Tuesday, September 16, 2008

Book Report: All Honorable Men

This rare book, reportedly suppressed by the monied interests, offers an unparalleled look at how America lost the post-war phase of World War II to the "honorable men" in Germany and America whose support had put Hitler in power. The author, James Stewart Martin, was an antitrust lawyer put in charge of a US Army economic team whose mission was to break up Germany's industrial cartels --- in order to prevent a resurrection of the Nazi war machine. In the course of investigating the cartels, Martin's team made some surprising discoveries, among them: the fact that Germany had begun laying the groundwork for rearmament long before Hitler came to power; that German companies, following a plan worked out in advance of WWI, had used patents as a weapon of war; that American businessmen played a key role in helping Germany gear up for war; that Hitler was as controlled by the German business elite as it was by him; that American bankers helped the Nazis hide their loot as the collapse of the Third Reich approached; that in the end, the German power structure remained virtually intact, thanks to assistance from British and American corporate interests.

Since most people can't afford to plunk down $700 or more for a copy of "Honorable Men" --- if they can find one --- here is a detailed summary. Material in quotes is reproduced from the book verbatim.

All Honorable Men
By James Stewart Martin
Little, Brown & Co.


“It is not simply the rebirth of German nationalism and Nazism that occasioned the writing of this book, nor even the return to power of the industrialists who put the Nazis in. These events themselves are significant. But more so is the fact that, along with them, action was aborted on other questions in Germany: questions of the treatment of organized labor, the improvement of agriculture, the reform of public education, the public ownership or control of industry, and others just as basic. … In this book, I have tried to tell the story of an important problem and some of the things that happened when we tried to deal with it. Though many of the events occurred in Germany, before and during the military occupation, they seemed in an increasing degree to be echoes of something more fundamental that was happening back in the United States. For whatever reason, the larger pattern is a repetition of what followed after World War I; but the pace has been quicker, as though greater powers were moving more rapidly toward a more catastrophic result.”

Part I
Private Worlds

Chapter 1
The Fraternity House

“The day I started writing this we discovered termites in the basement.”

Termites are a metaphor for the international industrialists: they “object vigorously to outside interference” … especially to structural changes … because they are destroyed by air and light, while changing the structure also ruins their elaborately constructed tunnels.

James Stewart Martin was a lawyer turned professor at St John’s College in Annapolis in 1938. “My introduction to the specific problem of the German cartels was casual, almost accidental.” There had been hints about the magnitude of the cartel problem, in the press reports of the trust-busting activities of Thurman Wesley Arnold, an assistant attorney general in charge of the Dept. of Justice antitrust division. “The cases Arnold and his men were talking about had to do with a series of arrangements dating back for a decade or so … when international agreements among some of the biggest American, British and German firms had quietly divided up the world.”

Martin alludes to Thucydides’ history of the Peloponnesian War, “a work that generations of British diplomats have used for a teething ring … (whose) main point was the discovery of the large part that economic forces play in bringing nations into conflict.”

“Thurman Arnold seemed to be saying … that great forces were at work through the channels of what we in the United States had regarded as ordinary business. Arnold was charging that some of the transactions of ordinary business had crippled productive power in the United States, regardless of the motives that prompted the individual deals.”

Businessmen, Martin says, persuaded Attorney General Francis Biddle to block Arnold’s investigations.

Illustrating the international scope of business arrangements, Martin cites the case of US drug maker Sterling Products Inc., which in 1941 helped German chemicals cartel I.G. Farbenindustries thumb its nose at the British blockage of its Latin America markets. Sterling secretly agreed to ship drugs to Farben’s South American distributors, who then relabeled the products “Made in Germany.”

In 1942, the Board of Economic Warfare was created to keep Axis nations from evading the Allies' economic embargo. Martin was hired as an expert in international business and eventually was made chief of the DOJ’s Economic Warfare Section. “Our object was to test the possibilities of viewing the enemy through the chinks and loopholes of international business arrangements.” Their role was also to identify potential production bottlenecks in German industry that could be targeted for strategic bombing. They identified, for example, the three makers of precision ball bearings that were vital to the production of most war machinery. At the same time, they interviewed executives from du Pont, Standard Oil, AT&T, Anaconda Copper, General Motors, GE, and investment bankers who had been to Germany on what turned out to be “bottleneck deals. … we began to find a close relation between international business agreements for the restriction of production and the kinds of products which are especially critical in wartime … (that had) resulted in restriction of production in the United States.” For example, output of plastic sheet needed to make bomber noses was restricted in the US under an agreement involving I.G. Farben, Rohm & Haas of Germany, and its US subsidiary, Rohm & Haas of Philadelphia.

There was more. “We discovered … a three-way arrangement among the aircraft-equipment firms, Bendix of the United States, Siemens of Germany, and Zenith in England (that blocked) the British Air Ministry (from expanding) production of aircraft carburetors.”

“As the war went on, Senate committees probing production bottlenecks in the United States helped to compile and make public the records of a staggering number of similar arrangements … at focal points where it was possible to turn on and off the main valves in economic pipelines.”

Example: Production of magnesium, needed to make aircraft, was limited in the US to 5000 tons per year, while German firms produced almost 3 times as much in 1939, and ramped up to 33,000 tons during the next five years. Martin points out: “Plants which have never been built are more dead than plants which have been bombed” since the later already have been designed and having a trained workforce, can be quickly reconstituted.

By early 1944, Martin’s group had documented 3,600 cases of German “economic warfare” and had begun to summarize the picture of an enemy “that could survive a military defeat because it did not need or use military weapons.”

“This enemy did survive military defeat after World War I. We had in front of us the story of what lay behind the Ruhr occupation of 1923, the runaway German inflation, the Dawes and Young plans, the Dillon Read and the Schroder (bank) bond issues, the growth of the Ruhr as the ‘industrial heart of Europe,’ Germany’s strange obsession with heavy industry at the expense of consumer goods --- ‘guns, not butter.’ “

This emerging picture prompted FDR to declare that the “defeat of Nazi armies will have to be followed by the eradication of these weapons of economic warfare.”

Biddle told the Senate in 1944 that I.G. Farbenindustrie was the principal combine which has been used by the German government to attempt to restrict American production. Farben was the successor to the German dye trust, which had attempted prior to World War I to prevent the development of an independent American industry. Biddle also testified that the president of American Bayer Co., a unit of the German dye trust, was told by his German superiors that his accomplishments in holding down US production had been equivalent to destroying 4.5 million pounds of explosives.

Chapter 2
The Termites

Martin was sent to Europe in spring 1945 to run the DOJ investigation into German cartels. He expected difficulties, both in penetrating the web of business arrangements within the former Third Reich, and in obtaining the cooperation of US government agencies in acting on the information found.

He cites the case of the insurance industry. During the first three years of the war, Germany got detailed information about ship sailings and industrial plants from international reinsurers operating out of Switzerland. They were able to do this because American insurers cabled Swiss reinsurers to report ships’ names, cargoes, sailing dates, etc before the vessels left port. The Swiss insurers had a branch in Munich which obtained the information and passed it on to German intelligence. Thus, U-boat captains prowling the Eastern Seaboard knew more about ships putting out to sea than did the ships' crews.

In the same manner, Germany was able to get blueprints and inventories of US defense plants. Not only that, but Martin’s team found that before 1938 only about 5% of insured plants were required to send a full report on their facilities to Zurich, but as war approached, these reinsurers increased their reporting requirement until almost all plants had to give detailed information on their facilities. There was evidence, too, that the German government was subsidizing unprofitable insurance companies because of their strategic value. Nevertheless, it took the US government months to make a policy decision to interfere with the insurance industry. Even the FBI turned a blind eye to security leaks that arose from the “normal conduct of business.” In the end, nothing was done to restrict the circulation of insurance reports within the US. After the war, files were found at the Munich reinsurer’s office and at German intelligence offices containing bundles of photographs, blueprints and detailed descriptions of whole industrial developments in the US, which taken together gave a good picture of US industrial potential.

When Martin’s team arrived in England in late 1944, they got a foretaste of the situation they would find themselves in later in Germany. They learned that the director of the Economics Division was one Graeme K. Howard, author of a book written in 1940 called America and a New World Order, “an apologia for the Nazi economic system that might as well have been titled You Can Do Business with Hitler.” Col. Howard was later relieved of his post, but was replaced by Gen. William H. Draper Jr., a secretary-treasurer of Dillon, Read & Co., an investment bank that floated hundreds of millions of dollars of loans for Germany after WWI. Martin’s immediate superior was Capt. Norbert A. Bogdan, a vice president at J. Henry Schroder Banking Corp., “a firm in whose files the Nazi banking affiliations were still warm when the United States went to war.”

Subsequently, the Martin group was reassigned to SHAEF (Supreme Headquarters Allied Expeditionary Forces), where Eisenhower made clear he wanted them to find ways to stop the flight of German capital. Nevertheless, Martin’s work was hampered by Army red tape.

Chapter 3
The Heavy Timbers

Arriving on the Continent, the investigators began with a relatively free hand, operating in the chaos on a war zone.

“In a surprisingly short time, old habits returned, privacy reasserted itself, papers were gathered up and tucked away … But for a while, there were no secrets. In those brief weeks … the Allied governments overlooked privacy rights and constitutional immunities from ‘searches and seizures.’ …. After World War I, there had been the same ‘never-again’ resolves, and we had already witnessed a complete cycle resulting in failure. (We had) a report which analyzed the errors of the occupation after the other World War, and showed the measures that Germany had used to defeat the occupation and to play the Allies one against the other. … By mid-1947, I had already checked off the first 20 pages, paragraph by paragraph, week by week, in a pattern of repetition. But in the beginning in 1945, we were open-minded and sometimes even hopeful about our prospects.”

Martin outlines how the Germans accomplished their goals after WWI.

“The struggle over the Ruhr had brought the first major breakdown of Allied policy in 1923 when Britain and the United States refused to back up the French occupation of the valley; and 10 years later the financiers and industrialists of that area had boosted Hitler into the driver’s seat.”

After seizing Alsace and Lorraine in 1870 from France, the Germans had concentrated their steel industry in the Ruhr to efficiently exploit its coke and coal mines. The Versailles treaty gave these areas back to France after WWI, but their economic value was impaired without access to German coal in the Ruhr. And Germany reneged on its treaty obligation to ship 7 million tons of coal to France annually. This led to a French occupation. Among the German industrialists involved in this repudiation of the treaty’s terms were: Hugo Stinnes and Carl Bosch (who would head I.G. Farben), Fritz Thyssen, Gustav Krupp and other Krupp directors … “in retrospect, it was a ‘Who’s Who’ in the rise of the Nazis.”

The Germans used the coal crisis to drive a wedge between the Allies and to extract economic aid. Claiming destitution, they demanded and got loans to subsidize the coal deliveries to France. “Thus what was nominally supposed to be reparations was in any practical sense tantamount to an ordinary sale of coal at a very good price.”

Martin also points out that the huge sums paid by the German government to steelmakers to compensate them for the loss of their Lorraine plants to the French was a major cause of the country’s ruinous inflation in the early ‘20s.

New plants were built in the Ruhr to replace the ones ceded to France, and the cost of importing ores was subsidized by the German government. Meanwhile, France was unable to expand steel production because Germany withheld Ruhr coke. And German steelmakers, sitting on the boards of the railway companies, made sure that freight charges were artificially high to drive up the cost of coal shipped to France for its steel industry. This economic sabotage helped jump-start the German steel industry.

To settle the French/German dispute over coal reparations, the US offered the Dawes Plan, essentially a huge loan to stabilize the German economy so it could comply with the treaty provisions. (Germany meanwhile moved to the next phase of resistance, rearmament.)

A pan-European steel cartel was also set up, to divide up markets and set steel quotas. Cash penalties were established to punish quota transgressors. However, Germany built steel and iron plants far in excess of what was needed for domestic needs and the German government paid the fines for any quota violations. Thus it became clear that even before Hitler’s accession to power, Germany was set on the path to war.

Martin illustrates how some industrialists acted against their own national interests. He cites the de Wendel family, who owned banks and steel plants in France and Germany. They headed the French wing of the International Steel Cartel. Family members sat in the parliaments of both France and Germany. They were able to keep the French army from destroying plants owned by their associates, the German Rochling family, during the “phony war” in 1940. They helped two Rochling brothers, who had managed to “steal” two entire plants that should have been turned over to France as reparations after WWI. The brothers were sentenced in absentia to prison by the French government, but the de Wendels continued to do business with them. Amazingly, Rochling firms were chosen by France to supply steel and technical assistance in building the Maginot Line. After the fall of France in 1940, the Vichy government exonerated the Rochling brothers and canceled their prison sentences.

Martin’s team found that six banks and about 70 industrial combines controlled two-thirds of the wartime German economy. Although Germany’s industrial leadership comprised less than 100 individuals, Martin’s team was too small to investigate them all. So Martin decided to focus first on the International Steel Cartel, headquartered in Luxembourg. But Luxembourg was “liberated” territory and Martin would have to demonstrate how his investigation would lead back to Germany, in order to get a look at the cartel’s records. “It was a chicken and egg paradox. To get what we needed from the Luxembourg records, we had to know what we were going to find out in the Ruhr. The Ruhr at that moment was bulging with Wehrmacht units.”

Chapter 4
Fraternity Brothers

By happy coincidence, Eisenhower paid a visit to Luxembourg at the same time Martin’s team arrived there. Cartel officials got the mistaken impression that the general’s appearance was tied to the team’s arrival, and permission was granted for a cursory look at the files. The “cursory” part was misunderstood by a clerk to be carte blanche permission, with the result that the team was given unrestricted access while the top cartel officials spent the weekend at their country homes. When they came back on Monday, much displeasure was voiced but it was too late. The documents had revealed the machinations of the steel cartel all over the world. They showed that German industrialists had mounted a “counterattack (against the Versailles treaty) that included enlisting the help of industrialists in other countries. Here again the step-by-step history threw some light on what had happened, but at the same time raised questions about why the others let the Germans get what they wanted.”

Martin details the mergers in the mid ‘20s that created Germany’s United Steel and I.G. Farben combines. United Steel’s merger was facilitated by bonds sold in the US by Dillon Read. The US funds enabled it to pay above-market prices to buy out competitors. Its huge size then gave it the ability to dictate pricing and production for all of Germany. “In effect, the foreign loans and German government subsidies allowed the leading companies, such as United Steel Works, Mannesmann, Krupp, Good Hope and Rochling, to substitute private regulation and elimination of competition for the technical efficiency they had lost when their plants in Alsace and Lorraine went back to French control after 1918.”

After gaining control of the domestic market, the big combines began building or expanding plants far in excess of need. In 1928, the peak year for sales, the German steel industry was operating at two-thirds of capacity; in other heavy industries, production was as low as 10 percent of installed capacity. The Borsig and Henschel locomotive combine used only 5 percent. During WW2, that capacity came into its own, as Henschel began producing “Tiger” tanks and 88mm guns.

The foreign bondholders who had paid for the expansion did not benefit, however, since low output couldn’t support the debt incurred. The companies were technically bankrupt. Eventually, the German government had to subsidize their operations, but only after prohibiting repayment of the bondholders.

The international steel cartel was advanced by exploiting two motives of Germany's foreign competitors: fear of the German mills, and the desire to crush domestic rivals. Membership was not open to individual companies, only to national associations. These associations agreed to limit output and total sales in domestic and international markets. All parties agreed not to undercut prices in each other’s home markets, thus freeing members to focus on domestic non-member firms, whom they could eliminate by temporary price-cutting or through a buy-out. All cartel members agreed to a united front in foreign markets so as to undermine local producers.

Excess production above national quotas was subject to a penalty, and the fines were to be distributed among other producers to compensate for harm. Everyone but the Germans stayed within their quotas. In 1926, the first year of the cartel’s existence, the German association paid $10 million in fines for excess production that equaled Belgium’s total output.

“Alternating threats and concessions consistently increased the ability of the German group to control quotas and limit the production of the non-German members almost at will.”

By 1938, membership had expanded to include (in addition to Germany, France, Belgium, and Luxembourg) associations in Austria, Poland, Czechoslovakia, and the UK. American firms made oral agreements with the cartel to evade US anti-trust laws.

Joining the cartel gave the Big Three --- US Steel, Bethlehem Steel and Republic Steel --- power over domestic rivals in foreign markets, where the cartel controlled prices and could create problems in the form of government regulations and red tape. Negotiations with the cartel were conducted principally by Benjamin Fairless, president, US Steel; Eugene Grace, president, Bethlehem; and Tom Girdler, board chairman, Republic.

Chapter 5
Hare and Hounds

In April 1945, Martin’s team entered Germany in the wake of the US Army. Their target was the villa of “the bank of the cartel kings,” Schroder. Although the actual bank in Bonn was bombed out, the Luxembourg cartel files had disclosed the address of the chairman’s villa. They decided to go there.

The villa was deserted but in the basement they found a pile of papers, including correspondence between Baron Kurt von Schroder and Reichsfuhrer SS Heinrich Himmler. The letters from Himmler to Schroder were “interesting but monotonous. The man seemed always to be asking for money. … The amounts were nice round figures running into the hundreds of thousands, and often millions, of reichsmarks.”

The files and account books all bore the name of Stein Bank of Cologne. Although there appeared to be no “community of ownership” between the Stein and Schroder banks, with headquarters in Bonn, London and New York, they acted as correspondent banks for each other and undertook many joint deals. It was necessary to maintain the illusion of separation. During WWI, the British had closed down all German banks in London, but allowed J. Henry Schroder & Co. to operate because it was headed by a “British subject,” Kurt’s cousin Baron Bruno von Schroder, who had taken British citizenship in 1914.

The client list of Bankhaus J.H. Stein comprised most of west Germany’s heavy industry. Martin’s team decided to track down Kurt Schroder in part because an investigation of Stein Bank had been vociferously opposed by Capt. Bogdan, the.J. Henry Schroder vice president. Bogdan’s subsequent request to accompany the invasion army to Bonn in an apparent bid to get at Stein’s records before Martin could had aroused Martin’s curiosity in Stein.

Another thread: Schoder had longstanding business ties to Gerhardt Westrick, a close friend of Franz von Papen. Westrick, a lawyer, was partners with Heinrich Albert. Albert and von Papen had operated a spy ring in the US during WWI. Albert had raised over $30 million from American sympathizers, the funds used to finance sabotage and espionage. “With these funds, for example, the heavy chemical industry of the United States was crippled by the simple expedient of buying up all of the chemical stoneware in the United States. Stoneware was at that time the only type of equipment that could resist the corrosive action of the important heavy chemicals. Many American chemical plants were eventually shut down for lack of this stoneware. For the duration of World War I, it kept piling up in warehouses leased by von Papen’s cloaks.”

After the war, the law firm of Albert & Westrick was a prime mover in the business of securing loans from America. “Beginning in 1924, when American investors advanced $110 million … under the Dawes Plan, a steady stream of private loans to German governmental organizations, public utilities, banks and industries had poured in … at an average rate of over a quarter of a billion dollars a year until the American crash of 1929.
Two American investment banking organizations handled the bulk of this private lending system for the rebuilding of Germany. They were Dillon, Read & Co. of New York, and the J. Henry Schroder Banking Corp. Legal work … was always handled in Germany by the firm of Albert & Westrick, and in the United States by Sullivan & Cromwell, the firm headed by John Foster Dulles.”

Westrick had visited the US in 1940, as an undisclosed representative of German Foreign Minister Joachim von Ribbentrop, to try to persuade Americans executives that they would benefit from a Hitler victory. He rented a house in Westchester County, NY, and entertained “nationally prominent executives of certain American oil and other industrial corporations.” Westrick was eventually discovered and left the country for Japan.

Martin’s investigators followed the paper trail to Himmler. The ledgers in Schoder’s basement indicated that a group of about 50 industrialists contributed on a regular basis to “Sonderkonto S.” This "special account" paid the expenses of the SS, and possibly some of the Gestapo. It enabled the contributors to maintain anonymity --- no public links to the Nazis.

Old Frankfurt had been leveled by Allied bombing, but miraculously, among the ruins, the I.G. Farben HQ, “one of the largest in the world,” stood virtually untouched. The main building consisted of six wings, each seven stories tall. It was stuffed with papers. Unfortunately, it had been commandeered by homeless people and liberated slave laborers who started using the documents for fuel. Then SHAEF decided to make it Eisenhower’s headquarters and threatened to clear the building of “refuse.” Martin struggled to halt the destruction of the records but in the meantime, Army trucks were hauling off and burning tons of documents. What finally saved the documents from total destruction was a matter of great practical importance: Farben had produced the supremely lethal nerve gasses Tabun and Sarin and stored them in ammo dumps all over Germany; the chemical drums however were not labeled. Only examination of Farben’s records could reveal where the drums were located before someone inadvertently opened one.

It took three days using 500 pressed workers to move the documents out of the building to one next door. Farben executives and chief clerks were detailed to catalog and route the papers. An attempt was made to prevent the sabotage and concealment of documents, by driving the work at breakneck speed.

“New Order” documents revealed Farben’s plans for the organization of chemical industries in occupied countries. They also revealed how Germany used patent laws in other countries to restrain industrial development. “Between wars, the art of founding international arrangements on enforceable legal contracts had developed to a fine point of perfection. … An agreement is more than a gentlemen’s agreement if the violator can be tangled up in expensive (patent) litigation, especially if the courts in his own country can be used to issue injunctions and compel performance.” Patent agreements were used to circumvent Versailles treaty prohibitions on certain industrial activities. Since Germany was a world leader in synthetic chemical making, patents could be used to hamstring other nations’ efforts in these fields. Patent applications were purposefully vague, in order to suppress the widest possible activity. Sometimes key steps in a patented process were left out so that even if another firm tried to duplicate the patented process, it could not succeed. Sometimes patents were acquired before a process had been “debugged.” In order to develop a similar process, then, a competing firm would have to make a deal with the German patent holder, which usually involved disclosing the solution to the problem of making the process work. In practice, this produced a collaborative partnership between the two firms at the expense of other firms.

I.G. Farben was formed in 1925 out of the six largest German producers of dyestuffs. All had had foreign operations seized by alien property custodians in Britain and the US during WWI. For this reason, Farben developed a program called “Tarnung” (concealment). They wanted to protect their overseas properties from seizure in any future war. (Even if there were no future war, anti-German sentiment overseas motivated them to make their foreign subsidiaries appear to be locally owned.) Such concealment also helped these subsidiaries evade foreign-exchange controls in some markets, as well as “anti-dumping” laws.

The Tarnung program was very successful. Even at war's end, after seizing documents and debriefing executives and the combine’s chief accountant, US investigators were unable to prove German ownership of I.G. Farben’s biggest subsidiary, General Aniline & Film Corp., based in Binghamton, NY.

German firms also relied on Swiss banking laws to disguise ownership of stock. Investigators were stymied by Swiss secrecy and by the fact that “the American diplomatic position had been to a great extent represented by American bankers. Some of these seemed to have had their own reasons for approving the pattern of private international cooperation made possible by Swiss law.”

Among these banker-diplomats were those most familiar with the workings of I.G. Farben in America, “perhaps by coincidence.” J. Henry Schroder Banking Corp. and Sullivan & Cromwell handled banking and legal work for General Aniline. Allen W. Dulles, partner in Sullivan & Cromwell and until 1944 a director of the Schroder bank, headed the OSS (the CIA’s forerunner) in Bern; and V. Lada-Mocarski, Schroder vice president, was US consul in Switzerland.

To return to I.G. Farben’s “New Order” plan. There were two main aspects. One was to prevent leakage of advanced methods to the United States and other nations outside the Nazi orbit. The second was gaining control of foreign chemical concerns. The original thought was to do this through disguised acquisition; however, after their experience in conquered France, Farben executives came to realize it was more efficient to leave ownership in the hands of foreign nationals, relying instead on pressure based on business considerations and the creation of a “community of interests.”

“This had the advantage of assuring cooperation instead of recalcitrance.” It also created business ties that could be continued after hostilities had ended, regardless of who won the war.

Aside: After the New Order plan had been in effect for about a year, there was a kerfluffle in the US when the DOJ sued Standard Oil of New Jersey for conspiring with Farben to violate antitrust laws. The company paid fines, and then mounted a publicity campaign to convince the public that its relations with Farben had benefited the US because it had received far more information from Farben than it had given.

This was nominally true, since research was conducted by Farben in Germany. But when the German Economic Ministry read the American newspaper ads, it demanded Farben prove its American partner hadn’t got the better of the deal. “The Farben managers were not allowed to rely on the sweeping generalizations of a newspaper advertisement. Their scientists had to produce documented answers to satisfy the Economic Ministry and the General Staff. The contention of the Farben report was that the German firm had received from Standard Oil several important new links in the jigsaw puzzle of their own technology, whereas the apparently vast quantities of information they had passed over to the Americans had left large gaps to be filled by new research and development before they could be put to any use.”

Chapter 6
Seek and Find

More problems protecting records. Those of Metallgesellshaft, found at a castle in Kronburg could not be reached in time. They were returned to management when the decartelization crew was unable to detail anyone to take possession of them. Meanwhile, Farben executives, even if in detention camps, seemed to have an intelligence network that kept them abreast of the Martin team’s whereabouts. If they approached too close, important documents would be removed ahead of their arrival. But not always. Sixty-eight cases of papers were retrieved from a monastery outside Frankfurt, containing agreements between the German cartel and companies in France, Britain, and the US.

They found a cache buried in the Harz mountains containing agreements between Standard Oil of New Jersey and I.G. Farben. The contracts proved the two firms had struck a secret deal in 1939 at the Hague that would protect Farben assets in the US in the event of war. The assets would be returned to Farben after the war. Standard Oil’s representative at the meeting, Frank A. Howard, did not even keep a copy of the agreement – both companies’ copies were retained by Farben.

Chapter 7
The Heavies

The investigators next moved to the Ruhr, site of the Krupp family mansion, Villa Hugel, which was miraculously untouched by bombs. Villa Hugel was used as a base of operations for financial investigators attached to XXII Corps. The power of the House of Krupp over Hitler became clearer. As an example, Martin cites a Krupp vanity project, “Great Gustav,” a massive artillery piece of dubious value whose manufacture tied up Germany’s biggest gun shop for the entire war, despite the best efforts of Albert Speer to end it.

The Martin team traveled to Dusseldorf, base for the United Steel combine and the steel cartel. Again, the company’s headquarters building was intact and was being used by the American military. Investigators caught a break: company executives fleeing the advancing US forces had secreted away the most important documents, in effect pre-sorting the papers for Martin’s team. All they had to do was track down the hidden docs.

Yet another break. A visiting congressional delegation led by Sen. Harley M. Kilgore summoned Martin for an interview. The meeting convinced Kilgore of the importance of the work, and letters were drafted to President Truman, the AG, and Treasury secretary explaining the need for more resources to secure and protect documents.

But almost immediately the true nature of the problem facing the investigative team surfaced. At a breakfast with Sir Percy Mills, Britain’s director of economic affairs for the war zone and his US counterpart, Gen. Draper (of Dillon Read), it was made clear that Nazis and German businessmen were not to be considered equally culpable, that the industrialists were “just businessmen.” (Yet Krupp had used 50,000 foreign workers and 20,000 prisoners of war, as well as concentration camp inmates some of whom were subject to the policy of “extermination through work.”)

Aside: evidence of the perceived disconnect between war and business, between the idea that there can be war crimes but "business is business." Martin cites Krupp’s successful patent litigation after WWI, when it sued British Vickers because it used a Krupp process for making artillery fuses during the war without paying royalties. The settlement included transfer of a Spanish steel factory from Vickers, which helped Krupp evade Versailles restrictions on German steel output.

Of the close ties between industrialists and the Nazi state, Martin cites the case of United Steel, the 2nd-largest company in Germany (its valuation was on a par with du Pont). United Steel was formed in 1926 through the merger of steel companies controlled principally by Hugo Stinnes, Fritz Thyssen, Otto Wolff, and I.G. Farben. United Steel’s board of directors was composed of 50 individuals who represented the cream of German industry and banking. Despite its august leadership, by 1931 United Steel was facing bankruptcy. Frederick Flick, the largest shareholder, began seeking a French partner, a move which was blocked by German nationalist sentiment. Instead, the Bruning regime secretly agreed to recapitalize the firm by buying shares at a premium, including Flick’s stake (Flick remained on the board.) The bailout also saved the fortune of Thyssen, now the largest shareholder. Thyssen, an early donor to Hitler, was rewarded in 1933 after the Nazis came to power: a capital reorganization returned the government shares to United Steel. Thyssen later broke with the Nazis and control passed back to Flick.

Martin’s investigation of the Ruhr steelmaker Good Hope turned up an interesting connection. The company’s head, Alfred Haniel, claimed after the war to be acting in a confidential capacity for the US government (which explained the Army detachment found guarding his home outside Dusseldof when Martin’s team arrived to interview him in May 1945). Haniel claimed his contact was Allen Dulles, then stationed in Switzerland as an OSS officer. Haniel’s passport showed he had made numerous trips to Switzerland during the war.

Records of the Ruhr industries showed how business was bent to unprofitable extremes to meet the Nazis’ Four-Year Plan. Financial controls, controls over capital funding, control over plant expansion and the right to enter new lines of business, the power to order the abandonment of small factories with production shifted to giant combines --- all served the Nazi drive to ramp up for war. Output of steel, vehicles and cement quadrupled in the period 1933-39. Chemicals and electrical output doubled. But vegetable oils and textiles output was stagnant.

“We were finding that the very existence of the Rhineland group had depended on their determination to build and maintain a concentration of heavy industry in a place where, by economic and technological standards, it did not belong. They had built so much steel capacity that the rest of German industry could not use it.”

Meanwhile, “with a growing sense that there were other ‘Rhineland industrialists’ in Britain and the United States, whose concern over their German counterparts might be more than the sympathy of one businessman for another, we were beginning to feel like men working around a power house with uninsulated pliers and thin rubber gloves.”

Chapter 8
The Cantilevers

The team traveled to Kronberg Castle, where they found the walls covered with family portraits of the British royal family and Hessian princes. These families, linked by the marriage of Queen Victoria and Prince Albert of the Hessian Saxe-Coburg-Gotha line, had ties going back over a century. The records at Kronberg belonged to the Metallgesellschaft combine. Windsor family members served as directors on some Metallgesellschaft foreign subsidiaries, including the RioTinto mining company of Spain.

Metallgesellschaft was a key player in German production of non-ferrous metals: it controlled 40% of Germany’s copper smelting, a third of its lead smelting, had a half interest (with I.G. Farben) in the largest aluminum plant, had a third interest (with Farben and Krupp) in nickel refining. It controlled over half of Germany’s tin industry. It also had major metal-production units in Spain and Spanish Morocco. Another subsidiary controlled the largest deposit of phosphate rock in the US.

Metallgesellschaft’s board, again, reflected the interlocking directorate structure that dominated the Nazi war economy. Major players on its board included: Carl Luer (director of Deutsche and Dresdner banks and chairman of the General Motors subsidiary Opel AG); Carl Bosch (chairman of I.G. Farben until his death in 1940); Geheimrat Hermann Schmitz (who succeeded Bosch at Farben); Hermann J. Abs (managing director, Deutsche Bank); Karl Rasche (director, Dresdner Bank, and one of Goering’s chief lieutenants); Ludwig Westrick (chairman, United Aluminum Works); Hermann Schlosser (chairman, the Degussa precious-metals combine). Schmitz and Rasche would be convicted of war crimes for their role in helping plan for war and personally profiting from it.

“This company was one of several German counterfoils, prepared ahead of time to forestall attempts of enemy nations to cut off supplies of strategic materials by means of blockades and ‘preclusive buying.’ ” Its principal shareholders were Henkel (which made soap and detergents), Degussa, and Farben.

Degussa’s dominant shareholders were, in turn, Henkel and Farben. Starting with precious-metals processing, this firm grew by acquiring the sources of its raw materials and the chemicals needed to process them. This growth fed on itself as new uses and processes were developed out of Degussa’s expanding list of products. “There was hardly an industry in Germany that was not completely dependent on Degussa for some essential product in which Degussa held a monopoly or near-monopoly.”

Its influence was also strong overseas. It led the continental group supporting the International Sodium Cyanide Cartel, for example. US anti-trust laws barred du Pont from this cartel; it was necessary to make secret arrangements through Britain’s Imperial Chemical Industries Ltd.

Martin began looking for the “chain of corporations that had served as go-betweens for the chemical and steel industries. The first link was Henkel of Dusseldorf, Germany’s largest producer of detergents, glycerine, and industrial fats.” It had about three dozen major subsidiaries overseas, and had set up a dummy holding company in the US, American Hyalsol, to collect royalties from its patents. Although this company was seized during the war by the Alien Properties Custodian, Martin’s team found from Henkel’s records that it had been able to circumvent the US embargo for a time. In the example given, Henkel arranged for American patent licensee Proctor & Gamble to loan an American citizen, who was nominally head of Hyalsol, money as an advance against the royalties which Henkel expected to earn during the six years it (correctly) forecast the war to last. This money was sent to the Swiss firm, ostensibly as part payment against a fictitious debt owed by Hyalsol to the Swiss company. The money was then disbursed to Henkel.

Evidently, other American licensees had similar arrangements with Hyalsol. “It worked just as well as an actual transfer of new funds across battle lines.”

“Going over the affairs of the three combines, Henkel, Degussa, and Metallgesellschaft, made it clear that the Dresdner Bank had used them to keep the bank’s hand in the affairs of a great many German industries, and as nerve centers for operations abroad. In the early days of Hitler, financial experts were constantly predicting German bankruptcy. Somehow the large bankers had, as a group, pulled together an economy of heavy and synthetic industries, gaining ‘self-sufficiency’ for Germany at great expense, yet without the predicted financial catastrophe. We decided to see how the bankers had kept them in business.”

Chapter 9
Banks of the Rhine

The head offices of the central banks were mostly in the Soviet sector, but an examination of banking records found in the Rhineland “was enough to indicate a pattern.”

First, there was the Reichsbank, “like the bank of England, a curious mixture of government and private affairs, taking a global hand in the national finances, carrying out large-scale maneuvers like foreign exchange control, manipulating exchange rates and tariffs, and financing government ministries, while remaining in other respects a privately run bank.”

During the ‘30s, the bank was headed by Hjalmar Schacht. He and most of the bank’s top execs were purged by Hitler in 1939, when they opposed continuance of the heavy-industry buildup because it was bankrupting the nation. But early in his tenure, Schacht was an effective supporter of the “guns, not butter” program. He devised foreign-exchange controls that effectively gave German marks “different values for different purposes at the same time.” This resulted in such anomalies as the price of steel being different for Germans and for foreigners. There were as many as 45 different values for the mark. On practical effect of this scheme was to strip the assets of persons (mainly Jews) wishing to emigrate.

Martin compares and contrasts Schacht’s power to “ring all the changes in using finance as a way to determine what kinds of things are to be produced or sold, and by whom” with the system in the US. There, “the Constitution gives to Congress the power to ‘coin money and regulate the value thereof.’ … On the other hand, expansion and contraction of the total amount of money effectively in circulation, which in turn has a great deal to do with how much stuff of life a dollar will buy, is considered the proper province of private enterprise. It is as if the Constitution had said: ‘Congress shall have the power to coin money and determine how much gold equals a dollar, but the value thereof shall be determined by private enterprise.’ “

By contrast, the Nazis “lumped together everything that had to do with regulating the value of money and recognized no limitation on the powers of government to do whatever it considered necessary in managing the currency. In doing this, they had the backing of the big financiers and industrialists. The carrot they offered to selected combines and enterprises took the form of tax concessions, government subsidies, legal restrictions on the right of stockholders to interfere with ‘management,’ and a variety of administrative concessions that could be granted by officials to anyone who had the proper inside track.”

The Nazis’ use of the banks exceeded the usual services offered by staid bankers. For example, money laundering. “(Reichsbank vice president) Emil Puhls’ assistant, a man named Thoms … admitted that he had taken care of the details of an arrangement worked out between (SS concentration camp chief) Oswald Pohl and Emil Puhl, whereby the Reichsbank would receive and dispose of SS loot and account to the SS for the proceeds. That explained the carefully inventoried bags of gold teeth, jewelry and other valuables shipped from Auschwitz and other murder camps and stored with the Reichsbank. Furthermore, Emil Puhl’s double position as active head of the Reichsbank and as a German member of the private international bank, the Bank for International Settlements, at Basle, Switzerland, made him an ideal ‘fence’ to dispose of some of the gold after it had been melted down into the shape of monetary gold bars.”

Martin notes that the big banks combined the functions which in the US (at the time) were reserved separately for retail banks and investment banks. Deutsche Bank, for example, was like a merger of Bank of America with J.P. Morgan.

Martin compares Dresdner Bank to Chase National Bank or National City Bank (both Rockefeller controlled) “in the way its officers stayed close to governmental circles and kept an eye on the international ties.” As an investment bank, he compares it with Dillon, Read & Co., “for its specialization in business management with the involvement of very little capital.” It would be almost meaningless to try to determine whether Dresdner supplied directors to the industries in which it was invested, or whether they supplied bankers to Dresdner.

The practical effect of these interlocking directorates of banks and huge industrial combines was a centrally planned economy controlled by less than 100 individuals. Control over the whole economy was effected by control over strategic “bottlenecks” in the system, most often producer goods or capital equipment. “The men who ran the heavy industrial combines like I.G. Farben, Mannesmann, United Steel, and Siemens & Halske may have had individual ambitions that sometimes clashed; but for more powerful was the internal discipline that held them together.”

Chapter 10
The New Hague Convention

This chapter details Martin’s probe of the German synthetic textiles industry, an important component of the Nazi drive for German autarchy. Synthetics were slated to replace natural cotton, wool, etc., access to which was expected to be cut when the war started.

The theme of this chapter is how sham foreign ownership, in this case Dutch, was used to cloak actual German control of synthetics. “We were curious to learn how (Dutch) AKU had managed to maintain control (of German combineVGF) through 12 years of Nazi rule in Germany and five years of Nazi occupation of the Netherlands. … Had there been no conflict between the interests of AKU, as a Dutch firm, and the activities of VGF as a major cog in the German war preparations? In order to retain control of German VGF, did AKU not have to make any concessions to German policy before the war? … Since our interrogation of men like von Schnitzler of I.G. Farben, and our discovery of the mechanical principles of the Himmler Fund in von Schroder’s bank, we were becoming skeptical of businessmen who asserted that they had been above involvement with the Nazis.”

But in order to investigate ownership of AKU, the team would need access to the records of Amsterdam banks. AKU had been formed in 1929 by the exchange of shares of Dutch Enka and German VGF. At the time, Germans held a slim majority of the shares. However, the shares were in “bearer” form, meaning ownership was anonymous. That’s why investigators needed access to Dutch banking records. Because AKU had three US subsidiaries, which the Alien Property Custodian had wanted to seize as cloaked German assets, the Dutch had agreed to make records available to back up their claim that the three units were, in fact, Dutch. Nevertheless, the investigators were stonewalled.

Martin writes: “Somehow the function of a go-between to maintain smoothly working financial and economic relations across national boundaries during a war is tacitly accepted in the business community as part of civilized warfare. During the fighting, these matters are kept rather quiet out of deference to people who are being shot or bombed and who might become confused if the subject were raised.

“The peculiar power of Switzerland, Sweden, the Netherlands, and even much smaller nations such as Luxembourg and Lichtenstein, rests on their ability to act as go-betweens for the bigger powers that surround them.”

Chapter 11
Electric Eels

The investigators turn to light-bulb maker Philips Electric of the Netherlands. The Philips case illustrates how multinational corporations could structure operations to avoid their being seized as enemy assets during wartime. The probe of Philips was hampered, however, by an obstructionist Dutch Military Administration, which seemed more intent on protecting Philips than prosecuting German collaborators.

What was known was that Philips had been, since at least the ‘30s, a go-between for American “competitors” and the German electric-light combine, known as Osram. As early as 1924, Philips had helped facilitate an international agreement that created cartel-like coordination in the manufacture of bulbs: all parties agreed to make bulbs that would last only 750 hours. (Because of US anti-trust laws, the American firms reached a “gentlemen’s agreement” with Philips.) This plan, to manufacture to the “GE formula,” was expected “to double the business of all parties within five years, independently of all other factors tending to increase it,” a GE exec wrote.

Martin’s team was forced to infer much of Philips’ doings from the captured records of Germany’s Siemens and AEG (General Electric’s Berlin subsidiary). Philips’ executives “enjoyed the protection of what amounted to diplomatic immunity” in Washington. This was because any attempt to investigate the doings of Philips’ European operations during the war was protested by the Dutch government in exile. Such protests resulted in a flurry of correspondence and meetings at the State Department; investigators soon learned it wasn’t worth the aggravation.

Here is how Philips prepared for war: the company got a law passed allowing it to move its headquarters to Curacao in the Netherlands Antilles. This office directly administered operations in the Caribbean, Sweden and Switzerland. At the same time, Philips created a trust for the Western Hemisphere, Spain, and Portugal, administered by Connecticut-based Hartford Bank and Trust. Units in areas controlled by the British empire were administered by Midland Bank of London. (In the event Britain was conquered by Germany, this trust would be transferred to the Hartford Bank.) Subsidiaries in Germany, Poland, Czechoslovakia and Austria were placed in a German holding company, directed by an executive of Osram. Philips’ Eindhoven corporate offices became a repository of the trust agreements with limited operational duties. All these trusts were designed to allow Philips executives to keep control of all operations anywhere in the world not under German control. At the end of hostilities, all these structures would revert to the original Dutch holding company setup.

This arrangement successfully deterred seizure of assets by alien property custodians on both sides of the battle lines. In fact, none of the subsidiaries was even blacklisted by either side.

Philips’ ability to work the diplomatic machinery prevented official scrutiny. Martin cites the case of a State Department refusal to block a Nazi sympathizer, an executive of Philips’ Argentine subsidiary, from touring Philips’ US factories that were building secret radio equipment for the Army. In another case, in 1942 Philips’ US subsidiaries helped its Swedish unit (and a German business partner, Telefunken) in patent litigation.

Part II
The Lapse of Policy

Chapter 12
The Call of the Wild

US policy, formally proposed by President Roosevelt, was limitation of postwar Germany’s political, economic and military power vis-à-vis the rest of Europe. The problem, ostensibly, was how to deconstruct Germany’s economic war machine, and efficiently shift its focus from heavy industry to the manufacture of light industrial and consumer goods for export. However, the real problem lay in the opposition to this policy by British and American business interests (acting through their representatives in government).

A key part of the US plan was an absolute ban of Nazis from government and industry. Nazis were explicitly forbidden from high positions, regardless of “administrative necessity, convenience, or expediency.”

The directive also prohibited cartels, and the military governor was instructed to disperse ownership and control of German industry.

The spirit of this directive was affirmed by the Big Three powers in the Potsdam Agreement, signed August 2, 1945.

Meanwhile, in December 1945 Martin’s “Cartels Division” was disbanded and replaced by the “Decartelization Branch,” under the aegis of the Economics Division headed by Brig. Gen. William H. Draper Jr. (of Dillon Read). Martin’s peers in the Economics Division included Rufus Wysor (of Republic Steel Corp.), head of the Steel Section; and Frederick L. Devereaux (AT&T, retired) who was Draper’s deputy. These men had been assailed by Sen. Kilgore, of whom he said, “Nazi industrial organization is not repugnant to them and they have shown every disposition to make their peace with it.”

Martin also cites a State Department bulletin that publicized Nazi documents captured in the spring of 1945 which outlined Nazi plans for a postwar resurgence. Using wealth secreted abroad, they planned to use the courts of hostile nations to challenge alien property custodians’ seizure of German plants and patents, and if that legal stratagem failed, to repurchase them using friendly “cloaks or dummies.” Another part of the German plan was to salt foreign research labs and schools with Nazi technicians, to give Germans knowledge of newly developed weaponry. Propaganda meanwhile, funded by the Nazis’ hidden wealth, would soften up the public in Allied countries by stressing “fair treatment” for the conquered nation and rapid suspension of Allied control measures.

So here were two obstacles to economic reform: the Nazis and their Allied business connections.

Martin quickly learned that official US policy was being subverted by Draper’s Economics Division at Berlin and its British counterpart, headed by Sir Percy Mills.

Chapter 13
The Hollow Squares

“Turning Berlin into a seedbed of democracy through the instrumentality of a military organization was, to say the least, an ambitious project. After my first introduction to the setup as a going concern in January 1946, I thought ambition should be made of sterner stuff.”

The chapter title refers, on the literal level, to the arrangement of tables in the conference rooms of the US military governor, Gen. Lucius D. Clay. The 32 department chiefs sat around the tables, arranged to form a square, with Clay questioning each in turn.

Clay instructed his staff to allow “the Germans themselves” to implement policy, as the basis for “democratization.” Martin says this had predictable results: if the Germans liked a policy, it was undertaken without demur; however, if they did not, there were “difficulties.” In general, retrogressive policies were acceptable, but any that smacked of “reform” met resistance. Attempts at denazification met resistance. In February 1946, Clay learned from press reports that the Transport Division had exempted several thousand Nazis working as supervisors on the rail system from dismissal, on the grounds that if they were fired, the trains would stop running. Clay nevertheless ordered them fired. The Nazis were removed, and the trains kept running.

“But the next week, it was something else of the same kind; and the next, and the next.” The net effect was that while parts of the military government organized baseball leagues, PTAs, and leagues of women voters, and pasted strips of paper over the swastikas in school textbooks, “top Nazis and Nazi supporters who think democracy ridiculous moved into the key positions in the economic and administrative life of Germany, or were never thrown out.”

Meanwhile, the push to limit German industry’s ability to dominate the European economy foundered as the four occupying powers were unable to agree on a mechanism to accomplish this. The US proposed a “mandatory” law that would spell out in detail what monopolistic practices and cartel-like structures would be prohibited. The British under Sir Percy Mills preferred a more flexible tribunal arrangement. The problem here for the Americans was distaste for a situation where German businessmen could not know in advance what was permitted; the enforcing agency would be free to make the rules ad hoc. It was difficult to tell if Mills’ objections were sincere. “We had noticed … Mills’ grounds for objecting shifted from time to time. We had noticed also that he was constantly driving for an arrangement with the broadest grounds for making exceptions, and one requiring a unanimous vote before anything at all could be done.”

The debate, which began in the summer of 1945, stretched into the spring of 1946. It became clear that Gen. Draper’s Finance Division was colluding with Mills to block a “mandatory” law. “The wrangling, on the surface, was childish,” writes Martin, “but the future of the big combines in the British-held Ruhr lay in the background. Certain phrases in the (Anglo-German) ‘Dusseldorf Agreement’ of 1939 began to take on a new meaning.

“Looking back on this agreement after the war, the point was not that industries in Britain and Germany had eliminated competition among themselves, but that they had done so as part of a new ‘way of life.’ Private industries were to arrange markets to suit their own convenience, and then enlist the help of their governments to beat down opposition. A particular enemy was the antitrust legislation in the United States, which stood in the way of this new form of private world government. …. Now the British element at Berlin, under Sir Percy Mills’ direction, was plugging for enough exceptions to make possible a revival of the German cartels and combines under other names. … to help the British position in international trade. For that, he seemed willing to risk setting the German juggernaut loose again.”

Similar objections to decartelization were raised by the former investment bankers in the Economics Division. Their first argument, “What’s wrong with cartels anyway?”, eventually would morph to the fallback position that German industry was so devastated, decartelization would prove an insurmountable setback for the German economy. It became clear that Draper’s men were not interested in implementing policy set in Washington but in working around it whenever possible.

Chapter 14
Reducing Exercises

Draper took the position that the recovery of German industry should be expedited before any restructuring was attempted. A supine Germany, prevented from regaining its natural leadership in heavy industry, would be a drain on American taxpayers.

Martin countered that there was an immediate problem with this approach: some “restructuring” had to happen right away, as certain plants were to be removed from Germany as reparations. The choice of which plants --- whether independents that had been outside the cartels or those that were in the cartels --- would have a ripple effect across German industry.

Meanwhile, the dismantling of I.G. Farben, mandated by Control Council Law No. 9, also hit roadblocks.

Although Martin was head of the Decartelization Branch, he was not actually delegated authority to do the job of breaking up Farben. Instead, the responsibilities for selecting which plants to close, which to reopen, who would operate them, how the funds to operate them were to be disbursed, and supervision of technical personnel were split up among other branches of the Economics Division. Martin’s job became one of coordinating policy with his counterparts in the British, French and Russian zones.

Amazingly, Germany’s industrial capacity had survived Allied bombing relatively intact. The US Strategic Bombing Survey found only a 15-20 percent impairment. What had shut down German industry had been lack of coal and fuel, due to destruction of the rail network. Under the Potsdam Agreement, coal was to be rationed to light industry which would generate exportable products to pay for imports of raw materials and food. The steel industrial base in the Ruhr, starved of coal and therefore useless to Germany, was to be dismantled and shipped to France.

However, US and British “elements” sought to subvert the agreement. Britain was short in steel-making capacity, and feared French dominance. The Russians, lacking infrastructure at home to support German factories, wanted to operate them in situ; but this would violate policy on reparations since it was feared that if heavy industry was left intact in Germany, it might someday be used to rebuild German war-making capacity --- the lesson supposedly learned after WWI.

The American administration’s commitment to Potsdam, meanwhile, was quickly undermined by American business interests. The argument echoed Draper: the fastest way to make Germany self-supporting would be to restore the status quo: heavy industry, machine tools, etc were to be emphasized, and coal exports to France and Belgium cut.

Martin points out the flaw in this argument: whatever American taxpayers saved by expediting Germany’s recovery would be spent supporting the rest of coal-starved Europe.

The reconstruction of German heavy industry was the subject of a concerted public relations campaign by the Economics Division; claims that “reform” had failed were made despite there having been no reforms. In 1946, “no steps had been taken to carry out an ‘antitrust’ policy anywhere in our zone … except for I.G. Farben … and the appointment of a trustee to administer the coal wholesaling firms in our zone. … Yet the impression was now being conveyed to the American public that the lag in Germany’s recovery was to be ascribed not to German indifference or apathy, or to deliberate sabotage of recovery by the old management groups, evidence of which had been steadily accumulating, but to the decartelization program and the removal of Nazis from high positions in business management … (although) it was hard to discover which important Nazis were supposed to be missing.”

Chapter 15

The conflict between Martin’s decartelization branch and investment banker Draper’s umbrella Economics Division intensified as 1946 progressed. Lacking a four-power agreement on a restructuring policy, Martin’s team turned its focus in the interim to the breakup of I.G. Farben, which was to be used as a template (it was hoped) for further operations.

Yet even the Farben operation ran into difficulties as various agencies re-evaluated assets that had been earmarked as suitable for “reparations,” and other assets slated for destruction as “war plants” were reclassified to qualify for conversion to peacetime manufacturing. Martin cites the case of a Farben factory at Gendorf which had made poison gas for Auschwitz using slave labor, sending both the gas and candidates for the gas chambers back to Auschwitz. It was determined that the plant could be used to make antifreeze, since ethylene glycol had been an intermediate product created in the course of turning out the poison gas. In the end, only a few of the war material factories were actually blown up “in a spectacular demonstration of our ‘determination to extirpate the German war machine root and branch.’ “

Much of the Farben colossus remained intact. Ownership was transferred under the trusteeship of German businessmen, some of whom colluded with ousted managers to undermine the plants’ operations, in order to “prove” decartelization wasn’t working.

The tide meanwhile began to shift inexorably against Martin’s efforts to break up the cartels. At the Economics Division, new staff was brought in who were seemingly ignorant of Washington’s industrial policy for Germany. They adopted (or were inculcated with) Draper’s laissez-faire attitude toward German industry. Visiting delegations were indoctrinated, too, through the simple expedient of limiting their exposure to Martin’s views to a few minutes’ presentation at the end of a long meeting where all other speakers toed the Draper line.

In August 1946, three of the four powers agreed on the basis for a decartelization law, however the British objected to any formula that explicitly defined what constituted a cartel subject to breakup. Unable to push this through, it was decided by Gen. Clay that the policy would be adopted in the US zone pending the others’ decisions. Specifically, the program was to: eliminate holding companies; eliminate interlocking directorates; eliminate contractual ties that created centralized management or exclusive trading rights;
eliminate patent restrictions; and eliminate large single enterprises. A draft law was developed and submitted for approval to the Economics Division. After haggling over the working details for a month, the law was ready for Draper’s signature. Draper however refused to sign off on it.

Faced with intransigence within and resistance without, Martin asked Gen. Clay to move his department out of the Economics Division so that it might have the autonomy necessary to do its job. Clay refused to do this but undertook to straighten out Gen. Draper. At a meeting of staff chiefs, he made clear the policy of Washington was decartelization and denazification of German industry, and instructed Draper, as an officer, to follow orders.

Chapter 16
The Christmas-tree Economy

1947 saw a great drive to restore “business as usual” in Germany. The drive was led by US corporations seeking to give their German subsidiaries or affiliates the inside track during the economic recovery. “We saw more than a scattering of plants revived and put into full production, not because their product proved necessary to the orderly development of the economy and the best use of the scarce materials, but because the plants happened to belong to the Singer Sewing Machine Co., the International Harvester Co., the Chicago Pneumatic Tool Co., or General Motors; or because Swedish SKF, or Dutch AKU, or British Unilever, or American Bosch, claimed an interest in the German company; or because an American, Belgian or British company had had a prewar arrangement that made it desirable to get military government to reopen a particular line of German production.

This became known as the ‘Christmas-tree economy.’ … The plants of the favored firms were all decked out with priorities and ornamented like Christmas trees. Around them clustered the little satellite industries, protected by ‘hands off’ and ‘do not touch’ signs. Military government officials were supposed to work out their economic programs without disturbing anything.”

Chapter 17
Double, Double Toil

The fight between the investment bankers and Martin’s Decartelization section came to a head after the Republicans’ sweeping victory in the 1946 congressional elections.

The immediate precipitate was an investigation commissioned by the Kilgore committee to probe charges that the military government was not carrying out policy. A report, written by committee counsel George Meader, found a dual-track system in operation: Economics Division staff (this of course included Martin’s team) who wished to implement policy were impeded by paperwork requirements and multi-level reviews, while certain department heads simply ignored this cumbersome system and made informal agreements among themselves.

Commerce Secretary W. Averell Harriman (whose investment bank had underwritten large loans to Germany before the war) sent Philip D. Reed, chairman of GE, to Berlin, ostensibly to find out how Commerce could aid the German recovery. There followed the usual routine: a conference featuring a parade of Draper’s men, who decried the policy of decartelization and denazification, and a five-minute response allowed to Martin.

Reed’s focus was on the US policy regarding patents, since these fell under the purview of the Commerce Dept. Washington’s official stance was still that Germany not be allowed to gain “a new whip hand in world economic affairs” through the old system of patent pooling and restrictive licensing. Four-power acceptance of US policy was overtly opposed by the British and, of course, also opposed by Gen. Draper. The French feared American companies’ asserting their global dominance through access to the patents, and the Soviets hardly cared since they did not respect patent rights within their sphere of influence. Thus, a four-power agreement on patents was stymied.

Reed ultimately issued a report blaming “extremists” (read “Martin”) for hampering Germany’s recovery. It recommended the suspension of efforts to dismantle the cartels or to block former Nazi supporters from business. Copies of the report were kept from Martin.

February 1947 saw the arrival of Herbert Hoover, dispatched by the Truman administration to find ways to alleviate food shortages in Germany. Hoover’s mission quickly expanded to include all aspects of the German economy. His adviser was German economist Gustav Stolper. Stolper maintained that the cartels had ended with the military defeat, and argued that denazification had been sufficiently accomplished by Hitler’s suicide. Reforms were simply aimed at destroying Germany, its national character and fine traditions, he said. Hoover’s report would reflect these views.

Martin’s staff then undertook a four-volume report based on the documents they had seized outlining the economic effects of the German cartels and combines. When the Economics Division got wind of this, it moved to effectively block its creation by requiring that editorial control remain with the division. Martin’s team, instead, hurriedly put the document together as a “draft” and had 200 copies locally printed, which were then distributed as widely as possible within the government. The result of this act of insubordination was an invitation for Martin to visit Washington.

In his discussion with Attorney General Tom Clark, Martin asked for an explicit ruling on whether official policy toward decartelization had changed, “and if so, what the new policy was.”

In response, a new directive, JCS 1067, was issued reaffirming Washington’s commitment to reforming the German economic structure. Despite this, Martin submitted his resignation on May 22. This was the ultimate gambit, designed to refute the argument that delays in policy implementation were the result of personal conflict between Martin and the chief of the Economics Division.

Chapter 18
The Decline and Fall

“The end of the battle in 1945 had signaled the start of a new kind of war --- a post-war. … Since Bismarck, wars and post-wars have formed a continuous series, changing the quality of the events only slightly from year to year, with no such thing as a clear distinction between heat of battle and calm of peace.

“This post-war of the German occupation was different from the ‘cold war’ between the United States and Russia … The latter complicated the diagnosis, like a man getting typhoid fever and pneumonia at the same time. … The two wars became interwoven, and men who saw no difference came to make up the effective bulk of General Clay’s staff.”

Martin is gently critical of Clay, who he says should have insisted from the outset that those under his command, including the investment bankers in the Economics Division, work toward implementation of official policy. Martin points out that he was not the only reformer defeated by the forces allied with German reversionists. There had been two previous directors of the anti-cartel team, Col. Bernard Bernstein and Russell Nixon --- both had resigned in frustration with the obstructive behavior of the investment bankers. Dr. John Canning, deputy chief of the Food and Agriculture Branch, left in August 1947 after deciding farm reform efforts were undermined by a lack of authority. Canning’s chief, Brig. Gen. Hugh B. Hester, likewise sought reassignment. Dr John W Taylor resigned as chief of the Education Branch for reasons similar to Canning’s.

The effort to rebalance German industry by dismantling or removing heavy-industry plants as reparations also came to little. The final outcome, in fact, struck German businessmen as an “agreeable disappointment,” meaning they had expected far worse.

Besides torpedoing any chance of reforms, the new war with Russia led to a “competitive wooing” of hard-line German businessmen, scientists, and military men. Among those who gained importance under the new German administration were: banker Robert Pferdmenges, a longtime associate of Franz von Papen, Friedrich Flick and Hjalmar Schacht; Ernst Helmuth Vits of the old rayon combine; Heinrich Dinkelbach of United Steel; Edouard Otto von Maltzan, a foreign affairs expert at Farben; Hermann J. Abs, former chairman of Deutsche Bank; and August Schniewind, former director of the Reichsbank.

“The occupying powers, through a curious parallelogram of forces centered in Germany, were doing things for Hitler’s New Order than Hitler himself had never been able to do. Both sides of the cold war were openly feeding German nationalism. Both were building up industrial potential, the Russians offering full employment to workers, Britain and the United States offering a free hand to industrial leaders. What was emerging was a European economy dominated from a central hub of German heavy industry, with an outer ring of satellite areas supplying food, raw materials, and light industrial products.”

Chapter 19
The Nineteen

Martin’s departure marked the beginning of the end for the Decartelization Branch, although no one knew it at the time. As the second year of the occupation came to an end, virtually no real reforms of German industrial practice had been implemented. In Washington now, Martin reported to the Cabinet that cartel policy had been deliberately undermined; his statement was denounced by the new head of the Economics Division, Col. Lawrence Wilkinson, an American banker who had helped arrange loans to Germany before the war.

In a letter to Gen. Clay in July 1947, Martin reiterated that he had resigned to “clear the decks” of any personal animus within the Economics Division. With a new chief, Wilkinson, who had played no part in the rancorous debate over decartelization, Martin felt it was time to finally try to enforce Law No. 56, the original decartelization directive issued in 1945.

Staff had identified four firms that clearly met the criteria for action: they were large combines with a near-monopoly in their fields, had an undisputed record of collaboration with the Nazis, and had been used as weapons of economic war. They were: the Henschel locomotive and Panzer tank firm, the VKF ball-bearing combine, the Robert Bosch automotive-equipment trust, and the Haniel family’s Good Hope steel and machinery conglomerate. This last, however, was complicated by the fact that many of its subsidiaries were located in the British zone.

In these cases, it was felt by the staff, no interference in decartelization could be justified under the law.
There were, however, reasons for non-official interference in the cases of Bosch and VKF; these were related to the combines’ international business ties.

Bosch, for example, had a US subsidiary, American Bosch Corp. of Springfield, Mass. During the First World War, the US had seized this company, but after the war, control had shifted back to German hands. In the ‘30s, Stuttgart-based Bosch had made an attempt to cloak its control by officially shifting ownership to a Dutch bank. (Two Bosch officials then joined the bank to direct operations.) Unfortunately for Bosch’s scheme, the Dutch bank went bankrupt in 1939, and in the course of liquidating it, details of the Bosch plan emerged. It turned out that the US company was just a shell; the German firm retained control of all patents and licensing.

On the eve of the German invasion of the Netherlands, the American Bosch shares were “sold” to the Enskilda Bank of Sweden. Under the transfer agreement, German Bosch retained the right to repurchase the shares after the war. Enskilda left George Murnane, a former New York Trust Co. executive, as its proxy in the US for American Bosch. (In the event of Murnane’s death, appointment of a successor was delegated to John Foster Dulles, of the Sullivan & Cromwell law firm.)

American Bosch was the only firm supplying fuel injection systems for naval diesel engines. When the US Navy sought to diversify its suppliers in 1941, it learned that a new license would first have to be approved by Bosch in Stuttgart. A year would pass before court action freed US companies to use the Bosch patents to make fuel injection systems needed for diesel engines and high-performance aircraft motors.

The VKF ball-bearings combine likewise relied on cloaking involving the Enskilda Bank to mask German operational influence. VKF, representing about 60 percent of German ball-bearing output in the ‘20s, had merged in 1929 with the Swedish combine SKF. SKF was Sweden’s largest industrial concern, and the world’s largest market of ball bearings and roller bearings. Control of SKF rested with the Wallenberg banking family through its Enskilda Bank and their AB Investor holding company. Although it was known that the merger with SKF gave German shareholders of VKF a stake in the new combine, Martin’s team was never able to determine the true extent of their control. Martin writes, “The mystery is how SKF could possibly have managed to pay the German owners of the merged firms without giving the Germans either money or some substantial stock interest in the Swedish firm.” Investigators did find an article in the German newspaper Frankfurter Zeitung that reported SKF was partly German owned.

As in the case of the synthetic textiles arrangement between the German firm VGF and the Dutch AKU, the cloud surrounding ownership extended to the control of important US subsidiaries. In the case of SKF, these were SKF Industries Inc., of Philadelphia, and the New York-based SKF Steels Inc. The majority-ownership proxy for the SKF units in the US was SKF Industries president William L. Batt, who also served on the War Production Board. It was Batt who paid a visit to Berlin in 1946, in order to urge Martin not to impair the value of the Swedish firm’s VGF holdings, or to allow any VGF plants to become “reparations.”

But SKF had shipped ball bearings from Sweden to Nazi Germany after a US bombing campaign had knocked out a sizable chunk of Germany’s ball-bearing manufacturing capacity at Schweinfurt. And it was SKF that declined to allow its ball-bearing output to be purchased outright by a special US delegation sent to block the Swedish-Nazi trade.

Nevertheless, when it came time to specify which German ball-bearing plants would be packed off as reparations, the onus fell on independent manufacturers, leaving VGF with a virtual monopoly in Germany.

The decartelization team meanwhile continued to battle foot-dragging on the part of top Economics Division officials. The four test cases were impeded by newly imposed bureaucratic procedures and “reviews.” In 1948, Gen. Clay finally severed the decartelization branch from the Economics Division, but at the same time appointed as its new chief Richardson Bronson. Bronson, who had worked under Martin, was less than enthusiastic about decartelization. Bronson sought to shift the focus of the work to “fair trade practices” in light industry and consumer products, two non-strategic areas which had had no significant relationship with the Nazis. Bronson also announced staff cutbacks.

These moves, apparently against Gen. Clay’s position on decartelization, led to a staff revolt. Nineteen members signed two memoranda to Clay outlining Bronson’s new directives, which were perceived as a virtual nullification of Law No. 56. The protest was lodged despite the sneaking suspicion that Clay had only supported decartelization publicly to deflect criticism from the Congress and the press while acting sub rosa to subvert it.

At a meeting called by Clay on March 22, 1948, the team learned that their sneaking suspicions had been correct. They were dressed down by Clay, instructed to drop action against Henschel and VKF, and make what amounted to only token cuts of the Bosch organization. All this was justified as necessary to German recovery, the old argument used by Draper.

The result of the conference was a flurry of resignations, later supplemented by staff cuts. The decartelization team was gutted. The careers of those most vocal during the “revolt” were irrevocably damaged in the bargain. Writes Martin, “Not only was the main job left undone, but public servants were damned for having tried to do it.”

Chapter 20
The Hand in the German Glove

The “hand in the German glove” was in fact American. “We were not stopped by a law of Congress, by an executive order of the President, or even by a change of policy approved by the President or any member of his cabinet. In short, whatever it was that had stopped us was not ‘the government.’ But it clearly had command of channels through which the government normally operates.”

Martin outlines the steps that changed things. “Dollar-a-year” men --- executives of the banking and industrial circles --- came to Washington to guide the war production program. These men later moved up to policy-making roles. “Especially noteworthy was a group drawn from the Morgan companies and their pilot-fish, the bankers of the Harriman firm and the business-management specialists of Dillon, Read & Co.”
Dillon Read exec James V. Forrestal ultimately became secretary of Defense. Robert A. Lovett, a former partner at Brown Brothers, Harriman & Co., ascended to undersecretary of State. W. Averell Harriman held the posts of ambassador to the USSR, ambassador to Great Britain, and roving ambassador for the Marshall Plan, while retaining his partnership at Brown Brothers Harriman.

“Is it a possible coincidence that Philip D. Reed, Lewis H. Brown, Frederick L. Devereaux, and some of the others already mentioned in connection with the lapse of our German policy, have had in common their past experience with the financial and industrial concerns of the same investment banking groups?”

The root of the problem is the extralegal status of international business relationships. Martin cites one aspect of this in the case of Hugo Stinnes, a German industrialist who set up US subsidiaries after WWI to exploit the loopholes in international business regulation. Stinnes’ US units owned all the shares of the operating companies (steel and coal) in Germany. These US companies then sold bonds during the 1920s to US investors, which later became worthless. At the onset of WWII, Stinnes’ son Hugo Jr. devised a plan to protect the family concerns from seizure by either of the belligerents. In order to stop the German government from taking over Stinnes’ operations, which were still nominally majority owned by the US holding companies, Stinnes’ German shareholders voted themselves new stock which gave them a majority stake. This protected the company from the Nazis, and all was well if Germany won the war. If Germany lost, it was contemplated that the American holding companies would sue in court to have the German stock sale declared illegal. This is, in fact, what happened.

The triumph of the investment bankers was finally realized in 1948, when Gen. Clay approved a proposal by Leland E. Spenser (formerly VP, Kelly-Springfield Tire Co.) to establish a series of privately controlled German industry associations that would be given the power to allocate scarce resources within their industries. This was a de facto reinstitution of the cartel system.

Thus, the late ‘40s became in Germany the era of “quiet forgetfulness. General principles, based on previous experience of the way governments have broken down, gave way before the demands of ‘efficiency’ … The breakdown or abandonment of time-tested principles was an inside job. “

Illustrative of the approach toward decartelization taken after the dismantling of Martin’s team was Law No. 75, announced by the military governments of the US and British zones in late 1948. The law proclaimed opposition to the concentration of economic power and designated 26 top holding companies for elimination, among them: Stinnes’ Rhenish-Westphalian Coal Syndicate; the steel combines of Krupp, Mannesmann, United Steel, Good Hope, the Goering complex, Thyssen complex and Flick complex; and four utilities combines.

To carry out this program, a German, Dr Hermann Puender, was allowed to nominate trustees for the job. Puender had been an officer during the war in the Abwehr counterintelligence section charged with maintaining proper Nazi attitudes in the military. Of the 12 nominees Puender submitted to Clay for approval, eight were former top officials of the steel combines.

Martin writes, “As if to underline the probable future of the ‘international’ control of the Ruhr, dispatches from Germany dated February 25, 1949, in addition to naming Dr. Puender’s 12 proposed trustees, also named four representatives of the United States Steel Corp. and one of Inland Steel who were to be the American members of the international Ruhr trusteeship commission. Among them was Ian F.L. Elliott, the representative of US Steel in Europe who in the years immediately before World War II had participated in the management of the International Steel Cartel.”

In 1949, John J. McCloy, who had served as legal counsel to I.G. Farben before the war and who opposed any Allied bombing of the rail system serving Farben’s slave-labor complex at Auschwitz, took over from Gen. Clay as High Commissioner for Germany. Among his first acts was the appointment of a new decartelization team. Was this more window-dressing, as new US loans flowed to West German heavy industry and convicted businessmen of the Hitler era --- von Schnitzler, Puhl and others --- were being released from jail?

Chapter 21
Microcosm and Macrocosm

“Our government could not muster the determination and constancy of purpose to match the dogged persistence of the fraternity of brothers. The military government in Germany could not contend with a small clique of Germans because the interests of these aging representatives of Germany’s New Order were integrated with the interests of powerful corporations in the United States.”

Typical of the persistence of the businessmen was the case of the Swiss-based Bank for International Settlements, originally set up after World War I to facilitate German reparations payments to the Allies. The German-controlled bank was the brainchild of Hjalmar Schacht, Reichsbank president. After the reparations payments were abandoned, the bank continued to function as a conduit of investment funds into Germany. As the Second World War neared its denoument, the BIS, now chaired by American Thomas H. McKittrick (who would go on to become a top Chase National Bank exec), served as a fence for funds, gold, and jewelry looted by the Nazis. The Allied signatories to the Bretton Woods Agreement in 1944 adopted measures to ensure the bank would be shut down after the war. However, these measures failed. (The BIS continues to serve as a clearhouse for foreign-exchange transactions to the present day.) McKittrick meanwhile would become a top advisor to roving ambassador W. Averell Harriman.

For its part, the BIS was never compelled to disclose how the Nazi funds were handled. Under questioning as a prisoner of the US Army, Reichsbank vice president Emil Puhl said he had made a trip to Switzerland in April 1945 to persuade the bank not to publish its financial statements because he wanted to conceal the extent of Nazi gold transactions. At least $400 million was laundered through the BIS. (Puhl, the man who had converted the loot from SS concentration camps into cash for the Reich, was pardoned in 1949 by High Commissioner McCloy.)

Writes Martin, “These funds are now being used somewhere in the world by ex-Nazi Germans and their friends. They can finance propaganda and German ‘nationalist’ recovery programs at will. We know that in Spain, Portugal, and Argentina there are large colonies of ex-Nazis showing no signs of money worries.”

Martin goes on to detail how Big Business fleeced the US government out of hundreds of millions of dollars after the war, while at the same time quashing smaller competitors. It was another inside job. There was, for example, the case of the Geneva, Utah steel plant built and operated by US Steel, at a cost to taxpayers of $200 million. The plant gave US Steel capacity to manufacture steel for West Coast customers which it had previously lacked. This plant was sold outright to US Steel after the war for 23 percent of its cost. By contrast, smaller rival Kaiser Steel, which lacked an inside track in government, was forced to repay the full cost of its Fontana, Calif., plant, which made the facility uncompetitive.

Chapter 22
Angels and Men

Martin quotes the Federalist Papers, which summarized the difficulty facing the writers of the Constitution. “In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.”

Writes Martin, “We are in the same difficulty today. We have to enable the government to control economic power instead of becoming its tool.” He notes that that is exactly what had happened to the German government.
He goes on to describe a worldwide trend, as corporations, given certain powers by government in order to pursue their own interests, have coalesced on an international scale and “built a private ‘world government.’ This new order, stretching far beyond the boundaries of any one nation, has operated under no law except the private law of (their secret understandings).”

The case of Nazi Germany is used to make his point. In his talks with the big industrialists after the war, Martin found no regrets about their fascist collaboration --- only regrets that the military campaign had failed. In fact, they felt they were on track to rebuild Germany as the economically dominant power in Europe despite the defeat. Allied with their supporters in the Western business community, the industrialists were able to obstruct and finally roll back those reforms which threatened their continued control: the break-up of the cartels and their restrictive patent and licensing schemes.

And it was these men, after all, whose unity and financial backing in the crisis years, brought Hitler to power when it seemed the political tide was turning against the Nazis. The Nazis ultimately acceded to power because “all the men who mattered in banking and industrial circles could quickly agree on one program and throw their financial weight behind it.”

In the United States, he continues, “we must assume that the same thing is not true.” Although economic power is concentrated to the same extent as in Germany, these 100 individuals “have not agreed yet. … There are still enough divisions within the Republican Party and enough minor differences between Republicans and Democrats to indicate that on some fundamental economic questions there are different points of view…” However, “if the United States should run into serious economic difficulties, most of the conditions for a re-enactment of the German drama would already exist on the American stage.”

The war served to concentrate ownership in the US. Before it, the 250 largest corporations controlled about two-thirds of industrial production, and the bulk of this belonged to the top 100. These 100 corporations were owned by eight financial groups and linked by cross-directorates, as in Germany. During the war, these 100 firms received about 75 percent of the $176 billion spent on war contracts. The top 60 doubled their asset base, while, as a whole, the top 100 had increased their share of industrial GDP to 75 percent. At war’s end, they received the bulk of the factories built by the government.

Firms in the portfolio of these eight ownership groups comprise the leading companies in their respective industries. Martin identifies the eight groups as: the Morgan group (whose assets included US Steel, General Electric, Kennecott Copper, AT&T, IT&T); the Rockefeller interests (the Standard Oil companies, Chase National Bank, National City Bank of New York); Kuhn, Loeb (public utilities network); the Mellon group (Alcoa, Gulf Oil, Koppers, Westinghouse Electric); the “Chicago group” (International Harvester, Armour and Wilson packing); the Du Pont interests (General Motors, E.I. du Pont de Nemours chemicals, US Rubber); the “Cleveland group” (Republic Steel, Goodyear); and the “Boston group” (United Fruit, Stone and Webster utilities, First National Bank of Boston).

“We have been slow to recognize the inherent dangers in corporate empires because we have a theory that business does not need to be governed.” This laissez-faire attitude was transformed during the war: now the role of government is to aid private investment. Example: during the war over $1 billion was spent “conciliating” the Saudi and Iranian rulers, thereby creating a “climate” after the war in which the Arabian-American Oil Company could win lucrative drilling agreements with very little cash outlay.

Although the material success of the American economy is routinely ascribed to its “free enterprise” system, Martin notes, “the greatest economic forces have been under steady control for a long time through the system … of interlocking directorates, holding companies, combines, intercompany agreements and manufacturers’ associations, and through the private planning of international bodies like the International Steel Cartel.”

Martin concludes with a call for greater government regulation of business to prevent the German experience from happening again --- in Germany and the United States.

“Our job now must be to prepare for a future crisis before it happens. … Despite warnings from men whose experience with the German occupation (after WWI) had convinced them that we were entering a period of armed truce, not peace, business arrangements went ahead unchecked to rebuild a Germany that could not be expected to be anything but a steam-roller. …

“The moral of all this is not that Germany is an inevitable menace, but that there are forces in our own country which can make Germany a menace. And, more importantly, they could create a menace of their own here at home, not through a deliberate plot to bring about a political catastrophe but as a calm judgment of ‘business necessity.’ The men who do this are not Nazis, but businessmen; not criminals, but honorable men.”