The Jew Who Defeated Hitler Read online

  By midsummer 1941, the Anglo-American partnership that Morgenthau had championed was now official policy in Washington. Its greatest manifestation occurred August 9, when Roosevelt welcomed Churchill aboard the USS Augusta on Placentia Bay off Newfoundland. The meetings produced an eight-point joint statement five days later that became known as the Atlantic Charter. The document stipulated that neither country would gain lands through the current war and that all people eventually freed from occupation should live in self-determination. Compared at the time to Woodrow Wilson’s Fourteen Points of 1919, it showed that America, though officially not a belligerent, stood shoulder to shoulder with her British allies.

  August 14 should have been a day that Henry Morgenthau Jr. remembered as the fruition of all he had worked for over three years. As well as the announcement of the Atlantic Charter, Knudsen in Buffalo predicted the United States would produce planes at a rate of thirty-six thousand a year by mid-1942. But in Scotland that evening, William Purvis climbed aboard an airplane for a transatlantic flight. The plane took off after dark and immediately lost altitude for some unknown reason. It struck a slight rise in the ground, then smashed through a fence, crashing into a corn field. Its full fuel tanks ignited, and within seconds the craft was engulfed in flames. Everyone on the flight, including Arthur Purvis, was killed.59

  Morgenthau told newspapermen the next day that he was “shocked and saddened beyond measure,” and he did not use the terms lightly. He would later tell his family and biographer that his friendship with Purvis was something that approached his affinity with the president.

  Hitler’s bloody adventure in the Soviet Union posed a dilemma for the United States. America heartily opposed Communism and had supported Finland following the Soviet invasion. Republicans in Congress were disgusted at the thought of aiding Stalin. But Russia and the Ukraine were the largest military theaters of the war, and defeating Hitler meant forming a partnership with the Soviets.

  Morgenthau had long supported the idea of doing business with the Soviets and had been part of Roosevelt’s team that opened up negotiations with Moscow in 1933. Since late 1940, the secretary had been developing a relationship with Soviet ambassador Constantin Oumansky. Sumner Welles had delayed a Treasury plan to buy Russian gold, believing it should be the State Department that handled the matter. Now some in Washington wanted Morgenthau to become the Soviet champion in government, just as he had been for the British. “I am not going to rush in to this thing,” he told his staff. “Let Mr. Hull come out and kiss the Russians on both cheeks.”60

  Two days after the invasion, Welles drafted a general license allowing the export of munitions to the Soviet Union. The Treasury and Justice Departments approved the license, but the question was how to pay for the $40 million to $50 million of material the Soviets wanted. When the State Department asked if the Treasury could arrange a loan, Morgenthau told Welles to discuss it with loans administrator Jesse Jones. “I burned my heart out and Hull and Welles have gone there consistently, and told the president, ‘Morgenthau wants to run the State Department and wants to run foreign affairs,’” Morgenthau told his staff. “Hull told me that himself. And now they want my help.” Morgenthau wanted to aid the Soviets but was outraged at what he considered the State Department’s gall. “After what they put me through for eight years—they have got to get down on their knees and ask me. I mean I will never forget the tongue lashings that I have had from Mr. Hull about how I want to run his department and the sarcasm and everything else.”61

  Aiding the Soviets was proving difficult due to mutual distrust. The Soviets wanted to receive goods in the Pacific, while the Americans wanted to ship them by way of Britain. And the United States was still ramping up production, so all powers were scrambling for supply that was still quite meager. As for paying for the material, the Lend-Lease Act demanded that Congress approve all appropriations, and now Congress was debating the second lend-lease bill amid vocal opposition to Soviet aid. That meant the Soviets had to pay for the weapons they received in dollars until the administration found a way to have the Soviets included in the lend-lease system. The Treasury began to buy what little gold the Soviets could ship, and Morgenthau helped push through a Soviet request for military supplies, even though the War Department worried such shipments were reducing arms available to Britain. He finally complained to the president.

  “I am sick and tired of hearing that they are going to get this and they are going to get that,” Roosevelt told his cabinet. “Whatever we are going to give them, it has to be over there by the first of October, and the only answer I want to hear is that it is under way.”62

  Only twenty-four congressmen voted in favor of an amendment to the second lend-lease bill in mid-October excluding the Soviet Union from receiving shipments. Yet the United States still wanted some payback from the Soviets. Hopkins—who had become Roosevelt’s personal liaison with the Soviets as well as with the British—proposed that the United States ship equipment to them in exchange for monthly payments of gold and charge 1⅞ interest on surplus shipments. “This is not the way to do the thing,” Morgenthau replied. “I think it is a mistake at this time to bother Stalin with any financial arrangements and take his mind off the war.”63 Hopkins agreed, but Hull, always wary of the Soviets and sensitive to Congress, insisted the Soviets pay something. Eventually the United States and Soviet Union agreed that the Americans would extend a $1 billion credit that would carry no interest until the end of the war.

  Morgenthau’s reforms in aircraft production were now resulting in an unheard-of output as the United States reached peak production of 1,476 units in the month of June 1941. The country was now producing aircraft at a rate of almost seventeen thousand per year, eight times the production of three years earlier and exceeding the wildly optimistic target of fifteen thousand set by the president in late 1938.64 And a great percentage of that production was being shipped to Britain. In the first seven months of 1941, the United States shipped $248 million in airplanes, engines, and parts to Britain and her outposts in Singapore and Africa, most of it delivered independent of the lend-lease programs. In the second half of 1941, about 60 percent of the American arms output was flowing to the British.65 “All in all, American aircraft manufacturers in the first seven months of 1941 sent the British almost twice as many planes as the British lost defending the British Isles, according to their own figures, during the entire year 1940,” Col. John H. Jouett, president of the Aeronautical Chamber of Commerce of America, told the New York Times in October. “At the same time, American manufacturers have shipped tens of millions of dollars worth of extra engines.”66

  Overall, the United States would produce more than 19,400 aircraft in 1941, with the vast majority being produced in the second half of the year. “The extremely trying ‘make ready’ period of the American Aeronautical Industry is finished,” declared an opinion piece in the New York Times in October. The article estimated that planes were now being produced at a rate of thirty-five thousand per year and that production would peak at as much as seventy-two thousand per year in the summer of 1942.67 The administration may not have realized it, but 1941 was the first year in which the American aircraft production exceeded both that of Germany, which produced 12,400 planes that year, and that of Japan, with 5,100.

  Still, the hawks in cabinet were dissatisfied with the structure of government procurement in the so-called Victory Program and the fact that government was not bringing in industry, especially the car industry, to boost production. Morgenthau believed production levels had reached 15 percent of their potential.68 Henry Stimson in particular was astonished that Roosevelt refused to establish a Department of Supply or some similar body to coordinate production, procurement, and shipments to the United Kingdom. Morgenthau sided with Stimson, but even he could not control the president’s obsession with control.

  On the evening of October 23, Morgenthau called privately at the White House, telling the president he wanted to speak wi
th him not as a cabinet member but as a friend and neighbor. “I am very much worried that when you get down to considering the Victory Program, that the so-called Detroit crowd, who are in charge of production for you, will not be able to take care of the situation,” he said. “If that time should come, I want you to have it in the back of your mind that I believe I could do this job for you.”69

  Roosevelt’s response was pleasant, encouraging even, and he suggested the two of them discuss the matter with Hopkins, who had to be brought in as the head of lend-lease.

  Five days later, Roosevelt received Hopkins, Morgenthau, and an official named Stacy May in his bedroom and listened as Morgenthau and May proposed a production organization. “This isn't the way to do it,” Roosevelt responded immediately. “How can anybody tell how big the program should be?” He explained that rather than building from the top down, he wanted the defense program to grow from the bottom up—meaning let the orders come from the military, and the government would find ways to fill them. Morgenthau disagreed on the grounds that any time the government doubled the order for, say, tanks, some other facet of production would suffer. General George Marshall himself had complained about the disorganization of the existing program. The parties ended up agreeing that more American production had to be devoted to military purposes rather than to consumer demands, but the Roosevelt-centric structure remained in place.

  In the autumn, Morgenthau suddenly took on a covert mission concerning the country that some feared would become the fourth major member of the Axis—Spain. Though Generalissimo Francisco Franco favored the Nazi cause, his country was officially neutral. If Spain did join the Axis, Britain’s naval power in the Mediterranean would be compromised. Now Britain wanted Morgenthau’s help to maintain Spain’s neutrality.

  On November 4, Robert Jemmett Stopford, the second financial secretary to Lord Halifax, called at Morgenthau’s home accompanied by John Pehle, a young lawyer from the US Treasury who was working his way into Morgenthau’s inner circle. Stopford had written Pehle about something so sensitive that Morgenthau decided it was safer to discuss it at his house rather than at the office. Churchill’s cabinet in mid-1940 had set up a secret $10 million fund to bribe key military personnel in Spain to ensure that it remained neutral. But when Morgenthau had recently frozen the accounts of neutral countries, the Swiss bank account used to bribe the Spaniards had been frozen. Stopford now pleaded with the secretary to lift the freeze. Morgenthau agreed, and three weeks later the money was once again greasing Spanish palms.70

  Soon Morgenthau released revised budget figures for the 1942 fiscal year that the New York Times said were “almost breath-taking in their astronomical immensity.” The $24.5 billion budget was “equivalent to the total national debt in 1920, after we had fought and won the World War,” said the New York Times. About $12 billion of the 1942 figure would be paid for by taxes, meaning the Treasury would now have to borrow more than $1 billion each month to cover the shortfall.71 The only reason Washington insiders were not utterly floored by these numbers was that they had grown used to the Treasury raising spending dramatically.

  For months, the Hull-Nomura talks aimed at averting a Pacific war had been so secret that not even the Treasury had been apprised of them. In fact, Harry Dexter White, of his own accord, wrote a memorandum recommending a solution to the impasse. Unaware of the two sides’ positions, he proposed Japan give up China and leave the Axis in return for financial and trade incentives. Hull received the White memo but took his own path in drafting a final proposal for Japan in mid-November. The Japanese rejected Hull’s document and the talks ended.

  The secret talks worried Morgenthau greatly. His suspicions of Cordell Hull no doubt plagued him, and he was frightened by rumors that the State Department might appease the Japanese and offer them access to badly needed resources. “Mr. President, I want to explain in language as strong as I can command, my feeling that the need is for iron firmness,” he wrote in a draft memo. “No settlement with Japan that in any way seems to the American people, or the rest of the world, to be a retreat, no matter how temporary, from our increasingly clear policy of opposition to aggressors, will be viewed as consistent with the position of our Government or with the leadership that you have established.”72 He did not send the letter, probably because Roosevelt told him in person on December 3 that the Japanese were likely continuing the talks because they needed time to prepare for an invasion somewhere. “The most important thing that the President said is he is talking with the English about war plans as to when and where the U.S.A. and Great Britain should strike, and that is what he is waiting for,” Morgenthau dictated into his diary in early December.73

  The second reason for worry was the Treasury was preparing the largest bond offering in the history of the republic, possibly the world, and the uncertainty over Japan was making markets edgy. Morgenthau had told the media a $1.5 billion offering would probably be launched between December 1 and 5, barring unforeseen events. On December 1, he asked the president whether war might break out and derail the funding, which he had penciled in for December 4. “I cannot guarantee anything,” replied the president. “It’s in the laps of the Gods.” He advised Morgenthau to proceed.74 To be safe, Morgenthau warned reporters he had never said the offering would definitely come that week. When asked whether it would depend on the Japanese situation, he smiled and replied, “You might say it depended on the weather.”75

  On Thursday, Morgenthau launched the record funding, selling $1 billion in fifteen- to thirty-year bonds at 2.5 percent and $500 million of nine- to thirteen-year paper with a 2 percent coupon. The low interest rates were critical because they showed the market the Treasury would not increase long-term rates to raise even this amount of money during uncertain times. By late afternoon, the Treasury officials closed the book for all except retail investors, having met with an oversubscription of the issue. It notified the media there would be another offering of similar size in January, but Morgenthau would worry about that another day. On Friday, he left the corner office for a well-earned vacation. He and his family were going to spend the weekend in New York and then fly out to Colorado on Sunday, December 7, 1941.

  The Morgenthau family (minus Robert, who'd begun his naval service) attended a symphony benefit for war bonds on Saturday night, December 6, 1941, then had lunch the next day at the French restaurant Voisin on Park Avenue in New York City. When they emerged at about 3:00 p.m., their chauffeur, Charles Frazer, told them the Japanese had attacked Pearl Harbor. Morgenthau dashed back to their hotel and learned he had a message from the White House.

  “Sir, I have just heard the news,” he said when he reached Roosevelt in the Oval Office. “I have my Coast Guard plane standing by. I'll fly right back to Washington.”

  Roosevelt, always calm in a crisis, responded cheerfully: “Be careful you don't get shot down, Henry.”1

  Japanese aircraft had caught the naval base at Pearl Harbor by complete surprise that morning, sinking four battleships and sinking or damaging three cruisers, three destroyers, an antiaircraft training ship, and one minelayer. Some 188 US aircraft were destroyed. More than two thousand Americans were killed, more than one thousand wounded. The Pacific Fleet was crippled and the nation humiliated. The president had called for a special session of Congress by the time the cabinet held a tense meeting that night. Frank Knox was devastated, and Henry Stimson kept muttering repeatedly that the planes and ships were clustered together, making the attack all the easier. As they discussed the situation, Roosevelt decided he would deliver a brief message the next day declaring war only on Japan.2

  At 11:00 that night, Morgenthau reached his own office, still numb with disbelief. He found the 9:30 Group—Bell, White, Gaston, Klotz, others—already assembled. Henry III, who accompanied him, realized his father and his team had been preparing for this day for years. “There could have been no Pearl Harbor in the Treasury,” he later wrote.3 By the time the day ended, Morgenthau had impounded $
131 million of Japanese investments in the United States and invoked the Trading with the Enemies Act, essentially ceasing all trade between the two countries.4 The next day, as the secretary responsible for the Secret Service, he increased the protection around the president. And he prepared the American people for the financial reality of what was happening. “I think this means greater expenditures for war purposes which will mean a corresponding increase in taxes,” he told reporters gathered in the corner office, adding there may be some controls over capital.5 In 1943 and after, the United States could be spending $50 billion a year on the war, he said. Sitting on the fringes of the press conference, Henry III noticed that out the high windows he could see the windows of the Oval office, where camera flashes were igniting as photographers captured the president signing the declaration of war.6

  The next morning, Morgenthau rewarded one of his most stalwart advisers by naming Harry Dexter White an assistant secretary of the Treasury with special responsibilities in foreign affairs.7 Known as the smartest member of a particularly brainy department, White was a Harvard-trained economist of Jewish Lithuanian extraction who had come to the Treasury in 1934 as a specialist in monetary affairs. A stocky man with a clipped moustache and a brusque manner, he had a colossal capacity for hard work and was known to rub underlings the wrong way. One of the Morgenthau circle, Merle Cochran, asked to be transferred to the State Department when he learned of White’s promotion. Even the gentlemanly Dean Acheson would one day write that he was often “outraged by Harry White’s capacity for rudeness.”8 But he was also courteous to women, particularly Elinor Morgenthau and Henrietta Klotz, who some noted were the women with the greatest influence on the secretary.

  What Morgenthau didn't know was that White was a Soviet spy. According to testimony of former spies later confirmed by the release of US intelligence, White had begun leaking information to Soviet spies gathered around economist Nathan Gregory Silvermaster as early as 1935. Though he was not a Communist Party member, he clearly favored state involvement in the economy and a stronger position for the Soviet Union in world affairs. The evidence against White is unassailable, though it is not clear how long he continued to leak secrets to the Soviets.9