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Central Bank Independence and the Legacy of the German Past

Author(s):Mee, Simon
Reviewer(s):Guinnane, Timothy W.

Published by EH.Net (October 2022).

Mee, Simon. Central Bank Independence and the Legacy of the German Past. New York: Cambridge University Press, 2019. xiii + 357 pp. $105 (cloth), ISBN 978-1108499781.

Reviewed for EH.Net by Timothy W. Guinnane, Philip Golden Bartlett Professor of Economic History, Emeritus, Yale University.


To be viewed as “German” enhances a central banker’s credibility, especially when the individual in question is Italian. Few discussions of European monetary policy disagreements get far before one hears the claim that Germans take a dim view of anything that could cause inflation. Since its creation in 1957, the German central bank, the Bundesbank, has been a reliable bulwark against inflation. Germany’s leading role in the Euro project guaranteed it would be a “hard” currency. Explanations of German attitudes about monetary policy reach for a potted history of the 1922-23 hyperinflation. German history, the story goes, teaches the danger of lax monetary policy and the importance of central bank independence.

Simon Mee digs into the origins of this tale about German attitudes. He has two goals. The first is to insist on an accurate account of the Reichsbank, the German central bank from 1876 until 1945. The large scholarly literature represents this history accurately, but the facts go astray in other accounts. Germany experienced considerable inflation during World War I, in part because the Reichsbank lacked the independence necessary to resist political pressure to finance the war via inflation. In May 1922, however, the Reichsbank acquired considerable independence as part of a deal concerning the reparations payments demanded in the Treaty of Versailles. The 1922-23 hyperinflation thus does not fit a simple story about the lack of central bank independence. Journalistic accounts also tend to overlook a second Weimar-era policy disaster. With the onset of the Great Depression, the Reichsbank pursued deflationary policies to stay on the gold standard. The government bitterly opposed these efforts. The Reichsbank had good company among central banks in this approach, but the policy definitely reflected the central bank’s independence.

The western Allies created the Federal Republic of Germany (FRG) out of the three western occupation zones in 1949. A new central bank preceded the new state’s formation and survived until the new Bundesbank created in 1957. In 1948 the British and U.S. occupation authorities created the Bank deutscher Länder (BdL) using the decentralized model of the U.S. Federal Reserve. While it answered to the Allied powers and to the German states (who appointed the members of its directorate), the BdL enjoyed considerable independence from Germany’s federal government. Everyone expected the BDL to be a short-lived stopgap. However, debates over a new institution ground on until 1957, when the German parliament agreed on the framework for the new Bundesbank. The new central bank’s independence formed the core area of dispute in this debate, and Mee draws much of his evidence from this period.

Mee’s second goal focuses on understanding the way debates over the creation and operation of postwar central banks helped to create popular understanding of the Reichsbank and the Weimar era. Here he refers to “myths,” which might be a bit too strong, but the word serves to underscore what policymakers wanted: a past that was useful, if not necessarily accurate. In arguing about the new Bundesbank’s role, and in later policy debates, many actors explicitly or implicitly drew lessons from the Weimar and Nazi period. Mee’s most engaging discussions concern the way central bankers involved in post-1945 policy matters defended their pre-1945 conduct and used episodes from the Reichsbank’s experience to attack or defend the notion of central bank independence. The recent past laid heavily on the new Federal Republic of Germany. The 1922-23 hyperinflation had done much to discredit the new Weimar Republic. Germany’s especially harsh first years of the Great Depression revitalized the extremist parties, including the Nazis.

Part of the history burden reflected the biographies of leading figures. Halmar Schacht, who headed the Reichsbank 1923-1930 and 1933-1939, and who later served as a minister in Hitler’s government, had faced trial at Nürnberg (Nuremberg) for crimes against peace. Acquitted, Schacht spent much of his remaining life nursing public grievances against the BdL and the Bundesbank’s leaders, some of whom had been his co-workers at the Reichsbank. Wilhelm Vocke (1886-1973) testified in Schacht’s defense at Nürnberg. Hitler had fired both for signing a 1939 memo that protested Nazi plans to use inflation to finance the war. Vocke served as the first, and effectively the only, head of the BDL, as well as the Bundesbank’s first leader. The Bundesbank’s second director, Karl Blessing (1957-69) had his own embarrassing past. Although also fired over that 1939 memo, Blessing had been in SS leader Heinrich Himmler’s “Circle of Friends” (Freundenkreis).

Serious political leaders opposed the notional of central bank independence after the War. Konrad Adenauer (1876-1967), the FRG’s first Chancellor, argued for the central bank’s explicit subordination to government instruction. The BdL and the Bundesbank earned the public ire of other postwar Chancellors, as well, making central bank independence a constant theme. Bundesbank policy arguably played a role in the economic problems that led to the fall of a coalition government in 1966.

An especially interesting chapter focuses on the Bundesbank’s relations with the German press. Viktor von der Lippe ran the press offices for both the BdL and the Bundesbank. He enjoyed an unusual close relationship with the leadership of both institutions and evinced considerable sensitivity about the image of both the institutions and their leadership. In 1965, the Bundesbank asked a school newspaper to retract an article about Blessing’s ties to Himmler.

Economists typically think of central bank independence as the ability to resist measures that would bring temporary macroeconomic gains to help the government in power, to the detriment of longer-term goals such as price stability. Mee’s account illustrates the slipperiness of the idea of central bank independence. Governments may not force a particular policy on an independent central bank, but governments typically appoint central bank directors. At some points, Mee implies that this appointment power risks compromising central bank independence, which he presumably does not intend, as it is standard practice in most countries. Central banks operate under charters governed by parliaments, so their basic architecture endures at the sufferance of the politicians. When the Bundesbank adopted restrictive measures to deal with inflation in the early 1970s, unhappy politicians spoke openly of rewritings its charter. Mee’s discussion also raises the important question of “independent from whom?” Some central bankers in the 1950s argued to Christian Democratic leaders then in power that an independent institution would be a bulwark against future governments run by the Social Democrats, who had been out of government at the federal level from the Nazi takeover until the coalition government of 1966. Debate over the BDL’s replacement also reflected regional anxieties. The federal states exercised a strong role in the BdL’s governance. To the states, the BdL’s decentralization made it independent from the federal government.

Mee stresses the process of creating and using historical memory to justify arguments about central banks. Readers should not expect much on the nuts and bolts of central banking itself. As a result, sometimes a controversy is a little hard to follow because Mee omits key specifics about what the central bank did or did not do. The book also has an unusual structure. Each chapter begins with an extensive overview and ends with a longish conclusion. This approach implies considerable repetition and invites the reader to skip chapters in ways Mee may not have intended.

This fine contribution will appeal to anyone interested in German monetary and central bank history per se, as well as to those interested in broader themes related to the postwar German economy. Given his rich material, Mee had little choice but to focus on the central bank. But the study deals with a central theme in the history (and historiography) of the Federal Republic, one that should make it useful to a much broader range of historians. “Working through the past” (Vergangenheitsbewältigung) reflected the social and political process of coming to grips with the Nazi regime. This involved difficult institutional reform complicated by the embarrassing presence of ex-Nazis (and sympathizers) in leadership positions in business as well as political, educational, religious, and other institutions. The problem of history was not just personnel. Chancellor Helmut Schmidt told the Bundesbank in 1978 that Germany faced two enduring weaknesses, one of which was “Auschwitz,” by which he meant the legacy of the Nazi regime. Schmidt feared that German economic success would heighten foreign sensitivity to that past, and argued, in effect, that Germany needed to find ways to subsume its own monetary policy to European institutions lest German economic success provoke a political backlash. Thus, from a German perspective the various currency-coordination schemes that culminated in the Euro reflect an effort to reckon with the monetary past.


Timothy W. Guinnane is Philip Golden Bartlett Professor of Economic History, Emeritus, Yale University. Recent publications include “Creating a New Legal Form: The GmbH” (Business History Review, 2021); The Introduction of Bismarck’s Social Security and System and Its Effects on Marriage and Fertility in Prussia” (with Jochen Streb, in Population and Development Review, 2021); and “We Do Not Know the Population of Every Country in The World for the Past Two Thousand Years” (Journal of Economic History, forthcoming.)

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Subject(s):Economic Planning and Policy
Economywide Country Studies and Comparative History
Financial Markets, Financial Institutions, and Monetary History
Macroeconomics and Fluctuations
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII