by Ron Chernow
Fritsch also blamed Max, Melchior, and their Jewish confederates for enriching themselves during the war by profiteering and sending tainted food to the front. Max retorted that he and other bankers had, in fact, lost 80 or even 90 percent of their capital during the war and hyperinflation. It was more difficult for Max and Melchior to dispute that they had offered to pay one hundred billion marks at Versailles. They explained that Germany had to make an offer and that it was a sensible one. They also recounted their train journey to Weimar to persuade the German government to reject the treaty.
Turning his attention to Paul Warburg, Fritsch branded the Federal Reserve Board a stratagem of Jewish bankers to consolidate their world financial power. “The Federal Reserve Board is ostensibly a state institution, when in truth it is completely in Jewish hands,” Fritsch stated.8 Max noted wearily that Paul had sacrificed a millionaire’s salary to take the job and had almost all Christian supporters in his crusade for the Fed. “Now it is simply explained, because my brother had the idea and the rare fortune to see the idea he fought for recognized, the Federal Reserve Board must be under Jewish influence.”9 Fritsch couldn’t believe that any Jew would undertake a cause for selfless reasons. Pretending to quote talmudic law, he said that Jews could only appear to help non-Jews, but were actually mandated by their religion to harm them.10 Having spent the war under suspicion of concealed German sympathies, Paul Warburg was now cruelly portrayed as nemesis of the German people. Fritsch lumped together Paul (the “Finance Dictator”) and Bernard Baruch (the “Economics Dictator”) as the two Hebrews who had conspired to destroy Germany.
Part of the strength of Nazi ideology was that it was both vague and all-inclusive, an elastic garment that could clothe hate of any size or shape. To exploit disenchantment with capitalism and fear of socialism, the party linked Jews, Wall Street, and the Russian Revolution in one improbable whole, thus maximizing Nazis’ appeal to populists of both left and right.
In 1924, the Nazis were still gadflies—more pests than mortal threats—and the trial had moments of gruesome carnival humor. At one point, the judge read passages in which Fritsch described his experience in a wartime Turkish sick bay. A young doctor, with a foreign accent, had supposedly told him that he had been trained at the behest of Max Warburg. Each year, evidently, the Warburgs trained about five hundred young Jewish conspirators from Poland and elsewhere as businessmen, bankers, lawyers, and diplomats and then slipped them into various countries as a Fifth Column. Max facetiously responded to this hocus-pocus: “If I had trained young people for foreign service, I would have had Germans trained first,” he said.11
Fritsch had the cheek to chide Max’s behavior after the Rathenau assassination. By furnishing him with a private bodyguard, Fritsch alleged, the Hamburg police had shown how much more they valued a Jewish Warburg life and he accused Max of cowardice for changing his residence each night to elude the assassins. Max saw that Fritsch was just trying to make him appear nervous and ridiculous.12
The verdict was a sham that only emboldened the Nazis and invited them to court further libel suits. Although the judge declared that Fritsch hadn’t provided a shred of proof to support his allegations, he sentenced him to only three months in jail. Remarkably, he ruled that Fritsch had not acted with malice, but had erred in good faith! Upon appeal, the mild three-month sentence was reduced to a thousand-mark fine. It was a stunning example of how the old imperial judges had made the Weimar Republic a paradise for publicity-mongering extremists.
Fritsch quickly published a transcript of the trial entitled “My Battle with the House of Warburg—An Episode in the Fight against World Capital,” complete with fresh slander against Jewish figures.13 He distributed a copy to every Reichstag member. In the following years, he would reiterate his charges against Max Warburg, sometimes in the guise of a general indictment of world Judaism, without naming Max. Other times, he put caution aside and revived the charge that Fritz had torpedoed the Stockholm negotiations with Protopopov in World War I.
The Fritsch story has an interesting coda. By 1927, Felix, Louis Marshall, and the American Jewish Committee had convinced Henry Ford that the Protocols of the Elders of Zion were patent forgeries. Ford, as mentioned, had used the Protocols as the basis for his book, The International Jew. Not only did Ford apologize to the Jews and retract the book, but he wrote to Fritsch, asking him to recall the German edition. Deaf to these pleas, Fritsch published The International Jew right until the Nazi seizure of power in 1933.
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In 1924, with its currency stabilized, Germany entered a brief, misleading period of economic normality. Extremism began to ebb and the Social Democrats gained in strength. Paul called 1924 the year when the war ended and reconstruction began.14 M. M. Warburg & Co. now occupied its handsome new neoclassical palazzo on the Ferdinandstrasse, but no longer needed so much space. With inflation over and the “liberation from Lilliputian accounts, from scribbling zeroes,” as Max said, the staff shrank from 535 to 358 employees in just a year.15 The new headquarters was elegantly equipped with mahogany telephone booths in corner offices to assure private calls from partners to clients. There was also a Geheimdienst or secret service, secretarial rooms that were off-limits to visitors and that handled mail only partners could see. If a “Z” was affixed to the end of a letter, it had to be destroyed after reading. Such discretion was standard procedure in private banks yet fed an impression that the Jews must be steeped in dark dealings.
The mood brightened further in Germany when the Allies reduced reparations at the 1924 Dawes conference in London, but economic relief came at a steep political price. In exchange for lower payments, the Allies took as security a first mortgage on German government revenues from taxes on beer, tobacco, and other items and gained some control over the Reichsbank and German railways. An agent general was appointed to gauge Germany’s capacity to pay reparations. As a sweetener for Berlin, the Dawes plan envisioned an international loan of unprecedented size that would ultimately allow Germany to pay reparations with borrowed money, thus starting the fatal carousel of global lending that would spin dizzily for a decade then collapse.
After the Reichstag adopted the Dawes scheme amid fierce controversy, J. P. Morgan and Company mounted a giant loan for Germany. Melchior had been a German delegate in London and so the plan was predictably denounced by the Nazis as the latest maneuver by Jewish capital to enslave Germany. This theory encountered one snag: the House of Morgan was notoriously anti-Semitic. This didn’t deter the Nazis, who revealed that J. P. Morgan’s original name was Morgenstern! Even General Charles Dawes, the Chicago banker, was hiding Jewish roots. As the new Julius Streicher publication, Der Stürmer, informed the faithful, “His name is Davidsohn. He is a fullblooded Jew.”16
The Dawes Plan had a profound impact upon Weimar Germany, as French troops evacuated the Ruhr and the rentenmark was replaced by the reichsmark. The Warburgs welcomed the Dawes Plan and the hopeful mood it induced after years of defeatism. Paul predicted, correctly, that Germany would now shed its outcast status in global financial markets. A brief honeymoon ensued as short-term foreign loans from America and England flooded into a Germany only recently boycotted by foreign bankers. “Every Tom, Dick and Harry began going to Europe, discovering borrowers and throwing loans at their heads,” recalled Paul’s son, Jimmy.17
With Germany the major debtor of the 1920s and America the major creditor, the Warburgs again occupied a pivotal place in transatlantic finance—probably the last time the stars were perfectly aligned for them. Paul’s International Acceptance Bank (IAB) organized the American and Continental Corporation to extend medium-term credits to European—especially German—industry. Paul and Max funneled foreign money into Hamburg state loans and helped to rebuild the German merchant marine, confiscated at war’s end. As one Hamburg official later said, “Max Warburg must get the credit, beyond anyone else, for the re-emergence of an important German merchant fleet.”18 Paul’s IAB gave credit to HAPAG
, while Max courted Averell Harriman, pressing him to form a joint venture with Ballin’s old firm. Under the deal struck, Harriman would initially provide American ships, while HAPAG would offer route structures and port facilities. The venture got HAPAG up and running again, but was fiercely criticized by Americans who alleged that HAPAG ships had harbored spies and saboteurs during the war.
Paul had advised Dr. Schacht on how to tame inflation and had been involved in the Dawes loan. As a reward, the IAB became the American agent for the Reichsbank and its Gold Discount Bank subsidiary, providing the latter with a twenty-five-million-dollar credit that strengthened Germany at a critical juncture. Max was now appointed to the prestigious Generalrat, the Reichsbank advisory board, a position he would hold until Hitler’s advent.
The Wall Street money that revived Germany also carried hidden perils for the Warburgs. The family was associated with America, which was both feared and admired in Weimar Germany. As the pattern of the glossy new consumer society, America appealed to chic urban sophisticates. For other Germans, however, America epitomized the soulless, technocratic society that would supposedly stifle the true organic “German” spirit. That an American agent general, S. Parker Gilbert, governed Germany’s economic destiny only added to their hostility. So the Warburg’s American connection helped the Nazis to vilify the family as an “alien” and “cosmopolitan” force that owed its real allegiance to groups outside of Germany.
Foreign credit was a drug that fostered a short but artificial prosperity in Germany and Max later referred to the Scheinblüte or “illusory boom” of 1925. The foreign money, he feared, only masked underlying economic problems, such as high German taxes and the bloated Weimar bureaucracy. Repeatedly voicing grave doubts about the debt accumulation, he was himself swept up in the boomlet and committed fatal misjudgments. Unlike Paul, he wasn’t a cautious, sober man holding out against the frenzied crowd, but a red-blooded buccaneer. Max took money routed from New York by Paul and recycled it into a giant loan to the Karstadt department store, plus a stake in a hotel chain. Both ventures would end disastrously.
In 1925, Max was deeply saddened by the sudden death of Friedrich Ebert and the election of Paul von Hindenburg as president. He worried about the world’s reaction to having a military man as head of state. Later in the year, Dr. Schacht invited Hindenburg to a Reichsbank dinner. As Max watched the aging marshal lumber heavily along the corridor, with furrowed brow and melancholy expression, he felt he was watching a man risen from the dead. It all seemed a frightful throwback to the past.19
Capping the events of mid-decade was the signing of the Treaty of Locarno in 1925, which paved the way for German admission to the League of Nations the next year. Carl Melchior was appointed the sole German member of the League’s Finance Committee, which further embellished M. M. Warburg’s reputation. Germany’s status as an international pariah now seemed behind it. Max’s hero, Gustav Stresemann, even briefly toyed with the idea that Germany could again become a great power.
Awash with foreign money, German industry embarked on a merger wave that produced huge trusts and cartels. Daimler and Benz merged. The new United Steel Works arose, second only in size to U.S. Steel. In 1925, six large chemical corporations formed the most massive trust, I. G. Farben, which ranked as Europe’s largest corporation. It would produce the bulk of dyes, pharmaceuticals, photographic film, nitrogen, and magnesium made in Germany. Though a staunch free marketeer, Max favored industrial mergers and executed several of them, including that of two North Sea fishing concerns. As so often in the past, Jewish financiers were catalysts of changes that embittered the losers. They aided the department store trend, for instance, which hurt small shopkeepers, who later joined Nazi cadres in disproportionate numbers.
Max added a board seat on I. G. Farben to twenty-six others he now held. (By 1928, the Warburg partners collectively held eighty-seven director seats.) Since the Nazis would later employ I. G. Farben carbon monoxide to murder mental patients and also exploit its synthetic fuels, it is odd to recall that in the 1920s the firm was regularly pegged a “Jewish business” in anti-Semitic literature. In fact, it was Max’s presence on its board that occasioned the initial feud between the combine and Nazi agitators.
His adversary was a short, stocky man with a trim Hitler moustache named Dr. Robert Ley. The holder of a doctorate in food chemistry, he worked as a chemist at Bayer pharmaceuticals. Inspired by accounts of Hitler’s 1924 Munich trial, Ley commenced a double life. A sober chemist by day, he spent his evenings standing on tables in the beer gardens of Cologne and Aachen, drunkenly preaching hate. He and his thuggish bodyguards often ended the evening by trading blows with Communist hecklers. Dr. Schacht saw Ley this way: “He was a notorious drunkard, given to every kind of erotic excess, and without the slightest sense of responsibility.”20 His enemies in the Nazi party tried to thwart him by claiming he was half-Jewish. Nevertheless, in 1925 Hitler signed an order making him the Rhineland Gauleiter, or regional leader.
When Bayer merged with five other firms to form I. G. Farben, the Nazi rabble-rouser suddenly found himself working for a certified “Jewish combine.” Ley must have seen the advantages in this and he didn’t muzzle his views. In 1927, he railed against Max and his brothers in speeches. No matter how much Max tried to sidestep political activity, he couldn’t evade this propaganda whirlwind. He was a fighter by nature and, as with Theodor Fritsch, didn’t intend to take this quietly. He appealed to Hermann Bücher, who sat on Farben’s economic advisory board and persuaded Farben’s management to issue an ultimatum: either Ley would refrain from future Nazi activity or he would resign.
During a Gauleiter meeting in Weimar on November 27, 1927, Ley discussed the matter with Hitler, showing him the letter Bücher had circulated to management. Max Warburg was in a no-win situation. If Ley opposed him and won, it would be a great Nazi victory; if he lost, it would only expose the tentacles of Jewish power. Hitler advised Ley to stand firm and said he should ask I. G. Farben what right they had to make such a demand upon him. The talk stiffened Ley’s resolve to become a Nazi martyr, and a month later, he wrote to Hitler, “What good is the most wonderful and secure job, if Germany perishes?”21 An unrepentant Ley thus defied the Farben management: “I take it as my duty as a National-Socialist leader to attack every parasitic enemy of the Volk. If the Jewish supervisory board chairman Warburg can prove that I am wrong, I will be silent. Otherwise not.”22
Farben dismissed Ley but continued to pay him a monthly stipend so he wouldn’t defect to a competitor. With the money, he founded a Nazi paper in the Rhineland. The episode helped Ley’s slimy career, elevating him into that pantheon of Nazi heroes who had suffered for the Volk. The Nazi press exploded in an orgy of abuse against I. G. Farben, which was now unmasked for all time as a tool of “money-mighty Jews.”23 Hitler later rewarded Ley by making him head of the German Labor Front, the largest organization in the Nazi party.
The Nazis held their first Nuremberg party rally in 1927. They now began to win their first recruits among respectable elements, including reactionary military officers, beleaguered Prussian landowners, and a smattering of industrial barons. Even in Hamburg, which prided itself on its freedom from right-wing intolerance, the Nazis made their first halting inroads. In 1926, speaking at the city’s elegant lakeside hotel, the Atlantic, Hitler was cheered by shippers, industrialists, and aristocrats. Soon Brownshirts marched on Sundays through working-class neighborhoods by the port, and Josef Goebbels came to Altona to address a mass rally.
Even as the Nazi movement gathered force, the Warburgs’ power in Jewish communal affairs reached its peak. In November 1928, the newspaper of the local Jewish community ran a one-hundredth-anniversary issue, which lauded M. M. Warburg & Co. as the city’s foremost bank. As throughout Jewish history, financial power translated into philanthropic influence. The Weimar welfare state hadn’t entirely superseded the self-governing structures of the Jewish community. That same year, Aby. S. Warburg�
��Max’s partner and cousin—joined the board of the Central Association of German Citizens of Jewish Faith (Centralverein), then fighting anti-Semitism.24 Max, now sixty-one, became executive director of the influential Hilfsverein der deutschen Juden, the Aid Society of German Jews. It would have been a weighty responsibility at any time. On the eve of the darkest turn in Jewish history, it would place Max Warburg in a leadership position that would force him to make excruciating decisions among unpalatable options.
The Jews in Weimar Germany had been successful enough to lend some credence to Nazi propaganda and arouse gentile envy and resentment. But they were neither numerous nor powerful enough to pose any real threat to the Nazis. Weimar had set them up as the perfect scapegoat, blessed with the appearance, but not the reality, of overwhelming power.
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Abu Warburg in Florence, 1927. (Warburg Institute)
CHAPTER 20
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Warburg Redux
As the oldest and youngest of the Famous Five brothers, Aby and Fritz represented opposing sides of the split Warburg personality. Whether facetious or arrogant, Aby was an apostle of high culture, an archperfectionist, closeted with his books and pondering abstruse matters. He had jettisoned Jewish culture in favor of classical European culture. Fritz, however, embraced the Jewish community, both as a partner and personnel director of M. M. Warburg, and as chairman of the Jewish Hospital in Hamburg after the war. Unlike Aby, he was earthy and unassuming, a worldly man who liked street life and casual café conversation.
After Charlotte’s death, Fritz and Anna Beata moved into her Mittelweg house where they had a large library and an electric piano. They became the Jewish conscience of the clan, maintaining the traditional Friday evening gatherings and bringing in a tutor to teach Hebrew and Jewish history to their three daughters. Aided by the American brothers, Fritz and Anna Beata maintained their style of life despite the hyperinflation. Always guilty about their wealth, Anna Beata was disturbed that they enjoyed comfort at such a dreary time for many Germans. “We’re unfortunately too rich,” she would say.1 It pained her to invite friends to Kösterberg, and she dressed her daughters plainly so as not to flaunt their wealth.
