Crowds outside the National Bank of Belgium in Brussels fearing a run on the Franc in July 1914.In August 1914, the Banque National de Belge transferred its gold reserves and ‘a large number of State bonds’ to the Bank of England and despite protestations from the Germans that these assets should be returned, they remained safely in London vaults along with the printing blocks for official Belgian currency. [1] This arrangement had been secretly agreed in 1913, and though several members of the board of the National Bank of Belgium were sent by the Germans to London in February 1915 to ‘recover’ bonds and gold, the mission was little more than tokenism. There were no circumstances under which gold would have been returned. Which raises the question of what was it all about?  

The critical issue for bankers in early 1915 was the circulation of money which was becoming an ever increasing problem for both the CRB and the occupying forces. A solution had to be found. Without money, commerce would shudder to a halt. Herbert Hoover journeyed to Berlin in February 1915 to meet amongst others, the German Minister of Finance. [2] The Reichsbank offered to solve the impasse by raising a $50,000,000 loan in America, guaranteed by Germany, but to be repaid by Belgium. They suggested the construction of a ‘relief bank’ but the proposal had to be rejected. No matter how important he considered himself, Hoover did not have the power to impose a $50,000,000 debt on the Belgian government. [3]

Another proposition demonstrated just how much the ‘Relief’ business was worth to international bankers. According to Hoover’s memorandum of the meeting on 4 February, 1915, the Germans suggested that the CRB might use ‘ friends of the German Government in New York City’ to discount their bills of exchange through Max Warburg in Hamburg and the New York banking firm of Kuhn, Loeb and Co. International trade worked effectively through this system whereby one party, say, a German importer pays for American grain by a giving the American exporter a bill, much like a cheque, to be paid in three months time. If the exporter needs the cash early he can take the bill of exchange to a merchant bank which will discount it. That means the bank will instantly pay him a sum of cash at less than the bill’s value. The bank can afford to wait three months and take the full amount. It has always been big business. In wartime it was huge business.

Paul Warburg, the brains behind the creation of the Federal Reserve System in America.Max Warburg, head of the Warburg Bank in Hamburg and financial advisor to the Kaiser.

The Warburg brothers, Max and Paul were key players in international finance. Max Warburg was head of the family bank, M.M. Warburg and Co. in Hamburg, and Paul Warburg was senior director at Kuhn, Loeb and Co. in New York. Like the J.P. Morgan empire, both Warburgs had strong Rothschild connections. [4] Paul had been instrumental in the creation of the Federal Reserve System in America, and basically both these men were deeply involved in the business deals which were wrapped around Belgian Relief. How convenient was this for the Secret Elite? Max Warburg offered to take over the market in discounting South American grain bills [5] which would divert the profits from London.

Later that same evening, Warburg met with Hoover at Berlin’s Adlon hotel and talked about his great success in discounting bills for cotton shipments from America to Germany through Kuhn, Loeb in New York. He believed that his firm could offer a better return for discounting the grain bills. [6] Next day, Hoover held talks with Albert Ballin, the Head of the Hamburg-America shipping line, and a frequent visitor to London before war broke out. Indeed Ballin’s connections in Britain gave him access to Secret Elite controlled politicians and, days before the final declaration of war, he went to London ‘ostensibly on business’. Here he met Sir Edward Grey, Richard Haldane and Winston Churchill but we do not know what they talked about. [7] Official histories limit the discussion to assurances given to Ballin that Britain would remain neutral, but was that all? Barely one week later, Albert Ballin and Max Warburg had been put in charge of the Zentraleinkaufsgesellschaft, (ZEG) the state-owned organisation charged with purchasing food for Germany from foreign countries. [8]

The Hoover memorandum states that Ballin was keen to have his impounded Hamburg-American freight ships released for use by the CRB, [9] but Hoover knew that it would not have been acceptable to the British public for German ships to freely carry goods across the Atlantic. Having taken a cargo to Rotterdam, it would have been comparatively easy for Ballin’s freight ships to slip into German waters. It was a risk too far even for the Secret Elite. However there is another consideration. Both men were rivals for the scarce commodity, food.

Alfred Ballin, Head of the Hamburg-Amerika line

Hoover had the great advantage of access to the world market, while Ballin was restricted to the Romanian grain harvest and what could be imported from America through the sham blockade. [10] Ballin would also have known about the vast quantities of CRB imports flowing through Rotterdam, and precisely how much was being diverted to Germany. Given that Albert Ballin was in charge of German food procurement, and Herbert Hoover headed the Commission for the Relief of Belgium, how likely is it that their talks were limited to shipping and finance?  Are we to believe that Hoover and Ballin failed to talk about food importation? Be mindful that Hoover’s memorandum is the only known record of their discussions.

Hoover’s visit continued with a meeting with the financial advisor to the Imperial government in the company of Max Warburg who repeated ‘two or three times’ that his brother’s influence with the Federal Reserve System would be financially beneficial to the CRB. [11] The Warburgs were desperate to muscle into the markets for discounting bills of exchange and the claim that they had influence over the Federal Reserve in New York was no mean boast. Unfortunately for them, so too did J.P. Morgan. It was a non-starter, but both sides had to find a solution to the tricky problem of money. Without money workers couldn’t be paid, pensioners would go penniless and trade would stutter to a standstill. Faced with that reality-check, both the Belgian government in exile and the German government of occupation accepted a solution which was mutually beneficial.

Emile Francqui’s Societe Generale was appointed to act as the national bank in Belgium, and was granted the exclusive right to issue bank-notes until 20 November, 1918. [12] Instructed by the German authorities, these notes did not carry any national emblem or picture of the Belgian royal family or indeed anything that symbolised patriotic loyalty. [13] By this point Emile Francqui had become the ‘national mediator’ [14] and little wonder, given the power that was devolved to his bank. Naturally, banks charged for their services, and the Societe Generale had much to gain. More pertinently, this arrangement suited all parties, belligerent and neutral, and helped prolong the war.

When Herbert Hoover negotiated the massive loans for Belgian Relief from allied governments he used the J.P. Morgan organisations in America, co-ordinated through Morgan Guaranty Trust of New York which, in turn, made the requisite transfer to Morgan Guaranty in London. Part of the ‘money’ was then transferred on paper to Banque Belge pour L’Etranger in London to pay for civil servants, pensioners, schoolteachers and many other Belgian government workers. From there, the money was transferred to the Societe Generale in Brussels.

Societe Generale Banknote from 1916. It was the only accepted banknote printed in Belgium at the time.

Though this was managed on ledger accounts, like all paper currencies, if accepted in exchange, the system worked. The Societe Generale had, under German authorisation, printed acceptable banknotes estimated at 1,600,000,000 Fr which circulated through the economy and underscored trade and commerce. Franqui’s bank was permitted to issue bills to the value of three times its holdings in gold, in foreign currency, in Reichsmarks and in credits on foreign banks. [15] The Societe Generale’s role was therefore, absolute. Francqui was the bankers’ banker. At this point, with an acceptable currency in circulation and used by both the public and by international banks, the German government imposed a 40,000,000 Fr (£1,600,000) tax per month on Belgium. This equates to  £114,5000,000 per month at today’s values. There was muted outrage, but little else. The bankers protested, but paid up rather than risk their personal fortunes. The Germans had agreed an important trade off. They did not interfere with overseas investments held by Belgian Banks. Perhaps that is why their protests amounted to a mere whimper.

There was an additional problem with the lack of money in circulation  because the Belgians were by nature cautious and inclined to save any spare income. In any case there were very few luxuries available outside the American Relief shops in Brussels and Antwerp. However, in September 1916, the occupying force took stringent measures to annex the public savings accounts in both the Banque National de Belge and the Societe Generale. They demanded that the funds held in Reichsbank notes be transferred back to German control or the banks would be sequestered. Whether or not the threat was real, $120,000,000 was collected for the German treasury and transferred to Berlin. [16] Germany firstly imposed a tax and carried off about one quarter of the money which the American loans had guaranteed, and then annexed savings.  This money boosted the Reichsbank’s holdings and was used by the German government to buy foreign goods. So the war was effectively prolonged because Belgian Relief provided Germany with food to sustain her armies and funds to pay for her war effort.

Cardinal Mercier, Catholic prelate and hero of Belgian Catholics for his strong resistance. Hoover played up the plight of 'Catholic' Belgium to boost funds.

The popular belief was that the funds used for Belgian relief came from public charity, mostly of American origin. Not so. Though Hoover embarked on many fund-raising initiatives and made constant appeals to individuals, national groups, even Pope Benedict XV, whose Papal message to America in early December 1916 was strategically timed to coincide with Christmas gift-giving, [17] the major source of income came from official government loans organised through J.P. Morgan’s American consortium. In early 1915, Hoover had negotiated an Anglo-French-Belgian subsidy of $5,000,000 per month and in 1916 this was increased by 50% to $7,500,000 per month. [18] In 1917, The New York Times ran an article which implied that Hoover was being ‘shamed’ by the paucity of charitable funds sent from the USA, a mere $9,000,000 (under 4%) of the total $250,000,000 spent by the end of 1916, even although ‘fat profits had been made in America from the sale of supplies for Belgium.’ [19] It was a clever ploy, targeted at the American public conscience, for Hoover did not care where his funds came from. Nor do his figures make sense. In America alone, thousands of committees were formed to collect funds.  The Literary Digest alone donated over $300,000 and numerous institutions, magazines and newspapers in America ‘ gave till it hurt’. [20] We will never know the true extent of the fraud.

Once America declared war in April 1917, Hoover was able to access even greater funds from the US government, which agreed to contribute directly.  In May 1917, $75,000,000 was appropriated for his use. And the incredible fact is that these sums were credited to the French, British and Belgian Governments, but spent, as in all cases by the CRB. The money from the American Government was to be advanced in instalments of $12,500,000 per month, of which $7,500,000 was to go to Belgium and $5,000,000 to France, whether or not the afore-mentioned had asked for it. [21] These were awesome figures and the language used signalled Hoover’s primacy in deciding how funds were to be spent. His agencies decided what would be bought from suppliers all over the globe, which shipping agencies would carry the cargoes, which distributors would be employed. Fortunes were made.

Hoover was fearless in overspending other people’s money. By mid-1916 the commission’s expenditure in Belgium exceeded its income by $2,000,000 a month, [22] but Hoover knew that he would be able to source the funding for the simple reason that all of this was planned. The political will was there; it simply had to find reason. Financial muscle was never far from his centre of power. The Morgan/Rothschild axis was wrapped around the entire project; but they were not the givers, they were not donating funds; they acted as suppliers of funds … at a price. They were bankers.

[1] The Times 22 Feb. 1915.
[2] George I. Gay and H.H. Fisher, Public Relations of the Commission for Relief in Belgium, pp. 245-250, Documents 135-138.
[3] George H. Nash, The Life of Herbert Hoover, The Humanitarian, 1914-1917, pp. 86-7.
[4] Gerry Docherty and Jim Macgregor, Hidden History, The Secret Origins of the First World War. pp. 214-5.
[5] Gay and Fisher, Public Relations of the Commission, p. 245, Document 135.
[6] Ibid., p. 247, document 136.
[7] Bernhard Huldermann, Albert Ballin, p. 215.
[8] Ibid., pp. 223-228.
[9] Gay and Fisher, Public Relations of the Commission, p. 248, Document 137.
[10] See our blogs between December 10 and February 4, 2015.
[11] Gay and Fisher, Public Relations of the Commission, p. 248, Document 138.
[12] Manfried Pohl and Sabine Freitag, Handbook on the History of European Banks.
[13] Brand Whitlock, Belgium Under German Occupation, p. 214.
[14] Charles D’Ydewalle, Albert King of the Belgians, p. 147.
[15] Brand Whitlock, Belgium Under German Occupation, p. 217.
[16] Ibid., p. 215.
[17] New York Times, 21 December 1916, p.8.
[18] George H. Nash, The Life of Herbert Hoover, p.197.
[19] New York Times, 31 January 1917.
[20] John Hamill, The Strange Case of Mr Hoover Under Two Flags, pp. 322-3.
[21] New York Times, 10 May 1917.
[22] George H. Nash, The Life of Herbert Hoover, p. 196.