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The Roaring 20s and the Roots of American Fascism
Part 3: The Great Paper Shuffle & The Cartels

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The Germans reestablished control over dyestuffs and pharmaceuticals with almost the same lightning speed with which they regained control over the Haber process. Under the Alien Property Custodian Act, Bayer's operating units and patents were sold to Sterling Products. Sterling later sold the dyestuff business to Grasselli Chemical Company. Such a transfer of ownership would have been a move in the right direction if it had not been for one disturbing factor: Grasselli Chemical Company employed many former Bayer personnel who supported Germany during the war. For instance, Rudolph Hutz, the former manager of Bayer interned during the war, became general manager at Grasselli.

In 1920, Bayer made an agreement with Sterling covering patents and trademarks. Then, in 1923, Bayer entered into an agreement to control Grasselli although Grasselli still held 51 percent of the stock. On March 23, 1925, Grasselli and Bayer entered into an agreement with Hoechst Company in which Grasselli's ownership was reduced to 35 percent. On October 20, 1928, Grasselli sold its dyestuff business to I.G. Farben. Three days later, du Pont bought out Grasselli Chemical.

The example of Grasselli Chemical illustrates some of the tactics employed by I.G. Farben. An endless paper shuffle resulting in the transfer of ownership (in name only) while retaining the same personnel was common to many post-WWI deals. Deals where the American firm retained 51 percent ownership made it appear to regulators that the American firm was in control. In reality, I.G. Farben retained ultimate control over pricing, plant expansion and export policies.

The paper shuffle of Grasselli Chemical's dyestuff business did not end with the 1928 sale to I.G. Farben. In 1929, I.G.Farben merged the majority of its interests in the United States into an umbrella company, American I.G. Under this umbrella corporation were Grasselli Dyestuffs, General Aniline, Agfa-Ansco, Winthrop Chemical, Magnesium Development and others. In April 1929, $30 million dollars of American I.G. debentures were offered to investors; within an hour of their release, the offering was oversubscribed. The agreement between Magnesium Development and I.G. Farben would figure prominently at the onset of WWII in delaying the production of aircraft.

Sterling Drug was part of the maze of front companies that I.G. Farben and Bayer used to regain control over assets seized during the war. In 1918, the Alien Property Custodian sold Bayer at a public auction. Sterling was the winning bidder at $5.31 million dollars. Earl McClintock, a staff attorney for the Alien Property Custodian, arranged the details of the sale. One of the first acts of Sterling was to hire McClintock at more than three times his government salary.

Law governing sales by the Alien Property Custodian penalized a purchaser acting for an undisclosed principal or reselling to or for the benefit of a non-U.S. citizen with a $10,000 fine, 10 years imprisonment, or both. The purchaser would also forfeit the property to the United States government.31 The sale of Bayer to Sterling clearly fell within the scope of the law.

The original contact between Sterling and Bayer remains secret. It is, however, well-established that months after the purchase, Sterling president William Weiss met with Bayer executives in Baden Baden. An informal agreement of cooperation was reachedand shortly afterwards Sterling formed Winthrop Chemical. In 1923, Winthrop entered into a cartel agreement assigning itself all of Bayer's patents. Once again, the familiar 50-50 split was part of the agreement.

In 1925, I.G. Farben and Sterling-Winthrop brought Metz into the Sterling orbit. The result of all of the stock transfers and paper shuffling was that I.G. Farben regained control of the U.S. pharmaceutical business for a mere two million dollars.

The Hoechst-Metz Company was also seized by the Alien Property Custodian. Metz claimed that he had bought back the assets of the company, but it was commonly believed to have been a dubious stock transaction. In 1921, a court ruled in favor of Metz. In his bizarre rambling ruling, Judge Julius M. Mayer said:
 

"As seizure by the Alien Property Custodian is likely to carry the suggestion to those not informed in respect of the controversy, that the demandee (Metz) in some manner may have been improperly associated with the enemy, it is desirable at the outset to state that no such situation exists here. The Transactions here took place long before our entry into the war and indeed before the European war started and had no relations to either. That Metz should deliberately by his testimony falsify the true transaction is not to be thought of. Stock ownership would not affect the apportionment of profits. This testimony of Hauser can only be rejected upon the theory that both Hauser and Metz have willfully deceived the court by false testimony."35

Shortly after the ruling, the Harding administration appointed Judge Mayer to the Federal Circuit Court. What Mayer lacked in legal acumen was offset by his political correctness for the time. Mayer ordered the deportation of Emma Goldman, ruling that aliens had no rights under the Constitution. In another ruling, Mayer found Scott Nearing innocent of obstructing the war. Nearing had written a pamphlet about the relationship between big business and war. However, Mayer found the American Socialist Party, which had published the pamphlet guilty of the obstructing the war. Such a ruling was a slight of hand by the judge. If he had found Nearing guilty, it would have constituted a violation of his free speech rights. On the other hand, as an organization the American Socialist Party lacked free speech rights. Other victims of the good judge were IWW members, who could expect to receive the harshest sentences possible in Mayer's courtroom.

Judge Julius Mayer's rulings were a reflection of the prevailing attitudes and beliefs of the days' business leaders. His rulings were extremely pro-business and anti-union. He showed no tolerance for those that held political beliefs different from his.

George Sylvester Viereck and his Burgerbund campaigned extensively for the election of Harding. Following the election Viereck demanded a political payoff. Harding was noncommittal.91Viereck would become the man behind the notorious Nazi publisher Flanders Hall and would be indicted for sedition.

 

By 1925, I.G. Farben had established powerful allies inside the Republican administration. The then Secretary of Commerce, Herbert Hoover, appointed a nine-member board, Hoover's Chemical Advisory Committee. Seated on the committee were Walter Teagle (Standard Oil of New Jersey), Lammot du Pont, Frank Blair (president of Sterling Drug) and Henry Howard (vice-president of Grasselli). Despite the extensive ties these four had with I.G. Farben they sat on a committee whose role was to help America's chemical industry fight off the I.G. Farben cartel.37

In 1928, Weiss brought the entire drug industry together in one giant cartel. With Louis Liggett, he put together Drug, Inc., a holding company for Sterling-Winthrop. Drug's properties included United Drug, Ligget, Bristol Myers, Vick Chemical and Life Savers. The Vick Chemical company was controlled by the Richardson family. The Richardson Foundation is one of the many hard-right foundations that promoted the impeachment of President Clinton.32

Liggett was the Republican National Committeeman from Massachusetts and had made the false claim that, under President Coolidge, the Department of Justice had approved the creation of Drug, Inc. It wasn't until 1933, after Hoover was booted out of office, that Drug, Inc. was dissolved.

Also tied to the illegal cartel of Drug, Inc. was the notorious Dr. Edward Rumely. Rumely was imprisoned for pro-German activities during the war and was released from prison by Coolidge. He then went on to become director of Vehex Inc., another corporation formed by Weiss.

Throughout the maze of paper shuffling and stock transfers, the accounting firm of Price Waterhouse collected fat fees for auditing the books of two of I.G. Farben's American affiliates, Sterling and Standard Oil of New Jersey.33 Audits from Price Waterhouse helped sanitize the records of Drug, Inc. and other IG Farben front companies

Ted Clark was vice president for government relations of Drug, Inc. from 1929 until it was dismantled. Clark was President Coolidge's private secretary. While on Drug, Inc.'s payroll, Clark also served a short time as Hoover's secretary, during an absence of Hoover's regular secretary. In 1942, Clark's files were suddenly withdrawn from auction and donated as a sealed gift to the Library of Congress. Those who had seen the files prior to their sealing noted correspondence with Col. William Donovan, Coolidge's assistant attorney general, and Charles Hilles, former chairman of the Republican National Committee and close associate of the Morgans.

The timing of the file withdrawal appears highly suspicious. Donovan was closely involved with both Drug, Inc. and I.G. Farben. He became director of the OSS in June 1942 about the time the files were sealed.36 Donovan spoke patronizingly towards I.G. Farben at Hoover's second conference on the chemical industry:
 

"So far as it presently appears, the so-called chemical entente and Franco-German dyestuff agreement appear to involve no attempt to exploit this market. In fact, we have authentic assurances that these arrangements are not directed against the market."38.

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I.G. Farben had learned its lessons well during the first war. Its American interests were vulnerable to seizure at wartime. In a move that should have set off an alarm about Germany's intentions towards war, I.G. Farben made an effort to conceal its ownership of American I.G. further. Even with Walter Teagle, president of Standard Oil of New Jersey, and Edsel Ford on its board of directors, American I.G. was vulnerable to seizure if war broke out. With a sleight of hand, American I.G. assets were transferred to a German-controlled corporation based in Switzerland, Internationale Gesellschaft fur Chemische Unternehmungen (I.G. Chemie). It was loudly proclaimed from then on that American I.G. was Swiss-controlled, and free from German interests, even though, until 1940, the president of I.G. Farben, Herman Schmitz, was also president of I.G. Chemie.28

The ruse of concealing German control through various Swiss concerns soon became a favorite tactic of I.G. Farben. With the storm clouds of war on the horizon by the late 1930s, it also became a favorite tactic of the Dulles brothers in helping American investors conceal their dealings with the Nazis.

Another German firm seized during WWI was Rohm and Hass, which was sold to Tanner's Products. The tanning industry at the time played an important role in support of war-related chemical facilities. In 1924, the original German owners regained control. Technically, Rohm & Hass of Philadelphia was independent of Rohm &Hass of Germany; they were merely owned by the same stockholders. In 1927, the two firms reached an agreement regarding the division of territories. The agreement was typical of German cartel arrangements in that it restricted American companies from South America and Europe, granting those areas to the German corporation.

During the 1920s and 1930s, Rohm and Haas' primary business was producing general chemicals, in particular methyl methacrylate, Plexiglas. By 1934, Plexiglas reached commercial practicability and a new agreement was reached between I.G.Farben, Rohm and Hass of Philadelphia, and Rohm and Hass of Germany . Rohm and Haas of Philadelphia's territory was further restricted, and it was prohibited from entering six business areas: photography, dyestuffs, artificial rubber, pharmaceuticals, abrasives and celluloid masses.

In 1939, Rohm and Haas cross-licensed its process for making cast sheets of methyl methacrylate to du Pont. However, under the terms of the license, du Pont's production would be limited to half of Rohm and Haas' production. By 1940, the market for methyl methacrylate had exploded because of wartime applications. Du Pont was receiving enormous orders for Lucite and Plexiglas that far outstripped the restricted production agreement. On August 10, 1942, a grand jury indicted both Rohm and Hass and du Pont for restricting the production of war munitions.

Besides producing methyl methacrylate for airplane canopies, Rohm and Haas also produced Tego glue film. Tego glue film was needed to produce the plywood used for aircraft and marine vessels such as PT boats. Once again, Rohm and Haas had a production agreement with a German firm covering Tego, Theo Goldschmidt.

There are literally thousands of examples of I.G. Farben and other German firms regaining control over vital industrial processes in the 1920s. Among the most startling were two areas in which American industry dominated: aluminum and magnesium.

In 1907, the Pittsburgh Reduction Company reorganized as Alcoa. Alcoa was closely held by the Mellons, the Davises and the Hunts. Alcoa held two patents for the production of aluminum: the Hall Patent, which expired in 1906, and the Bradley Patent, which expired in 1909. Theoretically, the expiration of the patents would have allowed others to enter the aluminum business. In order to retain its monopoly after 1909, Alcoa took steps to ensure its control over the aluminum market by buying up the raw bauxite supply. Until 1915, Alcoa was a member of every world aluminum cartel.

By 1928, Alcoa owned 32 subsidiaries including railroads, bauxite mines, fabricators, and power companies both in and out of the United States such as Duke Power of Canada. Additionally, Alcoa controlled more than 20 other companies.

Alcoa created the Aluminum Company, Ltd. of Canada (Alted) in 1928. In this move Alcoa sold its subsidiaries all its foreign properties with the exception of its Dutch Guiana bauxite mines. The controlling interest of Alted remained the same, and E.K. Davis was appointed president. The creation of Alted was a ruse used by Alcoa to retain its monopoly. It also freed Alcoa to enter into additional European cartel agreements through its Alted subsidiary. When the war clouds appeared and the United States began a defense build up, the end result of Alted's creation became apparent: the United States was no longer the world's largest aluminum producer; Germany was now number one.29

Intertwined with Germany gaining control over the aluminum industry was its control over magnesium, another industry in which America was either dominant or competitive with Germany by the end of WWI. Magnesium is vital to munitions and is used in tracer bullets, flares and incendiary bombs. Also, magnesium alloys are indispensable in aircraft production. During the first war, eight American companies produced magnesium.

With the end of the war and the reduction in magnesium demand, only two companies stayed in the business: Dow Chemical and American Magnesium Company (AMC). AMC was a wholly owned subsidiary of Alcoa. In 1931, Alcoa and I.G. Farben penned the Alig Agreement, which became the charter of the magnesium industry. Once again, the agreement formed a joint company with each firm holding a 50 percent share. In addition, the shareholders of I.G. Farben held the right to limit the production capacity of any producing company in the US and restrict total U.S. production to 4,000 tons per year.

In 1933, after continued pressure from AMC, Dow affirmed AMC as its preferred customer. In 1934, I.G. Farben entered into an agreement with Dow to purchase 600 tons of magnesium in 1935, with options for the same amount in 1936 and 1937. Under the agreement, Dow was restricted from selling in Europe with the exception of sales to I.G. Farben and British Maxium. Under this arrangement, Dow sold magnesium to I.G Farben at 20 cents per pound, 30 percent less than it charged American companies.30

The above cartel agreements are only a few examples. A complete accounting of all cartel agreements and how they hindered the war effort, would fill volumes. More than one hundred American corporations had cartel agreements with I.G. Farben. None of the agreements were legal under US trust laws, as all monopolized or restricted trade. Additionally, many were illegal under Alien Property Custodian laws since they transferred control to I.G Farben and other German corporations seized during WWI.

Besides hindering the war effort at home, once war broke out in Europe, cartel agreements had an enormous impact on global geopolitics. Almost all cartel agreements banned American corporations from South America. Germany didn't need to fight for South American markets; American businesses willingly handed them over to I.G. Farben when they signed the cartel agreements. It was only after war broke out that American corporations were allowed to expand their markets into South America, and then often only to German firms already there.40

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It was through these South American outlets that American corporations continued to supply Nazi Germany during the war. They served as the method of choice to circumvent the British blockade. By using a South American firm, either under the control of I.G. Farben or one of its American cartel partners shipments to Germany were first exported to a so-called neutral country such as Spain or Switzerland and then on to Germany. It was through a South American subsidiary that Standard Oil of New Jersey continued to supply Nazi Germany with oil and munitions. Standard Oil of New Jersey also distributed pro-Nazi propaganda throughout South America during the war.

Corporate apologists try to dismiss these cartel agreements simply as good business practices. However, legal documents from I.G. Farben suggest they were an integral part of Germany's war plan. The following excerpts from its legal department leave no doubt as to I.G. Farben's plans:
 

…After the first war we came more and more to the decision to tarn (German for hood or camouflage) our foreign companies in such a way that participation of I.G. in these firms was not shown. In the course of time the system became more and more perfect."

…If the shares or similar interests are actually held by a neutral who resides in a neutral country, enemy economic warfare measures are ineffectual; even an option in favor of I.G. will remain unaffected."

…Protective measures to be taken by I.G. for the eventuality of war should not substantially interfere with the conduct of business in normal times. For a variety of reasons it is of the utmost importance that the officials heading the agent firms, which are particularly well qualified to serve as cloaks, should be citizens of the countries where they reside."

…In practice, a foreign patent holding company could conduct its business only by maintaining the closest possible relations with I.G., with regard to applications, processing and exploitation of patents it is sufficient to refer to experience."

The adoption of these measures would offer protection against seizure in the event of war.

…In the case of winning this war the mightful situation of the Reich will make it necessary to re-examine the system of Tarnung. Politically seen, it will often be wished that the German character of our foreign companies is openly shown."

After the outbreak of war, I.G. legal department continued discussing tarnung.
 

…Only about 1937 when a new conflict became apparent did we take pains to improve our camouflage in endangered countries in a way that they should, even under wartime difficulties, at least prevent immediate seizure."

…Camouflage measures taken by us have stood us in good stead, and in numerous cases have even exceeded our expectations."41
 

The excerpts above leave little doubt as to the intentions of I.G. Farben and the central role it played in Germany's quest for world domination. A Treasury report on espionage and saboteurs made in 1941-1942 is equally vivid:
 

"In the twenty year period between 1919-1939, German interests succeeded in organizing within the United States another industrial and commercial network centered in the chemical industry. It is unnecessary to point out that these business enterprises constituted a base of operations to carry out the Axis plans to control production, to hold markets in this Hemisphere, to support fifth column movements, and to mold our postwar economy according to Axis plans. This problem with which we are now faced is more difficult than, although somewhat similar to, the problem faced by us in 1917. The background is vastly different from that which existed in 1917.

Certain individuals who occupied a dominant place in business enterprises owed all of their success to their business contacts in the past with I.G. Farben."42
 

The Treasury report went on to discuss I.G. Farben's the practice of sending spies and agents into the United States to become citizens. The report also discusses the necessity of dismissing, as spies or agents of the Nazis, one hundred American citizens from General Aniline, including five key executives .

I.G. Farben's employment of spies, and its relationship to the Gestapo, were made vividly clear to Congress months before the bombing of Pearl Harbor. Richard Krebs, former Gestapo agent, testified before the Dies Committee on Un-American Activities. Later chapters will discuss how the Dies Committee subverted the investigation of Nazis.

Krebs testified at length, from his personal knowledge of German cartels, about the organization of Nazi propaganda, espionage and sabotage in the Western Hemisphere. In his testimony, Krebs stated that Hamburg-American Lines and Zapp Transocean News Services were nothing more than appendages of the Gestapo. Krebs detailed how businesses in the Untied States employed Gestapo agents, and how those agents were placed in other firms that were not a part of pro-Nazi cartels.

Krebs' testimony revealed that the Gestapo's Industrial Reports Department had special schools to train Germans and Americans of German descent to work in America as mechanics, engineers, draftsmen, newsmen and even teachers. Krebs specifically stated the relationship of I.G to the Gestapo was to obtain information. An excerpt of Kreb's testimony follows:
 

"to obtain information about our security program and to produce choke points, or to sabotage our war efforts.

The I.G. Farbenundustrie, I know from personal experience, was already in 1934 completely in the hands of the Gestapo. They went so far as to have their own Gestapo prison on the factory grounds of their large works at Leuna, and began, particularly after Hitler's ascent to power, to branch out in the foreign field through subsidiary factories. It is the greatest poison gas industry in the world, concentrated under the title of I.G. Farbenindustrie."43
 

While there was less sabotage during WWII than during WWI, the new tactics were just as useful in delaying the production of war equipment and munitions. As an example, Standard Oil of New Jersey managed to delay any increase in the production of toluol until 1941 out of deference to I.G. Farben. Toluol is the vital starting material for producing both TNT and butadiene, the feedstock for the production of synthetic rubber.

There is at least one report that Standard Oil of New Jersey intended to resume its cartel link with I.G. Farben following WWII. In May 1942, Walter Winchell stated that a news broadcaster for CBS had been effectively silenced when reporting on both the Truman and Boone Committees. This broadcaster had included in his script reports that Standard Oil of New Jersey intended to resume ties with I.G. when the war ended. A CBS censor killed the item and was reported to have told the broadcaster to "go easy on Standard, you know we carry plenty of their business."44

By the time Pearl Harbor was bombed, support for fascism was widespread, especially within large corporations Some of this was the direct result of IBM President Tom Watson's tenure as president of the International Chamber of Commerce (ICC). The ICC enthusiastically promoted trade with Nazi Germany. In 1937, the International Chamber of Commerce held its world congress in Berlin, during which Schacht presented Watson with Hitler's medal. Watson later returned the medal, but only after it was clear that war was imminent.

Throughout the 1930s, several large newspaper chains were openly pro-Nazi, as were many congressmen. By the end of 1942, the proclaimed list of blacklisted companies (Nazi front corporations in Europe and South America) grew to over 5,000.45 In the process, many American corporations were shown to be still trading with the Nazis. None of these companies would ever face charges, because by 1942 support for fascism and the corporate state was thoroughly entrenched in American corporate culture.

Support for fascism within the corporate community can be traced back to the period immediately following WWI into the 1920s. None of the cartel agreements would have been possible without the voluntary cooperation of America's corporate leaders. Many, such as du Pont, actively sought out cartel agreements following the first world war, while others, such as Standard Oil Of New Jersey, were willing to reach new cartel agreements with I.G Farben and Germany once the second world war ended. The widespread enthusiasm to enter into such agreements can only be understood by exploring the attitudes of America's corporate leaders following WWI.