by Ron Chernow
The mood in New York now tended to anathematize all things German. Schools dropped German from their curricula and Beethoven’s noble music vanished from the repertoire. For three years, “Our Crowd” had been grievously torn in their allegiance and suspected of subversive sympathies. War at least solved their identity crisis. Now they could invoke force majeure and support the Allies with stout hearts. Peace broke out at Kuhn, Loeb as partners courted the Allies. Suffering from heart trouble, Jacob Schiff adopted a strong anti-German posture. In March 1917, he told former Harvard president Eliot that because of the “ruthless and inhuman acts of the German Government, my attitude has undergone a thorough change, and I now only hope that before very long, Great Britain and France will be able to force a peace.…”42 A year later, he was so incensed at Germany that he favored an all-out military victory that would “utterly and permanently do away with Germany’s military establishment, which has proved the worse of the entire world.”43
The czar’s fall in early 1917 removed Schiff’s last qualms about aiding the Allies. Foreseeing an end to state-sponsored anti-Semitism, he applauded the Menshevik revolution as “almost a miracle … almost greater than the freeing of our forefathers from Egyptian slavery.”44 Schiff advanced one million rubles to Alexander Kerensky’s government—a loan he lost six months later when the Bolsheviks came to power. Later, the Nazis blamed Schiff and the Warburgs for having hatched the Bolshevik Revolution when they had merely supported the moderate Mensheviks. As noted earlier, Siegmund and Théophilie’s daughter, Rosa, had married Baron de Gunzburg and they lived in a gorgeous St. Petersburg mansion near the czar’s palace. On July 10, 1917, Felix greeted Baron de Gunzburg when he arrived in New York to enlist support for the Kerensky regime. After the Bolsheviks seized power, soldiers entered the de Gunzburgs’ house and cleaned out their wine cellar. The baron was imprisoned and released only with difficulty. He and his family fled Russia and he ended up as a director of an Amsterdam bank.
Extremely blue after the United States severed relations with Germany, Felix told his son, “I am especially sorry that we are being brought into this mess as our chance to be the mediator and therefore the most influential power in the world has, I am afraid, been lost, and we become simply one of the many scrappers.”45 Once the United States was actually at war, Felix knew any further discussion was inappropriate and supported the war effort with his usual robust gusto. Like many German-born Jews, he was at pains to erase any residual suspicions of disloyalty and showed an exaggerated patriotism, wrapping himself in the red-white-and-blue. Felix became head of the USO, donating his small speedboat to the government’s “Mosquito Fleet,” and offering the YMHA building to the government as training quarters. He even had the steward at Woodlands stop feeding expensive lump sugar to the pampered horses.
Paul buried himself in war work, as the Fed and Treasury Department sold billions of dollars in Liberty Bonds. “The marketing of Liberty Loans and the procurement of capital for our infant war industries seemed his only concern,” said his son.46 Paul still tried to devise ways to end the conflict speedily. Like Max, he thought in terms of concessions that should be made to Germany, not by Germany. In August 1917, he told Colonel House that if only France would renounce claims to Alsace-Lorraine, reason would prevail in Germany and the military party would collapse. By virtue of his position, Paul found it harder than Felix to shake the stigma of being a pro-German sympathizer. One day in October, Supreme Court Justice Louis Brandeis ran into him on a Washington street. As Brandeis told his wife afterward, “He [Paul] is strong for peace now—‘when America is at its might’ & its word law with the Allies.”48
For Paul and Felix, the war exposed a cultural chasm that separated them from their children. Like other immigrant parents, they had encouraged their children’s assimilation into American society, then were pained and surprised when they succeeded. The generational shift was most striking with Paul’s son, Jimmy. Where Paul was self-effacing, he spawned an expansive American son with a mile-wide rebellious streak, a taste for experimentation, and few inhibitions. Jimmy inhabited a brave new world of infinite possibility. Extremely handsome, loaded with brains and charm, he wanted to burst out of the family’s Jewish ghetto. He struggled with an array of fugitive impulses that his father had mastered with formidable self-discipline.
Born in Germany, Jimmy and sister Bettina felt at home on two continents and became naturalized American citizens along with their father in 1911. Jimmy carried indelible memories of the military pomp of Imperial Germany. With a weakness for parades and uniforms, his childhood nurse would take him to see the kaiser whenever he visited Hamburg. Jimmy would always fancy himself an expert on Germany and muse about its fate in a very personal way.
Although Jimmy had immense respect—bordering on hero-worship—for his father, he also struggled with deep, unacknowledged resentment. He saw his father as saintly and noble, but also as repressed and limited in his sympathies for people. Jimmy located a psychological basis for his own stronger identification with America than Germany “because my mother was American and always considered it rather a sacrifice to live in Germany.”49
In photos of this bespectacled adolescent during the war, he looks confident and foppish, a dapper rich boy with dimpled cheeks and a touch of boyish arrogance, his chin lifted in pride and defiance. As an editor of the Harvard Crimson his junior year—an exceptional achievement for a Jewish student—Jimmy showed how thoroughly Americanized he was. His sentimental ties to Germany dissolved early in the war as he seethed over the Lusitania incident and Germany’s violation of Belgian neutrality. Feeling shame and anger at his German background, he contended that “the constant saber-rattling of the German Kaiser, the ruthlessly aggressive thrusting of the new German nation into the world arena … probably warrant the judgment that Germany contributed more than any other single nation to the outbreak of World War I.”50
While Paul struggled with his sympathy for Germany, Jimmy fairly gloried in his pro-Allied sympathies. He came to the cause in a way calculated to hurt Paul. One day, Jimmy’s classmate, Archie Roosevelt, invited him to breakfast with his famous father, who fulminated against the “skulking cowardice” of Wilson and the “evil wickedness” of the kaiser.51 Jimmy had accepted, even though he knew Paul loathed Teddy Roosevelt. In the Crimson, Jimmy soon initiated a campaign for American “preparedness,” then a code word for American entry into the war against Germany, and he wrote editorials favoring creation of a Harvard regiment. He later boasted, “we got practically the whole college enlisted.”52 Even in college, Jimmy delighted in controversial causes and displayed a flair for blistering polemics. In his crusade, he not only aroused the dismay of President A. Lawrence Lowell, but of his father. It is hard to imagine that Paul didn’t perceive his son’s behavior as a form of filial rebellion, or that Jimmy didn’t intend it as such.
Graduating from Harvard in the spring of 1916 after just three years, Jimmy seemed destined for a Kuhn, Loeb career. In preparation, he worked as a clerk, track repairman, and brakeman on a freight train of the Baltimore & Ohio railroad, a Kuhn, Loeb client. One day, he was approached by a friendly young director of the railroad, Averell Harriman, who recalled that his father and Paul had been great friends. The encounter began a long friendship.
Despite all appearances, however, Jimmy had more than banking in mind. Before the United States entered the war, Jimmy and some Harvard friends enrolled in the Curtiss Aviation School at Newport News, Virginia. They wanted to learn to fly so that they could enlist in the U.S. Naval Reserve Flying Corps when war came. The decision staggered Paul. Besides his love of Germany, Paul abhorred bloodshed and was flabbergasted by Jimmy’s seeming lust for action. During a somber discussion, Paul told his son that he could understand responding to a draft, but that it escaped him why anybody would want to volunteer for “the horrible business of killing people.”53 Paul was devoid of the proverbial German love of uniforms or brass bands and thought people who r
ushed to enlist were just plain stupid. Nina calmed Paul down and got him to accede to Jimmy’s action.
Concealing a vision problem, Jimmy enlisted and went to the naval air station at Hampton Roads, Virginia. The thought of his son dropping bombs on German relatives was so repugnant to Paul that it inspired one of his few devious acts. While Jimmy awaited an overseas assignment, Paul asked Navy Secretary Josephus Daniels to keep his son out of European combat. Daniels agreed. Jimmy’s sister, Bettina, disputed this story, however, claiming that her brother’s “faulty eyesight grounded him.”54 One wonders whether Paul disclosed the vision problem to sabotage his son’s military stint. While waiting for combat duty, the versatile Ensign Warburg invented a magnetic compass for use in naval aircraft.
Jimmy only learned of his father’s behind-the-scenes maneuver in the autumn of 1917 when he went to his parents to discuss his upcoming engagement to the non-Jewish Katharine Faulkner Swift. The issue of the war became intertwined with that of marrying Kay Swift. When Paul confessed what he had done, Jimmy felt more betrayed than ever in his life. “He did the one thing for which I’ve never forgiven him,” Jimmy said.55 Only with time would he see that he himself had been tactless and insensitive. “It was not until years later that I understand the anguish I must have caused my father by enlisting as a cadet naval aviator before the United States had declared war.”56
Paul and Nina objected to Jimmy marrying Kay Swift on practical grounds. She was fresh and sparkling and they were both very fond of her. But Jimmy and Kay were barely out of their teens, and Jimmy seemed immature and unsettled. Also, the match was hardly standard “Our Crowd” stuff. The daughter of a music critic for the New York World, Kay at age eight had declared that her mission in life was to sing Brünnhilde at the Metropolitan Opera House. She was a talented scholarship student at the Institute of Musical Art and the New England Conservatory of Music. After her father died in 1914, Kay and her British mother, Ellen, lived in shabby-genteel poverty on Manhattan’s Upper West Side. Kay supported them by playing piano and giving lessons.
At a time when Warburg women only ventured outside the home to perform charity work, Kay was an independent career woman who played chamber music with two other attractively gowned women in The Edith Rubel Trio. Latching on to this trio, Margaret Lewishon invited them to her father’s camp on Upper Saranac Lake, where Kay met Bettina. She introduced Kay to her brother, the handsome young naval flyer. Before long Kay’s trio was playing Woodlands concerts.
Kay’s mother was as relentless in urging Kay to marry Jimmy as Paul and Nina were reluctant.57 In a vision, she said, her dead husband had spoken to her, saying Kay should marry the rich twenty-one-year-old man. Jimmy later would say he had gotten married because of a ghost. Paul loathed this domineering mother. “I am a butterfly of gentleness and sweetness and harm-less-ness as compared to this daughter-eating woman,” he told Bettina.58
Since his parents objected to Kay Swift, Jimmy proposed the day after he learned about Paul’s betrayal with the Navy secretary. On June 1, 1918, he married her “in a spirit of revolt against parental authority.”59 The standoff over Jimmy’s marriage to Kay Swift recapitulated the fight over his enlistment. Once again, Paul was stubbornly opposed and only gradually persuaded by Nina. But Paul and Nina couldn’t stop the marriage. They had set up a trust fund for Jimmy with a hefty annual income of $4,000 a year that he could draw on from his twenty-first birthday in August 1917 and Jimmy instantly took advantage of this date to declare his independence.
This intermarriage stunned the American Warburgs. Jacob Schiff sent Jimmy a telegram that reads like a parody of his often callous, self-centered dogmatism: “I wish you joy to your happiness but cannot refrain from telling you that I am deeply disturbed by your action in marrying out of the faith in view of its probable effect upon my own progeny.”60 This may have prompted Schiff’s stern policy of disinheriting heirs who married outside the faith, which would shape and distort the lives of his grandsons. Finding Kay Swift very sweet and gifted, Felix took a more relaxed, worldly, view of the match, telling one correspondent “while my father naturally would have strongly objected to his grandchild marrying a girl of the Christian faith, nowadays these things will happen.”61 He and Frieda weren’t nearly so complacent when they faced the identical situation.
Felix did agree with Paul with regard to the war: Neither was thrilled by his sons firing upon their German cousins. Dropping his customary paternal banter, Felix virtually forbid his oldest son, Freddy, from rushing off to war. A year younger than Jimmy, Freddy also went to Middlesex and Harvard and wrote for the Crimson. He was an athletic, sociable, funny young man, with a sharp, caustic wit. By the summer of 1917, Frederick, twenty, was finishing his military training at Harvard, selling Liberty Bonds, and itching to see action. Noting that Freddy had two years left at Harvard, Felix lectured him that “they seem to you so superfluous that you are willing to throw them away for the sake of watching the murder on the other side.… I am determined that until you are twenty-one you will not join the aggressive forces.”62 A year later, however, traveling down to Camp Lee in Virginia, Felix proudly watched Freddy drill his cracker jack company, which acquired the unlikely moniker of “The Warburg Shock Troops.”63
—
For the American Warburgs, the real casualty of the war was not the uniforming of sons but the sad dénouement to Paul’s spectacular career at the Fed. During the war, he had battled two suspicions: that he was a secret agent of “Kaiser Billy” and that he was in cahoots with Wall Street to reduce the number of reserve districts to strengthen the central board. An unswerving defender of Fed independence, he engaged in a running battle with Treasury Secretary William G. McAdoo, who was chairman of the Fed. (Not until the 1930s was the Treasury secretary dropped from the board.) By June 1916, political feuding reached such a pitch that Paul met with Woodrow Wilson for twenty minutes to discuss the problems. Paul felt the meeting eliminated any lingering suspicions and left the White House with “the confident feeling that no doubt remained in the President’s mind with regard to the sincerity of my motives and the honesty of my convictions.”64 On August 10, 1916, Wilson made Paul first vice-governor of a board until then composed of equal members.
But Wilson failed to reappoint Paul in August 1918. This was the shattering event of Paul’s life. He felt his own tender child brutally snatched from his hands. The standard explanation for Paul’s downfall spotlights his German birth, which made his position untenable in wartime Washington. Paul himself contested this. As he wrote cryptically a decade later, “Suffice it to state that it was not—as is generally assumed—my German birth that was the real cause of my withdrawal. While we were at war that phase of the question was only used as a blind by a senator opposed to my reappointment.”65
Paul’s papers, indeed, reveal a far more convoluted Washington drama. The government was then raising billions of dollars in Liberty Loans, an operation that threatened to crowd private industrial borrowers from capital markets. Paul suggested forming a Capital Issues Committee to review industrial borrowing needs. If the committee found that needy strategic companies were being denied access to the marketplace, the War Finance Corporation would step in and provide the money.
At first, the Capital Issues Committee functioned as a voluntary body, with Paul its acting head. When a draft bill proposed incorporating the committee into the War Finance Corporation, Paul marched to Capitol Hill with his old nemesis, Treasury Secretary McAdoo, to testify for the measure. Though Congress suspected them of plotting together, Paul knew that, in reality, they were often at “dagger’s ends.”66 As the Capital Issues Committee was originally conceived, McAdoo would have had sole authority to appoint members. To embarrass and harass him, Senator Henry Cabot Lodge asked McAdoo if he didn’t think it suitable to have the president name the committee members, with Senate consent. “There was, of course, nothing to do for McAdoo but to consent very readily and graciously to this request,” recalled Paul
.67
Seated beside McAdoo, Paul watched this seemingly innocuous episode unfold with sheer horror. He knew that Lodge’s superficially trivial ploy had just ruined his career, for Senate consent would now expose him to the poisonous darts of Senator Robert L. Owen, whom he thought behind the move. In the wartime situation, if Paul remained on the Fed he would have to be on the Capital Issues Committee, for the two bodies would act jointly in many matters. And committee membership would now subject him to Senate scrutiny at a highly inauspicious time. In the xenophobic climate, his German birth could easily be exploited by Senator Owen. Glumly Paul saw that “if my name were presented to the Senate, opposition would be aroused and the easy plea that it was a dangerous thing to place the right practically to pass upon the weal and woe of the country’s financial industries in the hand of one who had such close blood relations with the leading men in the enemy’s country.”68
Paul shrank from creating political discord when America could least afford it. Many newspapers were already trying to hound him from the Fed by sowing doubts about him. As one newspaper wrote with more passion than accuracy, “The fact that Mr. Warburg is said to have a brother who is now the head of one of the largest banks in Berlin and he is said to have another brother who is the head of the German secret service in a north European country are other reasons why the wisdom of appointing him to positions of great influence in the war administration is doubted.”69 In early April, amid much family dissension—Jimmy pleaded with him to take a principled stand for reappointment—Paul decided that the whispering campaign must be silenced. This could only occur if he offered to resign when his term expired in August. He thought this necessary but not fair. “During a period of war people act as in a fever and reasoning is impossible,” he wrote McAdoo.70 What mattered, he said, was to refute any insinuations of disloyalty and “leave no doubt in the people’s mind that the Administration has full confidence in an American citizen even though his cradle stood in Hamburg and even though his brothers are said to be influential friends of the Kaiser (I wish they were influential; many a thing would have remained undone in that case!).”71
