Between the Alps and a Hard Place (21 page)

But how could the Swiss put real, disposable gold under the franc to prevent immediate, rampant inflation? The answer was the Reichsbank, which was an eager supplier of gold, some of which, after 1943, had good prospects of remaining “Swiss.”
Buying gold from Germany made it possible for Switzerland to buy gold from the Allies—good for the long term, without going broke in the near term. In part, Germany's economic warfare measures, using (tainted) gold, enabled the Allies to carry out their financial warfare measures with clean Swiss francs. Given the balance of power and geography, the Allies could not have had the benefits of Swiss watches and jewel bearings, or Swiss francs for that matter, if the Reich had not benefited from Swiss machine tools, electricity, and of course Swiss francs.

The balancing act ended in March 1945, when Switzerland banned all trading of foreign currencies. But by then the Allies needed no more help, and the Germans were beyond doing harm.

In Judeo-Christian civilization, property rights derive from work because man, by working, joins God's creative function. John Locke secularized this tradition by arguing that things belong to those who mix their labor with them. Thus while all mankind might theoretically own the coal under the earth, the coal actually belongs to the workers and capitalists who dig it up. But in war, things belong to those with the power to take them. The same is true in interest-group politics.

Before the twentieth century, widely held Christian just-war precepts gave noncombatants reasonable hope for the safety of their property. As late as 1907 (by which time the Boer War had already portended its futility) the Hague Convention specified that armies must not appropriate the goods of enemy civilians. But in the very first war of the enlightened twentieth century, Germany despoiled and enslaved the Belgians and Frenchmen
whose land it occupied. After World War I the century's worst regimes—the Third Reich and the Soviet Union—were founded on a permanent declaration of war against the Jews and the “class enemy,” respectively. Even before the Second World War these regimes despoiled their enemies not for anything they did but for who they were. During that war they inflicted spoliation, enslavement, and worse on all the peoples they conquered. Consequently, Europe was full of innocents scurrying to save their lives and property. By the end of the war even the best regimes, Britain's and America's, had adopted the practices of the worst. They bombed civilians. When they won, they claimed title to all the property in Germany (including cutting down German forests to sell the lumber) and conscripted civilians for labor in exchange for bare survival rations. They also claimed the property of any German anywhere in the world.

Switzerland's experience in World War II shows how problematic it is, especially for a small country, to be an economic safe haven in wartime. Nazi victims and innocent Germans (yes, there were such beings) tried, along with Nazis, to shelter their assets under Swiss laws. At the end of the war, however, the Swiss government joined the Allies not just in appropriating the assets of the Nazi regime but also in imposing a penalty on the assets of ordinary Germans. No one disputed that the assets of victims ought to be returned to them or to their heirs. Nor has there ever been an argument that assets without heirs should somehow be devoted to the common good. But the modalities of restitution have had much less to do with property rights than with rapacious interest-group politics.

Allied economic warriors remembered that after World War I
German companies had spun off weapons-building subsidiaries to other countries. Zeiss built its military optics in the Netherlands. Junkers machinery went to Sweden and Russia. Krupp exchanged stock with Bofors of Sweden for the privilege of building heavy guns there. As World War II wound down, the Allies thought they noticed extensive plans for a Nazi revival. According to Allied economic warriors: “There were widespread rumors of [the Nazis'] purchasing properties in the neutral countries—industrial establishments, real estate, financial companies—and buying into neutral business concerns, often under disguise or through an agent. Sizable bank accounts were reported open in safe places. . . . The Nazis were preparing to go underground, they were seeking a safe haven. . . .”
¹⁸
Consequently, Bretton Woods Resolution VI endorsed Allied policy to “uncover, control, and dispose of enemy assets” as well as to undo some of the Nazis' most egregious thefts of private property, especially artworks.

Thus, Allied economic warriors inventoried German assets around the world. In the Allied countries German assets had already been seized regardless of whether they were the property of the government, corporations, or individuals. In Germany itself the Soviets were dismantling and carrying off everything they could, including thousands upon thousands of German slave laborers. At the Potsdam Conference the Allies laid permanent claim to all German assets outside Germany. This meant that in the United States, Britain, and France, all property of any kind belonging to any and all citizens of Germany was “vested” in the government. The original U.S. executive order (9567, June 1945) “vesting” all “enemy property” made no distinction between guilty, innocent, and victim. The
U.S. government turned over about half of the $900 million in proceeds to the Allies' German External Property Commission and kept the other half to pay American claims, such as those of former prisoners of war. In their negotiations with neutral governments, the Allies asked them to “vest” in the commission all Germans' property within their borders.

By mid-1945 fear of a Nazi revival had faded. Nevertheless the victors' hunger for “enemy property” did not diminish.

The practical justification was obvious. Because of Germany, all had suffered and spent much more than they could possibly recover. Hence, they should recover as much as they could. Germany's war had not discriminated between private and public assets. All Germans had somehow contributed to the war effort, and all were somehow responsible. The moral and legal justification was more difficult. The very existence of Nazi victims showed the absurdity of treating every German as an enemy to be despoiled. Was there, moreover, to be no more distinction between public and private? And what about the neutrals? Had they no legitimate claims against Germany?

Since most German property abroad was corporate, little objective argument could be made about its innocence or guilt. Allies and neutrals presumed it guilty and seized it. But the same reasons that led Allied governments to take it for themselves—they had lots of claims against Germany and these assets would barely scratch the surface—also moved the neutrals to help themselves to the assets of German foreign subsidiaries. As for the Swiss, U.S. economic warriors David L. Gordon and Royden Dangerfield quipped that “by coincidence” they had estimated the value of German assets in their country at just about the 1.2 billion francs that the Reich owed Switzerland to clear the 1940–1943 Swiss advances in the clearing account. Then,
Gordon and Dangerfield reported, when the Allies argued that German assets in Switzerland were worth three times as much as the Swiss had estimated, “the Swiss brought up other claims against Germany to make up a comparable amount.” In the end the matter was settled with less nobility than practicality: The two sides established a joint commission to set the value, and the Swiss contributed to the Allied fund precisely what the United States had, namely 50 percent of German corporate property, and kept the other half.

By the same token, the 1946 American-Swiss bargain over Swiss handling of looted gold from Germany was about money rather than principle. U.S. negotiators did not try to argue that Swiss trade with Germany or conversion of gold from the Reich was wrong under international law. They could hardly do that since they had traded with the enemy in small ways and of course exchanged gold for Swiss francs. But they said that the Swiss would have to redeem themselves for having gotten too close to the enemy, and because an indeterminable percentage of the gold they bought from the Reich was dirty. The Americans' best argument, however, was the more than $3 billion of Swiss assets still frozen in the United States. The Swiss for their part cited both international law and necessity, but they knew they were going to have to pay something to get back their frozen assets. The negotiations were about how big a ransom to pay; there is no other objective validity to the final figure of $58 million (or 250 million francs) that the Swiss government paid to the Allies as part of the 1946 agreement which normalized Switzerland's economic relations with the Allies.

For small German accounts—those worth less than 10,000 francs—the Swiss government tried to maintain the principle of the inviolability of private property, but in the end, under
American pressure, the Swiss compromised and froze the accounts. In 1949, working with the new government of the Federal Republic of Germany, Switzerland unfroze the small accounts but took for itself one-third of the assets therein. It too exacted a ransom commensurate with its power.

In essence, postwar financial settlements followed two principles: possession is anywhere between 50 and 100 percent of the law, and the strong keep what they can while the weak give up what they must.

The United States at first applied these laws strictly. Jewish organizations waged a long, bitter, and small-fruited campaign to get the U.S. government to introduce proper nuance in its treatment of “enemy property.” The easy part of the campaign ended in Public Law 6761 of August 1946, which directed the American custodian of enemy property to restore property seized from Germans (mostly Jews) who could prove that they had been victims of Nazi persecution. To get their property back, applicants (prominent enough and lucky enough to have established title to property in the United States) had to show that they had actually suffered persecution. Of course they also had to be alive, or their heirs had to have lots of proof. Because of rumors that some Jews who had perished in the Holocaust (and who had relatives in the United States) had bank accounts in New York, Jewish organizations urged the U.S. government to prevail on New York State to make and publish a list of such accounts. Had the state done this, claimants of the accounts would have faced formidable hurdles. The first would have been to prove that the account holder was indeed dead. But that would not have been enough, since state law prohibited giving private property to relatives without a will. But the state government refused to make an inventory until 1954. So the Jewish
organizations and the government lobbied the New York legislature to turn the balance over to (who else) these organizations themselves—to no avail. In the end, whatever money might have been in such heirless accounts ended up “escheat-ing” to New York State.

Since this outcome was already clear in 1949, the Jewish organizations began lobbying Congress and the administration to turn over to them an amount presumed equivalent to any “heirless assets.” Senate Bill 603, supported by the Truman administration, proposed to do that, and to “set an upper limit of $3 million.”
¹⁹
The committee report on the Senate bill stated the conclusion of “experts” who estimated the value of such accounts in the United States at between $500,000 and $2 million. The report did not specify the data on which the “experts” based this huge spread. How could anyone have defended any estimate, short of conducting an investigation into the personal history of every holder of a dormant bank account? So S-603 died. In subsequent rhetorical campaigns, the Jewish groups seeking U.S. government compensation never offered evidence for the amount of money they were seeking, nor did they explain why they rather than some other persons should get to handle the money. In the 1950s, since the World Jewish Congress's pull with the Eisenhower administration was nil, it got nothing. It was somewhat greater with the Kennedy administration, which decided to distribute $500,000 to Jewish organizations to end the matter.

But it didn't end there. The 1949 report on S-603 contained the following sentence: “It is generally recognized that depositories for the assets of deceased minority victims are in Switzerland and the United States.” The report could not offer evidence about the size of such assets in Switzerland any more
than it could about assets in the United States. Nonetheless, such guesswork has created the widespread impression that Switzerland absorbed massive amounts of Jewish flight capital, that most of the depositors perished, and that the leftovers were enough to constitute Switzerland's wealth—and its shame. Prior to 1995 the impression came from two myths.

The first, purveyed by generations of Swiss bankers and credulous journalists, has it that in 1934 the Swiss government wrote a new banking law—including the famous Clause 47(b) that penalizes any Swiss who reveals information about any Swiss bank account—in order to protect the Swiss banks' numerous German Jewish customers who were threatened by the Nazi death penalty for taking money abroad. The full florid version of this innocent myth is found in
L'Argent Secret et les Banques Suisses
by Jean Marie Laya, former economics news editor of the
Journal de Genève
. It tells of Nazi spies ferreting out Jewish account holders in Swiss banks, of clever bank counterspies, and of the clause as the ultimate weapon against the Nazis.

All nonsense. The first draft of the new banking law was published in February 1933, just a few weeks after Hitler came to power, and had been written before. The death penalty for shipping money out of the Reich came at the end of 1936. Nazi espionage in banks came later yet.
²⁰
Swiss banking secrecy was not meant for Jews, and there is no evidence that it affected Jews especially.

The second myth is pernicious because it follows Nazi (and Communist) propaganda so closely. According to it, the Jews had gathered up a disproportionate amount of old Europe's wealth. As soon as things started getting hot for them, they transferred it to a central location, Switzerland, from which they
hoped economically to recolonize their old areas once the danger was past. So, the story goes, the people who died in places like Auschwitz more likely than not had Swiss bank accounts and insurance policies.