The Road to Columbus: The Money Trail and Franklin Olin

Villa's inability to pay for the desperately needed munitions for the Division of the North created an opening for German agents to support both sides in Mexico's civil war and thus extend it. Sommerfeld, Pancho Villa's chief arms supplier in the U.S. and German naval intelligence agent, began shipping on a $420,000 contract on April 1, 1915 for 12 million 7mm cartridges. This contract was with the Western Cartridge Company in Alton, Illinois. Sommerfeld had made this deal on behalf of Villa in February 1915. The Mexican general had provided a down-payment of $50,000. For this order only the initial deposit appears in the accounts of Lázaro De La Garza, who had financial control of all New York funds of Villa’s supply chain. This leads to the unanswered question, who paid for the balance of this contract? The entire order was produced, paid for, and shipped to Villa between April and August 1915. The price per thousand cartridges was an astonishingly low $35, while Remington and Winchester charged $50 for the same product, and Peters Cartridge Company between $55 and $60.

The standard Mexican 7mm Mauser cartridge of 1915

Sommerfeld closed another arms contract on May 14, 1915, this time for 15 million cartridges at the same price as his earlier contract, $35 per thousand, valued at $525,000 ($11 Million in today’s value). There are several astonishing aspects to Sommerfeld’s deal. First, the price Sommerfeld got for the munitions was, again, at least thirty percent below market value. How did he get such an outstanding deal? Second, he managed to occupy the entire capacity of Franklin W. Olin’s Western Cartridge Company factory in East Alton for the year 1915 with this second order. Sommerfeld was now on the hook for $945,000 ($20 Million in today’s value), as Villa’s fortunes declined, and the Villista fiat money was rapidly losing value. The German agent expected to make 2% commissions, $18,900 if both contracts were fulfilled ($400,000 in today’s value). All the while he managed these huge contracts as a German in the middle of a huge spy scare that had gripped the United States as a result of the German sabotage campaign against U.S. targets. 

Sommerfeld’s account at the Mississippi Valley Trust Company shows a total $381,000 flowing through it from April to December 1915.

Only days after closing on the second contract for the fifteen million cartridges, on May 17, 1915, he signed the contract over to Lázaro De La Garza. De La Garza provided the down-payment of $65,000, which went to the Western Cartridge Company. The money came from Francisco Madero's uncles Alberto, Alfonso and Ernesto in New York, probably profits from sales of goods from the area Villa controlled in Northern Mexico, such as bullion, cattle, rubber, or cotton. De La Garza also logged a deposit “en B[an]co St. Louis” in May for $30,000. This amount does not show up on Sommerfeld’s account.

The head of the Secret War Council, Heinrich F. Albert, withdrew that exact amount in May from his account at the St. Louis Union Bank. Obviously, not just Albert, but also Sommerfeld maintained accounts St. Louis and specifically in the St. Louis Union Bank. This account was connected with Albert's. Assuming that Sommerfeld paid for both contracts, his St. Louis Union Bank account showed transactions of roughly $400,000, similar to another account he maintained at the Mississippi Valley Trust account. Only $145,000 of the total $945,000 appeared in the books of De La Garza. The French government ended up buying $265,000 worth later in 1915. The Carranza faction took $150,000 of the munitions in September. The Western Cartridge Company refunded $65,000. This leaves $385,000, almost the exact sum of Sommerfeld’s Mississippi Valley Trust transactions and what the U.S. government alleged to have come from Heinrich Albert ($381,000). The $385,000 also matches the funds believed to have remained on Albert’s various accounts in Milwaukee, Cleveland, St. Louis, and Chicago.

Another question looms large as well: Why would Franklin W. Olin sell munitions to Sommerfeld thirty percent or more below market value? Even if Olin would have sympathized with the German cause to the point that he refused to produce munitions for the Entente, he still could have commanded a higher price from the various Mexican factions, even Villa’s. Incidentally, De La Garza’s accounts show payments to Peters Cartridge Company for the same type of ammunition in May 1915 priced at $55 per thousand. The answer to this riddle may have revealed itself in the spring of 1916 when, out of the blue, and, without much fanfare, F. W. Olin opened a brass casing factory next to Western Cartridge Company in Alton, Illinois.

Olin was a businessman who believed in vertical integration. He started his business in 1892 when he founded the Equitable Powder Manufacturing Company. The company’s blasting caps served mostly the coal industry in the Midwest. He expanded the production to include small arms ammunition in 1898, changing the name to Western Cartridge Company. He also founded a company that manufactured targets in the same year to better serve his sporting and hunting rifle customers. The Western Cartridge Company had managed to carve out a nice slice of the U.S. munitions market dominated by the large arms manufacturers such as Winchester Rifle Company and Remington by the early teens. Since the outbreak of the Mexican Revolution in 1910 the company thrived. The success resulted from the fact that Western was willing to produce 7mm Mauser cartridges widely used in Mexico. The Western Cartridge Company had sold millions of cases of ammunition through Sommerfeld to Madero, Carranza, and Villa over the years.

President Franklin Olin and his son, John, liked doing business with Sommerfeld. His clout over the past years had made the transportation of shipments across the international border smooth. When the U.S. government instituted various embargos, Sommerfeld called on his friends in very high places, such as Lindley Garrison, Secretary of War, or William Jennings Bryan, Secretary of State, or Hugh Lenox Scott, the General in charge of border troops and later President Wilson’s Chief of Staff of the Army and received permission to export. Sommerfeld also stood by his word. He was very well organized, understood proper specification, had the customer contacts, and, most importantly, he always paid on time.

The savvy businessman chomped at the bit when Sommerfeld asked Olin to quote on the two largest munitions orders in the company’s history. An order of that size would allow Olin to install his own brass mill to produce the cartridge cups. However, where to get the all-important presses for such a production? Enter Carl Heynen and the Bridgeport Projectile Company. Heynen was a German naval intelligence agent and ran the sham munitions plant for his German superiors. Using the Bridgeport Projectile Company as a front, Heinrich Albert had signed contracts in the spring of 1915, locking up the entire capacity for smokeless powder and for hydraulic presses in the United States. Where did Olin get this equipment that allowed him to open a brass mill in the spring of 1916? The difference between the sales price and market price on twenty seven million cartridges that Sommerfeld contracted amounted to approximately $405,000 ($8.5 million in today’s value). Heynen accounted for the cost of hydraulic presses he had ordered and which were actually produced: “$417,550 for presses which had actually been produced.” A striking coincidence! If true, the German government supported Olin’s plans for a brass mill with the understanding that he would not produce for the Entente; hence, the contracts with Sommerfeld at a price far below market value. The new factory would prove to be a boon for Olin. He came out of the war with tremendous financial strength. In 1931 he bought Winchester. Olin Industries is one of the largest corporations in the United States to this day, partly thanks to Franklin Olin and the connections of his good friend, Felix A. Sommerfeld.

This blog series will trace the events that led to Villa's attack on Columbus, New Mexico on March 9, 1916 in weekly segments. On March 12, I will speak at Columbus for the Centennial Commemoration of the raid and reveal how Villa was made to believe that attacking the United States was a good idea. If you get impatient and do not want to wait for eight months to learn the facts behind Columbus, buy Felix A. Sommerfeld and the Mexican Front in the Great War now.

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.”