Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion (6 page)

On November 8, 1923, Schacht had a late dinner at the Hotel Continental in Berlin with the new German Chancellor Gustav Stresemann to discuss the country’s inflation crisis. The two men were old friends, and Stresemann was looking for someone to take an unenviable new job as the country’s currency commissioner. The government was anxious to replace Karl Helfferich, the longtime head of the central bank, who was one of the fathers of these catastrophic runaway prices. Bank rules, though, did not allow him to be fired. So Stresemann wanted to put someone above him who would have the mandate to save the country’s currency. Shortly before midnight as the two men were about to leave dinner, they learned that Nazi party leader Adolf Hitler had staged a
putsch
by marching on Munich’s Bürgerbräukeller, a beer hall. The coup failed, but sixteen Nazis and four police officers were killed. Schacht later wrote in his autobiography that the country at the time was “living on the edge of a volcano.”
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Four days later, Hans Luther, the Minister of Finance, officially offered Schacht the job of trying to end Germany’s inflation. Two eminent bankers had already turned it down. Luther explained that he would have unlimited power and could even overrule decisions from the Reichsbank president. Schacht asked for a few days to consider the offer, but Luther said he needed an immediate decision. Schacht accepted and went to work the following day.

The new currency czar had only one employee, a secretary with whom he shared a converted janitor’s closet. Schacht’s secretary later described her boss’s working habits during the crisis: “He sat on his chair and smoked in his little dark room at the Ministry of Finance, which still smelled of old floor cloths. He read no letters. He wrote no letters. He telephoned a great deal to German or foreign bankers to gauge the mood of international markets. He usually went home late, often by the last suburban train, travelling third class.”
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At first, the value of the Reichsmark continued falling. Less than a week after Schacht took office, the government stopped printing the old currency, and introduced a new one called the Rentenmark. It had the distinction of being backed by the country’s land, but was also linked to gold at the mark parity rate prior to World War I, even though there was a new rule that no one could exchange it for the precious metal in order to preserve government gold reserves. Schacht saw the Rentenmark as a way to get back to the gold standard as quickly as possible. On November 20, Schacht fixed the exchange rate at 1 trillion Reichsmark to one Rentenmark. Now 4.2 Rentenmark were worth one U.S. dollar, the exact exchange rate as before the war. That same night, Helfferich died unexpectedly, and a month later Schacht was named president of the Reichsbank, a job with a lifetime tenure.
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Schacht considered the Rentenmark to be only “a bridge between chaos and hope.”
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Although many countries were already off the gold standard because of the global economic slump, he still wanted to have a strong, gold-backed currency and advocated the establishment of a separate Gold Discount Bank. Before World War I, Germany had $1 billion in gold holdings and even in the immediate aftermath it still had $577 million. But because of war reparations and rampant inflation, the Reichsbank on December 31, 1923 was down to only $111.2 million worth of gold.

Once the inflation had been stabilized, the veteran banker and economic internationalist realized that his country could not solve its currency problem alone and reached out for help. The preeminent custodian of world financial power in the years between the world wars was a man named Montagu Norman, the governor of the Bank of England. When he suggested that the new German central banker come to see him, Schacht jumped at the opportunity, arriving at the Liverpool Railroad Station in London at eight o’clock on New Year’s Eve. He was surprised to see Norman standing on the platform to greet him. The two agreed to start work the next morning at eleven, despite the holiday. The central bankers quickly struck up a warm friendship, and at the end of the visit Norman agreed to give him a three-year loan to start a new Gold Discount Bank that would help finance German recovery.
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In the first months of the New Year, runaway German inflation ended like a patient’s fever breaking. Germany’s economy stabilized for the first time in nearly a decade. Schacht was immediately hailed at home and abroad as the savior of his country’s economy.

With the crisis over, Schacht began enjoying the trappings of being a central banker. He traveled extensively to hobnob with his fellow mavens of money. One of his trips took him to New York City to meet Federal Reserve Chairman Benjamin Strong. Schacht had earlier sent him a case of the best wine from Germany’s Palatinate region, even though the U.S. was still under Prohibition. Strong nonetheless served the wine at a lunch at the Federal Reserve building in lower Manhattan. He also wanted to show his German counterpart the gold Berlin had stored in the Fed vaults below the streets of Lower Manhattan after the end of World War I. Unfortunately, Fed staffers couldn’t quickly find the specific German bullion amidst all the various national deposits. Finally an employee admitted: “Mr. Strong, we can’t find the Reichsbank gold.” Schacht comforted his host by saying, “Never mind; I believe you when you say the gold is there. Even if it weren’t, you are good for its replacement.”
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Although Germany’s runaway inflation was over, the country still faced the problem of the unrealistic reparations that the World War I victor nations had demanded. The payments seemed only natural to the victors. In 1870 at the end of the Franco-Prussian conflict, the victorious Germans demanded that Paris pay 5 billion gold francs in war reparations. In the Treaty of Versailles in 1919 ending World War I, the victorious Allies demanded even higher war payments. The three big powers had vastly different demands against the Germans. The French sought revenge and to crush the German economy so Berlin could never again wage war on them. The British were not as angry since they had not been invaded. The U.S. was the least demanding. The French wanted Germany to pay $220 billion; the British $24 billion, and the Americans $22 billion. The final settlement was 132 billion gold marks or $34 billion. That was later negotiated down to 112 billion gold marks, with annual payments of two billion per year.
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The final German payment for World War I reparations was made on October 3, 2010.

The Versailles Treaty was naturally unpopular with the German public, and Britain’s John Maynard Keynes warned in his book
The Economic Consequences of the Peace
that it would ruin the country’s economy. Schacht refused to publicly recognize the war debt, but participated in negotiations with the Allies for better treaty conditions that became known as the Young Plan. He got somewhat better terms that reduced the amount and spread it out over a longer period, but the German public nonetheless turned against him. The national hero suddenly turned into a fall guy. When Schacht returned from a trip to Paris in June 1929, after signing the latest plan, his wife met him at the Berlin railroad station with the stinging rebuke: “You ought never to have signed!”
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On October 3, 1929, Schacht’s friend and mentor Chancellor Gustav Stresemann died of a stroke. Having lost public support within the increasingly dangerous German political scene where radicals of the right and left polarized politics, Schacht on March 7, 1930, resigned from his lifetime job. When asked at a farewell press conference what he was going to do, the banker replied that he was going to become “a country squire and raise pigs.”

The new retiree enjoyed traveling, and that summer visited Romania, Switzerland, Denmark, and Sweden. In the fall, he went to the U.S. for a two-month speaking tour. While on his ocean crossing in September 1930, he read a copy of
Mein Kampf
by Adolf Hitler, the country’s rising politician.

By the time Schacht returned home, he had forgotten about being a country squire and ventured into German politics. Although he had been one of the founders of the German Democratic Party, a center-left group founded largely by intellectuals in 1918, he left it eight years later on the grounds that it no longer supported private property. The Nazis were now coming on strong. In the May 1928 parliamentary elections, they had won only twelve seats, but in the September 1930 balloting they captured 107, making them the second largest party in the Reichstag.

In December 1930, Emil Georg von Stauss, the CEO of the Deutsche Bank and the man who loaned Hitler the Remington typewriter on which
Mein Kampf
was written, invited Schacht to a dinner with Hermann Göring, a top Nazi leader who had asked to meet him. Table talk among the three men quickly turned to politics and economics. In a sign of his compulsive arrogance, Schacht later speculated that Göring probably hadn’t yet paid for the tuxedo he was wearing that night.
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A month later on January 5, 1931, Göring invited Schacht to a dinner party that he and his wife were holding at their apartment in the Wilmersdorf section of Berlin. In another condescending observation, Schacht noted that the Nazi leader lived in a modest rented dwelling. A message accompanying the invitation said that Hitler would be present. The Führer, wearing his Nazi uniform of dark trousers and brown jacket, arrived only after everyone had eaten and proceeded to speak for two hours. Schacht described him as “neither pretentious nor affected—on the contrary he was natural and unassuming.” He also noted that Hitler spoke ninety-five percent of the time. Hitler showed Schacht respect, which he appreciated, but treated his fellow Nazis with disdain. The banker was impressed and later wrote that Hitler’s “skill in exposition was most striking. Everything he said he demonstrated as incontrovertible truth; nevertheless his ideas were not unreasonable and were entirely free from any propagandist pathos.” Schacht’s bottom line: “The thing that impressed me most about this man was his absolute conviction of the rightness of his outlook and his determination to translate this outlook into practical action.”
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During his post-war trial at Nuremberg, Schacht said that his own political view at the time was that he “wanted a big and strong Germany; and to achieve that, I would ally myself with the devil.” The banker who the British economic journalist Paul Einzig once called “the most Machiavellian statesman in Europe” was about to make a dangerous power play.
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Unlike almost everyone else surrounding Hitler, Schacht was not a Nazi party man and found it hard to hide his contempt for people he considered only slightly better than street brawlers. He alone among the Führer’s inner circle never wore either the Nazi or military uniform. He was always the quintessential central banker. And while he might have fought the temptation, he treated most Nazis as inferiors. He had few contacts with leading party members outside of Hitler, who repeatedly invited his banker to attend his intimate daily lunches at the Reich Chancellery, where he held court and gossiped. Schacht attended only twice. Despite his initial favorable impression, he later came to regard Hitler as “half educated,” adding that although he had read a lot, it was all from a distorted point of view. When Wilhelm Vocke, who had served with Schacht on the Reichsbank board, warned him about the Nazis, Schacht replied, “One must give these people a chance. If they do no good, they will disappear. They will be cleared out in the same way as their predecessors.”
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In the spring of 1931, the American journalist Dorothy Thompson interviewed Schacht and voiced skepticism about the ability of the Nazis to handle the country’s economy, asking, “Who will run it?” Schacht replied, “I will. The Nazis cannot rule, but I can rule through them.”
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The world economic crisis accelerated on May 11, 1931, when Austria’s largest bank, the Rothschild’s Kreditanstalt, collapsed. That set off an international financial crisis that hit neighboring Germany particularly hard. On July 11, Chancellor Heinrich Brüning called Schacht and asked him to come immediately to Berlin. When the banker arrived the next day, he learned that the Reichsbank’s gold and foreign currency reserves were quickly evaporating. In the first three weeks of June, the country had lost more than half its gold to speculators. On July 13, the Danat Bank, one of the country’s major financial institutions and Schacht’s old bank, did not open. A new full-scale national economic crisis had begun.

Schacht was regularly in contact with Hitler during those tense times, often expressing his support in sycophantic letters. On August 29, 1932, the banker offered him a strategic suggestion: “Do not put forward any detailed economic program.” He also pledged his loyalty: “Wherever my work may take me in the near future, even if you should see me one day within a fortress, you can always count on me as your reliable helper.” Schacht signed the letter, “With a forceful Heil.”
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Schacht urged Brüning’s successor Franz von Papen to resign in favor of Hitler, saying, “Give him your position. Give it to Hitler. He is the only man who can save Germany.”
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Schacht’s name was prominently at the top of a list of the country’s leading economists who publicly urged President Paul von Hindenburg to name Hitler chancellor.

In a surprising development in the November 6, 1932 election, the Nazi vote declined for the first time, giving hope to German democrats that the party’s power had peaked. That tempted some politicians to propose bringing the Nazis into a new government in hopes that they would begin acting responsibly once they were in power. That was naïve.

Schacht was showing his loyalty to the Nazis at a crucial moment. Joseph Goebbels, the party’s chief propagandist and a member of Hitler’s inner circle, wrote in his diary on November 21, 1932, “In a conversation with Dr. Schacht, I assured myself that he absolutely represents our point of view. He is one of the few who accepts the Führer’s position entirely.”
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