U.S. - GERMAN TRADE POLICIES AND ECONOMIC PREPARATION FOR WAR, 1933-40

1. INTRODUCTION

“The significance of the economic measures adopted and applied by the conspirators can be properly appraised only if they are placed in the larger social and political context of Nazi Germany. These economic measures were adopted while the conspirators were directing their vast propaganda apparatus to the glorification of war”

In May of 1939 Major-General George Thomas, former Chief of the Military-Economic Staff in the Reich War Ministry, reported that the German Army had grown from seven Infantry divisions in 1933 to thirty-nine Infantry divisions, among them four fully motorised. [1]

The task of mobilising the German economy for aggressive war began promptly after the Nazi conspirators’ seizure of power. It was entrusted principally to Dr. Hjalmar Schacht, Hermann Göering, and Dr. Walter Funk, Minister of Economics before Schacht.

2. DR. SCHACHT APPOINTED

Hitler claimed that shortly after becoming Reichschancellor on 30 January 1933, he had had a discussion with then President of the Reichsbank, Hans Luther, also a former Chancellor, and was stunned at how little money Luther had been willing to make available to speed up German rearmament. Shortly afterwards, Otto Meissner, state secretary in the Chancellery suggested that Luther be appointed Ambassador in Washington instead. Luther was therefore forced to give up his position in the Reichsbank leaving the position open. Dr Hjalmar Horace Greeley Schacht was a financial wizard who was far more sympathetic to German rearmament expenditure, probably because three days after Hitler’s accession, Schacht had stated that he wanted to be President, and Luther would be forced out.[2] Schacht served as Commissioner of Currency and President of the Reichsbank from 1923 to 1930; Schacht was therefore appointed President of the Reichsbank on 17 March 1933[3]. After his appointment, Hitler announced his “New Deal” which went into effect 1 May 1933, which mobilised popular opinion, and a year later was celebrated in every city, town and village in Germany. The “New deal” was a popularist attempt at seeming to try and improve standards of living, and introducing work programmes that would soak up unemployment.[4] These programmes would involve building the motorway network, or autobahnen, which just happened to go to Germany’s frontiers!

Schacht’s appointment coincided with the June 1933 World Economic Conference in London. Schacht evidently favoured international stabilisation of currency, though not necessarily on a gold standard: something that Roosevelt was also calling for, though discussions between Schacht and Roosevelt resulted in no headway being made to that end. The Secretary of State, Cordell Hull, sailed for London and took with him a legislative proposal to establish trade agreements with willing nations, but Roosevelt cabled him that he was not going to submit the proposals to Congress. He had therefore arrived with the “highest of hopes but arrived with empty hands”.[5]

3. FREE TRADE? OR MORATORIUM ON DEBTS?

As a result of persecution of Jews, and in reply to threats of a German boycott of U.S. goods, Jewish organisations in the U.S. called for a full-scale boycott of German-made goods. Persecution continued throughout the latter part of 1933, and in reprisal Jewish leaders organised boycotts of German products. Although the movement came nowhere near its objectives, in 1933-34, Germany’s exports to the U.S. declined proportionately over twice as much as its exports to the rest of the world. It was thus understandable why Germany seemed to find alternative markets, for instance in South and Central America. American imports of German goods declined slightly in relative proportion to Germany’s worldwide sales, the U.S. increased its dollar value import of German products from nearly $64 million in 1934 to over £91 million in 1937. The crises in 1938 and the outbreak of war caused sharp decline to $63 million in 1938 and $52 million in 1939. However, although Hull emphasised on more and freer trade, the U.S. government maintained a distant attitude and neither supported nor denounced the boycotts[6].

The need for stabilising international currency was compounding difficulties for foreign manufacturers. The pound and U.S. dollar were unstable, and the Reichsmark was overvalued by 40% because of the German efforts to maintain stability by clinging to the gold standard. This in turn meant that German manufacturers were experiencing difficulties with exports as they received too few marks to offset domestic production costs. Tariff and other unilateral economic policies, added to the German economic distress caused by the tremendous foreign indebtedness compounded this: in February 1933 debts exceeded RM24 Billion. Schacht had to act, and sought a moratorium at a meeting of foreign representatives in Berlin at the end of May 1933. This failed, and on 9 June it was announced that from 1 July foreign creditors would receive in transferable loan currency only 50% of interest due. Germany would pay the remaining 50% in the name of a particular creditor into a Konversionskasse für Auslandschulden, the creditor receiving scrip notes for the sum due which he could only use for the purchase of German goods or convert into transferable currency by selling the scrip to the Gold Discount Bank at a 50% discount! The American creditors holding $1.2 billion worth of debt would receive therefore just 75% of interest due. Schacht then caused Hull concern as he threatened to begin making interest payable to creditors dependant on the balance of trade between creditor countries and Germany; because the U.S. had by far the largest favourable balance of trade, exports exceeding imports, American creditors would receive the lowest interest rates. Hull felt that this “challenged the most-favoured-nation foundation of his traditional liberal economics”.[7]

This was followed from September 1933 by selective import quotas, which further outraged Hull as they positively discriminated against the U.S. exporters. Schacht oversaw positive discrimination in the payment of debts: Swiss and Dutch bondholders were to receive 100% interest due on German bonds, and in December 1933 the Reichsbank announced a further six months’ continuation of the discrimination on long-term debt interest payments, and threatened to reduce payments on bonds from 75% to 65% whilst the Dutch and Swiss got their full due. In January 1934, Roosevelt approved the State Department note to Germany suggesting reciprocal action if this continued. At the end of January 1934, the Germans agreed to redeem scrip payments at 76.9% instead of 75% and to work towards ending discriminatory payments by June 1934[8]. The debt settlement of 31 January 1934 was temporary, and “wholly unsatisfactory to neither Germany nor the United States”[9]. However, Schacht and other Reichsbank officials met representatives of Germany’s creditors in the next few months to reach agreement on all loans. This having failed, Schacht gave notice in April that a moratorium was inevitable, whilst the State Department continued to contend that only a settlement that treated U.S. creditors the same as others was acceptable. The inevitable happened, and on June 14 Germany announced it was suspending payment on all its foreign debts amidst increasingly difficult negotiations. Protests by Hull seem to have fallen on deaf ears in Germany, though British threats to seize payments for German goods and use that money to discharge German debt through a new Debts Clearing Office resulted in an agreement being reached by the Germans because of the favourable balance of trade with the U.K. The U.K. was then guaranteed most-favoured nation treatment in the payment of debts, and so the D.C.O. was abolished. Presumably, the Reichsbank and the Ministry of Economics had the trade balance and threat of seizure of payments in future dealings.[10] The Economist 3 November 1934 stated that Mr Runciman had announced in the House of Commons the previous Thursday that the negotiations between the British and German Governments had resulted in an agreement over Germany’s debts. The Germans agreed that 55% of the value of German exports to the U.K. should be definitely earmarked for the payment of British exports to Germany, and this was believed to be sufficient to provide payment in full to British exporters. Foreign exchange permits for the importation of British goods were at the outset to be issued without restriction though the Germans reserved the right to restrict their issue temporarily after consultation with the British Government. Germany undertook to provide £400,000 immediately to pay outstanding debts and to expedite payment by realising German commercial claims on the U.K. If this was not sufficient, a further percentage of the proceeds of German sales would be allocated for the purpose. The percentage was fixed at that stage at 10% and in any case it was sufficient to repay all outstanding debts within twelve months. The sondermark arrangement was to continue. Their comment is apt “Moreover even if Anglo-German relations are satisfactorily regulated by this Agreement, it does nothing to improve the general economic position of Germany, which is one of the major hindrances to world recovery. We have been able to establish ourselves in a favoured position, but the wider question of Germany and her creditors appears to be as still as far from solution as ever”.[11] On the same page were references of equal interest: firstly, Dr. Schacht as Minister of Economics had compulsorily formed a consortium to produce synthetic oil from lignite [coal] to make Germany self-sufficient in oil production, and also a comment on Lord Nuffield’s demand that it was the duty of every “Englishman” to refrain from buying foreign motorcars. This is discussed further below.

The U.S. also had a favourable balance of trade with Germany, but in its favour, and thus could not seize payments for goods Americans imported from Germany. The U.S. creditors therefore had to accept the unilateral debt settlement terms. However, after protests, in October 1934 Germany granted American creditors 75% of the service due on Dawes loans. A year later [October 1935] Germany gave a final settlement: reduction of interest on Dawes loans from 7 to 5%, on Young loans from 5½ to 4% and on other non-governmental debts, averaging 7%, to 3% as opposed to the 4% given other creditors. These continued until the War. However, U.S. opinion was angry as their debt was discriminated against and was in breach of treaty obligations. The threats by the U.K. established a precedent, that the Germans need only meet obligations to those countries that could force payment. However, the inability to pay the foreign indebtedness was only partly because an adjustment was required in order for Germany to pay: Schacht’s economics were seeing monies that should have been used to pay debt funnelled into rearmament[12].

4. MUTUAL TRADE

Although the U.S.-German debt problem had to a large extent been resolved, the State Department and the German Foreign Ministry were still required to resolve the problem of mutual trading. The U.S.-German Treaty of Friendship, Commerce and Consular Rights of 1923, which became effective in 1925, expired in 1935 and renouncing or renewing the treaty required one year’s notice on either side. The Germans, for reasons stated below, wanted a new treaty to allow greater opportunity to export to the U.S. but to omit most-favoured-nation status so that they could negotiate bilateral tariff and import quotas that excluded American goods. However, Hull and the State Department felt that the status was at the heart of reciprocal trade, and were consequently for renewal of Article VII of the 1923 Treaty that guaranteed each the status. The Americans were also too aware of the discriminatory import quotas of Autumn 1933. By February 1934, the emphasis was on the continued deterioration in Germany’s foreign exchange and that everything should be done to improve it including increased sales to the U.S. with whom the Reich had its largest unfavourable balance of trade. Luther saw Hull in March and his Assistant Secretary Sayre in April to press Germany’s case. However, the State Department replied [with fingers crossed] that whilst they would like to see more reciprocal trade the time was not right for discussions and that advance commitments might endanger passage of the Reciprocal Trade Agreements Act which was to give the President authority to alter tariffs by as much as 50%.[13]

The difficulty of trading with Germany was, and would continue to be, the items and quantities thereof that could be imported into the U.S. This is something that German U.S. subsidiaries experienced when repatriating profits. The commercial attaché in Berlin, Douglas Miller, submitted a brief to the State Department in April 1934 that whereas the Germans required American cotton, copper and petroleum, there was nothing other than small manufactured articles and potash, “none of which are of staple character and many of which are subject to changes in popular taste” that the Germans could hope to sell in the U.S. in large enough quantities to increase their foreign exchange. Further, German import quotas on U.S. products changed too quickly to guarantee a steady export market and the Reichsmark was set at an artificially high gold rate. Thus, foreigners could not take any money out of Germany, and as Miller mentioned in a report in June 1934, Schacht had set up a government currency scheme that created different types of marks. These gave advantages to German manufacturers over foreign manufacturers by restricting the use of certain marks to the purchase of German goods and prevented foreigners with German businesses from taking capital out of the country.[14] It is interesting to note that American oil companies sold over $12 million of oil to Germany, increasing in each year to $34 million in 1938.[15] Further sources of funds upon which Schacht drew to finance the secret armament program were the Marks of foreigners on deposit in the Reichsbank. This must also have applied to foreign Corporations!

On 5 June 1934, Congress passed Hull’s Reciprocal Trade Agreements Act, and yet on the same day the State Department Economic Office sent a memorandum to Roosevelt urging against negotiations with Germany for the reasons in the previous paragraph, and because the Nazi experiment was “leading Germany further away from normal commercial relations with the western world”, and there it was possible that internal revolution or war would result.[16]

5. THE NEW PLAN

Through Schacht’s financial genius monetary measures were devised to restore German industry to full production; and through the control of imports and exports, which he devised under his new plan of 1934, German production was channelled in accordance with the requirements of the German war machine. This program was not undertaken in a vacuum; it was deliberately designed and executed to provide the necessary instrument of the Nazi conspirators’ plans for aggressive war. In 1934, Schacht was appointed the new Minister of Economics in August 1934[17]. In September 1934 Schacht admitted to the American Ambassador in Berlin William E. Dodd that the Hitler Party was absolutely committed to war, and that the people too were ready and willing.[18]. At the same time Schacht promulgated his New Plan for the control of imports and exports in the interest of rearmament which came into effect 1 September 1934.

The Reich government’s armament plans obviously required huge quantities of raw materials. Schacht was a proponent of the view that as much of the requisite raw materials as possible should be produced within Germany. At the same time, however, he recognised that large imports of raw materials were indispensable to the success of the conspirators’ gigantic armament program. To that end, he fashioned an intricate system of controls and devices, which he called the “New Plan” (Reichsgesetzblatt, 1934, I, pp. 816, 829, 864; Reichsgesetzblatt, 1935, I, p. 10).

There were three main features of the “New Plan” as devised by Schacht:

(1) restriction of the demand for such foreign exchange as would be used for purposes unrelated to the conspirators’ rearmament program;

(2) increase of the supply of foreign exchange, as a means of paying for essential imports which could not otherwise be acquired; and

(3) clearing agreements and other devices obviating the need for foreign exchange.

Under the “New Plan”, economic transactions between Germany and the outside world were no longer governed by the autonomous price mechanism; they were determined by a number of Government agencies whose primary aim was to satisfy the needs of the conspirators’ military economy (EC-437).

Schacht accomplished the negative task of restricting the demand for foreign exchange “by various measures suspending the service on Germanys foreign indebtedness, by freezing other claims of foreigners on Germany, by a stringent system of export controls and by eliminating foreign travel and other unessential foreign expenditures.” (EC-437).

From 1 September, Germany was to buy only what it could pay for, and transactions on imports were not allowed until foreign exchange was in the Reichsbank. Further, imports would have to equal German exports to each country. The net consequence of the New Plan was that Germany turned away from the U.S. and western Europe for raw materials and instead to Latin America and the Balkans. In 1933, ¾ of Germany’s cotton imports came from the U.S., but this declined to just ¼ in 1935 as imports were switched to suppliers in Argentina, Brazil, Peru, Egypt and India. The special State Department committee on trade with Germany was asked in the autumn of 1934 to make a final decision on how to proceed. The committee recommended no action being taken as if the New Plan succeeded then trade with Germany would be of little value to the U.S., and if it failed, the U.S. might gain more favourable terms. The start of trade warfare in reciprocation to the New deal would have meant a loss of export trade to Germany and put at risk $1 billion invested by Americans.[19] Let alone the millions invested by U.S. corporations!

Schacht advised the Military Tribunal in Nuremberg that the New Plan was “a logical consequence of the economic development which followed the Treaty of Versailles”. By the removal of German property abroad, the entire organization for German foreign trade was taken away and therefore great difficulties arose for German exports. Without those exports payment of reparations etc. was out of the question. Nevertheless, Schacht claimed, all the great powers, particularly those who were competing with Germany on the world market, resorted to raising their tariffs in order to exclude German merchandise from their markets or to make it more difficult for Germany to sell her goods, so that it became more and more of a problem to develop German exports. When Germany, in spite of this, tried by lower prices at the cost of lower wages to maintain or to increase her export trade, the other powers resorted to other means to meet German competition. Schacht recalled the various devaluations of foreign currencies that were made, again impeding the competition of German products. When even that did not suffice, the system of quotas was invented, i.e. the amount of German goods, which were imported into a country could not go beyond a certain quota and any excess was prohibited. The Netherlands, France, and other nations established such quotas for German imports; so here also German export was made increasingly difficult. All these measures to hinder German export led to the situation that German nationals also could no longer pay even private debts abroad. Schacht stated to the Tribunal that for many years he had warned against incurring these debts, but he was not listened to. Germany, against his advice, had within five years contracted as large a foreign debt as the United States had throughout the 40 years before the first World War. Germany was a highly developed industrial nation and did not need foreign money, and the United States at that time was going in more for colonial development and could make good use of foreign capital.[20]

The German economy “hit bottom”: when the country was no longer able to pay our interest abroad, some countries resorted to the method of no longer paying German exporters the proceeds from the German exports, but confiscated these funds, and out of this paid themselves the interest on our debts abroad, effecting a settlement, which was the so-called “clearing system.”. The private claims were confiscated in order to meet the demands of foreign creditors. To meet this development, Schacht in his official positions looked for a way out to continue German exports. He set out a very simple principle: “I will buy only from those who buy from me.” Therefore, he looked around for countries that were prepared to cover their needs in Germany, and he prepared to buy his merchandise there.

Schacht’s influence subsequently spread throughout Eastern Europe and the Balkans. In March 1935, a military revolt was attempted in Greece with the object of strengthening the republican regime. However, the coup was put down and in November the King returned. The King, George II, subsequently appointed General Metaxas, as Prime Minister. However, Metaxas took the opportunity for his own ends, turned fascist, dissolved parliament, introduced a dictatorship, and Schacht’s “economic penetration” of Greece.[21]

The New Plan involved extensive use of clearing agreements and other arrangements made by Schacht to obtain materials from abroad through the expenditure of foreign exchange. The principle of the clearing system was as follows: The importer made a deposit of the purchase price in his own currency at the national clearing agency of his country, which placed the same amount to the credit of the clearing agency of the exporting country. The latter institution then pays the exporter in his own currency. Thus, if trade between the two countries was unequal, the clearing agency of one acquired a claim against the agency of the other. That claim, however, was satisfied only when a shift in the balance of trade gives rise to an offsetting claim.

This device was used by Schacht as a means of exploiting Germany’s position as Europe’s largest consumer in order to acquire essential raw materials from countries which, because of the world wide economic depression, were dependent upon the German market as an outlet for their surplus products. Speaking of his system of obtaining materials abroad without the use of foreign exchange, Schacht stated:

“It has been shown that, in contrast to everything which classical national economy has hitherto taught, not the producer but the consumer is the ruling factor in economic life. And this thesis is somewhat connected with general social and political observations, because it establishes the fact that the number of consumers is considerably larger than the number of producers, a fact which exercises a not inconsiderable social and political pressure.” (EC-611)

Schacht’s clearing agreements were particularly effective in Eastern Europe and the Balkans where agricultural exports had been considerably curtailed by competition from the more extensive and efficient overseas agriculture. The success of Schacht’s ruthless use of Germany’s bargaining position is indicated by the fact that by August 1937, there had been imported into Germany approximately one half billion Reichsmarks of goods in excess of the amount delivered under the clearing arrangements. In his letter to Göering dated 5 August 1937, Schacht stated:

“…in clearing transactions with countries furnishing raw materials and food products we have bought in excess of the goods we were able to deliver to these countries (namely, South-eastern Europe and Turkey) roughly one half billion RM ...” [22]

Lord Robert Vansittart of Bexley [“Van”] states in his memoirs that Schacht had the “Midas touch”, and the more he claimed for it, the greater his contribution to Hitler. In Eastern Europe, Van, when Permanent Under-Secretary of State at the Foreign Office, found Schacht “most formidable”, as he “rolled up little countries like flies in his web”. He ordered their goods at “good prices” and then forced them to buy from Germany many things that they did not, and a few that they did want, otherwise they would not get their money “with which he juggled till bewildered customers grew cross-eyed”. Although Schacht disclaimed later, he “served Hitler’s turn”, and his machinations made all Balkan products so expensive that Van was baffled in trying to sell a fraction of them in Britain. Vainly, Van appealed to big U.K. tobacco companies to imitate the Americans and blend their cigarettes with 7% of Balkan tobacco, which was rejected. He tried, at, say 5%, or at least 1% but the companies argued that smokers would detect the adulteration. This failure left Schacht to take all of their tobacco and increased Balkan dependence with “gadgets, contraptions and spare parts” [23]

Van further states that the Governor of the Bank of England, Montagu Norman was “picturesque, poseur, and infatuated by Dr. Schacht”. Returning from a visit to see Norman, Schacht let it out on the ferry to an acquaintance that in fact worked for British Intelligence, that Van had seen through him [Schacht]: Van as head of the Secret Intelligence Service would have learnt about the comment through this route. Van stated that the “compliment” was not true, but nothing ever came of the information[24].

6. THE FIRST US-GERMAN BARTER ATTEMPT

In October 1934, the Germans gave one year’s notice of the termination of the 1923 Treaty, though it still covered the period until the spring of 1935 by when it was obvious to both side’s trade officials that a lack of a new treaty would be mutually disadvantageous. On 3 June 1935, a new Treaty of Friendship, Commerce and Consular Rights was negotiated, but excluding new trade concessions for the Germans and the Article VII provisions guaranteeing mutual most-favoured-nation status. Subsequent German efforts to increase exports to the U.S. in exchange for purchase of cotton and other goods at higher-than-world prices were rebuffed by the State Department and from 1935 German goods were excluded from the special tariff concessions afforded the goods of the 16 nations [“most-favoured nations”] that by 1938 had entered into reciprocal trade agreements with the U.S.[25]

Despite this, efforts were made to continue to trade. George N. Peek was Roosevelt’s special adviser on foreign trade and also president of the Export-Import Bank that was created in 1934 to foster and underwrite foreign trade. Peek believed in protective tariffs and bilateral trade agreements negotiated on a quid pro quo basis, concerned only with selling or bartering as much as nations could[26]. It just happened that Peek’s and Schacht’s views coincided!

James D. Mooney states in his unpublished biography that George Peek, as official assistant to President Roosevelt for exploring foreign trade, asked him [Mooney] to see the German government about acquiring “a lot of excess lard that the western farmers had”. Mooney consequently travelled to Berlin shortly afterwards and saw Dr Schacht and Dr Kurt Schmitt, the then Economics Minister, as well as one of Schmitt’s assistants who was an economics expert. The three Germans kept saying to Mooney that they did not want any lard, but very badly wanted cotton for their textile industry as if the Germans could remanufacture “some” textiles, they could then ship them abroad and pay for some of the raw materials that they needed. The discussions went on for two or three days, and Schacht and Schmitt continued to say that they did not want lard, but cotton. On the third evening, Mooney went to see the economics expert who was an intellectual in the foreign trade department. Mooney persuaded the official to discuss taking lard and cotton, and the following day confirmed with Schacht and Schmitt that they would indeed do so. Mooney then cabled Peek in Washington accordingly[27]. There is no date on this but it could have been in January 1934, as Schacht had not replaced Schmitt as Minister for Economics, and Mooney would have been in Berlin in January anyway, attending the Berlin Motor Exhibition [at which Hitler announced his vision for a “people’s car”].

Dr Schacht approached U.S. Ambassador Dodd in February 1934 and stated that Germany would agree to purchase $500 million worth of American cotton over the following few years at a fixed price higher than the world price if the U.S. agreed to lower interest rates on German bonded indebtedness and perhaps increase import of German manufactures. The State Department made no response, and in the absence of this, Peek’s office announced that it had negotiated a trade agreement with Germany whereby the U.S. would sell Germany 800,000 bales of cotton through Peek’s Import-Export Bank. Germany would pay 25% of the price in U.S. dollars, and the remaining 75% plus a 22½% premium in German marks which could only be used for the purchase of certain German goods. The Export-Import Bank could then sell the marks at a discount to Americans interested in importing German goods. Mooney states that Schacht had a “conventional loyalty” to Hitler, but never hesitated to criticise the “palace guard around Hitler”. He was very sarcastic about those surrounding the Chancellor, and showed no fear in discussing with Mooney the different people Hitler had gathered around him. This may have contributed to his ultimate removal as explained below. Mooney apparently secured a letter from Schacht confirming that Germany would enter into an arrangement to acquire the lard and cotton and then delivered it personally to Peek. However, the agreement fell apart between Peek and the State Department and nothing ever came of it.[28] The reality was that Roosevelt, not yet convinced that Hull’s trade programme as per the Reciprocal Trade Agreements Act, generally agreed with Peek’s proposal and so stated in a note on 19 November 1934 to Hull, and urged a compromise between Hull and Peek who supposedly represented the practical angle of trade. Hull was totally against the proposal since it violated the most-favoured-nation principle, and acceptance of a higher price for cotton than world markets in exchange for discounted marks exchangeable only for German goods, granted German exports advantages not available to other countries. Hull declared that Chile had threatened trade retaliation by dumping nitrates, and Brazil trade negotiations with the U.S. would have to be postponed in the event of a U.S.-German barter agreement. Roosevelt therefore withdrew support for the plant and cut off Peek’s hopes about barter with other countries. [29].

Mooney comments that when he next travelled to Berlin, which was around 1 May 1934, when he saw Hitler, Schacht was not furious at the waste of time at the previous negotiations, but took the attitude that another try should be made.[30] Peek made further efforts to effect the same trade arrangement in March and April 1935, but failed and then resigned from the administration in November 1935.[31]

7. FURTHER BARTERING ACQUIESCED IN

Every aspect of the German economy was geared to war under the guidance of the Nazi conspirators, particularly Schacht. In a study of the economic mobilisation for war as of 30 September 1934, it was stated that steps had already been taken to build up stockpiles, to construct new facilities for the production of scarce goods, to redeploy industry to secure areas, and to control fiscal and trade policies. The task of stockpiling, it was announced, had been hampered by the requirement of secrecy and camouflage. Reserves of automobile fuels and stocks of coal were accumulated, and the production of synthetic oil was accelerated. Civilian supply was purposely organised so that most plants would be working for the German Armed Forces. Financing of the armament program presented a difficult problem for the conspirators. In 1934 and 1935, the German economy could by no possibility have raised funds for the Nazis’ extensive rearmament program through taxes and public loans. From the outset, the armament program involved “the engagement of the last reserves.” Moreover, apart from the problem of raising the huge sums required to sustain this program, the Nazi conspirators were exceedingly anxious, in the early stages, to conceal the extent of their armament activities. Studies were made of the possibility of barter trade with supposedly neutral countries in case of war.[32] However, the concept of barter was encouraged with immediate effect with any country that could provide raw materials.

Although Peek had failed over the cotton export deal, Hull and the State Department backed off their policies sufficiently so that those who wished to barter with Germany could do so through “clever devices”. The State Department’s strictures also went unheeded as American corporations “pursued private profit even to the detriment of public and national long-range interest, frequently using methods that were not only frowned upon by the government but illegal”. General Motors Export Corporation placed its worldwide facilities available in 1931 to open new markets in Latin America. This put G.M.’s subsidiary in direct competition with other U.S. companies and the Export Company and subsidiary assembly operations in the same countries. By 1937, officials of Adam Opel A.G. were encouraging their representatives in various countries to suggest barter arrangements to increase sales. By 1939, Graeme K. Howard, General Manager, General Motors Overseas Operations Group, and a Corporation Vice-president, was openly attacking Hull’s trade programme for its opposition to Germany’s efforts at bilateral trade policies and the State Department for not making agreements under the Reciprocal Trade Agreements Act with “have-not” nations.[33]

In respect of the latter point, Professor Henry A. Turner at Yale comments: “It is quite true that Graeme Howard, as well as other G.M. executives, criticised U.S. trade policy toward Germany. They wanted a bilateral treaty in the hope that it would generate German exports and therefore German holdings in dollars in the U.S.A. Such dollar holdings, they hoped, would make it possible to repatriate some of the millions of marks generated by Opel’s profits which G.M. could not get out of Germany because of that country’s currency controls. In others words, their motive was interest, not ideology. They were, I should add, not the only Americans who viewed Nazi Germany as a ‘have-not nation’ that could be tamed by trade. That view extended even into the upper reaches of the State Department, as Offner demonstrates.”

However, other countries or interested parties in those countries with U.S. masters, were willing to entertain barter arrangements and supply raw materials that were essential to the German war effort. Australia’s main export, wool, was subject to restrictions and tariff charges in many countries, and the prospects were bleak for the future trade in this most important commodity. However, it is assumed that Mooney, being responsible for Opel, saw a prime opportunity which would serve the best interests of both G.M.’s German and Australian subsidiaries, and also be another means of extracting a Dividend from Opel for G.M.. In 1935, the Government of Australia was anxious to promote trade with Germany, and in return Germany was prepared “even anxious” to purchase primary products from Australia, especially wool, but in view of the exchange control restrictions, Australia had to find a way of purchasing more German products to balance the wool purchases. General Motors-Holden’s placed an order for 20,000 Electric windscreen wipers from Robert Bosch A.G., probably in October or November 1935. This then set the precedent for a substantial barter arrangement of Opel car components in exchange for Australian wool. In December 1935, the German Government had informed the German Foreign Office, who in turn had instructed the Consul-General in Sydney that the Germans would approve a compensation deal for wool in exchange for Opel cars. The German Government had selected Simonius Vischer and Co. as the wool importer through whom the special quota for wool would be passed, and earmarked RM 3 million, equal to and therefore £Sterling, A£ 300,000. The order for 20,000 electric wipers was then increased to 30,000: these could not have been supplied from anywhere else in the world. These were supplied on a barter arrangement for Australian wool, but the substantive trade deal broke down from the Australian government side because of political reasons, and no trade deal was agreed. G.M.-Holden’s though had not concerned themselves with a formal Australian-German Trade Agreement because from experience, including that with the Bosch wipers, trade with Germany was conducted under barter arrangements because of the exchange control restrictions.[34]

The Australian barter proposals were for the direct benefit of General Motors, and between two G.M. subsidiaries. This would have been at the instance of James D. Mooney, and reflects the continuous attempts to extract dividends out of Adam Opel. There appears to have been official blindness as to the ultimate purpose of the wool, even in the eyes of the Australian farmers who were only too happy to offer their wares when rumours spread via the press. Although Schacht may have officially contended that cotton, and no doubt wool, were for textile and clothing manufacture and re-export, tariff barriers and restrictions on imports would have precluded them from being readily received in British Empire countries and the Dominions. The provision for war was thus overlooked, negligently, recklessly or deliberately in the interests of trade in time of depression.

Van confirms in his memoirs that despite all the Intelligence and the information on Schacht’s activities, nothing came of it. In an anachronistic comment he says “Our people vied in woolliness, bleating programmes for sheep, while the Sturmabteilung [Ernst Röhm’s S.A.] were reckoned at anything from 300,000 to 1,000,000 and Rumbold, our Ambassador in Berlin, claimed to have seen the equivalent of eight Army Corps in one place”[35]. The reference to the S.A., the Nazi “brownshirt” stormtroopers is from 1933, whilst that of the interest in selling British wool to the Germans would appear to be later, but rather poignant nevertheless.

8. ECONOMIC PREPARATIONS FOR WAR

On the invitation of Göering, approximately 25 of the leading industrialists of Germany, together with Schacht, attended a meeting in Berlin on 20 February 1933. This was shortly before the German election of 5 March 1933. At this meeting Hitler announced the conspirators’ aim to seize totalitarian control over Germany, to destroy the parliamentary system, to crush all opposition by force, and to restore the power of the Wehrmacht. Among those present at that meeting were Gustav Krupp, head of the munitions firm, Alfried Krupp, A.G.; four leading officials of the I. G. Farben Works, one of the world’s largest chemical concerns; Albert Vogler, head of United Steel Works of Germany; and other leading industrialists. This meeting is described in the following affidavit of George von Schnitzler:

Detailed measures of financing a future war were discussed and it was pointed out that the Reich Finance Ministry and the Reichsbank, which was headed by Schacht, would regulate the financial aspects of the war economy.[36]

The Economist in October 1934, Schacht in his position as Minister of Economics, made his first moves at making Germany self-supporting in essential raw materials. In one month he made an association of ten lignite producing concerns and gave a Reich Commissar sweeping powers to compel it to produce benzene by the I.G. Farbenindustrie’s hydrogenation process. It was estimated that Germany would in later years produce 1.25 million tons of benzene against the then requirement of 1.45 million tons. I.G. Farben and other companies were fused into a compulsory syndicate and were to finance a newly founded company, Braunkohlen Benzin A.G. with a capital of RM 100 million under the control of the Commissar. It was pointed out that Hitler’s plan to self-sufficiency in four years from 1937 also coincided with the proposed completion of the autobahnen to the frontiers. Was Germany going to achieve this? Whatever the real nature and causes of external pressure on Germany, her internal economic policy could hardly fail to arouse misgivings abroad, or to push farther and farther away any hope of a return to normal relations between Germany and her neighbours, they commented.[37] In the end, the process proved hopelessly uneconomic, and cost several times that of imported oil. By 1937, the synthetic oil processing had to be subsidised by the Government.

Schacht was designated Plenipotentiary for the War Economy on 21 May 1935, with complete control over the German civilian economy for war production in the Reich Defence Council, established by a top secret Hitler decree Reichsgesetzblatt for 1934, Part 1, p. 565. A letter dated 24 June 1935, at Berlin, and signed by von Blomberg, reads in part: “The Fuehrer and Reich Chancellor has nominated the President of the directorate of the Reichsbank, Dr. Schacht, to be Plenipotentiary-General for War Economy. “I point out the necessity of strictest secrecy once more.” [38]

As Minister of Economics and Plenipotentiary General for War Economy Schacht made detailed plans for industrial mobilisation and the co-ordination of the Army with industry in the event of war. He was particularly concerned with shortages of raw materials and started a scheme of stockpiling and a system of exchange control designed to prevent Germany’s weak foreign exchange position from hindering the acquisition abroad of raw materials needed for rearmament. On 3 May 1935, he sent a memorandum to Hitler stating that “the accomplishment of the armament programme with speed and in quantity is the problem of German politics, that everything else therefore should be subordinated to this purpose.”[39]

The secret defence law of 21 May 1935 in effect gave Schacht charge of the entire war economy. In case of war he was to be virtual economic dictator of Germany. His task was to place all economic forces into service for the conduct of war and to secure economically the life of the German people. The Ministers of Economics, Food, Agriculture, Labour, and Forestry, as well as all Reich agencies directly under the Fuehrer, were subordinated to him. He was to be responsible for the financing well as for the conduct of the war; and he was further authorised to issue ordinances within his sphere of responsibility, even if these deviated from existing laws.[40]

Schacht, by April 1936, began to lose his influence as the central figure in the German rearmament effort when Göering was appointed Co-ordinator for Raw Materials and Foreign Exchange. Göering advocated a greatly expanded programme for the production of synthetic raw materials, such as rubber, gasoline and steel in a period of four years, so that Germany would be fully prepared for aggressive war. Schacht opposed this, however, on the ground that the resulting financial strain might involve inflation. On 4 September 1936 Göering announced, at a Cabinet meeting attended by von Blomberg, Schacht, and others, that Hitler had issued instructions to the Reich War Minister on the basis that “the show-down with Russia is inevitable,” and added that “all measures have to be taken just as if we were actually in the stage of imminent danger of war.”[41] The influence of Schacht suffered further when on 16 October 1936, Göering was appointed tentiary for the Four-Year Plan with the task of putting “the entire economy in a state of readiness for war” within four years[42]. Schacht had opposed the announcement of this plan and the appointment of Göering to head it, and it is clear that Hitler’s action represented a decision that Schacht’s economic policies were too conservative for the drastic rearmament policy which Hitler wanted to put into effect.

Although the Nazi government officials provided the leadership in preparing Germany for war, they received also the enthusiastic and invaluable co-operation of the German industrialists. A “memorandum on the Four-Year Plan and Preparation of the War Economy,” dated 30 December 1936[43], and marked “Secret Command Matter”, sets out that the Führer and Reich Chancellor had conferred powers in regard to mobilisation preparations in the economic field that need further definition. The third paragraph refers specifically to Minister-President, Generaloberst Göering as Commissioner of the Four-Year Plan, by authority of the Fuehrer and Reich Chancellor granted 18 October 1936. The existence of this program involved the reorganization and control of the whole German economy for war. [44]

As an additional means of assuring that the conspirators’ military needs would be met, Schacht adopted a host of controls over the productive mechanism of Germany, extending, inter alia, to the allocation of raw materials, regulation of productive capacity, use of abundant or synthetic substitutes in place of declining stocks of urgently needed materials, and the erection of new capacity for the production of essential commodities. The structure of regulation was built up out of thousands of decrees in which governmental agencies under Schacht’s control issued permits, prohibitions, and instructions These decrees were the outgrowth of carefully laid plans of the Ministry of Economics, of which Schacht was the head, concerning “economic preparation for the conduct of war”, and in accordance with its view that “genuine positive economic mobilisation” demanded that “exact instructions for every individual commercial undertaking are laid down by a central authority’.

The plan to allocate raw materials was carried out through myriad “orders to produce” specifying that certain commodities must or must not be produced; “orders to process or use” prescribing the type and quantity of raw material which could or could not be used in the production of a given commodity; orders specifying that scarce raw materials could be used only as admixtures with more plentiful but inferior products; and other like measures. In a secret report issued in September 1934 by the Ministry of Economics it was said:

“Rules are to be initiated for the allotment of scarce raw materials etc; and their use and processing for other than war, or otherwise absolutely vital, goods is prohibited.”[45]

The military aspects of Schacht’s plans to increase the production of scarce raw materials within Germany, and thereby reduce Germany’s dependence upon foreign countries for materials needed in the rearmament program, are likewise revealed in the aforementioned report of the Ministry of Economics of September 1934:

“The investigations initiated by the Raw Materials Commission and the measures introduced for enlarging our raw materials basis through home production as well as for furthering the production of substitute materials will directly benefit war economy preparations.” [46]

James D. Mooney states that two German representatives travelled to New York in the autumn of 1936 to plead that G.M. put up $1,000,000 to finance Adam Opel’s own rubber requirements in Germany as demanded by a newly-introduced government ruling. G.M. put up the money, but only after receiving assurances that the expenditure would be liquidated by means of barter transactions and exports of Opel cars and trucks. It was further agreed that the German government would assume the financing responsibility for crude rubber in about a year. G.M. did not therefore put up dollars in cash, but compounded their difficulties in extracting dividends out of Adam Opel by having to enter into barter and export deals. One of the two representatives was an Adam Opel director from 1935, and President of the company, Professor Dr Karl Lüer, who was appointed Chairman of the company in 1942[47]. R.K. Evans was the incumbent General Manager of Adam Opel at the time, although his replacement, Cyrus R. Osborn had been sent to Germany in early 1936 on “special assignment” and shortly afterwards became Assistant to Evans. Osborn had been on General Manager G.K. Howard’s staff in New York from March 1934, making important manufacturing studies, and then Vice-president of Engineering Department, G.M. Export Division in Detroit in December 1934.[48]

In 1936, as a means of preserving the Reich’s foreign reserves, the Nazi government blocked the German Ford subsidiary from buying needed raw materials. Ford headquarters in Dearborn responded, just as the Nazis hoped it would, by shipping rubber and other materials to Köln/Cologne in exchange for German-made parts. The Nazi government took a 25% “cut” out of the imported raw materials and gave them to other manufacturers, an arrangement approved by Dearborn.[49] To elaborate: Ford Werke A.G. were required to finance their rubber requirements in the same way, and in 1937 this covered the importation of imports of non-ferrous metals and 5,000 tons of pig iron. In 1938 it was extended to include such strategic material in express terms. The Reich Ministry of Economics conditioned its consent upon Ford Werke’s increasing its export of vehicles to 10,000 or ¼ of total production and exacted for its own disposition 30% of the rubber imported by Ford and also 20% of the pig iron imported, though this did no deter Ford in the U.S. from supplying these materials to Germany.[50]

In October 1936 the Four-Year Plan under Göering had been announced, under which amongst other things the gaining of foreign currency was give priority. This was followed by the appointment in November 1938 of the Plenipotentiary for Automotive Affairs, Adolph von Schell. Schell then headed the new Automotive Office Group, which was to accelerate efforts to rationalise domestic production to meet the demands of mobilisation and subsequently called a meeting on 24 November 1938 where he and Göering explained to invited leading automotive companies of the task of harnessing the industry to military needs. Schell’s intention was to increased domestic output by reducing the number of models and standardising models in co-operation with automotive manufacturers. This was not completely achieved by the outbreak of war, though Schell’s office continued to have a general oversight of coordinating automotive production with military requirements until it was subsumed into the Ministry of Armaments and War Munitions under Speer. [51]

9. THE RHINELAND OCCUPATION AND BEYOND

The rearmament of Germany proceeded at a rapid pace. By summer of 1935 the Nazi conspirators were emboldened to make plans for the reoccupation of the Rhineland, and at the tenth meeting of the working committee of the council the question of measures to be taken in connection with the proposed reoccupation of the Rhineland was discussed.

At that meeting, on 26 June 1935, it was said that the Rhineland required special treatment because of the assurances given by Hitler to the French that no military action was being undertaken in the demilitarised zone. Among the matters requiring special treatment was the preparation of economic mobilisation, a task specifically entrusted to Schacht as secret Plenipotentiary for the economy. In this connection it was stated: “Since political entanglements abroad must be present under all circumstances, only these preparatory measures that are urgently necessary may be carried out. The existence of such preparations, or the intention of them must be kept in strictest secrecy in the zone itself as well as in the rest of the Reich.”[52] Preparations of various types were thereupon discussed.

The rapid success of German rearmament is attributable to the work of Schacht: the Nazi conspirator’s “New Plan”, was aimed at the control of imports and exports in order to obtain the raw materials needed for armaments and the foreign currency required to sustain the armament program. The “New Plan” was the creation of Schacht. Under the plan, Schacht controlled imports by extending the system of supervisory boards for import control, which was previously limited to the main groups of raw materials, to all goods imported into Germany. The requirement of licenses for imports enabled the Nazi conspirators to restrict imports to those commodities, which served their war aims.

Subsequently, in February 1935, the Devisen Law was passed (Reichsgesetzblatt 1935, I, 105). Under it, all transactions involving foreign exchange were subject to the approval of Devisen, stellen (Foreign Exchange Control Offices). By thus controlling the disposition of foreign exchange, the conspirators were able to manipulate foreign trade so as to serve their ends.

High-ranking military officers paid tribute to Schacht’s contrivances on behalf of the Nazi war machine. An article written for the “Military Weekly Gazette” in January 1937 stated: “The German Defence Force commemorates Dr. Schacht today as one of the men who have done imperishable things for it and its development in accordance with directions from the Fuehrer and Reich Chancellor. The defence force owes it to Schacht’s skill and great ability that in defiance of all currency difficulties it, according to plan, has been able to grow up to its present strength from an army of 100,000 men.”

After the reoccupation of the Rhineland, the Nazi conspirators redoubled their efforts to prepare Germany for a major war. Hitler proclaimed the Four-Year Plan in his address at the Nuremberg Party Convention on 9 September 1936. It was given a statutory foundation by the decree concerning the execution of the Four-Year Plan dated 18 October 1936 (Reichsgesetzblatt, I, 887.). By this decree Göering was put in charge of the plan. He was authorised to enact any legal and administrative measures deemed necessary by him for the accomplishment of his task, and to issue orders and instructions to all government agencies, including the highest Reich authorities. The purpose of the plan was to enable Nazi Germany to attain complete self- sufficiency in essential raw materials, notably motor fuel, rubber, textile fibre, and non-ferrous metals, and to intensify preparations for war. The development of synthetic products was greatly accelerated despite their high costs.

Apart from the self-sufficiency program, however, the Nazi conspirators required foreign exchange to finance propaganda and espionage activities abroad. Thus, in a speech on 1 November 1937 before the Wehrmachtakademie, Major-General Thomas stated: “If you consider that one will need during the war considerable means in order to organise the necessary propaganda, in order to pay for the espionage service, and for similar purposes, then one should be clear that our internal Mark would be of no use therefore, and that Foreign Exchange will be needed.” [53]

This need for foreign exchange was reduced in part by virtue of the espionage and propaganda services rendered free of charge to the Nazi state by leading German industrial concerns. A memorandum dated at Essen on 12 October 1935, which was found in the files of the Krupp company, contains the subheading: “Concerns:-distribution official propaganda literature abroad with help of our foreign connections.”

After Göering’s appointment, Schacht and Göering promptly became embroiled in a series of disputes. Although there was an element of personal controversy running through these disputes, Schacht disagreed with Göering on certain basic policy issues. Schacht, on financial grounds, advocated a retrenchment in the rearmament programme, opposed as uneconomical much of the proposed expansion of production facilities, particularly for synthetics, urged a drastic tightening on government credit and a cautious policy in dealing with Germany’s foreign exchange reserves. As a result of this dispute and of a bitter argument in which Hitler accused Schacht of upsetting his plans by his financial methods, Schacht went on leave of absence from the Ministry of Economics on 5 September 1937, and resigned as Minister of Economics and as Plenipotentiary General for War Economy on 16 November 1937[54]. However, the dissenting Soviet Judge stated in his Dissenting Judgement that “Schacht used swindler’s tactics and coercion ‘in an effort to acquire raw material and foreign currency for armaments’ as per Affidavit of Vice-President of the Reichsbank, Puhl.[55]

After their successes in Austria and the Sudetenland, the Nazi conspirators redoubled their efforts to equip themselves for the war of aggression that they planned to launch. Thus, during a conference in the Reich Aviation Ministry on 14 October 1938[56] under the chairmanship of Göering, Göering referred to Hitler's orders for an abnormal increase of armament, particularly weapons for attack, and directed the Ministry of Economics to submit suggestions on how to finance this rearmament by increasing exports.

The report of Göering’s remarks states in part:

"General Field Marshal Göering opened the session by declaring that he intended to give directives about the work for the next months. Everybody knows from the press what the world situation looks like and therefore the Fuehrer has issued an order to him to carry out a gigantic program compared to which previous achievements are insignificant. There are difficulties in the way, which he will overcome with utmost energy and ruthlessness.

"The amount of foreign exchange has completely dwindled on account of the preparation for the Czech Enterprise and this makes it necessary that it should be strongly increased immediately. Furthermore, the foreign credits have been greatly overdrawn and thus the strongest export activity stronger than up to now is in the foreground. For the -next weeks an increased export was first priority in order to improve the foreign exchange situation. The Reich Ministry for Economy should make a plan about raising the export activity by pushing aside the current difficulties which prevent export.

"These gains made through the export are to be used for increased armament. The armament should not be curtailed by the export activity. He received the order from the Fuehrer to increase the armament to an abnormal extent, the air force having first priority. Within the shortest time the air force is to be increased five fold, also the navy should get armed more rapidly and the army should procure large amounts of offensive weapons at a faster rate, particularly heavy artillery pieces and heavy tanks. Along with this manufactured armaments must go; especially fuel, powder and explosives are moved into the foreground. It should be coupled with the accelerated construction of highways, canals, and particularly of the railroads." [57]

With the planned invasion of Czechoslovakia in mind, the Reich ordered 3,150 trucks from Ford Werke in Cologne, and Ford in Dearborn, Michigan secretly diverted pre-built components to the Cologne factory for rapid assembly in night shifts, as the alternative would have been to import U.S. trucks to satisfy demand.[58]

10. COUNTERING GERMAN EXPORT SUBSIDIES

In the months immediately after the march into the Rhineland, the State Department preferred to interpret the law so as not to involve itself in trying to force Germany to change tactics. This policy obliged Germany to certain demands that led to a dispute over “countervailing duties” on German imports into the U.S. Section 303 of the Smoot-Hawley tariff mandated the Treasury Department that if it discovered that foreign governments provided bounties or subsidies for export of goods to the U.S. that were dutiable upon entrance, to impose additional or countervailing duties upon those goods equal to the amount of the subsidy.

In order to increase the available supply of foreign exchange “Schacht repeatedly requisitioned all existing foreign exchange reserves of German residents, required all foreign exchange arising out of current exports and other transactions to be sold to the Reichsbank, and by developing new export markets. Exports were encouraged by direct subsidies and by accepting partial payment in German foreign bonds or in restricted Marks which could be acquired by foreign importers at a substantial discount.” (EC-437). Certain German currency practices notably the use of Aski or registered marks, indicated subsidy of exports to the U.S. Similar procedures worked for other types of currency and bonds. Schacht himself devised the “aski” accounts. This scheme obviated the need for free currency (i.e. Reichsmarks freely convertible into foreign currency at the official rate-U.S. dollars, pounds sterling, etc). The system worked as follows: The German foreign exchange control administration would authorise imports of goods in specified quantities and categories on the condition that the foreign sellers agreed to accept payment in the form of mark credits to accounts of a special type held in German banks. These accounts were called “aski”, which was an abbreviation of Auslander Sonderkonten fuer Inlandszahlungen for “foreigners’ special accounts for inland payments”. The so-called “aski” Marks in such an account could be used to purchase German goods only for export to the country of the holder of the account; they could not be converted into foreign currency at the official rates of exchange. The German government established Aski mark prices for American goods that were considerably higher than world market prices, and so exporters could afford to sell their Aski marks at a discount to importers who purchased German goods. The importers then received more marks for their dollars than if they had exchanged them at the official rate, and obtained more German goods for their money. The Aski marks could neither be exchanged for dollars nor taken out of the country: they could only be used in Germany for the purchase of specific German products.

Using the various means at their disposal, the German government then subsidised its export manufactures that competed with American goods. A vast network of organisations was erected to effectuate the various measures under the New Plan. One of these was the supervisory agencies (Ueberwachungsstellen). These agencies, which were under Schacht’s control as Minister of Economics, decided whether given imports and exports were desirable; whether the quantities, prices, credit terms, and countries involved were satisfactory; and in short, whether any particular transaction advanced the conspirators’ armament program. The overriding military purpose of the series of controls instituted under the “New Plan” is plainly shown in Schacht’s letter of 5 August 1937 to Göering, wherein he said:

“The very necessity of bringing our armament up to a certain level as rapidly as possible must place in the foreground the idea of as large returns as possible in foreign exchange and therewith the greatest possible assurance of raw material supplies, through exporting.” [59]

Exports to the U.S. chiefly involved cameras, surgical and optical instruments, bicycles and various cotton, rayon, calf, kid leather and paper items that constituted about 15% of total German exports to the U.S. In late November 1935, the State Department advised the German embassy that if Germany subsidised exports to the U.S., the Treasury Department would have to impose the countervailing duties. The Germans replied that they were not a “subsidy” under the Smoot-Hawley Tariff because the German government made no payments to exporters and that if the restrictive mark system resulted in additional costs then German consumers paid them. General Counsel to the Treasury Department informed Cordell Hull on February 3 1937 that it was common knowledge that practically if not all German exports to the U.S. were being subsidised and that his Department would impose countervailing duties. The special German trade delegation in Washington proposed several measures to improve trade with the U.S. including perhaps the restoration of most-favoured-nation standard. German willingness to depart from discriminatory bilateral arrangements appealed to the State Department. Arguments were put forward that currency manipulation was just another form of currency depreciation practised by many countries including the U.S. If duties had to be invoked against Germany, Argentina, Brazil, Chile, Uruguay, Hungary also had to have countervailing duties: Germany had to use Aski marks to bolster sales if German purchases were not to drop further. Imposing duties would eliminate any possibility of a new trade agreement with Germany. High duties ran contrary to the trade agreement programme.

In the end the Treasury Department were obliged to announce on 11 June 1936 that thirty days from then countervailing duties ranging from approximately 20 to 55% depending on the amount of subsidy would be imposed on appropriate German goods. This then brought protests from Germany and U.S. cotton and tobacco merchants and importers of German wares. However, within a month of the countervailing duties being imposed, the German government advised the State Department that it would no longer allow payments from Aski accounts for German goods delivered to the U.S., and the Treasury removed the duties.

A few months later, in October 1936 American businessmen pressed the Treasury to alter its interpretation of the law so that by clever bookkeeping and financial devices the old Aski practices could be taken up in a new guise. The Treasury Department agreed that there would be no countervailing duties on German goods purchased by Americans with Aski marks provided that the person or company using the marks owned them originally and continuously [received the marks for goods sold to Germany and not bought at a discount from another American exporter].

The bookkeeping worked as follows:

“A” ordered from German exporter “B” chemicals costing 9,000 registered marks. “A” purchased $2,700 worth of cotton from American firm “C” at $2,700 = ¾ the dollar value of 9,000 registered marks. “A” sold cotton to German firm “D” interested in buying U.S. cotton. “D” deposited credit of 9,000 registered marks with German chemical company “B” or its bank in the name of American importer of German chemicals, “A”. “B” then shipped the chemicals to “A”. American cotton firms never shipped cotton to American importers of German goods but only invoices for such goods and importers in turn shipped invoices to German purchasers of cotton. The “Cotton barter” scheme worked equally for copper and petroleum. Fluctuations in these dealings resulted chiefly from the amount of discount the German government allowed American businessmen on their money and merchandise and how quickly the Germans delivered promised goods. Bartering continued uninterrupted to March 1939. March 18 1939, barter system violated Smoot-Hawley and countervailing duties applied again. Three extra years American diplomats allowed things to go on to make up their minds. [60]

The threat of countervailing duties was not restricted to the United States. The Ottawa Agreements of 1932 and 1937 established agreements on tariffs on imports into the United Kingdom, the British Empire, and the Dominions, and between each other including Canada. The Agreements resulted in Committees being established in Empire countries that could sanction increased duties to offset subsidies.

11. THE MEFO BILL PROBLEM

Wilhelm Vocke, was appointed by Reich President Ebert a member of the Reichsbank Directorate in 1919, and dismissed from office on 1 February 1939. He was therefore for about 20 years a member of the Reichsbank Directorate, and for 10 of those years he w