The Jew Who Defeated Hitler Page 23

  Feeling exhausted after such a horrendous year, Morgenthau began the tortuous procedure of preparing a tax bill, but he soon learned he was no longer the only member of the administration negotiating with congressional leaders. Byrnes and his lieutenant Fred Vinson were doing so as well, and Morgenthau began to bicker with Byrnes about who controlled tax policy. He disingenuously told Roosevelt on December 3 that he was “getting along first rate” with Byrnes but wanted to clarify whether the Treasury should prepare the tax bill as it had in the past. “Absolutely,” said FDR, adding that he had said nothing to anyone about the Treasury’s role changing. “This proves to me that Byrnes is just groping for the power and hasn't got any directive from the President,” Morgenthau told his diary. “It also proves I am right in thinking that one should not be scared by anybody like Byrnes.”14

  Soon, Morgenthau’s exhaustion gave way to influenza and he was hospitalized. With Morgenthau out of the office, Harold Smith came to acting secretary Daniel Bell with a draft budget that called for compulsory savings, cancellation of some taxes in exchange for a pay-as-you-go system, and a “deterrent tax,” which was a euphemism for a sales tax. Bell said such a massive change couldn't be released without the secretary’s approval, but Smith responded that the president didn't want Morgenthau bothered in hospital. Suspicious, Bell phoned Elinor Morgenthau, who brought her ailing husband into the discussion so he could approve a counterproposal drafted by his staff.

  When Roosevelt finally delivered his budget message to Congress in early January, it made no mention of compulsory savings or a deterrent tax. It said the country needed $16 billion in extra revenue, or a total of $51 billion, and left it to Congress to find ways to raise it. The $109 billion in expenditure was twelve times larger than the biggest New Deal budget. It was such a staggering figure that Time magazine placed Morgenthau (then convalescing in a hospital bed) on its cover on January 25, staring out intently in front of a backdrop of dollar bills and coins. The story, titled “U.S. at War: $51,000,000,000-a-Year Man,” outlined the horrendous task facing Morgenthau as he worked to cover the costs of the war. It noted that the Civil War (which had taken place eighty years earlier) had cost $3.5 billion; World War I, $35 billion; but the current war would cost $70 billion in 1943 alone. “Some hyperbolic economists, who see fiscal policy as the beginning and end-all of Government planning, say that it is more important in wartime to have a great Treasury Secretary than a great President,” it said. “Nobody yet has called Henry Morgenthau a great Treasury Secretary.”15 The Treasury was fraught as budget specialist Daniel Bell was near exhaustion, and Ruml was once again pushing for tax forgiveness in return for a pay-as-you-go system. He said Morgenthau was the one blocking the new system, publicly calling him an “unfortunate man” for the United States.16

  The saving grace for Morgenthau was that the Victory Fund drive was a smashing success. In its first nineteen days, the campaign raised $10.2 billion, with 55 percent of it from individuals and small businesses. “This is a record that sets a new mark in the financial history of this or any other country,” said the New York Times.17 The final tally was $12.9 billion, and only 40 percent of it came from banks. Morgenthau called it a “grand response by the people.”18 Senator Robert Taft, a Republican member of the Finance Committee, dropped his proposal for forced savings after seeing the Treasury raised most of it from individuals and companies other than banks. “In one month then, about as much money was obtained for the Treasury as could be raised in a year from most of the compulsory savings plans that have been suggested to Congress,” he said.19

  Morgenthau was hospitalized with the flu for two weeks, then spent three weeks convalescing in Cuba, relaxing at the Club Kawama on Varadero Beach. He called on dictator Fulgencio Batista, author Ernest Hemingway, and journalist Martha Gellhorn. (In early 1941, Morgenthau and Harry Dexter White had asked the great author to gather intelligence for them when he and Gellhorn traveled to China and Burma.)20 By the time Morgenthau returned to the corner office in early February, Roosevelt had returned from the Casablanca Conference in North Africa with Churchill. The Germans had now been driven from Africa, and the two leaders agreed that their next move would be to drive north into Sicily and then to Italy itself. At the Brits’ insistence, they agreed not to attempt an invasion across the English Channel immediately, opting instead for Churchill’s preference for an invasion of Italy. Churchill went along with Roosevelt’s proposal that the Allies accept only unconditional surrender from the Axis, ending the possibility of a negotiated settlement that could leave the Nazis in power.

  The Treasury now had to administer occupation currencies for North Africa and soon for other jurisdictions, and it proved a delicate affair. If the exchange rates were too strong, domestic businesses would not be able to export, capital would leave the country, and US soldiers would have little spending power. If they were too weak, the country would underprice other European countries, including Britain. In early February, Roosevelt told the cabinet he favored fixing the franc at 43.90 to the pound once France was liberated. The Treasury thought the level was too strong, but the Free French Forces under Charles de Gaulle didn't want it lowered because the franc reflected the glory of France.21

  The problems in administering the occupied areas were complicated by the residue of class warfare from the New Deal. Henry Stimson, George Marshall, and John McCloy—none of whom had worked on the New Deal—planned to rely on private enterprise to provide supplies and expertise to the occupied zone in Sicily. The thought horrified the Roosevelt circle, including Morgenthau, who believed it would bring in businessmen who had opposed the New Deal. They persuaded FDR to set up a panel to appoint administrators in occupied territories. Stimson was outraged, insisting he was trying to win a war, not squabble over petty ideology. He wrote in his diary on March 28 that Roosevelt was the worst administrator he had ever worked for.22 Morgenthau asked White to be the Treasury representative on the panel. Soon White was complaining that the State Department had already seized control of economic, monetary, and financial policy and Morgenthau had to step in. “I am glad you are going to pick up the strings,” White told the secretary. “You are the only one strong enough to defend our position.” The one matter that White did fight for—and won—was a lire valued at one penny, whereas the State Department had originally advocated two per penny.23

  In early February, Morgenthau began to work with the Federal Reserve on the second Victory Loan drive, set for April with a target of $13 billion. This drive would target small communities.24 He was growing to adore these bond drives, which brought him rare acclaim and contact with ordinary Americans, including children. On March 5, he presented six-year-old Dickie Laswell of Springfield, Illinois, with a distinguished-services citation for raising nearly $1,000. Dickie suffered from lymphatic leukemia and told his mother he didn't need her to bring him toys in the hospital. But he did want pennies to buy war stamps so the country could win the war. When his mother told the story to a newspaper, pennies flooded in from countless donors.25 John Anson, six years old, of San Francisco, wrote Morgenthau a scolding letter a month later after the Treasury ran a war-bond advertisement with a caricature of a dachshund with Adolf Hitler’s face. “I told him I had two dachshunds and they were nice little dogs and I loved them and that they were good Americans,” he told the Associated Press. A secretary replied, saying that the Morgenthaus themselves owned a dachshund and meant no insult to their breed.

  When the campaign was launched April 7, the New York Times said it would be “the greatest borrowing drive in the history of the world.”26 A hundred thousand New Yorkers volunteered to sell the bonds, and a quarter million people in the tristate area aimed to raise $3 billion.27 On April 24, Morgenthau told a crowd in Cedar Rapids, Iowa, that twenty-five million Americans were now buying war bonds through the payroll-reduction plans, but it still wasn't enough. “The interesting thing as we get into the home stretch is that the sales of savings bonds are beginning to incr
ease, and the number of pledges,” he said. “That’s what we want. The drive wouldn't be a success unless we got the people.”28 By the end of the month, the New York Times was already calling the drive “a tremendous success,” having already exceeded the target by $500 million and raised $10.5 billion from sources other than banks. The Treasury believed it would be oversubscribed by $2.5 billion by the time the offering closed.29 It ended up raising $18.5 billion, an oversubscription of $5.5 billion.30

  By late May, a House committee accepted a bill with 75 percent tax forgiveness as long as the country moved to a pay-as-you-go system, which it did on July 1. Though the rich got a huge tax break in the middle of the most expensive war in history, the new system also raised $4 billion immediately.31

  The Treasury continued to hear rumors about the State Department thwarting efforts to rescue European Jews. They even heard of a State Department cable telling the legation in Bern, Switzerland, not to forward information on the Jewish killings to Washington. The Treasury knew Gerhart Riegner, a representative of the World Jewish Congress in Geneva, had fed information from Jewish refugees to Western authorities, including Leland Harrison, the US minister at the legation. But rather than acting on this information, the State Department had simply referred the matter to the Intergovernmental Committee on Political Refugees.

  Morgenthau was aware early in 1943 of opportunities to help the refugees, such as the Romanian government being willing to let seventy thousand Jews go to Palestine. Of course, there were problems: there could have been spies among them; the move could incite Jewish-Arab tensions; and the Romanians wanted a ransom of £250 per person.32 Negotiations were needed to bring down the $80 million total, and private and public funds could cover the cost. However, the State Department failed to act.

  In April, John Pehle and Josiah DuBois found a document that lent credence to the rumors they'd heard. The two men worked for the Office of Foreign Funds Control, which prevented US funds from leaking to the enemy. They therefore received all correspondence on the refugee issue, since it could involve paying ransom to Axis countries. One cable from Leland Harrison responded to Sumner Welles’s request for information from Riegner. It detailed the horrors in the occupied lands and added that such reports should not be subject to Cable 354. Pehle and DuBois immediately assumed Cable 354 was the directive they had heard about. They brought the information to Morgenthau, who authorized them to officially ask for Cable 354. The State Department refused, saying the cable did not concern the Treasury.33

  Throughout the spring and summer, the World Jewish Congress focused its efforts on trying to rescue Jews in France and Romania. It collected money from private sources in March—enough to rescue as many as seventy thousand people. But the State Department failed to act. Even conscientious State Department officials like Feis and Welles tried to help, but the State Department said it could not let ransom be paid for reasons of economic warfare. The Treasury’s foreign-funds division was now becoming more involved.34

  Stephen Wise and other Jews called on Morgenthau in July to say Romanian officials would allow the evacuation of seventy thousand Jews for $170,000. They needed to be paid in local currency, and the Treasury had to decide whether to release the dollars to pay for it. The Treasury approved the plan because the money would be held in Switzerland until after the war.35 Wise called on FDR on July 22 to see what was delaying the matter, and the president told Morgenthau he wanted to help the refugees. Morgenthau passed all this on to Cordell Hull, who agreed it should be all right because the money in Switzerland could not pass into the enemy zone. Morgenthau thought the matter was settled, but months passed and there was no action.36

  When the State Department finally cabled Bern in September with instructions that the Treasury had cleared the payments to Romania, Harrison said he had previously been ordered to pass such matters to the British legation. Nothing was done for seventeen days as the matter was discussed between Bern, London, and Washington. Meanwhile, officials in Washington learned that four thousand children had been taken from their parents in France and were being transported in sealed, windowless boxcars, sixty to a car without food or water.37 The Treasury officials wanted to force the issue with the State Department. But to complete their case, they knew they had to secure a copy of Cable 354.

  In June, Roosevelt created the Office of War Mobilization and named James Byrnes the director, who said publicly he intended to be “Deputy President of the United States.” The new agency would have authority over all departments prosecuting the war except the Treasury. The president named five advisers to the office—Henry Stimson, Frank Knox, Harry Hopkins, procurement chief Donald Nelson, and Fred Vinson, head of the office of stabilization—but not Morgenthau. “Secretary of the Treasury Henry M. Morgenthau Jr. was reported to resent Mr. Byrnes’s interference in tax matters, on which he has been, until recently at least, the recognized Administration spokesman on Capitol Hill,” said a columnist in the New York Times.38 Byrnes then publicly said on June 9 that he would take a hand “in the shaping of future tax policy” and invited Morgenthau, Vinson, and Harold Smith to a session on anti-inflation moves.

  In public, Morgenthau said little more than the country needed more taxes, protection for the poor, and a voluntary savings program. He challenged Americans to double their investment in war bonds to avoid compulsory savings.39 And he persuaded the president to write a public letter in praise of the bond program. “I am proud of the fact that 27 million patriotic Americans are regularly investing more than $420 million a month to help pay the cost of the war,” said the president’s letter. “I do not hesitate to say that the payroll savings plan is the single greatest factor we now have protecting ourselves against inflationary spending.”40

  But in private, the Treasury secretary seethed. One sign of the mounting tension was his severe migraine headaches, which became so bad on June 24 that he was hospitalized and received drugs intravenously.41

  Morgenthau soon announced publicly that the third war-loan drive would start September 9 with a target of $15 billion—almost half of the $33 billion target for that year.42 In the corner office, he complained that Byrnes and Vinson were pushing their agenda forward with impunity. “What the President has done, without having the courtesy to tell us, is that he has brought between himself and his cabinet another group that he looks to run it,” he said. “He is not going to do it to me and I am not going to take it.” Gathering momentum in one of his rants, he called them maneuverers and finaglers, men of personal ambition, and he declared he would not be “a shirt front for Vinson.”

  “I have been here ten years and your moral fibers begin to weaken after a while,” he said. “You can take a rubber band and keep pulling it, and after a while the thing just snaps. The things I could take five years ago…I can't take it now.”43

  Morgenthau formally wrote the president on July 27 to complain of a perception that the Treasury was “out of the tax picture,” replaced by Byrnes and Vinson. Vinson was negotiating with two congressional committees and had called members of the Treasury staff to meet him. “This creates a situation which makes it very difficult for me and for members of my staff to work effectively on tax matters,” he wrote. He enclosed a draft directive to clarify the secretary of the Treasury was in charge of tax policy.44

  “Aw Hen,” responded Roosevelt in a handwritten letter three days later. “The Weather is hot and I'm goin’ off fishing. I decline to be serious even when you see ‘gremlins’ which ain't there. F.D.R.”45

  And with that, the president left Washington and his fuming Treasury secretary. They got together for their regular lunch after FDR returned, and Morgenthau brought up tax policy again.

  “Did you get my very snooty note?” asked the president.

  “Yes, I did, and I didn't think it was snooty. I thought it was darling and I enjoyed it.”

  Morgenthau began to raise the issue again, but the president cut him off. “In the first place, Jimmy Byrnes feels in
his new position that taxes are part of his overall responsibility as well as other matters.” FDR told Morgenthau to go ahead and file a tax plan as the secretary always had and that he wanted a strong tax bill. “So to sum up, the President was very firm in that he wanted me to go ahead as I always have done previously,” Morgenthau dictated in his diary. And if Vinson were to cross him again, he said he would go to the president again. “I can't stand it again and I won't stand it.”46

  Yet the next day, FDR told Morgenthau that Byrnes had said Robert Lee Doughton believed Vinson was the only man who could help with the tax bill. Morgenthau said that would be fine.47 Then a week later, Byrnes in a radio broadcast called for a large compulsory savings program. “I was shocked,” Morgenthau wrote Byrnes, who replied Morgenthau had long known his position and shouldn't try to censor tax discussions.48

  Adhering to the president’s previous order, Morgenthau said publicly on August 22 that he hoped to raise $12 billion in additional tax revenue in the next revenue bill. But Doughton and Walter George doubted the economy could bear that much additional taxation. Revenue at the time was about $38 billion (almost four times the level before the war), and the $12 billion addition would raise it by about 30 percent.49 Morgenthau refused to lower the personal exemption, preferring instead to increase the tax on corporate profits. And to combat inflation, he was preparing privately to propose an increase in Social Security rates, which would have raised $5.5 billion.50

  By late August, Morgenthau was once again wondering whether he should resign. He prepared a series of documents that showed Byrnes and Vinson had crossed into his portfolio.51 He discussed the matter with New York governor Herbert Lehman, Elinor’s cousin, who believed Byrnes’s statement in favor of forced savings constituted weak grounds for Morgenthau to threaten to resign. “However, if the President said to me that I had to take my orders from Jimmy Byrnes then there would be nothing left for me to do but to resign,” Morgenthau quoted Lehman as saying. “He was sure, however, that the President wouldn't make any such statement.”52