Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion (19 page)

Schacht was now clearly searching for an exit from the Reichsbank job that he loved so much. His protégé Emil Puhl said later that by the end of 1938, the bank president was looking for a way to get fired. The weakening German economy was not just an excuse, though numbers were indeed bad. Reichsbank debt had gone from 750 million Reichsmark in 1932 to 14 billion at the end of 1938. During that same period the Nazi government had spent 35 billion on armaments. The weakness of Schacht’s strategy was that to the person on the street or even to many foreign observers, the Nazi economy outwardly appeared to be doing well.

Finance Minister Lutz von Krosigk, the man who paid the government’s bills, had warned Hitler in a memo on September 1, 1938, that the country was “steering towards financial crisis.” Starting on April 1, 1939, the state would have to begin repaying the money investors for the Mefo bills that had financed Nazi rearmament. Lutz von Krosigk asked Schacht to tide over his ministry with 100 to 200 million Reichsmark ($40 to $80 million) because he could not pay government salaries in early 1939. Schacht responded to the minister that he considered the request “monstrous,” insisting that the state had to pay its bills. The Reichsbank would not bail out the government. He added that the best thing that could happen for Germany would be a bankruptcy so that the country would see that its failed financial system could not continue. He told Lutz von Krosigk that he wanted it made clear to Hitler that the Reich was bankrupt.
⁹

When Schacht told the finance minister that he was ready to resign or be fired, Lutz von Krosigk replied that he would follow him. That was fine rhetoric, but the reality was different. At the end of November 1938, the Nazi government could not raise 1.5 billion Reichsmark in the private equity market because one-third of the bonds went unsold. The country was also running out of foreign exchange and was having trouble paying for vital imports, including food. The government even had to borrow money from the state-run post office and railroad to make ends meet. Nazi Germany was on the brink of financial collapse.
¹⁰
Economics Minister Walther Funk, the former reporter, heard of Schacht’s critical comments and passed the news along to the Führer. At that point it appears that Hitler had had enough of his central banker. An aide contacted Schacht and told him to make an appointment to see Hitler after the holidays.
¹¹

The German leader celebrated New Year’s Eve 1938 at the Berghof in Berchtesgaden with his mistress Eva Braun and friends. The evening was full of levity, and he wore a tuxedo. Hitler, though, was morose most of the time, which worried Braun. He was scheduled to meet Schacht at the Berghof on January 2, but wasn’t looking forward to the encounter. Hitler wanted to keep the banker as a showpiece to give the Nazi regime legitimacy, but that looked increasingly unlikely.

The post-New Year’s conference was all business. Schacht spelled out in detail Germany’s economic situation, painting a bleak picture and warning that the country could go into a new hyperinflation similar to the one it had known in 1923. Germany, the banker said, was simply spending too much money on weapons, and there was no sign that it would end. In fact, military expenditures were slated to double in the new year. Schacht explained that the country had now reached full employment, and new war spending would likely lead to inflation.
¹²

The central banker also pointed out that the government had not been able to raise the first installment of the so-called Jewish Atonement Tax, which was supposed to bring in 1 billion Reichsmark in new revenue. This tax had been levied on the country’s Hebrew community in retaliation for a Polish Jew’s assassination of a German diplomat in Paris. Hitler then jumped in to say that he had a plan for that. The Reichsbank should simply issue banknotes against the unpaid amount of the Jewish Atonement Tax. It would be a variation of the Mefo bills. Schacht later wrote, “A cold shiver went down my spine.” He later wrote, “The danger of inflation was now definitely imminent.” He realized that the time had come to disassociate both himself and the bank from what he called “Hitler and his methods.”
¹³

With the confrontational meeting drawing to an end, Schacht said that he and his fellow Reichsbank board members would soon present the Führer with a memorandum outlining in detail the country’s financial situation.
¹⁴

Despite his dominating personality and international reputation, Schacht ran the Reichsbank board more as the
primus inter pares
than as a dictator. The board, which was made up of some of the country’s leading bankers and economists, was a mixture of veterans as well as younger officials such as Emil Puhl and Karl Blessing. Puhl really ran the central bank for most of the war. If Count Claus Graf von Stauffenberg’s assassination attempt in July 1944 had been successful, Blessing would have become Reichsbank president or minister of economics in a post-Hitler government. He headed the German Bundesbank, the successor organization, from 1958 to 1969.

Board members for months had been discussing the danger of inflation, and three months earlier two of them had drafted a memo outlining their opposition to more inflationary defense spending. Schacht agreed in principle, but was waiting for the right moment to present it. When he returned to Berlin from the Berghof, he told the board that the time had come. All they had to do was agree on a few final points and send Hitler the memorandum. The bank board realized that they were sending a political document, although it was based on solid economic facts and reasoning.

After returning to Berlin, Schacht also played host to Montagu Norman, who had come to the German capital to participate in the christening of Schacht’s new grandson, Norman Hjalmar. At the previous month’s BIS meetings in Basel, Schacht had warned his colleagues that he and some of his fellow Reichsbank board members might be resigning. Schacht would certainly have told his British counterpart that a showdown with Hitler was coming.
¹⁵

Just before the two men left Berlin by train on January 7 to attend the next meeting in Basel, Schacht sent Hitler a seven-page board report outlining the case against more defense spending. The most direct passage stated: “The reckless expenditure of the Reich represents a most serious threat to the currency. The tremendous increase in such expenditure foils every attempt to draw up a regular budget; it is driving the finances of the country to the brink of a run despite a great tightening of the tax screw, and by the same token it undermines the Reichsbank and currency.”
¹⁶

The bankers tried to balance that attack with some praise for the country’s successful foreign policy and noted that the Reichsbank had “gladly cooperated” with the national rearmament. That was probably a Schacht touch since he knew how to flatter Hitler.

The report stated flatly that the bank simply could not continue on that path because “the gold or foreign exchange reserves of the Reichsbank no longer exist.” What had been stolen from Austria and Czechoslovakia was largely already gone, while government printing presses were working overtime. The German money supply grew nearly three-fold between January 1933 and the end of 1938. The country, the board argued, was on the cusp of major inflation.

The memorandum ended with a surprisingly personal attack on Hitler, stating, “The Führer and Reichskanzler himself has considered the inflation danger again and again to be dumb and useless.”
¹⁷
No one in the Nazi government had ever dared address him in that manner.

As a sign of solidarity, all eight board members signed the document, with Schacht’s name leading the list. The board stood as one. After learning of the content of the memo during a phone call from Berlin, Hitler bellowed: “This is mutiny!” Nonetheless, the Führer coolly waited a few days before taking any action. He probably wanted to gain a better understanding of the situation on the ground at the bank, or he may have been trying to decide if he could finally cut ties with the still prestigious Schacht. In either case, it was an unusual delay from someone who usually acted spontaneously when confronted.

For more than a week, the Reichsbank directors heard nothing. Finally on the evening of January 19, Schacht returned home late from the opera to find several telegrams instructing him to be at the Chancellery the following morning at 9:00. That was an unusually early meeting for Hitler, who normally talked into the night and then got up late. That morning, Schacht received a phone call telling him that the meeting had been put off to 9:15.
¹⁸

Schacht was punctual and had just entered a waiting room at the Chancellery, which overlooked a garden. Hitler entered and without any pleasantries immediately said, “I sent for you, Herr Schacht, to hand you the written notice of dismissal from the office of president of the Reichsbank.” The Führer handed him the document and said, “You don’t fit in the general National Socialist scheme of things.” Hitler then berated him for not putting party members into key positions at the bank, adding that the financial institution was not sufficiently Nazi.
¹⁹

Schacht did not immediately respond, and there was a moment of uneasy silence. Then Hitler continued, “You have refused to allow your staff to submit to political scrutiny by the party.” Another silence. “You have criticized and condemned the events of November 9 [
Kristallnacht
] to your employees.” This time Schacht answered, saying, “Had I known, Mein Führer, that you approved of those events, I might have kept silent.”
²⁰

The central banker wanted to ask Hitler some questions, but the Führer seemed stunned and cut him off by saying, “I’m much too upset to talk to you any more now.”
²¹

Schacht responded, “I can always come back when you have grown calmer.”

Hitler then shot back, “And what you think will happen, Herr Schacht, won’t happen. There will be no inflation!”

Schacht calmly replied, “That would be a very good thing, Mein Führer.”
²²

Without another word spoken, Hitler and Schacht strolled through two Chancellery rooms, and the now ex-banker then left the building and exited the Nazi regime.
²³

Later that day, Hitler issued an official statement that seemed to have been written to soothe German public opinion in the wake of the financial wizard’s departure. It was in the form of a letter to Schacht and started by thanking him for the “services that you have rendered repeatedly to Germany and to me personally.” Hitler poured it on thick, adding, “Your name, above all, will always be connected with the first epoch of the national rearmament. I am happy to be able to avail myself of your services for the solution of new tasks in your position as Reich Minister.”
²⁴

That was the first Schacht knew he would continue to be in the cabinet with the honorific title of Minister Without Portfolio. There was never a job behind that title, and he worked in a home office outside the capital.

Treasury Secretary Morgenthau heard that Schacht was out at 9:30 in the morning on the U.S. east coast. He immediately phoned President Roosevelt and told him, “Mr. Hitler fired Dr. Schacht with orders to Nazify the Bank . . . I just thought you would like to know . . . Very bad!” Morgenthau then sent over to the White House the Dow Jones report on the firing.

That same busy day, Hitler named Walther Funk, who had succeeded Schacht as Economics Minister, to also take on the Reichsbank job. In his hiring letter, the new president was given three main tasks: “First, maintenance of the absolute stability of wages and prices, also the value of the Reichsmark; second, opening up the capital market to a larger extent and making it available to private money requirements; third, bringing to a conclusion compatible with the National Socialist principles the reorganization of the Reichsbank.”
²⁵

Hitler fired five other Reichsbank board members shortly after getting rid of Schacht. The only two survivors were Emil Puhl and Max Kretzschmann, both Nazi party members. Puhl soon became managing vice president, and actually ran the bank for the rest of the war. Funk enjoyed the perks of being president of the Reichsbank, but let Puhl run the shop.

Early on in his tenure, Schacht had arrogantly told the Nazi leader, “You need me. And you’ll continue to need me for several years. After that, you can shoot me if you want to. But you can’t shoot me yet.”
²⁶
Hitler wasn’t going to shoot him, but he felt he no longer needed this troublesome moneyman. The day after he was fired, Schacht sent a note addressed to “My Work Comrades,” telling them that he had been “relieved” of the presidency. He added that the success of the Austrian and Sudetenland occupations reflected the “success of the armaments policy” and ended the message with
“Heil Hitler.”
²⁷

A few days later, Schacht told Ulrich von Hassell, a diplomat and Hitler opponent, “You have no idea how exuberantly happy I am to be out of all this.”
²⁸

Hitler soon signed a secret law that required the Reichsbank to print any amount of money that he requested. No one in the future was going to deny the Führer the money he wanted for the Wehrmacht. By the end of the war, Germany had nearly ten times more currency in circulation than when Schacht left office. The bonfire had been lit for another disastrous German inflation, which took place at the end of World War II.

Schacht moved out of his official residence in the Reichsbank headquarters to a house he owned in the Charlottenburg section of Berlin. He met later in Basel with Montagu Norman, who told people in London that Schacht was in great personal danger. Concerned that word might get out about his earlier contacts with the opposition, Schacht decided it might be wise to leave the country and asked Hitler if he could visit East Asia, China, and Japan. The Führer agreed, but Foreign Minister Ribbentrop only permitted him to go to India, probably out of fear that he might defect to the Allies. The trip lasted from March to August of 1939.