Hand-to-Mouth

(See front cover)

Exactly where the smudge-mustached Chancellor of Germany might be and with precisely whom he conferred became for several days last week the closest of state secrets. In a general way Austrian-born Adolf Hitler was known to be moving warily about South Germany, watching every phase of the bloody crisis in his Motherland from a ringside position. But one morning Munich buzzed with an arresting rumor: "He talked last night to The Man With the Cleft Nose."

On a high Bavarian crag 45 minutes by motor from the nearest railway station perches Tiefenbrunn, the estate of cleft-nosed Dr. Kurt Schmitt. The view from his bedroom window is scarcely rivaled in all Bavaria. In bed last week with a telephone at his elbow the German Economics Minister was struggling with a strangling crisis in the Fatherland's economic life.

"Export Fatigue." Energetic Dr. Schmitt, a keen sportsman and a Mounted Group Leader of Equestrian S. S. Troops, was brought to bed by nervous exhaustion. He had worn himself out on a whirlwind tour of the Fatherland to drive home the slogan: "Stimulate Exports as a National Duty!"

This campaign was launched, according to Dr. Schmitt, because so many German firms are infected with "export fatigue." They have weakened in their efforts to push their sales in foreign markets where depreciated currencies have made ruling prices low in terms of gold or of the German mark. Cried Dr. Schmitt: "The error of concentrating on the home market in times like these must be uprooted! Exports must be forced by every means so as to secure for the Fatherland adequate foreign exchange!"

On his swing around Germany the dynamic Minister of Economics grew more and more high strung. Certain of his speeches amounted to exhorting German manufacturers to dump their goods abroad at less than cost, at any price they could get for the good of the Fatherland. Manufacturers too infected with "export fatigue" to obey were threatened with Government reprisals. Then Dr. Schmitt cracked under the strain and four Berlin doctors rushed him to his

Bavarian country estate where by last week he had recovered enough to plunge again into work by telephone and telegraph.

"Mountain of Mahogany." The bedside telephone in Tiefenbrunn is linked by direct wire with a huge grey stone building on Unter den Linden in which tourists used to cash their letters of credit, dazzled by the splendiferous luxury of Germany's great Disconto Gesellschaft. The Government bought the building last year "as is" and it remained empty until last month. When the Ministry of Economics then moved in Dr. Schmitt exclaimed, "That mountain of mahogany is no desk for me! I want something smaller, with a big drawer for cigars."

Secretaries persuaded Smoker Schmitt that it would be extravagant and wasteful not to keep the mountain of mahogany. Seated behind it last week as Acting Minister was Dr. Schmitt's closest collaborator, Under-Secretary Dr. Hans Ernst Posse. The two men's minds click in synchronism along Nationalist lines which bend sharply away from the Socialism in National Socialist doctrine. Minister Schmitt has said publicly: "Every attempt to socialize business is doomed because of the human factor. What has made Germany great is the utilization of individual capacity."

Privately Under-Secretary Posse has jested that millions of German proletarians were caught by the "socialism" of National Socialism as flies are caught on flypaper. Extreme discord is caused in the Ministry of Economics by the fact that the other Under-Secretary is bristle-lipped Dr. Gottfried Feder, once famed as the Nazi Party's "Chief Ideologist" and nailer-down of the neglected Party plank which promises to break "interest slavery." In Berlin last week Dr. Feder continued to smoulder as Dr. Posse exercised the drastic powers recently decreed by Chancellor Hitler under which the German Economics Minister is now the nation's ''Economic Tsar" (TIME, July 16).

Factory Food. Nazis have concentrated upon nothing so much as on reducing unemployment and results are numerically impressive despite exaggeration in the official figures which show a drop from 6,000,000 to 2,500,000 jobless. In the "successful"' Nazi drive for employment, however, so many bare subsistence jobs have been created, full time wages have been so reduced and employment has been spread so thin that deep privation exists among the masses. This privation is made acute by mounting costs of the necessities of life. If price were not a factor there might be said to be no actual shortage yet. but shortage exists from the viewpoint of underpaid German workers. Millions who once buttered their bread now munch it dry, skimp on potatoes, tighten their belts. They see prices gradually mounting beyond their reach, first because the drought is ruining internal crops and making existing supplies dear; second, because the growing scarcity in Germany of foreign exchange is causing importers to mark up what is on their shelves, not knowing when or on what terms their stocks can be replenished.

In industry the lowering of production costs because of lowered wages, plus the indirect effect of Government subsidies for public works and agricultural development, has produced a species of boom. That this is unhealthy is shown by the fact that production of consumer goods has increased negligibly, if at all. The boom has been almost entirely in heavy industry and some of it mysterious. Thus on their face official German iron and steel statistics fail to show either consumption or export of vast quantities of these metals listed as produced. The inevitable suspicion smites neutral economists that much of this iron and steel must be going secretly into munitions.

The nation cannot feed itself. Germans must import roughly 30% of what they need for normal nutrition. Moreover, German industry is far more hungry than are Germans. It must buy abroad more than 50% of its raw materials, notably iron ore, copper, mineral oils, cotton, wool and rubber.

When Adolf Hitler seized power Germany's trade balance had been favorable for three years and thus her vital imports were more than paid for by the proceeds of her exports. While this lasted the Fatherland could be considered economically afloat, no matter how deeply Germany might mire herself in the morass of moratoriums declared by blunt, bluff Dr. Hjalmar Schacht, President of the Reichsbank.

That period of defiant respite is now over. Antagonized by Nazidom, other nations have slashed their imports of German goods. Today what Germany sells no longer brings in enough to buy what she must purchase abroad to feed her people and her factories. There would be one way out if she could get fresh credit--but she has scuttled her credit. There would be another way out if she could export foreign exchange or gold--but the gold cover behind German marks has fallen to less than 2% or "scarcely till money'' in the Reichsbank, which is frantically short of foreign exchange.

Germany has been saved so often by her foreign creditors at the last moment that these International Bankers were the subject of speculation last week. Was there another rescue in them? In London the staid Financial News inferred from the presence in Manhattan last week of fox-bearded Montagu Collet Norman, Governor of the Bank of England, that he might be organizing a rescue party. After the Nazi assassination of Chancellor Dollfuss (see p. 17). British editors raised a chorus of demands that Germany be left to her fate.

"Import Blockade." Adolf Hitler can make an "Economic Tsar" but an "Economic Tsar" cannot always work miracles. Up to last week Dr. Schmitt's Ministry of Economics had used its theoretically boundless powers chiefly to establish an "import blockade" or trade rationing system as drastic as Soviet Russia's.

Because spring frost delayed and summer drought blighted the German potato crop the blockade had to be relaxed in July to admit Italian, Dutch and Belgian potatoes, but it was jerked tight last week. German importers groaned as they were cut down for August 1934 to a quota of only 5% of their average monthly imports for 1931. Meanwhile the textile industry factories were put under pressure to weave artificial fibres into their cloth by an order from the Tsar forcing factories which do not use such substitutes to cut their production hours from 48 to 36 per week. Since Germans are now hoarding goods in fear of inflation there is no dearth of "unhealthy orders," another factor in the boom. Sternly the Economics Ministry sent out fresh reminders last week that Tsar Schmitt has barred all opening of new factories or extensions. Germans must not enlarge the stomach of the great beast of German industry.

Corporative State? Ironically, the Man With the Cleft Nose was not mustered into the Hitler Cabinet to play the desperate role of Economic Tsar but to equip Germany with an ordered "Corporative State." Chancellor Hitler, who despises armchair economists, took a keen personal liking to dynamic Dr. Schmitt as a "frontline war fighter." (His nose, however, was not cleft in battle but in a student duel.) Not an original Nazi, Dr. Schmitt entered the Cabinet with a reputation as Germany's No. 1 insurance tycoon, a man of rugged integrity whose energy and calm enabled the Frankfurter Insurance Co. to be reorganized in 1930 without great loss to policy holders.

According to Dr. Schmitt the "Corporative State'' was to be achieved by dividing German business into twelve groups, each with a "Group Leader" sitting in the Grand Economic Council. This division has been made and on the Council sit Steel Tycoons Fritz Thyssen and Gustav Krupp von Bohlen. Beyond this point, however, the Nazi "Corporative State'' is still on the shelf.

Abroad rumors have buzzed insistently that Tycoons Krupp von Bohlen and Thyssen were behind the recent blood purge of Nazi radicals (TIME, July 9) and now dominate Adolf Hitler. Best opinion among informed U. S. correspondents in Berlin was summed up last week as follows: "Herr Thyssen has lost much of the influence he enjoyed during the Party's fight for supremacy, when he was National Socialism's greatest champion among Big Business. Neither Thyssen nor Krupp von Bohlen is able to force his own ideas upon the Party, though their combined influence is still strong in Government circles."

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