It is an established narrative in the literature that the German Empire financed World War I through an extensive issuance of sovereign debt with support of the central bank, the Reichsbank. Indeed, the sovereign debt burden of the Reich and the states combined increased from around 5 billion marks in 1914 to approximately 156 billion Marks in 1918 at the end of the war. Despite these staggering numbers, an understanding of war finance that merely focuses on the balance sheets of the treasury and the central bank cannot provide an accurate picture, as it misses out on the paramount role that off-balance-sheet fiscal agencies (OBFAs) played at the time. In this paper, we trace the activities of six types of OBFAs along three stages of the war finance operations from Summer 1914 to November 1918. First, the Seehandlung was Prussia’s state-bank that acted as market maker for sovereign debt, stimulated expansion and helped with funding throughout the war. Second, the Darlehnskassen (Loan Funds) were sub-balance sheets of the Reichsbank that supported expansion of the war economy by issuing Darlehnskassenscheine as a parallel currency and acted as market-maker for sovereign debt. Third, Kriegskreditbanken (War Credit Banks)were financial institutions that played an important role in the expansion phase of the first two months of war. Fourth, Kriegsgesellschaften (War Societies)were private sector institutions that became increasingly entangled with the state during the war and operated at an accelerated pace in the third stage as the war economy increasingly faced shortages. A similar dynamic was exhibited, fifth, by state-owned enterprises. Finally, industrial associations played an important role in the governance of the German war economy. To carve out the role of OBFAs in the war finance activities, we reconstruct the monetary architecture of the German war economy and translate the activities of the treasury, the Reichsbank, and key OBFAs into flow charts that analytically distinguish between initial expansion and long-term funding. By unpacking the role of OBFAs rather than the treasury–Reichsbank dyad commonly emphasised in financial historiography, we extend the Critical Macro‑Finance perspective into the realm of early‑twentieth‑century war finance.
Co-authors:
Armin Haas, Global Climate Forum
Andrei Guter-Sandu, University of Bath
Olan McEvoy, Global Climate Forum
Download link:
OBFA-TRANSFORM Working Paper No. 7-EN
