29. Near the Cracking Point

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THEOSE who chose to fight Hitler had every reason to be encouraged during the summer of 1933. German industry was crumbling in an increasingly publicized chain reaction of crises.

Shipping and transatlantic passenger travel had been a strategic foreign-currency earner for the Reich. But anti-Nazi boycotting had virtually bankrupted the entire industry. In late July, at the Hamburg-American Line's annual stockholder meeting, chairman Dr. Max von Schinkel and all board directors announced their resignations with this statement: "The disaffection in the world toward Germany and the boycott movement are making themselves trongly felt. This has severely hurt the Hamburg-American's business and is continuing to hurt ... German shipping generally."¹ The Philadelphia Record, in commenting on the shipping bankruptcies, editorialized: "In a civilized world, the Nazis cannot hound 600,000 fellow Germans out of existence because they happen to be Jews without arousing international indignation. Resentment makes itself felt—and rightly—in a widespread refusal to buy goods or travel on the ships of a great nation lapsed into ugly barbarism."²

At about the same time, the Solingen Chamber of Commerce, in the heart of Germany's ironmaking region, was predicting the same fate for the iron industry, given the "tremendous decrease of export possibilities." Heavy machinery exports alone were only half their profitable 1930 level.³ The medical industry, was also reeling. Berlin, once renowned as the medical capital of Europe, was suffering a 50 percent decline in its lucrative foreign patient market. German educational institutions received an even more damaging blow. Foreign endowments, vital to Germany's academic funding, diminished by over 95 percent.⁴

The declining German export surplus—down 68 percent from May to June—continued dropping during July and early August. The export surplus over imports was the traditional measuring stick of overindustrialized Germany's ability to pay for the raw materials needed to keep its factories running and pay its monthly debt service of RM 50 million. But by summer, Germany's trade balance was so decayed that the export surplus was becoming outmoded as a true indicator of the Reich's decline. So little foreign currency had been earned that Germany could not purchase many vital raw materials. And German industry had reduced normal imports of raw materials because chain-reaction shortages had halted or slowed certain manufacturing processes. The trade-balance ratio was further moderated by canceling nonessential imports. For instance, the rubber used in sport shoes was simply eliminated. So the total export figure—without regard to surplus ratios—was by summer becoming the more valid measure. Overall exports to its European neighbors had dipped at least 23 percent in the first half of 1933, compared to the previous year, according to the Reich's own figures. Total exports were reported down to RM 385 million.⁵ The true losses were probably far greater, since statistical falsification was official Nazi policy. But even these admissions were ominous to a nation absolutely dependent on abundant exports.

Added to boycott damage was the worsening domestic economic dislocation caused by Jewish pauperization. In those businesses where Jews were well entrenched, the result was calamity. Germany's vast wine industry was a perfect example. Prohibiting Jews from growing grapes or manufacturing and selling wine threatened to wipe out large sectors of the German wine industry. Non-Jewish vintners, including many active Nazis, pleaded with the government to stay the exclusion. One Palatinate Nazi publication, Landauer Anzeiger, openly admitted that without the Jews, the region's wine business would be utterly wrecked, adding that if "the Jews' share in the wine trade heretofore amounted to 80 percent, one comes to the conclusion that even under the most favorable conditions, wine growers will only sell half the amount of wine this fall that they ... must sell. In view of the growers' great indebtedness, there rises the danger of a ruinous price catastrophe."⁶

A companion move to exclude all Jews from the Palatinate tobacco industry could not be implemented because there was simply no one to replace them.⁷

An analogous situation occurred in the metallurgical field. In mid-July, Nazi kommissars demanded the ouster of the six Jewish members of the industry's trade organization. The six were the most knowledgeable experts in the field. Almost as soon as the Aryan substitutes were installed, however, the organization realized no one else could do the job. So the six ousted Jews were immediately rehired as "consultants."⁸

Equally damaging to the German economy was the wholesale departure of foreign business. Prior to 1933, hundreds of European and American companies maintained sizable operations in Germany. But by summer 1933, Germany was witnessing mass corporate flight. Each foreign firm that withdrew from Gennan soil left a wake of unemployed Germans and lost opportunities for other, interacting German businesses. The German government often tried to suppress news of such departures, but the banks knew the truth: defaulted loans, diminished deposits, and a virtual cessation of normal lending.

Desperate directors of Germany's prestigious Dresden Bank hoped to call upon the international banking fraternity for help. In a dramatic written appeal sent in mid-July to a major French bank, the Société Générale, Dresden Bank frantically declared, "The atrocity propaganda . . . harmful to German trade . . . is based on lies and distortions of fact. Complete tranquility reigns in Germany, and any non-Party person on the spot can convince himself that no one is hindered in the lawful pursuit of his private and professional affairs. We would be glad if, in the interests of international trade relations, you would spread the truth and do your utmost to bring about a speedy end of the boycott of German goOds."⁹

The highly unusual plea provoked an equally unusual response from Société Générale, which had for decades enjoyed cordial professional relations with Dresden Bank. Société Générale's response, which ultimately reached the world's newspapers, answered that "on opening our mail we find an amazing.circular from your esteemed bank. We beg to draw your attention to the fact that a French business would never presume to send propaganda material in business correspondence. We are thus compelled to assume that the tactlessness of your letter arises from an inborn lack of taste. As for the systematic persecution of Jews by your government, we know what to believe. We know ... doctors have been driven from hospitals, lawyers struck off, and shops closed down.... Every nation is a master in its own home, and so it is not our business to interfere.... Nevertheless, we are free to turn our business sympathies to our friends and not to a nation which aims at destroying individual liberty. We assure you, gentlemen, that we will continue to esteem your bank, but we cannot extend our sympathy to Germany in general, for we cannot hide our belief that the National Socialist Party will extend its lust for power to other countries at the first opportunity. You ask us to pass on this circular. Rest assured we will do so, and our answer with it. Yours truly, Société Générale, Paris."¹⁰

The continuing deterioration of the Nazi economy in the summer of 1933 triggered yet another sequence of time-buying tricks. The first was a series of special multimillion-reichmark industrial subsidies. But the regime was running out of reichmarks. The government turned to the Reichsbank, but it, too, lacked sufficient resources to help. So the Reichsbank itself applied for a loan.

Sometime around the end of July, German go-betweens approached London brokers for an embarrassingly small loan of RM 40 million, or slightly more than £3 million. Once known, the request caused a round of derisive laughter in the London financial community. The Investor's Review broke the news with a mocking tidbit in its August 5 issue: "We have seen a letter written by a financial broker in Berlin ... [that] throws a lurid light on the dreadful condition to which Hitlerism has reduced Germany.... The writer states that he has been asked by the German Reichsbank itself to negotiate for it a loan ... of 40 to 50 million marks! That the Reichsbank, formerly perhaps the greatest financial institution on the Continent, should have come begging to London for ... a paltry sum is ... alarming.... So it is not surprising to hear that authoritative opinion is that Hitlerism will come to a sanguinary end before the New Year."¹¹

With London a forfeit market, Germany turned to New York to help finance one of the department store subsidies, this one for Kaufhaus des Westens. An even smaller sum was requested, this time just RM 14.5 million, or about $5 million. Chase National said no. Germany then approached the lesser financial markets of Europe. One after another, each said no. Many refused even to consider the loan. The Hitler regime finally turned inward and demanded that the Dresden Bank extend the RM 14.5 million. Dresden had already suffered department ,store defaults and was extremely reluctant to advance further funds. But the Reichsbank insisted, backing up the arrangement with an amorphous "guarantee."¹²

In reporting on the RM 14.5 million loan fiasco, American Consul General in Berlin George Messersmith confirmed that the loan begging was done at the behest of Hjalmar Schacht. The dismal failures, reported Messersmith, made it crystal clear to Schacht that "foreign banks irrespective of nationality are for the present avoiding to increase in any way their commitments in Germany." The Wizard had publicly admitted as much to the Berlin correspondent of a Dutch financial newspaper, Algemeen Handelsblad. Answering a question about the economic consequences of the Reich's anti-Semitic campaign, Schacht declared, "Germany does not reckon in any way further upon international financial assistance."¹³

In a second interview shortly thereafter, published by the German paper Deutsche Allgemeine Zeitung using an Amsterdam dateline, Schacht warned if the world would not buy German products, then Germany would simply not pay her debts, or do so with such financial instruments such as scrip, a form of I.O.U. Schacht declared that in the face of declining foreign trade, Germany's creditors could take such paper guarantees or get nothing.¹⁴ Even Schacht could no longer deny that Nazi Germany had become diplomatically and economically isolated. The economic recovery the Nazis so fervently sought was becoming more and more a mirage.

More time-buying tricks would be needed. To keep shipping industry employees working just a little longer, stringent rules enacted in mid-August required German businesses to ship their goods via German vessels. Companion regulations prohibited currency payments to foreign shipping companies, thus forcing almost all travelers passing through Germany to sail on German vessels. But the ill-conceived assistance actually robbed German lines of an important profit center—bookings and transshipping on foreign vessels.¹⁵

An equally self-destructive rescue was imposed upon the textile industry, where unemployment in some places reached 50 percent. Recovery had been blocked at every turn by the boycott. So the Nazis slightly changed the design and color of regulation uniforms. Idled looms switched on and mill payrolls increased as textile companies scurried to produce materials for the new uniforms. But an impoverished public could not produce enough demand, and much of the new goods was dumped at great loss on foreign markets. Thus, sales revenues slumped in the face of increased production.¹⁶

Another trick was the outright bribery of foreign officials and cash incentives to special-interest groups purchasing German goods. For example, in August, I. G. Farben, one of Germany's largest employers, negotiated with the Rumanian government to lift their quasi-official ban on German merchandise, which was protectionist in origin but regularly flamed by anti-Nazi boycott groups. Via the German legation in Bucharest, with the full endorsement of the Foreign Ministry, Farben offered Rumania a complex but irresistible bargain.

First, Farben would purchase RM 17 million worth of Rumanian grain, about half of which would actually be imported into Germany to compete with German produce. The remaining RM 9 million would be sold by Farben to other countries. Second, Farben would broker 100,000 tons of Rumanian wheat to the world market, and even pay a 10 percent price support, in effect subsidizing Rumanian wheat farmers.¹⁷

Third, of the foreign currency received by Germany in selling Rumanian products, the equivalent of RM 2.5 million would be handed to the Rumanian National Bank. What's more, roughly 25 percent of the sales within Germany would be converted into foreign currency and also handed to the Rumanian National Bank. Fourth, much of the worldwide grain shipments would be shipped aboard Rumanian vessels, in direct competition with German lines. All this was in exchange for Bucharest's granting permits for RM 13.6 million worth of I. G. Farben products to be sold in Rumania.¹⁸

Despite the lopsided arrangement, Farben was forced to grease the deal further with a bribe of RM 250,000 to high Rumanian government officials for "party purposes." An additional RM 125,000 went to the National Socialists of Rumania, presumably to guarantee their consumer support for Farben's products. To quiet public opposition to trading with Germany, Farben earmarked a RM 125,000 slush fund "for exerting influence on the press and on [key] persons."¹⁹

But after all the bribes had been paid and the commercial favors and foreign-currency concessions granted, I. G. Farben could continue employing its assembly-line workers just a little longer. And Germany would retain about RM 10 million in badly needed foreign currency. Beyond the short-term benefits, the complex arrangement dramatized a bitter reality: The anti-Nazi boycott had made it easier and more profitable for Germany to sell another nation's products on the world market than to sell her own.

There seemed no way for the Nazi leadership to counteract the boycott successfully other than hope that the transfer would prompt world Jewry to call off its economic war. But despite actions by the Zionist leadership to scuttle the boycott, popular Jewish momentum would not subside. In early August, a frustrated Adolf Hitler held a meeting at Obersalzberg with two Americans influential within New York's National City Bank organization. One was Henry Mann, a vice-president representing the bank's German operations. The second was Col. Sosthenes Behn, who was both a bank director and the chairman of International Telephone and Telegraph (ITT). The two Americans reviewed for Hitler the U.S. mood against Germany. Behn then questioned just how safe foreign investments were in Nazi Germany. Hitler reassured Behn that foreign capital such as General Motors' was safe if used according to regulations. Hitler remonstrated that the sordid picture of a violent Germany hostile to foreign business was just another figment of atrocity propaganda. That led to talk about the anti-Nazi boycott. And here Hitler became visibly excited. "These senseless measures are not only harmful to Germany," ranted an enraged Führer, "but, by weakening German purchasing power on world markets, to other nations as well." Hitler vehemently insisted that the boycott would "eventually collapse all by itself." Therefore, said Hitler, it would be best to say and do as little as possible.²⁰

In early August, Goebbels was showing equal distress about the boycott. Speaking to a festival at Stuttgart, Goebbels admitted he looked forward to the day when the Reich "will have burst the iron boycott with which the world has encircled US."²¹ Shortly thereafter, Goebbels felt unable to abide by der Führer's advice to pretend the boycott didn't exist. Addressing the annual NSDAP Congress at Nuremberg, Goebbels confessed, "We still feel ourselves handcuffed and threatened by this cleverly thought-out plot.... This boycott is causing us much concern, for it hangs over us like a cloud."²²

The regime tried to delude the grumbling population with manipulated unemployment statistics. For example, the number of jobless was artificially decreased by subtracting Jews, Marxists, and pacifists. Additionally, German males aged sixteen to twenty-five were removed en masse from their jobs to make way for older family men. The young Aryans were then steered to voluntary labor camps, where they could keep some unemployment payments and yet be removed from the jobless rolls. Those who refused voluntary labor were deprived of their unemployment benefits and taken off the rolls anyway.²³

Women were also being fired in great numbers, under the Nazi notion that good Aryan women should make way for men in the job market. Many of these women were relocated as domestics, receiving little more than room and board. Others were instructed to have children and keep house. In either case, essentially jobless women were excluded from the unemployment figures. Thousands of male German family heads were likewise excised from the jobless ranks, either by engaging them in meaningless public-works programs, where they earned virtual pittances, or by resettlement onto farms.²⁴

More tangible illusions were created by coercing employers to overstaff. By mid-August, Ruhr mining firms were employing 30,000 more than market demand justified. Some of this was accomplished through a shorter work week, which robbed those who did have a job of the full wage they normally received. And no one was allowed a second job. Such "black labor" was strictly verboten.²⁵

Indeed, the jingoism of the Nazi economy had by August 1933 become a mere symbol of disappointment to millions of Germans. The July unemployment panic had receded somewhat after dissident Storm Troopers were rounded up. However, the laissez-faire business climate espoused in the July Schmitt-Hitler covenant, and the prohibition against violent anti-Semitic activity, were by August cast aside as unenforceable rhetoric.

Time was running out for Germany. Winter was approaching. Construction, farming, public works, and voluntary labor camps were all wholly dependent upon outdoor activity and good weather. With no part-time or off-season work available, it would be a winter of desperation and dissatisfaction.²⁶

Goebbels could plead "the handcuffs" of the Jewish-led anti-Nazi boycott, but such excuses only encouraged dissident factions to assert their own authority as they had during the July unemployment panic. Realizing that the regime would stand or fall with the popular mood that winter, the Reich leadership anxiously made preparations. The Ministry of Finance and party groups established "voluntary" appeals for the unemployed whereby contributions were automatically deducted from a wage earner's pay.²⁷

A second campaign urged farmers, especially those in East Prussia, to store un threshed crops in their barns. Then, instead of farm employment ending with the harvest, it would continue through the winter months as the harvest hands threshed the grain. But by mid-August, the campaign had proved unsuccessful, as cash-hungry farmers sold their crops early. In droves, harvest help was already returning to the city awaiting the next bit of relief from the Third Reich.²⁸

A brilliant solution to the entire unemployment scene was finally conceived by Chancellor Hitler himself. His idea: Compel 200,000 working women to marry and quit their jobs, thus making room for 200,000 men to support families. The 200,000 newly married women would have babies and set up new households requiring furniture, appliances, and other household products, which would create the demand for another men who could then marry a second group of 200,000 women who would once again create households demanding products for a third 200,000. This process would continue until all eligible women were retired from the work force and firmly planted in households making babies, thus creating ever-increasing consumer demand.²⁹

In the fervor of the times, mass marriages were certainly possible. But a marriage without money could not generate instant demand for furniture and appliances. The 200,000-marriages plan was typical of the Nazi approach to economic recovery, and among diplomats the proposal became a laughable example.³⁰

"Bread and wurst for all" was the Nazi slogan sung in Berlin. But in the provinces far from Berlin, where Nazi factions ruled, the people wanted results. In the lead story of the August 21 New York Times, correspondent Frederick Birchall, upon returning to Berlin from covering the Amsterdam boycott conference, speculated on the question: "The prospect for the winter therefore is far from promising. But how far the economic crisis can affect the Nazis' hold upon Germany is extremely doubtful. 'Bread and wurst for all' was their promise. But if they cannot fulfill it, who is to put them out? And with whom can they be replaced?"³¹

A few days later, a follow-up article appeared in the Times, datelined Berlin but without a byline. After explaining the duplicity of the most recent unemployment statistics, the article warned, "Both the statistical and the propagandistic efforts of the National Socialist regime are tokens of its realization that it stands or falls with its solution of the unemployment problem. The entire country is watching these efforts with both hope and skepticism. The labor situation during the coming winter is expected to determine the fate of Hitlerism itself. Indicative of the mood of a large section of the population is this doggerel which your correspondent has heard repeatedly during my travels throughout Germany:

If Hitler doesn't give us bread,
We'll see to it he'll soon be dead."³²

On August 24, 1933, Chicago Daily News correspondent John Gunther reported from Vienna: "Dr. Hjalmar Schacht ... narrowly escaped assassination by disaffected Storm Troopers, it is said today in the Prague newspaper Sozial Demokraten, copies of which were received here. According to reports, 'Dr. Schacht noted some days ago that he was being followed by mysterious individuals and appealed to the secret police [Gestapo] for protection.' Yesterday, three Storm Troopers were arrested and five others fled, it is said, when Dr. Schacht was followed by police officers to trap the alleged assailants. A search ... revealed a plan of assassination. Dr. Schacht was thought to be too conservative in his policies and hotheads wanted to make the Nazi revolutior more socialistic." Gunther added that the report was unconfirmed.³³

The anti-Nazi movement watched the signs of Germany's crumbling economic and political house and drew encouragement. The boycotters believed that to save Europe from Nazism, the example would have to be set in Germany. The price of war against the Jews would have to be commercial isolation and economic ruin. And so the boycotters took their slogan seriously: Germany was to crack that winter.