also, they represent Clouterie des Flandres and Felton & Guillaume in Germany and Steel Union, of course, is a 100-percent German output [sic] [outfit].

We resent, just as much as you do to see our mills subjected to the German dictatorship. However, we know that it is very difficult for our mills to get out of it. They have been striving themselves for a year and a half or 2 years to recover their liberty of sales, or, to speak more correctly, to have the right to quote on all their commodities and that is why they had set up that commercial office named Samesco. It was their hope that the Samesco office would be accepted in what is known as the Club for the United States of American [sic] in the Iweco. Of course, our nasty competitors are using all possible trick [sic] to keep them out and if Samesco would go against the will of everyone and simply sell how they like where they like, and at the price they like, according to the agreement, their suppliers of wire rods, which actually is their raw material, would have to refuse to supply them. Samesco being a sister company of Ucometal, wire rods are coming mainly from Ucometal. If, therefore, Ucometal would continue to supply them with raw materials, Ucometal would, themselves, break up the European steel cartel and, should the steel cartel break up, the prices of all steel commodities would dwindle down very fast. This only fear has been keeping everyone together up to now, and the big banks controlling the various mills also see to it that they respect their engagements.

(The document was marked "Exhibit No. 523" and appears on p. 2260.)

Dr. SCHIMMEL. That was the softening process as it was applied to the Belgian steel industry?

Mr. CARTER. Yes.

From the very beginning Germany's foremost iron and steel enterprise had widespread foreign connections and trained personnel to place at the service of the Nazi regime. This it already did as far back as 1933, under such men as Fritz Thyssen, Alfred Hugenberg, and their associates. Hitler had not been in power 2 months before Stahlunion was writing to one of its agencies in the United States, urging it to use its business connections for dissemination of foreign propaganda. Stahlunion's letter of March 31, 1933, obtained from the files of its Seattle agency, reads in part:

A short time ago we gave our most important agencies a detailed review of the conditions in Germany and requested them to do everything in their power to counteract the various reports spread abroad about developments here.

After discussing the Nazi position on a variety of matters, it concludes:

We are always ready to give further information about the present situation in Germany and we should like to request our agencies to see to it that this circular is passed about in order to enlighten people through the press, Chambers of Commerce, etc.

We are enclosing a second copy of this communication and are ready to distribute further copies.

At the same time, we ask our business friends to keep us informed about reports about Germany.

I introduce the exhibit with an apology for the corrections. The word "business" should be inserted before the word "friends" and the last phrase, "from Germany," should read "about Germany."

(The document was marked "Exhibit No. 524" and appears on p. 2261.)

Mr. CARTER. Several months later Dr. Albert Vögler, chairman of the executive board of the Stahlverein, in an address before a special meeting, commented on the "fundamentally changed" political and economic conditions in Germany since the coming of the Nazis to power in the early part of the year. In submitting a plan for reor

ganization "which has been carefully prepared since long and examined in all details will work out favorably not only for our company but for the German economic system." Dr. Vögler declared:

Wavering governments have been replaced by a firm state leadership. Together with peace and order also confidence has been established, and thus the basis for a recovery of our economic (system). With that the moment has come for the realization of all measures which form the basis for the future organic development of our industrial relationship.

(The document was marked "Exhibit No. 525." Available in the files of the Economic Warfare Section, War Division, Department of Justice.)

The CHAIRMAN. In other words, Mr. Carter, when Hitler came to power these German industrial organizations were already inculcated with the Nazi doctrine so as to be better able to play their future role in the Nazi scheme of things?

Mr. CARTER. I think so, sir. They appear to have been in the service of the Nazis from the very beginning.

The CHAIRMAN. I sometimes wonder if they were in the service of the Nazis or the Nazis were in the service of them.

Mr. CARTER. The company's report for the interim period April 1 to September 30, 1934, noted "a phase of development is completed which conforms to the basic principles of national socialist economics." (The document was marked "Exhibit No. 526." Available in the files of the Economic Warfare Section, War Division, Department of Justice.)

Mr. CARTER. Overseas activities were vital to the functioning of an organization like Stahlverein. A glance at its earlier history will show the reasons for this. The concentration of German industry into a few huge combines was given impetus when the German industrialists were indemnified after World War I by their Government for the loss of metallurgical establishments in surrendered territories.

The CHAIRMAN. Do you have a record of when that indemnification took place?

Mr. CARTER. I think we have the records.

The CHAIRMAN. Would that have any connection, in time, I mean, with various loans that were made or floated by American banking companies abroad?

Mr. NORMAN BURSLER (Economic Warfare Section, War Division, Department of Justice). That preceded the loans. That was one of the factors responsible for inflation in Germany.

The CHAIRMAN. In other words, they were indemnified by depreciating currency, thereby causing inflation, and the indemnification was in paper money, which, however, they were able to utilize in building up their business?

Mr. BURSLER. That is correct. The huge indemnities had the effect of depreciating the currency, or in other words, causing inflation. The depreciated currency gave the Germans an advantage in the export trade. At the same time the fact that they were able to make payments within Germany proper in depreciated paper marks gave them a further advantage with respect to overhead, transportation costs, wages, and fuel.

Mr. CARTER. Billions of marks were thus made available for the construction of new mills in the vicinity of coal mines, and additional steel works and mines were absorbed into Germany and Austria from

smaller firms. Combines were formed, bringing under common control all stages of production from mining to finished product. Thus, as a result of indemnities and depreciation of the mark, the German iron and steel industry was better off than its competitors in the victorious countries as regards overhead and transportation costs, wages, and coal. With the decline of production costs orders arrived from abroad just as before the war, while the high rate of exchange in the victorious. countries set up a constantly growing barrier between their metallurgical industries and prospective consumers with depreciated currencies. In 1921 German mills accounted for 20.87 percent of world steel production, or only 1.43 percent less than Germany's share of world steel production during the 5-year period, 1909 to 1913.

Control of Europe's principal deposits of coking coal in the Ruhr Valley gave the steel and chemical combines of Germany a source of strength which they utilized to its full potential both for domestic industrial domination and for strategic advantage in international politics.

The coking coal resources of Germany were concentrated to a large extent in the hands of the chemical and steel combines and related firms, chiefly the Rheinisch-West fälische Kohlen-Syndikat. Through the coking industry, coal mining was linked with the iron, steel, gas, chemical, and power industries directly. Indirectly, through these several channels, it was tied up with the machine, electro-technical, transport, and textile industries. The process of concentrating industrial control was pushed forward so vigorously after the last war that by the middle of the twenties well over two-thirds of the potash industry was owned by the Wintershall firm, three-fourths of the output. of the German electro-technical industry was in the hands of two great vertical combines, the Siemens Konzern and the Allgemeine Elektrizitäts-Gesellschaft (A. E. G.), and the principal chemical and dye companies had been consolidated to form the I. G. Farbenindustrie." The strategy of German heavy industry was successful. During the 13 years from the formation of the steel cartel to the outbreak of the war, the German iron and steel industry developed at a phenomenal rate. In 1926, the year the steel cartel was organized, production by all German companies was only 214 percent greater than the total French production. In the year ending September 30, 1928, the production of pig iron and steel by a single German company, the Stahlverein, exceeded the combined production by all French mills for the calendar year.

Dr. SCHIMMEL. It is interesting to compare the effect of the cartels in Germany and the effect of the cartels on our own economy. The effect here was apparently to restrict production, but the cartel was used in Germany as a means of expanding production as part of an aggressive imperialist policy.

Mr. CARTER. I think that is true.

Stahlverein, in its last annual report before the war, boasted:

During the year 1938 the German iron and steel industry, with an output of more than 23,000,000 tons of steel, has achieved the greatest production in its history. It has been able to increase its share of world production of steel from about 15 percent last year to 22 percent and reach second place immediately behind the United States of America, that country's production having declined in the same period by almost one-half. In a period when world steel production fell by more than one-fifth, the German iron and steel plants, regarded as one single national industry straining to the maximum, were alone in increasing their production.

(The document was marked "Exhibit No. 527." Available in the files of the Economic Warfare Section, War Division, Department of Justice.)

Mr. CARTER. The organization of Stahlverein in 1926 brought under one management approximately half of Germany's steel capacity and one-fifth of its coal. In a report to Dillon, Read & Co., American investment bankers in New York, H. A. Brassert, a consulting engineer who subsequently built the Hermann Goering Works, wrote:

With their great plants on the lower Rhein and Ruhr Canal system, these concerns (Rheinelbe Union, Thyssen, Phoenix, and Rheinstahl) have for years held a dominating position in the German steel industry.

The combination of their principal plants will form the largest industrial unit in Europe.

I consider this merger of properties to be a most logical one, and the future of the United Steel Works Corporation as assured. The possibilities of reducing the cost of production and enlarging its markets are beyond any estimate I have made in this report. The management is in the hands of able and experienced men who had the vision and realized the opportunities of the enormous economies to be gained through consolidation and who were quick to work out a comprehensive and effective program of administration, operation, and sales.

(The document was marked "Exhibit No. 528" and appears on p. 2264.)

The CHAIRMAN. What was the date of that?

Mr. CARTER. June 1926.

The CHAIRMAN. Was that by any chance when Dillon, Read & Co. were helping finance that combination?

Mr. BURSLER. That was the purpose.

The CHAIRMAN. The purpose of the report was to get an American banking house to finance a dominant steel organization in Europe. Did they succeed in getting it put over; who did finance that; do you know?

Mr. BURSLER. Dillon, Read & Co. and J. Henry Schröder & Co. handled the financing. The letter from Mr. Brassert was supplied to enabled them to pass the bonds on to the investing public.

Dr. SCHIMMEL. I think it might be pertinent to point out that at that time Germany was still a republic, but the engineer involved subsequently did engineering work under the Nazis, as well as making this report, so there is a continuity of interest on the part of this engineer, but, on the other hand, the American people might have thought they were helping build up the German Republic.

Mr. CARTER. So necessary was the continental steel cartel for the Germans in carrying out their plans that when it was organized in 1926 they accepted a smaller production quota than they felt they were entitled to have. Once the cartel was organized and the production of steel in neighboring countries brought under control, the volume of their own sales abroad at high prices would make the penalties for exceeding their quota a small price to pay. During the first year of the cartel's existence, Germany alone paid more than $10,000,000 of the less than $13,000,000 in penalties.

To permit the profitable operation of an iron and steel industry that for military reasons had increased its capacity far beyond the requirements of peacetime economy, the Germans adopted high "protective" tariffs and cartel arrangements designed to raise prices. Prior to the Nazis' rise to power, a German Government commission of inquiry showed that the Germans annually paid for steel products from 300,

000,000 to 400,000,000 marks (about $80,000,000) more than if German prices had been in harmony with the world price level.

The Germans have long stressed the desirability of equal access by all nations to the raw materials scattered by nature without regard for national boundary lines. At the same time, they have devised economic policies which have denied others access to the raw materials within the German border, especially the materials needed in the iron and steel and chemical industries.

A few months prior to the outbreak of the present war, a Krupp official pointed out:

The last war convinced us that it is not iron or ore which count most in the iron and steel industry, but the coke supply.

(The document was marked "Exhibit No. 529" and appears on p. 2271.)

Mr. CARTER. Pressure was brought on the French mine operators by substitution of Swedish and Spanish iron ores for those previously obtained in France. At the same time competition from French iron and steel mills was met by German manipulation of their production costs through control of the price of metallurgical coke. The sale of French products in the German market was further controlled by high customs barriers. And finally there were the extremely effective cartel policies.

It is significant that after the Nazis came to power, the cartel was reorganized and given control only of exports. Now, the German steel works were not limited in their production, but, taxed by the demands of the rearmament program, they had to forego export sales. The foreign mills, to supply the resulting export shortage, exceeded their quotas and paid penalties to the Germans, who incidentally, or perhaps coincidentally, had great need for foreign exchange.

Other expedients also were used. Leading officials of Stahlverein met at secret meetings and established quotas for European mills. I want to introduce the minutes as an exhibit, and also a very interesting document that was uncovered by Mr. Bursler, an agreement between the rail cartels.

(The documents were received and marked respectively "Exhibits Nos. 530 A and B" and appear on p. 2271, 2281.)

Mr. CARTER. Pressure was brought to bear on non-German competitors to observe quotas, but through subterfuge the German mills were able to increase theirs. Furthermore, at these meetings it was decided whether or not to allow nonproducing countries the materials they needed to build a steel industry of their own.

In 1938 the German steel interests even went so far as to attempt to prevent the establishment of a steel industry in Greece. On August 3, 1938, the Stahlwerks-Verband A. G. (the German national steel cartel) wrote to the International Steel Cartel at Luxembourg:

As already informed we will have left no stone unturned, in order to by all means prevent the establishment of an iron industry in Greece. The steps we had taken in this regard through the German Embassy in Athens, did however, not lead up to now to the expected result.

Nontheless it was observed that the groups affiliated with the international steel cartel had