to be made available in the form of a cash loan from the Reichsbank.

On Jan. 26, 1932, the so-called job-creation program, dubbed the "WTB Plan"—for Woytinsky, Tarnow, and Baade—was presented, which included the idea of issuing long-term credits with low rates of interest and amortization; such credits would then be cashed in by Reichskredit AG, and they would be discountable at the Reichsbank.

The ADGB voted to adopt the WTB Plan, but the SPD under Otto Wels, along with the SPD's so-called economic experts Hilferding, Naphtali, and Bauer, were opposed to it. As Woytinsky wrote later on in his autobiography:

"It seems to me that I saw—physically, with my eyes—how Brüning was leading Germany to a tragic end.... Brüning, however, must not be blamed altogether harshly for his errors. He shared his false ideas with many of his advisers in his own and the Social Democratic Party. Had the latter not supported his policy, he might have abandoned it."

Lautenbach's Intervention

That's what was going on on the trade-union side. In parallel to that, on Sept. 16-17, a secret conference was held by the Friedrich List Society, with Dr. Wilhelm Lautenbach, Reichsbank President Hans Luther, SPD economist Rudolf Hilferding, and others in attendance. And there Lautenbach presented his extremely important—I can really only recommend that each and every one of you thoroughly read this memorandum, titled "Possibilities for Reviving Economic Activity, by Means of Investment and Expansion of Credit." Lautenbach wrote there: "The natural course for overcoming economic and financial emergency," is "not to limit economic activity, but to increase it, because the market, in the current conditions of simultaneous depression and world monetary crisis, no longer intervenes."

Normal market mechanisms are no longer adequate; they do not provide any positive direction. He writes:

"For, at this very moment, we have the paradoxical situation, that, despite the fact that we have made extraordinary cuts in production, demand is still continually lagging behind supply. And thus, we have chronic production surpluses, which we don't know what to do with. The task of finding some way to turn these surpluses into things of value, is the real, and most urgent problem for our economic policy to solve; and, in principle, it is relatively simple to do that: Surpluses of physical goods, unutilized productive plant, and unutilized labor power can be applied toward meeting a new economic need—a need which, from an economic standpoint, represents a capital investment. We can conceive of such tasks, as ... public works, or works carried out with public backing, which for the economy would mean an increase in our national wealth, and which would have to be done anyway, once normal conditions returned (road construction, desirable improvements and expansion of the railway system, and the like)....

"With such an investment and credit policy, the imbalance between supply and demand on the domestic market will be remedied, and all production will once again be given a direction and a goal. If, however, we fail to institute such a policy, we are headed for inevitable, continued further collapse, and the complete gutting of our national economy, moving into a situation that will force us, in order to avert a domestic catastrophe, into taking on short-term public debt purely for purposes of consumption; whereas today, it is still within our power, to preempt this credit for productive purposes, and thereby to bring both our economy and our public finances back into balance."

He was saying that we have two possibilities: Either we create credit right now for investment, or else, in very short order we will have to do it anyway, but merely in order to finance unemployment—exactly the situation we have today.

More Reform Proposals

Hans Schäffer, state secretary in the Finance Ministry, lent his full support to the Lautenbach Plan, and as late as September 1933 wrote a memorandum about it. A similar proposal was also made by Ernst Wagemann, head of the Reich Statistical Office and of the Institute for Conjunctural Research. In January 1932 he published a great number of copies of his own plan, which involved the creation of 3 billion reichsmarks for the creation of jobs.

This theme went very much in favor of the reformers at the time, because of the crisis during the Summer of 1931, which had thrown the entirety of the Reichsbank Law, and also the Young Plan for reparations payments, into the wastepaper basket, because everything was coming apart—just as the Maastricht Treaty and its Stability Pact is flying apart today. For, it is precisely at points when such apparently set-in-stone situations become unsustainable, that such reforms can actually be implemented.

On Jan. 29, 1932, Schäffer wrote in his diary that the Chancellor—i.e., Brüning—was particularly incensed over Wagemann, because the latter had claimed he had created the impression with the trade unions that there existed some means other than the deflation policy, to improve the situation. And secondly, Wagemann's proposals could spell big trouble for the reparations payment program.

What he is referring to here, is the fact that many historians today have surmised that with his deflation policy, Brüning wanted to intentionally ruin the economy in order to make the point that Germany could not pay the reparations. At the time, there were indeed negotiations for debt relief, the so-called Hoover Moratorium. But that came too late for Brüning, and this terrified him; he had an image of himself as a marathon runner, who was only 100 meters away from the finish-line, but who couldn't run the final stretch.

And thirdly, Schäffer wrote in his diary, it is to be feared that the National Socialists, who up to then had sought in vain for a credible monetary policy, would adopt Wagemann's plan, and could derive an advantage therefrom.

But that was by no means the actual situation, because all of the proposals for reform had been made by democrats—by Social Democrats, by trade unionists—and not by the National Socialists, who then, in the Nov. 6, 1932 elections, came in with 2 million fewer votes than previously. Hitler himself expressed thoughts of suicide as an ultimate option, in the event that the movement collapsed.

Von Papen was to form a new government in November 1932, and he made the insane proposal to dissolve the Reichstag, and to base his support solely on the Reichswehr (Army). General von Schleicher warned President von Hindenburg that in view of the right-left confrontation, this would lead to civil war. Hindenburg wanted to name von Papen Chancellor nevertheless, but all but two members of his Cabinet voted for von Schleicher instead.

Von Schleicher was installed as the Weimar Republic's last Chancellor on Dec. 2, 1932. He was firmly convinced that the republic could only be defended by forming a broad-based alliance of the labor movement and the Reichswehr. And beginning in November 1932, he sought to build this so-called "Diagonal Front," a broad coalition of diverse social forces which, together, could implement this economic stimulation program.

Theodor Leipart, the chairman of the ADGB, was in favor of this Diagonal Front. The German Catholic Trade Union Movement, both the Christian Trade Union and the Free Trade Union, the Reichsbanner [militia arm of the Social Democratic Party], the German Retail Employees Union, the Stahlhelm, the German Association of Municipalities and Counties under its president, Dr. Gerecke—all of these people were prepared to support von Schleicher in carrying out this program. Dr. Gerecke himself had worked out a job-creation program for the von Schleicher government, one which was in line with the proposals made by the Lübeck industrialist Dräger and his circle.

Dräger had made similar proposals: He wanted to first make 3 billion reichsmarks available, and if this test were successful, then an additional 5 billion, and ultimately a total of 10-20 billion reichsmarks over the course of the decade. But unfortunately this plan was not adopted, and although von Schleicher did issue a very notable government declaration on Dec. 15, 1932, the stupidity of the Social Democrats became one of the chief domestic reasons why it failed. Specifically, Rudolf Breitscheid, leader of the SPD's parliamentary faction, stated at the time: "We're not going to hold any talks with a reactionary general!"

And then, on Jan. 11, 1933, the SPD expressly forbade ADGB chairman Leipart from holding any further discussions with von Schleicher. As is well-known, three weeks later came Hitler's seizure of power—an act accomplished with the assistance of Hjalmar Schacht and certain Anglo-American financial circles.

But today we can say with absolute certainty, that if Woytinsky's proposals, and those of Lautenbach, had been implemented in 1931, the conditions would not have existed for two years as they did, making it possible for the Nazis to seize power. And if von Schleicher had had even a mere six months' time to implement his program, the same would have been true. Which is to say that if, in Germany, people had been able to follow the same policy as Franklin Delano Roosevelt in America, in all probability, World War II would never have happened.

The Lesson of History

And if we are to learn anything at all from this history, we should really say the following: If people are already talking now about Brüning, if people are already talking now about the Lautenbach Plan and the other reforms, then it is high time for us today to study the mistakes of the 1930s, so that we do not repeat those failed policies. Today we have, in the form of the New Bretton Woods proposal, the Eurasian Land-Bridge, quite concrete proposals as to how the Lautenbach-Woytinsky Initiative can be implemented.

And that is not just whistling in the dark: By a majority vote, the Italian Parliament has already voted its approval of my husband's proposal for a new financial system, one that is oriented not toward speculation, but rather toward production. The Italian Super-Economics Minister Tremonti, who is also directly influenced by my husband's ideas, has called for a "New Deal" for Europe. My husband has already spoken today about how the Russia-China-India Strategic Triangle is already working together; and thus, within the Eurasian Land-Bridge, we would have an entirely natural orientation for German export markets.

I think we are in a situation today, in which we shall not have the situation where, 70 years from now, someone will be asking: "Why weren't these proposals adopted in 2000-03, either?" and where no one knows what the outcome might be. Today, the main threat is chaos, and worldwide collapse.

I would like to urgently call upon you all—my husband has already said "Help me," and I say the same: "Help me, too, to implement this policy in Germany, and, for starters, to lead a broad public debate about this 1930-33 period, and about the options that existed at that time, and to draw the right conclusions from it."

[1] In German, a pun: Eichel also means "acorn" or, in slang, "head of the male sex organ."

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