Krueger's Men (3 page)
A criminal subculture of counterfeiting coalesced early in the twentieth century as gold coins began giving way to printed banknotes. Between the wars, counterfeit currency circulated in the streets, shops, and back rooms of Europe. Some of the most notorious counterfeiters were failed artists like Hitler himself.
But in some countries, false bills were far less a danger than the threat posed by real ones. Every German had suffered the damage done by printing presses’ spewing out billions of banknotes on the orders of the democratic Weimar Republic. Determining the first cause of that historic hyperinflation of 1923 is more than a theoretical debate of interest only to economists and their allied ideologues. Was it a deliberate move to cheapen Germany’s currency in order to promote the exports that would pay Germany’s punitive war debts? Was it designed to save workers’ jobs? Or to enrich the great corporations and property owners by liquidating their debts? Perhaps all of these. Currencies had also collapsed in the new states of Austria, Hungary, and Poland following the demise of the Austro-Hungarian Empire in World War I. During the ensuing panic, stable currency — even when it was false — was in frantic demand. In port cities, sailors coming off ships were mobbed with offers to buy their foreign currency. With each passing minute the local scrip was worth dramatically more or less, depending on violent monetary fluctuations that undermined society and trust in authority.
In the interwar years, money therefore was rarely valued as a dependable standard of wealth as it had been throughout the rise of the bourgeoisie during the hundred-year peace that was shattered in 1914. Thereafter, no country stepped forward to serve as what economists call a hegemon, a conductor of the international orchestra, providing financial and physical security. Britain had filled that role during the Victorian age with its pound sterling and the Royal Navy, as America later would during the Cold War with the almighty dollar and the atomic bomb. But between the wars, money became a weapon. Trade could be manipulated by raising tariffs and devaluing currency to favor local products, thus seizing jobs and profits from other nations. Everybody accused everybody else, usually justifiably, of policies known as “beggar thy neighbor.”
The Germans were only the first to flout the old rules with a competitive devaluation that would have been impossible under the prewar gold standard. They were followed by the French, who allowed their currency to cheapen against the dollar in the 1920s (incidentally attracting Jazz Age spenders to France and gold into French mattresses). America and Britain also engaged in a battle of wits, each trying to cheapen or strengthen its currency against the other’s. The odds were stacked in favor of America, which sat on a hoard of gold earned by the wartime sale of raw materials and arms to Europe, who had borrowed from Wall Street to pay for the war.
Nevertheless, the British sought a richer pound as the lifeblood of their empire. In 1925 they went back on the gold standard, restoring the dollar value of the pound to $4.86 in order to maintain London as a financial center with a trusted currency that, in theory at least, could be exchanged for gold. As a result, British workers suffered while their counterparts in France and America thrived. In 1931, at the start of the Great Depression, the pound was finally knocked off gold and sank to $4.05. Even at that rate, British goods were too expensive. And a strong pound, easily exchanged with other currencies, made it the obvious target for counterfeiters. Why bother to print fake marks, francs, or even dollars when their value was so uncertain? British schoolboys, twisting the familiar mnemonic of volume and weight, chanted the almost mythological rhyme, “The pound’s a pound, the world around.” And for the wicked, the pound’s stability was a magnet.
Hitler’s Germany, short of gold and foreign currency even before he took power in 1933, shrewdly managed trade under a financial genius with the curious name of Hjalmar Horace Greeley Schacht. (He dropped his two American names; perhaps his parents had been influenced by Goethe’s prophetic remark,
“Amerika, du hast es besser.”
) Schacht’s was no free-market solution. Between 1934 and 1938, Germany had concluded two-way treaties with twenty-seven countries, tying up its traditional trading partners in the Balkans, southeastern Europe, and Latin America. They essentially bartered their raw materials for whatever industrial goods Germany wanted to send them. With all foreign trade controlled by the Reich and Germany’s currency kept at an artificially strong 40 U.S. cents to the mark by controls on all foreign transactions, Germany was able to pay less for imported raw materials to rearm. In exchange, it sent back goods like Agfa film and Bayer aspirin, which were hardly essential for Hitler’s nascent Panzer divisions. Profits built up in the Reichsbank and were loaned to German companies, prices and wages were controlled, and full employment returned by 1937. Once the high-collared, schoolmasterish Schacht had done his job, he was dismissed in favor of the more tractable Funk.
Hitler soon realized that the construction of autobahns and financial subsidies for industry were not enough to keep Germans at work. The Moloch of modern war has an insatiable appetite for raw materials. Although German industry was the world’s most technically advanced, its capacity was smaller than that of Britain’s vast empire, which delivered cheap food and captive markets. On November 5, 1937, Hitler called his military chiefs into secret conclave and told them they were to be the instrument for expanding Germany’s
Lebensraum.
There were too many Germans on too little land to feed themselves, and Germany, a workshop of Europe with few natural resources, could not live on international trade during a global depression. Its choice lay between participating in the liberal capitalist system (and that had failed), or conquering other countries to supply food, raw materials, and gold. Hitler had already thumbed his nose at the victors of World War I by marching into the occupied Rhineland in 1936. Next he bullied the British and French into selling out Czechoslovakia to him in 1938 for the false promise of peace, and in the same year sent his elite troops into Vienna for millions of Austrians to cheer their own conquest as a liberation. These sudden strikes took place on weekends so Hitler would catch Britain’s languorous, appeasing leadership napping at house parties on their country estates.
When Britain and France actually declared war in September 1939 to support Poland’s independence, a surprised Hitler is said to have exclaimed to his inner circle, “What now?” But using his pioneering tactic of the
blitzkrieg
— literally, lightning war — the Germans captured rich Polish farmland quickly, then invaded Norway to ensure passage of Swedish iron ore through the northern port of Narvik. Outflanked and overrun, Denmark gave Hitler control of the Baltic Sea. By the same swift maneuvers he would seize the colonial and trading riches of the Low Countries. Then the corrupt Third French Republic fell into his hands like an overripe fruit, after which he assumed London would sue for peace and leave the Continent to him. Riding high on these conquests, Hitler and his followers did not foresee five and a half years of total war. Quite the contrary. German military strategy depended on subduing an isolated and starving Britain into a vassal of the Thousand-Year Reich, ideally by negotiation with those who had at first tried to appease Hitler, but by force if necessary. But the British refused to cooperate. So on another summer Sunday, in June 1941, Hitler finally overreached and attacked his unprepared ally, the Soviet Union.
The Allies reckoned Hitler would run out of credit to carry on his lightning attacks and they would stall into another round of trench warfare on the Western front. This was a wild miscalculation. Most of Germany’s war-making power was squeezed from its conquered territories: Belgium, Holland, and France sent millions in daily “occupation costs.” Approximately $3 billion more came from German Jews, bled of their riches as they fled or were chased from Nazi Germany during the 1930s. Unlike many Jews in the United States and Britain, who became rich in finance, Jews in Germany were prominent industrialists. Jewish scientists had been in the forefront of Germany’s belated industrialization. Emil Rathenau, for example, founded AEG, the giant utility company that brought electricity to Berlin, in 1887. (His son Walther organized and ran Germany’s foreign purchases of raw materials during World War I, served as a liberal foreign minister in the Weimar Republic, and was assassinated in 1922 by nationalist fanatics.) Perhaps another $6 billion was squeezed or stolen from Jews in conquered nations. Billions more, of course, would be wrung from slave labor and outright looting of wealth, especially the gold reserves in the central banks of conquered nations. Counterfeit currency would be just one more financial tactic.
For the Nazis, it was totally in character to try to undermine British finance even as they had hoped to persuade London to join in some kind of political partnership (in practice, it would have been that of a British horse with a German rider). Hitler had believed London would be open to a deal. Hadn’t many highborn Tories been hoping he would turn east against the Bolsheviks, knock them out, and then, as Hitler himself hoped, arrange for the two major Aryan powers of Europe to dominate its lesser races? To him the British had seemed logical allies, and until 1937, Hitler even prohibited German espionage to operate inside Britain.
Like many Englishmen, and even influential Americans right up to Joseph P. Kennedy, the U.S. ambassador in London and father of a future president, the Germans could not imagine the historic resistance that would be inspired by Winston Churchill when he became prime minister. Like any Englishman of his class, he fully understood the political significance of the pound. Serving as chancellor of the exchequer in 1926, Churchill had been willing to provoke a general strike to restore its value and argued publicly for a strong pound “which everyone knows and can trust.” Undermining the pound was therefore a serious stratagem to the Nazi officials meeting at the Finance Ministry that 18th day of September in 1939. They had already taken on so much, with such incredible success, and now they decided they might deliver the final blow.
O
PERATION
A
NDREAS
R
einhard Heydrich had always been fascinated by counterfeiting schemes. His first and most important encounter involved the Soviet purges of 1937. The year before, Heydrich had heard through an emigré that Marshal Mikhail Tukhachevsky, a Bolshevik hero of the Russian civil war, was plotting against Stalin. Heydrich immediately decided to feed forged documents to Moscow that might help Stalin destroy the military leadership of the Reich’s Soviet enemies. In April 1937, Heydrich gave orders to his forgery factory in Berlin to produce documents that would incriminate Stalin’s generals. They were printed within four days with the aid of real Soviet army documents in RSHA files, documents dating from Weimar days, when the Germans had rearmed clandestinely with the help of the Bolsheviks. Supposedly attracted by the bait of these forged documents, the Russians paid Heydrich’s men 3 million rubles. But the Soviet currency was marked money, and when it was cycled through German spies in the Soviet Union, they were quickly arrested. Marked money with a face value in the millions had to be destroyed personally by Walter Schellenberg, who would later become Heydrich’s foreign intelligence chief.
In fact, Heydrich should have smelled a rat from the start. Stalin himself had already signaled Tukhachevsky’s liquidation two months earlier in a speech that foreshadowed the Great Purge of the Bolshevik old guard. The Nazis had ignored all that, even after the fact. Heydrich nevertheless believed it was his forgeries and not Stalin’s paranoia that had been instrumental in destroying the Red Army’s leadership — as did his colleagues in Nazi espionage who wrote their memoirs, and even Churchill on the other side. So Heydrich, acting on the false lessons of the affair, pressed ahead with the scheme to counterfeit sterling.
Heydrich was the son of a provincial opera singer, and his enemies continually spread false rumors that he had a Jewish grandmother. His barbarity against the Jews may have been one way to demonstrate his racial purity. More likely he was simply a brutal technologist for whom human life was of no importance when ranged against the imperatives of the state. In that sense he was a principal pivot and puppet master of the Nazi regime, supplying his boss Himmler with ideas for its most heinous crimes and then managing them pitilessly. Such was the considered view of Schellenberg, who described his first, unsettling impression of Heydrich as “a tall, impressive figure with a broad, unusually high forehead, small restless eyes as crafty as an animal’s and of uncanny power, a long, predatory nose, and a wide full-lipped mouth. His hands were slender and rather too long — they made one think of the legs of a spider.” Heydrich had entered the Navy after World War I and rose as a communications specialist to the rank of lieutenant, only to be cashiered in 1931. Investigated by a naval court of honor about a pregnant former girlfriend, he accused her of lying about their affair. The court, insulted by his arrogance, convicted him of insubordination rather than the lesser offense of simple fornication. Heydrich was thrown onto the heap of unemployed millions in the depths of the Depression, his military background and his desperation making him a natural candidate for the SS. There his communications experience led him to code work and intelligence.
The SS was not drawn from graduates of the top class of Germany’s fine technical universities but was composed largely of dropouts, brawlers, and opportunist academics with odd ideas that suited the times. Using scraps of philosophy and fake science, these professors helped cook up a dog’s dinner of political thought that Hitler and his cronies hoped would make them
salonfähig,
a word normally used by those acceptable in the salons of polite German society to describe those they would exclude.
Until the rise of Hitler, Berlin had been the most modern city in Europe. Half a century before, Mark Twain compared it to Chicago for its energy and invention, and the newly unified German nation had hustled itself into the modern world, applying discoveries in electricity and chemistry that became known as the second industrial revolution. (The British powered the first with steam.) Germany led the world in preventing disease through public health. With its theories of the physical universe, Germany produced a scientific culture that built precision machinery we now would call high technology. A few hundred yards from Wilhelmstrasse, Europe’s first traffic light was erected at busy Potsdamer Platz.
But Hitler ignored, perverted, and even rejected the war’s genuine scientific opportunities. The jet engine, at first dismissed as unnecessary for long-range bombers, would be approved by Hitler too late to give his Messerschmitt 262 fighters a chance to reconquer the skies from the Allies. Rockets were envisioned only as last-chance weapons of vengeance, again too late to do much good beyond spreading terror when they exploded at random in London. And fortunately for the future of Western civilization, Hitler also vetoed the development of atomic weapons because he thought his enemies would be thoroughly blitzed by the time he could have his own nuclear bomb, which would be too expensive to build anyway.
Instead, the Nazis were suckers for win-the-war gimmicks of the kind that tend to attract inferior intellects and bullies. For example, the German leadership did not follow, and probably would not even have understood, the intense debate within Britain about how to pay for the war. The great economist John Maynard Keynes’s widely read pamphlet on the subject advocated carefully calculated tax increases, low interest rates, and forced saving to avoid the inflation that had doubled Britain’s prices during World War I. Keynes also opposed rationing as an infringement on the liberty for which the war was being fought. But Hitler was more attracted by the blade of the sword than its handle, even after the postwar inflation that had impoverished the German bourgeoisie. Germany was rationing goods, but the shops offered little except shortages. Because there was no money to tax away, the Nazi solution to paying for the war was to steal it or print it, and they did both.
It was only fitting that an important participant in this fantastic scheme to bring down British finance was the man who fired the first shots of World War II, Alfred Naujocks, an SS major who served as Heydrich’s errand boy as well as the whipping boy for his mistakes. While still an engineering student in the Baltic naval port of Kiel, Naujocks became an energetic Nazi Party brawler; his body carried many scars, and his nose had been smashed out of shape by the Communists. Heydrich had been the boss of the storm troopers in Kiel, so when the ambitious Naujocks arrived in Berlin, he became the point man in what we would now call the dirty tricks department of Heydrich’s security service. That department was as bad as anything the “low, dishonest decade” of the 1930s produced, to apply the famous phrase of the English poet W. H. Auden, who himself frequented the Berlin demimonde in the Weimar years. Naujocks organized the assassination of an anti-Nazi broadcaster in Prague and in October 1939 served as the muscle man in the kidnapping of two British secret service officers at the Dutch border. (He expropriated their luxury sedan, which he loved to drive at high speed.) In the greatest exploit of his career, Naujocks gave Hitler his flimsy excuse to invade Poland, killing concentration camp prisoners dressed in Polish uniforms to make it appear that they had attacked a German radio station near the Polish border. When his life story was later written up, Naujocks blessed the bombastic title,
The Man Who Started the War.
Amoral, thuggish, and partly educated, he was the kind of enterprising hit man who is indispensable to any gangster enterprise, the Nazi Party included. Heydrich and Naujocks were emblematic of a society that had gone off the rails, exalting racism and even death. All members of the SS wore a belt-buckle badge inscribed, “Meine Ehre heisst Treue” — My honor is [my] loyalty. Not even religion or ideology was implied, only loyalty to Hitler and fealty to orders from above.
Heydrich had made Naujocks commander of the security service’s technical section, which also put him nominally in charge of a brothel known as Salon Kitty at Giesebrechtstrasse 11, just off the Kurfürstendamm, then as now Berlin’s fashionable avenue of shops and restaurants. The place was under the daily supervision of Arthur Nebe’s criminal police and catered to diplomats, providing girls who were multilingual employees of the SS. The customers’ conversations were recorded for any useful intelligence, and their passports seized in order to be forged while their pants were, literally, down.
Naujocks’s technical command put him in charge of the Nazis’ first counterfeiting factory. Its headquarters were located at Delbrückstrasse 6A in a leafy residential neighborhood known eponymously as Grünewald, in the Charlottenburg district just west of downtown Berlin and less than a mile from Salon Kitty. Set in a large garden, the grand stone mansion, with rooms lined in wooden wainscot, was a former SS training center that now turned out incriminating documents like the ones in the Tukhachevsky affair — false passports, identity cards, miniature cameras, portable radio transmitters, and much of the other paraphernalia essential to any secret service.
*
Naujocks was not technically qualified to supervise a meticulous operation for the duplication of British currency, although readers of the inspired account of his exploits are led to believe that he devised it and supervised it closely. What he really did was to cut red tape with great speed since his operations were known to have Hitler’s backing.
Arthur Nebe, the police chief who presented the first detailed plan, had ultimately walked out on the operation because Heydrich would not permit him to use the forgers in his confiscated Interpol files. Operational control was given to Dr. Albert Langer, Naujocks’s technical director. Langer, a physicist and mathematician by training, had served in Austria’s code-breaking service between the wars, first for the military, then in the political police. Hitler incorporated Austria into the Reich in 1938, and Langer joined the Nazi Party on May 1 of that year, the very first day he was eligible for membership. Naujocks brought him to Berlin to build a code-breaking machine, or so Langer hoped. Instead, he was put to work the following year building the counterfeiting operation from scratch, probably because he was the type of slightly loopy intellectual favored by the Nazis. Among his papers at his death were not only his account of the counterfeiting operation but a treatise on the role of mental processes in curing cancer and another on the symbolism of Freemasonry. One of his assignments in 1939 was to write an article on English symbolism — from King Arthur’s Round Table to the “Astral-Magic meaning of the Union Jack etc., etc.” Langer, a fragile, thin, bespectacled man who walked with a cane, had only a tenuous grip on reality, but because he was surrounded by so many others with similar obsessions, he fit right in.
Initially “not even a pencil or eraser was available, to say nothing of shops or machines,” Langer wrote in the only official account that survives from anyone who actually worked full-time at Delbrückstrasse. “Naujocks didn’t have the slightest idea about the technical process.” But whenever a machine or material was needed and they could not find or develop it themselves, Naujocks could be depended on to obtain it on their relatively tight budget of 2 million reichsmarks (then officially worth about $800,000, or at least $8 million to $10 million in today’s money).
Langer was supposed to have a scientist’s knowledge of counterfeiting, but the jump from theory to practice was not easy. At first studying secretly at home with the help of his wife, Langer went through the technical literature of engraving, papermaking, and other skills a forger needs. Then he visited factories and workshops for practical knowledge. This preliminary study took him about a fortnight. As a mathematician and code-breaker, he was confident that he already knew enough about arranging serial numbers to make his manufactured bills plausible when presented at banks. But the numbers were the easy part. His team obtained samples of sterling from the police because the Reichsbank had only a few thousand five- and ten-pound notes in its reserves and needed every one of them for foreign purchases of war materiel. Langer and his craftsmen studied the British paper under a microscope and cut out the notes’ unprinted surfaces to mash up the blank segments for analysis. They discovered the paper was made of a combination of linen and ramie, a lustrous fiber spun from a tough Asian nettle. The Germans grew plenty of flax to make linen, and they found the ramie plant growing in Hungary. They used calf’s-foot glue to stiffen the mash so it could be pressed into paper sheets, following as best they could the old-fashioned manufacturing traditions of the British. These traditions argued for handmade paper, an idea that was hotly disputed by the Nazis because it would slow production. Langer at first proposed handmade sheets large enough to print four bills at once; the alternative was rolling out the paper by machine, which would produce more notes, but at greater risk of detection. With time short, Langer adapted a Dutch machine that shot shredded paper through a sieve. It also left a watermark, a feature of every pound note. He knew that the British crinkled the paper next to their ears to test whether notes were genuine. Once he was satisfied that he had manufactured paper of the requisite thickness, transparency, texture, and consistency, he enlisted testers whose hearing had been sharpened by blindness.
Although the bills now had their own certified British accent, the paper still did not look exactly like British stock. Under the ultraviolet light of a quartz lamp, the standard bank test for suspicious currency in those days, the color of the German paper tilted toward the pink side of the spectrum instead of the British original, which lay somewhere between violet and lilac. Langer concluded that the problem was in the water. Most of the paper was produced to his specifications at the government’s Spechthausen factory at Eberswalde, fifty miles from Berlin, and a small amount from the private firm of Hahnemühle, farther west in Dassel, near Hannover. The British paper, Langer knew, had been manufactured since 1725 exclusively at the Portal family factory at Laverstoke in Hampshire.
*
Langer used a chemical cocktail to duplicate the water as best he could, thus adjusting the color of the paper to pass his ultraviolet test.