The Jew Who Defeated Hitler Page 18

  On January 22, Morgenthau sent a memo to the president recommending the debt ceiling be raised to $60 billion and that the secretary of the Treasury have greater authority in the savings bonds program. He would be allowed to fix the denominations and the interest rate and to develop them into a security similar to the old Liberty bonds.28

  “The Treasury wishes to be able to offer securities of a character which would…promote thrift and savings,” Morgenthau told the Ways and Means Committee on January 29. “We hope that a substantial part of this defense program for which we have to borrow funds can be financed out of the real savings of the people.”29 If successful, the program would raise money without inflating the deposits of the banking system. And it would ease inflation by channeling the earnings of a broad swath of the population to the defense program rather than to consumer goods. Morgenthau also saw a third benefit, one he cherished dearly. It was an opportunity for all Americans—laborers, tradesmen, housewives, seniors, children, or anyone else—to participate in the war effort. It would raise awareness of the great struggle for democracy. Knudsen and others said the United States should follow the British model and impose forced savings on the people, but Morgenthau rejected such a notion forcefully, linking the war-bonds program with a campaign to support democracy. Congress actually raised the debt ceiling to $65 billion and gave Morgenthau full authority on savings bonds.

  By late February, the Treasury told the media it was establishing a new unit to handle the “popular” financing of the war effort.30 Much of the planning and energy for this unit came from Morgenthau himself, and those around him soon noticed he had become obsessed with war bonds. He and Treasury aide Harold Graves decided to offer $5,000 bonds to wealthy people and institutions and war stamps, costing as little as ten cents, to everyone else. They devised a simple album that held $18.75 of stamps and could be cashed in for twenty-five dollars after ten years. Savings bonds could already be purchased at 250,000 outlets, including the fifty-one thousand post offices, but Morgenthau wanted broader distribution. Through the spring of 1941, they enlisted some of the largest corporations in America to institute employee payroll programs so workers could voluntarily pay for bonds through monthly deductions. Many businesses set up the program at their own expense. General Motors, for example, swallowed the $100,000 cost of its workers’ program.31 The New York Times would refer to Morgenthau as “the country’s No. 1 bond salesman who cannot buy a single war bond because of laws prohibiting Secretaries of the Treasury from making such purchases.”32

  Morgenthau noted glowingly in his diary that the president was pleased with the program. Franklin and Eleanor Roosevelt agreed to be the first to buy the bonds. On April 30, the president joined Morgenthau and the postmaster general on live radio to launch the bonds. “Defense Savings Bonds and Stamps are not for the few; they are for the many,” Morgenthau told the radio audience. “Your government…is not asking you to buy one bond or one set of stamps and let it go at that; it is inviting you to save regularly and systematically by putting your money into the soundest investment on the face of the Earth—the Unites States.”33

  Morgenthau knew he needed a prolonged promotional campaign to keep people buying the bonds, and that campaign had to be bold and optimistic. He began to ask celebrities to promote his pet project, just as movie stars like Charlie Chaplin and Al Jolson had done in the previous war. On May 20, he asked that liberal refugees, including author Thomas Mann and physicist Albert Einstein, broadcast messages urging immigrants to buy the bonds and stamps. Within two months, Irving Berlin, the toast of Broadway, wrote a jingle for the bond drive called “Any Bonds Today.” The song was published in July 1941, with the US Treasury holding the copyright. A year later, it was adapted into an animated short to be played in movie houses before feature movies; the star was a new cartoon character called Bugs Bunny. (The film would later gain notoriety for racial stereotyping as one segment included the rabbit with a blackened face imitating Jolson.) “Any Bonds Today” became the theme song of the CBS radio show The Treasury Hour, which began in July 1941. The first episode was written by an unknown writer named Herman Wouk, who would go on to write such bestsellers as The Caine Mutiny and Trilogy. The show attracted a who’s who of show business, from Judy Garland to Mickey Rooney to the comedian Fred Allen to the soprano Grace Moore. And behind it all was Henry Morgenthau Jr., the lurid Treasury secretary, pilloried in Washington as Henry the Morgue. In the first month alone, more than one million Americans bought $3.5 million in stamps and $438 million in bonds.34

  The media supported the program and would do so throughout the war. In fact, Henry Morgenthau Jr. actually received favorable press throughout his career in Washington. Reporters lampooned him in private but generally respected his candor and efficiency. Of course he'd made mistakes: he once ordered New York Post reporter Sylvia Porter out of his office when she jokingly called him Henny Penny. (Henrietta Klotz brought her back in before any permanent damage could be done.35) He held weekly press conferences to maintain good relations, and Wall Street reporters gushed about his consistency in selling out large bond issues at low rates. Conservative newspapers, though questioning his qualifications, usually portrayed him as one of the few members of the Roosevelt circle who understood economics. And it didn't hurt that one of his closest friends was the publisher of the most influential newspaper in the world.

  Arthur Hays Sulzberger, who had known Henry Morgenthau Jr. since boyhood, became publisher of the New York Times on the death of his father-in-law in 1935. He was also one of Morgenthau’s few true friends, and their correspondence flowed with bonhomie and affection for each other’s families.36 The publisher wasn't above asking his powerful friend for a favor, as he did in November 1938 on behalf of his friend William Speed, a banker whose failing institution was in trouble with bank regulators. (Morgenthau agreed to meet Speed, but nothing came of the meeting.) And it was well known in Washington circles that Morgenthau would seek favors in return. Herman Oliphant once asked syndicated columnist Joseph Alsop what the prescription was for getting favorable press in the New York Times. “The prescription was simple—all I have to do is either mention one of Sulzberger’s favorite New York Jewish friends, or merely hint that Sulzberger’s taxes might be reduced,” said Alsop, making an obvious reference to Morgenthau.37 Morgenthau often sent representatives to the paper to lobby for good coverage. John Hanes visited the paper when the Treasury was fighting for tax reform in the spring of 1939. On May 5, Arthur Krock personally phoned Morgenthau to tell him Hanes’s trip had been “100 percent successful.” The result was a few editorials supporting the Treasury secretary and a glowing profile of Morgenthau in the New York Times Magazine.38 Though the New Dealers believed Krock was committed to bringing down their government, Morgenthau enjoyed a relationship with the columnist that often defied journalistic propriety. At one point, Krock phoned Morgenthau to name two congressmen as the anonymous sources for a controversial story. He said he did not want Hanes to be wrongly accused of leaking the story.39 And Sulzberger would sometimes apologize if the coverage of Morgenthau was not up to scratch. “I am embarrassed at the way The Times handled your letter this morning…and it was subordinated to what in my judgment was a less important story,” Sulzberger wrote on October 11, 1938. “I was sorry also to learn for the first time of the inaccuracy in our Saturday story.”40

  Of course, the New York Times would have supported the war-bond program regardless of this relationship. Virtually all organizations and companies backed it. “Almost every bank in the country will participate in the program,” reported the New York Times on April 30, the day before the official launch. “Newspapers, the motion picture industry and radio stations have also pledged their full support, and cities, towns and villages are scheduled to mark the opening.”

  Morgenthau would need their support as the defense costs kept on mounting. By the end of April, the defense program for 1941 had added $1.5 billion, pushing total government expenditur
es for the year up to a record $19 billion. That more than doubled the highest annual expenditure in the New Deal.41 The Treasury set an aggressive target of raising $6.3 billion in debt that year, hoping all would come through the war-bonds program.42 And Morgenthau aimed for an extra $3.5 billion from taxation, to bring total tax revenue to $13 billion. The taxes he proposed to raise included surtaxes on individuals’ incomes, estate taxes, gift taxes, and excise taxes. And of course, once again, he wanted to tax corporations’ “excess” profits. The plan had the support of the Roosevelt circle, Eccles, and the Democratic financial leaders in Congress.43 But both the House and the Senate needed to pass the plan, and the Treasury was often criticized for its fumbling in Congress. “Its first proposal last April [1941] showed little comprehension of the real requirements of wartime financing, and it was not until after six months of struggle that the tax bill was finally written by the Senate Finance Committee,” said the New York Times. “The Treasury having opposed broadening the tax base for months only conceded that need after nearly everyone else had become convinced of it.”44

  On April 23, Morgenthau appeared before the Ways and Means Committee to appeal for higher taxes and an excess-profits tax, which he said would protect against defense profiteering. “We are faced with a greater challenge than any in the history of the Republic,” Morgenthau said. “It calls for a much greater response than has yet been made.”45 He proposed allowing companies to earn a profit of about 6 to 7 percent of invested capital, after which the government would tax everything. As the committee took a break in June, it appeared he simply could not get the needed support from Republican congressmen.

  During the hiatus, Morgenthau won a battle in cabinet to reduce the Work Projects Administration funding by $900 million, six times the amount Roosevelt had proposed, and channel the funding to training in defense industries and the military itself. “They were all breathless when I had said I had arrived at the point where I felt that in order to make this country sufficiently strong against Fascism and Nazism we would have to put every able-bodied man to work and also every woman, doing the jobs which are necessary in case we get into war,” he dictated into his diary. “I feel that with the very black days which are ahead of us, we have to take care of the unemployed so that there is one less group for the Nazis and Fascists to appeal to.”46 His public speeches called on all Americans to join the grand struggle against aggressors. “We have seen so much selfishness and greed in high places that we are too apt to take them for granted,” he told the graduates of Amherst College, including his son Robert, four days later. “We cannot preserve our freedom without being ready to fight in its defense.”47

  Amid the budget debate, the New York Times ran another flattering profile of the Treasury secretary that highlighted his growing position in global finance. “Treasurer to the Democracies,” read the headline in the New York Times Magazine on June 22, 1941. “The financial nerve centre of the world today lies neither in Wall Street nor in Lombard Street,” began the article. “It resides in a huge colonnaded building covering about two square blocks on Pennsylvania Avenue, to the right of the White House. This is the United States Treasury, whose hard-working officials have the responsibility not merely of financing our own defense program, but with the lend-lease law are charged with maintaining the solvency of Britain, Canada, China and the whole international community of democratic nations.”48 (In fact, Canada needed no financial aid during the war.)

  Congress passed and Roosevelt signed the Revenue Act of 1941 in September. It raised surtaxes on individuals and corporations and promised to increase total taxation by about $3.7 billion. But it also retained loopholes that allowed corporations to avoid taxes on excess profits.49 And it was already proving insufficient to meet the demands of the arms program. The Treasury’s fiscal report in July had estimated total expenditures for 1942 would be $22.3 billion, and there was already speculation in the media that the figure would exceed $25 billion. Congress had signed off on $33 billion in appropriations in 1941, $26 billion of which was for defense. “These bring defense appropriations, including lend-lease and the authorizations for the two-ocean navy, made since May 1940, to about $43½ billion,” said the Wall Street Journal. “No one doubts that they will be even greater in the months to come.”50

  Though the lend-lease act passed, the United States and Britain still faced the problem of shipping the donations through the treacherous North Atlantic to Britain, where food shortages were occurring. “There is, I think, no doubt that during the next twelve months Britishers will have to forego a good deal of their traditional diet (which will by no means be all loss) and to reconcile themselves to something much more simple,” said the journalist Julian Huxley in February 1941.51 The British were shipping food from Canada and the United States in convoys, but the U-boats, hunting in wolf packs, were sinking merchant ships and escaping unscathed. “We simply have not got enough escorts to go round, and fight at the same time,” Churchill cabled Harry Hopkins on March 28.52

  Morgenthau, Ickes, Stimson, and Knox wanted the United States to provide escorts, but as of April, Roosevelt would approve only patrols in the Western Hemisphere (extending the boundary so it included Greenland and the west coast of Africa). “My own thought is that it is too much to expect the English people to fight on empty stomachs, and that condition is not very far off,” Morgenthau wrote FDR on April 28. “It is my belief that we must transfer a great number of ships to the English flag at once for the transportation of food.”53 At times, the president hinted that American ships would escort the convoys, but he always backed away from the plan. By August, he ordered the US Navy to escort US then British ships as far as Iceland. By September, driven by U-boat attacks on US destroyers, Roosevelt ordered the German subs should be shot on sight.54 In essence, the Americans were at war with Germany before Pearl Harbor, but only those Americans sailing on the North Atlantic.

  Morgenthau was impressed with the new British ambassador Lord Halifax, who took the post after Philip Kerr, the Marquess of Lothian died suddenly in December 1940. He said the new ambassador made an “excellent impression. He is very simple and very direct and very badly dressed.”55 He was less pleased with another British representative who came to Washington that spring, the famed economist John Maynard Keynes, whom Churchill sent to ask the Americans to write off debts of about $1 billion. Brilliant, self-assured, often abrasive, the Cambridge-educated Keynes had been at the vanguard of political and economic thought in Britain for a quarter century, and his theories of government creating demand with fiscal stimulus had meshed splendidly with Roosevelt’s New Deal. However, he and the Americans annoyed each other. He (and other Brits) could never fully accept that the administration had to negotiate with Congress on budgetary and foreign matters. And Keynes, who wrote and spoke magnificent English, dismissed the mumbling of the Americans, describing their speech as “Cherokee.” (Keynes’s biographer, Robert Skidelsky, compares a discussion between Morgenthau and Harry Hopkins to “a bad B movie” in which the Treasury secretary played the “more or less incoherent stooge.”56) Morgenthau and even the affable Hopkins wished Keynes would go home. He resisted Morgenthau’s recommendation that the two countries establish a committee to oversee the lend-lease operations.

  The British continued to sell off assets, including their largest holding in the United States, the American Viscose Corporation, for $40 million plus deferred payments, but they still requested US assistance. At a June 26 meeting, Morgenthau told Keynes that Roosevelt suspected the British were crying wolf about their economic desperation and the Treasury needed specific data. Keynes explained that the British were trying to hold their dollar balances at about $600 million, but some estimates made it appear that they would fall to $200 million within a year.

  “If you don't mind,” Morgenthau interrupted him, “you work one way and I work another.” He explained that the US Treasury had to work in a methodical way, and if Keynes would humor him then he could prove he
lpful to the British. But he needed accurate statistics. “I have gone to the President once or twice on this,” he explained in what must have seemed to Keynes a torrent of Cherokee, “and I have missed it by about six months, and I don't want to go again in your behalf unless I am nearer right than I was before, but he has sort of made fun of me that I have been so bearish on your position.” Later that day, British treasury official Sir Frederick Phillips reported back to Morgenthau that Britain’s gold and dollar balances had fallen to $161 million. Fortunately, the US military forgave some debts owed by the British, thereby easing its dollar position. The British also agreed to the committee Morgenthau had proposed.57

  On June 22, German forces moved east from Poland, attacking their erstwhile ally, the Soviet Union. In the west, the sea and air battles continued to take their lethal toll, though Britain had gained the upper hand in the Battle of Britain. Her ground troops were fighting in the Mediterranean and in North Africa to prevent the Axis from gaining control of the oil fields in Iraq. The British high command had learned the Germans had given up hope of invading Britain for now. Roosevelt himself guessed that Hitler knew that Britain was out of his reach, though he incorrectly believed the Germans would next invade Spain and Portugal. Morgenthau believed Hitler would try to invade Britain that summer, knowing it would be his last chance to do so.58