The Warburgs

by Ron Chernow

  For Chaim Weizmann, Rathenau typified those acculturated German Jews who “seemed to have no idea that they were sitting on a volcano.…”25 Where Max shunned the political limelight because of anti-Semitism, Rathenau sought it out. After the 1920 Spa conference, he became a lightning rod for Nazi attacks. Indeed, the party faithful chanted a couplet, “Shoot down that Walther Rathenau / That cursed, Goddamned Jewish sow.”26

  In January 1922, Rathenau was named foreign minister, the highest position to which any Jew had ever risen, yet he stood in a precarious spot. At Genoa, he imperiled his own security with a pro-Soviet speech that inflamed the Nazis. When Max lunched with him afterward, Rathenau suddenly seemed to have aged. He told Max, “That very day in Genoa I said to myself: at this moment Max Warburg is saying to Melchior: ‘What an ass Rathenau is making of himself!’ ” Max admitted he had made similar remarks, but phrased more diplomatically.27

  When Rathenau again pushed Max to join the Cabinet, the latter said it would tempt fate to have two Jewish Cabinet members—one was controversial enough. Hamburg had been shaken by right-wing bomb explosions as violence edged closer to home. As if to illustrate Max’s point, Rathenau lowered his voice, saying gravely, “You cannot imagine how many threatening letters I receive.” They discussed ways to combat anti-Semitism.28

  Despite these threats, Rathenau didn’t take the basic precaution of having bodyguards. Four weeks later, on June 24, 1922, he was riding to work along the Königsallee in Berlin, when two young leather-jacketed thugs drove up beside him and forced his car to the curb. One sprayed Rathenau with a submachine gun, while the other tossed a grenade into the car, blowing him from his seat. One assassin was killed by police and the other killed himself. Years later, the Nazis erected a monument to these heroic young martyrs. When other conspirators were later interrogated, it turned out they had consumed the anti-Semitic forgery, The Protocols of the Elders of Zion, and believed that Rathenau had conspired with fellow Jews to dominate the world.

  For the Jewish community, Rathenau’s murder embodied their worst fears. Even the most powerful, apparently, weren’t immune to the deadly subterranean currents that swirled just below the surface of German society. Max saw the ghosts of Versailles haunting Germany, as he had predicted. “The assassination puts Germany to shame because it reveals once more the increasing savagery of German morals,” he wrote to Paul. “One feels the coming storm, the consequence of that disintegration which daily increases here.… It may well be that this murder will give the signal for further disturbances.”29

  Max was more prophetic than he knew, for the Rathenau murder was the first of a dozen planned by a group called the Murder Exploding Detachment. The target list included Berlin newspaper editor Theodor Wolff—and Max Warburg. They had chosen a dramatic setting to slay Max: at his inaugural speech at Hamburg’s Overseas Club on June 27. Fortunately, the Hamburg police chief tipped Max off to the plot and advised him to avoid public appearances, vary his schedule, shun restaurants, and stay away from his beloved Kösterberg. After several warnings, Max heeded the advice and moved into the temporarily vacant apartment of his sister-in-law. Alice wasn’t allowed to accompany him and it would be an agonizing time for her.

  The Hamburg police assigned a congenial young police lieutenant, whom Max later referred to as “P.,” to the banker.” Max and this protector lived as intimately as lovers. P. slept by Max, ate with him, strolled with him. “I became thoroughly acquainted with the life of a man who is pursued by his own shadow,” said Max.30 The sociable Max tried to befriend P. The first night, they tried playing chess, although P.’s poor game soon ended this experiment. The next morning, Max was flabbergasted to find two strange men in the breakfast room. “Aha,” he thought, “there you are!”31 In fact, they were housepainters, not assassins. Max didn’t think it smart to hole up in a building surrounded by painters’ scaffolding, so he and P. moved to his cousin’s house. That night, his cousin, afraid of disturbing Max asleep in the bedroom, stepped on a chair to loosen a light bulb instead of flipping a noisy switch. When she fell with a crash, P. dashed into the room, flashing a pistol with dramatic derring-do. After nervous giggles, they all went back to sleep. Meanwhile, the other Warburg partners traveled to work in bombproof cars with bars and grates over the windows, accompanied by a police escort.

  After several days of nervous antics, the Hamburg police told Max they couldn’t vouch for his safety. He decided to spend several weeks in Amsterdam with Alice. With his monograms already on his linen, Max assumed the name Max Werner. Because tip-hungry local porters knew the red-and-yellow Warburg trunks, Malice swapped them for a blue-and-white set. After a few weeks, Max was ready to return to Hamburg. Alice fought down her fears and returned with him. Although a tough, proud woman, she nonetheless followed Max’s lead in major matters despite her terrible, continuing anxiety about his safety. When they got home, the children were startled to see them. Why had they returned so soon? Max explained that Holland was so boring, he decided he would rather take his chances on Germany. In Hamburg, he was greeted by an outpouring of sympathy. The Senate thanked him for his tireless efforts for the city, and the Jewish community wired congratulations to which Max replied, “the attacks brought about because of my Judaism have only brought me closer to it.”32

  That September, Max took a two-month trip to America for security reasons and to appeal for lower reparations. After Rathenau’s murder, he withdrew into the political shadows. Before boarding the liner to New York, he and Alice took a steamer to Cuxhaven. For the last time, Max was accompanied by the faithful P. With a severe wartime head injury, P. was under strict doctors’ orders to abstain from alcohol, but nevertheless joined Max in a farewell cocktail. By the time P. got back to Hamburg, the forbidden cocktail had triggered deranged behavior. He began to fire at fellow police officers and was subsequently shut up in an asylum.

  Max later found out that the friendly young police lieutenant had, in fact, been a Nazi spy. A well-drilled Nazi cell existed in the Hamburg police department. (When the first Storm Troopers unit was formed in November 1922, it was headed by a Hamburg police clerk.) Far from guarding Max, P. had kept his Nazi comrades closely posted on his movements and Max would have been an easy murder target had he not fled to Amsterdam.

  After docking in New York, Malice stayed with Friedaflix at 1109 Fifth Avenue, a sentimental reunion made more poignant by Max’s brush with death. For the rest of his life, Felix would fret about his brother’s safety. Indignant over the plot, Felix tried to persuade The New York Times to write an editorial, arguing that “the German militarists, after having gotten the German people into disrepute by disregarding the rights of others, are now trying to wash their hands by blaming the Jews for Germany’s misfortune.”33 Felix found many culprits for Germany’s troubles: the Allies for failing to buttress the Weimar regime, Weimar politicians for their weak vacillation, the militarists for having created the situation in the first place. Felix said that six months earlier Rathenau had told a London friend of his “that he knew that he was to be the next; that he was not afraid of traveling outside of Germany, but he was doomed in Germany, but that he did not talk about it out of consideration for his old mother.”34

  Felix and Frieda scheduled many outings for Max, including musical revues and his first football game. After the cheerless atmosphere in Germany, Max found America bright and hopeful. The brothers recaptured their old sense of fun with a hilarious golf game at Woodlands. As Felix described it, “Paul taking every shot terribly seriously and mourning over every bad shot, Max making fun of every bad shot—and he makes only bad ones—and your poor lame father beating them all hollow, to the great amusement of the multitude.”35

  Afterward, Paul and Max went to Washington, Paul arranging meetings for his brother with Secretary Hoover at Commerce, Hughes at State, and Mellon at Treasury. These talks boosted Max’s hopes that a conference of experts might be convened to reduce reparations. Paul circulated a private memo
describing the “danse macabre” of the reichsmark, with hyperinflation already wiping out the savings of an alienated German middle class. “Those of them who are unable to become workers of some sort are, literally, starving, freezing, and dying.”36 It was a frustrating time for the Warburgs. Paul saw America sunk in an “intellectual coma” and warned Washington that “we are surrounding ourselves with a wall and moat of cynicism and selfish materialism.…”37 When Max sailed back to Germany aboard the Aquitania in November, Paul and Felix asked him to stay longer, but Max thought he must return to the wheel of his ship in Hamburg.38

  By the time he returned, the mark was in an alarming free fall. The French accused the Germans of engineering this drop to sabotage reparations, a viewpoint Max and Melchior sharply contested. A new government was headed by Wilhelm Cuno, Ballin’s successor at HAPAG. The Nazis claimed Max had “installed” Cuno; Max actually had been dismayed to learn of the appointment while steaming back across the Atlantic.39 The new chancellor pleaded with France for a reparations moratorium. Instead, France declared Germany in default on some timber deliveries.

  The upshot was that on January 11, 1923, sixty thousand French and Belgian soldiers took over the Ruhr to enforce payment, by force if necessary. When the Cuno government called for passive resistance in the Ruhr, the French decided to operate the local coal mines and iron foundries themselves. Max applauded Germany’s tough, morale-boosting resistance. When American lawyer John Foster Dulles discussed the Ruhr with Max and Chancellor Cuno aboard the SS Albert Ballin, Max defended the “spontaneous resistance of the population against violence.”40 At the same time, Max feared its economic consequences. To sustain striking workers, Berlin had to make support payments that would further fuel inflation. In February, Max warned Cuno that the burden of supporting the defiant Ruhr workers would complete Germany’s ruin. Everything now hastened the upward spiral of prices. Germany printed money to pay Ruhr workers while France put seized reichsmarks back into circulation, swelling the money supply.

  At M. M. Warburg, inflation created a frenetic tempo that clashed with the Victorian formality. As soon as employees were paid, they crossed the street to the Karstadt department store and spent the money before prices rose. The cheaper mark created a bonanza for foreign investors who bought German properties at bargain prices, arousing resentment against the bankers who executed these deals. M. M. Warburg switched much of its capital into foreign currencies. With black humor, Max joked that the staff in 1923 spent its time scribbling zeroes in ledgers. From 1921 to 1922 alone, the firm’s balance sheet exploded from 1.6 to 37 billion marks! Inflation fed speculation, with clerks constantly chalking up new prices on the foreign-exchange blackboard and the bank had to lower the curtains when HAPAG employees across the street spied on them through binoculars. Hamburg’s docks teemed with people trying to buy foreign currency from disembarking sailors.

  The rush from devalued paper into gold and other commodities drove prices up further. Max thought of buying a farm to hedge against inflation. “The Mark completely ceased to deserve the appellation ‘currency’ it became simply an illusion,” he said. “Worthless scraps of paper, each nominally representing one million Marks and stuffed into huge sacks, dominated the market. Amid the torrent of events cascading down one after another, the firm’s arrangements whirled in confusion.”41 To deal with the hyperinflation, Max helped to organize a makeshift affair called the Hamburg Bank of 1923, which issued emergency currency backed by gold. Paul’s International Acceptance Bank granted its first dollar credit to the 1923 emergency bank.

  In this frenetic atmosphere, M. M. Warburg & Co. celebrated its 125th anniversary on January 6, 1923. The party, held at the Alsterufer home of Aby S., had been intended as a big, expansive affair, like a farmer’s wedding, with every employee invited. But the vast paperwork produced by inflation had swollen employee ranks from about two hundred to five hundred, so only those with twenty-five years of service attended. Merry speeches alternated with muted words of thanksgiving. As Max said of the participants, “They were all inspired by a feeling of gratitude that we had somehow struggled onward through all these periods of misfortune.”42

  The most remarkable speech was given by a precocious newcomer, twenty-year-old Siegmund Warburg, grandson of the first Siegmund and a nephew of Aby S., who defined tradition as “the spirit of a particular atmosphere, which has arisen where one generation after another has worked with a similar purpose.”43 To sustain this tradition, he stressed the need for fairness, loyalty, reserve in personal life, and a German way of thinking. Closing with a paradox, he said traditions die when people cling to them too strongly or hanker too willfully after the new. This sort of epigram would become his trademark.

  However chastened by war and inflation, the Warburgs retained a faith in Germany’s future. Every now and then, they got jitters. Returning from a ski holiday that month, Eric stopped to hear Hitler speak in a Munich beer hall. Afterward, he wrote to his cousin, saying that the man was surely mad. But if the Allies didn’t soften the Versailles Treaty, if they insisted upon extracting the last ounce of revenge, this deranged man, with the hoarse voice, would someday rule Germany.44

  That summer, the mark spun out of control. In mid-June, a dollar equaled one hundred thousand marks, a month later two hundred thousand marks. By late July, the dollar rose to one million marks, by late August ten million marks, by September one hundred million marks. In November, the dollar fetched twelve trillion marks on the black market. In October, it cost a few trillion marks to post a letter. With bread prices tripling hourly, people dashed about frantically with big wads of devalued paper stuffed into their pockets. The printing of money was the only profitable activity left, as 1,783 presses stamped out worthless paper. It took 30 plants just to produce the sea of paper.

  As Germany lurched toward civil war, Cuno fell in August 1923 and was replaced by Max’s hero, Gustav Stresemann, who immediately declared martial law. Strike-torn Hamburg was a war zone, with bullets flying everywhere and mobs pillaging food stores. In late October, Communists seized seventeen police stations and blocked railway lines. The police struck back, patrolling in armored cars mounted with machine guns, and they cleared Communist strongholds by hurling grenades into buildings.

  The next bold adventure came from the political right. In early November, Hitler, Hermann Göring, and Ludendorff essayed their bloody Munich Beer Hall Putsch, which was swiftly crushed. Hitler used the subsequent trial to issue electrifying tirades against the Jews and to emerge as a national figure. In the Munich court, he said he had acted to prevent a Jewish financier from mortgaging the German railway to gain an international loan to Germany—a possible reference to Max or Melchior. After his employees overheard violent threats made against him in the street, Max fled Hamburg for twenty-four hours. To guard against future trouble, the Warburgs began to create investment companies in America, Britain, and Holland. Sentenced to five years in prison, Hitler ended up serving an extraordinarily lenient sentence of less than nine months in Landsberg prison. There he ate well, put on weight, and began to compose Mein Kampf.

  On November 12, 1923, following the Hitler putsch, the government named Dr. Hjalmar Schacht to a special post to stabilize the German currency. He oversaw the issue of a new currency, the rentenmark, issued in restricted quantities and backed by mortgages on German real estate, gold, and foreign exchange. As the first rentenmark banknotes circulated on November 15, the printing presses stopped making the old money. Max predicted the rentenmark would fail, tempting France to introduce the franc in occupied territory. Instead, good new money drove out bad old money.

  When the Reichsbank president, Rudolf Havenstein, died on November 19, a competition to succeed him arose between the reactionary Karl Helfferich and Dr. Hjalmar Schacht. Max was a member of the Reichsbank’s Central Committee, which met beneath tall oil portraits of the three kaisers while messengers in blue livery with gilt buttons scuttled in and out. Despite Max’s presence,
the Reichsbank remained anti-Semitic in its hiring policy. Max supported Schacht less from enthusiasm than from fear of Helfferich. In the end, he was spared the necessity of voting for Schacht because he had to sail to New York.

  Dr. Schacht indeed became the Reichsbank’s president on December 22, 1923, and won global renown for slaying inflation by the following summer. This averted further deterioration of the political situation, which was taking an anti-Semitic turn.

  There were some hideous previews of the future. In November 1923, a pogrom against the Ostjuden occurred in Berlin. As the Vossiche Zeitung reported, “Howling mobs in all the streets. Looting is going on under cover of darkness.… On all sides, the same cry: ‘Kill the Jews!’ ”46 In 1923, the police still bothered to clear the streets instead of simply watching, as they would do later. Returning to Hamburg before Christmas 1923, Max so feared an outbreak of mob violence against the bank that he gained permission from the police to issue firearms to eight employees. Max often described his bank as a fortress, and for once the image had a ring of literal truth.

  The subsequent Warburg story is inseparable from that of Dr. Schacht, who would serve as their sometime patron and protector under the Third Reich. Schacht’s father, who had worked in a New York brewery, so admired a local newspaper editor that he named his son Hjalmar Horace Greeley Schacht. At school, Hjalmar studied Hebrew and took his doctorate in political economics before working at the Dresdner and Danat bank. A starchy, arrogant figure, Dr. Schacht outwardly looked the proper old-school banker, with his wire-rimmed round spectacles, mustache, and bowler hat. Beneath the respectable facade, however, he was a shrewd opportunist with a slightly mad gleam in his eye. With the benefit of hindsight, Max noted his chameleon quality, his brazen opportunism. He could “change course with great energy and ruthlessness and … sacrifice the principles which he had just seemed to uphold. The deciding element in his character was his powerful instinct of self-preservation. He could not bear to be out of power for any length of time.”47 Max wasn’t quite so censorious at the time and later exaggerated his early doubts about Schacht. As Paul’s son, Jimmy, recalled, “For some reason which I find difficult to explain, I disliked and distrusted the German wizard of finance, while my father and uncle Max both admired and trusted him.”48