The Warburgs

by Ron Chernow

  Such behavior was consistent with Schiff’s family ties, his hatred of Russia, and his reputation as Wall Street defender of Germany. Early in the war, Max unthinkingly assumed that Schiff would sacrifice all for the Fatherland. He was instructed by the German Foreign Office to woo Schiff with the prospect of a German-American alliance in the Far East that could block Japanese advances and protect China’s commercial riches for the West.30 Ballin and Max hoped that Schiff would provide all-important credits for German food imports and Max told him excitedly how the German military would recruit Jewish officers in future. “That at least will remain, out of the horror of this war, as a benefit for the entire nation, as I anyhow believe that many barriers must and will fall.”31 Schiff had to enlighten Max that pro-British sentiment on Wall Street eliminated any chance of placing German Treasury bills there.

  Max and Schiff had always been such strange bedfellows that they were destined to clash at some point. Schiff was so strict, proper, and correct, Max so funny, irreverent, and debonair. During Max’s first American trip in 1911, Schiff had held a breakfast for him, inviting forty business leaders. After Max spoke on the European scene, he sat down again next to Schiff, who leaned over and told him bluntly, “Too short and not optimistic enough.”32 Max respected Schiff’s frankness, even when he didn’t relish it. But probably nothing prepared him for the burst of candor that would suddenly erupt from Schiff during the war.

  As the war progressed, Max regarded England in a far more malevolent light than he had in early 1914, the war bringing to the surface all his latent chauvinism. He now revealed a profound suspicion of English arrogance, faulting its imperial sway over the high seas. Stirred by a very German sense of grievance, he saw the war’s roots not in a German-English arms race or commercial rivalry, but mainly in a British lust for power. “The more one studies the prewar history,” he wrote Schiff, “the clearer it becomes that England, which rules the seas in so ruthless a manner, was and is determined to do everything to oppress Germany economically and politically.…”33 He reviled England for its mercenary “shopkeeper’s” spirit.34 In an August 1915 speech, Max argued that Germany should demand sizable reparations after the war—a notable view given that Max was to become an archcritic of the Versailles Treaty.35 He said that England would have to recognize Germany as an equal power that needed new borders to accommodate its growing population.

  Schiff’s attitude toward Germany shifted strikingly with the sinking of the Lusitania off the Irish coast on May 7, 1915. The massive ship carried 1,257 passengers, 128 of them U.S. citizens. Wall Street was aghast at the carnage, and pro-German sympathy was now perilously taboo. In a remarkable concession, the proud, unbending Schiff walked over to J. P. Morgan headquarters at 23 Wall Street to express his sympathy. Finding the anglophile J. P. Morgan, Jr., in the partners’ room, Schiff deplored “this most unfortunate outrage.” Instead of accepting this gesture gracefully, Morgan grunted in disbelief and stormed from the room. Later realizing his mistake, Morgan grabbed his hat and rushed to 52 William Street to apologize to Schiff. This started Schiff’s conversion to the Allied cause.

  The Lusitania outrage threw Max Warburg into terrible confusion and torment, for he believed Germany had the right to engage in torpedo attacks so long as England tried to intercept American food shipments to Germany. He fumed that Wilson didn’t take a tougher line with England to ensure an even-handed policy. At the same time, he called the attack “barbaric.”36 Paul Warburg had similarly ambivalent emotions after the Lusitania. Repelled by the slaughter, he argued that American citizens shouldn’t travel on ships of belligerent nations. Yet he thought German submarine warfare in the North Atlantic a justified response to Britain’s blockade of Germany.

  Friction on Wall Street between the Jewish and Yankee banks flared into trench warfare during the summer of 1915 when President Wilson revoked a ban on loans for belligerent governments. That September, the British and French sent over a financial delegation, headed by Lord Reading, to raise money. They negotiated a $500 million Anglo-French loan with J. P. Morgan & Co. Irate over Russian persecution of the Jews, Schiff told Lord Reading that Kuhn, Loeb would only participate in the loan if “not one cent of the proceeds of the loan would be given to Russia.” Even more than the Rothschilds, Schiff was always relentless in thwarting the anti-Semitic czarist regime. Lord Reading rejoined that “no government could accept conditions which discriminated against one of its allies in war.”37 Kuhn, Loeb now had to decide whether to join the Morgan syndicate or to abstain.

  For Schiff, it was an excruciating moment as self-interest contended with sentiment. As he told Max, England and France had already bought hundreds of millions of dollars in American products. Kuhn, Loeb, as an American house, had to act in American interests. It was now presented with the simple question, “do you want, as one of the foremost American financial houses, whose example will have a great influence, to encourage the interests of the country, or will your sympathies for Germany make you place these interests last.”38 With the question posed so starkly, Kuhn, Loeb couldn’t straddle the fence. Otto Kahn and Jacob’s son, Morti, wanted to slough off the firm’s pro-German reputation while Felix wanted to boycott the Anglo-French loan. Max and the German government prodded Schiff to boycott the loan. Max shocked and enfuriated Schiff by asking if he, Max, could go to the German newspapers and advertise that Kuhn, Loeb would refuse a dominant role in the loan.39

  This set the stage for the most dramatic partners’ meeting in Kuhn, Loeb history. Contrary to his usual steely aplomb, Schiff came to the meeting somber and agitated, the clockwork perfection of his life having broken down. Rising gravely, he said, “I have thought about this situation all night. Before asking your opinions, I want to tell you that my mind is made up, unalterably. I realize fully what is at stake for the firm of Kuhn, Loeb & Company in the decision we are going to make. But come what may … I cannot stultify myself by aiding those who, in bitter enmity, have tortured my people and will continue to do so, whatever fine professions they may make in their hour of need.”40 The other partners couldn’t override the omnipotent Schiff. The next day’s headline baldly trumpeted the decision to the world: “Kuhn, Loeb, German Bankers, Refuse to Aid Allies.”41

  It was a severe blow to the firm in London and Paris, where the news ratified long-standing suspicions about Schiff. The firm’s pro-Allied partners went out of their way to defy the decision. The dandified Otto Kahn—German-born but a naturalized British subject who had briefly campaigned for Parliament in 1913—carried on his own one-man blitzkrieg against his native country. He personally bought a $100,000 piece of the Anglo-French loan and Morti Schiff also contributed, defying his father. Kahn donated his London villa, St. Dunstan’s Lodge in Regent’s Park, to house blind British veterans and wrote anti-German screeds and articles, including one dropped in quantity behind German lines.

  Schiff’s decision had bitterly ironic repercussions. Kuhn, Loeb was violently assailed in Germany, with the press stressing Morti Schiff and Otto Kahn’s consultation with Lord Reading instead of Schiff’s refusal. Stung, Schiff wrote Max a letter in November 1915 that disclosed his true views about the war. Far from being a blind worshipper, Schiff saw disturbing features in German society. After telling Max that he felt piety toward the land of his forefathers, he shocked him with a withering critique of a Germany that subordinated the individual to the state, allowed undue military influence, and lodged obstacles to human freedom at every turn. Where Max had railed against English naval domination, Schiff now told him that German domination of the seas would be far worse, a death blow for free trade. In closing, Schiff said he had been tortured by his decision on the Anglo-French loan and had based his refusal, in part, on his high regard for Max and Felix.42

  In reply, Max feigned understanding, saying Kuhn, Loeb had to support American interests and couldn’t damage its French and English connections. Then he went on to portray Germany as seen through his own rose-colored spectacles.
He limned Germany as an earthly paradise, with “no illiterates, no poverty, in short the circumstances which are well known to you.… I know, at least in Europe, of no place where I feel freer than in Germany.” He scoffed at the notion that the Allies fought for freedom and warned that if the United States threatened Britain’s economic standing, England would unite with other countries and turn on her.43

  Schiff could never really make up his mind about Germany. When the pro-Allied partners at Kuhn, Loeb scotched participation in a Belgian Treasury issue that might have aided the German occupying powers, Schiff personally subscribed to these bonds and got his partners to make an unpublicized five-million-dollar advance to the Reichsbank.44 Then, to mend relations with Wall Street and replenish French foreign exchange reserves, Kuhn, Loeb provided loans to Paris, Bordeaux, Lyons, and Marseilles in late 1916, with Felix alone dissenting from the move. Both business and family ties between the Warburgs and the Schiffs had been premised on an assumption of continuing harmony between America and Germany. Now history had driven a stake through that alliance, and the breach would not fully heal for many decades.

  ——

  Nina and Paul Warburg with their children, Jimmy and Bettina, and a surprisingly photogenic black dog, Washington, D.C., 1918.

  (Courtesy of Katharine Weber)

  CHAPTER 13

  ––

  Iron Cross

  Max Warburg had always regarded German history as a pageant of progressive advancement for his people. He predicted that the war would open opportunities in government and the military, that the sacrifices made by Jewish soldiers would be redeemed by a new postwar equality. Fighting side by side, Christian and Jewish Germans would seal a lasting fraternal bond.

  Responding to the chauvinism stirred by war, Jews flocked to serve under an imperial flag emblazoned with an Iron Cross and eagle. In August 1914, Jewish groups issued impassioned calls to arms, urging the community to enlist and refute anti-Semitic libels about their questionable patriotism. Leading Jewish intellectuals in the German-speaking world published a petition applauding Germany’s war aims. Jews responded with supreme loyalty. Of a total population of 550,000 Jews in Germany, almost 100,000 served in the German Army, 10,000 as volunteers. More than 12,000 perished for the Fatherland and 31,500 were decorated with the Iron Cross for bravery.

  German Jews generally were excluded from the officer corps. Nevertheless, they performed nobly. The war managed both to arouse hopes and to dash them. Especially galling was the bigotry Jews often endured from their superiors. As American ambassador James W. Gerard noted, “The Jews here are almost on the edge of being pogrommed. There is a great prejudice against them, especially in naval and military circles, because they have been industrious and have made money.”1 Only the rare Jew obtained a commission in the standing army.

  In June 1916, Max felt outraged when the War Ministry demanded a separate count of Jewish war participants. Having been decorated with the Iron Cross, he protested to the chancellor in the most irate language. The so-called Judenzählung or Jewish census arose from nasty, anti-Semitic insinuations from Reichstag deputies that the Jews were lazy shirkers weaseling away from combat duty. The War Ministry never released the census results. In March 1917, Max met with General von Stein, the war minister, and pleaded with him to issue a statement that Jews and Christians had fought with equal bravery. Von Stein, a parson’s son, refused. Saying he prized Jewish achievements in many fields, he also cited the disrespectful frivolity of Heinrich Heine as an example of Jewish traits that frankly repelled him.2

  However fervent his love for Germany, Max’s indignation over anti-Semitism deepened during the war. “I don’t accept that a German Christian loves the Fatherland more than a German Jew,” he insisted in 1916.3 Later that year, he made a controversial speech, reviewing 120 years of Jewish assimilation. He noted that Jewish rights granted by law had never been fully translated into practice and mentioned a shortage or absence of Jewish army officers, professors, judges, high-level bureaucrats, academics, and farmers. At best, Jews were tolerated, not fully accepted.

  He tried to forge a synthesis between Jewish feelings and official policy, proving that one could be an authentic Jew and a proud German. German overpopulation, he stressed, sharpened economic rivalry between Jews and gentiles—a view that dovetailed nicely with his advocacy of overseas colonies. To explain anti-Semitism, he cited Christian fears of being overrun by poor, illiterate Ostjuden before the native Jews were assimilated.4 Max’s socioeconomic analysis was too pat, too facile, and turned a blind eye to the murky, irrational depths of Germany’s political culture.

  As the first Warburg who ventured into the world of German big business, Max overlooked unpleasant realities one moment, then awoke and saw them with penetrating clarity the next. In 1913, he wrote a revealing letter to Aby S., warning that they should not be misled by a lack of visible anti-Semitism in Hamburg since much latent anti-Semitism festered there. “… I notice it every time that, one way or another, I take an interest in neglected people.”5 Anti-Semitism under the kaiser, if often subtle, indirect, and easily overlooked, was nonetheless quite real.

  To protect the Jewish community, Max counted upon the support of the Hamburg Senate, which was elected by the Bürgerschaft, not by popular vote. These worthies had never chosen an unbaptized Jew for the Senate. As a Bürgerschaft member himself, Max steadfastly supported Jewish causes. In 1914, standing for a Senate seat, he was defeated by a slim margin of three votes. Almost universally, the press praised him as smart and able, attributing his defeat to anti-Semitism—a stinging rebuke for someone so unstintingly devoted to the war effort.6

  Since the German Army allowed few Jewish officers, many prominent Jews entered wartime economic ministries. As the Allied blockade drove up food prices and provoked riots, secure food supplies became a top priority. Early on, Max suggested that food purveyors be placed under state supervision to prevent profiteering. Max, Ballin, and Melchior helped to organize the Imperial Purchasing Company, later called the Central Purchasing Company, to import food under government auspices.7 The Warburg bank advanced payment and provided foreign exchange for such imports. In 1915, after Max proposed to Berlin that Germany court Romania with commercial contracts, the Foreign Office dispatched Melchior there, where he signed contracts for millions of tons of grain for Germany.

  At the time, German Jewish patriotism didn’t seem foolishly misplaced. As German troops swarmed into Polish territory formerly occupied by czarist Russia, they were greeted as saviors by Jewish inhabitants. While advancing Russian troops unleashed terrifying pogroms, Max worked to ensure that German occupation armies didn’t punish Jews. Fretting over the long-suffering Ostjuden, richer German Jews still felt they were the invincible European Jews. Yet they worried that an influx of eastern Jews into Germany would subvert their own, still tenuous, standing. With their yarmulkes, black hats, shtetl folklore, and exuberant manner, eastern Jews stood out in German cities, embarrassing their elegant German brethren as ragtag reminders of a past that they wanted to forget and seeming to reinforce certain Christian stereotypes of Jews.

  This status anxiety among German Jews produced a serious rift in wartime relief efforts. The Joint Distribution Committee in New York channeled large amounts of money to needy Polish Jews through M. M. Warburg & Co. By the time the United States entered the war, the bank was conduit for nineteen million marks in relief money. Many American Jews—especially Zionists such as Louis Brandeis—resented that this money was controlled by The Aid Society of German Jews in Berlin, of which Max was a member.8 In letters to Felix, Brandeis accused the group of being pro-German and anti-Zionist and also complained that the Aid Society disseminated German propaganda in occupied territory to ingratiate itself with Berlin. The sorest point was that the Aid Society favored the Grenzsperre, a ban on emigration of Polish Jews into Germany.

  After initial reluctance, Jacob Schiff sternly protested to Max Warburg. Conceding that German Jews
might be hurt by an influx of Ostjuden, he lectured that they were obligated to accept them. In high dudgeon, Schiff charged that German Jews were driven by “a purely selfish point of view which is entirely incomprehensible to American Jews generally and to me personally.”9 What if America had shut its doors to Russian, Polish, and Romanian Jews? Schiff asked rhetorically. It would surely have raised a hue and cry from European Jews.10 On June 20, 1916, with Felix abstaining, the Joint voted to stop routing money through German-Jewish organizations. Max bitterly told Felix that the bank would only handle relief money distributed through the Aid Society. If bridling at the Joint’s decision, Max understood that Felix, as chairman, was now powerless to stop it. As Max told him, “I know that you cannot help it, but are pushed by the dear Zionists.”11 Felix said the Zionists posited a deep cabal between the Warburg brothers: “… that Brother Max and I stick together is their firm conviction.”12

  In relief work, Max routinely cleared his moves with the German Foreign Office. “There was probably no German private banking firm that issued guarantees on behalf of the German Empire to as great an extent as we did,” he wrote. “To that degree it is certainly true that we partially co-financed the war; especially in connection with purchases made in neutral foreign countries, where we had to give our guarantee.”13 The Reichsbank guaranteed so many Warburg loans that Max dreaded the prospect of Germany losing the war and the Reichsbank being unable to honor its numerous guarantees. If that happened, Max said, they might as well place an ad in the paper, saying, “M. M. Warburg & Co. stopped their payments on the field of honor.”14