The political economy of the Frankfurt School

“The money goes ‘round and around and around – And it comes out here.”
The Kinks, The Moneygoround, 1970

“Another aspect of the changed situation under state capitalism is that the profit motive is superseded by the power motive.”
Frederick Pollock, State Capitalism 19411

Several labels circulate for a group of German intellectuals, variously known as members of the Frankfurt School, Critical Theorists, Western Marxists, Neo-Marxists, Hegelian Marxists, residents of the Grand Hotel Abyss,2 or, during their exile in the USA, simply the Horkheimer circle. In studies that celebrate these scholars, authors often use the neutral term “Institute,” mainly because the official title of the endeavor has been the “Institute for Social Research.” Its members and collaborators made use of the short form too.

Less than 10 years before the Institute went into exile in 1933, it had started as an endowed university professorship adjunct to an independent research institute which also contained a well-sorted library, located in a newly erected four-story building at Victoria Allee nearby Frankfurt’s Goethe University. After 1933, members of the Institute went into exile and only three returned home after the war. Max Horkheimer, Friedrich Pollock, and Theodor W. Adorno were reinstated as professors at Goethe University. The last two were promoted, as it were, from their positions as unpaid Privatdozenten (the positions they occupied before the Nazi years): Adorno was promoted to full professor only in 1956 and Pollock as late as 1959. Horkheimer, formerly only a professor of social philosophy, was promoted to the chair of philosophy and sociology. The Institute’s home had been flattened by Allied bombs and had been rebuilt mainly with the help of American government money. Since its reopening in 1951, the Institut für Sozialforschung has been operating from there.

Over the last half century, the history of this group, its members, and their impact have been told numerous times. Martin Jay, the first of the Institute’s chroniclers, had the for- tune to consult members and associates of the Institute who were still alive at the time; later authors made more use of the papers of Horkheimer, Pollock, and others. However, because of its authoritative interviews and the text’s almost immediate translation into German, Jay’s The Dialectical Imagination reached the status of an authorized history, until Wiggershaus’s monumental history replaced it.

The material base on which the Institute has been founded rarely got more consideration than Bertolt Brecht’s famous ridicule concerning his neighbors in the Hollywood hills dur- ing their joined exile in the 1940s: “a rich old man [Hermann Weil, the speculator in wheat] dies; disturbed at the poverty in the world, in his will he leaves a large sum to set up an institute which will do research on the source of this poverty, which is, of course, himself.”4 Brecht erred slightly, but most profes- sional historians did not do any better. As a matter of fact, the financial history of Critical Theory has never been treated in depth. Such neglect is even more surprising given the fact that the founding members of the Institute saw monopolistic cap- italism around every corner. Strangely, however, their own role as profiteers from capitalist enterprises, speculation, and gain never evoked much interest.

Having said that, two more recent publications reveal tell- ing details of the financial history of the Institute, some of which would almost qualify as movie scripts.5 Jeanette Erazo-Heufelder and Bertus Mulder are the first who dug into the material base of the Institute, and their findings give reason to demand further excavation. In what follows, I will concentrate merely on the institutional side of the Institute’s finances and then draw some conclusions with regard to the changing balance of power between the do- nor and the beneficiaries.

Brecht was of course right in naming Hermann Weil as the person who originally financed the Institute (but he did it before his death). The German-born merchant had made a fortune trading wheat from Argentina. In 1907, he returned with his family to Europe at the age of 37 and settled in Frankfurt. His son Felix (born in 1898) studied economics. Felix became radicalized during World War I and moved politically to the far Left. Before that, Felix had become very rich due to an inheritance from his mother who died of cancer when he was only 14 years old. Weil Sr. had been open-minded and donated a reasonable amount of his own wealth to Goethe University. One of the dona- tions established what his son had suggested to him: an independent institute whose purpose would be to conduct “social research.” In return for all these donations, Hermann Weil became a Doktor honoris causa. It was no great secret that the new institute’s aim and purpose was to promote a Marxist academic agenda. The univer- sity, the Prussian ministry, and the city of Frankfurt ac- cepted the donation, fully aware of its donors’ political orientation and scholarly interests.

The institute’s first director, Kurt Gerlach, died before he could take over, so right from the start, the founders were forced to search for a suitable replacement. They found it in Carl Grünberg, an economic historian and labor history ex- pert, including labor’s political programs such as socialism and communism. Grünberg was also the editor of the well- regarded Archiv für die Geschichte des Sozialismus und der Arbeiterbewegung [Journal for the History of Socialism and the Labour Movement], which he founded in 1910, just a year after he had become professor at the University of Vienna. Grünberg took over his new position in Frankfurt in 1924, both as a university professor in the Faculty for Economics and Political Sciences and as the director of the Institute. His office was located on the same floor of the new building as that of the president of the foundation, Felix Weil. The two men even shared a secretary.

While endowments were rare in Germany’s higher educa- tion system at the time, this did not apply to Frankfurt, where the newly founded university had come into existence only because wealthy businesspeople had made significant dona- tions. When Felix Weil negotiated with officials in Frankfurt, he promised to pay for the construction of a new building and the library himself; his father would finance personnel and the rest. The sponsoring organization, the Gesellschaft für Sozialforschung (Society for Social Research), would pay for Grünberg’s income as a university professor, while all other costs would be taken care of by the head of the founda- tion, Felix Weil.

In contrast to American-style foundations that usually op- erated with capital stock and financed their daily activities from dividends, interest rates, and other stock market reve- nues, the Frankfurt Gesellschaft für Sozialforschung func- tioned as an income-based foundation only: the Weils agreed to pay a fixed amount of money annually for the professorship and the Institute. By today’s rates, the equivalent of half a million dollars were transferred annually to the accounts of the Gesellschaft. No obligation to publish balance sheets existed back then, and it is safe to assume that only a small group was familiar with the particularities of the financial arrangements. Initially, only Weil, Grünberg, and Friedrich Pollock as the Institute’s administrator possessed information and agency with regard to the budget.

An initial adaptation of rules was necessary when Hermann Weil died in 1927. According to his will, his two heirs, Felix and his sister Anita, would continue to pay the costs for the Institute out of the Hermann-Weil-Familienstiftung (Hermann-Weil Family Foundation). During the first few years, the heirs stuck to their obligations without resistance.

Felix Weil’s amount of wealth, his generosity, and his com- mitment to the Institute became obvious a year later when a stroke ruined Grünberg’s capability to act as director-profes- sor: Grünberg retired from both positions while Weil contin- ued to secure his income as an emeritus professor. The Institute needed a new director.

Under Grünberg, the Institute had acted as an interlocuter between the German Social Democratic Party (SPD) and the newly founded Marx-Engels Institute in Moscow. Personally acquainted with his counterpart in Moscow, David Rjasanov—who had been a student of Grünberg’s—the Institute negotiated an agreement which consisted of transfer- ring to Moscow photocopies of the manuscripts of Karl Marx and Friedrich Engels, which the SPD still possessed. Rjasanov planned to publish the collected works of Marx and Engels in Russian and German, initially as a joint venture between the Frankfurt and the Moscow institute. The first volume of the Marx-Engels-Gesamtausgabe (MEGA) appeared in 1927.

However, finding a replacement for Grünberg proved difficult. The revolutionary spirit of the Russian Revolution and similar upheavals in the West had calmed down, and Germany’s academic establishment no longer saw a reason to be more open-minded towards the Left’s agenda. At the same time, there were few candidates around who could step into Grünberg’s shoes. Friedrich Pollock, who was a collaborator of the Institute from its start, acted as an interim director, but promoting him was inappropriate for several reasons. Lacking leadership qualities, he himself proposed his close friend Max Horkheimer instead who did not have any rela- tionship to the Institute. The friendship between these two sons of Jewish industrialists ran deep, with Friedrich usually giving way to his better-performing and more ambitious friend Max (it is probably one of the very few friendships that for- malized mutual responsibilities in a written contract.

Horkheimer was, however, an almost unknown philosopher at the time, with no credentials in the social sciences, to say nothing about Marxism and related topics. It seems fair to assume that Felix Weil accepted Pollock’s proposal to nomi- nate Horkheimer as director because he preferred a collective leadership of the Institute and expected Horkheimer’s subor- dination to this regulation. The university did not accept Horkheimer, primarily because he lacked the training to fill a chair, designated as “Wirtschaftliche Staatswissenschaften” (covering what nowadays would be economics and political science). Weil, however, proposed a solution. It consisted of financing a successor to Grünberg to be housed in one faculty and subsidizing a newly endowed chair in the Faculty of Philosophy. University officials and the philosophy professors accepted that proposal with the caveat that Horkheimer’s de- nomination should be restricted to social philosophy. Finally, in 1931, Horkheimer gave his inaugural speech as director of the Institute, “The State of Contemporary Social Philosophy and the Tasks of an Institute for Social Research.”The lecture itself lacked any political provocation, which was particularly noticeable in light of Grünberg’s own inaugural speech in which he had confessed to being a Marxist.

The Hermann Weil Familienstiftung was rich enough to finance three professors. Grünberg received a pension until his death in 1940,10 while his two successors taught at Frankfurt for only 2 years: the economist Adolf Löwe (later Adolph Lowe) and the social philosopher Horkheimer. Both became victims of the Nazi decree banning Jews and political undesirables from holding positions at universities after 1933.

Economically, the Nazi seizure of power prevented the Weils from spending money because Lowe did not remain on their payroll (he continued as a professor first at Manchester and later at the New School of Social Research in New York). The Institute lost its building and the library to the Nazis. The building became home to the Nazi students’ organization, and the books were distributed to other libraries.

The staff of the Institute went into exile. Weil had managed for the Institute to remain financially viable and operative. In Geneva, Switzerland, a branch office had been installed months before Hitler became chancellor. Also, clandestinely, the Gesellschaft für Sozialforschung had been replaced by the Societé Internationale des Recherche Sociales (SIRES). Only a few people would have been aware of the realities behind such operations, and even the Nazi bureaucracies failed to get hold of the Institute’s money.

Traditionally, the Weil family had close business connec- tions with Rotterdam. The Argentinian branch of the family business had been changed from a firm named after its foun- ders, Hermanos Weil, to the Sociedad Anónima Financiera y Comercial (SAFICO). Eight shareholders of the old firm moved their holdings to this new joint-stock company, of which Felix and his sister held 50%. SAFICO stopped trading wheat and turned into an investment business, buying stocks, firms, real estate, etc.

Businesspeople sometimes act with the stereotypical diligence of a prudent businessman. Those responsible for the Weil empire exemplified this behavior and established the Rotterdamsche Belegging- en Beheermaatschappij (ROBEMA) as early as in July 1932. It functioned as a con- tainer for all activities of the Weil family and the heirs of Hermann Weil. As a further precautionary measure, ROBEMA used a completely anonymous accounting system. The Weil Familienstiftung and the Frankfurt Gesellschaft für Sozialforschung, together with the Geneva-based SIRES, be- came simply accounts XI and XII at ROBEMA.11

ROBEMA’s administrators were potential weak links, the only ones possessing knowledge of the true owners of the anonymous accounts. And here enter two individuals who were completely ignored up until now: Erich Arthur Nadel (1895–1972) and Sophie “Fietje” Kwaak (1901–90). Their names are not mentioned in any of the studies published on the Institute, nor did any author inquire about the role of SIRES and ROBEMA for the blossoming of the exiled Institute.

Nadel, a German who had served 4 years in the trenches of World War I and who had become disillusioned with the German leadership when agitation against so-called Jewish quitters began, emigrated to the Netherlands after the war. Felix Weil and his business associates appointed him as the director of ROBEMA shortly before the Nazis came to power in Germany. The task of hiding Jewish money from Nazis motivated Nadel greatly; he managed the Weil money and accounts professionally and under great risk until he himself had to seek refuge and escape to the USA.

Kwaak had been employed as a secretary since the begin- ning of ROBEMA and, after Nadel had to flee, took over the directorship. She managed to secure the business and its funds without any further damage or loss. In particular, after the Nazi invasion into the Netherlands in 1940 and the subsequent decrees for the Aryanization of Jewish belongings, Kwaak, managed to safeguard the investments and holdings of the Weil family and the Institute. Everything seemed to work in favor of the exiled Institute, despite Germany’s ever- tightening grip. However, greed and quest for power brought further complications.

When Felix’s sister Anita remarried in 1934, her new hus- band strived to get hold of his wife’s money. The heated conflict between Felix and his sister and the new brother-in- law, respectively, ended a year later with an agreement: Anita had to pay the Institute a downpayment of 2.5 million Swiss Francs (or approximately 16 million dollars in today’s value), which approximates her contractual obligations to the Institute’s budget for a period of 20 years. With this payment, she would be free of any future obligations towards the Institute. Besides the business solution, the relationship between the Weil siblings remained broken until shortly before Anita’s death.

Around the same time, Felix Weil donated his share of the Weil Familienstiftung directly to SIRES. The share consisted of approximately 16 million dollars (in today’s value) with the aim to develop Critical Theory, even though it was by then only a vague promise. Beyond that, Weil gave about one seventh of his entire assets to SIRES; he further promised the rest as a conditional gift after his death. Thus, Weil expro- priated himself nearly completely. As a counter to his gener- osity, Felix did not gain anything and lost his former influence and decision-making power to his “friends” Horkheimer and Pollock. Whereas Weil had his own office side by side with the director in Frankfurt, the exiled Institute did not reserve any space for him when it resettled in New York City.

Because Weil lived for a while in Argentina during the 1930s, Pollock took over Weil’s position as the director of SIRES.13 Whichever interpretation is true, sometime after 1936, Pollock managed to get hold of the money that Nadel and Kwaak had transferred to accounts in the USA up until 1940. Rotterdam’s ROBEMA account had deposits in today’s value of approximately 14.5 million dollars, which was the smaller portion of the Institute’s wealth.

Pollock, with the obvious blessings of Horkheimer, reorganized the Institute’s finances by channeling the money into three different American foundations: the Kurt Gerlach Memorial Foundation, named after the designated founding director who died before he could take over the office; the new Hermann Weil Memorial Foundation; and a Social Studies Association. Pollock also established the new SOCRES Corporation and SIRES Realty Corporation, which were used to make money on Wall Street. Two other firms under the leadership of Pollock, named Greyrock Park in Sound Inc. and Alden Estates Inc., helped to invest in or speculate with real estate.14 Even more firms and foundations were around to support Horkheimer and Pollock: Wiggershaus hints cautious- ly at one money transfer into an unnamed fund that only Horkheimer could access.

From about 1937 onwards, Pollock himself managed the Institute’s funds. Nadel was sidestepped when he arrived in the USA. It seems that the takeover by Pollock was accompa- nied by a change in the investment strategy. While ROBEMA proceeded cautiously, Pollock started riskier tactics.

After 1939, Fietje Kwaak was not in a position to receive orders, mainly due to the war. She was, however, an “agent” who did not need to get instructions from her “principals.” With cunning and ingenuity, she fooled the occupiers. She could have done otherwise without being blamed a coward. Her dedication to save ROBEMA followed a moral code that did not seek broad acknowledgment. Mulder goes so far as to see the company as Kwaak’s child surrogate.

On the other side of the Atlantic, the soloist in speculative economics Pollock lost about one million dollars in 1937 alone (in today’s value, this would be around 19.5 million). The historians of the Institute hide these losses behind vague wordings.16 To give an impression of the value that Pollock lost, one could mention that it equals the amount of 250 one-year support payments that the Emergency Committee in Aid of Displaced Foreign Scholars allocated to its recip- ients at the time.

Again, Weil stepped in and donated another $100,000 to the Institute. Horkheimer thanked him in a letter but continued to downsize the Institute to a mere unit subsidizing him, his buddy Pollock, and his new philosophical handyman Adorno. All the other members of the Institute were pressed or per- suaded to find a source of income elsewhere. Those who were still in Europe perished because, as Ulrich Fries has recently shown, Horkheimer declined to pay for the ship transfer for Walter Benjamin18 or to help Andries Sternheim to survive in Switzerland. Sternheim had to return to the Netherlands and died in the Holocaust19; Benjamin committed suicide on the French-Spanish border.

Later on, Horkheimer was forced to accept a paid position as a white-collar employee at the American Jewish Committee to direct the Studies in Prejudice project. Such alienated labor quickly became too much for him, and he returned after half a year to his house on the West Coast, for presumed reasons of health.

In 1949, Horkheimer accepted an offer to return to Goethe University, followed by his friend Pollock and Adorno. A look at the financial situation of the Institute makes it clear that they needed to return to their hometown because the funds had evaporated, and remaining in the USA would have re- quired them to find an ordinary job. The Germans were given the impression that the returnees were making a great sacrifice if they returned voluntarily to the country of the murderers.21 To fellow exiles who did not follow the same path, the argu- ment was that they wanted to participate in the re-education of the Germans. For nearly a decade, Horkheimer appeared in many roles and functions: as rector of Goethe University, visiting professor in Chicago, advisor for politicians and bu- reaucrats, and public intellectual. German critics of the Frankfurt School claimed that Adorno and Horkheimer acted even as the “intellectual founders of Germany’s Federal Republic.”

It seems ironic: Kwaak who had singlehandedly prevented ROBEMA from being robbed by the Nazis performed finan- cially better during the occupation than Pollock on Wall Street. As the last transaction of ROBEMA, Kwaak trans- ferred several thousand German marks to Pollock in 1963. The money came from dividends for the years 1941 to 1944 from IG Farben, the famous business conglomerate that had been broken apart after 1945 because of its close collaboration with the Nazi system.

Neither Nadel who remained in the USA nor Kwaak re- ceived any thanks from the Institute, nor was there any official recognition by the Institute or any of the historians who have written its history.

Weil died in 1975 in an economic situation which one could only call poverty. The main beneficiaries of this self- expropriation were two men who pretended to be his friends, Horkheimer and Pollock. They managed to use Weil’s money to fund a life of luxury over a very long period of time, starting with a house in the suburbs of Frankfurt in the 1920s, to condominiums in Manhattan, a newly built bungalow in Pacific Palisades, and lastly, since 1957, residences in Montagnola in the Tessin region of Switzerland (finally, Pollock married a cousin of Felix who did not donate money to any opaque enterprise but rather enjoyed it herself; Pollock died in 1973).

Horkheimer promised to deliver his critical theory of the present from the early 1930s until his retirement in the south of Switzerland. Pollock was more modest and stopped publishing seriously when he cast aside Weil as the director of the imperium of associations, foundations, and corpora- tions. Until his retirement, he helped his friend Horkheimer to concentrate his energy on running a network of intrigues, documented in the four volumes of his correspondence, in- stead of writing the promised “New Logic,” “Critical Theory,” or whatever.

One of Horkheimer’s remarks that is still quoted long after his death in 1976 insisted that “whoever is not willing to talk about capitalism should also keep quiet about fascism.”24 Looking into the political economy of the Institute, the insti- tution Horkheimer presided over between 1931 and 1957, one is inclined to respond: “whoever is not willing to talk about the material base of the Institute should also keep quiet about Critical Theory.”25 The political economy of the Frankfurt School was not hidden in papal archives as both Erazo- Heufelder and Mulder prove in their well-researched histories.

People who met Horkheimer, even those who were criti- cally disposed, remembered him as an impressive individual, a true German professor. Some even referred to the concept of charisma to explain Horkheimer’s interpersonal successes. After reading Erazo-Heufelder and Mulder’s work, one starts considering alternative interpretations of this man and his doings.

The evidence for cleaning out the sponsor of the Institute from the side of the intellectual and the administrative man- ager is overwhelming. It might have not been entirely percep- tible to contemporaneous observers, but it can obviously be reconstructed from the files available for historians and others interested in the case. Why did generations of admirers of the Institute just ignore these facts?

There is an abundance of evidence in novels, movies, and other sorts of popular entertainment to expose swindlers, so- called con men as artist-like impression makers. Interestingly enough, serious academics seem to shy away from consider- ing the existence of similar problematic performers inside the ivory towers of the humanities. They see deviant behavior of academics only in the hard sciences. They are wrong.

Suggesting that an important person in the history of ideas should be regarded as a trickster not only arouses the vehement protest of partisans of that very person, but also probably triggers resistance on the part of the less partisan. To the vast majority of those who are morally on safe ground, it seems sacrilegious to even hypothetically consider that there may be deviants in their highly conforming community after all. This undermining of commonly shared beliefs may per- haps be more readily condoned when framed as a hypothesis. In other words: I am not sure that Max Horkheimer was a trickster, but it seems to me that his most important actions, especially the recognizable implicit strategy and tactics em- ployed, give sufficient reason to at least consider explanations other than those already in circulation.

So, in the world of social theory and social research, how would one be able to recognize a con man? A con man, especially in American literature, is someone who masters more or less sophisticated games to which he invites his pre- sumptive victims with the promise of extraordinary gains. In the end, of course, the victim, called the “mark,” loses. The perpetrator, called the “operator,” usually has helpers. These“coolers” try to prevent the victim from making a fuss, even going to the police or otherwise attacking the con man’s sta- tus. The basis on which the con of the “mark” becomes pos- sible in the first place is that the “operator” gains the trust of the “mark.” In other words, if you want to succeed as a con man, you have to be able to win over your future victims, to wrap them around your finger. Maria Konnikova has collected a large number of examples in her extensive study of the confidential game. Each of her con men was indeed an artist of misdirection and impression management.

Can the model of the con man, or the confidence game, be applied to intellectual history? If this were possible, one could close an obvious gap in the theory of the human sciences, which can be seen in the fact that the question of possible deviant behavior has remained a desideratum. In disciplines that are considered “hard,” this gap is filled by those who manipulate or even invent data. One of the last spectacular cases was that of the Dutch social psychologist Diederik Stapel. In the reports about him, the term “con man” was used. The financial history of the Frankfurt School, started out by Erazo-Heufelder and Mulder, could become a Kuhnian exemplar for a new specialty in the sociology of deviant behavior in the human sciences.