The Jew Who Defeated Hitler Page 3

  After graduating from Columbia Law School in 1877, Henry Morgenthau began to invest in real-estate deals. In 1890, he headed a syndicate that bought an option on sixteen city blocks in the neighborhood of 181st Street in Washington Heights. The options cost $50,000 and valued the lots at $980,000. Then in May 1891—the same month, coincidentally, that his third child and only son, Henry Jr., was born—the syndicate subdivided the lots and auctioned them off for $1.49 million. Morgenthau had made more than ten times his money in less than a year, and suddenly the media and business community took notice of the young émigré.20

  Morgenthau continued his shrewd investments, usually in real estate but also in industrial companies, such as Underwood Typewriter Company. He formed the Central Realty Bond and Trust Company in 1899 to combine finance and real estate in a single vehicle. The company’s stock doubled in three months. Two years after it was formed, its annual profit equaled the original capital investment. “The formation of the company, its plan of operations and its success are attributed to its president, Henry Morgenthau,” said the New York Times in August 1902. “He has been known for several years as a shrewd, far-seeing real-estate operator and attracted public notice by the great success of his auction sale of the Morton Bliss tract on Washington Heights in 1891 and in numerous subsequent real estate transactions.”21

  He was also known for his philanthropy and was a leading advocate of proper urban planning to replace the slums that housed growing hordes of immigrants. He prided himself on the quality of his developments, such as Hunt’s Point in the Bronx. As a longtime supporter of the Democratic Party, President Woodrow Wilson appointed Henry Morgenthau Sr. ambassador to Turkey during World War I. He led the US protest against the Armenian Genocide during the war and served in other diplomatic missions.

  The only disappointment in his life seemed to be his son, Henry Jr. The big, rambunctious kid couldn't get along at the prestigious Phillips Exeter Academy, where he found the work difficult. “I have just got ‘C plus’ in an algebra examination which I [thought] rather good,” he told his parents in a letter after returning to school from the Christmas break in 1906, no doubt failing to bring joy to his successful father’s heart. He eventually left the school.22

  He later dropped out of architectural school at Cornell University. After falling in love with farm life during a stay at a ranch in Texas, he studied agriculture at Cornell, only to drop out again. All his life, the younger Henry Morgenthau lionized his father while trying to escape his overbearing control, and he sought to escape his father’s meddling by becoming a farmer, according to the family memoir of Henry III. He bought a thousand-acre spread called Fishkill Farm, with a mature apple orchard and a cattle operation, located just south of Poughkeepsie. It was an hour and a half by train up the Hudson River Valley from New York. He adored the land and people of the area, a hilly landscape of farmland and hardwood forest. He relished the bucolic joy of riding his horse through his apple orchard at harvest time. The price was $55,000, and his father—whose meddling Henry Jr. was supposed to be escaping—put up half the money.23

  In 1916, Henry Morgenthau Jr. married Elinor Fatman, a vivacious Vassar College graduate who had grown up in his New York City neighborhood. Henry Jr., his wife, Elinor, and their three children lived a dual life through the 1920s, dividing their time between New York and Fishkill. In addition to running the farm, he also published a magazine, the American Agriculturalist, which he purchased during this period. In his Washington career, he presented himself as a gentleman farmer, which served him well in his first federal job as the head of the Farm Credit Administration. What he failed to tell people was his farm lost money just about every year he owned it, and by the end of 1932 it had produced a cumulative loss of $168,690—three times the initial capital he and his father had put into it.24 The magazine was a money drain as well. “It is not much of a business that produces $185,000 and costs $200,000 to do so,” the elder Henry Morgenthau wrote his son.25 The fact was that Henry and Elinor Morgenthau got by on the family money, including a hefty inheritance Elinor received after 1926 and money Henry received regularly from family trust funds. (When Elinor died in 1949, she was worth about $2 million; whereas her husband’s net worth was about $360,000.26)

  Throughout the 1920s, one of Henry Morgenthau Jr.’s main occupations was acting as business agent for his father, looking after his real-estate concerns in greater New York, and acting on his behalf in several business dealings. The family even had a peripheral role in the event that some people believe sparked the great crash of 1929. In 1927, a Morgenthau-led group bought a company called Photomaton, which pioneered the first photo booths. Capitalizing on the craze for these booths and their instant photos, the syndicate listed the company below ten dollars a share, and it hit fifteen dollars in four months, leading Henry Jr. to advise selling some stock. “This would put HM & Son on Easy Street,” he wrote his father. “We all have to take our hats off to you on Photomaton.” Expansion proved expensive, and the syndicate in January 1929 agreed to sell Photomaton to a company owned by British investor Clarence Hatry. On Friday, September 20, as the Americans waited for the deal to close, Hatry and three partners were charged with a massive fraud in London and the stock of the companies he controlled were suspended. The Hatry scandal sparked a huge sell-off in London and Berlin the following Monday. The nervous selling spread to New York, and the markets did not recover. The crash came one month later, and some historians said the panic really began with the Hatry scandal.27

  The letters between father and son through the 1920s show that the elder Morgenthau was semiretired and either traveling the world or looking after his ailing wife. His son took care of his New York interests. And in turn, Henry Jr. drew on the family resources throughout the 1920s and even during his time in government. In 1938 alone, Henry would receive checks from one fund worth $6,000 (about $99,000 in 2013, when adjusted for inflation) in addition to his salary and perks as Treasury secretary.28

  While his best friends—such as New York Times managing director Arthur Hays Sulzberger, American Metal Company vice president Harold K. Hochschild, and Sullivan and Cromwell partner Alfred Jaretzki—had successful careers in New York, Morgenthau amounted to little until he began to work closely with Franklin Roosevelt. No one knows when they met, but by the mid-1920s, they and their wives were close friends, and the Morgenthaus were devoted workers in their neighbor’s political endeavors.

  The lone son of James and Sara Roosevelt, Franklin Delano Roosevelt was reared in the virtually aristocratic environment of old New York families, attending Groton School and Harvard College and vacationing in Europe with his parents. Though trained as a lawyer, he followed his calling as a politician early, entering the New York State Senate just shy of his twenty-ninth birthday in 1911 and being named assistant secretary of the navy two years later. He was one of the bright young prospects in the Democratic Party, though some assumed his political career was over when he was struck with polio at age thirty-nine and could stand only with leg braces thereafter. The disease did nothing to dampen his ambition, and he was voted governor of New York in 1929. The Morgenthaus were also stalwart workers and contributors when Roosevelt successfully ran for the presidency in 1932, defeating Herbert Hoover.

  They were an odd pairing: Roosevelt was smooth, dapper, and charming; whereas Morgenthau was tall, ungainly, and inarticulate. They shared a common patrician outlook, a liberal idealism, and a love of rural life among the gentry. No doubt, in an age of considerable anti-Semitism, the son of a German Jewish immigrant was heartened to have such a close friend who was not only gentile but also a member of an old New York family. They also possessed complementary senses of humor. When the Roosevelts came calling at Fishkill, Morgenthau would help the driver carry his guest in his wheelchair up the front steps. Roosevelt knew Morgenthau was ticklish and would poke his giggling host in the ribs throughout the whole exercise.29 In cabinet meetings, the two men exchanged notes with silly jokes
, the meanings of which only they could understand. Even social cards had a playful air. On the invitation to his fiftieth birthday luncheon in 1932, FDR typed:

  ELINOR I WANT TO KNOW

  WHAT MAKES HENRY ARGUE SO

  DON'T HE GET A CHANCE AT HOME

  TO MAKE HIS OPINIONS KNOWN?30

  It is difficult to overstate the impact Franklin Roosevelt’s approval or disapproval had on Henry Morgenthau Jr. Diary entries from Morgenthau frequently mention the president’s mood, whether he was kindly, harsh, indifferent, or sarcastic toward his friend and underling. It’s wrong to say, as many have, that Morgenthau was a yes-man or that he served in government only to win Roosevelt’s approval. Wall Street Journal columnist Frank R. Kent, in March 1939, compiled a list of “complete Yes Men” within the Roosevelt circle and named Morgenthau first (though Kent would also praise Morgenthau for his courage in standing up to the president three weeks later).31 Morgenthau had his own agenda and worked tirelessly to achieve it, and he would fight back when the president belittled him. But it is no exaggeration to say he yearned for Roosevelt’s approval and grew depressed when he suffered the president’s wrath or that Roosevelt’s disposition had a deep psychological impact on him. Neither had had a brother growing up, and there was a fraternal relationship between them, with Roosevelt always playing the role of older brother.

  In December 1938, Morgenthau broke his toe and phoned FDR’s secretary, Missy LeHand, to ask if the president had a spare cane he could borrow. FDR was on the phone immediately, asking about his injury.

  “What are you kicking about?” the president jeered.

  “I am kicking the furniture about.”

  “Did you really lose your temper? Whom did you miss?”

  “I was just walking bare-footed across the room and ran into a piece of furniture.” Morgenthau went on to explain that he was now wearing a moccasin, as his shoes wouldn't fit and it would be three weeks until the injury healed.

  “You can't come to the Diplomatic dinner and reception in a moccasin!” said the president.

  “Well, I promise to have it all healed by the time the King arrives,” said Morgenthau, referring to the visit of King George VI and Queen Elizabeth, which had been recently announced for the coming June.

  When they hung up, Morgenthau thought for a moment and turned to Henrietta Klotz, who had recorded the conversation. “You know, I am just a baby about it,” he said. “Part of the reason I sent for the cane was because I wanted the president to know that I had broken my toe.”32

  There was one final trait that Franklin Roosevelt and Henry Morgenthau shared: the complete obsession with advancing the career of Franklin Roosevelt. A tireless worker and a great organizer, Henry Morgenthau was known in 1938 as Roosevelt’s closest confidant. He had been shocked to be omitted from cabinet when his friend took office in March 1933, but he took on the Farm Credit Administration, which was charged with refinancing the nation’s farms. It’s easy to forget what a crucial job this was. Agriculture was the largest industry in the United States but had been in decline since the early 1920s, and farm foreclosures were rampant. Morgenthau consolidated and reenergized the federal apparatus for agricultural lending, and within eighteen months, the FCA refinanced one-fifth of the farms in the United States.33

  By late 1933, Morgenthau had positioned himself as a key member of FDR’s inner circle. It appeared certain by that time that the administration would need a new Treasury secretary. The incumbent, William Woodin, had worked with Roosevelt on landmark financial reforms in a short period—recapitalizing the country’s banks, establishing the Securities and Exchange Commission, creating deposit insurance, and beginning work on the creation of Social Security. But now he was terminally ill and his department was at odds with a key provision of the New Deal—the government’s purchasing of all gold in the United States at a price set by the president. The new president wanted gold to rise because of a theory that the rising gold price would lead to higher prices for other commodities, which would benefit farmers. The Treasury peerage considered government gold purchases unconstitutional, but at Morgenthau’s urging, Herman Oliphant unearthed a Civil War–era law that allowed it. Morgenthau was the president’s closest ally in the gold-buying scheme. Each morning, he'd go to the president’s bedroom, where Roosevelt would set the price of gold, up a few cents most days but dropping it the next to foil speculators. One day he set the price at $33.21, joking that he chose it because three times lucky seven is twenty-one. Morgenthau went along with the plan wholeheartedly, and it may have helped him take control of the Treasury when Woodin retired in late 1933.34 Though proponents of low inflation favored the elevation of Under Secretary of the Treasury Dean Acheson, Roosevelt surprised the nation in November by choosing Henry Morgenthau as acting secretary. The media and other observers were baffled by the appointment of a farmer to the government’s top financial post—a seeming Jeffersonian ensconced in Hamilton’s office. “Henry Morgenthau Jr. is just about the most obscure Secretary of the Treasury this country has ever had,” began a largely flattering profile in the May 1934 issue of Fortune. Still, the article also noted he was a “humdinging executive.”35 Most observers assumed that the president simply wanted a yes-man in the post. “Mr. Roosevelt intends to be his own secretary of the treasury, just as he has shown himself his own secretary of state, and in this picture Henry Morgenthau, by reason of his supreme faith in the leadership of Franklin Roosevelt, is held to fit with perfection,” wrote John Boettiger in the Chicago Tribune.36 Time magazine would later report that one of Morgenthau’s own sisters wrote to her son: “I can't understand why the President appointed your Uncle Henry…. He knows that Henry knows nothing about finance.”37

  Morgenthau’s tenure began badly. He tried to appoint family friend Earle Bailie as a special assistant but had to withdraw the nomination because Bailie’s brokerage firm, J. and W. Seligman, had been involved in selling Peruvian bonds that defaulted.38 And Morgenthau was accused of censorship by decreeing that only he and public-relations officer Herbert Gaston could speak to the press, restricting media access to Treasury officials.39 By the time the word acting was removed from his title in January 1934, the storm had passed and Morgenthau began to run an efficient Treasury. He attracted and promoted sterling administrators, and his Treasury was known not only for its efficiency but also for its ethics. He developed a method of implementing policy: devising it with his staff, selling it to Roosevelt, gaining broader support, and then implementing it efficiently. And he had Herman Oliphant, one of the smartest liberals in the government.

  The two men had actually met at Roosevelt’s inauguration in 1933, when Morgenthau was feeling rejected after being excluded from cabinet. As compensation, Roosevelt had appointed him the head of the Farm Credit Administration. He asked Oliphant, a native of Indiana, to join him. Oliphant had been a liberal professor of law at three leading universities—Chicago, Columbia, and Johns Hopkins—and had acted as counsel for striking transit workers in New York City and protested the execution of anarchists Sacco and Vanzetti. He had a creative mind, which Morgenthau himself often described as “ingenious.”40

  That Oliphant was regarded as the brains behind Morgenthau was highlighted at the 1937 Gridiron Dinner, the annual gathering of the Washington press corps. One skit featured a newspaperman posing as Morgenthau and another as Oliphant. Other journalists shouted out questions about taxes, prefacing each with the words, “Mr. Secretary.” After each query, Morgenthau stood silent while Oliphant delivered the answer. Then Morgenthau repeated Oliphant’s answer word for word, pausing occasionally for prompting from Oliphant.41

  During the New Deal, Oliphant devised the excess-profits tax on corporations, one of the administration’s most controversial economic policies. In a time of high taxation (the maximum personal tax rate was 75 percent), the administration charged that family-owned businesses avoided taxes by retaining profit within their company and paying for as many of their household expe
nses as they could through their corporations. Oliphant devised a means of taxing these “undistributed profits,” which intensified the business community’s enmity toward Roosevelt and suppressed the private sector’s ability to invest in economic growth. The National Association of Manufacturers, in August 1937, charged that the tax stymied plant expansion and replacement, as such investments were often financed through retained earnings.42 Congress weakened the tax in 1937. With the controversy over the tax, Oliphant became a figurehead for the heavy-handed side of the Roosevelt administration so hated by the business community.43

  In the Treasury, Morgenthau’s triumphs were numerous, including the Treasury’s bond program that raised the billions needed to finance the New Deal and did so while keeping interest rates on the bonds below 3 percent. He grew as a statesman, and his crowning glory came in 1936 when he brokered the Tripartite Pact, a currency-stabilization pact between the United States, Britain, and France. A series of financial crises in the 1920s and 1930s had caused wild currency fluctuations, shaking all major economies. Other statesmen since World War I had tried in vain to craft a similar deal, but Morgenthau was the first to succeed. “With the world drifting on a dangerous tide, it seems improbable that one of the few to cast out an anchor should be this man,” wrote the Saturday Evening Post. “But Henry Morgenthau snatched the tripartite agreement from the turmoil of the French Crisis.”44 On the fourth anniversary of Morgenthau’s appointment, a reporter for the Wall Street Journal, which was certainly no booster of the Roosevelt White House, wrote, “He has come to be regarded by many of those who know the Washington scene best, as one of the most influential executive officials on matters of important, basic government policy.”45

  What the press, and indeed few in Washington, appreciated in 1938 was that Morgenthau and Roosevelt had recently endured one of the nadirs of their relationship, and the year was a difficult one for the Treasury secretary. In fact, Morgenthau had threatened to resign months earlier because the president had imposed a budget on him with which he heartily disagreed. The United States had slipped into recession that year, and Morgenthau believed the best cure for the malaise was a balanced budget and revitalized performance by private enterprise. But on April 11, Roosevelt and a handful of left-leaning advisers told Morgenthau they had decided on a public-works budget of $1.45 billion beginning July 1—worth about 17 percent of the total fiscal 1938 federal budget. Morgenthau was outraged and let influential congressmen know he estimated the move would inflate the federal deficit, which he had been trying to shrink, to about $3.5 billion.46 In fiscal 1937, the deficit had been $2.6 billion. Two days later, Morgenthau entered the Oval Office to air his grievances. “Mr. President,” he said, “I am going to say something that is one of the most difficult things that I have ever had to do, but if you insist on going forward with this spending program I am seriously thinking of resigning.” The two old friends calmly discussed the matter, and at the end Roosevelt told Morgenthau he had done a “magnificent job” as Treasury secretary.47 The president did not back down on his budget plans, and Morgenthau did not resign. He no doubt believed the president needed him to help combat the Nazis and run the government, and it was also likely that he had no other prospects if he left the administration.