How Occupied France Financed its own Exploitation in World War II Filippo Occhino Rutgers University
[email protected] Kim Oosterlinck Solvay Business School Université Libre de Bruxelles
[email protected] Eugene N. White Rutgers University and NBER
[email protected] Abstract Most studies of war finance have focused on how belligerent powers funded hostilities with their own resources. The collapse of the Third Republic in 1940 left Berlin in control of a nearly equally powerful industrial economy. This paper analyzes the policies employed by the German occupation and the collaborating government in Vichy to supply resources to the Nazi war machine. Vichy finance ministers eschewed inflation and promoted bond finance by imposing price and wages control and financial repression. They engineered a huge transfer of resources but at a very high cost. We assess the results of this policy with a neoclassical growth model and discuss the efficiency and sustainability of Nazi exploitation. October 2005 Preliminary—Please Do Not Quote or Cite The study of war finance is usually approached by examining how the available domestic resources were used by belligerents. Although incurring huge expenses, warring governments are usually assumed to attempt some optimization of revenue generation on behalf of their population. However, war finance in France during World War II was quite different. The collapse of the Third Republic left Berlin in control of a nearly equally powerful industrial economy. To finance its continuing war on other fronts, the German government sought and secured a massive and, perhaps, unparalleled extraction of resources from France. But, unlike belligerent powers that raise funds from their own population; the Nazis were known to have little interest in the long-term welfare of the countries they occupied.