The Jew Who Defeated Hitler Read online

  The next day Morgenthau told such agencies as the Lend-Lease Authority, the Maritime Commission, and the War Production Board that the president wanted this fixed and would tolerate no excuses. Within a day, the War Department changed the authority over inland shipping, which promised to speed up deliveries, and other changes soon fell into place.47

  The Americans had grown deeply suspicious of General Chiang Kai-shek and his clique, hearing they were growing wealthy from aid shipments and that the army was reluctant to fight the Japanese. No one felt stronger about this than Harry Dexter White. But politics determined that America aid an ally, especially one that had been fighting the Japanese for four years.

  On December 30, Chiang officially asked the United States for a loan of $500 million—roughly ten times larger than the previous requests—saying it would bolster the morale of the Chinese people. The president understood the value of backing China, but Morgenthau suggested to his staff that they pay the money slowly and only if Chiang’s government fought the Japanese actively. He negotiated, often ferociously, with T. V. Soong, Chiang’s brother-in-law and a representative in Washington, during January 1942, and there was always an underlying threat that the Chinese could capitulate, freeing up several Japanese divisions to fight the Americans. Morgenthau compared it to “a hold-up.” Litvinov called it “blackmail.” The threat of capitulation worked, and Morgenthau agreed on January 29 to lend $500 million to the Chinese government, the repayment of which was deferred until the outcome of the war was clearer. He tried to place caveats on the loan, but the general insisted there be no strings attached.48

  The reach of the Treasury’s war effort even extended to South America when a Treasury report in the spring of 1942 determined Argentina, officially a neutral country, was allowing its banks to do business for Germany. Morgenthau wanted to freeze Argentine funds in the United States. Cordell Hull and the president protested that it would contravene Washington’s “good neighbor” policy, which courted Latin American friendship and tried to steer them away from Fascism. Morgenthau said it was only a study at that point, to which Roosevelt replied: “Well, as long as it is a study, that’s all right, but I don't want to do anything to upset all the good work that has been done in South America.”49

  White on May 8 submitted his report on an international-stabilization mechanism to Morgenthau that called for two multilateral institutions—one to stabilize currencies and the other to finance reconstruction. The United Nations stabilization fund would have capital of $5 billion provided by its member states, all of whom would agree to liberal trade and commercial policies. The fund would have the ability to buy extra currency of member nations as needed. Gold would be part of its capital, and the United States, which owned most of the world’s gold, would have the largest vote. The Bank for Reconstruction and Development would have $10 billion in capital and could make or guarantee loans to governments. White suggested the creation of these two bodies—which came to be known as the International Monetary Fund and the World Bank—would require an international conference to negotiate the terms.50

  “I am convinced that the launching of such a plan at this time has tremendous strategic as well as economic bearing,” Morgenthau wrote to FDR when sharing the plan with him.51 The president was interested, but he wanted Morgenthau to get financial and foreign-affairs policy makers on board. On May 25, Morgenthau briefed the Board of Economic Warfare, the State Department and the Federal Reserve on White’s plan, and they all applauded it warmly. Marriner Eccles called the plan the “most important in the international field from a monetary standpoint.” And Herbert Feis of the State Department added: “We, too, think that the time has come to pursue this study, and I don't know of any better way of doing it than the one you suggest.” They struck a committee to work on the scheme, and White was named chairman.52

  By July, Acheson told Morgenthau that the British were worried about a large conference on monetary affairs, likely because it would result in a reduced British role in international finance. He added that the State Department recognized Treasury primacy on the issue but worried about procedure. Morgenthau initially shrugged off the comment by saying the British could kill anything they didn't like, but he worried about the State Department trying to kill the bank and fund. He had a good relationship with Acheson and asked him point-blank to find out whether Hull would back his proposal. Hull recommended the Treasury brief other countries on its plans. If other countries and the president supported the proposal, then they should all proceed with an agenda for an international conference, he said.53

  Morgenthau’s personal circle was changing as Purvis was dead and Roosevelt’s closest intimate was now Harry Hopkins, who was living in the White House. Occasionally, Morgenthau revealed his jealousy for the man he dismissed as being nothing more than flamboyant. “A couple of years ago the President said, ‘You and I will run this war together,’ and then it was ‘You and I and Hopkins,’ and then Hopkins and himself and me out on my ear,” he once told his diary.54

  The Morgenthau family’s relationship with Eleanor Roosevelt was as firm and friendly as ever. The senior Morgenthaus still sent special presents (a one-hundred-dollar check for New Year’s in 1942 because Henry Sr. didn't know what else to get the First Lady).55 Even the Morgenthau children would send the Roosevelts gifts from time to time, as Robert sent them cheese in 1942 and Henry III a case of champagne from newly liberated France in 1944.56 Eleanor Roosevelt still wrote the secretary frequently, asking him to help with her perpetual philanthropy. “Dear Henry,” she wrote him. “You were so good about helping to have the tax taken off the theatre tickets given to our Service men in New York City, I wonder if you could consider the possibility of having the tax taken off on the tickets given to the Merchant Marine.”57 She forwarded any suggestions people gave her on the war-bond program, such as Capt. James Gorman’s offer to perform the army artillery show on Broadway or a US Navy Band proposal to play Shostakovich’s “Hymn to the United Nations” on radio.58

  Even the 9:30 Group was changing. Stalwarts Daniel Bell, Harry Dexter White, and Henrietta Klotz were still at his side, but General Counsel Edward Foley Jr. resigned to enter the army as a lieutenant colonel. FDR said publicly that Morgenthau was making a sacrifice in releasing Foley. (In 1944, while stationed in Italy, Foley would write Morgenthau asking to return to Washington, claiming his wife was “distressed” and he worried about her health. The secretary responded that he was unable to help, and privately the Treasury gang, most of whom had family at the front, joked about the weak will of Mrs. Foley.59) Foley was succeeded by Randolph Paul, a New York tax attorney who had worked with the Treasury on budget matters in the past.60 Younger men with high ideals were entering the inner circle, such as John Pehle and Josiah DuBois. They had been drawn to the Treasury largely because of Morgenthau’s reputation for integrity and his unbending determination to defeat Nazism.

  In the Morgenthau household, Robert had joined the navy as an ensign the previous year. Henry III was working for the Office of Emergency Management in Cleveland. (His father arranged to have his salary returned to the Treasury and reimbursed him from Elinor Morgenthau’s money.) In the spring of 1942, Henry III enlisted in the army. Morgenthau was photographed in the New York papers seeing him off.61 The only child left at home was Joan, whose intellect was as keen as her mother's. The Roosevelts and the Morgenthaus now shared the worry and pride of having children in combat. Elinor wrote the First Lady to congratulate her on Elliott Roosevelt receiving the Flying Cross. “He’s always been one of my special favorites,” she wrote.62

  Elinor began the war as an enthusiastic lieutenant in her husband’s endeavors, as she always had. Early in 1942, they were both in Detroit at a fundraising event at a defense manufacturer. Henry was struck down by one of his migraine headaches, so Elinor, ignoring a sprained ankle, climbed up on a tank and delivered a rousing speech supporting the war-bond program.63 On April 18, she told 350 executives of the American fashi
on industry in New York to lead the nation in making frugality fashionable. American women must change their thinking and repair old clothes, appliances, and the like, she said, admitting the war would be hard on the makers of luxury products, like those in the fashion industry. “You could do no greater service than to instruct the women of America how to redesign their old dresses so that they look fresh and attractive; how to recapture the skills by which the pioneer woman made her life not only tolerable but rich and satisfying.”64

  What few outside the family knew was that Elinor Morgenthau, who had always pushed herself to the point of exhaustion, was feeling the cruel effects of age. After a hysterectomy in the early 1940s, her family noticed a decline in her energy, and she resigned from the Office of Civilian Defense in late 1942. Her ailment meant she was less active as an adviser to her husband, and he began to rely more on Henrietta Klotz.65

  By April, the Ways and Means Committee was writing its own tax bill that apparently would include a sales tax as a means of reaching the $7.6 billion target for new revenue. Chairman of the committee Robert Lee Doughton told the president in April that the target could be met only with a sales tax, but Morgenthau—who knew the country would need more than $8 billion in extra tax revenue—still opposed such a levy.66 The committee on June 20 decided not to vote on the sales tax, marking a significant victory for Morgenthau. It did, however, lower exemptions from $750 to $500 for a single person and $1,500 to $1,200 for a married person.67 The committee’s final budget raised only $6.25 billion in new revenue—far short of the $8.7 billion the Treasury was now seeking. “Those fellows just don't know there’s a war on,” said Morgenthau in disgust.68 As the budget passed from the House, the Senate Finance Committee heard a new proposal that some members found attractive. Beardsley Ruml, the treasurer of R. H. Macy and the chairman of the board of the New York Federal Reserve, proposed that the government start collecting income taxes directly from individuals’ paychecks. To ensure that people were not taxed twice in 1942, the previous year’s taxes would be forgiven. Though it would relieve the problems of late tax payments and taxpayers’ debt, the Treasury worried it would reward the rich, especially arms producers who had had a great year in 1941. The Treasury killed the plan for 1942.69

  Meanwhile, the shortfalls in the war-bond program persisted. Temporarily scrapping the goal of $1 billion a month, the Treasury said it would work its way up to the $1 billion mark. In May, it achieved its $600 million target and fell just below its $800 million target in June. Though worried that sales might fall off during the summer, Morgenthau set the July target back up to $1 billion.70 In the spring of 1942, he noted 45 percent of employees were now contributing about 4.8 percent of their monthly wages to war bonds, and he hoped to double that figure.71 He no longer talked of waiting until July 1 to decide whether there should be a compulsory system. Rather, he declared July 1 would be “War Bond Day” at every store in the country. For fifteen minutes, merchants across the country were to sell nothing but war bonds and stamps. Also in July, the stars and stripes would adorn ninety million magazines. Radio stations throughout July would proclaim the slogan, “Carry the Stamp Book or Carry a Gun.”72 On Independence Day, Morgenthau went to Poughkeepsie to visit International Business Machines Corporation’s Plant No. 4, which was working on war contracts, to applaud one thousand workers who worked their regular shift, despite the holiday. “I do not know of any better message to send to Mr. Hitler than to tell him about all you men we see here working on the Fourth of July like any other day,” he said, standing before red, white, and blue bunting and American flags.73 On July 27, Morgenthau announced that 621 radio stations, 70 percent of those in America, had agreed to market war bonds to the public.74

  In early July, Morgenthau revealed that the government ran a deficit of $19.6 billion in the fiscal year that ended June 30, 1942, largely brought on by $25.95 billion in war expenditures. He called on Congress to raise more revenue, but he personally had to shore up support within the administration.75 At the end of a fractious cabinet meeting on July 10, the president was talking to one member and without prompting said: “Henry has promised to raise $1 billion a month, and he’s got his neck out and let him hang himself if he wants to or else his head goes kaput.” The president dragged his finger across his throat as he spoke the final clause. Assembling his staff when he returned to the office, Morgenthau said he could have answered the president in half a dozen ways but did not. “I think you ought to know it so if a week from now I get excited—it may take a week before it boils up to the top—but on the other hand win or lose, nobody could do as good a job as the Treasury is doing and I just wanted to tell you that.”76

  Morgenthau mentioned to the president a week later that he had been a bit rough on the secretary about the war bonds.

  “What did I do?” asked FDR. “What did I do?”

  “You were unnecessarily rough.”

  “Well, there isn't a day passes that either Wallace or Miss Perkins does not go after me on compulsory savings.” Then he asked, “What did I say?”

  “Forget it, but I thought you were pretty rough.” They ended the meeting amicably, and Morgenthau told his diary he was pleased the president took the criticism well.77

  The media continued to publish stories with astronomical figures on the costs of the war. By July 1942, the war had already cost $35 billion—three times as much as all the wars prior to World War I and 83 percent of the total cost of the First World War. The cost was set to rise to $110.5 billion by the end of June 1943, and Congress had already voted to spend $223 billion to buy victory. If that sum was to be met, the United States would have to spend $100 billion just on the war expenses in the year ending June 30, 1944. “Never before has the United States Treasury had to contemplate even remotely the financing of such payments,” said the New York Times. “If they are to be met in any reasonable degree by taxation Americans must pull their belt to a point hardly dreamed of in the past.”78

  Morgenthau appeared before the Senate Finance Committee in July, stressing that if the Senate went along with the House’s plan to increase revenue by only $6.3 billion, the Treasury would have to borrow $53 billion in the current fiscal year—more than $4 billion a month. Even if the Senate increased Social Security levies by $2 billion, the United States would still pay for only 37 percent of its war expenditures through taxation, compared with 70 percent in 1941 in Canada and 44 percent in the United Kingdom.79 But in early August, Senator George told the media the committee was unlikely to make substantial changes to the budget passed by the House.80

  George also called for a system of “induced loans,” but Morgenthau was unimpressed, saying it was like all the other plans for forced loans. He soon admitted he would not reach the $1 billion mark for war bond sales in July, but he would exceed $900 million, which he described as “a tidy sum.”81 Opposition to voluntary sales was mounting. On August 7, Senator Arthur Vandenberg, a member of the Senate Finance Committee, said the voluntary bond program was totally inadequate, even if it did raise $12 billion a year, because it would result in a $35 billion deficit. He wouldn't say what should happen but noted the Treasury plans to sell $30 billion in bonds to commercial banks. “Everybody seems to agree that while the banks may be able to absorb this deficit, for one more year, it cannot thus be done thereafter and even the immediate effect is highly inflationary.”82

  When Morgenthau appeared in Roanoke, Virginia, in late August to name it the first “Treasury Flag City” of the war-bonds campaign, he sounded a bit petulant. “It should no longer be necessary for the Treasury to come to every American, cap in hand, to ask for subscriptions for war bonds and at 2.9 percent interest. By this time, every American should be coming forward, willingly and gladly, to lend a part of his earnings to his country. After all, we have been at war for more than eight months.”83

  The war was slowly turning. The US Navy won its most decisive victory ever when it defeated Japanese forces at Midway in June. The Bri
tish finally scored a victory in North Africa in August when a brash general named Bernard Montgomery defeated Erwin Rommel at El Alamein. The Soviets by autumn were holding the Germans in check at Stalingrad and inflicting horrendous losses on the invaders.

  Morgenthau fought on for his volunteer program, saying in an opinion piece that he would soon launch a $3 billion bond issue—the largest issue ever. “My problem is not simply one of getting more money,” he wrote. “It is a problem of enlisting the taxes and savings of the American people themselves.”84

  Over lunch on August 25, the president dropped his voice and said, “Henry, now that your War Bonds are not going so well, what are you going to do about it?”

  “I am not going to do anything now because I think something will come out of the present tax bill and that will help us with our War Bonds.” But it was obvious Roosevelt was losing patience with the shortcomings of the bond program.85

  In September, the movie industry led a campaign that raised $900 million. “This is a people’s war—85,000,000 movie goers are the people,” read a poster on the desk of National Campaign Director Si Fabian, who had left his job as a theater-circuit owner and devoted his entire time to the campaign. They planned war-mother nights, war-sweetheart nights, war-bride nights. On September 1, at theaters with a total of eleven million seats, the movies would be stopped for a patriotic ceremony.86

  As summer gave way to fall, the fiscal deadlock in Washington continued, and Morgenthau was taking a large part of the blame because of his inflexibility on the sales tax, compulsory savings, and the Ruml proposal. “The simple fact is that not in the history of the nation has there been such a tax muddle as now,” said columnist Frank R. Kent, who said the colossal job at hand required the best financial minds in the land. “Mr. Morgenthau is an earnest, honest, well-intentioned public man, but to regard him as one of the outstanding financial figures of America is not possible, even for his partial friends,” said Kent. “Mr. Bell, a former director of the budget, is an excellent routine career man, but the idea of his coping single handedly with the gigantic war financing problems is not really tenable.”87