doubts; but if he will be content to begin with
doubts, he shall end in certainties.
—FRANCIS BACON
BREAKING with the dead hand of the gold standard was the key to economic revival. Britain did so in 1931 and began its recovery that year. The United States followed in March 1933 and that proved to be the low point in its depression. France hung on to its link with gold for the longest. In 1935, Clément Moret was fired as governor of the Banque de France for resisting government measures to utilize its gold reserves to expand credit. Only in the following year did France finally abandon the gold standard. It was thus the last of the major economies to emerge from depression.
The exception to this pattern was Germany. After the summer 1931 crisis, it defaulted on reparations and introduced exchange controls. But it never officially left the gold standard. Still obsessed by an archaic fear of inflation, a carryover from 1923, and despite having no gold reserves, Germany decided to act as if it were still on gold, nailing itself to a sort of shadow standard and thereby forgoing the benefits of a cheap currency. x When Britain devalued the pound in September, German foreign trade completely collapsed.
Schacht with Adolf Hitler
FIGURE 8
The continued economic slide in 1932 precipitated even more political turmoil. In May 1932, Brüning was turned out of office by a right-wing cabal. The following month, France and Britain, finally recognizing that it was impossible to squeeze any money out of Germany in the current environment, formally agreed to forgive all reparations. In the fourteen years since these had first been imposed, the Allies, who had once demanded $32 billion, and had settled on $12 billion, had succeeded in collecting a grand total of $4 billion from their old enemy.
Brüning was replaced by Franz von Papen, an ex-cavalry officer from an impoverished aristocratic family who had married into wealth and whose only talent was his horsemanship. In August, he called new elections, in which the Nazis won 230 seats, more than double their previous representation, making them the largest party in the Reichstag. But President Von Hindenburg was not yet ready to invite the “Bohemian Corporal,” as he referred to Hitler, to become chancellor.
In 1931, Hjalmar Schacht had been interviewed by the American journalist Dorothy Thompson. “If Hitler comes to power, the Nazis can’t run the country financially, economically. Who will run it?” she asked. “I will,” replied Schacht. “The Nazis cannot rule, but I can and will rule through them.” It had become clear to him even then that it was
only a matter of time before Hitler would become chancellor.
Schacht would later claim that he never allowed himself to fall under Hitler’s spell and that because Hitler needed him, he was able to maintain a certain degree of independence. This is not apparent in a creepy letter he wrote to Hitler after the August elections, congratulating him on his victory and regretting that he was not already chancellor: “Your movement is carried internally by so strong a truth and necessity that victory in one form or another cannot elude you for long. During the time of the rise of your movement you did not let yourself be led astray by false gods. . . . If you remain the man that you are the success cannot elude you for long.” But the main purpose of the letter was to urge Hitler to avoid becoming entangled in economic ideology—for Schacht realized that if he wanted to run Nazi economic policy, he would have to counteract some of the anticapitalist sloganeering of the party’s left. At this stage he believed that its virulently anti-Semitic ragings were restricted to a lunatic fringe. He ended by saluting Hitler “with a vigorous Heil.”
Over the next few months, as the Nazis maneuvered to undermine successive governments in the Reichstag, Schacht became a prominent supporter of the movement and a major fund-raiser for the party. In November, he was one of twenty-tour industrialists, including the steel magnate Fritz Thyssen and the arms manufacturer Gustav Krupp, who signed a public letter urging Von Hindenburg to appoint Hitler chancellor. In an interview carried in newspapers around the world, Schacht declared that Hitler was “the only man fit for the Chancellorship.” Finally, in January 1933, the president bowed to necessity and appointed the “Bohemian corporal” as chancellor.
Two months later, on March 16, 1933, Schacht was back at the Reichsbank, after a three-year hiatus. Hitler, who showed little interest in economics, had two overriding objectives—to combat unemployment and to find the money to rearm. The details of how to achieve these goals he left to Schacht, who in those early years was given almost complete control over economic policy—in addition to being president of the Reichsbank, he became minister of the economy in August 1934. Hitler would later confess that he thought Schacht “a man of quite astonishing ability . . . unsurpassed in the art of getting the better of the other party. But it was just his consummate skill in swindling other people which made him indispensable at the time.”
Displaying the inventive genius that distinguished him as the most creative central banker of his era, immediately upon taking office, Schacht threw the whole baggage of orthodox economics overboard. He embarked on a massive program of public works financed by borrowing from the central bank and printing money. It was a remarkable experiment in what would come to be known as Keynesian economics even before Maynard Keynes had fully elaborated his ideas. Over the next few years, as the German economy experienced an enormous injection of purchasing power, it underwent a remarkable rebound. Unemployment fell from 6 million at the end of 1932 to 1.5 million four years later. Industrial production doubled over the same period. Schacht also renegotiated the terms of Germany’s massive foreign debts, ruthlessly playing off its creditors against one other, particularly the British and the Americans.
The recovery was not quite the miracle that Nazi propagandists made everyone believe it was. Though there were some highly visible achievements—the creation of millions of jobs, the construction of the famed autobahns—the boom remained stunted and lopsided. Much of the increase in production came in arms-related industries, such as autos, chemicals, steel, and aircraft, while such everyday consumer items as clothing, shoes, and furniture stagnated. As a consequence, the standard of living of ordinary Germans rose hardly at all. They had to content themselves with a drab existence of shoddy goods made of ersatz materials—sugar from sawdust, flour made with potato meal, gasoline distilled from wood, margarine from coal, and clothes made out of chemical fibers.
While other European countries let their currencies fall against gold, Schacht, motivated by a combination of concern for prestige and fear of inflation, refused to break officially from gold and devalue the Reichsmark. German goods were overpriced on the world markets and its exports stagnated. In order to cope with the pressures created by this bloated exchange rate, an elaborate system of import controls was put in place and foreign trade was largely based on barter. Under this “Schachtian” system, Germany was reoriented from an open economy integrated with the West to a closed autarkic economy connected to Eastern Europe and the Balkans, a precursor of the inefficient Soviet trade system of the 1950s and 1960s.
Behind the gleaming achievements, therefore—the autobahns, the Volkswagen, the Junker bombers, and the Messerschmitt fighter planes—the Nazi economy was a rickety machine plagued by shortages and relying heavily on rationing to allocate scarce consumer goods.
Schacht, once such a strong believer in an open Germany integrated with the West, justified himself by arguing that he had been driven to the policy of hunkering down and looking inward by a deranged international system: “The whole modern world is crazy. The system of closed national boundaries is suicidal . . . everybody here is crazy. And so am I. Five years ago I would have said it would be impossible to make me so crazy. But I am compelled to be crazy.”
When he first came to power, Schacht used to say that he would be willing to make a pact with the devil in order to restore German economic strength. By the late 1930s, he began to fear he had done just that. He never joined the Nazi Party nor did he become a member of Hitler’s inner circle. But as the regime’s abuse of power mounted, he found himself increasingly at odds with the direction of those who ran it. He had always kept his distance from the other Nazi bigwigs—Himmler, Göring, Goebbels— often treating them with contempt and relying on Hitler to protect him. Now he came into open conflict with them, especially over corruption.
On the Berlin cocktail circuit the rumor was that Schacht had the banknotes issued to the ministries controlled by Göring, Goebbels, and Himmler marked, thus enabling him to track how much ended up in foreign accounts. He was increasingly heard referring to the Nazis as a bunch of “criminals” and “gangsters,” and even calling Hitler a “cheat and a crook.”
Schacht was not above exploiting the popular irrational hatred and suspicion of Jews by peppering his speeches with anti-Semitic remarks. Nevertheless, he fought against many of the regime’s more extreme policies against Jews not so much on moral grounds as out of the pragmatic fear that they were harming the economy. In 1938, he was one of the architects of a plan to allow four hundred thousand German Jews to emigrate over the coming three-year period, their assets to be expropriated and placed in a trust as collateral for bonds that were to be sold to rich Jews outside Germany. The money so raised was to be used to resettle German Jews and to subsidize German exports—a macabre extortionary scheme in effect to ransom these desperate people. It placed the international Jewish community in a quandary—whether to agree to a plan that implicitly sanctioned seizing Jewish property in Germany and Austria, channeling money to the Nazi regime and setting a precedent for other blackmail elsewhere in Europe, but which had the potential to save lives. Schacht would later defend himself by claiming that his scheme could have saved hundreds of thousands of lives—he seemed conspicuously unaware of the moral dilemmas it posed. In any case, it died for lack of money and of countries willing to accept the refugees.
By 1937, the strains of helter-skelter rearmament and deficit financing began to tell. Shortages began to bite. Schacht tried to push Hitler to go slow on the arms buildup and ease up on consumer austerity. In November 1937, after falling out with Hermann Göring, he was fired by Hitler as minister of the economy and replaced by Walter Funk, an alcoholic homosexual. Two years later, when Schacht tried to resist further central bank financing of the ever-growing budget deficit, he was also removed from the Reichsbank, again to be replaced by Funk. Though Hitler gave him the titular position of minister without portfolio, this was largely window dressing for foreigners—Schacht was still respected by th
e international banking community—and he was now for all intents and purposes a private citizen.
In the years immediately before the war, Schacht took a leading part in several of the conspiracies by conservative politicians and businessmen to overthrow Hitler. They involved trying to induce members of the army high command to stage a coup by convincing them that under the Nazis, Germany would be plunged into a war for which it was ill prepared. The first took place in 1938 when Hitler tried to take over Czechoslovakia. Plans for that pustch were aborted at the last minute when British prime minister Neville Chamberlain and French premier Édouard Daladier backed away from the brink by making concessions at Munich. A second occurred in late 1939 in the weeks before the invasion of Poland. This final conspiracy was overtaken by events before the plotters could act.
After war broke out, Schacht kept a low profile, retiring to his estate in Gühlen away from the intrigue and paranoia of Berlin. It was ironically a time of great personal happiness. His first wife died in 1940. They had become estranged over time and lived apart. The following year, at the age of sixty-four, he married a woman thirty years his junior, a museum curator whom he had met at a fashionable Munich nightclub. Over the next three years, they had two children, both girls.
Though Schacht remained on the fringes of the resistance movement, he was never trusted enough to be included in the inner circles. But his name was frequently mooted as a potential successor to Hitler in the event of a coup. In April 1944, his son-in-law Hilger von Scherpenberg, a German foreign service officer based in Stockholm, was arrested by the Gestapo. Following the failed July 20 plot to assassinate Hitler, Schacht was also arrested and imprisoned in Berlin—not because of any evidence of his complicity but because of his potential usefulness as a hostage or an intermediary in future negotiations with the Allies. In April 1945, he was sent to Dachau. Two weeks later, as the Allied armies advanced into Germany, he was one of a group of high-value prisoners, including Prince Philip of Hesse: the French ex-prime minister Léon Blum and his wife; General Franz Halder, formerly chief of the army staff, and his wife; Fritz Thyssen, the steel baron; and Prince Frederick Leopold of Prussia, who were shipped out—to be traded as potential hostages. They were finally liberated by the Allies from a camp in the southern Tyrol.
Instead of greeting Schacht as a hero, the Americans arrested him, and he was among the twenty-four major figures to be prosecuted at Nuremberg. Furious at being lumped in with the “gangsters” of the Nazi regime, he insisted that he was different, that he had acted only in self-defense to protect Germany against the Allied economic stranglehold and had broken with the führer once he realized war was inevitable. A prison psychologist describes Schacht losing his temper one day and ranting, “Don’t forget what desperate straits the Allies drove us into. They hemmed us in from all sides—they fairly strangled us! Just try to imagine what a cultured people like the Germans has to go through to fall for a demagogue like Hitler. . . . All we wanted was some possibility for export, for trade, to live somehow. . . .”
In the lead-up to the trial, each of the defendants was subject to extensive interrogation, a battery of psychiatric interviews, and even an intelligence test—Schacht achieving the highest score, 143. During the ensuing trial, he found it hard to disguise his fury. The novelist John Dos Passos described him as glaring “like an angry walrus” during the whole proceedings. Rebecca West wrote that he sat “twisted in his seat so that his tall body, stiff as a plank, was propped against the side of the dock. Thus he sat at right angles to his fellow defendants and looked past them and over their heads: it was always his argument that he was far superior to Hitler’s gang. He was petrified by rage because this court was pretending to have this right. He might have been a corpse frozen by rigor mortis. . . .”
Schacht and Von Papen were acquitted, on the grounds that their involvement with the Nazi regime had ended before war broke out. Three days after being released, he was rearrested by the new government of the State of Bavaria under its de-Nazification laws. After five different trials, all of which ended without a conviction, he was finally released in 1950.