The early dawn of helicopter money
In 1969, Milton Friedman coined the phrase "helicopter money" to dramatize extra money being pumped into an economy as if dropped from helicopters. Some economists have since suggested that this could boost demand in a severe downturn to lift the economy, though others point to the inflation that would result.
It was almost given a trial in one of the most bizarre Nazi plans of World War II, entrusted to SS Major Bernhard Krüger, who was born on November 27th, 1904, and whose name was used as the codename for the plan, Operation Bernhard. The idea was to produce large quantities of fake British banknotes and drop them from aircraft all over Britain. It was reckoned that the British people, suffering from war privation and rationing, would spend the money instead of turning it over to the authorities. The result, reasoned the Germans, would be financial chaos, inflation, and the collapse of Britain's economy and its ability to continue to fight the war.
Krüger toured the concentration camps to collect the slave labour he was ordered to use, choosing Jews with the skills he was looking for, those with expertise in engraving and printing. His unit was set up near Berlin at Sachsenhausen camp, with printing presses capable of producing 65,000 fake notes a month. It is reckoned that notes to the value of hundreds of millions of pounds were produced, equivalent to about £7 billion in today's values. They were fake, but they were of superb quality and virtually indistinguishable from the genuine ones.
Hitler personally approved the plan, though Goebbels thought it “grotesque,” pointing out that Britain could retaliate in like manner. Operation Bernhard was not carried out as planned because by the time it was ready, Germany no longer had enough aircraft, or ones capable of penetrating Britain’s defences.
Instead of abandoning it, Himmler took it over and used it for money-laundering to fund intelligence operations. He called on the services of Friedrich Schwend, a gangster dealing in currency fraud and smuggling, to run the network. Schwend used the fake currency to buy gold, diamonds and art works that were resold for genuine currency. From his headquarters in Merano in Italy, he spread the fake British banknotes across Europe.
The forgery business ended in 1945 as the Allies advanced across Germany and Sachsenhausen was shut down. Crates of the fake notes were dumped by the SS into Lake Toplitz in Austria, from where some were recovered by divers in 1959, but the bulk lay undisturbed until the year 2000, when a submersible brought up several boxes of the counterfeit notes. At Merano in Italy, a 1967 examination of the church organ to check its age revealed £5 million fake notes that Schwend had stuffed there.
Schwend fled to South America after the war and was involved with Klaus Barbie and Josef Mengele. In 1976 he was extradited from Peru to Germany to face trial for wartime crimes. Found guilty, he received a two-year suspended sentence and was deported back to Peru. Krüger was initially detained by the British but released in 1948 without facing charges. He returned to Germany and later faced trial in a denazification court. Former inmates under his charge at Sachsenhausen provided statements that resulted in his acquittal. He died in 1989, aged 84.
Some of the fake money had crept into circulation in Britain, and was so good that it alarmed the Bank of England, and led them to issue a new design. We never, therefore, had an advance test of the effect of helicopter money. Who knows? It might have caused a wartime consumer boom in the UK economy as people rushed to spend their airborne wealth. But since goods were in short supply because of the U-boat menace, the inflation would have reached Venezuela levels, perhaps even Zimbabwe. It never happened.