The Versailles Treaty was naturally unpopular with the German public, and Britain’s John Maynard Keynes warned in his book The Economic Consequences of the Peace that it would ruin the country’s economy. Schacht refused to publicly recognize the war debt, but participated in negotiations with the Allies for better treaty conditions that became known as the Young Plan. He got somewhat better terms that reduced the amount and spread it out over a longer period, but the German public nonetheless turned against him. The national hero suddenly turned into a fall guy. When Schacht returned from a trip to Paris in June 1929, after signing the latest plan, his wife met him at the Berlin railroad station with the stinging rebuke: “You ought never to have signed!”12
On October 3, 1929, Schacht’s friend and mentor Chancellor Gustav Stresemann died of a stroke. Having lost public support within the increasingly dangerous German political scene where radicals of the right and left polarized politics, Schacht on March 7, 1930, resigned from his lifetime job. When asked at a farewell press conference what he was going to do, the banker replied that he was going to become “a country squire and raise pigs.”
The new retiree enjoyed traveling, and that summer visited Romania, Switzerland, Denmark, and Sweden. In the fall, he went to the U.S. for a two-month speaking tour. While on his ocean crossing in September 1930, he read a copy of Mein Kampf by Adolf Hitler, the country’s rising politician.
By the time Schacht returned home, he had forgotten about being a country squire and ventured into German politics. Although he had been one of the founders of the German Democratic Party, a center-left group founded largely by intellectuals in 1918, he left it eight years later on the grounds that it no longer supported private property. The Nazis were now coming on strong. In the May 1928 parliamentary elections, they had won only twelve seats, but in the September 1930 balloting they captured 107, making them the second largest party in the Reichstag.
In December 1930, Emil Georg von Stauss, the CEO of the Deutsche Bank and the man who loaned Hitler the Remington typewriter on which Mein Kampf was written, invited Schacht to a dinner with Hermann Göring, a top Nazi leader who had asked to meet him. Table talk among the three men quickly turned to politics and economics. In a sign of his compulsive arrogance, Schacht later speculated that Göring probably hadn’t yet paid for the tuxedo he was wearing that night.13
A month later on January 5, 1931, Göring invited Schacht to a dinner party that he and his wife were holding at their apartment in the Wilmersdorf section of Berlin. In another condescending observation, Schacht noted that the Nazi leader lived in a modest rented dwelling. A message accompanying the invitation said that Hitler would be present. The Führer, wearing his Nazi uniform of dark trousers and brown jacket, arrived only after everyone had eaten and proceeded to speak for two hours. Schacht described him as “neither pretentious nor affected—on the contrary he was natural and unassuming.” He also noted that Hitler spoke ninety-five percent of the time. Hitler showed Schacht respect, which he appreciated, but treated his fellow Nazis with disdain. The banker was impressed and later wrote that Hitler’s “skill in exposition was most striking. Everything he said he demonstrated as incontrovertible truth; nevertheless his ideas were not unreasonable and were entirely free from any propagandist pathos.” Schacht’s bottom line: “The thing that impressed me most about this man was his absolute conviction of the rightness of his outlook and his determination to translate this outlook into practical action.”14
During his post-war trial at Nuremberg, Schacht said that his own political view at the time was that he “wanted a big and strong Germany; and to achieve that, I would ally myself with the devil.” The banker who the British economic journalist Paul Einzig once called “the most Machiavellian statesman in Europe” was about to make a dangerous power play.15
Unlike almost everyone else surrounding Hitler, Schacht was not a Nazi party man and found it hard to hide his contempt for people he considered only slightly better than street brawlers. He alone among the Führer’s inner circle never wore either the Nazi or military uniform. He was always the quintessential central banker. And while he might have fought the temptation, he treated most Nazis as inferiors. He had few contacts with leading party members outside of Hitler, who repeatedly invited his banker to attend his intimate daily lunches at the Reich Chancellery, where he held court and gossiped. Schacht attended only twice. Despite his initial favorable impression, he later came to regard Hitler as “half educated,” adding that although he had read a lot, it was all from a distorted point of view. When Wilhelm Vocke, who had served with Schacht on the Reichsbank board, warned him about the Nazis, Schacht replied, “One must give these people a chance. If they do no good, they will disappear. They will be cleared out in the same way as their predecessors.”16
In the spring of 1931, the American journalist Dorothy Thompson interviewed Schacht and voiced skepticism about the ability of the Nazis to handle the country’s economy, asking, “Who will run it?” Schacht replied, “I will. The Nazis cannot rule, but I can rule through them.”17
The world economic crisis accelerated on May 11, 1931, when Austria’s largest bank, the Rothschild’s Kreditanstalt, collapsed. That set off an international financial crisis that hit neighboring Germany particularly hard. On July 11, Chancellor Heinrich Brüning called Schacht and asked him to come immediately to Berlin. When the banker arrived the next day, he learned that the Reichsbank’s gold and foreign currency reserves were quickly evaporating. In the first three weeks of June, the country had lost more than half its gold to speculators. On July 13, the Danat Bank, one of the country’s major financial institutions and Schacht’s old bank, did not open. A new full-scale national economic crisis had begun.
Schacht was regularly in contact with Hitler during those tense times, often expressing his support in sycophantic letters. On August 29, 1932, the banker offered him a strategic suggestion: “Do not put forward any detailed economic program.” He also pledged his loyalty: “Wherever my work may take me in the near future, even if you should see me one day within a fortress, you can always count on me as your reliable helper.” Schacht signed the letter, “With a forceful Heil.”18
Schacht urged Brüning’s successor Franz von Papen to resign in favor of Hitler, saying, “Give him your position. Give it to Hitler. He is the only man who can save Germany.”19 Schacht’s name was prominently at the top of a list of the country’s leading economists who publicly urged President Paul von Hindenburg to name Hitler chancellor.
In a surprising development in the November 6, 1932 election, the Nazi vote declined for the first time, giving hope to German democrats that the party’s power had peaked. That tempted some politicians to propose bringing the Nazis into a new government in hopes that they would begin acting responsibly once they were in power. That was naïve.
Schacht was showing his loyalty to the Nazis at a crucial moment. Joseph Goebbels, the party’s chief propagandist and a member of Hitler’s inner circle, wrote in his diary on November 21, 1932, “In a conversation with Dr. Schacht, I assured myself that he absolutely represents our point of view. He is one of the few who accepts the Führer’s position entirely.”20
On a snowy January 30, 1933, and after years of increasing social chaos, violence in the streets, weak governments, and inconclusive elections, President Paul von Hindenburg reluctantly asked Adolf Hitler to form a government. The following day, the new chancellor convinced the president to dissolve the Reichstag and call new elections to be held on March 5. Goebbels wrote in his diary: “The struggle is light now, since we are able to employ all the means of the state.”21
In order to ensure the party’s electoral victory, the Nazis wanted to raise as much money as possible to finance the campaign, and turned to Schacht to help deliver large donations from the country’s wealthy industrial leaders. Göring asked him to invite a group of businessmen to a meeting with Hitler on February 20 at the Reichstag’s Presidential Palace. Some twenty-fiv
e attended, including Gustav Krupp von Bohlen und Halbach, the armaments magnate; Carl Bosch, the head of I.G. Farben, the chemical giant; and Albert Vögler, the founder of Vereinigte Stahlwerke, a steel giant.
Schacht and Göring were joint hosts and spoke first while waiting for Hitler, who as usual arrived late. Once there, the Führer explained his political agenda for after his expected election success. He promised to “eliminate” Marxists, rearm the Wehrmacht, and bluntly said, “We must not forget that all the benefits of culture must be introduced more or less with an iron fist.”22 He also made a menacing prediction: “We stand before the last election.” It was time to “crush the other side completely.”
When Hitler finished speaking, Krupp jumped up and thanked him “for having given us such a clear picture.”23
After Hitler left the room, Schacht asked the business executives to make major contributions to the election campaign. He said the overall goal was three million Reichsmark. Göring said it was time for them to make “financial sacrifices,” adding that it would “surely be easier for industry to bear, if it realized that the election of March fifth will surely be the last one of the next ten years, probably even for the next hundred years.” Schacht requested that each man write down the amount his company would contribute to the Nazi campaign fund. Hitler had already asked Schacht to undertake the job of administering the contributions. When he totaled them up, the businessmen of Germany had pledged the requested three million marks.
Two nights later on February 27, a mysterious fire largely destroyed the Reichstag building. The Nazis blamed Marinus van der Lubbe, a Dutch communist, for the crime. The next day, Hitler convinced President von Hindenburg to sign emergency measures suspending part of the constitution as a “defense measure against Communist acts.” Göring later bragged that he had set the fire, but then later denied it.24
Despite their ruthless election tactics, the Nazis did not get the two-thirds majority that Hitler sought, which would have allowed him to push through his radical agenda and grab total control of the country. His party increased its vote only to 43.9%, but he was able to put together a small majority government with the help of Franz von Papen’s Center Party.
Shortly after the election, Hitler called in Reichsbank President Hans Luther and asked him how much money the central bank could advance for a job-creation program, which is how the new chancellor planned to masquerade German rearmament. The new regime did not want to finance this through unpopular new taxes. The banker said he could only provide 100 million Reichsmark or about $23 million, which was a pittance compared to what Hitler wanted.
So the new chancellor called in Schacht and put the same question to him. After saying it was necessary to “do away with unemployment,” Hitler asked if there was a way to raise “a very large sum of money” through the Reichsbank. Schacht replied that the central bank “should provide the money needed.” Hitler pressed him for a number, but he would not commit, saying only, “I am honestly not in a position, Chancellor, to mention any particular sum. My opinion is this: whatever happens we must put an end to unemployment, and therefore the Reichsbank must furnish whatever will be necessary to take the last unemployed off the street.”25
Hitler paused briefly and then asked, “Would you be prepared to take command of the Reichsbank again?” Schacht replied that he didn’t want to force Luther out of office, but Hitler quickly said that he had other plans for him. Schacht said that in that case he would take the job. In a second meeting with Luther, Hitler offered him the post of German ambassador to Washington, which he readily accepted.
On March 17, almost exactly three years after he had left the job, Schacht was once again president of the Reichsbank. Every central banker should be born under a lucky star, and fortune smiled on him. Experts now agree that the German economy hit bottom in late 1932 and started expanding in early 1933, although no one knew that at the time. The following month, the central banker was also named a member of the secret Reich Defense Council, which was charged with preparing the country for war. Hitler’s first demand of his banker was money for a Nazi priority program to repair and reconstruct houses, and Schacht readily complied. Another of his preliminary actions was to sanction an initial credit of 600 million Reichsmark to pay for the construction of the new highway system called the Autobahn, which was a pet Hitler project. The Führer considered the limited-access roads as a way to move army troops and weapons rapidly around the country in time of war. The government also spent heavily on building new housing. Schacht was accommodating on the Reichsbank’s gold policy. When the Nazis took power, Germany’s currency had to be backed 40% by gold or foreign exchange, but in October that requirement was quietly dropped. That made it easier to increase spending.
On March 23, 1933, the Reichstag by a vote of 441 to 94 passed the Enabling Act, which allowed Hitler to pass laws without legislative approval. The heavy hand of Nazi dictatorship was quickly descending on Germany.26
The German people left World War I with a national consensus that they could not count on any other nation for their safety or prosperity. They believed that their country faced the world alone and had to provide for its own defense, economy, and wellbeing. Britain, the country’s main adversary during the earlier conflict, had cut off vital supplies with a naval blockade that left the country’s people starving. During the infamous “turnip winter” of 1917, Germans on the home front had little to eat except turnips, which had previously been used for cattle fodder. In that tragic period, 763,000 people died of starvation.
Germans were now united with the angry attitude of “never again.” The country, in the future, had to be master of its own domain. The widespread German name for this policy was autarky. The word goes back to the Greeks, and the more common English expression is “self-sufficiency.” The foundation of this national policy was gold, the historic last refuge of people in trouble. If all else failed, the country needed enough gold to buy food. Germans of all political stripes and classes supported the policy. The public universally believed that British, French, and American armies had not defeated them on the battlefield, but rather had cut off Berlin’s trade ties to the world and starved them into submission. The food blockade continued even after the armistice was signed on November 11, 1918, burning the humiliation even deeper into the national psyche. Autarky was not a national policy dictated by Berlin politicians on the general public, but was based on the country’s painful experience and unity in the belief that it should never happen again.27
Members of the growing Nazi party, the street thugs who brought Hitler to power, were among the strongest believers in autarky. For them, the words in the country’s national anthem said it all: Deutschland über alles in der Welt (Germany above all in the world).
Hitler himself had an expansionist view of Germany’s place in Europe and believed that the nation could achieve not just self-sufficiency, but growth. Although he didn’t often spell it out in detail to the world’s public or political leaders, he envisaged a much larger country that would stretch from the Atlantic Ocean to the Ural Mountains. That was his concept of Groβraumwirtschaft, a Nazi plan for the reorganization of Europe with a new continental economic system under Berlin’s control and for its benefit. Germany could not achieve its historic role within the restrictive borders that the Allies had dictated at the end of World War I, where 66 million people lived when Hitler came to power in 1933. Hitler envisaged a German super nation that, in the west, would include parts or all of Belgium, Holland, and even France. In the east, Germany would take over the breadbaskets of Poland and Ukraine. Those countries had the rich soils that could produce both the food and natural resources that the enlarged Germany would need, as well as a population that Hitler planned to subjugate to perform the menial labor necessary to support this new, expanded state. This Great Germany would have a population of 140 million and have vassal states on its borders that would pose no military threat.
Big business such as I.G. Farb
en backed the autarky program that foresaw the production of man-made substitutes for goods such as rubber and oil that were not indigenous to Germany. Göring’s Four Year Plan in 1934 forced all the major brown coal producers to form a joint venture to produce synthetic fuel. It invested heavily in synthetic fuel during the 1920s, when it looked as if the world’s known sources of oil were running out. New discoveries in countries such as Saudi Arabia, though, set back their plans because the artificial product became uneconomic. Farben was a major financial backer of Hitler during his rise to power, and the Führer supported spending on synthetics when he became chancellor in 1933. Now the company was going to get its payoff.28
On August 9, 1942, when Hitler was still optimistic about the success of his invasion of the Soviet Union, he gleefully told his dinner companions, “There is here a million tons of wheat in reserve from last year’s harvest. Just think what it will be like when we get things properly organized, and the oil wells are in our possession! The Ukraine produces thirteen or fourteen million tons a year. Even if we show ourselves to be half as successful as organizers as the Russians—that’s six million for us!” There would be plenty of everything. He added, “We shall become the most self-supporting state, in every respect, including cotton in the world. The only thing we shall not have will be a coffee plantation—but we’ll find a coffee-growing colony somewhere or other! Timber we shall have in abundance, iron in limitless quantity, the greatest manganese-ore mines in the world, oil—we shall swim in it.”29
Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion Page 5