Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion

by George M. Taber

  Morgenthau had already become concerned about developments in Europe. He was also worried about the role the Bank for International Settlements was playing in sending gold to Berlin. The bank had never been particularly popular in official Washington circles, and its reputation slipped to a new low. The Treasury Secretary now read the daily telegraph reports about European financial markets that the Bank of England sent regularly to the New York Federal Reserve Bank. Ambassador Joseph P. Kennedy also sent critical reports to Washington from London, as did his counterpart William C. Bullitt from Paris.

  On July 27, 1939, Harry Dexter White, Morgenthau’s key staff member, sent him a four-page memo entitled, “What Happened to the Czech Gold in the Bank of England?” It was mainly a day-by-day account of how the bullion ended up in German hands and made no recommendations about what the U.S. might do at that point.28

  The day after getting the White report, Morgenthau spoke up strongly during that morning’s London-New York phone call when global financial markets were discussed. He said that “no matter who’s guilty or not guilty,” it was unfortunately “water over the dam.” He added that the more important thing was that “the Czechs still have a chance.” White jumped into the call to add that the U.S. government, a year before, had decided it didn’t “want to deal with BIS” because “we anticipated some possibility of this sort.” Morgenthau added, “Well. It’s a dirty business whichever way you look at it.”29

  In October 1939, the Bank of Bohemia and Moravia asked the Bank for International Settlements to send to them the remaining gold ingots left in London. Beyen this time refused to execute the order. The Germans, on August 22, then changed the directive and ordered that half of the gold be sent to Holland and half to Switzerland.30 Beyen believed that since they were both neutral countries, he could not deny the transfers, and so the gold was moved. A little over two tons arrived in those locations on August. The bars remained untouched through most of the war, and at the end of the conflict were returned to the reestablished Czech National Bank.

  Dr. Friedrich Müller, who became the head of the Bank of Bohemia and Moravia in Prague, diligently rounded up any remaining gold and shipped it to Berlin. On June 14, 1940, the bank sent to Germany the remaining 6.4 tons of gold in the form of coins of largely historic value. In the fall of the same year, the bank also transferred to the Reichsbank just over a ton of gold that it had been holding for the Skoda Works and Brno Munitions. After that point, no central bank gold was left in the former Czechoslovakia.31

  Chapter Nine

  MUTINY AT THE REICHSBANK

  In 1938, Hjalmar Schacht was proud of the contributions he had made to Germany’s economy and rearmament. In a speech on November 29, he pointed to his achievements during nearly seven years in office. He had laid down the economic foundation for the Third Reich and the mightiest army in Europe. He particularly cited his program to build up trade surpluses, noting that between 1934 and 1937, imports of finished goods were down sixty-three percent, and imports of mineral ores, petroleum, grain, and rubber, all needed for war, were up sharply. Schacht flamboyantly said, “It is possible that no central bank in peacetime carried on such a daring credit policy as the Reichsbank since the seizure of power by National Socialism. With the aid of this credit policy, Germany created an armament second to none, and this armament in turn made possible the results of our policy.”1

  Hitler never worried about economic issues because he never understood them. He thought that willpower was all that mattered. His easy successes in conquering Austria and Czechoslovakia, and getting large amounts of gold out of them to finance future wars, had shown him that the western powers would not stand up to him and reinforced his belief that economic nuance was not necessary. While Schacht wanted him to slow down and consolidate, Hitler wanted to conquer more countries before Germany’s opponents could catch up with him militarily. Just after the Munich agreement, General Thomas wrote in his diary, “By telephone I receive instructions: all preparations now for war against England, target 1942!”2 Acting on the Führer’s orders, Göring revved up even further his already ambitious armaments program. On October 14, 1938, he told a conference of aircraft manufacturers that Hitler had instructed him to put together an armament program that would make earlier ones look insignificant. Overall military spending would be tripled, and the Luftwaffe budget would increase five-fold. The army would soon have a massive increase in tanks and heavy artillery. Göring put the arms manufacturers on notice that they needed to expand their industrial capacity to meet the new demand.3

  Schacht’s hopes that Hitler could be stopped were crushed when he replaced generals Blomberg and Fritsch in January and February 1938. He would later maintain that was when he “started working for my own retirement.” The central banker suspected that the Gestapo was bugging his office, and independent inspectors found listening equipment. The Nazis had put a servant on the payroll to spy on him. Nonetheless, he had an uncontrollable habit of speaking up. While attending a private dinner at the home of a wealthy Swedish banker in Berlin in the summer of 1938, Schacht imprudently and impatiently told his host’s wife, “Madam, how could I have known that we have fallen into the hands of criminals.”4

  Recklessly or courageously, he reached out to anti-Hitler opposition. He first contacted Hans Bernd Gisevius, a leader of the small and loosely organized movement. Schacht boastfully told Gisevius, “I have got Hitler by the throat.”5 Schacht had been aware of General Ludwig Beck’s aborted coup in September 1938, and also met with two other highly placed Hitler opponents: Admiral Wilhelm Canaris, the head of German military intelligence service, and Ulrich von Hassell, a top foreign ministry official. At a meeting on September 4, 1938, he told Hassell, “Economically we have pumped ourselves more and more dry: the secret funds, foreign exchange reserves of Austria et cetera have already been used in an irresponsible way.” Hassel met him again on December 19, when Schacht said he would stay in power “until the impossible is demanded of me.”6

  Schacht also confided in his close friend Montagu Norman at the monthly meetings at the Bank for International Settlements. He tried to get a message to Prime Minister Chamberlain that he should stand firm against Hitler. But when Norman tried to set up a meeting with Chamberlain, the prime minister dismissed him, saying that he had to deal with Hitler.

  In November 1938, Schacht attended a political rally, sitting in the second row facing Hitler. While the rest of the audience cheered the Führer wildly, Schacht sat with this arms folded and coldly stared at him. Hitler noticed the insubordination, but did nothing. The central banker later wrote a twenty-page memo that included strong attacks on both the party and the Führer. When he showed it to a military officer, the person responded, “This is dynamite; one doesn’t leave something like this lying around the desk!” Schacht answered, “Let the swine read it and then hang me!”7

  Schacht traveled to London that same fall to promote his project to let Jews and Nazi opponents immigrate to Madagascar. It was a non-starter from the beginning. During his time in London, he met several times with Norman at the German embassy, but no records were ever made of their conversations. The British banker simply wrote in his diary that he had gone alone to the German embassy to see him.

  Christmas was the biggest holiday of the year even in Hitler’s Germany, and the Reichsbank held an annual party for the office staff where the president would make a speech thanking people for their work. The 1938 party took place shortly after the infamous Kristallnacht of November 9th and 10th, when Nazi mobs attacked Jews, burned more than 1,000 synagogues, and destroyed some 7,000 businesses. Dr. Joseph Goebbels, the minister of propaganda, selected that date because it was the twentieth anniversary of Germany’s surrender to the Allies in World War I, which Hitler considered the country’s worst humiliation.

  At the Reichsbank’s holiday party, Schacht called the anti-Semitic violence “a wonton and outrageous undertaking as to make every decent German blush for shame.” Then he
added, “I hope none among you had any share in these goings-on. If any one of you did take part, I advise you to get out of the Reichsbank as quickly as possible. We have no room in the Reichsbank for people who do not respect the life, the property, and the convictions of others.” Several Nazi members on the bank staff were present, and Hitler soon learned of his central banker’s attack on Kristallnacht.8

  Schacht was now clearly searching for an exit from the Reichsbank job that he loved so much. His protégé Emil Puhl said later that by the end of 1938, the bank president was looking for a way to get fired. The weakening German economy was not just an excuse, though numbers were indeed bad. Reichsbank debt had gone from 750 million Reichsmark in 1932 to 14 billion at the end of 1938. During that same period the Nazi government had spent 35 billion on armaments. The weakness of Schacht’s strategy was that to the person on the street or even to many foreign observers, the Nazi economy outwardly appeared to be doing well.

  Finance Minister Lutz von Krosigk, the man who paid the government’s bills, had warned Hitler in a memo on September 1, 1938, that the country was “steering towards financial crisis.” Starting on April 1, 1939, the state would have to begin repaying the money investors for the Mefo bills that had financed Nazi rearmament. Lutz von Krosigk asked Schacht to tide over his ministry with 100 to 200 million Reichsmark ($40 to $80 million) because he could not pay government salaries in early 1939. Schacht responded to the minister that he considered the request “monstrous,” insisting that the state had to pay its bills. The Reichsbank would not bail out the government. He added that the best thing that could happen for Germany would be a bankruptcy so that the country would see that its failed financial system could not continue. He told Lutz von Krosigk that he wanted it made clear to Hitler that the Reich was bankrupt.9

  When Schacht told the finance minister that he was ready to resign or be fired, Lutz von Krosigk replied that he would follow him. That was fine rhetoric, but the reality was different. At the end of November 1938, the Nazi government could not raise 1.5 billion Reichsmark in the private equity market because one-third of the bonds went unsold. The country was also running out of foreign exchange and was having trouble paying for vital imports, including food. The government even had to borrow money from the state-run post office and railroad to make ends meet. Nazi Germany was on the brink of financial collapse.10 Economics Minister Walther Funk, the former reporter, heard of Schacht’s critical comments and passed the news along to the Führer. At that point it appears that Hitler had had enough of his central banker. An aide contacted Schacht and told him to make an appointment to see Hitler after the holidays.11

  The German leader celebrated New Year’s Eve 1938 at the Berghof in Berchtesgaden with his mistress Eva Braun and friends. The evening was full of levity, and he wore a tuxedo. Hitler, though, was morose most of the time, which worried Braun. He was scheduled to meet Schacht at the Berghof on January 2, but wasn’t looking forward to the encounter. Hitler wanted to keep the banker as a showpiece to give the Nazi regime legitimacy, but that looked increasingly unlikely.

  The post-New Year’s conference was all business. Schacht spelled out in detail Germany’s economic situation, painting a bleak picture and warning that the country could go into a new hyperinflation similar to the one it had known in 1923. Germany, the banker said, was simply spending too much money on weapons, and there was no sign that it would end. In fact, military expenditures were slated to double in the new year. Schacht explained that the country had now reached full employment, and new war spending would likely lead to inflation.12

  The central banker also pointed out that the government had not been able to raise the first installment of the so-called Jewish Atonement Tax, which was supposed to bring in 1 billion Reichsmark in new revenue. This tax had been levied on the country’s Hebrew community in retaliation for a Polish Jew’s assassination of a German diplomat in Paris. Hitler then jumped in to say that he had a plan for that. The Reichsbank should simply issue banknotes against the unpaid amount of the Jewish Atonement Tax. It would be a variation of the Mefo bills. Schacht later wrote, “A cold shiver went down my spine.” He later wrote, “The danger of inflation was now definitely imminent.” He realized that the time had come to disassociate both himself and the bank from what he called “Hitler and his methods.”13

  With the confrontational meeting drawing to an end, Schacht said that he and his fellow Reichsbank board members would soon present the Führer with a memorandum outlining in detail the country’s financial situation.14

  Despite his dominating personality and international reputation, Schacht ran the Reichsbank board more as the primus inter pares than as a dictator. The board, which was made up of some of the country’s leading bankers and economists, was a mixture of veterans as well as younger officials such as Emil Puhl and Karl Blessing. Puhl really ran the central bank for most of the war. If Count Claus Graf von Stauffenberg’s assassination attempt in July 1944 had been successful, Blessing would have become Reichsbank president or minister of economics in a post-Hitler government. He headed the German Bundesbank, the successor organization, from 1958 to 1969.

  Board members for months had been discussing the danger of inflation, and three months earlier two of them had drafted a memo outlining their opposition to more inflationary defense spending. Schacht agreed in principle, but was waiting for the right moment to present it. When he returned to Berlin from the Berghof, he told the board that the time had come. All they had to do was agree on a few final points and send Hitler the memorandum. The bank board realized that they were sending a political document, although it was based on solid economic facts and reasoning.

  After returning to Berlin, Schacht also played host to Montagu Norman, who had come to the German capital to participate in the christening of Schacht’s new grandson, Norman Hjalmar. At the previous month’s BIS meetings in Basel, Schacht had warned his colleagues that he and some of his fellow Reichsbank board members might be resigning. Schacht would certainly have told his British counterpart that a showdown with Hitler was coming.15

  Just before the two men left Berlin by train on January 7 to attend the next meeting in Basel, Schacht sent Hitler a seven-page board report outlining the case against more defense spending. The most direct passage stated: “The reckless expenditure of the Reich represents a most serious threat to the currency. The tremendous increase in such expenditure foils every attempt to draw up a regular budget; it is driving the finances of the country to the brink of a run despite a great tightening of the tax screw, and by the same token it undermines the Reichsbank and currency.”16

  The bankers tried to balance that attack with some praise for the country’s successful foreign policy and noted that the Reichsbank had “gladly cooperated” with the national rearmament. That was probably a Schacht touch since he knew how to flatter Hitler.

  The report stated flatly that the bank simply could not continue on that path because “the gold or foreign exchange reserves of the Reichsbank no longer exist.” What had been stolen from Austria and Czechoslovakia was largely already gone, while government printing presses were working overtime. The German money supply grew nearly three-fold between January 1933 and the end of 1938. The country, the board argued, was on the cusp of major inflation.

  The memorandum ended with a surprisingly personal attack on Hitler, stating, “The Führer and Reichskanzler himself has considered the inflation danger again and again to be dumb and useless.”17 No one in the Nazi government had ever dared address him in that manner.

  As a sign of solidarity, all eight board members signed the document, with Schacht’s name leading the list. The board stood as one. After learning of the content of the memo during a phone call from Berlin, Hitler bellowed: “This is mutiny!” Nonetheless, the Führer coolly waited a few days before taking any action. He probably wanted to gain a better understanding of the situation on the ground at the bank, or he may have been trying to decide if he could finall
y cut ties with the still prestigious Schacht. In either case, it was an unusual delay from someone who usually acted spontaneously when confronted.

  For more than a week, the Reichsbank directors heard nothing. Finally on the evening of January 19, Schacht returned home late from the opera to find several telegrams instructing him to be at the Chancellery the following morning at 9:00. That was an unusually early meeting for Hitler, who normally talked into the night and then got up late. That morning, Schacht received a phone call telling him that the meeting had been put off to 9:15.18

  Schacht was punctual and had just entered a waiting room at the Chancellery, which overlooked a garden. Hitler entered and without any pleasantries immediately said, “I sent for you, Herr Schacht, to hand you the written notice of dismissal from the office of president of the Reichsbank.” The Führer handed him the document and said, “You don’t fit in the general National Socialist scheme of things.” Hitler then berated him for not putting party members into key positions at the bank, adding that the financial institution was not sufficiently Nazi.19

  Schacht did not immediately respond, and there was a moment of uneasy silence. Then Hitler continued, “You have refused to allow your staff to submit to political scrutiny by the party.” Another silence. “You have criticized and condemned the events of November 9 [Kristallnacht] to your employees.” This time Schacht answered, saying, “Had I known, Mein Führer, that you approved of those events, I might have kept silent.”20

  The central banker wanted to ask Hitler some questions, but the Führer seemed stunned and cut him off by saying, “I’m much too upset to talk to you any more now.”21