Men of the Secret War Council: Bernhard Dernburg

Bernhard Dernburg had given up his illustrious banking career to become Secretary of State for Colonial Affairs in 1907. The heavyset, full-bearded figure, with clear blue eyes, attentive, with a friendly disposition, portrayed raw power, intelligence, and decisiveness. Wildly successful as an innovative and daring reorganizer, the German banker had risen to stardom in German political and financial circles, en par with “Albert Ballin, Walther Rathenau, Max Warburg, Carl Fürstenberg, and Maximilian Harden.” The German Emperor had chosen this powerful Jewish banker specifically for the colonial secretary assignment because “[…] his distinguishing characteristic [was] Rücksichtslosigkeit, cold-blooded, unrelenting disregard for anything but his objective.”

Former Imperials Secretary of the Colonies and the highest ranking German official in the United States in 1915, Dr. Bernhard Dernburg.

Dernburg was looking for a new job in the summer of 1914. His political enemies, the legions of kowtowing Prussian bureaucrats the secretary had steamrolled throughout his career, had finally succeeded in having him fired from his cabinet post in 1910. It took the Emperor four years to find a suitable mission for his old friend who had used the forced break for extensive travels to Asia and touring on the lecture circuit.

The beginning of the Great War provided the opportunity. The former imperial secretary, the “Captain without a ship,” was to arrange for a large loan to the tune of $150 million in the United States and organize the sale of German war bonds on the American market. The proceeds were projected to finance the expected cost of purchases of American goods Germany needed in the war years. Nominally, Dernburg represented the German Red Cross in the United States, a designation causing great consternation when the American public found out that their donations financed the war effort instead of helping battlefield casualties. As a banker, Dernburg had been overseas on numerous occasions, and even spent his banking apprenticeship at Ladenburg, Thalmann and Co. in New York. He had also cultivated important contacts on Wall Street in his years as a banker, Colonial Secretary, and financier. He spoke excellent English. The imperial German government considered Dernburg an expert regarding the United States with the chutzpah to get things done. Unfortunately, much to the chagrin of Ambassador Count Bernstorff, diplomacy turned out not to be one of Dernburg’s strong points.

His first task was to raise a war loan for Germany in the United States, which he could not achieve in the face of a failing war effort in the fall of 1914. Dernburg then took over propaganda for Germany in the United States. Somewhat more successful, he gave interviews, wrote editorials and bombarded editors with prepared editorials. One of the targeted editors commented: “Our mail is dernburged until the postman can scarcely stagger up the front stoop with it. They are systematic those Germans. If you doubt it, send them your postoffice [sic] address.”  The sinking of the Lusitania in May 1915 sank any chance of winning the hearts and minds of the American public. After a speech in Cleveland, defending the German atrocity which killed 129 Americans, Dernburg went back to Germany before the U.S. government would evict him.

The Road to Columbus: The Canova Connection

William Jennings Bryan resigned as Secretary of State on June 9, 1915 over his frustration with Wilson’s foreign policy towards Germany, which he believed would eventually drag the United States into the European conflict. Robert Lansing came in his place, the Counselor of the State Department who had advised the President on a stricter course towards Germany. However, Lansing also believed that the continuation of the Mexican Revolution posed a national security risk for the United States. His main adviser on Mexico was Leon Canova, the recently appointed head of the Latin American desk at the State Department.

Leon Canova (4th from left) and Alvaro Obregon (3rd from left) in Mexico City, October 1913

Canova belonged to a group of American businessmen and exiled Mexican politicians who believed that in the end only an American military intervention or a faction of Mexicans with the full financial and political support of the United States could end the ongoing civil strife south of the border. This group included such men as the former Mexican Foreign Secretary Manuel Calero, Felix Díaz and Aureliano Blanquet – two of the conspirators who overthrew President Madero in 1913 – and Villa’s main military adviser, as well as the former secretary of war for Carranza, Felipe Ángeles. Manuel Esteva, the Mexican consul in New York under Porfirio Díaz and Victoriano Huerta, who Carranza fired in the fall of 1914, Andrew Meloy, an American railroad investor, and Frederico Stallforth all belonged to this group. Sherburne Hopkins, the powerful lobbyist for Madero, Villa, and Carranza in Washington D.C., and Felix Sommerfeld at least shared the group’s ideas on resolving the Mexican civil war. Leon Canova, with the silent blessing of Robert Lansing, became the group’s spokesman in the State Department.

Leon Canova had received his job because of Pancho Villa. The American special envoy had smuggled the former federal police commander of Mexico City, Eduardo Iturbide, to the United States in his special railcar on Christmas 1914. Pancho Villa saw Canova, and even briefly chatted with him, at the train station in Mexico City. After the train left, Villa’s secret service reported to him that Iturbide had been observed with Canova and that he had disappeared. Villa put together what had occurred and, after throwing one of his well-known fits, issued a call for Iturbide’s arrest. A search party finally entered the rail compartment in Chihuahua. Iturbide was gone! He had exited the train just south of Aguascalientes hours before the first attempt to search the compartment, and was making his way up to the American border on foot. Canova had so misled Iturbide’s pursuers by refusing a search, that they lost his trail. The train with the American consul arrived in El Paso on Christmas day 1914, while Iturbide relied on his skills and sheer luck to make it across the border to safety. Villa was furious and declared Canova a persona-non-grata. Not being allowed back to Mexico, he received a promotion to heading the Latin American desk in the State Department. Villa now had a dead enemy in a very powerful position in Washington.

Canova submitted a proposal to Secretary of State Bryan in May 1915, in which he claimed that Villa was ready to lay down his arms. A newly configured faction would be able to absorb his forces and pacify Mexico. Canova claimed to be able to enlist former federal officers (represented by Blanquet, Mondragón, and Angeles), rally the support of the Catholic Church (represented in the group through Felix Díaz and Eduardo Iturbide), receive financial support from the American oil and railroad industry (represented by Andrew Meloy, Charles Douglas, and Sherburne Hopkins), and mount this new opposition force quickly and efficiently. Mexico would be pacified by eliminating both Carranza and Villa.

The plan Canova submitted to Secretary Bryan and a plan Andrew Meloy, the railroad investor from New York pursued are almost identical. After his arrest in England as a German spy, Meloy described his ideas for pacifying Mexico to the American Ambassador Walter Hines Page. Meloy’s statement matched Canova’s plan almost verbatim. The American businessman claimed that through German naval intelligence agents Felix A. Sommerfeld and Frederico Stallforth, he had assurances that Villa would step aside, that he had broad support from different factions in Mexico, members of the old federal army, the Catholic Church, and important American financiers and industrialists. Even the information Meloy gave with respect to Carranza’s refusal to be part of any unity government closely matched the known information about the Pan American conference between July 15 and August 8.

Further linking the Canova plan to Meloy, the arrested businessman perplexed the American ambassador in London by saying repeatedly, “Mr. Charles A. Douglas of Washington, whom he describes as ‘Counselor to the Department of State for Latin American affairs.’” That title belonged to Leon Canova. The embarrassment for Canova to have been involved in a scheme, in which German agents also participated, grew in the months to come. The head of the Bureau of Citizenship in the State Department told Canova in September 1915, “It appears to me that Meloy is engaged in a scheme of considerable proportions to foment a new revolutionary movement in Mexico, with German aid.”

Meloy pursued his plan in good faith with all the Mexican factions throughout the spring of 1915, with the sympathetic knowledge of members of the State Department. The Mexican factions all waited for whatever advantage they could gain from the scheme. Meanwhile, German agents plotted to use Meloy’s idea as a smokescreen for introducing more strife into the border region than already existed. The American businessman traveled three times back and forth to Europe and met with expatriates in his office in New York. Boy-Ed wrote to Heinrich Albert in July, 1915, “I have repeatedly conferred with him [Meloy] and have received the impression that he is an honorable, trustworthy man. If he has a commercial failing, according to my observation, it is this one, that he is entirely too confiding and is easily made the victim of tricky businessmen.” 

A significant piece of the German strategy to create a war between the United States and Mexico fell into place in October of 1915. Woodrow Wilson decided to extend diplomatic recognition to Venustiano Carranza as a result of the declining fortunes of Pancho Villa. The decision was based, in part, on the intent to reduce tensions in Mexico and to strengthen the dominant faction in the civil war. The head of the Latin American desk in the State Department, Villa’s sworn enemy Leon Canova, had much to do with swaying the president to change policy towards Mexico. The American government underestimated the extent of Pancho Villa’s fury in the process, and did not count on the manipulative genius of Felix Sommerfeld to take advantage of this new situation.

Dr. Hugo Schweitzer and the Great Phenol Plot

Dr. Hugo Schweitzer

Dr. Hugo Schweitzer headed the U.S. subsidiary of Bayer Corporation. He had come to the United States in the 1890s as a chemist, climbed the corporate ladder and became one of the top CEOs in the American economy. He also remained on retainer by the German army. Schweitzer was an industrial spy - and a tremendous asset to the German Secret War Council in World War I. Schweitzer had impressed the head of the Secret War Council, Heinrich Albert, through his integrity, absolute loyalty to the German cause and intellectual capability. The German pharmaceutical executive theorized early in the war in an article titled, “Chemists’ War” that the chemical industry was the key to defeating Germany’s enemies. His ideas turned out to have prophetic value, considering the role of chemical and biological weapons used later in the war. After founding the German Publication Society, raising significant contributions from the German- American community, and working with Albert and Dernburg on propaganda projects, Schweitzer wanted to do more. He inundated  Albert’s office with a barrage of suggestions in the spring of 1915, as the German agents in New York embarked on finding strategic raw materials that could disrupt the American production of explosives, arms, and ammunition. The business executive and formidable chemist identified a chemical hardly known for its strategic value: phenol, also known as carbolic acid. This chemical compound, which is derived from crude oil, is used in many industrial products, mainly all kinds of polycarbonates and polymers, as well as detergents, and pharmaceuticals such as Aspirin. However, carbolic acid also was a key ingredient in the production of TNT. The price of carbolic acid increased as the American munitions industry boomed. Shortages of this crucial ingredient in Aspirin haunted Bayer’s Rensselaer, New York factory that produced this wonder drug.

Dr. Schweitzer immediately saw a tremendous opportunity to procure the necessary phenol for the Bayer Chemical Company while, at the same time, removing its availability for the explosives industry. He proposed to Albert and his team in April 1915 to build a factory that processed benzene into phenol and picric acid. This factory would have cost an estimated $100,000, and would have cornered the entire high explosives market. Not ready to invest in a second factory, the idea remained on the back burner while the team explored other options to limit the supply of strategic chemicals. After a barrage of suggestions and market data on the chemical industry, Schweitzer received orders to corner the high
explosives market through purchases of picric acid, a key ingredient of TNT, in June 1915.

Despite serious efforts using Stallforth and various straw men, and despite offering contracts above market price, Schweitzer could not get a contract with the American picric acid manufacturers. While his idea for a German-owned factory wound its way through the Secret War Council’s decision-making process, another formidable American inventor and entrepreneur chomped at the bit. Suffering from shortages of carbolic acid for his own ventures, Thomas Edison decided to build his own phenol refining plant in Silver Lake, New Jersey. Edison had no designs on participating in the booming war industry. Rather, the inventor of the phonograph urgently needed phenol for his booming vinyl record production company. Naturally, Edison’s plans quickly circulated in the chemical industry and reached the ears of Dr. Schweitzer. The Bayer executive immediately entered into  negotiations with Edison to secure excess production for his Aspirin production and prevent phenol from reaching explosives manufacturers. 

Albert agreed to finance the purchase of Edison’s entire annual excess output. Bayer Aspirin, a much-needed product in the domestic U.S. market, became the ideal cover for the project. After the Interior Department gave the green light for the investment, Schweitzer secured 1.2 million pounds of phenol at the end of June, virtually locking down the available U.S. capacities for the entire year. Without phenol, there would be no picric acid. Albert spent $1.3 million ($27.3 million in today’s value) on the contract. Schweitzer and Albert created a web of dummy companies to obscure the underlying mechanics of the operation. Edison’s phenol went to the Chemical Exchange Association, a post office box brokerage firm in New York. The actual deliveries went to the Heyden Chemical Works in Garfield, New Jersey, a subsidiary of the Chemische Fabrik von Heyden in Radebeul, Germany. As was the case with most German industrial producers, the Heyden concern in Germany had been requisitioned for the war and Albert Ballin. Phenol and derivative products went from Garfield directly to Bayer. Dr. Schweitzer sold off what Bayer did not need to other end-uses not considered detrimental to the German war effort. 

The action severely affected the U.S. markets. The price for toluene and picric acid, as well as for all related high explosives, skyrocketed as a result of the German actions. So successful and profitable was the project that Dr. Schweitzer “gave a lavish private dinner at New York’s swanky Hotel Astor in honor of Heinrich Albert. It was a happy evening because behind all the backslapping, champagne and cigars lay the knowledge that Schweitzer had pulled off a remarkable coup… Schweitzer now controlled one of the few available sources of phenol in America and was set to make a fortune.” 

The success of the German team in acting unrecognized behind the scenes of the American munitions industry was not long lived. It was Albert himself who accidentally broke the seal of silence in the end. He had his briefcase snatched on July 24, 1915. The phenol purchases suddenly graced the first pages of American dailies. Albert, teasingly called “minister without portfolio” in the press, offered to resign and return to Germany as a result, but was turned down flatly. Interestingly, nothing about the clandestine projects was illegal, which prompted the publication rather than legal action in the first place. Edison eventually cancelled the deliveries to Heyden and Bayer under pressure. While Albert used his lawyer, Norvin Lindheim, to enforce the signed and legal contracts, the war was rapidly entering a new, more violent stage on the American continent. Despite the setback, the Bridgeport project and the “Great Phenol Plot” remained the most successful German secret missions of the first war year. Heinrich Albert praised Dr. Schweitzer’s success in a letter later in the war:

“The breadth of highmindedness [sic] with which you at that time immediately entered into the plan has borne fruit as follows: One and a half million pounds of carbolic acid have been kept from the Allies. Out of this one and a half million pounds of carbolic acid four and one-half [sic] million pounds of picric acid can be produced. This tremendous quantity of explosives stuffs has been withheld from the Allies by your contract. In order to give one an idea of this enormous quantity the following figures are of interest: Four million five hundred thousand pounds equals [sic] 2,250 tons of explosives. A railroad freight car is loaded with 20 tons of explosives. The 2,250 tons would therefore fill 112 railway cars. A freight train with explosives consist [sic] chiefly of 40 freight cars, so that the 4,500,000 pounds of explosives would fill three railroad trains with 40 cars each. Now one should picture to himself what a military coup would be accomplished by an army leader if he should succeed in destroying three railroad trains of 40 cars, containing four and a half
million pounds of explosives.”

German Military Attache in the U.S., Franz Von Papen, proudly filed a report on May 18, 1915 to the Imperial War Ministry announcing, 

“All reports received here – from the English press as well as from the negotiations of the Allies with munitions-makers [sic] here – show that there is a great shortage of ammunition in
Russia, and that the needs of the English with their apparently enormous expenditure of ammunition during the last weeks, are nowhere near being met.”