Bankers, Lawyers and Linkage Groups

excerpted from the book

The Splendid Blond Beast

by Christopher Simpson

Common Courage Press, 1995


... During the second half of the 1920s, the most important international market for recycling the new private U.S. wealth was Germany. This investment was carried out mainly through loans to German industry, direct U.S. investment in German companies, development loans to German cities, and millions of dollars worth of Dawes Plan credits that indirectly financed German war reparations. The scope of U.S.-German capital flows during the 1920s has never been fully documented, but the fraction of it that can be traced totals close to $1.5 billion, not including Dawes Plan credits. In today's currency this sum would be measured in the tens of billions of dollars.

There was considerable direct U.S. investment in German companies as U.S. companies sought to buy into European markets at bargain prices. ITT purchased a half-dozen German telecommunications equipment manufacturers during the late 1920s and early 1930s, while General Motors bought control of the Adam Opel corporation (and with it about 40 percent of the German automotive market) in 1929. Fritz Opel joined GM's board of directors as part of the deal. Ford Motor Company built a vast factory at Cologne, then used it to manufacture cars for all of Central and Eastern Europe. There were also joint ventures, such as IG Farben's pacts with Standard Oil of New Jersey, some of which were subsequently found to be violations of U.S. law. General Electric purchased substantial shares of the German electronics giants AEG and Siemens, and entered joint ventures with both companies. *

(* U.S. corporate investment in Germany during the 1920s and 1930s was concentrated in the hands of fewer than two dozen major companies, reports economic historian Mira Wilkins. According to her data, U.S. industrial leaders in Germany included oil and chemical companies such as du Pont, Standard Oil of New Jersey, and Texaco; food and consumer products companies such as Corn Products Refining Co. (today CPC International) and United Fruit; and mining companies such as American Metal (today AMAX), Anaconda, International Nickel (based in Canada, but American owned) and the large Guggenheim mining interests The most active category of U.S. industrial investors appears to have been automotive and light industrial manufacturing companies, including Ford, GE, GM, Goodrich, IBM, International Harvester, ITT, National Cash Register (joint venture with Krupp), Singer, and several smaller companies.)

Specialized banks, law firms, and trading companies that focused on opening the German market to U.S. capital sprang up on both sides of the Atlantic. Practically without exception, the giant U.S.-German capital flows were administered by a small group of specialists at the very top of the social structure of both countries. A number of institutions and individuals who were prominent in this trade went on to play powerful roles in U.S.-German affairs over the next five decades.


... All told, these and more than a dozen similar transactions had a combined value in excess of a billion dollars.

For John Foster Dulles, international banking seemed to be a distinctly noble and humanitarian profession. "It is the highest function of finance to move goods from the place where they constitute a surplus to the place where they will fill a deficit," he told a sympathetic audience at the Foreign Policy Association as the economic boom of the 1920s showed the first signs of unraveling. "[A]nd in performing this service during the past nine years our bankers have given an extraordinary demonstration of the beneficent use of financial power," principally by opening European markets to U.S. goods through the extension of loans to European customers. International banking, he said, "is a simple story . . . the story of how Europe has been saved from starving and we from choking."

Banker and latter-day diplomat Paul Nitze describes a 1929 incident in his autobiography that captures much of the financial community's sense of its role. Nitze was in those years a protégé of Dillon, Read chairman Clarence Dillon. As Nitze tells the story, the elder executive explained to him that over the previous fifty years "the New York banking community had wielded more influence than politicians in Washington." Throughout history, Dillon continued, "societies have been dominated by one element of society or another-by priests, by royalty, by the military, by politicians either from the common folk or from the aristocracy, and from time to time by wealthy financiers. This last element had found its way to the top of the hierarchy for a while in ancient Greece, in Rome in the days of Lucullus, in the city-states of Italy during the days of the Medici, for a while in France, and . . . in the United States." At this time, Dillon believed that a major economic depression was on the way and that the ensuing political crisis would signal the "end of an era."

The U.S. financial elite had great influence on U.S. foreign affairs, often manifested most directly in the Foreign Service, the career staff of the Department of State. As Nitze's own career was to demonstrate, there was a revolving door between international service for major banks and law firms and positions in the U.S. State Department. There were many family ties, too, as when Allen Dulles remained in the Foreign Service and his brother returned to Sullivan & Cromwell.

The top Foreign Service officers and investment bankers had often trained at the same prep schools and Ivy League universities; they belonged to the same social clubs and often shared similar preconceptions on issues ranging from social class and geopolitics to men's fashions. "Style, grace, poise, and above all, birth were the key to success" in the Foreign Service, writes historian Martin Weil. "The standards were similar to those of a fashionable Washington club: 'Is he our kind of person?' No one who clearly was not would pass.

"If a black slipped through the net, he was sent to Liberia until he resigned. Women were sent to the jungles of South America. Jews could not be handled as crassly, but they were made to feel unwelcome and shut out of the better assignments. Those who had the proper background, however, had a great time." Not everyone in the Foreign Service actually trained at Groton and Harvard, of course, noted Supreme Court Justice Felix Frankfurter in his diary. But like some people "who have not had the advantages of the so-called well-born, but wish they had them, [they become] more 'Grotty' than the men who actually went to Groton in the State Department."


... The industrial and financial sectors of the German economy during the 1920s and 1930s were tightly interlocked and controlled by a handful of powerful interests. Antimonopoly and antitrust laws such as those used in the United States to encourage competition were unknown. German economic tradition had long encouraged industrial cartels, trusts, and similar organizations designed to dictate prices, exclude competitors from established markets, and coordinate bids for political power. This resulted in a closely interwoven network of fewer than 300 men who made up the senior managers and the boards of directors of virtually every large-scale enterprise in the country. Within this group power was further concentrated in the very largest banks, insurance companies, and manufacturing concerns.

The general contours of this elite can be illustrated through the interlocking directorships and financial ties among Germany's two principal banks and their associated industrial concerns, which served as a central meeting ground and policy-coordination point for much of German industry. Deutsche Bank and Dresdner Bank exercised an "influence and control over [German] industry to a degree unparalleled in modern American banking," as a later U.S. government study put it. They exerted power through interlocking directorships, control of voting rights to large blocks of company stock, authority over the financing and credits necessary for day-to-day business, and the banks' service as a go-between among the German state and private enterprises.

The U.S. government calculated shortly after World War II that the Deutsche Bank's board of directors and senior management sat on the boards of some 525 other major German companies, and that this pattern had been true since the 1920s. Deutsche Bank had no fewer than three joint directors with the Allianz Insurance group (the largest insurance company in the world); six joint directors with Daimler Benz; four with Daimler's ostensible competitor, BMW; five with the Mannesmann steel combine, four with the electrical giant AEG; three with coal and steel specialists Hoesch AG; six with one of Germany's largest armament manufacturers, DEMAG; and no fewer than eight with the Siemens group of companies, which has dominated German electrical engineering and communications equipment markets for generations. Indeed, Deutsche Bank, Mannesmann, and Siemens can fairly be said to have grown up as a single economic unit.

Germany's second largest bank, the Dresdner Bank, was also allied with key businesses during the 1920s and 1930s, including the Krupp empire and steel magnate Friedrich Flick's. In later years, Dresdner bankrolled the SS concentration camp system and the government-sponsored Hermann Goring Werke, which served as a vast holding company for dozens of mining, steel, and armaments companies seized by the Nazis. The Krupps had used the Dresdner as a virtual in-house bank since the end of the nineteenth century, in much the same manner that the Siemens interests had dominated Deutsche Bank.

These two major German financial institutions had long competed for business and political influence. At the same time, they often cooperated in dealing with business trusts that were simply too big to fit under any one bank's umbrella, such as the chemical combine IG Farben and Vereinigte Stahlwerke, or United Steelworks.

Obviously, there were other prominent German and American financial leaders in addition to those mentioned here, but this brief list is characteristic. They were, first of all, a relatively small group, even within the closed world of U.S. and German law and banking. They specialized in foreign affairs and have had a substantial influence on U.S.-German relations and on both countries' conduct of foreign affairs, emerging at the core of a foreign policy establishment active in groups such as the Council on Foreign Relations. They built strong relationships over a period of ten, twenty and even thirty years. They often shared similar convictions on issues such as class, business, and the importance of U.S.-German economic ties. In many cases, they shared business partnerships and investments as well.

This does not mean that they had a single point of view concerning Hitler, either before or after the Nazis' climb to power in 193033. Contrary to the popular myths concerning the Dulles brothers, for example, Allen Dulles was a relatively early advocate of U.S. backing for the British in their showdown with Germany, while John Foster Dulles remained considerably more tolerant of Nazism. Others were prominent Jews who were destined to be dispossessed by the Nazis. Banker Eric Warburg was forced to sell off most of his German properties in the early 1930s, but he returned for the reconstruction after 1945. Some members of the elite did become creatures of Hitler, however, such as Dresdner Bank's Karl Lindemann, who was characterized as a "rabid Nazi" by one of the bank's senior executives, Hans Schippel.

The cement that bound these groups together was trade, not politics-or at least not politics in the narrow sense of the term. U.S. business magazines became regular critics of Hitler's politics during the 1930s, for example. But a review of the internal records of U.S. companies made public during wartime "trading with the enemy'' scandals shows that, despite pious comments to the press, a dozen major corporations proved to be enthusiastic partners in trade and technology cartels exploited by the Nazis.

Even Allen Dulles, who was among the more vocal on Wall Street in warning that German military adventures would come to no good, found himself caught up in this contradiction. Captured German records show that the United Fruit Company, where Dulles maintained a long and active directorship, became an international pacesetter in devising ways to expand trade with Germany despite obstacles from the U.S. and U.K. governments. Similarly, while publicly advocating U.S. economic backing for the British on the eve of the war, Dulles was privately representing German corporate clients in their efforts to buy out the American Potash and Chemical Corporation, an important potential source of strategic chemicals and foreign currency. *

(* Sullivan & Cromwell maintained strong ties to German corporate interests at the outbreak of World War II, notwithstanding Allen Dulles's public comments. As far back as the 1920s, John Foster Dulles and Sullivan & Cromwell had represented Metallgesellschaft AG of Frankfurt, the largest nonferrous metals company in the world. Dulles's task at that time was to reestablish the Frankfurt company's control of the American Metal Company, a U.S. subsidiary of Metallgesellschaft that had been seized as enemy property during the war. He succeeded.

Almost two decades later, in 1938, IG Farben director Hermann Schmitz, who had played a major role in the Metallgesellschaft affair, hired Sullivan & Cromwell to deal with the World War II version of U.S. Alien property regulations. According to U.S. Justice Department and Securities and Exchange Commission (SEC) investigators, IG Farben's photographic film subsidiary GAF was at that time engaged in complex financial maneuvers designed to conceal its relationship to the IG. GAF wished to avoid the Treasury Department's strict regulations on control of foreign funds, and to head off the possibility that it, too, might be seized as enemy property if war broke out.

According to Chester T. Lane, the general counsel of the SEC in the 1930s, "The German government, acting through its representatives here, its financial counselors and attorneys, who, as I remember, were Sullivan & Cromwell, filed a registration statement with us looking towards refunding of many of its securities held in the United States," Lane recalled. "It was obviously designed as a public relations gesture." Lane and the SEC responded with a demand that the Nazi state "give us a complete blueprint of [its] economy, including all its indirect assessments through party dues, its indirect taxes, and its whole financial structure." Frustrated, the Germans eventually abandoned the effort.)

Despite their differences, these U.S.-German "reference groups" or "linkage groups," as they became known to sociologists, shared common convictions that were to them far more fundamental: the central importance of maintaining the viability of capitalism as a national and world economic system, and the key role of U.S. and German productive capacity and markets within that effort. Measured against these more basic values, the Nazis and their whole brutal apparatus were seen by much of the elite as transitory, at least during the 1920s and 1930s. From the standpoint of corporate ideology, this elite saw itself as a new generation of the so-called managerial revolution; they considered themselves to be "forward thinking" and unencumbered by the stuffy formalism of earlier times.

Splendid Blond Beast

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