American Business and Hitler
VOLUME
NUMBER 1
JULY 1941
IF Hitler can defeat Britain, he has removed the last obstacle to his effective control over Europe, Africa, and Asia Minor. The Nazis will control the oceans. They will soon force a considerable part of South America into their economic orbit. We cannot overlook the possibility that they may secure a working agreement with the Soviet Union and the Japanese new order in Asia for a terrific assault upon us.
They will be able to turn to their advantage our need for foreign markets, our lack of certain critical raw materials. They can exert pressure upon American property in the territories which they control. They can project fear into the hearts of millions of Americans through relatives and friends in the Old World. They can and will use the device of a centralized economic system, buying and selling for half the world, to put pressure upon our economy at many points.
They will have the assistance of numerous agents throughout North America, some of them moved by racial consciousness, some bribed by propaganda funds, and some despairing of democracy’s continued existence in a totalitarian world. The Nazis hate the United States more poisonously than any other country. Our very existence disproves their racial and economic theories. We have welcomed their beaten enemies. We persist in speaking, printing, and broadcasting disagreeable truths which they would like to see suppressed. Above all, we alone possess the loot which would make a world conquest worth while.
The Nazis have often said that there are two opposite poles in the world — Germany, the pole of order, discipline, and scientific progress; and the United States, the pole of democratic anarchy, decadent Christianity, and the degeneration and loss of efficiency which accompany a system of free enterprise. Hitler’s conquest is only partial and incomplete until we are brought into his world system.
Copyright 1941, by The Atlantic Monthly Company, Boston, Mass. All rights reserved.
I make these statements on the basis of fifteen years’ residence in Berlin, close association with Nazi leaders and their party, and a detailed study of National Socialist books, pamphlets, and newspapers from the very beginning of their movement, when they were less cautious about discussing ultimate objectives. These convictions I formed slowly under the pressure of overwhelming evidence.
One and a half years before Hitler assumed power — that is, in October 1931 — I prepared a report to Washington of how the coming National Socialist State in Germany would operate. This account still stands substantially correct. Several years before the outbreak of the present war I had arrived at the belief that war was coming and that further commercial relations between Germany and the United States would come to an end. Accordingly, on September 1, 1938, I cabled a request to return to the United States, which later was acted upon. In the American press I foretold that war was imminent in the summer of 1939. I believe that this record entitles me to make public some of my experiences with the Nazis and — after drawing conclusions from them, discussing Nazi aims and methods — to project existing Nazi policy into the future and describe what sort of world we shall have to live in if Hitler wins.
I
One fundamental characteristic of all totalitarian economies is their essential unproductiveness. This arises first of all from their militaristic nature. They are economies of conflict, working toward an expansion of their territory and an increase in their power. They can never be disassociated from the thought of war. Hitler’s solution of the employment problem is the stimulation of war industries. This is natural on psychological grounds because Nazi economy is an economy of conflict, and on material grounds because it seems easier for central planning to operate by militaristic rather than by peacetime methods.
In Germany the Nazis have been kept going in the past through exploiting the Jews, the Catholics, and other minority groups, cutting down their property and income; by heavy taxation of wealthy citizens; by high-speed exploitation of mines and timber resources and intensive exploitation of agriculture; by the nonpayment of existing debts to foreigners and the creation of more foreign indebtedness, both monetary and commodity; by the gradual consuming of all liquid capital in the country; by exchanging government short-term debt for existing securities held by private persons; by bleeding the financial structure, including banks, insurance companies, trading houses, and manufacturing concerns, forcing them to exchange their equities for worthless government paper; and finally, when this process had gone on to its final limits, by preying upon other economies. Totalitarianism is by nature parasitic and predatory. It cannot live on its own resources, but must forever consume the wealth of its neighbors. The whole technique of German commercial policy is one of exploiting the assets of others. While the Nazi State grows ever more powerful, its citizens suffer continual reductions in their living standards. All totalitarian régimes must keep their peoples warlike and poor in order to hold them in line.
This essential sterility of the Fascist system is one explanation of its aggressiveness. The totalitarians are a group of bandits who have learned no useful trade or occupation but are well armed and have no scruples about attacking their neighbors. Germany has, under Hitler, thrown away her possibilities of peaceful trade and understanding with all the world and has no option but to go forward in the campaign of aggression. She must not, in Hitler’s words, ‘export or die’; she must fight or die. Under these circumstances it is completely useless to await any peaceful settlement of Europe’s troubles. The Nazis are not organized for peace. They are not prepared for it. They would not know what to do with it. Hitler dare not demobilize his armies or end his war economy. He has promised future war to boys too young to participate in the present struggle. He has written in Mein Kampf, ‘The human race has grown great in war. In peace it would only decay.’
II
If we assume a Hitler victory over the Old World, just how can we continue to conduct ordinary day-to-day relations between the hemispheres? Let us try to imagine how difficult this would be and some of the troubles that would arise for us. International relations are a complex affair. We touch the Old World at many points and through a variety of channels. Just how can we arrange the normal exchange of telegraphic messages over ocean cables when one end lies in a free country and the other is controlled by a totalitarian dictatorship? Shall we have to cut the cables, or can we set up some American government ownership or operation of our end of these lines to prevent Hitler from using them as a method of forcing an entry into our internal affairs? What shall we do about radio connections across the Atlantic? Can we allow our people to listen to insidious propaganda designed to break down our morale? Shall we have radio telephone connections with the Old World? Shall we radio pictures across the ocean? What arrangements shall we be forced to set up regarding the exchange of letters and second-class mail, including newspapers, magazines, and packages? Will it not be necessary for this country to have a censorship of mail at the frontiers? If we have to control foreign trade, as we shall surely have to if the Nazis win, shall we not be obliged to control movements of foreign exchange? Will our government not have to open all firstclass mail to see whether it contains currency? Shall we be able to have exchange of funds by money order with the totalitarian postal systems? It would not seem so, as they control all movements of funds through a control station and seize any foreign money coming in, no matter for whom it is destined.
Could we allow Hitler’s newspapers and magazines to circulate freely in this country? He would not allow ours to go to his subject peoples. Should we dare to permit American ships to visit the harbors of dictator-controlled countries? Our sailors and shipowners could not be guaranteed proper protection against arrest or the confiscation of property. Could we maintain consular and diplomatic officers in the New Europe? Would they be allowed to retain traditional privileges of extraterritoriality? Could our tourists travel abroad? What about the millions of people of this country who have close friends and relatives on the other side? What arrangements could be made for the exchange of Axis citizens here for American and Canadian citizens caught in the Old World?
What about the billions of dollars’ worth of American property held in Germany or in the countries that Hitler has been taking over? What about the debts owed to American banks and bondholders by Germany and other European nations? If we are to be engaged in permanent hostilities with the dictators, all private interests must continue to suffer. But if we are to have a period of formal peace, some arrangements must be made to adjust these matters. They will prove extraordinarily difficult to settle.
We must not forget that the Nazis have long experience in this kind of negotiations. They have worked out new revolutionary methods of turning every one of these factors to their own advantage. We shall he fearfully handicapped if we allow individuals on this side to negotiate with a centralized bureaucracy on the other. Almost inevitably the United States Government must extend its control over all matters of this kind in order to present a stiff front to the Nazi pressure. We shall have to change very many of our present practices We could no longer allow American probate courts to pay out to totalitarian governments money bequeathed to individuals and institutions by wills. We could no longer allow the United States Veterans Bureau to mail every month millions of dollars in checks to our discharged veterans who are now living abroad. This money, of course, goes right into the pockets of the dictators, while the beneficiaries are paid off in different varieties of Hitler’s phony currencies.
What arrangements would be necessary to take care of American patents registered in Europe? Under probable circumstances the owners here would get no royalties, nor would our authors and composers be able to collect anything in the way of royalties on copyrighted books, articles, and musical compositions used over there. Should we be willing to grant such rights to authors, composers, and patent owners of the Old World when we know that the money would go to the central government? Would we allow Hitler or his agents the right to appear in an American court to recover sums due from the people playing Strauss waltzes? Under the new setup Hitler would be the effective owner of the trademarks of French champagne, Harris tweeds, and Copenhagen porcelain. He would control all stock of American corporations now owned anywhere in Europe. Can we let him vote that stock in our annual meetings? The impact of an immense totalitarian state through all these channels upon our economic life would be most dangerous and destructive.
If Hitler wins, we can expect our economic picture in the United States to be somewhat as follows: an expanded war industry which we must maintain and enlarge for the purpose of North America and hemisphere defense; a backed-up supply of certain exportable commodities, including cotton, grain, and tobacco, for which no market in the Western Hemisphere can be found; a growing shortage of certain critical materials which up to now have been secured from the Old World. These shortages would not amount to much in terms of American dollars, but they might mean dangerous deficiencies in certain areas of our defense program and in the supply of many goods commonly used in the United States. We might, for example, have very little chrome. At the present time the automobile companies are requesting that when new chromium parts are ordered the old broken parts be immediately sent back to Detroit in exchange. We might be seriously short of manganese, mercury, tin, antimony, tungsten, rubber, scientific instruments, optical goods, and other commodities.
Our economy would be characterized by easy money, a nervous and depressed stock exchange, rising indebtedness, a high level of employment and wages in defense industries, and a feeling of dread regarding the future outlook. If Germany wins, our foreign trade will come almost to a standstill. At the present time two thirds of our foreign trade is with the British Empire. We have placed that proportion of our eggs in one basket. Hitler bids fair to smash both basket and eggs. Another large segment of our trade lies with Japan. If Hitler wins, he might take steps to integrate European and Asiatic trade, so that this market and source of supply would be suddenly taken from us. We should find an immediate drop in our business with the southern part of Latin America. What was left of our foreign trade would be only the portion which goes to North America and the Caribbean area. This restricted trade zone contains a large number of our good customers, but it would be impossible for them to absorb our customary total exports.
We have a carry-over of fifteen million bales of cotton, and we need to sell one half of our current crop to prevent further increase. If we cannot come to satisfactory trade relations with Hitler and the Japanese, we shall have to restrict the product ion of this commodity and find new sources of livelihood for a vast number of persons in the South. If Britain goes down, our leading foreign market vanishes. Our other markets in the Old World have already disappeared. We shall have to revise our economy to take care of the workmen and industries now employed on sales to Britain and possibly Japan; we shall see a sudden contraction of our foreign markets for office equipment, machine tools, and other mechanical devices, petroleum and its products, copper and other nonferrous metals, miscellaneous items of iron and steel, chemicals, naval stores, canned, dried, and fresh fruits, not to mention many other items. We shall be forced either to trade with Hitler or to make a sudden readjustment of our economy which is bound to be painful and distressing to millions of Americans. Either choice involves us in acute difficulties.
Suppose we try to trade with Hitler. The American Government must then commence negotiations in Berlin for some sort of exchange of commodities. We shall be handicapped at every turn because the Germans can put pressure upon factions and commodity groups in this country to secure larger shares of the deal for their own particular advantage. We shall not be able to interfere in the same way in Germany, because over there no one but the central government can conduct business negotiations with a foreign power except on pain of death. If the American Government decides to negotiate, it may prefer to draw up only a covering agreement under which American interests could buy or sell with Berlin. If this is done, the Germans will outtrade us. They will use their united strength to force unfair concessions from individual groups in this country.
If, on the other hand, we conform to the Nazi pattern and conduct special negotiations between Washington and Berlin, covering commodities on a barter basis, we shall have to upset our whole economy as we know it now. This would put the American Government directly into all sorts of trading enterprises. Our authorities here would have to swap stocks of American goods with the Germans at fixed prices, and then import the Old World equivalents and allot them in some manner to firms in this country. Just how shall we maintain our system of free enterprise if our government is thus forced directly into all the deals which concern trade with the outside world? A quick result would surely be the introduction of fixed prices covering the imported commodities and those which we exchanged. This would lead to a forced allocation of commodities to private individuals and firms in the United States. We should be on a fair way to planned economy and a system of State Socialism.
III
If Hitler wins in Europe, he will control the Pope, the Vatican, the overwhelming majority of the Cardinals of the Catholic Church, and its central executive organization. He will be in a position to exercise pressure upon the Church through his power to confiscate schools, universities, orphanages, asylums, hospitals, monasteries, and other kinds of Church property. The present Pope was formerly Papal Secretary of State and before that Papal Nuncio in Berlin. He knows the Nazi system as few men have ever learned it. He is an accomplished scholar and diplomat, as well as head of the Church. I had the privilege of knowing him during his long residence in Berlin, and I am sure that he will do everything in his power to preserve the ancient liberties of Catholics living under the dictators.
But how far will the Catholic Church be able to protect itself? It has no weapons of force. Hitler is not open to reason or argument. He understands the logic of the sword alone. I fear that by the exercise of brutal pressure he can make the Pope an involuntary prisoner and hamstring Church activities. What is the result going to be upon the great body of Catholics in the United States? For example, this country has been the largest source of funds for carrying on the work of the Church. If, by a control of foreign exchange, money is not allowed to be sent from the United States to Europe, what will happen to the structure of Catholicism? How will American Catholics feel if they are not allowed free access to the head of their religious community? Can Hitler and Mussolini, by putting pressure upon the Church in Rome, assure themselves that such pressure could be indirectly relayed to Catholic bodies on this side of the water — not only in the United States but in Latin America as well? Will the Catholic Church, in order to save its European property and protect the lives of its leaders, have to consent to a political compromise which would endanger our safety in so far as American Catholics follow their Church? Would Hitler even go so far as to hold the Church up to ransom from the New World? These speculations raise alarming possibilities for the future.
IV
Now, what about the possibilities of barter arrangements with victorious Germany after the war? Remember that, according to the Nazis themselves, Germany is Europe. Could we barter with Europe? A great deal has been written and conjectured on this subject. Probably no American has had the opportunity to see as much negotiation for barter deals as I have.
I suggested to the American Chamber of Commerce in Berlin in 1934 that a special barter committee be set up, and it met regularly on Friday afternoons over a long period. We found numerous firms coming to us for aid, but they all wanted to get goods from the United States. Few firms came in with practical suggestions regarding German goods which they wanted to buy and take to the United States and resell at prices that would show a profit. Such goods were extremely rare. One art dealer from Munich told me that he did have business of this kind: ho sold Bavarian paintings in New York and had built up quite a satisfactory trade. He was so fearful that this business would be taken away from him by some greedy larger firms in Germany that ho did not allow any payments to be made by check, for fear the German banks would find out too much of what was going on.
It was my experience that the only successful barter negotiations our American firms were ever able to conclude with Germany were small deals, averaging perhaps one to two thousand dollars apiece. These arrangements usually covered commodities which the firm produced or used itself and which were not for resale to others; and in our modern world it is rare to find the possibility of large business arrangements of this type. Seldom could we find a case of an American company that could exchange an article of its own manufacture with a single German company that happened to manufacture some product the American firm wanted, and where the price of the goods on both sides proved suitable. Usually international trade occurs in items which are for resale and not for use directly by the importer. In cases where goods must be resold, this simple type of barter fails to meet the situation.
Not only that, but the German Government set up rules and regulations for the conduct of barter deals which made them almost impossible as far as the United States was concerned. Since Germany desired to reduce imports from the United States and increase exports to this country, the German Government was unwilling to allow barter deals with us at the straight ratio of one for one — that is, an equal value of goods exchanged. They insisted that the barter ratio should be set at a minimum of one unit of American goods in value, and the balance in cash, against 1.3 units of German goods in value.
I do not happen to remember any deal which we actually were able to work out at this minimum rate. The usual barter ratio for our ordinary commodities was set at three to one. For example, American walnut growers tried to arrange a barter of $100,000 worth of walnuts, but found that they would have to buy $300,000 worth of German burlap bags and barbed wire in exchange. This meant that the Association here would have to invest $200,000 in cash and hope to be able to recover this money by the resale of the bags and wire in the United States.
Such an arrangement makes trade practically impossible for American interests. Most of our firms know their own business better than any other business. Our walnut growers know something about selling walnuts, but very little of the market for burlap bags and barbed wire. If they succeeded in getting rid of their walnuts to Germany, they found themselves faced with the problem of getting rid of three times as large a quantity of unfamiliar German goods. No wonder that the negotiations broke down.
In the case of manufactured articles which Germany was deliberately trying to keep out of the local market, the barter ratio was set at an even higher figure. On one occasion I pressed the German Ministry of Economics to give me the best terms on which it would allow American automobile companies to bring in cars and parts in exchange for German goods. The Ministry was reluctant to set any terms, but finally agreed that we could bring in cars and parts against German goods in the ratio of one to ten. In other words, an American automobile company that sold $100,000 worth of cars and parts would have to purchase a million dollars’ worth of German goods.
Of course, in any barter arrangement the German Government insisted upon fixing the price of both the American and the German goods in question. The price set on German goods was usually the local price, naturally a high one on account of the high nominal exchange value of the mark and the amount of currency and credit inflation that has gone on inside Germany. The price set on American goods was usually an arbitrarily low one and represented an attempt to beat us down. For example, I worked long and hard in 1937 in an attempt to barter 10,000 tons of West Coast prunes for an assortment of German products, but the German Government would allow a maximum price of only three cents per pound for our prunes delivered in Hamburg, The deal, of course, fell through, because even the lowest-grade prunes were worth more than that on the Pacific Coast.
In order to save something from the wreck of their German holdings, many American companies have been forced to accept merchandise that was either unsalable or so different from their usual line of business that they could hardly hope to put it on the market in this or other countries except at considerable loss. In this category come the 8,000,000 mouth organs which an oil company took in payment for petroleum, the 200,000 canary birds which a manufacturing company got in exchange for a large press for making automobile bodies, and the live hippopotamus which a motion-picture firm took as part payment for motion-picture films.
Other firms have taken patents, participations, processes, and stock as part payment on unpaid bills; but there are still outstanding large sums, much of which probably means total loss. It is not as if the Germans were completely unable to pay their debts. It seems to me distinctly unfair that the German Government suspends interest payments on bonds held in the United States until the market price of such bonds falls to very low levels — for example, five cents on the dollar. At that point the Germans quietly proceed to buy up the bonds. They are doing so even at the present time, and thus profit by their own default. In the same way, the German Government has claimed to be unable to allow payment for American merchandise shipped long ago to Germany, and unable to pay Americans the judgments which German courts have rendered in their favor, but is quite able to finance propaganda in foreign countries and to produce military supplies and equipment for cash.
There is no doubt that if Germany wins the war she will attempt more or less to standardize industry for all Europe and can hold out to individual firms the hope that their design might become the standard one for an entire continent or even for a Nazified world. Hitler can use prospects such as these as bait to tempt foreign business men to coöperate with him. Probably more important than such promises and inducements, though, are the threats which the Nazis can use and the control which they now exercise over the property of unfortunate firms in their territory. Before the war started, most of our smaller American companies had fled from Germany, abandoning such property as they had; but larger firms with more extensive investments were hanging on desperately and sending in good money after bad, because they could hardly afford to give up their large holdings.
When we think that an American company has been making more than half of all the passenger cars in Germany, that another is building the Red Cross ambulances for the army, that still another has 20,000 filling stations, besides other large properties, that a number of other important United States firms have many million dollars invested in plant and equipment, we can understand that they are peculiarly subject to pressure and threats from Nazi quarters.
Now the property of these firms and many other firms in surrounding European countries is affected. Suppose Great Britain falls, and other parts of the British Empire: this would increase the pressure which the Nazis could put upon American firms with property in such areas. Look down the list of our large industrial firms as quoted on the New York Stock Exchange. You will find almost every one has property abroad, if not in plant, then in distribution organization, patents, or stocks of goods. All this property is in danger of being used by Hitler as a hostage for the good behavior of the parent companies in the United States.
Some people express the fear that the Nazis may confiscate such American properties. This seems unlikely. They know a trick ten times as effective as that. They will allow the American holders to maintain their title to property in lands under Nazi control, but will subject them to threats of punishment and confiscation on the one side and promises and inducements for good behavior on the other. In this way Hitler can be assured of plenty of points to apply pressure right inside the United States.
Of course, if he puts on the pressure too strongly, he will defeat his purpose. American companies are patriotic. They would not betray the interests of the United States under pressure, if the issue were clearly presented to them in that light — but it would not be. They would be asked to make only small concessions of policy at the beginning. . . .
(For further details in regard to Hitler’s blueprint for a world economy, we refer the reader to Mr. Miller’s book, ‘You Can’t Do Business with Hitler.’)