Hoelz served in the German Army during the World War I but was wounded and worked on the railways. Towards the end of the war he was working in a reinforced concrete construction company near Mulhouse in Alsace where he received news that his wife in Vogtland was ill, leading him to travel back to Falkenstein with soldiers returning from the front, amongst whom he helped form the Falkenstein Workers' and Soldiers' Council on 9 November 1918.Hoelz pp. 280-1 However, he was shortly forced out of the council by his co-chair Sturl, a USPD member, but despite this he joined the USPD and got a job selling subscription to their new journal for the Vogtland, Vogtlandische Volkszeitung.Hoelz p. 281 Hoelz went on to found the local branch of the Communist Party of Germany (KPD) in Falkenstein in Spring 1919 and became a leader of the unemployed in the town.Hoelz p. 282
During the Kapp Putsch Hoelz helped form a Red Army in Vogtland.Hoelz pp. 285-6 However the activities of his mobile detachment consisting of sometimes as many as 200 armed men caused dismay to the KPD leaders, and soon Heinrich Brandler of the Chemnitz KPD ensure he was expelled from the party. As the Communist Workers' Party of Germany (KAPD) was at that time bringing together former KPD activists who were disillusioned with the moderate politics of the KPD leadership, he soon joined them, finding himself more at home amongst their ranks. In the aftermath of the crushing of the Ruhr Red Army, the Vogtland was surrounded by 50,000 government troops and Hoelz led his army to the border with Czechoslovakia where they were surrounded by the Reichswehr.Hoelz p. 291 The Red Army split up into detachments to avoid the Reichswehr and Hoelz was eventually arrested in Czechoslovakia and then deported to Austria.Hoelz p. 295
After returning to Vogtland in late 1920, Hoelz organised a band of around 50 men equipped with arms and bicycles to try and free those detained after the Kapp Putsch.Hoelz p. 296 The first bombing he organised was of the Falkenstein Rathaus on 6 March 1921 and others targeted courthouses throughout Germany.Hoelz pp. 296-7
Later in his 1929 autobiography From the White Cross to the Red Flag he regretted taking part in these attacks,
"It was a serious political error to approve, and sometimes even take part, in raids on bank buildings, post offices, etc. by expropriation squads. These funds flowed into the hands of the then leaders of the KAPD, thus fulfilling a political purpose by financing the printing of newspapers and leaflets. Only a small part was used over the years to help comrades who were living illegally in various parts of Germany. Unfortunately, the proletarian relief organization Rote Hilfe (Red Aid Germany) did not exist at that time."Walker p. 118
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