by Ron Chernow
In June 1908, Max introduced Ballin to Sir Ernest Cassel, Jacob Schiff’s London associate. Max, Ballin, and Cassel were a trio of like-minded souls who dreaded a European war and tried to unite England and Germany. Their exchanges were frank, sometimes brutally so. At their first meeting in 1908, Cassel bluntly warned Ballin that Germany’s commercial ambitions would end in war. When Cassel said that England would one day ask Germany to stop its aggressive naval program, Ballin said that the Royal Navy had nothing to fear. But, in reality, having supported the naval buildup under Admiral Alfred von Tirpitz, Ballin now had growing misgivings about its wisdom. The following spring, he suggested to the kaiser during Kiel Week that he broach the idea of naval arms limitation talks with Cassel.
In May 1910, the dying King Edward VII summoned Cassel for a chat, rising to greet his guest despite his own weakness. In memory of his royal friend, Cassel created the King Edward VII Foundation to assist needy Germans in England and vice versa. It was chiefly designed to preserve the eroding relationship between England and Germany, and Cassel recruited Max as its treasurer.
An alarmed British Cabinet allowed Cassel to travel to Berlin for secret talks in January 1912 and the kaiser agreed to assay private talks with a British cabinet minister. A month later, Lord Haldane, Britain’s war minister, accompanied Cassel to Berlin to discuss an end to Anglo-German naval competition. The stock exchange buzzed with rumors of this secret visit. Max told Ballin that unless he and Cassel wore fake beards and wigs they couldn’t disguise their presence. The initiative came to naught.
In another last-ditch peace effort, Sir Ernest chartered the HAPAG steamer Ypiranga, inviting six leading English couples and six German couples (Max and Alice among them) to sail around Scandinavia. As they steamed, they desperately tried to devise measures to avert the coming bloodshed.
Max dreamed up new alliances to forestall war. He was a shrewd man who yet had a quixotic streak in politics and a sometimes naïve capacity for wishful thinking. At one moment he thought Germany and England could ally themselves with Scandinavia; at another moment, he pictured Romania, Austria-Hungary, and Germany forming “a firm bulwark against the Slavs.”25 At one point, he even believed that Germany, England, and France could reach an understanding in time.
Max’s colonial exploits now shifted to advancing German interests while also trying to bolster the alliance with Britain. When the Colonial Office fretted over France’s banking monopoly in Morocco, Max and Regendanz visited London in February 1914 to negotiate with Lord Milner for a German-English Bank in Morocco. The scheme would prove an instant casualty of the war.
Under a secret Anglo-German treaty negotiated in August 1913, the two countries divided Portuguese colonies, promising Portugal a large loan in return. This was colonialism at its most nakedly highhanded: England took southern Mozambique and northern Angola, while Germany got northern Mozambique and southern Angola. The resourceful Regendanz devised an Overseas Study Syndicate led by M. M. Warburg & Co., which met with Colonial Office members in attendance. At Max’s suggestion, the group financed an expedition to Angola to lay out a railway connecting this region with German Southwest Africa.
In May 1914, Max performed his last, doomed masterpiece of colonial intrigue. A Dutchman in London named Pieter Vuyk bought up from British investors a majority of shares in the Nyasa Consolidated Ltd. This obscure transaction concealed an immense design. As Max’s London representative, Vuyk acted under instructions from the German Foreign Office, and the purchase implemented part of the Anglo-German pact of the year before. For about 150,000 pounds, Vuyk bought more than 70,000 square miles of territory in Nyasaland or northern Mozambique. In this territory, nearly the size of England and about one third the size of Germany, the new owners assumed the right to police the country, levy taxes, and collect customs revenues. Despite its colossal size, this property had little immediate productive value. The entire territory contained but a single car, which could only drive endlessly up and back on a single mile of paved road.
Max now exercised a political influence out of proportion to his bank’s capital. He had to enlist the larger Deutsche Bank and Berliner Handels-Gesellschaft to raise the 150,000 pounds for the Nyasaland deal—a loan surreptitiously repaid by Berlin. The whole sub-rosa affair confirmed Max’s growing stature in the German Foreign Office. When war broke out, the British confiscated the Nyasa shares as enemy property.
Perhaps the dazzling success of his British dealings blinded Max to war’s imminence. He felt England and Germany had brokered a new relationship. He was not alone in his false hopes. In May 1914, Max discussed the matter with German Chancellor Bethmann Hollweg, during a trial run of the Vaterland. A slightly bent figure with a melancholy, professorial face, the chancellor praised Anglo-German relations and insisted that England surely would remain neutral if Germany invaded Belgium.
In late June 1914, after a dinner with the Prussian envoy in Hamburg, Max sat alone for an hour with an edgy kaiser to thrash out events. He was shaken by Wilhelm’s dark vision of the future, his anxiety that Russia would attack Germany by 1916. As Max said, “He complained that we had too few railways on the Western front against France; oppressed by his worries, he even wondered whether it might be better to strike first rather than wait. I did not in fact have the impression that he was thinking seriously of a preventive war, but his gloomy assessment of the situation caused me dismay.”26 To counter this, Max counseled patience and said Germany’s position would strengthen with time.
The kaiser’s confessional monologue showed how far Max had risen in just a decade. Yet pigheaded and surrounded by sycophants, Wilhelm was often deaf to the advice of knowledgeable businessmen. In his Memoirs, Prince von Bülow said that German decisions leading up to World War I were taken in “hermetically sealed rooms in the Foreign Office, without once consulting a diplomat of experience, or any intelligent businessman informed on international economics. Albert Ballin, Max Warburg, and others—all might have been asked.”27
When Max returned home after seeing the kaiser, his children found him more dejected than they had ever seen him. His irrepressible sanguine spirits soon returned. That June, he again showed that congenital optimism that would be both his strength and his undoing. He made three trips to London to participate in a Rothschild loan to Brazil. On June 26, Max, in an optimistic outburst, told Sir Ernest Cassel, “I hear that a terrific love appears to have broken out between the Germans and the English, which let us hope will be a lasting one.”28
Two days later, Ballin telephoned from the Kiel races to inform Max of the murder of the heir to the Austrian throne in Sarajevo. “That means world war,” Max shot back.29 He thought he didn’t quite believe his own words, that he must somehow be exaggerating. Indeed, both Max and Ballin knew that war would shatter their world. One day, historian Gustav Mayer asked Ballin what would happen to HAPAG if war with England came. Ballin clapped his hand on Mayer’s shoulder and said, “Dear Doctor, when the sky falls in, all the sparrows will be dead.”30
All through a sultry July, Max held on to his belief that England would remain neutral in a war. Eight days before war was declared, Sir Edward Grey and Haldane assured Ballin in London that England would stay neutral if Germany waged war against France or Russia. Ballin passed this on to the kaiser, who later became bitter about this misleading report. It cost Ballin his high standing at court, and he regretfully concluded that his optimistic assessment had encouraged German rashness.
In late July, Max evacuated his London representative to Amsterdam to ensure continued cable connections with New York. To the end, he maintained a psychological resistance to the idea of war. A week before the war began, Carl Melchior arrived at work later than usual. The elegant, understated Melchior said simply, “I have had my army boots prepared; we are going to have war.” At first Max thought he had heard wrong, then sprang from his chair and exploded in a volley of arguments as to why war was sheer madness. Melchior calmly replied, “I believe you
are mistaken this time.”31
At the end of July, war rumors shut the Hamburg Stock Exchange. On August 1st, Germany declared war against Russia. As large amounts of money were withdrawn from banks, it provoked a severe cash squeeze, and Max helped to sustain friendly stock exchange firms. He had been blind to the coming crisis, but when the war came, he reacted with sangfroid that made him a magnetic figure. One Hamburg businessman would remember him at this moment as “a hero; he stands like a rock amid the surf, and anyone who comes into contact with him feels the comforting calm that he radiates.”32 The next four years would test the limits of that heroic calm.
On August 4, Hamburg church bells pealed from the slim steeples that graced the city skyline. Great Britain had declared war against Germany. Ballin reacted with stunned disbelief. As dusk settled over the lakes and canals, throngs of young people massed in the downtown streets, chanting, “We want war!”33 Max was infected by the initial euphoria and couldn’t fathom the pessimism of Ballin, who looked old and haggard after a sleepless night. As Max later recalled, “We were too confident, so much so that Ballin again and again shook his head at us.”34 Unknown to Max, a series of events had begun that would plunge the Warburgs into a twenty-year tailspin from which they would not recover.
The casualties seemed remote, victory assured, to Hamburg citizens that August. Later that month, thousands of jubilant people, including Max’s son, Eric, gathered before the Rathaus to cheer reports that the British Army was in headlong flight. To delirious roars, the entire Senate emerged on the balcony in tailcoats, while the mayor read aloud stirring battlefield news. Swept by emotion, the crowd called for the German flag to be raised and spontaneously began singing, “Deutschland, Deutschland über alles.”35 Max’s partner, Aby S., was sure the war would end by Christmas.
The euphoria reflected a repressed anxiety seeking release. On August 6, Max and Ballin drove to Berlin to discuss financial preparations for war. About twenty times, jittery young soldiers stopped them at gunpoint and searched their car for spies. Rumors of enemy infiltration raced through Germany. “Panic ruled the entire country,” said Max.36 Yet he found the government so blandly confident of victory that the chancellor asked him what reparations Germany should extract from its defeated foes.37 Max saw the military firmly in the saddle, setting the tone of policy and guiding popular opinion.
Mirroring the adults’ enthusiasm, the Warburg children were tremendously excited by it all. Each evening, they gathered at the Kösterberg gate, impatiently waiting for Father to bring home war news gleaned from the bank’s superior telegraphic connections to the outer world. Max stimulated their interest by installing a large battlefield map in their nursery. In this miniature war room, the children tracked troop movements with pins and kept a running journal of events. In time, they would visit wounded soldiers as parts of Kösterberg were pressed into hospital service. At Fritz’s house, the nationalistic cook reprimanded his daughters for saying “good-bye” instead of using the martial farewell “God punish England!”38
The war had a drastic effect upon Hamburg, as an Allied blockade cut off international trade. The merchant fleet was laid up or confiscated in enemy ports. The government seized dozens of Ballin’s ships, plating the glamorous cruise ships with heavy armor and mounting guns on them. The cavernous immigration halls and railroad cars were converted into hospitals.
The war drew Max still deeper into government service. Banking activity now revolved around war loans, and M. M. Warburg dealt more with state enterprises than private businesses. Once again, Jewish bankers were guided by the state’s needs. At the start of hostilities, more than forty employees of M. M. Warburg & Co. enlisted, and Max often hired women to replace them. Carl Melchior entered the war in a Bavarian regiment. On August 9, he was severely wounded when he fell from a horse in Metz and was rushed to a military hospital. This providential event freed Melchior for government work, and he would become an influential figure in the wartime economy.
At first Max advised the government to declare a moratorium on debts. Soon regretting this, he proposed instead that new war-credit banks be set up to service German industry. Max, Fritz, and Melchior worked on statutes for the new Hamburg Bank of 1914, a financing model copied throughout Germany. Max also helped to set up marine insurance and war metal companies.39
Throughout the war, Max Warburg’s head was at war with his heart. A visceral patriot who responded to rousing calls of wartime citizenship, he also acknowledged the harshness of German military rule. In 1915, he traveled to Belgium, a neutral country subjugated by Germany despite worldwide protest. In a charred landscape full of German flags and officers, Max felt the tremendous hatred of the Belgians toward his compatriots and heard numerous reports of German atrocities. As he reported home, the Belgians “tell many stories of murder, theft, looting, etc, that one simply cannot refute.”40 He was appalled at how brutally Germany stripped Belgium of machinery and raw materials and then carted them home. He greatly admired a German administrator named Dr. Hjalmar Schacht, who agreed that this callous plunder of Belgium must stop. When Germany balked at feeding the Belgians, Max supported the relief effort directed by Herbert Hoover, telling Schacht that Hoover’s group was “really admirable.”41
With two influential brothers in America, Max had a privileged place in German state councils. Early in the war, he declined an invitation to become German ambassador to Washington, explaining that he would never head a branch office—a retort he later regretted as arrogant.42 In all likelihood, he had Paul’s interests in mind, for Paul, as a German-born American citizen, had already been tarred by vicious gossip in Washington, and Max’s presence would have worsened matters. Max’s refusal also set a contradictory pattern for him. He would court power, then step back, afraid of the abuse he might suffer as a Jew.
Attuned to American opinion by his Wall Street tie, Max knew the disaster that would befall Germany if the United States entered the war. In July 1915, the Warburg bank sent a telegram to the Imperial Navy Cabinet, warning about a mounting anti-German mood in America following the Lusitania’s sinking—a warning that upset the chancellor. Max was both respected and suspected as an American expert. On October 15, 1915, he received a visit at home from Admiral Henning von Holtzendorff, who wanted Max’s opinion on the economic impact of intensified U-boat warfare. Max replied that Germany couldn’t win the war by sinking enemy tonnage and that U-boat warfare would only draw America into the war. He urged the admiral not to underestimate America’s war potential.43 Max was asked to jot down his thoughts for the Admiralty’s general staff, a memo that was rather cynically reviewed. As Max recognized, “… in their answer they insinuated in oblique form that my interests in America had dictated my conclusions.”44
Not for the first time, the German-American composition of his family gave Max a truer picture of events abroad, but also made him vulnerable to attack from unfriendly nationalistic parties. The imperial honeymoon of the German Jews was about to end.
CHAPTER 12
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Uptown, Downtown
Even though the United States didn’t enter the world war until 1917, the outbreak of fighting in Europe ushered in an awkward, uncomfortable time of mixed loyalties for German-American families in New York. During their fin-de-siècle idyll, they had enjoyed a hybrid identity, summering in German spas and marrying Germans while indulging their American patriotism at home. Before August 1914, this was no contradiction, and presented no conflict. Frieda Schiff Warburg spoke English to her mother and German to her father. After the war began, she and Jacob Schiff were strolling in Bar Harbor one day, chatting in German, when Frieda noticed accusing stares. “Father,” she whispered, “we can’t do this anymore.”1 Henceforth, speaking German in public was strictly verboten.
Besides having relatives in the old country, these German Jews strongly identified with German culture. How could they reconcile their traditional love of German song and literature with Prussian troops
on the march? As Peter Gay has written, it was believed in Allied countries during the war that “there were really two Germanies: the Germany of military swagger, abject submission to authority, aggressive foreign adventure, and obsessive preoccupation with form, and the Germany of lyrical poetry, Humanist philosophy, and pacific cosmopolitanism.”2 It was this latter Germany that “Our Crowd” had so wistfully cherished in exile.
The gentile side of Wall Street, reliant on British money, was staunchly anglophile, making Jewish bankers reluctant to voice their true feelings. As Jacob’s Schiff’s granddaughter recalled, “A German teacher who taught us on walks in the park stopped coming after 1914, when the war started … in our world there was much talk of les Boches, the Huns and such.”3 Metropolitan Opera impresario Otto Kahn of Kuhn, Loeb purged German operas from the repertory, while Schiff lifted restrictions he had placed on a large bequest to Cornell University intended to promote German culture.
The situation created frightful anguish for Paul Warburg, who had just attained his dream of joining the Federal Reserve Board. Whatever his inner sympathy for Germany—which he couldn’t root out overnight—he became an American official of exemplary dedication, arriving at the Treasury building at eight o’clock each morning, staying until six, then poring over reports after dinner. He felt strong continuity with his public service in Hamburg. As he told The New York Times, “… certain persons said to me that they wondered how I could devote my time to a political office in Washington. To me it was the most natural thing to do. I was a member of the lower house in the free city and republic of Hamburg before I became an American citizen. I was educated to believe that it was the duty of a citizen to give his time and best thought to the welfare of the state. This is not only the German, it is the European view.”4
