Chapter XLVII: Part V (3)

“B. We must on every occasion which presents itself appear to be
disposed to negotiate, but arm at the same time for the struggle. The
new phase of the struggle will be particularly serious and there will
be this time two centers of the terror, one along the German frontier
and the other along the Yugoslav frontier.”

The Austrian Legion was kept in readiness in Germany. Although it was taken back some miles further from the Austrian frontier, it remained undissolved in spite of the engagement which had been taken to dissolve it. The Austrian Government received positive information to this effect from time to time which it passed on to me and I had direct information to the same effect from reliable persons coming from Germany to Vienna who actually saw the Legion.

On the surface, however, German activities consisted principally of efforts to win the support of prominent and influential men through insidious efforts of all kinds, including the use of the German Diplomatic Mission in Vienna and its facilities and personnel. Von Papen as German Minister entertained frequently and on a lavish scale. He approached almost every member of the Austrian Cabinet, telling them, as several of them later informed me, that Germany was bound to prevail in the long run and that they should join the winning side if they wished to enjoy positions of power and influence under German control. Of course, openly and outwardly he gave solemn assurance that Germany would respect Austrian independence and that all that she wished to do was to get rid of elements in the Austrian Government like the Chancellor, Schuschnigg and Starhemberg as head of the Heimwehr and others, and replace them by a few “nationally-minded” Austrians, which of course meant Nazis. The whole basic effort of von Papen was to bring about Anschluss.

In early 1935, the Austrian Foreign Minister, Berger-Waldenegg, informed me that in the course of a conversation with von Papen, the latter had remarked “Yes, you have your French and English friends now and you can have your independence a little longer”. The Foreign Minister, of course, told me this remark in German but the foregoing is an accurate translation. The Foreign Minister told me that he had replied to von Papen “I am glad to have from your own lips your own opinion which agrees with what your chief has just said in the Saar and which you have taken such pains to deny.” Von Papen appeared to be terribly upset when he realized just what he had said and tried to cover his statements, but according to Berger-Waldenegg, kept constantly getting into deeper water.

Von Papen undoubtedly achieved some successes, particularly with men like Glaise-Horstenau and others who had long favored the “Grossdeutschtum” idea, but who nevertheless had been greatly disturbed by the fate of the Catholic Church. Without conscience or scruple, von Papen exploited his reputation and that of his wife as ardent and devout Catholics to overcome the fears of these Austrians in this respect.

Developments in the fall of 1935 and the spring of 1936 gave Germany an opportunity to take more positive steps in the direction of the Nazification of Austria. Italy, which had given Austria assurance of support of the most definite character against external German aggression, and on one occasion by mobilizing her forces, had undoubtedly stopped German aggressive action which had been planned against Austria, embarked on her Abyssinian adventure. This and the reoccupation of the Rhineland in 1936 completely upset the balance in Europe. The French and the British Minister informed me that as early as August 1935, they had informed their Governments, on the basis of conversations with the Austrian Foreign Minister, that if there was to be any Danubian Pact, it would have to come into being rapidly for the Austrian Government would be forced to negotiate with Germany even though it would have no confidence that any such agreement arrived at would be respected.

The result of all these forces was the Austro-German accord of July 11, 1936, the public text is as follows:

“Convinced that they are thereby rendering a valuable contribution
toward the peaceful development of Europe, and believing that they
are thereby doing the best service to the various common interests
of the two German States, the Government of the German Reich and the
Government of the Austrian Federal State have decided to restore
normal and friendly mutual relations.

“It is therefore declared:

“1. In the sense of the statement made by the Fuehrer and Reich
Chancellor on May 21, 1935 the German Government recognizes the full
sovereignty of the Federal State of Austria.[2]

FOOTNOTES:

[2] On May 1935, in a speech in the Reichstag, Hitler had stated
with respect to Austria (I quote from _Documents on International
Affairs_, Vol. I, 1935, published by the _Royal Institute of National
Affairs_, (London, 1936) p. 171):

“Germany neither intends nor wishes to interfere in the internal
affairs of Austria, to annex Austria, or to conclude an
”_Anschluss_“. The German people and the German Government have,
however, the very comprehensible desire, arising out of a simple
feeling of solidarity due to a common national descent--namely,
that the right to self-determination should be guaranteed, not only
for foreign nations but to the German people everywhere. I myself
believe that no regime which does not rest on public consent and is
not supported by the people can continue permanently.”

“2. Each of these two Governments shall regard the internal political
conditions of the other country, including the question of Austrian
National-Socialism, as a domestic concern of that country, upon which
it will exert neither direct nor indirect influence.

“3. The Austrian Federal State Government’s general policy and its
policy toward Germany in particular shall be constantly guided by the
Principle that Austria recognizes herself to be a German State. The
Rome Protocol of 1934, together with its additional clauses of 1936,
and the relations of Austria to Italy and Hungary, as partners in the
said protocols are not hereby affected.

“Recognizing that the relaxation of tension desired by both parties
can be brought about only if in addition certain preliminary
conditions are established by the Governments of both countries,
the Reich Government and the Austrian Federal Government shall in
a series of detailed measures create these required preliminary
conditions.”

Even more important than the terms of the agreement published in the official communique, was the contemporaneous informal understanding, the most important provisions of which were, that Austria would (1) appoint a number of individuals enjoying the Chancellor’s confidence but friendly to Germany to positions in the Cabinet; (2) would devise means to give the “national opposition” a role in the political life of Austria and within the framework of the Patriotic Front, and (3) would amnesty all Nazis save those convicted of the most serious offenses. This amnesty was duly announced by the Austrian Government and thousands of Nazis were released, and the first penetration of the _Deutsche Nationaler_ into the Austrian Government was accomplished by the appointment of Dr. Guido Schmidt as Secretary of State for Foreign Affairs, and of Dr. Edmund Glaise-Horstenau as Minister without portfolio.

The significance of these arrangements can best be explained by quoting from an official dispatch which I wrote in October 1934 when concern was being expressed with regard to conversations which Chancellor Schuschnigg was reported as having with the “moderate Nazis”, Reinthaller and Riehl. I then reported as follows:

“It is obvious, however, that in view of certain well known facts,
these conversations will be followed with interest. A major
consideration which will not be disregarded is the fact that
Chancellor Hitler himself has always been in favor of indirect rather
than direct action in bringing Austria into the German picture. It
is his belief that the way to be followed is to get representatives
of the National Socialist Party into the penetration. It is an
indication of political astuteness, for it is quite certain, in the
opinion of many objective observers, that if once a militant, even
though small, National Socialist minority gets representation in the
Cabinet, it will be the forerunner of absorption. To explain why
this is so is rather difficult, as it requires a full appreciation
of many factors at play in Germany and in Austria. Briefly, however,
it may be epitomized in the terroristic policy which is one of the
primary principles of National Socialism. Even before July 25,
when the National Socialist Party was legally prohibited, it was
very difficult to get proper police and judicial action against
National Socialists who committed terroristic acts or who were
plotting against the Government. This inaction came, not through
sympathy with the movement or through lack of definite knowledge
of overt acts, but through fear--through fear of reprisals when
a National Socialist regime might come, and that if it did come,
those who had proceeded, even though in the line of duty, against
National Socialists, would be dealt with with the barbarity and
intolerance with which National Socialism has treated its opponents
in Germany. The determined attitude of the Government after July
25, strengthened the administration of justice and of the security
forces, and this changed attitude came about as a result not only
of the feeling within the country that National Socialism would not
come now, but also as a result of the action of the powers in support
of the independence of Austria. Should the conversations which the
Government is having with the National Socialist groups reawaken
this fear, or should there be any weakening of the attitude of the
Government towards National Socialist be admitted even to indirect
or subordinate participation in the Government, it would undoubtedly
bring back this fear in an even more acute form and bring into what
element of weakness.

“The fact that these conversations are taking place need, therefore,
not be considered as being intrinsically a disturbing factor in the
internal and external situation of Austria, but should these National
Socialist elements in the Government, there is reason for the gravest
concern, not only so far as the internal situation in Austria is
concerned, but this might become the focal point of disturbance
without the country * * *”

The sequel of the agreement was the only one which could have been expected in view of all the facts and previous recorded happenings. Active Nazi operations in Austria were resumed under the leadership of a certain Captain Leopold, who it was known definitely was in frequent touch with Hitler. The Nazi program was now to form an organization through which the Nazi could carry on their operations openly and with legal sanction in Austria. There were formed in Austria several organizations which had a legal basis but which were simply a device by which the Nazis in Austria could organize, and later seek inclusion as a unit in the Patriotic Front. The most important of these was the _Ostmarkischer Verein_, the sponsor of which was the Minister of the Interior Glaise-Horstenau. Through the influence of Glaise-Horstenau and the pro-Nazi Neustadter-Sturmer, this organization was declared legal by the Courts. I made specific mention of the foregoing because it shows the degree to which the situation in Austria had disintegrated as a result of the underground and open Nazi activities directed from Germany.

Even more open recognition of the Nazis was demanded. In January 1937, Captain Leopold submitted a memorandum of Nazi demands, which, though not formally received, were known to and considered by the Austrian Cabinet.

The Leopold memorandum is as follows:

For the Internal Pacification of Austria.

* * * * * * *

[In Mr. Messersmith’s affidavit there appears at this point the body of Captain Leopold’s lengthy memorandum. It includes Captain Leopold’s statement of the existing situation in Austria. It includes the following demands: (1) An amnesty for all punishments or privations suffered for National Socialist or National activity or sympathy; (2) equal treatment for National Socialists, including freedom of political activity and cultural activity; abolition of laws and sanctions used by the Government against Nazi activity. The memorandum advocates cooperation on the basis of political principles including: A broadening of the Patriotic Front; changes in the Cabinet; an alliance with the Reich; common racial stock as a political aim, and the application of anti-Semitic measures; an early plebiscite on Anschluss.]

Later, a petition circulated by Leopold was submitted to the Austrian Government, demanding authorization to form a “nationalistic party”, which was to be incorporated as a group in the Political Front. It was a Party which its sponsorship plainly marked as openly Nazi. Pressure for the acceptance of these demands was exercised by staging frequent demonstrations and circulating propaganda, all of which was financed in and from Germany. Even as soon after July 11 as July 29, 1936, when the Olympic Torch was carried through the streets of Vienna, there were violent Nazi disorders. From then on, and until Austrian sovereignty was destroyed, there were constant arrests and trials of persons accused of distributing illegal literature or staging illegal demonstrations, accompanied by numerous press comments of more or less violence.

The Austrian Government sought to counteract this pressure in some way by allowing activity in favor of a restoration of the Hapsburgs. On his visit to Vienna in late February 1937, von Neurath took occasion to register Germany’s emphatic opposition to any such move. I remember von Neurath’s visit very clearly. I had known him well and was on friendly terms with him while I was stationed in Berlin. At that time and after the Nazi came into power, he told both Ambassador Dodd and me that he had remained as Foreign Minister when the Nazi came into power in order that he might exercise “a restraining influence” and render service to his country. This may have been the initial motive of von Neurath but he rapidly became one of the most complete and in some ways effective instruments of the Nazis. If he was not in accord with what they did, he was a perfect instrument in helping to carry it through.

Although I had known him well in Berlin and had on occasions been in his house in small gatherings, when he came to Vienna in 1937, there were a number of ceremonies and receptions given by the Austrian Government to which the Diplomatic Corps was invited. When he met me at these meetings he treated me with great coolness and even disdain, knowing my complete lack of sympathy with the program to which he had committed himself, and this manner of treating me with disdain and open disregard was probably his way of protecting himself and his own feelings of shame. Shortly after the visit of von Neurath, Chancellor Schuschnigg in my conversations with him told me that in his conversations with von Neurath, during the visit, von Neurath had been just as bad as if Habicht or Frauenfeld had been talking when they had discussed the German demands for the inclusion of Nazis in the Austrian Cabinet.

About the same time, Schuschnigg made some concessions to ease the pressure from the Nazis. In February, he appointed a so-called “Committee of Seven”, consisting among others of Dr. Jury and a man named Tavs, to discuss “nationalistic ambitions” with him. In June, following the visit of Glaise-Horstenau and General Kraus and Leopold to Hitler in Berlin, and the increased Nazi activities following, Schuschnigg appointed Seyss-Inquart and Dr. Pembauer to devise a means whereby the “Nationalists” could be incorporated into the Patriotic Front.

Dr. Seyss-Inquart himself was a prominent Vienna Lawyer, who had long been an intimate personal friend of Chancellor Schuschnigg. The Chancellor himself told me on various occasions that Dr. Seyss-Inquart had frequently attempted to convince him that the admission of the Nazi into the Austrian Cabinet would be for the best interest of Austria, in that it would relieve the pressure on Austria by Germany, and that he (Seyss-Inquart) at all times professed a sincere desire to maintain the independence of Austria. I had little personal contact with Seyss-Inquart but I knew from various sources absolutely reliable that while Seyss-Inquart was making these protestations to the Chancellor with whom he had had this intimate friendship, and which the Chancellor repaid by his confidence, Seyss-Inquart was in fact completely insincere. He was known at the time, and I had knowledge of this, to be in frequent contact with many high officials of the German Government and that he had had contact with Hitler himself. My information on this point was obtained not only from sources in Austria but also from acquaintances in Germany. There is only one thing which can be said in favor of Seyss-Inquart at the time and that is that he perhaps did believe the German protestations made to him that Austria’s independence would be respected. It is difficult, however, to conceive that a man who was known to have the legal ability and intelligence of Seyss-Inquart could have been completely taken in by these protestations. The probabilities are that at least from the outset he used his friendship with Chancellor Schuschnigg in order to help to destroy the independence of his country in order to make a place for himself.

I left Vienna on July 11, 1937, in order to assume the post of Assistant Secretary of State in Washington. I, therefore, left Vienna before the final tragedy occurred. The final outcome, however, was then already foreseeable. From the tenor of the Italian Minister’s conversations with me it was clear that Italy would not or could not any longer defend Austria militarily against German aggression. It was also clear that Austria could not resist the German pressures alone. Although France had given very definite assurances as to her interest in maintaining Austria’s independence and England had expressed her interest therein, the Austrian Government was less and less able to be assured of real support. When the Austrian government could no longer expect the full military support of Italy, it knew that its fate was sealed. Hitler was, therefore, free to work his will in Austria. The only question remaining was when he would do it and when he considered it opportune. The work of disintegration, set forth in this statement, had had its effect. Early in 1938, apparently satisfied that England and France would not move and knowing that Italy could not and would not oppose him, Hitler struck the final blow at Austria’s independence, bringing to a climax what must be recorded in history as one of the most insidious, dastardly, unjustified and altogether effective series of measures to undermine and bring about the end of a sovereign state, during the course of which machinations and operations the Nazi Government nevertheless consistently openly proclaimed its friendliness towards Austria and its intentions of maintaining its respect for its sovereignty and independence.

[Signed] G. Messersmith

Subscribed and sworn to before me, William L. Brewster, a Vice Consul of the United States of America, duly commissioned and qualified, in Mexico, D.F., Mexico, this 28th day of August 1945.

[Signed] William L. Brewster
Vice Consul of the United States of America

TRANSLATION OF DOCUMENT 1765-PS

The commissioner for the four year plan
Plenipotentiary for special missions

Berlin W8, Behrenstr. 43, 15 Jan 43
SECRET

To

1. His excellency, the Reich marshal of the Greater German Reich--commissioner for the four-year plan--

_a._ Attention the secretary of state Koerner or his representative

_b._ Attention the ministerial dirigent Dr. Gramsch or his
representative

_c._ Attention ministerial councillor Dr. Kadgien or his
representative

_d._ Attention ministerial councillor Legler, or his representative

2. the commissioner for the four-year-plan- central planning-Attention state councillor Schieber or his representative.

3. The high command of the armed forces

_a._ Office of economics--attention General Thomas or his
representative

_b._ Special staff HWK, attention Admiral Groos, or his representative

_c._ Office of foreign intelligence, attention Admiral Canaris, or
his representative

_d._ Army Administration Office, attention General Osterkamp, or his
representative

_e._ Armed forces budget dept., attention Ministerial dirigent Dr.
Tischbein, or his representative

_f._ Armed forces administrative dept., attention Intendant General
Dr. Biehler, or his representative.

4. The High Command of the army--Quartermaster General, attention Maj. Gen. Wagner or his representative.

5. The Reich minister for Aviation and supreme commander of the Airforce, attention Field Marshal Milch, or his representative

_b._ Administrative office of the airforce, attention General Crosrav
or his representative

_c._ Dept. GI--attention chief engineer Sellschopp, or his
representative

6. The high command of the navy, attention Admiral-General Witzell, or his representative.

7. The Reichsfuehrer SS and Chief of the German Police

_a._ SS Main office of economic administration, attention SS
brigadier General Loerner, or his representative.

_b._ SS-Office for raw materials--SS-Colonel Kloth, or his
representative.

8. The Foreign Office

_a._ Attention Ministerial Director Wiehl, or his representative

_b._ Attention VLR. Bisse, or his representative

_c._ Attention Minister Hemmen, or his representative

9. The Ammunition Ministry

_a._ Attention Reichsminister Speer, or his representative

_b._ Attention Commercial Attaché Ruckenbrod, or his representative

10. Reich Minister for Nutrition

_a._ Attention Secretary of State Backe, or his representative

_b._ Attention Ministerial Director Dr. Moritz, or his representative

11. Reich Minister of Finance

_a._ Attention Reichsminister Count Schwerin-Krosigk, or his
representative

_b._ Attention Ministerial Councillor von Knorre, or his
representative

_c._ Attention Government Councillor Nitschke, or his representative

12. The Reichsminister of Economy

_a._ Attention the secretary of State Dr. Landfried, or his
representative

_b._ Attention to the under secretary of state von Jagwitz, or his
representative

_c._ Attention for the President Kehrl, or his representative

_d._ Attention to the Ministerial Councillor Dr. Drexl, or his
representative

_e._ Attention of the Chief Councillor of government Dr. Goetze, or
his representative

13. The Main Office for Reich Security [RSHA]

_a._ Attention SS-Brigadier General Ohlendorf, or his representative

_b._ Attention SS-Colonel Schellenberg, or his representative

14. The Reich Commissioner for price control

_a._ Attention Minister Fischboeck, or his representative

_b._ Attention Government councillor Dr. Wurst, or his representative

15. The Auditor-Generals Office of the German Reich

_a._ Attention Ministerial Councillor Kuesel-Glogau, or his
representative

_b._ Attention Office Councillor Rueger, or his representative

16. The Military Commander in France

_a._ Attention KVCh Dr. Michel, or his representative

_b._ Attention KVACh Frhr. v. Mahs, or his representative

_c._ Attention OKVR Bolck, or his representative

_d._ Attention Intendant of General Staff Lenz, or his representative

17. The Military Commander in Belgium and Northern France

_a._ Attention KV Chief Reeder, or his representative

_b._ Attention Ministerial dirigent Dr. Schlumprecht, or his
representative

_c._ Intendant in charge, Intendant of General Staff Fritsch, or his
representative

18. Commissar of the Reich for the occupied Dutch Territories

_a._ Reichscommissar Dr. Seyss-Inquart, or his representative

_b._ Dept. of industrial economy, attention Chief Councillor of
government Dr. Heinemann, or his representative

_c._ Dept. of the four-year plan, attention Mr. Pluemer, or his
representative

19. Commander of the Armed Forces in the Netherlands

_a._ General Christiansen, or his representative

_b._ Intendant in charge, intendant of General Staff Dr. Geyer, or
his representative

20. The Plenipotentiary General for Economy in Serbia, Consul General Neuhausen, or his representative

21. The Supervisory Office in Paris, attention Lt. Col. Koch, or his representative, two copies

22. The Supervisory Office in Belgium, attention Lt. Col. V. Parish, or his representative, two copies

23. The Supervisory Office in Lille, attention Major Woehlke, or his representative, two copies

24. The Supervisory Office Netherlands, attention SS-Major Hanke, or his representative, two copies

25. The Supervisory Office Belgrade, attention Major Werner, or his representative, two copies

26. The Roges trading Company Ltd., attention Director Kraney, or his representative

Enclosed I send copy of my second report of findings with the request for acknowledgement.

Heil Hitler
signed: J. Veltjens

Col AC
certified:

Hillmann
office employee

The commissioner for the four-year plan
plenipotentiary for special missions

SECRET

2. Report of findings of the plenipotentiary for special missions

A. _Obtaining of war important goods on the black market in the occupied western territories_ and in Serbia.

I. The black market up to the issue of the order to the
plenipotentiary for special missions.

II. Development of the black market since the 1 July 1942.

1. General

2. The organization created by the plenipotentiary for special
missions.

3. Scope of the previous purchases (per 30 Nov. 1942).

III. The further development

B. Obtaining of harbor installations and machines from shut down plants.

I. Harbor installations

II. Machines

C. Christmas action.

D. Miscellaneous.

# # # # #

A. _Providing of war important goods on the black market in the occupied western territories and in Serbia._

I. The black market up to the issue of the order to the plenipotentiary for special missions.

The beginning of a black market in the occupied territories can already be ascertained in the time before the German troops entered. It started however, on a large scale after the German occupation and as matters were, the occupation authorities could not prevent this.--The following reasons have necessarily led to its rise:

1. The scarcity of goods in consequence of the exploitation and rationing as a result of hoarding as an escape into material values (particularly in metals) and as a result of removal for the purpose of sabotaging the German Military power.

2. The impossibility of enforcing price limits completely and consequently a constant enlargement of the divergence of price between raw materials and finished products on one hand and between goods and wages on the other.

3. The impossibility of controlling the prices on the German model because of the lack of personnel in the German supervisory organizations.

4. The lack of effective support of the counter-measures by the individual administrative state authorities, primarily in France.

5. The inefficient criminal justice of the individual state criminal authorities.

6. The lack of discipline in the civilian population.

This development was accelerated--particularly since the year 1942--by the attitude of numerous offices of the armed forces and other German organizations. The raw materials and finished products needed by these offices could often not be placed at disposal on the desired scale by the home land within the framework of existing priority measures. Consequently it became often actually the practice simply to use the way of supply through the black market. The activity of German agencies on the black market gradually reached an extent which led to increasingly more unbearable conditions; it was daily routine for the black marketeers to offer their goods simultaneously to several offices for sale and that that office which offered the best price received the merchandise so that the individual German formations in this manner not only snatched the merchandise away from one another, but also, inflated the prices.

Finally the black market dealings took a course which gave impetus to the most serious fears with respect to market- and currency policy. The military commanders in France, Belgium and northern France and the Reichscommissar for the occupied territories of the Netherlands therefore took measures during the course of the year 1941 to bring this development to a halt. However, in this respect the lever was not--at any rate not primarily--inserted at the price side because this promised only little success in the face of the internal conditions prevailing in the occupied territories; just as little could a stricter control of prices be considered at that time. The central occupation authorities rather began to do business themselves on the black market, with the aim of slowly gaining control of it and then to kill it gradually. These actions can be viewed as the predecessors of the organization of the Bfs, (Plenipotentiary for special missions) here also the purchased goods were distributed centrally and because the winding up was also executed through the Roges (in France) or through the AWG (in Belgium) and the Bfs in Holland in conjunction with the department “four year plan” of the Reich commissioner on the one hand and the departments of the Reich on the other. The purchase was at times made through a single purchasing agency. However, such a procedure had to be denied the desired success as long as it was not possible to hold off all the other offices from activity on the black market; it would have been a prerequisite for this, that all central authorities in the Reich had instructed the departments subordinated to them accordingly, but this was only done in part.

Finally, in June 1942 the plenipotentiary for special missions [Bfs] in agreement with all central authorities was ordered to take charge of the seizure and central control of the black markets. With that, the prerequisite for an effective beginning regarding the problem of the black market and with it the struggle against it existed for the first time.

II. Development of the black market since 1 July 1942.

1. General.

The plenipotentiary for special missions has from the beginning on viewed the purpose of the mission given to him less in presenting the highest possible figures of purchases; the final aim was set rather to combat the black market that is, to bring it to an end.

The starting point had to be however, that as long as in the occupied territories an essential part of the goods existing or produced at all, disappears by reason of inefficient control or various other reasons in the black market, in the interest of supplying the German war economy with the most important raw materials and finished products, as textiles and PX rations, seizure of these goods could not be avoided. One fact is overlooked again and again: that the black market is not a phenomenon evoked through the activity of the plenipotentiary for special missions or other departments, but--as is shown under I--has developed inevitably from the economic situation of the market and will exist and have to be exploited in the German interest as long as no way has been found to break it up completely or at least check it to the extent that the amount of goods caught through it are meaningless within the framework of the total supply. However, the figures given later on in detail show that for the time being there cannot be any question about it.

But the figures given later on show also that the purchases made on the black market could contribute essentially to the covering of many gaps in the supply of the German war economy without impairing the quota of deliveries in the occupied territories. Therefore the purchases can already for this reason not be refrained from as long as it has not been established that the goods can be secured in another way. The objection that these goods could have been secured anyhow within the frame work of the normal supply--and then much cheaper,--is incorrect. A typical example is the result of the last negotiations with France regarding leathergoods: Upon the desire of the Reichsminister of economics, the chief plenipotentiary for special missions had agreed to stopping the purchases on the leather and hide market, if the French who had complained about the German buying activity on the black market, would oblige themselves to deliver additionally in 1943 the same amount which had been bought in 1942 on the black market; the French declared that they did not feel in a position to do this. The objection mentioned is overlooking the fact that merchandise which had once been withdrawn from production or had been produced illegally, will never again become “white”. What is done cannot be undone, the black market is in existence and would also exist without any doubt if not a single German department would work in this field. The black market receives new impulse again and again and that on the one hand from the supply side, and

1. from the large hidden stocks still in existence,

2. from the illegal production which is taking place continuously
(this subject will have to be investigated later on more in
detail),

3. in France--at any rate up to date--through continuous supply from
the unoccupied territory;

on the other hand, at the always increasing scarcity of goods every item finds a buyer, either from the civilian population or industry, or through purchase on the part of the Italians, Swiss, Spaniards; yes, numerous purchases could even be ascertained--in particular in unoccupied France--by the English or--evidently through British instigation--from neutral sources, as for instance the Portuguese which do not serve any other purpose than that of depriving Germany of the merchandise.

The consequence of such sudden cessation of purchases through the organization of the plenipotentiary for special missions would therefore only be that a so far not inconsiderable source of raw materials and war important finished products dries up without achieving on this account the end of the black market. Besides, it has to be doubted with good reason that it would be possible to keep up the prohibition of purchases which was issued to the German departments in the occupied territories, if the delivery by the organization of the plenipotentiary for special missions would suddenly cease. This applies particularly for the cases of the so-called immediate-need [Sofort-Bedarf]. The conception that the black market will come to an end if no more is bought on the part of the Germans, is incorrect. [Marginal notation in handwriting is inserted here: “Yes, our work has to begin _here_; with it we hit then the French black market primarily”.]

The central purchasing organization of the plenipotentiary for special missions for instance does not buy agricultural products (only some particularly reasonable items in price have been bought, which however are not at all worth mentioning within the framework of the total supply) and nevertheless the black market is the most significant just on this sector.

It has been explained that further activity on the black market at the scale up to date will in the long run not be bearable any more for the budget of the Reich. However, in this respect it has to be pointed out that the greatest part of the purchases--that is the ones made in France--have been financed from the French costs of occupation. Of RM 1,107,792,819----the total amount of purchases, RM 929,100,000 have been financed from French occupational funds. Therefore a debit to the budget of the Reich did not arise to this extent.

The claim that the black market or the activity of German departments on the black market would bring about an increasing decline of the currency in the occupied territories, cannot be recognized as the truth. The decline of the currency which has in part actually occurred already, is not a consequence of the black market, but on the contrary, the inflationary tendencies accompanying the increasing scarcity of goods have evoked the rise of the black market.

At this place it will not be necessary to elaborate on the advantages of a centralized obtaining of the purchases on the black market; only two points of view shall be emphasized:

1. While in the time before the commissioning of the plenipotentiary for special missions, the prices on the black markets rose always further,--for the most part a consequence of the mutual competition of the individual German buyers--it has since been possible, to stabilize the prices of most goods, and this in spite of the fact that the _general_ level of prices in the occupied territories has risen further.

2. While until the commissioning of the plenipotentiary for special missions, the individual German departments received and used the goods purchased by themselves uncontrolled, without regard to the degree of necessity, the distribution now takes place within the scope of total planning by the Reich according to the degree of _urgency_.

In summarizing, it has to be said that in the face of the supply situation of the Reich, it cannot be refrained from skimming the black market now as before as long as there are still concealed stocks of war important goods. With regard to this higher interest all other points of view have to remain in the background.

2. The organization created by the plenipotentiary for special missions.

In his report at the end of August 1942, the plenipotentiary for special missions has presented in detail the organization created by him for the getting hold of and centralized control of the black market. Therefore here a short review only shall be given.

The general control and supervision of the purchasing activity is the task of the supervising offices newly created for this purpose.

They are:

_a._ the supervising office France with its seat in Paris

_b._ the supervising office Belgium and Northern France with its seat
in Brussels

_c._ the supervising office Belgium and Northern France, Lille
branch, with its seat in Lille

_d._ the supervising office Netherlands with its seat in the Hague

_e._ the supervising department Serbia with its seat in Belgrade.

Principle and directives for the execution are on the one hand “the instructions for the winding up of stocks of merchandise of uncertain origin” issued by the plenipotentiary for special missions in agreement with the military commanders of the Reich commissar for the occupied Dutch territories and on the other hand the contracts concluded by the Roges raw material trading company Ltd. with the purchasing organizations. The purchases themselves are made by a restricted number of authorized purchasing organizations, of which there are in France 11, in Belgium 6, in the Netherlands 6 and in Serbia 3. Thereby the total purchasing activity is subordinated to the central supervision of the plenipotentiary for special missions. Each purchasing organization is only authorized for a quite definite kind of goods. The engagement of a number of purchasing organizations which will on first sight appear comparatively high was necessary, because the black marketeers by experience want to sell for the most part only to certain departments, with which they have cooperated before and because they refuse to cooperate with other buyers whom they did not know previously; it had to be taken care, however, that none of the existing sources dried up. Participation has been prohibited to all other departments by corresponding orders of the central authorities in the Reich and the military commanders of the Reich commissioner.

The financing of purchases and the transportation of the goods will be taken care of by the Reich-owned Roges Ltd.; the goods are then distributed according to the urgency of the individual consumers in agreement with the instructions of the centralized planning or the departments charged by the centralized planning. It is the additional task of the Roges Ltd., to level the purchasing prices down to the German internal price; lower prices, however, will not be granted for deliveries to the armed forces, authorized and--in case of investment goods--to big plants. The adherence to the directives is guaranteed by the fact that the purchasing organizations at each offer may only then perform the transaction, if the supervising department has given its permission through an expert. The experts for their part will make their decision on the basis of the price and quality limits given by the plenipotentiary for special missions or the Reich departments.

3. Scope of the previously made purchases (up to 30/11/1942).

_a._ Since the beginning of the action (that is since purchases have been directly centralized by the military commander or the Reich commissar with centralized distribution of goods in the Reich).

Up till now since the beginning of the action purchases have been made in the total amount of RM 1,107,792,818.64, of which

in France RM 929,100,000.00
in Belgium RM 103,881,929.00
in Holland RM 73,685,162.64
in Serbia RM 1,125,727.00

Payment takes place in France from the funds for occupation, in the other countries through clearing.

In the following is a statement of the quantities involved:

1. _Metals_:

66,202 tons to the value of RM 273,078,287.00 of which there are

_a._ non-ferrous metals 58,742 tons, in particular copper and copper
containing material (34,000 tons), lead and lead alloys (14,500
tons), furthermore (in the succession of their quantity) zinc,
aluminum, tin, nickel, magnesium, antimony, manganese ore;

_b._ material containing iron (tools, junk, etc.) 7,460 tons.

2. _Textiles_:

To the total value of RM 439,040,000.00, of which there are 22,672,000 pieces of linen, suits (particularly workers’ clothing), overcoats, etc., 5,488,000 kg yarn and miscellaneous, 40,642,000 m cloth and ribbons, 10,072,000 pairs of gloves, suspenders, etc.

3. _Leather, skins, and hides_:

To the total value of RM 120,754,000.00, of which there are 5,053,000 kg raw hides, 3,390,000 square feet of finished leather, 1,783,000 pieces of hides, chamois, etc., 801,000 pairs of shoes, and 694,000 kg leather for soles and other shoe soling articles.

Furthermore was bought:

industrial oils and fats (1,330 tons)
food oils and fats (346 tons)
wool
household articles
PS goods including paper articles
wines and alcoholic drinks
equipment for engineers
sanitary necessities
sacks

The factors leading to excessive raising of prices of essential goods are at the present time the following:

-----------+--------+---------+-------------
| | | The
| France | Belgium | Netherlands
-----------+--------+---------+-------------
Metals | 9 | 9 | 5-6½
Textiles | 4 | 6½ | 5
Hides | 6½ | 6 | 4
Leather | 6½ | 6 | 6
-----------+--------+---------+-------------

Since beginning of the action the following items were bought in _France_--against payment from occupation funds:

Metals RM 248,000,000.00
Textiles RM 340,000,000.00
Hides, skins, leather RM 112,000,000.00
Wool RM 3,000,000.00
Oils & fats (for industrial and food purposes) RM 12,000,000.00
Household goods RM 46,600,000.00
PK goods RM 33,000,000.00
Wines and alcoholic drinks RM 50,000,000.00
Sacks RM 10,500,000.00
Paper and packing material RM 5,000,000.00
Food and pleasure items RM 33,000,000.00
Chemical products RM 8,000,000.00
Sanitary necessities RM 12,000,000.00
Miscellaneous RM 16,000,000.00
-------------------
TOTAL SUM RM 929,100,000.00

Since beginning of the action the following items were bought in _Belgium_--against payment by clearing:

Metals RM 13,784,000.00
Textiles RM 43,755,000.00
Leather, skins & hides RM 4,030,880.00
Wool RM 2,179,720.00
Industrial oils & fats
Chemical products
Food-oils & fats RM 3,815,159.00
Household goods RM 2,512,912.00
Furniture RM 418,035.00
Paper & packing material RM 5,561,268.00
Food & pleasure items RM 3,393,955.00
Engineer equipment RM 7,500,000.00
Miscellaneous RM 16,931,000.00
--------------------
TOTAL SUM RM 103,881,929.00

Since beginning of the action the following items were bought in the _Netherlands_--against payment through normal bank transactions:

Non-ferrous metals RM 6,706,744.00
Textiles RM 55,285,568.00
Wool RM 753,878.00
Leather, hides & skins RM 4,723,130.00
Wooden barrels RM 254,982.00
Furniture RM 272,990.00
Food-and pleasure items RM 590,859.00
Chemical-and cosmetic articles RM 152,191.00
Various iron-and steel goods RM 3,792,166.00
Rags RM 543,416.00
Motor oil RM 52,284.00
Raw diamonds RM 25,064.00
Miscellaneous RM 531,890.00
--------------------
TOTAL SUM RM 73,685,162.00

In Serbia was bought against payment through clearing:

Non-Ferrous metals in the amount of RM 1,125,727.00

The action began here only in the month of November. Up to date the goods charged to the receivers amounted to a total of RM 86,084,910.06.

The reasons why, at a total delivery of RM 1,107,792,819.00 no larger quantities could be completely wound up, are various (aggravation of the winding up through the procedure in fixing the prices, difficulties in transportation, lack of personnel). The Plenipotentiary for special missions has instigated measures, in order to accelerate the wind-up in the future.

_b._ Since the beginning of the activity by the plenipotentiary for special missions, on the 1/7/1942, the following was bought (up to 30/11/1942):

Altogether for RM 840,382,893.00
of which
metals RM 174,982,697.00
textiles RM 318,013,354.00
leather, skins and hides RM 82,265,070.00

The figures mentioned above comprise roughly about the same period of time (1/7/-30/11, i.e., five months) as the purchasing action of the military commander or the Reichs Commissar before commissioning of the plenipotentiary for special missions (in France 6 months, in Belgium 2 months, in the Netherlands 7 months); the figures are however several times higher (RM 840,382,893.00--in contrast to RM 267,409,926.00). This proves more than anything else that and to what degree, the concentration of purchases on the black market through the organization of the plenipotentiary for special missions and the placing of the purchased goods at the disposal of the total planning of the Reich succeeded.

III. The further development.

There is not any doubt that the black market as such from the viewpoint of political economy is extremely undesirable and that therefore everything has to be attempted to bring it to an end. In this respect it is also necessary that the German purchasing activity be stopped as soon as possible. But on the other hand, as has already been explained above in detail, the delivery of war important raw materials and finished products cannot be refrained from. The plenipotentiary for special missions has therefore made his own suggestions to the departments involved to the effect the purchasing activity be abandoned by degrees if the black market is suppressed by corresponding measures; in this respect it must be certain however, that the quantities of goods which flowed up to date to the black market will now go into the “white” production and into normal trade. Naturally, however, repressive measures have to precede this; only then can the gradual abandoning of the purchasing activity take place in order to impair the total influx of goods as little as possible.

In examining the measures to be taken for the fight against it, a distinction must be made between the sources, from which the black market is fed. First, there are the concealed stores established for most varied reasons whose sale will bring a one time flow of goods. Second, the black market is fed by continuous illegal production. It is certain that with continued duration of the war the second mentioned source will gain more and more in importance; therefore special attention has to be paid to it.

The illegal production has its cause--aside from the general lure of higher prices--in the fact that the price divergence between raw materials and finished products has partly become so great that it cannot be bridged any more within the framework of normal production without endangering the solvency of the enterprise. Often the capacity of the enterprise is exploited only incompletely so that the entrepreneur, even if it is only in order to avoid a shut-down, turns to procurement of raw materials illegally in order to produce beyond his quota, that is, illegally. Previously the purchases in unoccupied France which were sent on special routes into the occupied territory, formed a third and considerable source. It remains to be seen, whether it is now possible to supervise production in the up to now unoccupied part of France on a stricter basis so that, here also, the fight against the black market can be initiated.

According to the conception prevailing here, the following measures for the removal of the black market would have to be effected:

1. Enlargement of the price supervision.--As an increase in personnel of the German departments entrusted with the supervision does not or only at a restricted scale seem possible, the administrative authorities of the individual state have to be constrained to show more activity.

2. The enactment of severer penalties for violations against measures of economic management taken in accordance with the German example because only then can the lack of discipline in the civilian population resulting from their individualistic and liberalistic attitude be removed. A supervision of the verdicts of the penal authorities of the individual states seems to be recommendable.

3. The announcement of awards for reporting violations against measures of economic management amounting to a not too small percentage of the value of the objects confiscated on the basis of the report.

4. Engagement of spies and agents provocateurs.

Besides for the prevention of illegal production:

5. Shut down of all plants which are not manufacturing for war purposes.

6. Stricter shut-downs or merger of plants whose capacity is exploited immediately only.

7. Stronger supervision of the production in factories.

8. Stricter scrutiny in the allotment of raw materials for the distribution of orders.

9. A price policy which gives to the enterprises sufficient prices and guarantees them the existence.

In order to create for the purchasing organizations of the plenipotentiary for special missions the basis for purchasing activity on the black market in the face of the administrative authorities of the individual state in the occupied territories, the plenipotentiary for special missions has in Belgium and in the Netherlands effected a “decree on the clarification of unexplained goods” or a “general decree”. Hereby the supervising departments and their purchasing organizations were given simultaneously the possibility of approaching through purchases of goods the source of error in management and control. In accordance with it a suggestion was made by the plenipotentiary for special missions also to Ambassador Hemmen for France, which will result in the issue of such a decree for France also in cooperation with the military commander.

Most important and promising of success for the beginning appears the measure outlined in 2 whereby the initial effort should be made toward commerce and there again first toward retail business. As soon as a number of draconic penalties has occurred, the retail dealers will in their own interest refrain from buying excessively priced merchandise from the wholesalers and manufacturers. The latter face then only the organization of the plenipotentiary for special missions; then it could be started by degrees to let the illegal producers crack up. The plenipotentiary for special missions has in this respect already performed certain preliminary work by directing part of the purchasing organizations to try to approach the manufacturers by eliminating of the black market traders.

The repressive measures mentioned above--particularly under 1 and 2--have to be performed in close cooperation with the individual state authorities; it is recommendable that as soon as possible proper measures be taken on the part of the German occupation authorities. The measures have to be accompanied by purposeful propaganda of press and radio (branding the black market as a crime against one’s own people); in order to build psychologically foundation for the strict measures with the population and to rouse it to cooperation.

Further, French and Belgium government--and economic circles--among others also the French chief of government--have lately found it necessary to complain about the organized German purchasing activity. In the face of such representations--aside from various other arguments--it should be pointed out that also on the part of Germany the greatest interest exists in the disappearance of the black market, but its existence is, in the main, the fault of the government authorities themselves, through their incapability in the supervision of prices and their laxity in penal prosecution, whereby, lack of discipline is bred within their own population.

B. Providing of fort installations and machines from shut-down plants.

I. Harbor installations.

A large amount of harbor equipment exists in the occupied western territories, which at the present time is not or is insufficiently used. On the other hand, in the eastern territories as well as partly in the Reich there exists an urgent need for such harbor installations. The plenipotentiary for special missions has therefore received the directive to seize these idle potentialities, in agreement with the departments involved. The determination of the objects to be shipped is up to the Reich commissar for navigation or those needing the goods after confiscation by the responsible navy departments, the plenipotentiary for special missions effects the financial settlement and puts the objects for installation at the disposal of those needing them. So far installations of that kind could already be provided for Oslo and for Hamburg; further transactions are in the process of being executed.

II. Machines.

Another task of the plenipotentiary for special missions is the seizure of machines from closed down plants. It is certain that large potentialities, particularly in machine-tools which are badly needed at home for the armament productions, are at the present time still idle. In agreement with the plenipotentiary for special missions, the military commander and the plenipotentiary for the production of machines a so-called “arbitration offices for machines” is anticipated in Belgium and the Netherlands. One of the main difficulties in this field lies in the overcoming of the resistance of both the owner of the plants involved and the individual state authorities in the occupied territories. Here the occupational authorities will have to employ all their initiative in order to break this resistance.

C. Christmas-Action.

At the end of August 1942 the plenipotentiary for special missions received a further special task, i.e. the providing of Christmas presents for the German people. Initially the action was calculated to amount to RM 300,000,000 (internal price). This task was undertaken immediately with all possible vigor, though it could be foreseen that providing and transportation of such quantities of goods in the comparatively short time available until Christmas could hardly be achieved; as the providing should if possible take place in the normal way--by payment through clearing also in France--and _not_ on the black market, an organization had first to be created in order to master this task.

Actually it was possible to provide goods to the value of approximately RM 244,000,000 (purchase price) up to the 20 December 1942. But on account of the difficulties of transportation occurring in conjunction with the political events in France as well as the procedure necessary for fixing the prices and other reasons, it was impossible to bring all of these goods to Germany and to make them available for sale on time. 2,306 box-cars with 11,138,229 kg and further by ship 6,335 bales of goods with over 100,000 kg arrived in Germany. In the first place they comprise cosmetics, toys and in general gift-articles. Distribution was primarily made in the bomb-damaged regions as well as in the big cities Berlin, Vienna, Hamburg, Breslau, Koenigsberg and in the industrial region of Waldenburg and Upper Silesia. A conclusive report in the Christmas-action will be presented in the course of the month of February. If an identical action should be contemplated in the year of 1943 on the basis of experiences made it would have to be started in the course of the month of March.

D. Miscellaneous.