It was still on October 22, when Orlov’s car led the first convoy of ten trucks toward the harbor. Sitting next to him was Francisco Méndez Aspe, the director general of the Treasury. Each round trip, including the unloading, took two hours. When those vehicles returned to the cave, another ten left for the docks. The transport took place on three moonless nights. Cartagena was also under a blackout because of the danger of German attacks, so neither Orlov’s car nor the trucks could use their lights. Orlov grabbed an hour of sleep when he could.35
Sixty Spanish sailors during the day remained in the caves with the gold, passing their time listening to dance records and playing cards. They still thought they were guarding munitions. Negrín came one afternoon to check things out, and Orlov showed him some newly arrived Soviet tanks at a nearby camp. None of them had yet been in battle in Spain, and Negrín became emotional as he ran his hand across a tank like a man petting a dog. With his eyes tearing up, he said, “Now we’ll lick them! Now they will do the running! Send our thanks to Stalin, tell him this war will soon be over!”36
At about 3:30 A.M. on the third night of the gold transports, German aircraft attacked the Cartagena harbor. Orlov was at the cave when it took place, but he could hear explosions hitting the piers. Drivers told him later that bombs had damaged a Spanish ship near the Soviet ones. He decided to speed up the process in order to get his cargo out of the harbor and on its way to Odessa as soon as possible. The last box was loaded on the Volgoles just after 10:00 A.M. on October 25. Méndez Aspe and Orlov kept separate records as the boxes were loaded. At the end, the Spaniard counted 7,900, but Orlov had one hundred less. He recognized the discrepancy, but decided not to tell him and to let officials in Moscow settle the problem.37
Just before the ships were ready to leave, Méndez Aspe asked Orlov for a receipt for the gold, and the Soviet remembered the order he had received in the cable. He casually replied, “A receipt? But, compañero, I am not authorized to give one. Don’t worry, my friend, it will be issued by the State Bank of the Soviet Union, when everything is checked and weighed.”38
Méndez Aspe was visibly upset and impatiently said he wouldn’t be able to explain this to his bosses in Madrid. So a Spanish official was assigned to travel on each of the four vessels as “official chaperones” for the gold. Two Bank of Spain officials who were already at the harbor were told to make the trip. Méndez Aspe then went into Cartagena and dragooned another two Spaniards to go along. The four ended up getting a longer voyage than they expected, since once they arrived they were not allowed to leave the country. With the gold and escorts now on board, the four Soviet ships carrying the Spanish state treasury left the Cartagena docks. The destination was the port of Odessa on the Black Sea. The Volgoles sailed out first. The ships in the convoy were as protected as they could be given the war conditions.
Once the convoy of gold ships had departed, Foreign Minister Litvinov sent Vyacheslav Molotov, the Chairman of the Council of People’s Commissars, asking him to get the Spanish ambassador in Moscow to “write a letter to us with a request to receive the gold, but, since he is unable to indicate the weight nor the value of the gold, such letter would be legally meaningless.”39
Orlov spent the week after the shipment departed on tenterhooks, worrying about whether the vessels and their cargo would safely get through the Mediterranean. As soon as he figured the ships had arrived at their destination, he sent a message to Moscow explaining the difference in totals between him and Méndez Aspe. Nikolai Yezhov, the head of the secret police, replied and asked whether he was sure of his figure.40 Orlov responded that he was “almost certain,” and then received another cable, saying, “Do not worry about figures. Everything will be counted anew in Moscow.” A last message several hours later told him: “Do not mention your figure to anybody.”41
The first Soviet ship carrying the gold landed in Odessa on November 2. Local officials were fearful that someone would see the material being offloaded, so they cleared the port and surrounded it with security troops. A team of Soviet secret service officers from Moscow and Kiev carried boxes of gold on their backs to a waiting freight train guarded by one hundred armed men. A Soviet official who participated in the transfer later told Soviet spy Walter Krivitsky that there were enough boxes to cover Red Square from end to end.42 The first shipment arrived at the Soviet Depository of Precious Metals in Moscow at 3:00 A.M. on November 6, and deliveries continued until 1:00 A.M. on November 7.43 The street where the agency was located had been closed to traffic and troops guarded the operation.
On November 7, the Spaniards finally received their official receipt for the gold in the form of a four-page protocol that was written in both Russian and French, then the international language of diplomacy. Ambassador Pascua and three of the Spaniards who had accompanied the gold signed for Madrid, while eight Soviet officials signed for their country. It noted that 5,619 standard cases plus 126 partly damaged ones had been delivered to the Precious Metal Depository of the People’s Commissariat for Finance. It also said that the quantities of gold in the boxes did not always agree with the figures on the manifesto.
It was not until February 5, 1937 that Soviet officials finally finished counting the Spanish gold. They calculated that the shipments totaled 453 tons. The cargo contained only thirteen cases of bars. The rest were 60 million gold coins, most of them Portuguese.44
At a dinner in the Kremlin to celebrate the arrival of the Spanish gold, Stalin said, “They will never see their gold again, just as they do not see their own ears.”45
Chapter Three
ADOLF HITLER’S ARGONAUT
In the aftermath of its defeat in World War I, Germany was an angry and economically decimated nation that spent years on the brink of revolution. Street battles pitting the far left against the far right took place daily around the country, especially in the capital Berlin. Germans agreed on little except their desire to annihilate their opponents and the current government. The victorious Allies, led by France, had inflicted on Germany a Carthaginian peace with the Versailles treaty of 1919 that crushed the country in hopes that it would never again rise to be a military power. That left Germans determined for revenge. The result was nearly two decades of political, social, and economic upheaval that ended in a Nazi dictatorship that brought Adolf Hitler to power in January 1933.
During the period of runaway chaos, Germany had few national heroes. There was one, though, with the unusual name Hjalmar Horace Greeley Schacht. In 1923 he became famous for rescuing the country that stood on the brink of collapse due to one of history’s greatest inflations. Schacht was almost born an American. His father, Wilhelm Schacht, was from Schleswig-Holstein, a border region that in the nineteenth century went back and forth between Germany and Denmark. After the Prussians took it over following the Austro-Prussian War of 1866, Wilhelm left his native land with hopes of starting a new life in America. He became a U.S. citizen on December 11, 1872. Wilhelm Schacht’s hero in his new country was Horace Greeley, the founder of the New York Tribune, an ardent foe of slavery and champion of the country’s westward expansion, who wrote in a famous editorial on July 13, 1865, “Go west, young man, and grow up with the country.”
After immigrating to the U.S., Wilhelm Schacht got a job at a brewery in Brooklyn and wrote to his girlfriend back home asking her to join him so that they could get married, which they did on January 14, 1872, at the Episcopal Church in Manhattan. The couple stayed in the U.S. for another five years, as Wilhelm bounced from one mediocre job to another and a first son named Eddy was born. In the fall of 1876, Wilhelm packed up his pregnant wife and son and returned to Germany. Shortly after they arrived, a second son was born on January 22, 1877. His father wanted to name the child Horace Greeley Schacht, but his maternal grandmother, who was from Danish nobility, was outraged and insisted that he have the proper Scandinavian first name Hjalmar. The baby’s birth certificate gave his name as Horace Greeley Hjalmar Schacht, but he was always called Hjalmar
.1
Young Schacht performed well in school and earned a doctorate in economics, while dabbling in journalism. In a country where academic degrees carry great prestige, and someone with two PhDs is called “Doktor Doktor,” he was Dr. Schacht for the rest of his life. He moved into banking at an early age and excelled. Tall, thin, and standing ramrod straight, he could have been a stand-in for Washington Irving’s Ichabod Crane. Schacht had a long neck and generally wore tall starched collars that made him look as if his head were on a platter. He plastered down his hair and parted it in the middle. Pincenez glasses rested just above a neatly trimmed military mustache.
But unlike the charmingly awkward fictional schoolteacher, Schacht’s dour demeanor made him look like a heartless banker who was about to foreclose on farmer Schmidt’s home. He was also an unrepentant showman with an immense ego. He told jokes in four languages and liked to write humorous poems that belied his stiff formality.2 In January 1938, George Ogilvie–Forbes, the chargé d’affaires at the British embassy in Berlin, sent Foreign Minister Anthony Eden a word portrait of the man: “Schacht is composed of the most diverse qualities. Vanity, arrogance, over-weaning ambition, simplicity, good nature, wit, repartee, malice, technical ability, inconsistency alternate with kaleidoscopic effect in his complex character.”3
Schacht was a strict classical economist and follower of Adam Smith, David Ricardo, and John Stuart Mill. They all advocated limited government in a free economy and thought that the market would regulate itself. He, and they, also believed firmly in the importance of gold. In his book Gold for Europe, Schacht wrote, “Money, to be internationally stable, must be based upon a commodity which, independent of governmental and economic influence, is in demand and accepted everywhere and at any time. Of such commodities, gold is the one that has best stood the test of time.” Schacht could have been listening to the nineteenth century British economist David Ricardo, who once wrote, “Gold, though of little use compared with air or water, will exchange for a great quantity of other goods.”4
The German was also a fierce advocate of national self-sufficiency that economists still called the Schachtian system. Similar to the mercantilism that reigned from the sixteenth to eighteenth centuries, this called for a country to produce at home as much as possible of the goods and services it needed and import only those that it could not make locally. Following that strategy, Germany would shepherd its gold, the internationally accepted form of payment, and also build up stashes of world currencies such as the British pound and American dollar. Then it would have sufficient funds to buy the products it couldn’t make.
Hjalmar Schacht rose to national esteem during the national trauma that followed World War I. Inflation began picking up in April 1918 shortly after the conflict ended, and blasted off to hyper levels in May 1922, when prices increased more than fifty percent in just that one month. Government expenditures in 1923 totaled six quintillion Reichsmark (the number six followed by eighteen zeros). Central bank printing presses turned out bank notes in ever-higher denominations that quickly became almost worthless. In November the government introduced the 100-trillion Reichsmark note. The government printed money on only one side of the paper in order to turn it out more quickly. The inflation wildfire sucked air out of civilized society. Food fights broke out between farmers, who hoarded their products, and city dwellers. Consumers resorted to barter. People paid their dental bills with condensed milk, and the Ministry of Finance gave its staff potatoes in lieu of cash. On November 1, 1923, a loaf of bread cost 3 billion marks, a pound of meat 36 billion marks, and a glass of beer 4 billion marks. Germans looking for a scapegoat turned on each other, and anti-Semitism ran rampant. The middle class was ruined, while currency speculators enriched themselves and flaunted their wealth. Gold became the only means of payment in which people believed, and prices in stores were often listed in both Reichsmark and gold. Schacht, the managing director of the Danat Bank, became so fearful for the safety of his wife and two young children that he sent them to live in Switzerland.
On November 8, 1923, Schacht had a late dinner at the Hotel Continental in Berlin with the new German Chancellor Gustav Stresemann to discuss the country’s inflation crisis. The two men were old friends, and Stresemann was looking for someone to take an unenviable new job as the country’s currency commissioner. The government was anxious to replace Karl Helfferich, the longtime head of the central bank, who was one of the fathers of these catastrophic runaway prices. Bank rules, though, did not allow him to be fired. So Stresemann wanted to put someone above him who would have the mandate to save the country’s currency. Shortly before midnight as the two men were about to leave dinner, they learned that Nazi party leader Adolf Hitler had staged a putsch by marching on Munich’s Bürgerbräukeller, a beer hall. The coup failed, but sixteen Nazis and four police officers were killed. Schacht later wrote in his autobiography that the country at the time was “living on the edge of a volcano.”5
Four days later, Hans Luther, the Minister of Finance, officially offered Schacht the job of trying to end Germany’s inflation. Two eminent bankers had already turned it down. Luther explained that he would have unlimited power and could even overrule decisions from the Reichsbank president. Schacht asked for a few days to consider the offer, but Luther said he needed an immediate decision. Schacht accepted and went to work the following day.
The new currency czar had only one employee, a secretary with whom he shared a converted janitor’s closet. Schacht’s secretary later described her boss’s working habits during the crisis: “He sat on his chair and smoked in his little dark room at the Ministry of Finance, which still smelled of old floor cloths. He read no letters. He wrote no letters. He telephoned a great deal to German or foreign bankers to gauge the mood of international markets. He usually went home late, often by the last suburban train, travelling third class.”6
At first, the value of the Reichsmark continued falling. Less than a week after Schacht took office, the government stopped printing the old currency, and introduced a new one called the Rentenmark. It had the distinction of being backed by the country’s land, but was also linked to gold at the mark parity rate prior to World War I, even though there was a new rule that no one could exchange it for the precious metal in order to preserve government gold reserves. Schacht saw the Rentenmark as a way to get back to the gold standard as quickly as possible. On November 20, Schacht fixed the exchange rate at 1 trillion Reichsmark to one Rentenmark. Now 4.2 Rentenmark were worth one U.S. dollar, the exact exchange rate as before the war. That same night, Helfferich died unexpectedly, and a month later Schacht was named president of the Reichsbank, a job with a lifetime tenure.7
Schacht considered the Rentenmark to be only “a bridge between chaos and hope.”8 Although many countries were already off the gold standard because of the global economic slump, he still wanted to have a strong, gold-backed currency and advocated the establishment of a separate Gold Discount Bank. Before World War I, Germany had $1 billion in gold holdings and even in the immediate aftermath it still had $577 million. But because of war reparations and rampant inflation, the Reichsbank on December 31, 1923 was down to only $111.2 million worth of gold.
Once the inflation had been stabilized, the veteran banker and economic internationalist realized that his country could not solve its currency problem alone and reached out for help. The preeminent custodian of world financial power in the years between the world wars was a man named Montagu Norman, the governor of the Bank of England. When he suggested that the new German central banker come to see him, Schacht jumped at the opportunity, arriving at the Liverpool Railroad Station in London at eight o’clock on New Year’s Eve. He was surprised to see Norman standing on the platform to greet him. The two agreed to start work the next morning at eleven, despite the holiday. The central bankers quickly struck up a warm friendship, and at the end of the visit Norman agreed to give him a three-year loan to start a new Gold Discount Bank that would help finance German
recovery.9
In the first months of the New Year, runaway German inflation ended like a patient’s fever breaking. Germany’s economy stabilized for the first time in nearly a decade. Schacht was immediately hailed at home and abroad as the savior of his country’s economy.
With the crisis over, Schacht began enjoying the trappings of being a central banker. He traveled extensively to hobnob with his fellow mavens of money. One of his trips took him to New York City to meet Federal Reserve Chairman Benjamin Strong. Schacht had earlier sent him a case of the best wine from Germany’s Palatinate region, even though the U.S. was still under Prohibition. Strong nonetheless served the wine at a lunch at the Federal Reserve building in lower Manhattan. He also wanted to show his German counterpart the gold Berlin had stored in the Fed vaults below the streets of Lower Manhattan after the end of World War I. Unfortunately, Fed staffers couldn’t quickly find the specific German bullion amidst all the various national deposits. Finally an employee admitted: “Mr. Strong, we can’t find the Reichsbank gold.” Schacht comforted his host by saying, “Never mind; I believe you when you say the gold is there. Even if it weren’t, you are good for its replacement.”10
Although Germany’s runaway inflation was over, the country still faced the problem of the unrealistic reparations that the World War I victor nations had demanded. The payments seemed only natural to the victors. In 1870 at the end of the Franco-Prussian conflict, the victorious Germans demanded that Paris pay 5 billion gold francs in war reparations. In the Treaty of Versailles in 1919 ending World War I, the victorious Allies demanded even higher war payments. The three big powers had vastly different demands against the Germans. The French sought revenge and to crush the German economy so Berlin could never again wage war on them. The British were not as angry since they had not been invaded. The U.S. was the least demanding. The French wanted Germany to pay $220 billion; the British $24 billion, and the Americans $22 billion. The final settlement was 132 billion gold marks or $34 billion. That was later negotiated down to 112 billion gold marks, with annual payments of two billion per year.11 The final German payment for World War I reparations was made on October 3, 2010.
Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion Page 4