The Jew Who Defeated Hitler Page 10
On September 11, Morgenthau told his staff he was still looking for assistant secretaries for the Procurement Division and the Bureau of Engraving and Printing, and he still needed to appoint a director of the US Mint.10 Procurement was a perennial problem. The division had been led by Christian Peoples, who was too fond of the bottle for Morgenthau’s liking. The competent Capt. Harry Collins was working his way into the position, but Morgenthau wanted a senior person who could get things done. At one point, he suggested that the president second Peoples to work with the army and navy on airplane procurement.
“In other words,” said Roosevelt, “you would rather have Peoples drunk on the White House staff than the Treasury.”
“Yes, and that’s not so funny because it’s true,” replied the secretary.11
The main problem for Morgenthau was that the Treasury was too big and unwieldy, that it was not simply the financial arm of government but a massive tangle of divisions, many of which had little relation to each other. It included customs, the coast guard, the Secret Service, as well as procurement. Henry Morgenthau Jr. had such varied tasks as leading monetary policy with the Federal Reserve, overseeing the Treasury Art Program, managing the stabilization fund, and directing the Congressional Budget Office. In 1935 he had overseen the tax-evasion case against his predecessor Andrew Mellon, a politically motivated action in which Mellon was exonerated. And in 1939, a great part of the secretary’s energies were spent on the prosecution of an antitrust case against the interests of Amadeo Giannini, the chairman of the Bank of America in San Francisco. Morgenthau had a network of Treasury representatives around the world who reported to him regularly as well as his own intelligence operatives through the Secret Service, the coast guard, and informal sleuths. He often said that he had more than enough to keep him busy conducting such a vast empire, and he was happy to leave other jobs to other people. Of course, he didn't mean it and often crossed into the duties of other portfolios.
During a military crisis, Morgenthau’s duties expanded vastly. First, a conflict invariably affected the financial markets and exchange rates, which he had to monitor. Second, it often required a response from the US banking system, such as freezing the funds of an occupied country. Third, Morgenthau usually worked quietly to buttress the finances of countries opposing the Axis. Fourth, there were new responsibilities, like paying for war materials or preparing the coast guard for paramilitary duties. And finally but by no means least significantly, Morgenthau would usurp the duties of other departments to make sure things got done the way he and Roosevelt thought they should be done.
In the fall of 1939, the Treasury had to make sure the government had enough money to operate smoothly. It would eventually have to sell some bonds, and fortunately the debt markets were stable after war broke out. In the first week of September, the yield on long-term Treasury bonds rose from 2.19 to 2.40 percent, representing a mild sell-off. While Morgenthau was away, John W. Hanes, Marriner Eccles, and George Harrison, the chairman of the New York Federal Reserve (whom Morgenthau thought was trying to usurp his job) had decided the country needed a cash position of at least $500 million. If the Treasury continued with its usual financings, the Treasury would have $1.6 billion by December 1; if not, it would hit that $500 million threshold on that date. Morgenthau and his staff worried they would have to pay a higher rate to attract borrowers if they issued during a time of so much uncertainty; if they waited too long, the market would know they needed to do big issues and would demand higher rates. Throughout the autumn, they continued to debate how and when the Treasury should enter the market again.
The task that took up most of Morgenthau’s attention was the crying need for ammunition on the part of Britain and France. He knew the combined arsenals of Germany and Italy put those of the democracies to shame and that the Germans were demonstrating ferocious fighting prowess. He also knew, all too painfully, that France was on the verge of financial ruin, Britain wasn't much better, and both had initiated arms programs far beyond their means. They needed help, but powerful forces in Congress were determined to restrict America’s ability to aid the democracies, trying to ensure the United States was never drawn into the war. Under the Neutrality Acts, enacted in 1935, 1936, and 1937, American manufacturers were barred from exporting arms to belligerents during conflicts, so the outbreak of war in Europe had essentially initiated an arms embargo. Using his considerable political skills, Roosevelt set about persuading a special session of Congress to soften these provisions so that the democracies could buy arms on a cash basis. Of course, that raised the question of how to define cash. The Johnson Act of 1934 forbade loans to countries like France and Britain that had not repaid their World War I debts, and the administration and Congress agreed that the new neutrality legislation would allow a ninety-day credit for commercial shipments. In November, while Morgenthau was relaxing on a ten-day holiday at La Osa Ranch in Arizona, the president issued a new neutrality proclamation that allowed arms sales to belligerents on a cash-and-carry basis, meaning that they had to pay with cash and then carry the material on their own ships. It also allowed American manufacturers to legally ship arms to the Axis powers.
The administration’s aim was to help Britain and France, and it had to do so quickly, before both were annihilated by the Nazis. Poland by mid-September was a lost cause, and US intelligence reported the Axis outgunned the British and French by a colossal margin. Ambassador to France William Bullitt told Morgenthau that Germany was estimated to be producing 1,200 planes per month, whereas the French and British between them could produce only about 600.12 (Actual aircraft production in 1939 amounted to 8,295 units for Germany and 7,290 for Great Britain.13) Aside from the Luftwaffe, the German army had about ninety-eight divisions, comprising 1.5 million crack troops and a fleet of 2,400 tanks. The British Expeditionary Force had four divisions and fifty light tanks. The hopes for a defensive stand rested in the French army, which numbered 900,000 men and had access to five million reservists. Harry Dexter White also prepared a report for Morgenthau showing Germany was most likely self-sufficient in terms of oil.14 One reason the War Department had opposed the plane deal with the French was because of fears that the United States would ship one thousand planes to France only to have them fall into the hands of the Germans when France fell. “I really believe that there is an enormous danger that the German Air Force will be able to win this war for Germany before the planes can begin to come out of our plants in quantity,” Morgenthau dictated into his diary after a meeting with the president in November. “I think we should encourage the French and the British in every possible way to place the largest conceivable orders. If, before those orders are complete, the French and British shall have been defeated, we shall need the planes for our own defense.”15
So the question became how many dollars or how much gold could France and Britain get their hands on to rearm and narrow the alleged gap with Nazi Germany. The answer was: not much. “England is busted now,” Ambassador Joseph Kennedy wired to Washington, while Montague Norman, the venerable governor of the Bank of England warned that all Europe was doomed, regardless of who won the war, because all the world’s gold would be held by the United States.16 Together Britain and France owned about $15 billion in gold, American securities, and US real estate. Half was owned by Britain, a quarter by her Dominions (independent members of the empire), and a quarter by France.17 Most of this would have to be sold off to come up with the cash needed to pay for a bona fide arms program, and there were limits to how much it could pay the Americans given that Britain was spending about $4 billion a year on armaments at home. And the gold and securities would have to be sold in a way that did not depress the market. Since 1933, the US government had held all the gold in the United States, and the last thing the administration wanted was for gold to plunge due to the Allies’ selling. Similarly, the US government did not want its debt or equity markets to slide if the Allies suddenly sold their holdings.
As they se
t about trying to aid the democracies, the administration was plagued by squabbling between officials, demands of isolationists, concerns about profiteering by industrialists and financiers, even its own ill-conceived ideas. On the return trip from Europe, Morgenthau had devised a plan to buy the state-owned cruise liners Normandie (on which he had just sailed to Europe) and Queen Mary from France and Britain, respectively. The proceeds, he reasoned, could be used to pay down their remaining war debts, allowing them to seek fresh credit from the United States. When he arrived in Washington, he told the president of his plan, and FDR replied with a big smile that he had been thinking the exact same thing and how they thought similarly even though they were thousands of miles apart.18 (“That’s lovely,” exclaimed Henrietta Klotz when Morgenthau told the Treasury staff of the amazing coincidence.19) The British and French were less delighted with the proposal. The ambassadors of both countries responded that these ships were national treasures and the Americans should not be poaching their finest assets during a crisis.20
One early problem was that Joseph Kennedy believed he should lead the negotiations from London, that his position would be undermined if he could not counsel the British on the disposal of their securities. “That is what the President definitely doesn't want,” Morgenthau told his staff. But Kennedy kept on advising the British, often shifting his opinion on when or how they should sell gold or securities. Morgenthau led the talks with the allies and was annoyed at the Bostonian’s persistent meddling in the negotiations. Gradually the British began to liquidate their holdings, selling $50 million of gold at the end of November.21 To facilitate the purchases, Morgenthau encouraged them to open accounts with the Federal Reserve of New York and to establish US-based purchasing corporations, as the Chinese had done.
The French at the outset were far more aggressive and efficient in their purchases, and the Americans had more diplomatic problems with the British. The French benefited from the plant expansions they financed earlier in the year and carried on by ratcheting up their purchases after war broke out. Morgenthau and Roosevelt helped wherever they could. When they learned the French had a desperate need for searchlights, they ordered that half the production of General Electric and Sperry Company be channeled to the French, even though the US Army had existing orders still to be met.22 By September 12, the French had spent $159.3 million in the United States, including orders for 3,030 planes and 2,250 engines, while the French naval attaché was negotiating for 100 torpedoes.23 Their purchases continued in late October, ordering $3.1 million in trucks and parts from White Motor Company of Cleveland, $10 million with Douglas for motors, and $9 million with Curtiss-Wright for propellers.24 By early November, Morgenthau told both British and French representatives that he doubted the British could buy an engine for six months unless they also paid for factories as the French had. “The French have been very foresighted and now they are profiting by it,” he told them.25
Throughout the autumn, the Treasury and the French and British representatives scrambled to arrange a structure that would allow the two desperate democracies to capitalize on the might of America. Eventually they came up with a proposal for a joint purchasing body whose chairman would be Jean Monnet. Morgenthau approved of the choice, though he warned the president of the strange rumors he had heard about the Frenchman and his business dealings.26 By November, the French and British governments had the key personnel in place. The two main players would be a Frenchman named François Bloch-Laine, whom Morgenthau and Roosevelt had met before and didn't trust.27 The English representative was someone new to Morgenthau, a Canadian businessman named Arthur Purvis.28
Purvis was born in Scotland and his speech still bore traces of a Scottish brogue. He was a refined, well-read, well-built man whose blue eyes shone beneath a pair of heavy, black eyebrows. Though he had studied music at the University of Edinburgh, he had spent his career in industry and government, tackling the unemployment problems the Depression had caused in Canada. The British industrial giant Imperial Chemicals Incorporated had sent him to Canada, and he became one of the country’s leading industrialists. He and Morgenthau held their first introductory meeting in the corner office on November 29, and Morgenthau was immediately charmed by his guest. He was also pleased with the news that Purvis was wrapping up talks to open an account with the New York Federal Reserve to allow purchases in the United States. Morgenthau seemed even more tongue-tied than usual as he told the new emissary, “Mr. Purvis, I want to assure you you are still—you have my—how shall I say it, anything that comes strictly—any Treasury matters of course I am going to do everything we can to help.”29
The next day, the Soviet Union launched a devastating assault on Finland, a country Morgenthau had visited only three months earlier. Morgenthau immediately sought Roosevelt’s approval for forgiving the remaining war debt, which amounted only to $180,000, and arranging further credit for the Finns. However, Cordell Hull worried that the assistance to the Finns would upset isolationists in Congress. Once again, Morgenthau was the most activist member of the cabinet in foreign affairs.30
Now that the war had started, Morgenthau remained peripherally involved with the Jewish-refugee issue. He corresponded as early as 1939 with Stephen Wise, head of the American Jewish Congress, on the persecution of European Jews; in the ensuing years, he corresponded and/or met with the National Jewish Welfare Board, the Refugee Economic Corporation of New York, citizens working on resettlement projects in the Dominican Republic, and other groups. In October 1941, he donated one hundred dollars to the Jewish Welfare Board.31
In the first week of June 1939, that file intensified as friends from New York called to plead with him to help 938 Jewish refugees aboard the German ship St. Louis. Sailing from Hamburg, its passengers had hoped to land in Cuba while their visas to the United States were sorted out. But on reaching Havana, they learned neither Cuba nor the United States would allow them to disembark, and they would most likely have to return to Germany. Late on June 5, Morgenthau broke from his policy of avoiding Jewish issues and called Cordell Hull to see if anything could be done. If it were a matter of money, Morgenthau said, something could be worked out with private Jewish organizations.
Hull’s wife was Jewish, so he understood the brutality of the Nazi regime. But some high-ranking State Department officials were understood to be anti-Semitic, and Jewish organizations had criticized his department for thwarting efforts to help Jews flee from Hitler’s expanding empire. Hull sympathized with the passengers of the St. Louis and had called the Cuban ambassador and the president that afternoon. He'd hoped the refugees could be offered tourist visas for the US Virgin Islands, but such documents demanded that they have a definite home to which they could return. So they were helpless.
The next day, Morgenthau told Hull that friends in New York were in touch with Cuban officials, but the Cubans were demanding too much money to grant the refugees entry to the island country. The problem was never resolved, and the ship eventually returned to Hamburg and her passengers to Nazi domination.
In mid-June, Morgenthau again broached the subject of Jewish refugees with the president over lunch. The president said flat out that the London-based Jewish Refugee Committee was getting nowhere. He mentioned that the president of Paraguay had told him he could accept about five thousand refugees. However, if the international community found homes for German Jews, Roosevelt said it would have to do the same for Jews from Poland, Hungary, and Romania. It would have added up to four million or five million people.
Harold Ickes phoned in October to tell Morgenthau he was outraged the State Department had refused to grant exit visas to four hundred American Jews who had been accepted to study medicine in Scotland. The students were willing to travel to Britain because the quotas in American universities prevented them from studying in the United States, but the department ruled that it was too dangerous for them to be even in Scotland once war had broken out. Together, Ickes and Morgenthau convinced the State Departme
nt to grant the exit visas.32
Stephen Wise—a leading opponent of Nazism and an old Morgenthau family friend who had actually married Henry and Elinor—wrote in November asking for help on behalf of a refugee advocate, Rev. Dr. John Maynard. Jewish men who had escaped Germany and landed in France were being detained as enemies of the state rather than being allowed to continue to their destination. Couldn't Morgenthau, he asked, request that the French ambassador do something? Morgenthau sympathized. “However, I feel that I shall have to stick to my rule that while I am Secretary of the Treasury, I cannot do the kind of thing that Dr. Maynard asks of me.” Understanding the secretary’s position, Wise replied, “I know, dear Henry, that my request is a little outside of your problem—of wiping out the slight indebtedness of our country—but I know that you will not be unequal to the task, too.”33