The Warburgs

by Ron Chernow

  Though Jimmy met with Warren and Rogers in New York at FDR’s request and found them more reasonable than expected, he was dubious about their plan to raise farm prices by boosting gold prices. Roosevelt then invited Warren, the farm economist, and Jimmy, the slick young banker, to thrash things out at Hyde Park. They sat through a meal overseen by the stern, formidable Sara Delano Roosevelt, FDR’s mother, who reminded Jimmy of Grandma Charlotte. Contesting Warren, Jimmy made a vigorous speech that recovery required confidence in the dollar. As they left, Warren said to Jimmy, “Well, I guess you ruined my plan.” But Jimmy knew that in the money sphere, FDR was a sucker for snake oil peddlers. “On the contrary,” Jimmy replied. “You have won.”47 Warren’s plan to use inflation to end the Depression seemed to awaken every conservative fiber in Jimmy’s body.

  Roosevelt was eager to try the Warren voodoo. He began to raise gold prices, creating inflationary jitters that sent the dollar skidding. On September 20, Jimmy made a pitch against further devaluation, contending that inflation would harm workers, people on fixed incomes, and small businessmen. This time FDR was more sarcastic, his voice acquiring a rougher edge. “If we don’t keep the price of wheat and cotton moving up, I shall have marching farmers,” he said.48 The president and his young adviser were at a crossroads. Certain that Roosevelt was being dangerously irresponsible, Jimmy disclosed that he would launch an anti-inflation campaign along with banks and insurance companies and FDR warned him not to do it. When Jimmy left the White House, he assumed it was for good.

  On October 21, Jimmy listened to FDR’s fireside chat from a friend’s home in Chicago. When FDR endorsed the Warren program, Jimmy felt as if he had absorbed a body blow. Before long, FDR, Henry Morgenthau, and Jesse Jones set new gold prices each morning as the president had breakfast in his bedroom. Sometimes they pitched coins to determine the price. This capricious approach to fiscal policy sent the dollar crashing, without delivering the desired rise in farm prices.

  Returning to the Bank of the Manhattan, Jimmy rallied businessmen against inflationary policy. He recruited Bob Lovett of Brown Brothers, Harriman, and John Schiff into a lobbying campaign. Swept up in a crusade, Jimmy could be impetuous and strangely heedless of the consequences. Only later did he see that he had defected to the diehard Roosevelt haters and not to the concerned Democrats. He sometimes drew extreme analogies between FDR and European fascist leaders. “Mussolini was essentially a gangster and Roosevelt was essentially a humanitarian,” he said. “But in their approach to an economic crisis, they were willing to make some of the same compromises.”49

  By January 1934, FDR had abandoned his fling with George Warren, freezing gold at thirty-five dollars an ounce. In a peace overture, Roosevelt invited Jimmy for a pleasant evening at the White House along with William Bullitt. FDR praised the agile way Jimmy had deflected vicious attacks from Father Coughlin. But the rebellious impulse never slept for long in Jimmy, and he now decided to broaden his attacks against the New Deal. He decided to lecture the president on how to run the country, the first of several misadventures that would make him persona non grata at the White House.

  In 1934, Alfred Knopf published Jimmy’s withering polemic against the New Deal, The Money Muddle, which he had written on a Caribbean cruise. As the first such critique by a former administration insider, it generated enormous attention and became a best-seller. On May 2, Jimmy sent FDR an advance copy, contending that it wasn’t meant to be hostile to the New Deal. Roosevelt didn’t buy this, as shown in his reply several weeks later:

  Dear Jimmy—

  I have been reading The Money Muddle with plenty of interest.

  Some day I hope you will bring out a second edition—but will you let an old friend make a special request of you before you do it? Please get yourself an obviously second-hand Ford car; put on your oldest clothes and start west for the Pacific Coast, undertaking beforehand not to speak on the entire trip with any banker or business executive (except gas station owners), and to put up at no hotel where you have to pay more than $1.50 a night. After you get to the Coast go south and come back via the southern tier of States.…

  When you have returned re-write The Money Muddle and I will guarantee that it will run into many more editions!

  After the above insulting ‘advice to a young man’—do nevertheless run down and see me some day.50

  Always sincerely,

  Franklin D. Roosevelt

  Jimmy was stunned by this rebuke, which called him a spoiled rich kid out of touch with reality—not exactly the way he liked to see himself.

  —

  Jimmy’s sudden drift to the political Right was accelerated by changes in his personal life. By late 1934, he insisted upon an end to the marriage to Kay Swift, who got a Reno divorce. In later years, Kay would grow wistful about Jimmy, but he wouldn’t reciprocate the nostalgia. He blamed her for the busted marriage and wrote her out of the family history. He insisted upon having custody of the children. During his brief period as a bachelor, Jimmy had his eldest daughter April serve as hostess and preside over dinner parties, raising her to an adult eminence. When Jimmy married Phyllis Baldwin in April 1935, it shattered April, who was suddenly demoted to a child again. Jimmy retained custody of Andrea and little Kay, but April ended up staying with her mother.

  Each of Jimmy’s three wives reflected another facet of his fragmented identity. After Kay’s show-business world, Jimmy now went for high society, marrying a tall, thin, soignée WASP from an old-money background. A liberal Republican from a conservative family, Phyllis Baldwin shocked her family by marrying a Jew. She was bright, had trained as a political economist, and was politically active in Manhattan’s “silk-stocking” district; her brother was a congressman. Through Phyllis, Jimmy entered the Social Register and moved further from his German-Jewish background. He had no Jewish friends, sent his kids to Sunday school, and kept a Christmas tree at holiday time. When two of his three daughters married Jewish men, he was offended.

  If somewhat cool and repressed after the blithe Kay Swift, Phyllis took Andrea and Kay to dances and other activities and proved a better mother than their self-absorbed parents. Jimmy increasingly felt competitive with the independent, self-assertive Phyllis and began to call her shrewish. Prone to depression, Phyllis entered analysis with the ubiquitous Zilboorg and stayed with him for many years. Jimmy was never very good around psychological problems, and the childless marriage ended up an unhappy one.

  The marriage into the Baldwin family hardened Jimmy’s conservatism and he began to attend Liberty League dinners. In many ways, Phyllis was more tolerant than Jimmy, who sometimes had a crude taste for ethnic humor. Yet the country-club world of the Baldwins didn’t discourage Jimmy’s vendetta against Roosevelt. In late 1934, he published a book, It’s Up to Us, that drew an analogy between the New Deal and the totalitarian states in Europe. Jimmy was now slipping into the worst sort of reactionary hyperbole against FDR.

  In 1935, he published Hell Bent for Election, a tract that introduced the phrase “soak the rich” into the lexicon. His thesis was that Roosevelt had enacted the Socialist party’s platform, not the Democrat’s. It was a foolish blunder. In intemperate, hyperbolic language, he conjured up a picture of Franklin Roosevelt as a power-hungry dictator who fooled himself and the people. “I think Mr. Roosevelt has a definite liking for the devious as opposed to the direct,” Jimmy wrote.51 He accused the president of egregious ignorance in economic matters and summed up by saying that “barring an extreme radical or an extreme reactionary, almost anyone would be better than Mr. Roosevelt.…”52 The book sold more than one million copies and became a bible for Roosevelt foes. It again took Jimmy time to realize that the effort was unworthy of him. As he said later, the book “was about as nasty an attack as anybody could produce.”53

  In 1936, Jimmy and Phyllis collaborated on a thin book, New Deal Noodles, that took alphabet letters and made barbed rhymes about government figures. FDR was portrayed as a vain, smiling charl
atan, leading the country into a benignly misguided dictatorship. The ridicule was laid on pretty thick. “The whole New Deal is full of hickies/One of these is Mr. Ickes, Who Plays his little pranks and quirks/Under the head of Public Works.”54 Rexford Tugwell fared no better: “T stands for Tugwell, and dear T.V.A./T stands for the Taxes we’ll all have to pay.”55 With bile left to spare, Jimmy published a sequel to his best-seller called Still Hell Bent that described FDR’s policies as “a strange mixture of Socialist and Fascist principles.”56

  When the Republicans nominated Governor Alfred M. Landon of Kansas for president in 1936, Jimmy realized he had bet on the wrong horse. Landon seemed an economic nationalist, while Roosevelt edged toward international cooperation. On October 13, Jimmy swallowed hard and wrote a mea culpa letter to Cordell Hull, saying he would vote for Roosevelt. “I was flayed by the Republican press and received only a chilly welcome from the Democrats, which, I thought, was precisely what I deserved.”57 A fallen angel, he didn’t reenter politics until after World War II and then as a professional maverick, not a Washington insider.

  It is hard to reconcile this Roosevelt-hating Jimmy Warburg with the super-liberal pamphleteer of later years. Some demon tended to drive him to extremes, making him find fault with authority figures and assert his own superior wisdom. He liked to flirt with disaster, to seek the dangerous path. He had, inexplicably, squandered a special relationship with the president in a feud that had taken on a distinctly personal tone. In psychoanalysis with Zilboorg, Jimmy realized that FDR had replaced his dead father. Along with reverence, he had transferred much of his underlying rage and a strong need to strike out against paternal authority. This psychic tension was compounded when Roosevelt scrapped the gold standard and committed other financial sins that would have shocked Paul, giving Jimmy “an uncomfortable feeling of having taken part in the desecration of my father’s life work, even though my conscious reason informed me that these reforms were urgently necessary.” The explosive finale of Jimmy’s work with Roosevelt shows how wide and deep was his self-destructive streak, the result of suppressed anger that he turned both against others and himself.

  Chastened by his Washington experience, Jimmy resigned as vice-chairman of the Bank of the Manhattan in 1935. The Warburgs remained major bank shareholders and Jimmy stayed on the board. He then made the wise decision to strike out as a lone venture capitalist. In 1937, he heard about interesting experiments being made in Cambridge, Massachusetts, by a young Harvard dropout named Edwin H. Land, who had devised a way to filter out headlight glare by passing light through sheets of polaroid material. Jimmy gathered a crew of bankers, including Averell Harriman, the Rockefellers, and Kuhn, Loeb to sponsor the new Polaroid Corporation. For his efforts, Jimmy got a substantial block of stock, with options to buy more in future. When Land got his great brainstorm for instant photography in 1943, Jimmy made his second fortune. Much like his father, Jimmy was uncannily good in business, but it didn’t seem to matter to him. Instead he craved the rough-and-tumble of a political world that had now learned to perceive him as a volatile personality who could never fit into the polite conformity of official Washington.

  CHAPTER 28

  ––

  Beat the Devil

  Once a breezy, fun-loving young man, Max Warburg at sixty-six was far more somber and introspective. In his Kösterberg studio, which resembled an Italian monk’s cell, he dreamed forlornly of reconciling Zionists and non-Zionists, Jews and other Germans. Until this time, he had engaged in philanthropic Judaism, attending High Holy Days at the synagogue, covering the deficit of the Hamburg Jewish community, chairing the Jewish orphanage, and sitting on the board of the Talmud Torah school. Now he hoped to fashion a new Judaism that might transcend divisions and heal a troubled world. It would prove a sad, dispiriting exercise amid the jackbooted madness of 1933.

  Writing to philosopher Martin Buber, Max said they needed a Judaism suited to modern times. The question, of course, was where it would be practiced. Still anti-Zionist, Max envisioned Palestine as a sanctuary for persecuted Jews and a seat of Jewish learning, not as a sovereign Jewish state. But even as Palestine loomed somewhat larger in his vision, he tried to devise new syntheses of German and Jewish culture. While German Jews should support Palestine, he said, they mustn’t lessen their devotion to the Fatherland.1

  From the time Hitler seized power, Max was of two minds and led a schizoid existence. One side of him exhorted Jews to stay and fight, accusing those who left of cowardice. This same man, however, was pivotal in many schemes to promote a Jewish exodus. He tried to develop a new set of reflexes without discarding the old ones and never escaped this contradiction. In many ways, Jewish financiers were the least well suited to deal with the situation, not only because they bore the brunt of much Nazi propaganda, but because they had long reposed their trust in the state and couldn’t adjust to an adversarial situation.

  If Max emerged as central to emigration schemes, it was because money was often the major snag for Jews hoping to flee. Many countries asked for financial guarantees before receiving Jews, which was a considerable hurdle because of German exchange controls. In 1931, the Brüning government had imposed a 25 percent flight tax on capital shifted abroad and under the Nazis, these extortionate taxes steadily rose, making the decision to leave excruciating. As private bankers, the Warburgs could sometimes offer means to help Jews extricate money from Germany.

  After 1932, German citizens could only convert blocked marks into other currencies at a steep discount that would skim off 96 percent of the amount in question by the end of the decade. Jewish leaders racked their brains for ways to secure more favorable exchange rates. At this point, the Nazis were encouraging a Jewish exodus, which they thought might spread anti-Semitism abroad, especially if the refugees were poor. They also sought ways to counter the worldwide Jewish boycott of German goods and boost exports. The upshot was the so-called Haavara agreement (haavara means “transfer” in Hebrew) of August 1933, negotiated between Palestine Jews, backed by the Jewish Agency, and the Nazi government. In the end, this devil’s pact may have spared fifty-two thousand Jewish souls from the crematoria.

  Under the Haavara agreement, departing Jews would deposit their marks in blocked accounts in Germany. A year later, they would receive an equivalent amount in Palestine pounds. The hitch was that the Jews had to use those blocked marks to buy German machinery, pipe, fertilizer, etc. The Jewish immigrant was repaid with the proceeds when German goods were resold in Palestine. It was a mutually beneficial, if bizarre, business: Goods from Nazi Germany were helping to build Jewish Palestine, while Palestinian Jews created German jobs.

  To supervise this transfer agreement, German Jews set up the Palestine Trust Company (Paltreu), and M. M. Warburg & Co. acted as conduit for three fourths of the money. The Palestinian end was handled by the Anglo-Palestine Bank, later called Bank Leumi. Considerable sums of money flowed through this pipeline—almost 140 million reichsmarks by the outbreak of World War II—and it provided steady business for the Warburg bank in a grim season.

  ——

  Siegmund and Eva Warburg. (Private collection)

  Naturally, many Jews were appalled by a deal that strengthened the Nazi economy, and even the Joint Distribution Committee shied away from such a controversial project. That eternal Warburg nemesis, Rabbi Stephen S. Wise, thundered: “There is something worse than entering Zion with bowed heads, and that is with unclean hands!”2 In hindsight, it seems hard to credit the purist position of never negotiating with the Nazis under any circumstance, although the outrage was certainly understandable at the time.

  Until 1936, Palestine was the prime destination for the German Jews, and Chaim Weizmann thought it the only defensible destination. “Everything else is a palliative, a half-measure, and merely postponing the evil day,” he told Felix.3 Felix doubted that Britain would issue enough immigration certificates to make Palestine more than a partial solution. He worried that the Zionists were
raising false hopes and that a sudden, mass influx of Jews would provoke Arab wrath. As Palestine became the focus of German-Jewish emigration, it grew harder to talk about saving Hitler’s victims without dredging up the divisive Zionism issue.

  Trying to beat the devil, Max wanted to take the Haavara concept and elevate it to a grandiose plane. He daydreamed about a giant transfer bank that might permit a third of German Jews to depart for a country of their choice. That summer, he explored this concept with Dr. Schacht in Berlin. Max privately told Jewish leaders that they should exploit Nazi fantasies of infinite Jewish wealth and have overseas Jews ransom out their German brethren. Max had a recurring pipe dream that through some masterstroke of financial ingenuity, he could solve the whole problem and broker a big deal with the German government.

  Though the Jewish community in Germany numbered little more than half a million people, they were well organized and operated many charities. The Aid Society of German Jews (Hilfsverein) had been started in the early 1900s to speed the passage of persecuted Russian Jews to America after pogroms in the Pale. Max was at first its vice-president, then, during the Third Reich, its chairman. With Hitler’s rise, self-preservation superseded noblesse oblige as the group’s raison d’ětre, and it emerged as the foremost group advising Jews who wished to go elsewhere than Palestine.

  The German Jews weren’t passive sheep submitting to Nazi terror. After the Nazi boycott of Jewish stores in April, Max, Melchior, and other Jewish leaders created in Berlin the Central Committee for Help and Reconstruction (Zentralausschuss), which helped fleeing Jews with advice, loans, and job training. It placed twenty thousand Jewish children in special German schools for retraining and resettlement work. The Warburgs were indispensable members of the group, which was partly financed by the Joint in New York. Because it was an American institution, the Joint also afforded some legal protection to German-Jewish philanthropy. To emphasize their American ties, the Warburgs invited the American consulate general in Hamburg to rent vacant space on the second floor of M. M. Warburg during the Third Reich.