The Jew Who Defeated Hitler Page 20
With White’s promotion, Morgenthau formalized the status of the two men he relied on the most—White in international affairs and Daniel Bell, the former budget director, in domestic matters. Though Roosevelt, Morgenthau, and others were pleased with the strength of the Treasury team, conservatives worried about the economic team leading the country. “It is clear that there was never a greater need for brains in the Treasury Department, because there has not before been so great a task laid upon it,” wrote the Wall Street Journal columnist Frank R. Kent. “This is not to say that the Treasury Department lacks brains. Secretary Morgenthau, when he thinks and acts for himself, thinks soundly and acts well. The trouble is that every time he indulges in independent thought and action he discovers either that he is out of line with the White House or finds himself assailed from the rear by the left-wing New Dealers.”10
Morgenthau was responsible for Foreign Funds Control, and some staff members urged him to seize thousands of small businesses owned by Japanese Americans in the western United States. He refused, preferring instead to ask banks to be extra vigilant in reporting suspicious transactions involving Germans, Italians, and Japanese. “No time to be thinking about civil liberties when the country is at war,” said General Counsel Edward Foley at one meeting. Morgenthau insisted his policy was the right one and even opposed Roosevelt’s plan to incarcerate Japanese Americans. “When it comes to suddenly mopping up 150,000 Japanese and putting them behind barbed wire, irrespective of their status, and consider doing the same with the Germans, I want at some time to have caught my breath,” he said. He supported the incarceration of individuals who would harm the United States but not the indiscriminant imprisoning of an ethnic group. He was appalled when in February 1942 the president ordered the imprisonment of Japanese Americans. He complained to Roosevelt that their properties and businesses were being scattered, but the president replied, “I am not concerned about that.”
Confident of an eventual Allied victory, Morgenthau wanted the postwar world to be free of the currency crises that continually erupted in the 1920s and 1930s. One week after Pearl Harbor, he asked White to quietly come up with a plan that would bring this vision to fruition. Morgenthau was looking for something broader than the Tripartite Pact, a multilateral agreement between a range of countries that would prevent competitive devaluations. He and White were both economic nationalists, so it was understood that the plan would demand the dollar replace sterling as the world’s dominant currency.11
On December 22, 1941, Winston Churchill arrived at the White House for an extended visit to coordinate strategy to win a war that had gone badly thus far. The Japanese had attacked and were gaining ground in Hong Kong, British Malaya, and the Philippines, and they had sunk two important British warships, HMS Repulse and HMS Prince of Wales. Thailand had formally allied itself with Japan. The only bright spot was that the Soviets had stopped the German advances on Moscow and Leningrad.
Morgenthau attended a Christmas dinner at the White House, sitting across the table from Churchill, whom he considered in “the pink of health.” He thought Lord Beaverbrook, also in attendance, “cocky,” though he was touched when Beaverbrook, head of British aircraft production, told him that he and Roosevelt were the only friends Britain had in America.12 Beaverbrook shared with him statistics that showed Britain and the United States produced roughly equivalent amounts of arms in 1941, even though the American population was more than triple that of the island nation. At a Boxing Day cabinet meeting, the president stated repeatedly that the United States had to increase production. Finally Morgenthau said, “Well, Mr. President, if you really want to get production you have to change your setup with the authority divided between OPM, Army and Navy.”13
FDR paused. He knew Morgenthau and Stimson were unhappy that the Office of Production Management was hamstrung by its lack of authority over the military departments. But all he said was, “Well, I think the thing is working much better.”
Morgenthau noticed the president didn't jump on him for the comment, but he also told his diary: “For the amount of time the President spent on it, I gather it is worrying him considerably.” On January 13, Roosevelt established the War Production Board, to be headed by former Treasury executive Donald Nelson, but the new office still did not have authority over the army and navy. Only Roosevelt had such authority.
On the financial side, Morgenthau and congressional leaders agreed in December to raise about $4 billion to $6 billion in additional revenue through a wartime tax. But they did not agree on what form the tax would take. The Ways and Means Committee had previously opposed new taxes because $4 billion had been added in the previous fiscal year though organic economic growth.14 Morgenthau was still looking for more when he sat down on December 30 with Roosevelt and Budget Director Harold Smith to review their options. Morgenthau disliked and distrusted Smith. “He is like a termite undermining the foundation of the Treasury,” he told the president on one occasion. He added: “I have got to raise $19 billion from now until the end of the year, and it is going to take all of my brains, courage and ingenuity, and I don't want a fellow like Harold Smith trying to undermine me.”15 Though Smith believed the United States could produce only $55 billion of war supplies, Morgenthau told Roosevelt he should order manufacturers to produce a certain number of tanks, planes, and other equipment, and it would be up to the country to meet that order. The auto industry, for example, had produced only $218 million in war orders even though its plants had a capacity for $3.5 billion in automobiles. They finally agreed their target would be $9 billion in additional taxes, meaning the deficit would be about $18 billion in the coming year. The economic recovery was helping. Only three years earlier, they had struggled in vain to raise the national income to $80 billion, but now they had $100 billion to work with. FDR said the United States would spend half its national income on the war, or about $50 billion. “I feel I got him to change his attitude, namely, that he is going to set the mark for national defense, and whoever is in charge of supply is going to have to make good, rather than his former attitude of the last cabinet meeting that he would simply take the maximum of tanks and guns which the Army and OPM thought the U.S. could produce,” Morgenthau told his diary. “This is of tremendous importance.”16
The next day, Morgenthau issued a stern New Year’s message, warning the public that tax increases were on the way. “The Treasury’s job is to provide the sinews of war by taxes and borrowing,” he said. “We will try to do it without disrupting society too much, but you can't raise all we are going to need without considerable rearrangement of some people’s finances.”17
Americans were beginning to comprehend the financial demands Morgenthau would make of them. “Never in recorded history has any government raised by national tax levies, in a similar period, an amount of revenue approaching that which will be collected by the United States Treasury in the current fiscal year,” said the New York Times on January 2, 1942. Federal revenues were expected to reach $13 billion.18 Roosevelt spelled out quite clearly to the country just how massive the expenditures would be, first with his budget address on January 5 and then with his State of the Union address a day later. He called for the raising of an additional $9 billion in taxes that year, including $2 billion for Social Security. Total military expenditures would rise to $26 billion in the current fiscal year and $56 billion in fiscal 1943, producing deficits of $20.9 billion and $45.4 billion. “We cannot outfight our enemies unless, at the same time, we out-produce our enemies,” he told the nation.19 The State of the Union address spelled out his remarkable ambitions for outproducing the Axis: The United States would produce 60,000 planes in 1942 (10,000 more than the goal set eighteen months earlier) and 125,000 in 1943. It would churn out 45,000 tanks and 20,000 antiaircraft guns in 1942 and 75,000 tanks and 35,000 antiaircraft guns a year later. And finally, in merchant shipping, the nation in 1942 would sextuple its output to six million deadweight tons and increase it again to ten million in 1943.2
0 A Nazi spokesman publicly scoffed at the projections, calling them “fantastic,” “bombastic,” and “skyscraper figures.”21
Morgenthau had to pay for this fantastic arms program. He now wanted to raise $3 billion—three times the figure he used publicly—by closing loopholes in corporate taxes. He wanted income taxes to mop up the excess liquidity among consumers but without an undue burden on “the lower one-third,” the 33 percent who earned the least.22 The Treasury was targeting interest rates of lower than 2.5 percent in bonds sold to banks. Bell urged his boss to state publicly that the Treasury would issue no bonds with a coupon of more than 2.5 percent. “Danny, old boy, I love you but I won't say that,” said Morgenthau, adding he wouldn't tie his hands in that way. Rather, he convinced the president to say the government could raise the necessary funds without abandoning its low-interest-rate policy.23 And above all, Morgenthau insisted with a persistent ferocity that the war-bond program should be voluntary so all people understood they were contributing to the fight for liberty and democracy.
On March 3, Morgenthau appeared before the Ways and Means Committee with his tax plan, which sought an additional $7.6 billion—slightly more than Roosevelt had outlined in his budget address—and a $2 billion increase in Social Security payments. “The cost of winning this war is going to affect every resident of America in almost every department and detail of his daily life,” said the New York Times. “And still no one knows whether the sacrifices demanded will be enough, or for how long they will have to be made.”24 The point of contention in the budget debate was who would bear the burden. Morgenthau and Roosevelt were determined to protect the poor while several congressmen worried about taxing business too heavily. The committee considered a general sales tax or lowering the threshold at which income would be exempt from tax, which then stood at $750 a year for an individual and $1,500 for a married man. The administration opposed both moves. Morgenthau told his March 9 press conference that someone making $750 a year already paid more than 17 percent of his income through other taxes. “Families and individuals below the exemption level are making a fair enough contribution at this time to the government,” said the secretary. But an informal poll of the committee showed that the majority favored a sales tax so all Americans would share the cost of the war.25 The business community backed the committee, and labor backed the administration. Siding with the committee, the New York Times argued Americans had earned $61.2 billion in wages and salary the previous year and $7.2 billion in corporate profits, yet Morgenthau wanted to draw $3.06 billion from the first and $3.2 billion from the second.26
The pressure to increase taxes was amplified by problems in the war-bond program. The public enthusiasm was overwhelming, but it raised less than the Treasury had hoped. It had brought in $349.8 million in its first month of May 1941, and the sales had tapered downward after that to $232.3 million in September.27 The total for the six months before the attack on Pearl Harbor had been about $2 billion, but Morgenthau wanted the program to raise $1 billion each month now that the United States was at war. The December figure revealed an improvement to $528.6 million, but it still wasn't enough.
In early January, Morgenthau told a national radio address that the nation “remembers Pearl Harbor” as shown from the fact that sales of war bonds doubled in December.28 Organizers launched a campaign at major stores in New York asking customers to use their spare change to buy war stamps.29 When rail workers received $75 million in the settlement of a labor dispute, Morgenthau publicly asked them to invest the payment in war bonds.30 “Now that the United States is in the war to the eyebrows, we think the advice to buy United States defense savings bonds and stamps is good advice from several points of view,” said an editorial from the New York Daily News that ran in the anti–New Deal Chicago Tribune.31
No community did more for the program than entertainers, who were photographed buying bonds and appeared at events promoting them. It was as cool to promote war bonds in 1942 as it would be to protest war a quarter century later. On January 17, the actress Carole Lombard, wife of Clark Gable, died in a plane crash while flying back to Los Angeles from Indianapolis, where she had been promoting war bonds. “Your wife died in the service to her country,” Morgenthau wired to Gable.32 On another day in January, Morgenthau was late for his press conference because he was meeting with Walt Disney to discuss a film promoting war bonds. “Asked to lift the veil which hides his tax plan, Mr. Morgenthau replied that in these matters he was like Mr. Disney’s Dumbo, unable to speak,” said one report.33 Disney produced a Donald Duck cartoon urging people to pay their taxes on time. The Treasury was then roundly ridiculed for releasing a two-page, typed release about the short, describing each scene in detail. It left the Chicago Tribune wishing the Treasury were as clear in its annual accounts. “As a critic of the drama, if not as a fiscal agent, the treasury suffers from the ailment which psychiatrists have named ‘total recall,’” said the editorial. “Once launched on his description, there is no stopping Mr. Morgenthau. Every detail of every scene is recalled.”34 And the songwriter Irving Berlin was back in January with a new song for “Mr. Henry Junior.” This song was called “I Paid My Income Tax Today.”35
Morgenthau enjoyed rubbing shoulders with movie stars, but he never let it overwhelm the importance of his mission. He was quick to chastise Abbott and Costello when the comedians distributed a statement (without the Treasury letterhead) detailing their efforts to promote war bonds. The media accused them of promoting themselves more than the bonds. “I don't like that sort of thing any more than newspapers do,” said Morgenthau publicly. “I have been watching this sort of thing and will check it still more closely.”36
The Treasury met its $1 billion target in January 1942, largely because of the wave of patriotism after the Japanese attack. Morgenthau told the Advertising Club of Baltimore on Valentine’s Day that the bond program had reached only one-seventh of the nation’s income earners and that even low-income earners could save $11 billion a year through defense stamps.37 But the enthusiasm was difficult to maintain, and the total dropped to $700 million in February.
By mid-March, with the haggling over taxes dragging on, Morgenthau was feeling pressure to impose compulsory savings even from people in the administration, such as Marriner Eccles and Harold Smith.38 After meeting with Senator Prentiss M. Brown of Michigan, who wanted to legislate that all overtime be paid in war bonds, Morgenthau said he would wait until July 1 to determine whether the voluntary plan had failed.39 The president believed a compulsory program could raise only half the potential of the voluntary scheme. “Henry, you and I are the only people who understand it,” he said.40 When the voluntary program raised $564.5 million in March and $243 million in the first fourteen days of April, economists warned of the inflationary impact of the shortfall.41
Morgenthau pulled out all the stops when he testified before the Ways and Means Committee on April 16, insisting the voluntary plan would work. “We will ring every doorbell in the country at least once a month in an effort to increase the voluntary purchase of these obligations,” said Morgenthau, speaking before a backdrop of posters from a General Motors plant urging workers to buy war bonds. The Treasury organized industry and labor witnesses to come forward to testify about the success of form letters and sales talks at the plants. Morgenthau said the promotion was being rolled out in fifty-four thousand plants where thirty million people worked, roughly 53 percent of the workforce. “If a voluntary system will work, and I am convinced it will, it will be far better for the country,” Senator Walter F. George, chairman of the Senate Finance Committee, told reporters.42 Even the Wall Street Journal supported the voluntary savings, saying compulsory savings would reduce take-home pay and therefore make it harder to raise the taxes that were needed to finance the war.43
Though still involved in international affairs, Morgenthau’s unofficial role as Britain’s champion in Washington was now assumed by Under Secretary of State Dean Acheson. He and the British
were negotiating a new British-American lend-lease agreement. The countries agreed that the settlement of any debts would wait until after the war, that the United States would not interfere with political structures within the British Empire, and that the US Army would pay for its soldiers billeted in Britain and the empire. Separately, the two treasuries agreed that British dollar holdings would not fall below $600 million.44
On December 10, 1941, Maxim Litvinov, the new Soviet ambassador, called on Morgenthau, having been told by his predecessor to see the Treasury secretary if he needed anything. On New Year’s Day, the United States agreed to lend the Soviet Union $20 million against deliveries of gold. But the larger problem was the American inefficiency in shipping material to Russia—a huge problem, given the growing importance of the Russian front. The Treasury staff learned that American suppliers could produce only a fraction of what had been promised in such critical supplies as steel wire, steel-alloy tubes, shells, and various tools. “Every promise the English have made to the Russians, they have fallen down on,” an infuriated Roosevelt told the secretary in March. “The only reason we stand so well with the Russians is that to date we have kept our promises.” He wanted to make sure the United States accelerated its deliveries to keep those promises. “I would rather lose New Zealand, Australia or anything else than have the Russians collapse.”45 The president filled out a written direction for Morgenthau to oversee the remedy. “This is critical because (a) we must keep our word [and] (b) because Russian resistance counts most today.”46