MEFO Bills (to 1 April 1938) — Off-Book Rearmament Finance (Schacht/Reichsbank)
mechanismMoney & Finance · Defense & Military-Industrial
Nazi Germany paid for its secret rearmament through a fake company, so the spending never showed in any public budget.
Who they are
Hjalmar Schacht, head of Germany's central bank (the Reichsbank), devised the scheme; weapons makers and the German government used it until April 1938. The record here is the prosecution's own chapter on Schacht from the Nuremberg trials, where the Allies tried Nazi leaders after the war.
What they do
Weapons contractors were paid with IOUs accepted by the Metallurgische Forschungsgesellschaft ('MEFO'), a shell company with only one million Reichsmarks of capital that made nothing. Banks could cash the IOUs at the central bank, so the state was really paying — but the total outstanding was, in the Nuremberg record's words, 'a guarded state secret.'
How it works
By law the central bank could lend the government no more than 100 million Reichsmarks. The MEFO device got around that: by April 1938, when it stopped, 12 billion Reichsmarks of these bills were outstanding. Schacht himself conceded it 'enabled the Reichsbank to lend by a subterfuge to the Government what it normally or legally could not do.'
Why it matters
It shows a government running a hidden set of books under the public one — the same split between what is announced and what actually runs that this site tracks in other eras. A claim from the research report that prompted this page — that MEFO paid for about 45% of rearmament — is not in the Nuremberg record and is not carried here.
The engine's record — word for word
[Report #201] **In plain terms:** the device that paid for Germany's secret rearmament without the spending appearing in any public budget — a fake company accepted the weapons bills, and the central bank quietly stood behind them.
THE MECHANISM, FROM THE NUREMBERG RECORD (Nazi Conspiracy and Aggression, ch. XVI on Schacht, Avalon Project): the 'mefo' bills were 'a scheme which he devised for the exclusive use of armament financing' (EC-436); bills were drawn by armament contractors and 'accepted by a limited liability company called the Metallurgische Forschungsgesellschaft, m.b.H. (MEFO). This company was merely a dummy organization; it had a nominal capital of only one million Reichsmarks.' 'The amount of "mefo" bills outstanding was a guarded state secret (EC-436). The "mefo" bill system continued to be used until 1 April 1938, when 12 billion Reichsmarks of "mefo" bills were outstanding (EC-436).' The point of the subterfuge, per the same record: 'Direct lending to the Government by the Reichsbank had been limited by statute to 100 million Reichsmarks (Reichsgesetzblatt, 1924, II, p. 241)'; Schacht conceded the device 'enabled the Reichsbank to lend by a subterfuge to the Government what it normally or legally could not do' (3728-PS), and in a 29 November 1938 speech credited the policy: 'Germany created an armament second to none, and this armament in turn made possible the results of our policy.' (EC-611).
ENGINE READING: a 1930s instance of Substrate-vs-Announcement (Concept #88) at the fiscal layer — the armament substrate ran on hidden paper while the announced budget stayed clean. CALIBRATION of the commissioning research report (Report #201): its claim that MEFO financed '~45% of rearmament' is NOT in the Nuremberg record and is not carried here; the record's own figures are the 12 billion RM outstanding at 1 April 1938 and the 100-million-RM statutory limit the device bypassed. Schacht was 'dismissed as President of the Reichsbank on 20 January 1939' (same chapter); his trial outcome is a separate record, not held here. Held; name no holder.
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