The Warburgs

by Ron Chernow

  In mid-April, FDR summoned his economic advisers and, with surprising joviality, announced that the United States would jettison the gold standard. In other words, paper currency could no longer be redeemed for gold. When the president dropped this bombshell on his advisers, the mood of the meeting turned ugly. Sympathetically, FDR read aloud the Thomas amendment to the proposed farm bill, which would permit the government to print greenbacks and take other monetary measures to aid recovery. To his consternation, Jimmy saw Roosevelt resorting to inflationary measures as a deceptively simple way to solve the Depression. “At the risk of being impudent, I went so far as to say that I considered the passage of such a bill completely harebrained and irresponsible.”13

  For private bankers of that era, scrapping the gold standard seemed as strange and forbidding as urging the planets to stray from their orbits. In September 1931, Paul had grown sick when he learned that England had gone off gold. Upon leaving the White House, Lewis Douglas, the conservative budget director, turned to Jimmy and said, “Well, this is the end of western civilization.” “I don’t think it’s quite that,” Jimmy answered.14 But he did fear that such nationalism would damage the global economy. In this respect, Jimmy was the true son of a Jewish banking dynasty, for he always favored global coordination and harmony over any naked assertion of national interests.

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  Jimmy found himself at the center of a gathering debate as to how FDR should respond to Hitler, who also came to power in early 1933. Some Jewish leaders would fault the Warburgs for failing to alert FDR to the danger. Supreme Court Justice Louis Brandeis noted Felix’s initial reluctance to act. As he told Rabbi Stephen Wise in 1933, “Warburg, [Paul] Baerwald (of the Joint Distribution Committee) and others who have relatives in Germany dare not say anything publicly.”15 This charge was baldly twisted by Wise who never missed a chance to knock the Warburgs. In a 1936 letter to Albert Einstein, he wrote: “When I saw Brandeis, he told me that the President would have acted in March 1933, if it had not been for the Warburg family.” Wise added, “You see, Professor Einstein, how these great philanthropists are our deadliest enemies and a fatal curse to the security and honor of the Jewish people.”16 We should note that Brandeis and Wise were both Zionist leaders with an implacable ideological antipathy to the Warburgs.

  Were these charges valid? It is hard to make a monolithic statement about the Warburgs, who were a large, diverse, and eternally squabbling brood. In general, one can say that the charge had some validity in early 1933, but very little after that. For information about Germany, Jimmy relied upon Max and Eric who, as mentioned, tried to appease the Nazis at the time of the April boycott. On March 22, Jimmy described a report he had received from Eric through an intermediary: “The reports we were receiving here were grossly exaggerated, and that all the families were well and unworried and that all the protest meetings and the American publicity were doing more harm than good.”17 Having previously criticized his Hamburg relatives for complacency about Hitler, Jimmy now chose, unaccountably, to accept their interpretation of events.

  At first, Jimmy parroted the official State Department line that Nazi treatment of the Jews was a matter of internal German policy. In writing to Felix’s son, Freddy, he even introduced a note of dubiety about the “horror stories” from Germany: “A protest against barbaric atrocities, assuming their existence, is one thing, but a protest against an economic boycott—while that is perhaps a more reprehensible thing in itself—is a horse of a different water.…”18 (my italics) After discussing the German situation with Jimmy in May, Felix Frankfurter thought he was advising FDR to appease Hitler—an allegation Jimmy later hotly disputed, insisting he had favored a very tough policy.19

  Certainly, one can say that as Jimmy acquired more information, he abruptly changed his position. On May 2 he lunched with James McDonald, a New York lawyer just back from Germany. A member of The New York Times staff and president of the Foreign Policy Association, the silver-haired McDonald gave Jimmy a radically different glimpse of events inside Germany. McDonald was horrified by a talk with Hitler, who told him, “I’ve got my heel on the necks of the Jews and will soon have them so they can’t move.”20 McDonald predicted that German Jews would retrogress to medieval ghetto status and that Hitler would trigger a European war. “He said that if he were Max he would certainly not keep his family in Germany today,” Jimmy wrote in his diary. “All in all, the picture he paints is far worse than anything I have heard yet.”21

  Appeasement accusations also swirled around Felix. In August, The New Republic claimed that he had dissuaded Roosevelt from protesting Jewish persecution, arguing that this would hurt German Jews, and Walter Winchell repeated the charge in his column. As noted, Felix had reluctantly bowed to the wishes of Max and Eric and opposed a formal boycott of German goods. Yet he clearly sounded the alarm in private meetings and was singularly free of illusions about the Nazis. Felix lobbied to get the tough-talking James McDonald appointed the new U.S. ambassador to Germany instead of historian William E. Dodd, who believed the Jews dominated German economic life.22 As soon as Dodd was appointed, Felix told Dodd about the suicide of his Oppenheim relatives.23 Along with Irving Lehman, Felix lobbied Roosevelt for a far more receptive policy toward German-Jewish refugees. As he reported with disappointment in October, “So far all the vague promises have not materialized into any action.”24 Felix was assuredly not twiddling his thumbs.

  That autumn, the Joint Distribution Committee turned to the League of Nations for help with Jewish refugees from Germany. When Germany threatened to veto such an action, the League set up a special commission outside normal channels to negotiate with the Nazis. Felix and Frieda touted McDonald to head the new High Commission for Refugees from Germany and helped to secure FDR’s support. The group had to be privately funded, so the Joint contributed to its work and Felix personally supplemented McDonald’s low salary. McDonald found Felix a notable exception to non-Zionist Jewish leaders who seemed blind to the Nazi menace. In January 1934, the two men made an impassioned plea for action to Jewish businessmen assembled in the London New Court offices of Lionel de Rothschild. McDonald fervently warned that the six hundred thousand German Jews were in peril. “Warburg, respected and loved through the world for his philanthropies, followed with a plea for immediate action,” McDonald recalled of this futile exercise with the British.25 “Their stony silence told us that they were not to be stampeded by two ‘American alarmists.” ’26

  Felix dedicated enormous time to saving German Jews. Acting in part upon suggestions from James G. McDonald, he spearheaded a three-million-dollar effort by the Joint to resettle Jews in Palestine and in 1934 helped to set up the Refugee Economic Corporation to spur development there. He also created the Emigré Charitable Fund to train, finance, and resettle Jewish refugees from Germany.27 During this time, Felix was also honorary president of the Palestine Economic Corporation.

  The main problem during the Roosevelt administration was not the laggard response of the Jewish leadership, but the political isolationism of Depression America. Roosevelt knew about events in Germany but chose not to intervene. On June 16, 1933, FDR told Ambassador Dodd, “The German authorities are treating the Jews shamefully, and the Jews in this country are greatly excited. But this is also not a government affair.”28 Struggling with massive unemployment, Roosevelt feared a political backlash if he admitted desperate European refugees. FDR wasn’t anti-Semitic and recruited many Jewish aides. Yet radio priest Father Coughlin and other demagogues were inflaming anti-Semitism, making it an inauspicious time to admit Jews. An inward-looking America didn’t want to absorb a tide of German-Jewish refugees. By law, a maximum of twenty-five thousand could be admitted each year, but the actual number fell far short of that, and the process was slow and cumbersome. The problem in Washington was never one of information but of political will.

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  In May 1933, Jimmy renewed his acquaintance with Dr. Schacht, whom he had hated ever sinc
e their dealings in the 1920s when the International Acceptance Bank was the American agent bank for the Reichsbank. Before Schacht came to Washington, Jimmy advised Roosevelt that Schacht was a “slippery character.”29 He lived up to this warning. To ingratiate himself with Hitler, Schacht had contrived an insolent plan to stop payment on one billion dollars in German debt owed to American investors. To give the appearance that Washington tacitly blessed this step, Schacht wanted to announce the decision following his Washington talks. Hitler loved the sheer gall of it and Schacht promised that he could dupe the Americans.

  Jimmy blamed the Depression on German reparations and other war-related debt and advocated debt reduction as the only sensible policy. That spring, he even floated something called the Warburg Plan to lighten the Allied debt load. But he opposed the cynical, unilateral debt repudiation contemplated by Dr. Schacht with its misleading air of U.S. approval. Since Germany had been a major recipient of Wall Street largess in the 1920s, a total cessation of payments was no small matter.

  On May 8, a curious meeting occurred in Washington at the German embassy, which had been financed partly with a loan from Paul Warburg in earlier days. Jimmy sat opposite the new German ambassador, Dr. Luther, and Dr. Schacht, his successor at the Reichsbank. Having just heard horror stories from James McDonald, Jimmy aggressively pressed the Jewish question. Schacht reacted with a brazen denial of any problem. As Jimmy noted, Schacht had “said that he himself is anything but anti-Semitic and that he thought the whole thing was already over its crest and would boil down to a fairly sensible basis pretty soon. He cited the fact that he was keeping Max on the board of the Reichsbank and that he [Max] had also just been reelected as one of the six governors of the Clearing House.”30 Schacht hinted that he privately disagreed with some of Hitler’s policies, but couldn’t say so aloud.

  Meeting with Secretary of State Cordell Hull, Schacht delivered a bombastic speech, saying that Germany would suspend debt payments the next day, but wanted to consult with Roosevelt first. To protect Roosevelt from this trap, Jimmy went to the White House and suggested that FDR direct a calculated insult at Schacht. He proposed that a White House aide call Dr. Schacht and cancel his appointment with FDR for the next day, citing a meeting with the Chinese minister. Roosevelt thought the arrogant Schacht needed such a comeuppance and this also appealed to his sense of mischief.

  The next day, making a deliberately insulting pun, Hull handed Schacht a note saying that the U.S. was “profoundly shocked” by Germany’s debt decision. In his high stiff collar and rimless glasses, Schacht was made to stand in embarrassment for three minutes while Hull calmly scanned some papers. Having assured Hitler that all was proceeding smoothly, Schacht now saw that the Americans wouldn’t fall for his little charade. He would have to wait to announce his debt default. On his way back to Germany, Schacht told members of the American Jewish Committee in New York that he would plead with the Nazis to treat the Jews leniently. In an amusing coda to Schacht’s visit, Roosevelt said to Jimmy one day, “You know, Jimmy, it would serve that fellow Hitler right if I sent a Jew to Berlin as my ambassador. How would you like the job?”31

  After the Schacht visit, Jimmy focused on monetary preparations for the World Economic Conference, which would open in London on June 12. Strenuously resisting having Bernard Baruch and Joseph P. Kennedy on the American delegation, Jimmy said he wouldn’t go if FDR picked these Wall Street speculators to pay off political debts. After Versailles, the Warburgs had learned to be gun-shy about global conferences. Jimmy’s diary shows that he opposed Baruch from fear that anti-Semites might brand the American team an “international Jewish delegation.”32 Still smarting from Versailles, Max declined Jimmy’s social invitation to meet him in London to discuss Germany. Noting the vicious libel that he and Paul had secretly negotiated at Versailles, Max said that he didn’t want to give “any opportunity to the observation that a Warburg also participated in the negotiations on the German side.”33 They agreed to meet in Paris or Amsterdam.

  The Nazi propaganda had now washed up on American shores. In June 1933, the Jewish War Veterans slipped an observer into a rally of seven hundred people in Queens, New York, held in a swastika-draped garden restaurant. The spy reported brisk sales of Theodor Fritsch’s book, My Fight with the House of Warburg.34 A Nazi newspaper in New York, Das Neue Deutschland or “New Germany,” ran a philippic against the Warburgs that September, trotting out the old canard about Paul and Max scheming at Versailles.35

  Even as Jimmy fled his Jewish identity, he was cast as an archconspirator in the international Jewish cabal. A Dutch publishing house produced a book entitled The Resources of National Socialism: Three Conversations with Hitler by J. G. Schoup, which made the absurd claim that Jewish capitalists had secretly bankrolled Hitler to preserve their German investments against a Bolshevik revolution. It was written in the form of secret confessions by a Sidney Warburg who was clearly patterned after Jimmy. This odious potboiler claimed that after the 1929 crash, Jewish bankers sent Sidney to Europe to deliver $8.5 million directly to Hitler and his followers. Alerted to the book by a Warburg partner in Amsterdam, Jimmy notified the publisher that it was a forgery and he got it withdrawn. But it would pop up in various forms for many years.

  In the spring of 1933, Jimmy was still dazzled by Roosevelt and convinced he would go down as a great American president. The London conference would make him revise his opinion. The monetary group was headed by James M. Cox, who delegated currency questions to Jimmy, giving him a major role. Before leaving for London, Jimmy presented a series of resolutions to Roosevelt who approved them—a bit too readily, it seemed. If Jimmy felt flattered, he also feared that this quick response betokened a lack of serious commitment.

  London was initially full of memorable moments. At a reception one night, Jimmy smiled at what seemed a familiar face standing by the wall. “You’ve made a mistake,” the man said, stepping forward. “You either think I’m Lord Hailsham, the worst War Minister we’ve ever had, or Bennett of Canada. We all look like pink pigs, but I’m Winston Churchill.”36 Then out of office, Churchill had just completed his life of the Duke of Marlborough. This chance encounter ended with supper at Churchill’s club, a recitation of the great man’s career, and late-night brandy at his house. Jimmy would consider it the most fascinating night of his life.

  At first the negotiations seem to thrive. Jimmy and Cox worked out an agreement to stabilize currencies and end the destructive spiral of competitive devaluations. When they cabled details to Roosevelt, they received no reply and assumed this meant approval. Then Jimmy received a message from Raymond Moley that changed his life: “Tell him [Warburg] it’s dead and bind up the wounds.”37 This foreshadowed Roosevelt’s message of July 3, 1933, in which he railed against the currency stabilization proposal as based on the “old fetishes of so-called international bankers.…”38 Belatedly, FDR had realized that currency stabilization might clash with his goal of stimulating higher farm prices. Economic nationalism had won out. It fell to Jimmy to convey this message to Prime Minister Ramsay MacDonald, who feared his political leadership would collapse with the failed conference. “This knocks the whole thing into a cocked hat,” he told Jimmy, who had a young man’s keen susceptibility to disappointment.39

  Feeling betrayed by Roosevelt and spying a Machiavellian streak in the man, Jimmy reacted emotionally. On July 6, he submitted his letter of resignation to delegation chairman Cordell Hull and said of the president, “I do not feel that I can interpret his mind at a distance of 3,000 miles … we are entering upon waters for which I have no charts and in which I therefore feel myself an utterly incompetent pilot.”40

  Before returning to Washington, Jimmy met Siegmund, Max, and Alice in Amsterdam on July 8. The German Warburgs told of the terror reign at home, their candor suggesting the degree to which they muzzled their views inside Germany. They told of Jews hounded from schools and professions, of blind Jews evicted from special institutions. “The internal sit
uation is a great deal worse than it looks from the outside,” Jimmy wrote. “A cold pogrom is going on, not only against the Jews but against all people with other political convictions than those of the Nazis.”41 Jimmy’s growing militancy, alas, coincided with the decline of his Washington influence.

  Max told Jimmy that M. M. Warburg’s business hadn’t been severely hurt by events, although Jimmy thought it only a matter of time.42 He urged Max to leave Germany or at least spend more time away. Max and Alice didn’t know they were bracing for a sustained, hellish period. As Jimmy told his diary, “He and Alice are quite remarkable and feel that they want to give their country a few more months of grace before they definitely turn their backs upon it; also, Max feels that he can do and, in fact, is doing a lot to help various Jews who are in distress.”43 Weeks later, Felix and Jimmy revived the idea of Max selling his German assets to the Berliner Handels-Gesellschaft and moving with his foreign assets to Warburg & Company in Amsterdam.

  On his way home, Jimmy met with John Maynard Keynes. They tried to devise a managed currency scheme strong enough to pacify New Deal radicals, but weak enough to avoid great damage. Keynes warned Jimmy that Roosevelt had fallen under the spell of a monetary crank from Cornell University named George Warren, who had previously devised formulas to get chickens to lay more eggs. On the boat home, Jimmy read Warren’s work and agreed that it was “rubbish.”44 For Jimmy, FDR was fast losing his halo.

  When he entered FDR’s office for a lunch on July 24th, Jimmy found George Warren and James Harvey Rogers of Yale going out. After the professors left, Jimmy and FDR ate lunch off the president’s desk. Jimmy was a cocksure young man who behaved like a young prince entitled to take liberties with the king. “I told him [Roosevelt] that his message of July 2nd had been most unfortunate both in substance and in tone. This caused him to get quite angry and he said that I should have seen the American press comment, which had been universally favorable.”45 At first, Roosevelt claimed that he hadn’t seen Jimmy’s cable from London. When Jimmy unearthed it, the president admitted he had glanced at it, but hadn’t given it much thought. Very good in tense situations, Roosevelt defused Jimmy’s anger at the lunch by treating him as an errant son and adopting his usual bantering tone about monetary matters.46