The foreign patents had been intentionally worded so that only those with the know-how could work them. The French had solved their problem by going into partnership with the I.G. companies to make dyestuffs in France—an opportunity afforded by the Bosch-Frossard deal at Versailles. The Americans, on the other hand, tried at first to develop a domestic dyestuff industry on their own, without the Germans. U.S. Army Ordnance still believed that a strong, independent American dyestuff industry was critical to national self-defense.
Du Pont, Army Ordnance’s chief hope, expended great sums of money in a futile attempt to make dyestuffs according to the specifications of the confiscated German patents. However, as Irénée du Pont, the firm’s president said,
It was finally decided to feel out Carl Bosch, the most international-minded of the top I.G. men, about a possible joint Du Pont-I.G. dyestuff venture. A Du Pont executive met with Bosch in Paris in November 1919, but Bosch was totally uninterested. He brushed the proposal aside with the explanation that he was not free to act on a dyestuff arrangement without the unanimous approval of all the other I.G. companies. 2
Du Pont was apparently not in the same strong negotiating position as the French had been: the dyestuff plants in Germany were no longer threatened with demolition under the Versailles disarmament provision. Perhaps of equal importance, Du Pont had no Frossard to do the negotiating.
Two of the men, Joseph Flachslaender and Otto Runge, managed to make their way to the United States. They were detained at Ellis Island on the strength of the arrest warrant, but Du Pont was able to effect their release. 5 The other two chemists, Max Engelmann and Heinrich Jordan, had a more difficult time. Meade wrote Irénée du Pont, The Bayer Company has pretty effectively succeeded in getting the German government to do its will, in view of the fact that it has held Dr. Jordan in Holland and I presume by this time, under the Extradition Treaty, has had him returned to Cologne.
Dr. Engelmann... cannot secure a passport to this country under what we believe is a general order issued by the German government forbidding the issuance of passports to any German chemists. 6 Du Pont did not intend to be blocked in its efforts to import German dyestuff technology. It called on the United States Army for help. One day in May 1921, a Washington, D.C., attorney named Clement Lincoln Bouvé appeared at the headquarters of the U.S. Army of Occupation in Coblenz.
Bouvé, who had been an officer of the U.S. Army of Occupation, now belonged to a prominent Washington, D.C., law firm that included Robert Lansing, secretary of state under Woodrow Wilson. Bouvé was on no ordinary mission. Major General Henry T. Alien, commanding general of the U.S. forces in Germany, called in Captain H. E. Osann, chief of the Military Secret Police of the U.S. Army of Occupation in Coblenz, and assigned him, along with a company of soldiers, to Bouvé’s project.
This, the general explained, was to bring Dr. Engelmann and Dr. and Mrs. Jordan from unoccupied Germany to the American sector. Although the chemists were under German police surveillance, the skillful maneuvering of Bouvé and Osann made the mission a success. On July 5 the party arrived at Hoboken, New Jersey, on the U.S. Army transport Somme. 7
Within days they were in Wilmington, Delaware, working in the Du Pont laboratories. Du Pont was now in a position to compete effectively with I.G. in the world’s dyestuff market. By the fall of 1922 the Germans were finding it difficult to meet the reparations quotas required by the Versailles treaty, most of which were in the form of raw materials and manufactured goods then currently being produced in Germany.
The French were inflexible in their demand that these quotas be met. They could never forget Bismarck’s brutal terms of the peace treaty ending the Franco-Prussian War. “We will leave them only their eyes to cry with,” the Iron Chancellor had crowed. But the French had not cried. In a burst of national pride they had paid the five billion francs demanded by Bismarck as war reparations. It was a pain the French would long remember.
The German government responded by declaring a policy of passive resistance and the factories along the Rhine and in the Ruhr came to a complete halt. By mid-May 1923, the BASF plants had been idle for four months. As a result, they also had fallen far behind in the delivery of dyestuffs and nitrate fertilizers required for reparations payments. On May 22, Bosch received an urgent message from an informant that the French army would occupy the BASF plants the next day and members of the managing board would be arrested, charged with deliberately preventing the shipment of the reparations goods. 8
Bosch immediately issued orders to dismantle the high-pressure Haber-Bosch equipment with utmost speed and remove it to Leuna, in unoccupied Germany. Within hours the massive machinery was loaded on rafts and hauled across the Rhine. At the same time the members of the managing board fled to Heidelberg and hid out under assumed names.
A French military court was convened at Landau, Germany, and the officials of BASF were charged and tried, in absentia, for impeding the delivery of fertilizers and dyestuffs to France. All were found guilty, fined 150 million marks, and sentenced to long prison terms. August von Knieriem, BASF’s chief legal counsel, received the heaviest penalty, ten years, because he had signed the orders to the BASF workers directing non-cooperation. The other directors, including Carl Bosch and Hermann Schmitz, were sentenced to eight years each. 10
All the members of the BASF managing board of directors were now fugitives from the French Army of Occupation. By the summer of 1923, Germany was in near chaos. The rate of inflation, which had been accelerating since the end of the war, had become truly terrifying. The German mark was now worth a five hundred billionth of its 1918 value, and the world became used to pictures of German workers carting their wages in wheelbarrows. In mid-August, a new chancellor, Gustav Stresemann, assumed office to try to cope with the financial crisis.
He concluded that Germany would have to settle
its differences with the Allies before it could achieve any kind of
stability at home. In late September, he announced the end of the
government policy of passive resistance to the French and the
resumption of reparations payments. It was only a short time before
the I.G. plants in the Rhineland started operation again. And by
November, Hjalmar Schacht, the head of the Reichsbank, had managed
to stabilize the mark, an accomplishment that brought him his first
The French also took advantage of the shutdown. Since early 1921 the I.G. companies, in accordance with the Bosch-Frossard agreement, had been supplying the Compagnie Nationale with their industrial secrets and know-how in the production of dyestuffs, in exchange for which under their partnership agreement they would receive fifty percent of the profits for the next forty-five years. 11
But in 1923 the Compagnie Nationale was absorbed by Etablissement Kuhlmann, the large French chemical and metallurgical concern. Shortly thereafter, Kuhlmann nullified the contract entered into by Frossard and Bosch on the ground that the I.G. companies had failed, during the shutdown, to supply the French with the dyestuff chemicals called for in the contract. 12 In effect, the Germans once again were thrown out of the French dyestuff market. The I.G. officials were extremely bitter, contending that the unilateral abrogation of the contract was illegal.
The French now had I.G. know-how, for which the I.G. companies had received almost nothing in return. However, because of the delicate political situation. Bosch took no immediate action. By the fall of 1923 the growing strength of foreign competitors convinced Duisberg that a basic reorganization of the foreign business of the I.G. companies was demanded. He proposed that the foreign sales agencies of all the German companies be merged into a single organization. 13
Independently Bosch also had been giving thought to consolidation of the I.G. companies. But his horizons were much broader and his schemes more imaginative. For him the new technology, especially the high pressure chemistry which his own genius helped create, opened up boundless opportunities. But Bosch was no stranger to reality. BASF’s resources were inadequate to support the staggering financial requirements of his soaring imagination. A broader and more substantial corporate base was needed.
Duisberg regarded this suggestion as commercially infantile. He refused to abandon the enormous value of the worldwide acceptance of the I.G. Farben name. This was a commercial decision and Bosch’s genius had no currency in that area. The other I.G. executives unanimously supported Duisberg and Bosch capitulated. On December 9, 1925, in a procedure by which the other seven companies were incorporated into BASF, the merger was finally concluded. The name of the new entity was I.G. Farbenindustrie Aktiengesellschaft.
Carl Duisberg was elected chairman of the supervisory board, retiring from an active managerial role in the new company. Henceforth he would limit his activities to matters of major policy. Bosch was elected chairman of the managing board, which made him chief executive officer of the company. From then on, wherever Bosch sat was the head of the I.G. table.
Its prospects quickly caught the fancy of the investing public and, despite the very low ebb of the German economy, the value of the I.G. shares more than tripled during 1926. By any standard I.G. Farben was the largest corporation in Europe and the largest chemical company in the world.
In the United States, for example, it formed the General Dyestuff Corporation and a little later the American I.G. Chemical Company. Through these vehicles it regained almost all of the properties seized from the I.G. companies by the U.S. alien property custodian during World War I.
Something was done. Kuhlmann, with the support of the French War Ministry and a law quickly enacted by the Chamber of Deputies, issued a block of 100,000 new shares of capital stock that carried the controlling voting rights and was reserved for registered shareholders, who were required to be French citizens. The secret German owners were in this way rendered relatively powerless since their shares carried no voting rights.
The result was the regaining of French control of Kuhlmann. With this action, I.G.’s takeover of Kuhlmann collapsed. Instead of retreating entirely, however, I.G. suggested to Kuhlmann a reestablishment of the original Bosch-Frossard cartel. The result was an agreement, signed in 1927, that provided for price fixing, common sales agencies, exchange of technical information, and division of markets. I.G. agreed to stay out of the French market and the French agreed to stay out of the rest of the European market. 17
In effect, if I.G. could not own the French dyestuff plants, it would at least exercise dominion over the French by cartel agreement.
The reply of oil authorities was generally negative, some even predicting the imminent exhaustion of the world’s oil reserves. In the United States President Calvin Coolidge gave official recognition to this dismal prophecy by creating the Federal Oil Conservation Board, composed of the secretaries of war, navy, interior, and commerce. The board’s mission was to investigate and report on the state of the world’s reserves of petroleum. 18
The fact that it was considered necessary to involve such a commission was itself regarded as a grim portent. To the prescient the signs were already discernible that oil would be the vortex of international diplomacy and power politics. Such developments foreshadowed the time when the wealth of nations would be measured by the dipsticks of oil.
Only one impediment confronted him, but that was monumental: cost. Acquisition of the Bergius patents would be expensive enough; however, the outlays required to adapt the process to large-scale industrial production were beyond even the resources of BASF, already hobbled by the loss of the war. Only the combined financial resources of the merged I.G. companies could support such a project. It was also probably to this end that Bosch was so insistent that his private financial wizard, Hermann Schmitz, assume the post of chief financial officer of the new company.
In fact, in 1925, when it was certain that the merger would soon take place, Schmitz, at Bosch’s direction, had purchased the Bergius patents on behalf of the yet to be formed I.G. Farbenindustrie. It took all of Schmitz’s skill at financial legerdemain, using Swiss banks and other cloaks, to swing the deal. Before long, work was under way to adapt the Oppau plant from nitrate synthesis to the conversion of coal into oil.
Although Bosch’s plan was to rely on the financial resources of I.G. to develop domestic production, he planned to bring in an American company like Standard Oil (New Jersey) as a partner in the worldwide exploitation of the process. Moreover, Standard had more than enormous financial resources: it had a huge and well-staffed research and development organization that had achieved important breakthroughs in petroleum technology.
* In late 1916 the United States Geological Survey announced that, after a three-year survey, the agency’s experts had concluded that the Colorado hydrocarbon shale beds would yield more than twenty billion barrels of crude oil, from which more than two billion barrels of gasoline could be extracted by ordinary methods.
Standard was also exploring the feasibility of the Bergius process since the United States, like Germany, had tremendous coal deposits. In 1922, Frank A. Howard, head of the Standard Oil Development Company, had sent a young assistant to Germany to study the Bergius process but had been advised that it was still far from ready for commercial exploitation. 20
He said that he had been very impressed by the size and efficiency of the refineries and by Standard’s new research and development organization. He then mentioned, almost as an afterthought, the progress that Bosch and his staff had been making in the development of the Bergius process—information that Bosch had specifically instructed Gaus to mention. 21 Gaus suggested that Howard visit Ludwigshafen when he was in Europe the next spring to see for himself, and Howard accepted the invitation.
In March 1926 Howard arrived at Ludwigshafen, as he had promised, and was given a tour of the BASF laboratories, by now officially a part of I.G. Farbenindustrie. He was stunned. Although Howard was the head of research and development of one of the world’s largest and most scientifically advanced corporations, he reported that he was “plunged into a world of research and development on a gigantic scale such as I had never seen.” 22 He was especially overwhelmed by BASF’s experiments in synthetic oil.
Howard fired off a message immediately to Walter C. Teagle, president of Standard Oil, then on a visit to Paris, to come to Ludwigshafen without delay:
The urgency of Howard’s message brought Teagle to Ludwigshafen within a few days. An examination of BASF’s high pressure installation left him just as impressed as Howard:
When Teagle and Howard retired to their quarters, they talked over “the effect the startling scientific developments... would have on the world’s oil industry.” 25 For Standard’s own protection, it was obviously imperative to find a way for closer cooperation with I.G. The vision of thousands of obsolete oil wells was enough of a spur.
Teagle and Howard decided to proceed cautiously. They concluded that at least for the present the most sensible arrangement was a simple partnership to develop and perfect the process without any large financial commitment. Bosch agreed in principle to the proposal. Although he would have preferred a broader agreement, it nevertheless was a concrete demonstration of Standard’s interest.
The board found that,
Even the worst pessimists were taken by surprise by the six-year estimate.
On the trip it became clear to Bosch that the Standard Oil officials were not ready to make the large payment to I.G. he had expected. In mid-December he returned to Germany without a definite agreement or financial commitment. Again he slipped into the depression that periodically afflicted him. 28 It took until August of the next year for Teagle and Bosch to reach a relatively limited understanding.
Standard agreed to embark on a cooperative program of research and development of the hydrogenation process to refine crude oil. It also agreed to build a new plant for this purpose as soon as possible in Louisiana. In return Standard was given the right to exploit the process in the United States and to share half of the royalties with I.G. on licenses to other parties. 29
However, Standard was not entitled to exploit the process in any of its far-flung plants outside the United States. Modest as the arrangement was, the New York Times, in its news story of the agreement dispatched by its German correspondent, was almost euphoric about the possibilities of I.G.’s synthetic oil process.
As usual Bosch’s power in I.G. was decisive. The managing board agreed to continue the costly synthetic oil project, at least for the time being. However, it was obvious that Bosch would have to find a way to relieve the severe financial strain on I.G. or face more trouble from the board.
The application of the hydrogenation process to crude oil was nothing less than amazing. In the past, two barrels of crude oil had been required to produce a barrel of gasoline; with hydrogenation, only one barrel of crude would be required. However, under the terms of the 1927 agreement with I.G., Standard’s affiliates all over the world were still not permitted to use the process. It could be exploited by Standard only in the United States and then only in conjunction with crude oil, not coal.
In August 1928, Teagle and other top Standard officials went to Germany hoping to convince Bosch and his I.G. advisers to expand the I.G.-Standard partnership to allow joint exploitation of the Bergius-Bosch process all over the world and to give Standard the right to apply the process to coal as well as crude oil.
Bosch brushed the Standard request aside. Although he did not say so, he was having enough troubles with his I.G. colleagues about the cost of the hydrogenation project in Germany. This was obviously not the time for I.G. to embark on an expensive program of world exploitation even in partnership with Standard.
The only territorial exception was that the
rights in Germany were reserved to I G. 32 Obviously, the German
authorities would never permit I.G. to surrender to a foreign
company the German rights to a process so crucial to military and
economic self-sufficiency. Even so, I.G. did not reveal to its
government that it was selling the hydrogenation rights to Standard.
As Bosch anticipated, Standard jumped at the offer.
This retained for I.G. a minority interest in any future success. I.G. then transferred the world patent rights (except for Germany) on the hydrogenation process to the new enterprise. In return, Bosch finally secured what he so desperately wanted. Standard turned over to I.G. two percent of its entire common stock: 546,000 shares valued on Standard’s books at $35 million! 34 As a slight bonus for I.G., Teagle agreed to serve on the board of I.G.’s newly formed holding company in the United States, the American I.G. Chemical Company.
At the moment the I.G. laboratories were producing Buna experimentally from coal, but the cost was far too high to compete with natural rubber. Using oil instead of coal, however, promised to make the cost more competitive. With this purpose in mind, Bosch dispatched Carl Krauch to the United States to interest Standard in setting up a cooperative organization to develop a number of processes using oil as a raw material with particular emphasis on Buna. 35
Krauch’s mission was a success. In 1930 the Joint American Study Company (known as Jasco) was formed, owned equally by I.G. and Standard. Its stated purpose was to test and license new processes developed by either party in the “oil-chemical” field. Bosch had high hopes that Jasco’s success in developing a Buna rubber from oil would lead to the offering of licenses to the American tire industry. With more automobiles in the United States than in the rest of the world combined, the potential market for the joint enterprise was full of promise.
Buna could not possibly compete. Standard’s interest in
Buna lay dormant until the clouds began to gather for World War II,
and it took the Arab oil boycott in 1974 to rekindle Standard’s
interest in making gasoline from coal.