Lords of Finance: 1929, the Great Depression, and the Bankers Who Broke the World (69 page)

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-four 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
⁷⁵⁷
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
⁷⁵⁸
. . . 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
⁷⁵⁹
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
⁷⁶⁰
. 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 the 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
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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
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, 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
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” during the whole proceedings. Rebecca West wrote that he sat “twisted in his seat
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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.

In the last few days of the war, his only son, Jens, had been captured by the Russians and was never heard of again, one of the countless German soldiers who disappeared in the death march of prisoners on the Eastern front. Destitute at the age of seventy-three, Schacht started a new life and a new career as an independent economic consultant and became an adviser to the governments of Indonesia, Egypt, and Iran. He died, substantially prosperous, in 1970, aged ninety-three. To the end he refused to concede that he had ever done anything wrong.

THE WAR MADE
for strange bedfellows. The other member of the quartet, Émile Moreau, had become president of the Banque de Paris et des Pay-Bas after retiring as governor of the Banque de France in October 1930. In 1940, after the fall of France and the German occupation, Moreau was forced out by the Vichy regime for being too sympathetic to Britain—the ultimate irony for a man who at the peak of his career had done his best to undermine British dominance in finance.

Horrified at the social and ideological conflicts by which France was riven in the 1930s, Moreau became progressively more disillusioned with French republican politics and parliamentary democracy. He could not support the left, and the right was becoming more fascist by the day. Instead, he became a royalist—a quixotic commitment. Royalists were a fringe group—one poll found less than 6 percent of the French believed that the monarchy had any role whatever to play in the politics of the country.

In 1935, he took on the position of secretary to the pretender to the throne, Jean d’Orléans, duc de Guise, great-grandson of Louis Philippe, the liberally inclined king of France from 1830 to 1848. The law of exile passed in 1886 prohibited the heirs of former French dynasties from entering France, and Moreau acted as the duke’s liaison in France. In 1940, when Jean d’Orléans died, his son Henri, comte de Paris, succeeded as pretender.
After the fall of France that year, Henri tried to provide a bridge between the Free French and the collaborators at Vichy and for a brief moment there was even talk that the monarchy might return. Though Moreau did his best to promote the idea, nothing came of it and the comte de Paris returned to his place on the social pages of
Paris Match.

In 1950, the law of exile was finally repealed and the comte de Paris was allowed back to France. Moreau lived long enough to receive his beloved sovereign at his home in Paris, which subsequently became the secretariat for the comte’s activities. Moreau died that November.