Benevolent dictator? John McCloy

The American who let the Nazis rebuild Germany

John McCloy freed Hitler’s favourite industrialists. Their firms still dominate the country’s economy

This article is taken from the November 2021 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issue for just £10.

Tucked away on the website of the United States embassy to Germany is a lengthy hagiography of a man who nowadays is largely forgotten, but should not be. “John J. McCloy and the ‘Splendid Reconciliation’” by the late Garrick Utley recounts McCloy’s life and some of his achievements. McCloy, an American lawyer, served as the highest-ranking U.S. official in West Germany from to 1949 to 1952 — king in all but name. As McCloy noted, “I had the powers of a dictator as High Commissioner of Allied Forces in West Germany, but I think I was a benevolent dictator. I think the rebuilding came off very well, with no significant problems. It wasn’t a matter of ordering things done so much as using orderly persuasion with the Germans.” 

That the United States freed vast numbers of high-ranking Nazi officials, scientists and SS officers and then employed them has been well documented by historians such as Tom Bower and Christopher Simpson. The dilemma, known as “hang or hire”, was often resolved by the latter. 

Werner von Braun, the Nazi rocket scientist who sent V-2 missiles crashing into London was relocated to the United States, together with a legion of German scientists and engineers. Reinhard Gehlen served as chief of military intelligence on the eastern front where German troops had carried out unimaginable atrocities. He was appointed the head of West Germany’s new intelligence service.

Post-war Pax Americana demanded the rehabilitation of German industrial giants

Much less well-known is the parallel operation by McCloy and his key allies in United States government, such as intelligence chief Allen Dulles, to free numerous Nazi industrialists and bankers and return them to positions of great economic power and influence — in particular the men who ran I.G. Farben, the most powerful industrial conglomerate in Nazi Germany, a subsidiary of which manufactured Zyklon B, the poison gas used to murder millions. 

That decision by McCloy and his powerful allies in the American political establishment — that the economy of the new West German state should be run in large part by numerous convicted war criminals — shaped West Germany, post-war Europe and our world today.

Helmut Schmidt, the former Chancellor of West Germany, described McCloy as “the architect of Germany’s rehabilitation from an occupied country to an independent state”. Henry Kissinger said of McCloy that he “never served in the Cabinet of any president, and after 1952, never occupied a full-time position. Yet few Americans have had a greater impact on their time.”

Self made man

So who was John McCloy and how did he amass such power? Unlike many of his peers on Wall Street or in Washington, McCloy was not a scion of the American elite. He was a self-made man, which shaped his brusque, get-the-job done approach. Born in Philadelphia in 1895, his father worked for an insurance company, and his mother was a hairdresser. He supported himself through Amherst College by working as a dishwasher, then studied at Harvard Law School. In 1917 he joined the U.S. army and served in France, then returned to Harvard to finish his law studies. He then joined Cravath, an influential New York law firm. 

In 1930 McCloy was sent to Paris to run Cravath’s office in the French capital. There he became friends with an American lawyer called Allen Dulles, of Sullivan & Cromwell, another immensely powerful law firm. Sullivan & Cromwell represented I.G. Farben’s American subsidiary, General Aniline & Film. Cravath had also taken a case for G.A.F. Both McCloy and Dulles, notes Kai Bird, author of The Chairman, a biography of McCloy, “travelled frequently to Germany on business”.

By the late 1930s, McCloy was well regarded enough to join the most exclusive Wall Street lawyers’ lunch club, known as Nisi Prius, Latin for “unless, before”, a legal term. “It was the elite of the bar then … It was quite an honour in those days,” McCloy later recalled. Around the same time, he was invited to join a second elite establishment, one where the grandees of politics and foreign policy such as Allen Dulles met — The Council on Foreign Relations. The aim of the organisation, notes Bird, was “war-planning and planning for a post-war Pax Americana”. A Pax Americana which demanded the rehabilitation of German industrial giants such as I.G. Farben.

I first learnt about John McCloy while researching my book Tower of Basel, the first investigative history of the Bank for International Settlements (BIS). The BIS was founded in Basel in 1930 to channel German reparations for the First World War. Payments were cancelled two years later, but the bank repurposed itself as a bank for central banks and a secure, secretive meeting place for central bankers to discuss monetary and economic policy. As a bank founded by an international treaty, the BIS retains extraordinary levels of immunity — Swiss officials have no jurisdiction over its proceedings or affairs. Such meetings continue to this day. 

During the war, the BIS was one of the main back channels between the Nazis and the Allies. Intelligence was exchanged, post-war plans for Europe discussed by its officials. BIS directors included Hermann Schmitz, Kurt von Schröder, Walther Funk and Emil Puhl. Hermann Schmitz was the CEO of I.G. Farben. Kurt von Schröder was a high-ranking Nazi banker who had acted as an intermediary between Nazi industrialists and Hitler. Funk and Puhl were the president and vice-president of the Reichsbank. Schmitz, Funk and Puhl were all convicted of war crimes at Nuremberg. 

Hotline to Berlin

Like McCloy, the BIS’s American president, Thomas McKittrick, was friends with Allen Dulles. During the war, Dulles was the Bern station chief of the Office of Strategic Services, the forerunner of the CIA, which he later headed. The BIS was a central pillar of the lines of communication between the Allies and the Axis, wrote Heinz Pol, a well-informed German émigré. 

A former editor of a Berlin newspaper, Pol had fled to the United States, where he wrote The Hidden Enemy, published in 1943. Hermann Schmitz and Kurt von Schröder kept lines of communication open to the Allies, wrote Pol. “Since the beginning of this war, both have maintained contacts, through go-betweens, with their business friends in all the countries of the United Nations.” 

McCloy also freed Nazi judges, SS officers and a Nazi doctor who had conducted experiments on camp inmates

Declassified US intelligence documents show that a channel did exist from Berlin to Basel and on to Washington DC. McKittrick was an important asset for Dulles, known as OSS source 644. OSS telegrams record that, towards the end of the war, Emil Puhl, the Reichsbank vice-president and BIS board member, had lengthy conversations with McKittrick, the contents of which were swiftly passed on to the Bern OSS station. 

In 1941 McCloy was appointed Assistant Secretary for War under President Roosevelt. McCloy helped get the Lend-Lease Act, which provided vital war-time aid to Britain, through Congress. But his ruthless pragmatism had a much darker side. He was instrumental in the internment of around 120,000 American citizens and residents of Japanese ancestry. 

McCloy also blocked attempts by Jewish organisations to have the U.S. Air Force bomb Auschwitz. McCloy did not have the final word on targeting, but his was an influential voice. By the summer of 1944 it was widely known in western capitals that Auschwitz was a death factory. Allied bombers regularly overflew the camp and occasionally bombed the neighbouring I.G. Farben factory complex. 

McCloy argued that such an operation would divert crucial military resources and would be of “very doubtful efficacy”. McCloy also claimed that such an operation would “provoke even more vindictive action by the Germans”, although it is hard to imagine what that might have been.

War crimes

Many German firms and industrial combines used slave and forced labour during the war. I.G. Farben had its own corporate concentration camp at Auschwitz, known as Monowitz. There the firm’s managers honed the new synthesis of capitalism and mass murder to a new level. When managers judged the slave labourers to be gebraucht, or used up, they were sent to the main Auschwitz camp, to be gassed with Zyklon B. Thus, Nazi economies of scale. 

In 1947, twenty-four I.G Farben executives were put on trial. President Roosevelt had once declared, “the history of the use of the I.G. Farben trust by the Nazis reads like a detective story. Defeat of the Nazi armies will have to be followed by the eradication of those weapons of economic warfare.” It was not to be. Thirteen I.G Farben executives were found guilty. Their sentences were derisory. Hermann Schmitz, the CEO and BIS director, was sentenced to four years. Otto Ambros, a senior manager of Auschwitz III, received eight years. Fritz ter Meer, who oversaw the building of Auschwitz III, received seven years for “plunder and spoliation” and “mass murder and enslavement”. Meanwhile, McCloy was appointed president of the World Bank.

After the founding of the German Federal Republic in 1949 President Truman sent McCloy to Germany to succeed General Lucius Clay as Military Governor. The following year McCloy was appointed U.S. High Commissioner. He set up his main office in Frankfurt, aptly enough, in the former headquarters of I.G. Farben. Instead of eradicating what Roosevelt had described as “weapons of economic warfare”, he rehabilitated them and released the I.G. Farben managers from prison.

McCloy freed Hermann Schmitz in 1950. By February 1951 all the I.G Farben executives were released, together with the steel baron, Alfried Krupp, who also had his confiscated property restored. The Krupp industrial empire had worked up to 80,000 slave labourers to death in a network of dozens of camps guarded by the SS. McCloy also freed Nazi judges, SS officers and a Nazi doctor who had conducted experiments on camp inmates. 

McCloy could have refused to grant clemency. He had, as he admitted, near unlimited power

Of the 104 defendants convicted at Nuremberg, 74 had their sentences reduced and ten death sentences were commuted. Heinz Hermann Schubert, who had personally supervised a mass execution of 700 people at Simferopol had his death sentence commuted and was sentenced to ten years in prison. 

Only a handful of senior SS officers, including General Otto Ohlendorf, former commander of Einsatzgruppe D, were eventually executed. The decisions provoked both fury and incredulity among Allied countries. Even Eleanor Roosevelt wrote to McCloy, asking “Why are we freeing so many Nazis?” 

Why indeed? Benjamin Ferencz, one of the prosecutors at Nuremberg, recalled that McCloy was in a “generous and kindly” frame of mind and “anxious to make a gesture towards the Germans”, notes Kai Bird. Beyond that, multiple factors were in play.

Intertwined interests

The arc of money and influence that connected pre-war Wall Street and the American establishment to Germany had not only survived but was once again flourishing. Powerful figures such as McCloy and the Dulles brothers, Allen and John Foster, had been deeply entwined with German interests in the 1930s. They knew many of the key players in post-war Germany. In a less accountable age, when political and economic elites could act more freely to pursue their interests, these personal connections were crucial in rebuilding the old economic order in Germany.

At the same time McCloy was under intense pressure from influential German figures to show clemency to Nazi war criminals. He and his family even received death threats as part of what he described as, “a well organised conspiracy to intimidate me”. Much of the post-war German state was either complicit in the Holocaust or in denial over the extent of Nazi war crimes, and many everyday people didn’t care. They simply wanted to move on.

But McCloy could have refused to grant clemency. He had, as he admitted, near unlimited power. In later years McCloy was influential in securing meagre compensation from Krupp for former slave labourers, for which he was given an award by American Jewish organisations.

The Cold War, more precisely the North Korean attack on the south of the country in June 1950, also helped save the Nazi industrialists. Support for Konrad Adenauer, the pro-west Federal Chancellor, was sliding while voters moved towards the left-wing Social Democrats. The west needed to stand firm against the Communist advance and to do that it needed both steel and industry. Germany was to be rebuilt as the continent’s industrial powerhouse, a bulwark against the Soviet bloc, which it bordered. 

Yet the ease with which the Nazi-era industrialists and financiers were not only pardoned, but swiftly welcomed back by the German business establishment still has the power to shock. Hermann Schmitz joined the supervisory board of Deutsche Bank. Otto Ambrus joined numerous company boards and set up as an economic consultant. His clients included Konrad Adenauer. Fritz ter Meer re-joined Bayer. In 1964, on ter Meer’s eightieth birthday, Bayer set up a foundation to honour him with a donation of two million deutschmarks, to support especially able chemistry students. 

“Whitelists” of Nazis 

McCloy was not alone in working to free high-ranking Nazi industrialists or to ensure other guilty parties remained at liberty. His decisions were part of a profoundly cynical, but well thought out policy. Allen Dulles was also hard at work to keep high-ranking Nazi bankers from prison and ease their passage back to running the post-war German economy. The clearest exemplar of this policy was a German banker called Karl Blessing. Once again, the lines of economic continuity between pre- and post-war Germany ran through the Bank for International Settlements.

Nazi oil tsar: Karl Blessing in 1957

A rising star in the world of German banking, Blessing had worked at the Reichsbank and then at the BIS during the early 1930s. Blessing returned to the Reichsbank in 1934 where he was appointed its youngest director. He joined the Nazi party and after the 1938 Anschluss he was given the job of absorbing the Austrian National Bank. Blessing moved in the highest circles of the Third Reich. 

As the American historian Christopher Simpson notes in The Splendid Blond Beast, a ground-breaking study of the links between big business and genocide, Blessing attended 30 out of 38 meetings of the Himmlerkreis, the secret group of financiers and industrialists who bankrolled his private projects. He went on two group trips to visit concentration camps, guided by Himmler himself. 

During the war Blessing joined the board of Kontinentale-Öl, a monopoly created by I.G Farben and private oil companies to seize control of petroleum firms in the newly conquered territories, and served as a member of its senior management team. His fellow board members included Walther Funk, the Reichsbank president and BIS director, and Heinrich Butefisch, a senior executive at I.G. Farben. Like I.G. Farben, Kontinentale-Öl was built on slavery, plunder and murder. It ran a network of concentration camps in Poland where the workers were “leased” from the SS until they died of starvation or overwork. 

Blessing was a classic example of the intelligent, amoral Nazi technocrat that smoothly transitioned to the new West Germany. At best he was complicit in the genocide, at worst he was what Simon Weisenthal called a “desk-murderer”, a loyal follower always eager to do his duty, no matter what the cost in human lives.

The household names that were the economic titans of the Third Reich still dominate the German economy

After the war Blessing was arrested while the Allied authorities considered charging him with war crimes, as he deserved. But Allen Dulles also had Blessing in his sights. In the summer of 1945 the US occupation authorities asked Dulles to provide whitelists of suitable candidates for posts in the new German administration. Dulles provided an A list and a B list. The A list included Ernst Hulse, the former head of the BIS banking department. Blessing’s was the first name on the B list. Dulles termed him “a prominent businessman and financial expert with considerable experience in international trade”, which was one way of describing him. McCloy also wrote a letter of support for Blessing.

With Dulles’s support, Blessing was freed to return to his former employers Unilever. In 1958, Blessing was appointed president of the Bundesbank, successor to the Reichsbank. Blessing served as president until 1969, regularly attending the central bankers’ meetings at the BIS. After 1945 Blessing reinvented his wartime past as a “lowly functionary” in a government ministry, a myth swallowed by a credulous press. He died in 1971, garlanded with praise from his fellow bankers and the German establishment, his wartime role at Kontinentale-Öl forgotten or glossed over.

One of the “Wise Men”

Nor did the United States have a monopoly on ensuring Nazi financiers escaped justice. Hermann Abs, head of Deutsche Bank’s international department, was instrumental in the absorption of foreign banks as the Third Reich occupied new territories. Abs, who sat on the board of I.G. Farben, was central to the policy of plunder and Aryanisation and was a key player in the construction of the Nazi economic empire. 

Abs was on a blacklist to be arrested, but he lived in the British zone, where he met an old banking contact from the pre-war days. He spent three months in prison, before being released without charge. Abs went on to become the pre-eminent commercial banker in post-war Germany and served on the board of numerous German companies. He died in 1994, like Karl Blessing, wreathed with misty hagiographies.

As for McCloy, he remained at the heart of the American business and political establishment. His work in Germany completed, he was appointed Chairman of Chase Manhattan Bank and later as Chairman of the Ford Foundation, before being appointed President Kennedy’s chief disarmament negotiator. 

He became known as one of the six “Wise Men”, the veteran advisers who shaped American foreign policy during the Cold War, together with Dean Acheson, Secretary of State under President Truman and George F. Kennan, the U.S. diplomat and architect of the policy of “containment” of the Soviet Union. 

McCloy advised every post-war American president from Truman to Ronald Reagan. He died in 1989 at the age of 93, hailed as a worthy scion of the American establishment.

Still revered

Nowadays, the Germany McCloy helped rebuild is a democracy, with the fourth largest economy in the world. The Holocaust is seared into the national consciousness. Locked into NATO and the European Union, Germany’s military is now criticised for being too pacifistic. 

Follow the money though, and the lines of economic and financial power run back through the decades through the West German state, the Third Reich and the Weimar Republic. The same corporations, the steel and car manufacturers, the appliance and chemical makers, the household names that were the economic titans of the Third Reich still dominate the German economy. McCloy’s legacy endures, as he intended. 

McCloy was under great pressure from influential Germans to show mercy to Nazi war criminals

This too was forecast by Heinz Pol, the émigré German newspaperman. Pol predicted the future remodelling of the Nazi industrialists: “To obtain a peace, which would leave them in power, they will suddenly flaunt ‘European spirit’ and offer worldwide ‘co-operation’. They will chatter about liberty, equality and fraternity. They will, all of a sudden, make up to the Jews. They will swear to live up to the demands of the Atlantic Charter and any other charter. They will share power with everybody and they will even let others rule for a while.” 

After the war, I.G. Farben was broken up into its successor companies including BASF and Bayer. A shell company survived to deal with legal legacy issues. BASF is now the world’s largest chemical producer. Bayer employs around 100,000 people worldwide. Bayer’s Fritz ter Meer Foundation was renamed in 2005, before finally being closed down in 2007. 

The United States establishment still reveres the man who released Fritz ter Meer, and so many other Nazi war criminals from prison. Each year the American Council on Germany awards a $5,000 stipend to the winner of the John McCloy Fellowship on Global Trends. Winners have to produce an article, website or video. Perhaps one could produce a report on how McCloy did indeed set a trend, one now all too widespread, for powerful politicians to set free war criminals and mass murderers, that the world may be profitably remodelled to their advantage.

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