IBM and the Holocaust (30 page)

The joint Dehomag letter acknowledged New York's primacy in no uncertain terms. "IBM," the letter emphasized, retains "unlimited power to dispose of such new products, and in view of its [IBM's] position within Dehomag, is absolutely in a position, even without our express declaration of assent, on its part to formulate the conditions for the inclusion of Dehomag in such new business."
⁴⁸

Only IBM NY could authorize Dehomag to develop new products or expand into Austria, but if it did so, the business would be maintained separately from the regular books and would appear instead as loan or bonus transactions. Dehomag's confirmation letter expressed the understanding in cautious, stilted language. For New Products: "It has been orally agreed," the letter recited, "and is confirmed herewith by us in writing, in case IBM entrusts Dehomag with the sale and/or manufacture of new products which lie outside the present scope of business of the Dehomag and also do not come under the license agreement between the Dehomag and the IBM, we agree that upon the request of the IBM, we can be totally or partly excluded from the results of the business transactions in these new products, as they have been agreed upon in the form of a bonus in the loan agreements and supplementary agreements concluded between the Dehomag and us."
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For New Territories: "In case the IBM should voluntarily transfer the working of territories outside of Germany to the Dehomag, we also agree that, upon the request of the IBM, we can be totally or partly excluded from the results of the business transactions in these new territories as they have been agreed upon in the form of a bonus in the loan agreements and supplementary agreements concluded between the Dehomag and us."
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The letter added, "After careful deliberation, you have considered it proper to let the points a) [New Products] and b) [New Territories] be dealt with merely in this letter in the sense of our discussion, while point c) will be included in the supplementary agreement." Rottke and Hummel's letter concluded with their gratitude for helping the Reich: "We confidently hope that the contents of this letter will convince Mr. Watson . . . that we see our life's task in our present work and sincerely wish to contribute to the development of the Dehomag for many years to come. We thank you very much for the great assistance you have given in this matter."
⁵¹

Although the arrangement to expand Dehomag was handled through intermediaries, Watson micro-managed every detail. On August 2, 1938, Watson sent a letter to John Holt, IBM's European general manager, confirming approval of both the loan additions to the employment contracts and the special letter about the expansion. "Mr. Gubelman has handed me the final draft of the proposed amendment to the Rottke-Hummel contracts," wrote Watson, "and also the letter from Rottke-Hummel addressed to Mr. Gubelman as a Director, dated July 6, 1938. . . . You are authorized to sign for IBM."
⁵²

The scene was set for Dehomag to immediately expand into every new Nazi-conquered nation, so long as IBM approved in advance. Austria was only the beginning, and IBM understood it well. On August 4, 1938, J.C. Milner, a Geneva-based IBM supervisor of Dehomag, wrote to J. T. Wilson, the manager of IBM NY's so-called Foreign Division, explaining, "Rottke has made arrangements . . . which include equipment for seven or eight different countries to fill customers orders." The letter added that Dehomag could not fill all the orders from its inventory, so "five or six sets of Valtat equipment . . . we shall have shipped [from the U.S.] to the freeport at Geneva."
⁵³

A key mission for Dehomag machines was census in neighboring countries. "During 1940, the census will be taken in several countries," Milner's August 4 letter confirmed, "and we expect a number of orders." He added, "One of the problems which confronts us is that of providing special machines for census work. . . . Since Endicott has discontinued manufacturing the Printing Counting Sorter, we do not seem to have any machine particularly adapted to census work. As you know, Germany does construct a Census Tabulator, and we have always figured on being able to get the machines from them for forthcoming work." But production in Germany was backlogged and was becoming less economical because of Reich currency restrictions.
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So Milner wondered whether Endicott wanted to develop its own census tabulator capable of high-speed counting, continue to rely on the German version, or perhaps produce them in another European country and ship them on Dehomag's behalf. "If Endicott does not propose to undertake such work," he wrote in the August 4, 1938, letter, "it is quite possible that we shall have to look into the situation in France, and see whether they can economically construct a machine equivalent to the German Census Tabulator."
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IBM NY now began viewing its various subsidiaries throughout Europe as coordinated to support Dehomag's operation.

Moreover, IBM NY wanted to maintain strict controls on each and every Dehomag lease. Special rebates and discounts for Reich operations could not be extended unless approved by New York. J. T. Wilson sent a memo to IBM's Europe headquarters on August 25, 1938, entitled "Shipment of German Machines Beyond Germany," demanding to know whether corporate controllers in Geneva were "setting prices for machines shipped beyond the borders of Germany." Wilson wanted to make sure the proper mark-up above cost was preserved. That same day he sent a second letter off to Harrison Chauncey, another IBM NY management troubleshooter in Europe, explaining, "Their costs are very much higher than our costs at Endicott. For instance, the cost of building a Sorter in Germany is $292, while the cost at Endicott is $220."
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Holt replied to Wilson, "We have a fixed charge . . . and do not take into consideration whether it comes from the United States, or Germany, or another factory." He added, however, that "in the case of special machines, such as [Dehomag's] D-11, we have always set prices which are, we believe, somewhat higher than the United States would charge. . . . Since the German company has a schedule of rebates to its customers of which you are well aware, in taking a special German machine and placing it in a foreign country, we have always tried to approach the net German price, using the official rate of exchange."
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Holt offered an example. "In other words," he wrote, "should a machine be supplied to Holland, we would . . . add 25%, and [then] add a further 10%." But Holt made unequivocally clear that IBM NY controlled pricing on all of Germany's machines. "[I]n all cases, we set the prices, and Germany does not."
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Complicating all IBM efforts to profit on Dehomag's Europe-wide sales in fall 1938 was yet another Reich monetary decree. Germany was nearing bankruptcy. The anti-Nazi boycott had virtually crippled a once-thriving export-dependent Reich economy. Despite desperate cashless barter efforts to boost foreign sales and unverifiable trade statistics to the contrary, Germany's currency-earning exports were down to the United States by as much as 95 percent for many commercial sectors. Schacht had confided as much to Watson at the 1937 ICC Congress.
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Without foreign exchange, Hitler could not rearm. So it was hardly a surprise to IBM when the Third Reich prohibited exports by German companies unless they earned actual cash. In other words, Dehomag could no longer ship Hollerith machines across its borders and then forward the sales income to IBM NY as so-called debt repayment.

"As you are aware," IBM's Milner in Geneva wrote Wilson in New York, in an early August 1938 letter, "for a number of years we have been able to charge such goods against the debts owing to IBM in New York, but this permission has now been withdrawn by the Government." Milner added that the arrangement was a surprise even to IBM auditors. "Price Waterhouse people in Berlin . . . stated it was most unusual and they did not know of any other foreign concern who had the same privilege."
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Nonetheless, "I'm sorry to tell you," Milner lamented, "that we have just been advised by Mr. Rottke that from now on it will not be possible to ship tabulating equipment and other goods out of Germany to our various countries without the German company receiving payment for the goods."
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Hence, profits would not only be trapped in German blocked mark accounts, other IBM subsidiaries in Europe acting as intermediaries for Dehomag would have to transfer foreign currency to Berlin to complete the transaction.

Moreover, Dehomag income in Europe, unless somehow shrouded, might now subject IBM profits to double taxation. Double taxation was a particular irritant to Watson, and he had worked for years to legislate a solution. IBM Geneva's M. G. Connally, a key Dehomag auditor, revealed the company's attitude to a U.S. State Department officer earlier in 1938. He let it slip that "some concerns have actually resorted to the fiction of royalties in order to avoid taxation," but quickly added, that in the case of IBM, "no such fiction existed and that royalties are the result of clearly worded contracts."
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More than just controlling which machines would be distributed throughout Europe, and at what price, IBM understood by fall 1938 that it was now an integral part of the Nazi war machine. Wilson circulated on August 25, 1938, a memo to senior management in the New York office, reviewing problems in exporting machines from Germany. "As you know," Wilson informed, "both brass and copper and alloys play a big part in the mechanism of all of our machines and these metals are very scarce in Germany, at least, I am told they require them for war materials."
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Indeed, by 1937, the Reich concluded that punch card technology was too important to its plan for Europe not to be strictly regulated. Henceforth, machines would be rationed only to those users approved by the military. In 1937, a secret unit was created within the Reich War Ministry's Office of Military Economy. The department became known under the innocuous name
Maschinelles Berichtwesen,
or Office of Automated Reporting, and was dedicated to one main function: punch card technology. This agency went through several bureaucratic metamorphoses, chiefly through the Reich Ministry for Armaments and War Production. The
Maschinelles Berichtwesen,
also known as the
MB,
wielded complete control over the ordering, sale, use, reporting, and coordination of all Hollerith systems in Greater Germany. It worked in complete tandem with all aspects of Hitler's campaigns in Europe, opening so-called "field offices" in conquered countries.
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From the Reich's point of view, punch card technology would be indispensable to its war-making capability. A February 1938 secret military report declared that "technologizing the Wehrmacht [armed forces]" was imperative. The report listed the continual regimentation, tracking, and redeployment of the general population, work force, and military personnel, as best accomplished by Hollerith systems. "A punch card system," the
MB
report concluded, "must be introduced for the statistical survey of workers and for shifting workers" to create "perfectly structured personnel planning."
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A later memo from the Office of Military Economy called for a universal punch code system. The document reviewed Dehomag's many prior efforts, such as the census, labor statistics, and the
Work Book,
but that these "all have the disadvantage of existing for singular purposes and being incompatible with each other." The report made clear, "it is impossible to reliably separate industrial demand for armament purposes from total industrial demand. The punch card is appropriate for the solution of this problem," adding, "The punch card does not replace all considerations, judgments and decisions, but it makes them easier."
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While it was obvious to all that Germany was preparing for imminent war, it was also apparent that the Reich was aggressively utilizing statistics and punch card technology to track Jews and implement its program of persecution. "Statistics issued today show that 12,094 Jews left Berlin last year for Palestine, Great Britain and the Americas," led a July 4, 1937,
New York
Times
article datelined Berlin, adding, "The statistics are confined to 'Jews by faith,' the authorities declaring that Jews by race alone could be included in such records." Wire services regularly reported on the facts of Nazi demographic tracking: religion percentages based on census returns; quotas on goods Jews could purchase; an August 17, 1938, regulation compelling all identified Jews whose names did not "sound Jewish" to add the first name Israel or Sara.
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Newspapers, on May 15, 1938, listed a number of large cities outside Berlin and exactly how much their Jewish population had decreased through the end of 1937. Nuremberg had 7,502 Jews in 1933, but only 4,000 in 1937. Worms went from 1,016 Jews in 1933 to 549 in 1937. Hagen dropped from 508 to 299.
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Nazi raceology was becoming an all encompassing obsession evident on virtually every street and within every organization in Germany. A June 22, 1938,
New York Times
article reported, "twenty-six research organizations have been established throughout the Reich which go from family to family" to identify bloodline. Wire services informed that the curriculum for all German medical students had been altered to include mandatory courses on race science and population policy. Local prosecutors could order compulsory divorces of Jews and Aryans. At the same time, hundreds of thousands of marriages of urban Aryan women to what the Germans termed "virile, hereditary" farmers were required by Nazi demographers to achieve population health; the authorities began combing factories and offices for state-mandated brides.
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Few in America outside of IBM understood that these highly publicized racial policies were facilitated by Dehomag's population, health office, and labor office tabulations.