The Jew Who Defeated Hitler Read online

  For Henry Morgenthau, it meant his eldest son would soon be in France, and it meant the dynamics of the all-important monetary conference would change. De Gaulle felt slighted by being excluded from the D-Day operation, so the French were upset. But the Soviets could no longer complain about the lack of a second front. Technical experts from several countries had worked out many of their differences during negotiations held in Atlantic City. FDR had long said that he'd never seen an international conference that accomplished anything, but now a deal was within reach.40

  The British and American camps were now firmly committed to the multinational institutions, and the British accepted they should be backed by gold, as the Americans had demanded. The fund, with $8 billion in capital, including $2 billion in gold, would provide short-term stability for countries whose currencies were under pressure. The contributions of gold would be in relation to each country’s quota for drawing money from the fund. If a country other than the United States were forced to draw dollars from the fund, it would repay the amount in dollars. The United States could occasionally buy that country’s currency from the fund to pay for imports. If the fund had too much of any one currency, it would use that currency to buy gold. The World Bank, with $10 billion in capital, would promote investment in more long-term reconstruction projects. The bank’s primary function would be to guarantee loans made by private lenders for development projects, though it would also make direct loans itself.41

  Accompanied by his wife, his daughter (who spent the time working on a college history paper) and Henrietta Klotz, Morgenthau left Washington for the Mount Washington Hotel in Bretton Woods in late June. Nestled in the foothills of northern New Hampshire, the hotel offered a pleasant respite from the oppressive heat of Washington, especially at night, and there were enough hotels nearby to house support staff and reporters. But the revered hotel had grown shabby, so the government assembled what men could be found during war and had them paint the hotel white. A week before the delegates were to arrive, they realized the workers had painted everything—walls, wooden trim, gold fixtures. They managed to stop the work before the painters reached the ballroom, where the main conference was held. The Morgenthaus stayed in one of the finest suites, though they had trouble sleeping because the Keyneses were above them and Lady Keynes kept them awake all night as she practiced her ballet steps.

  There were key countries whose support Morgenthau, the conference chairman, needed: the Soviet Union, which was essential to build a new global order in trade; Britain, because delegates from the empire would follow its lead and because the United States needed its acceptance of the dollar as a reserve currency, even within the empire; and the United States itself, which was not guaranteed. There was no guarantee Congress would support an agreement, even if the conference produced one. So Morgenthau ensured the US delegation included representatives from both parties in both the House and the Senate and members of the financial community. These included Republicans Senator Tobey and Representative Wolcott, and Chicago banker Ned Brown. “This has no party politics,” Morgenthau told the US delegation when they arrived. “It is bigger than either the Republican or Democratic Party.”42

  The conference got down to work on July 1 and divided into two working groups: White chaired the group dealing with the International Monetary Fund (IMF), and Keynes chaired the International Bank for Reconstruction and Development group. Acheson headed the US delegation in the negotiations on the World Bank. The first crisis of the conference occurred on the third day, when the Soviet delegation protested the quota they were allotted for the IMF—which represented the amount it could withdraw from the fund and the voting power it would receive. White and Keynes had allotted the country a quota of about $800 million, but the Soviet delegation, headed by Finance Commissar Mikhail Stepanov, complained they had been promised a quota of 10 percent, worth about $1 billion. They were also angry their quota was below that of Britain, which had $1.25 billion. Aiming to be fair to all sides, Morgenthau discussed the matter with the US delegation, and Acheson proposed raising the Soviet quota to $900 million. But White protested that adjusting the Soviet quota would open up discussions on all the quotas.43

  After a few days, Morgenthau had to return to Washington to help smooth relations between Roosevelt and de Gaulle, who was in the United States to protest the treatment of his country, his committee, and himself. His demand to be treated as the head of a sovereign nation was matched by Roosevelt’s determination not to regard an unelected body as a country’s government. Morgenthau and McCloy recommended that the United States deal with the committee as a “de facto authority” so the Allies could jointly establish a civil administration as they captured France. With de Gaulle in the capital, a more conciliatory Roosevelt accepted the new wording.44

  Meanwhile, Fred Vinson, the lieutenant to Morgenthau’s archenemy Jimmy Byrnes, substituted as chairman of the conference and worked with White to achieve a Soviet quota of $850 million and a British quota of $900 million. Stepanov said his country would never agree, and he doubted the British would either. The Soviets increased their demand to a quota of $1.2 billion, Vinson told Morgenthau on July 6.

  “They're doing such a magnificent job in the war…that I've got a weak spot for them,” Morgenthau said.

  “We feel the same way,” said Vinson.45

  By the end of the first week, Morgenthau said publicly that the parties agreed to raise the Soviet quota to $1.2 billion, compared with $1.3 billion for Britain and $2.75 billion for the United States. However, he was careful to note that the United States vote on the fund would exceed that of the entire British empire.46 When Morgenthau returned to Bretton Woods, he learned that the Soviets had yet to respond to the US proposal. They were now also demanding that countries that had been overrun by the Nazis, including the Soviet Union, be required to put up 25 percent less gold (relative to their quota) than other countries. If that wasn't enough, Morgenthau also learned that the discussions on the International Bank for Reconstruction and Development were running into problems.

  As he often had, Morgenthau personally pushed through bureaucratic tangles that ensnared his underlings. He told the Soviet delegation on July 11 that he had always had good relations with their government, but now there was a problem. Apologizing for using a vernacular they may not understand, he said they were now “horse-trading” with him. “I must ask the Russian Delegation please to reconsider,” he said. “I feel that very deeply because I have only one desire, and that is the continued friendly relations side by side of our two Governments.”

  Stepanov replied that the Soviets had originally hoped for a 50 percent reduction in the gold contribution. Morgenthau would understand their concerns better if he had a clearer understanding of their gold holdings and national income. The Soviets had never revealed their gold holdings (in part because they didn't want the world to estimate how many political prisoners were forced into mining), but Morgenthau decided to push the issue. He said he had heard gossip that the Soviets held $4 billion in gold and were producing $300 million to $400 million a year.

  “Well, you can't stop the gossiping,” said Stepanov.

  He was obviously trying to dismiss the remark, but Morgenthau let him know the bottom line. “We have made you an ultimate proposal,” he said. “We have honestly gone as far as we can go.” He said there would be more deals between the governments in the future—an obvious reference to the Soviet ambition to secure a postwar loan from the United States—but on this issue the United States had given all it could give. If they didn't agree to the terms for the IMF, the Bretton Woods Conference would collapse. Their meeting broke up, and Morgenthau briefed the American delegation on what had been said.47

  On July 14, the New York Times reported there were now five areas of disagreement between the Americans and the Soviets, including quotas and how the gold would be paid. Someone on the US team had obviously leaked the story, and Morgenthau had to call Stepanov and apologize. The repor
t infuriated the Morgenthau team, who were convinced the two New York Times reporters at Bretton Woods were trying to derail the conference. Reporters Russell Porter and John H. Criders seemed to highlight the financial community’s worries about the fund and bank. As Morgenthau wrote in a letter to Arthur Sulzberger that he decided not to send, “I think they have been influenced too much by the opinions of a few hardshell New York bankers whose thought processes have been frozen for a good many years.”48 A July 8 editorial—possibly written by the two reporters—chastised the American team for ignoring the country’s balance of payments in their deliberations. Dollars were expected to be in high demand after the war, as reconstructing countries needed them to import American goods, and these countries could buy dollars from the fund in exchange for their “worthless” paper money, said the editorial. The United States could use that money only if it adopted a policy to encourage imports, but that didn't seem likely. The editorial said that “indicates a fundamental weakness in our approach to currency stabilization.”49

  Negotiations on the International Bank began to get bogged down over the ratio of loans to capital—the fundamental measure of the strength of a lending institution. A high capital ratio would stabilize the institution during financial shocks, but it would also restrict the amount of money that could be lent. The committee had agreed the new institution would have an initial capital of $10 billion, but only 20 percent would have to be paid in at the outset. The bank could issue loans and loan guarantees (known as assets) against the entire amount, including the committed capital that had not yet been paid in. The Dutch delegation recommended the loans and guarantees amount to only 75 percent of fully committed capital. Some members of the American team, especially the bankers, supported this conservative view, but White wanted to let the assets reach 200 percent of capital so the bank could make a significant impact in the critical job of reconstruction. “There is nothing that will serve to drive these countries into some kind of ism—Communism or something else—faster than having inadequate capital to construct their railways, their port facilities, their power development, things which have been destroyed during the war, or things which have deteriorated,” said White. He added the United States would need a market for all that it would produce after the war.50

  One thing that complicated the negotiations was that the quotas for the bank differed greatly from the fund’s quota system. The Soviets were greatly interested in the bank because their need for reconstruction was so profound. Whereas they were negotiating for an increase in their quota in the IMF, Stepanov insisted they would pay no more than $900 million into the bank, only three-quarters of the $1.2 billion Morgenthau was hoping for. Sick of waiting for approval from Moscow, Morgenthau was tempted to unilaterally put the Russians down for $1.2 billion. Acheson warned him against it, saying there was no way the war-weary Soviets could contribute more than $1 billion. It mattered little, said Ned Brown, since no one in the financial world would accept a loan guarantee backed by Russia.51

  Amid the huge issues being debated by the United States, Britain, and Russia, the other countries were haggling about matters that interested them specifically. The United States had to make concessions to the Latin Americans, especially to Mexico, Brazil, and Cuba, on stabilization funds. Britain championed small nations like Poland and feebly argued the headquarters of the institutions should be in London, though everyone knew they'd be based in the United States. France complained about the reduction in its IMF quota from $500 million to $450 million and the ensuing loss in prestige. Chinese finance minister H. H. Kung was worried about saving face and wanted China to announce it took less so Russia could have more. The Soviets would not allow it, so Morgenthau turned Kung down.52

  Through it all, the delegates grew exhausted and impatient. The days were hot, and the nights packed with late meetings. Many delegates negotiated in a language and on issues they little understood. Morgenthau worried aloud to Acheson that the bankers, especially Ned Brown, might be too conservative and could scupper the negotiations. But Acheson replied that Brown had worked incredibly hard on the brief for a long time. “He is a big fat man and that takes a lot,” he said. “He is really simply exhausted.” Many delegates believed Keynes was moving too quickly, calling for votes before they understood the issues. Keynes was frustrated the proceedings were too slow. Morgenthau had to diplomatically tell the economist to slow down, advice he received with good humor.53 Keynes actually wrote to a friend that for the “first time in my life I am really getting on with Morgy.”54

  The delegates narrowed their differences. They agreed the institutions would be headquartered in the member with the largest quotas, referring to the United States without actually naming it. They agreed to a total subscription for the World Bank of $8.8 billion—$800 million more than the figure at the start, even though the original figure had outraged the conservative banking community. On July 22, one hour before the final plenary session, Stepanov called Morgenthau to say that Moscow had agreed to a $1.2 billion quota for the IMF with no reduction in the gold contribution. Morgenthau was ecstatic, telling the minister to thank Molotov from the bottom of his heart. He rushed to the final session, at which the forty-four countries were able to sign an agreement on the creation of the two institutions. “And I do make bold to say Mr. President that under your wise and kindly guidance we have been successful,” Keynes told Morgenthau in his closing remarks. “International conferences have not a good record. I am certain that no similar conference within memory has achieved such a bulk of lucid, solid construction. We owe this not least to the indomitable will and energy, always tempered by good temper and humor, of Harry White.”55 At the final banquet, the bone-weary delegates toasted one another before dashing out to catch the final train. Keynes arrived late, and as he shuffled to the head table, the hall rose spontaneously in applause.56

  “This has been the great lesson taught by the war, and is, I think, the greatest lesson of contemporary life—that the peoples of the earth are inseparably linked to one another by a deep, underlying community of purpose,” Morgenthau told the United States in a radio broadcast that night. “To seek achievement of our aims separately through the planless, senseless rivalry that divided us in the past, or through the outright economic aggression which turned neighbors into enemies would be to invite ruin again upon us all.”57

  Morgenthau knew the agreement would have to be approved by several governments. Such passage was far from assured in Britain, which had suffered a huge blow in prestige as the Bretton Woods Accord officially established the United States’ financial preeminence. And in the United States, the conservative press and Republican caucuses were no less suspicious of the plan than they had been before.

  That might be why Henry Morgenthau Jr. took extraordinary steps to chastise the New York Times for its coverage. He assured Sulzberger in a phone call he was not questioning his patriotism but wanted to send a representative to New York to explain the deal to the New York Times’s editors. He did so, and Sulzberger had reporter Russell Porter prepare a memo for the Treasury secretary on the coverage. “The Times does not set out to ‘torpedo’ any meeting, even though we would be following high example were we to do so,” said Porter’s memo. “Please realize that I, too, love my country and that I, too, fight for a stable world in which my children and theirs may live in peace.” Porter said his reports were constructive and helped to bring public opinion to bear on the conference, stiffening the resolve of the US delegation in negotiating with the foreign parties. “It seemed to me that this was a highly valuable contribution, especially in view of the noticeable weakness of our delegation on the diplomatic side, and its need for some stiffening influence when dealing with skilled foreign diplomats and negotiators.”58

  Morgenthau’s spat with the New York Times was a bagatelle compared with the radiating success of the agreement. Bretton Woods was the first international conference in living memory to succeed, despite the need to work closely wit
h the Soviet Union. It gave the United States financial prestige the country had never known, and it created optimism for the conference establishing the United Nations. Though White was obviously the intellectual creator of the fund, Morgenthau helped to conceive of the idea, sold it to Roosevelt, and oversaw the process to create it. He contained the opposition in Congress and negotiated effectively with the Soviet Union. As Morgenthau left for a badly needed vacation at the end of July, laudatory international press reports and congratulatory letters from dignitaries poured into his office. The London Times editorial hailed the World Bank and IMF as “a new phase in the collaboration of the United Nations.” The Financial Times called it “the launching of the biggest financial scheme the world has ever known.”59 Across enemy lines, the German press called the agreement the exploitation of other countries by Jewish Wall Street capital and attacked Roosevelt, Morgenthau, and the “Jewish world currency plan.”60 Dean Acheson wrote Morgenthau: “The complete success of the Conference in arriving at these results was due to the skillful direction which you gave to the Conference and to the excellent preparatory work of Dr. White and his staff.” And Malcolm Bryan of the Federal Reserve of Atlanta wrote: “I want to say that the agreements reached at Bretton Woods are a great tribute to you and your colleagues at the Treasury Department.”61