The Vampire Economy

Chapter XI

STOCK EXCHANGE AND SPECULATION UNDER FASCISM

“The ‘Aryan’ members of the Berlin Stock Exchange have
lost much more than they gained by the removal of the
‘Non-Aryans.’ “

THE Berlin Stock Exchange still exists—as a building, as an institution with large offices, with brokers and bankers, with a huge organization for daily announcement of stock and bond quotations. But it is only a pale imitation of its former self and of what a stock exchange is supposed to be. For the Stock Exchange cannot function if and when the State regulates the flow of capital and destroys the confidence of investors in the sanctity of their property rights.

The glorious days when millions of marks daily poured into the Stock Exchange, when the bonds and securities of foreign countries were handled, when new concerns and trusts were promoted and exciting speculative maneuvers were staged—those glorious times have long since departed, and even the doorkeeper who vividly remembers the excitement of the “good old days” does not believe that they will ever return. Yet the decrepit machine still runs. The office staff, brokers and bankers have been reduced in numbers as a result of the enforced removal of all “non-Aryans.” But the pure “Aryans” who remain members of the Stock Exchange do not enjoy their privileges under totalitarianism. Some of them may have expected to prosper after the exodus of the Jewish brokers and bankers, by having inherited their business. But the “Aryan” members of the Berlin Stock Exchange have lost much more than they gained by the removal of the “non-Aryans.” They do not have much to do and feel strongly that they have become superfluous because the Stock Exchange no longer functions as such. It has become an empty husk. Sales amounting to a few thousand marks are great events and may easily cause wild fluctuation in the price of securities unless the State Commissar intervenes.

The commission a Berlin broker can charge a customer is much less than the commission charged by a broker on the New York Stock Exchange. Commissions are calculated differently in Berlin than in New York, yet a rough comparison is possible. And not only does a Berlin broker receive on each specific transaction a smaller commission than does his “opposite number” in New York, but there are far fewer transactions; the volume of sales is infinitely less in Berlin than in New York. Thus in every respect a member of the New York Stock Exchange occupies a far stronger position than does a member of the Berlin institution.

Slack business is not a peculiarity of the Berlin Stock Exchange. Wall Street, too, has experienced it. But the Berlin Stock Exchange represents a phenomenon of its own—a State regimentation quite different from the supervision of the Stock Exchange as it existed before the Nazis came to power. A State Commissar for the Stock Exchange already existed in pre-Hitler Germany. This State Commissar daily visited the Stock Exchange but he was without real influence. His role was merely supervisory, similar to the Federal Government’s control of the New York Stock Exchange, which is intended to prevent private groups from controlling or manipulating the market. In Nazi Germany, however, the State itself manipulates the capital market and therefore also the Stock Exchange.

When, in 1937, the New York Stock Exchange experienced a new recession, the Berlin Stock Exchange, which formerly followed the lead of Wall Street, remained almost unaffected. This was not a sign of strength but of effective Government manipulation. It prevents market fluctuations. When, for instance, German capitalists wanted to increase their investments in stocks of private corporations rather than to buy State bonds, the Government interfered. The fear of inflation made stocks an attractive investment. But as this would have been harmful to the State’s credit, Dr. Schacht warned German capitalists in an address in Koenigsberg, in August, 1935, that “all Germans were in one boat” and they all had to share the risks of the depreciation of the mark. Sales of stocks were curbed. Furthermore, the Government created an artificial demand for State bonds and bills at the expense of foreign holders of German securities. They are not allowed to withdraw their capital from Germany. Yet they cannot make use of the Stock Exchange in order to buy German stocks in an effort to protect themselves against the risk of a devaluation of the currency. An order of the Foreign Exchange Board of December 9, 1936, provided that the foreign owners of blocked marks are allowed to buy only bonds.1 The expropriation of Jewish capital would have led to large-scale sales of stocks and bonds with resultant price disturbances if the Government had not stepped in.

“Another new situation arose in November, 1938, affecting the movement of capital. The restriction of Jewish business activities, if previous experiences were repeated, would have led to a new wave of sales…. This would have had an undesirable result because investment capital would have gone into buying cheap securities from Jews, when it was urgently needed for other purposes. Therefore, credit institutions were instructed by the Ministry of Economics to refuse acceptance of any selling orders of securities from Jewish owners. On account of the extraordinary emergency, this order was issued to the directors of the economic groups orally on the morning of November 14, 1938, before the opening of the Stock Exchange.… It is quite possible also that it may become necessary to put under control those methods of finance which today are still free.” 2

A foreign visitor to the Berlin Stock Exchange would easily be deceived. There are announcements of daily quotations and price changes as though a free Stock Exchange still existed, but nowhere would he find the former “public”—private buyers and sellers—as represented by independent brokers, bankers and “visitors.” 3 In former days the floor of the Exchange was crowded with people, rushing to and fro. There was noisy shouting from all sides, typical of the floor of a free stock exchange. Today, the floor is quiet and looks peaceful. Plenty of empty space makes it appear like the dignified anteroom of a government office rather than the old-time Stock Exchange—as it still exists in New York, London or Paris. A “big day” at the Berlin Stock Exchange today is no longer marked by excited discussions of industrial finance. It is more important to hear what is whispered about new Government actions and policies.

Brokers, banking representatives, “visitors” at the Berlin Stock Exchange, all play a new role. Everything is under the control of the State Commissar. He has his advisors and informers among the brokers and “visitors.”

Private speculation has not disappeared, but it operates almost entirely outside of the official Stock Exchange. The greater part of the sales and purchases of stocks and bonds is executed at quotations which depend on individual arrangements and which often differ greatly from the official quotations on the Stock Exchange. State Commissar Martini of the Berlin Stock Exchange complained that instructions for control of the sales of securities “turned out to be ineffectual in practice.”

The office for the listing of new securities, he said, is of no use if “an increasing number of the most respectable companies fail to have their securities listed because they fear the inconvenience of a far-reaching disclosure of their situation, and want to save the cost of listing on the Stock Exchange…. Disadvantages of not having an official listing are so slight that they are disregarded…. There are innumerable independent brokers for transactions in unlisted securities … satisfied with market reports, the publication of which is not yet forbidden. The securities business has therefore largely circumvented the Stock Exchange Law and follows its own easier course. Even companies of high standing are willing to sell their securities in the free market without official listing on the Exchange. The embargo on new issues has favored this development. There is still a third kind of securities business, the so-called telephone business conducted over the telephone. It avoids all control. The volume of business done by telephone sometimes exceeds all other securities transactions.” 4

Commissar Martini sought to outlaw all transactions in securities outside of the Stock Exchange. The periodical, Die Bank,5 termed this proposal unworthy of discussion.

The Stock Exchange still retains the function of evaluating the “earning power” of private companies, as well as of the State’s credit, as expressed in price quotations for stocks and bonds. Therefore the Stock Exchange is a necessary institution for the fascist economic system. It cannot be discarded, although the program of the Nazi Party called for the abolition of “anonymous” capital, and in particular, of the Stock Exchange. The Government is utilizing it in support of the regimentation of the capital market. Private investors as well as corporations are compelled to accept quotations of stocks and bonds as true market values, although they may be based on State guarantees and artificial optimism.

Newspapers still publish reports on the “tone” of the Stock Exchange, with quotations of stocks and bonds as of old. But the changes which really have occurred cannot be discerned in these newspaper reports. Yet a comparison of the stocks and bonds listed in newspaper reports on the Stock Exchange in former times and at present reveal some interesting changes. The Frankfurter Zeitung listed in its reports on the Berlin Stock Exchange at the end of May, 1929: 23 Government bonds, 57 bonds of provincial and municipal communities, 640 stocks; at the end of May, 1939, however: 64 Government bonds (including “special tax bills”), 238 provincial and municipal bonds, 471 stocks. The number of Government bonds listed rose 178 per cent, the number of provincial and municipal bonds 210 per cent, the number of stocks declined 26 per cent.

These figures indicate a trend which had already begun during the world economic crisis. Investors turned from private investment fields to State-guaranteed or protected investments. Today, under totalitarianism, a certain reversal of this tendency can be observed. The interest in private investments has increased, not as a result of greater confidence in them, but due to the loss of confidence in State guarantees and as a result of the desire to escape State control, inflation, and measures of expropriation by the totalitarian State.

The Dresdner Bank, for instance, sold the bulk of its own stock, 120 million marks, which had been owned by the State, to the public. This was easily arranged through the bank’s 165 branches. The clients obviously preferred the stock of a private corporation to State bonds. The result of this transaction was that the Government obtained funds of private investors and yet did not lose control over the “privately owned” Dresdner Bank. For the State has organized and rigorously maintains supervision of all security issues and in general of the credit policies of the banks.

Because of this preference for private issues, the Government decided upon certain changes in its investment policies when the second Four-Year Plan was announced in 1937. Some private issues were again to be permitted. However, State control over the capital market was not relaxed. Any such hopes that conservative capitalists might have harbored were disappointed. The armament race as well as the urgent need for homemade raw materials made it necessary to finance new factories for the production of ersatz materials. Private investors tried to avoid investments in armaments works and State projects. An ingenious compromise was made. A number of leading mining, steel and chemical concerns founded new “Four-Year Plan Companies.” The shares are mostly property of the mother concern. The greater part of the capital, however, is raised by the issue of bonds—part also in the form of stocks. These issues appear as “private issues” on the Stock Exchange and are therefore more attractive to the investor. But these investments were not made quite voluntarily by the concerns and trusts which are the official owners of the new works. They acted under order of Goering’s Four-Year Plan Commission.

“Investments in private industry were not lacking. They probably increased considerably in comparison with the previous year; but they were not for the most part freely made and did not originate with the private initiative of investors; they were without exception created to serve the purposes of the Four-Year Plan.” 6

The Economic Review of Foreign Commerce of the United States also declares:

“While there has been a certain amount of privately financed industrial expansion, such investments … were determined exclusively by the objectives of the Four-Year Plan.” 7

The transformation of the Stock Exchange from a mere market for stocks and bonds into an instrument of the State was not accomplished because the Nazi Party program was hostile to the Stock Exchange as such; other planks in the Nazi platform calling for economic changes were simply forgotten after the Party came into power. The ground for the transformation of the Stock Exchange had been prepared a long time before fascism came to power—even before the world economic and banking crisis had taken effect. The Berlin Stock Exchange—like most stock exchanges in eastern Europe—had never acquired such a relatively independent position as the stock exchange in New York, London or Paris. Greater amounts of capital were available in New York, London and even in Paris, than in Berlin. This, however, was only one of the reasons for the secondary position of the Berlin Stock Exchange. In Germany a few big banks actually had controlled the Stock Exchange, although this control was indirect and unobserved by the casual visitor. In England deposit banks are not allowed to trade in securities on the Stock Exchange. This is the privilege of the brokers and jobbers. A New York deposit bank cannot underwrite issues of stocks and bonds. In Germany, however, the big banks used to be, and still are, both deposit banks and discount and merchant bankers as well as dealers in stocks and bonds. They grant loans and participate in security flotations.

These big banks largely replaced the Stock Exchange by acting as buyers and sellers of stocks and bonds. The banks bought and sold on the Stock Exchange only when there was a differential between sales and purchases of customers or for some special reason—sometimes in order to “support” a slack market. The Stock Exchange was of importance to the banks, even if they did not require it for their own transactions, because its existence served as a guarantee to the investor that he could buy and sell stocks and bonds at market prices.

The Stock Exchange obviously could function only as long as numerous investors existed who were willing to buy stocks and bonds. But the inflation of 1923 in Germany had wiped out the greater part of the savings of the middle classes. The ruin of many capitalists as a result of the world economic crisis and the terrific losses sustained by most speculators had a devastating effect upon the business on the Stock Exchange. In former times, a depression was usually followed by prosperity, which enabled many small- and medium-sized investors to recover. The armament boom, however, had no such effect. The middle class did not improve its position.

A few figures are illustrative:

The total number of corporations dropped from 11,690 at the end of 1928 to 9,634 at the end of 1932, and 5,518 at the end of 1938. The number of corporations with a share capital of five million marks and more declined proportionately much less, from 750 in 1928, to 679 in 1932 and 616 in 1938.

DEATH OF BUSINESS

(Dissolution of Firms in Germany)

The following figures are even more interesting: the total share capital of all corporations registered in Germany declined by about 34.8 per cent from 1928 to 1938. But whereas the large companies with a share capital of five million marks or more accounted for only 55.8 per cent of the total capital of all corporations at the end of 1928, they represented 74.6 per cent at the end of 1932 and 77.2 per cent at the end of 1938.

The comparison afforded by these figures is somewhat distorted by the effect of the Law for the Transformation of Joint Stock Companies of July 5, 1934, which, in accordance with Nazi philosophy, was designed to foster the transformation of “anonymous” corporations into other, more personal, forms of corporate organization. Two thousand and seventy companies, or 22.3 per cent of the total number, were thus eliminated from the roster of corporations. Their aggregate capital, however, was only 1,557 million marks or 7.8 per cent of the total, due to the fact that the law primarily affected small corporations. Another law, which became effective on October 1, 1937, raised the capital requirement for corporations from 50,000 to 500,000 marks. Corporations already in existence at the date of enactment of this law were allowed to continue operations, but must raise their capital to 100,000 marks by the end of 1940.

The figures on the concentration of corporate capital call for yet another comment. They demonstrate concentration of control rather than concentration of ownership of corporate capital. This point is quite important. For in all advanced industrial countries, especially in the United States, a relatively small number of corporations are in control of the greater part of the corporate capital. Only 0.15 per cent of all corporations in the United States, for instance, owned approximately 53 per cent of the total corporate assets in 1933.8 In Germany, in 1933, the corporate capital of 0.4 per cent of all corporations represented 25.6 per cent of the total; the corporate capital of 3.9 per cent of all corporations represented 60.6 per cent of the total.9 However, in Germany, as well as in Italy and Japan, concentration of ownership of corporate capital exists to a far greater extent than in the United States.

In Italy under Mussolini, the concentration of control of corporate capital has also increased greatly. The share of the 100 largest corporations in the total corporate capital has risen from 32.1 per cent in 1922 to 38.1 per cent in 1933 and 44.0 per cent in 1936, the percentage of all assets from 30.1 per cent in 1922 to 40.3 per cent in 1933 and 46.3 per cent in 1936.

“Large corporations have played an increasingly prominent role in Italian economic life since the advent of Fascism. By 1936, 100 great manufacturing, communications and trading companies—a mere half of one per cent of all stock companies—owned almost half of all non-financial corporate assets. Concentration has become even more pronounced in the field of banking. Evidently the Fascist environment has not been uncongenial to the growth of large-scale business organizations.” 10

It seems that in the United States the concentration of the control of corporate capital is at least as great as or even greater than in Germany. But the ownership of corporate capital is more concentrated in Germany—and in Italy—than in the United States or in Great Britain. This statement cannot be verified statistically because in Germany and Italy no figures on the number of stock- and bondholders are available. But many known facts justify the assumption that the overwhelming part of the stock of practically all big corporations in Germany and Italy is in the hands of a few big shareholders, and that only a small proportion is in the hands of the “public” or of small stockholders.

In the totalitarian countries big corporations tend to become mere “family trusts,” a trend which is especially typical of the large corporations in Japan, where four big family trusts own almost the entire large-scale industry and middle class investors never were of any importance.

In Germany a few “Aryan” families like Mannesmann, Friedrich Flick, Otto Wolff and Graf von Ballestrem were able to acquire additional control of numerous plants and companies. Industrial enterprises owned by “non-Aryans” became the property of these big concerns and trusts.11 In the foodstuff industry and retail trade, however, where the small proprietor predominates, the expansion of concerns and trusts has been curbed. This indicates a trend of the disappearance—or at least decline—of the medium-sized independent manufacturer. The gap between a few big concerns and trusts on one hand and numerous small impoverished manufacturers and shopkeepers on the other hand becomes wider than ever before.

This development reduces the importance of the Stock Exchange. The disappearance of small corporations gives rise to a tendency among small investors not to risk their capital in new competitive enterprises. The larger the big corporations grow and the closer they become connected with the State bureaucracy, the fewer chances there are for the rise of new competitors.

Certain changes in corporate organization also indicate that small shareholders have become quite unimportant. The German Corporation Law, which became effective on January 30, 1937, did not even pretend to have regard for the interests of the small shareholder. The “authoritarian leadership principle” must be applied in all corporations, and this confers full authoritarian power on the managing director, who, in general, is a representative of the biggest shareholder.

“The chairman of a corporation is the organ of business leadership.… Up to now the chairman was subject to far-reaching control by the Supervisory Board [elected by the stockholders]. This has been changed. The Supervisory Board now only has the right to appoint and recall the chairman. Under the new law the management of the corporation becomes the sole responsibility of the managing director. He is now therefore independent of the chairman of the Supervisory Board, and is not subject to the latter’s instructions.” 12 There are other reforms along the same line.13

The structure of the National Socialist State somehow serves as an example for all corporations. An understanding of the structure of the totalitarian State, therefore, makes it easy to understand the changes in the structure of the private corporation. At the head of the Third Reich is the Fuehrer, the authoritarian executive. Private citizens may be compared to stockholders who still have a claim to dividend payments, but have no power to render that claim effective. And as the Fuehrer controls the State, so command of the corporation has been usurped by the authoritarian executive. The shareholders have lost their controlling influence and no longer have any right to insist on their claims at the shareholders’ meeting. They have no right to protest and to remove directors who do not respect the property rights of the members of the corporation. On the contrary, the managers have such authoritarian power that they can refuse any dividend or interest payment, demonstrating to their creditors that any return on their capital, any dividend or interest payment, is not their due but rather a voluntary act on the part of the executive.

The world economic crisis has created widespread mistrust among investors. It is no longer possible for corporations to convince prospective investors that the future earning power of new investments is as certain as it appeared during prosperity. But the State is in a better position. It has the power to tax the people and the whole economy—more power than any private monopoly which can tax only certain sections of the economy or the consumers of its particular products.

In modern capitalism claims for interest or future profits are mortgaged and turned into “capital.” Debts appear as wealth of creditors, and therefore as “wealth of the nation.” State debts also are registered as “national wealth” because capitalists or investors have acquired claims for interest payments to be made at some future date. The greater such claims are, the higher taxation mounts, the greater the “national wealth” becomes. This kind of “national wealth” can be tremendously increased under a totalitarian regime, to a greater extent and at a quicker pace than under liberal capitalism, for the totalitarian State does not allow the private investor to judge for himself the kind of investment he wants to make, the reliability of the debtor and the prospect of the debtor’s willingness to fulfill his financial obligations. This is the outcome of State dictatorship on the capital market.