The Jew Who Defeated Hitler Page 33

  Vinson was sworn in as Treasury secretary on July 23, 1945. Morgenthau stood alone at the back of the room, looking completely dejected and alone. He had no family there. His wife was still recuperating in Florida, and his sons were overseas. Only Henrietta Klotz was there to comfort him.

  One week later, the Senate approved the Bretton Woods legislation, which had already passed the House of Representatives. On the same day, Morgenthau received one of his few wholehearted endorsements on leaving office. In a column in the Washington Post, Drew Pearson, one of the most influential journalists in the country, blamed Morgenthau’s shabby dismissal on Byrnes and said Morgenthau deserved to be remembered for his contributions. He predicted that historians would forget the doleful face that spawned the nickname “Henry the Morgue” and instead recall that Morgenthau hammered at the army and navy to build more planes and ship arms to Britain. Congressmen, he added, would forget they had been continually goaded into raising taxes by a man constantly worried about “the problem of financing the biggest government spending program in history.”

  Going back to the prewar days, Pearson recalled that Morgenthau “made life miserable” for the State Department when it wanted to sell scrap iron to Japan and cut red tape to get arms to Russia. In short, Pearson said Morgenthau had a habit of being unbearable to anyone who detracted from the war effort.

  “He was the most constant interferer with other people’s business in Cabinet—especially the business of slow-moving Cabinet colleagues,” said Pearson. “But he did it. Nobody who does that can be popular. But when the final history of the Roosevelt Administration is written, it will be said that Henry Morgenthau, next to his chief, did more for the war than any other one man in Washington.”72

  Drew Pearson was wrong. History has remembered few of Henry Morgenthau Jr.’s astonishing accomplishments. When he is remembered, it is usually for his eponymous plan that was a complete failure and never implemented. Other than that, he sometimes receives the credit he deserves for creating the War Refugee Board, but only within the circles familiar with the history of the Holocaust. He rarely, if ever, is celebrated for his leadership in the key phases of the airplane program or in supporting Britain when it was the lone European opponent of Hitler’s tyranny. And there is no recognition for his greatest accomplishment—leading the biggest economic program in history to combat the greatest evil the world has ever known. The late British-military historian John Keegan called World War II “the largest single event in human history,”1 and financing the winning side was undoubtedly the biggest economic program ever.

  This epic snub began in 1945, immediately after he left the Treasury. He had been the second-longest-serving secretary of the Treasury ever, but he had never developed strong relations with the financial community. He was known to be ostracized by the Truman camp and represented the antibusiness leanings of the New Deal. So he was offered only a single directorship after he left government—the chairmanship of the New York–based Modern Industrial Bank, a ridiculously low position for a man who had recently considered himself the vortex of the financial world. He inched back into public life when Zionists in the United States persuaded him to use his abilities in fundraising to help the victims of Nazism settling in the Holy Land. Morgenthau in 1946 became the director general of the United Jewish Fund, which sought funds from private individuals to help the displaced people settling in what was then Palestine. It raised $124 million in 1947. The next year, when the new state of Israel was founded, it raised $148 million.2

  His relative obscurity ended briefly in 1948 when Harry Dexter White was accused publicly of being a Soviet spy. Two former Communists, Whittaker Chambers and Elizabeth Bentley, testified before the House Un-American Activities Committee that White had delivered to them classified information while he worked at the Treasury. White vehemently denied the charges and testified before the committee that they were false and he lived by the American credos of freedom, liberty, and the capitalist system. Three days after the testimony, he suffered a fatal heart attack. Morgenthau, to the resentment of the White family, never rushed to his former lieutenant’s defense and did not attend the funeral. White’s family continued to deny the allegations for decades, though the release in 1997 of the Verona decrypts, the transcriptions of American taps of secret Soviet cables, established beyond a reasonable doubt that White did indeed give information to the Communist government.

  Morgenthau’s personal life was infused with melancholy after the war. His dearest friend, Franklin Roosevelt, had died in 1945, followed by the original Henry Morgenthau in 1946. Elinor Morgenthau grew frailer and finally passed away in 1949. Morgenthau chose as his second wife a French widow Marcelle Puthon Hirsch. The three Morgenthau children disliked her, and the marriage created a rift in the family until Henry Morgenthau Jr.’s death in 1967. His children provided a legacy that would make any man proud. Henry III became a successful television producer, and Joan a physician. Robert received a law degree after the war and carried on the family tradition of public service, serving as the district attorney for Manhattan for thirty-four years.

  But Morgenthau had always hoped for a larger legacy. That’s why he compiled one million pages of the Morgenthau Diaries, initiated biographical projects, and worked with historians like Arthur Schlesinger Jr. and John Morton Blum. He always had an eye on history, yet history has rarely returned his amorous gaze. He had the misfortune of competing for posterity’s attention with such eminent contemporaries as Franklin and Eleanor Roosevelt, Winston Churchill, and Dwight Eisenhower, and men of action like General George Patton and Field Marshal Bernard Montgomery. Yet his body of achievement places him in the ranks of such giants, despite his obvious flaws.

  Obviously, the Morgenthau Plan was bad policy and fortunately was never implemented. Germany has grown into a moderate, successful nation and Israel’s strongest ally in Europe. Less obviously, Morgenthau must accept some blame for the failed economic policies of the Roosevelt administration, especially in the 1930s. As secretary of the Treasury, Henry Morgenthau Jr. produced a punitive fiscal framework from 1934 to about 1940 that discouraged private investment, added virtually no industrial capacity to the economy, and perpetuated high unemployment. The excess-profits tax, which starved the economy of investment, originated in his department. The best that could be said of his efforts before the war is that he frequently—though not always—muted the liberal excesses of Roosevelt and the New Dealers and scored several scattered triumphs in exchange-rate policy. Working with John Hanes, he tried to reform the tax system, but their efforts were diminished by the zeal of the New Dealers.

  He often engaged in the class warfare that epitomized the worst aspects of the New Deal. He understood the need to develop business as the engine of a healthy economy, especially during a war. But too often this rational economic axiom was lost when he was swept up in the antibusiness ethos of the administration. This was particularly troublesome during the war, when the Roosevelt circle’s suspicion of business interfered with the smooth operation of the War Department.

  He had blind spots in foreign policy. He trusted the Soviet Union—even during Stalin’s tenure—far more than he should have. And he was never able to fully accept the rot at the core of the government of Chiang Kai-shek, which drained US coffers of hundreds of millions of dollars. (Ironically, one of the finest chronicles of the Chinese government’s corruption was penned by Morgenthau’s own niece, the historian Barbara Tuchman, in her 1972 Pulitzer Prize winner Stilwell and the American Experience in China, 1911–45.)

  Those were legitimate marks against Morgenthau, which should not be overlooked. Yet we should correct the criticisms he did not deserve and applaud his accomplishments that were too quickly forgotten. The most unfair slight against the man was that he was a yes-man to Roosevelt. The record shows he frequently stood up to his boss—courageously so, because Roosevelt had the power to devastate Morgenthau with his disapproval.

  Morgenthau’s record in pro
secuting the war was exemplary. He consistently fought for military efficiency and often steered the president away from economic disaster. It’s been all but forgotten that Morgenthau led the airplane program for about two years. In that time, US aircraft production rose from 2,141 units in 1939 to 19,443 in 1941. More important, Morgenthau took the initial steps to increase machine-tool production, bring in foreign orders and investment, and enlist private manufacturers. The result was that airplane production in the United States peaked at 96,318 in 1944. In that year, the Allies (including those receiving aid from the United States) produced 165,000 aircraft compared with 69,000 by the Axis.3 Morgenthau understood the importance of industrial power in modern warfare. “Any country’s war potential these days can be measured in its heavy industries much more accurately than by the size of its army, navy, and air force at any given moment,” he wrote in his 1945 book, Germany Is Our Problem.4 And no one during World War II worked more successfully to convert America’s industrial might into military power.

  Second, he was the essential link in helping the United Kingdom tap into this American industrial might in 1940 and 1941. It’s largely recognized that securing American aid was Churchill’s greatest foreign-policy objective, and Morgenthau aided the task immeasurably. He worked with Arthur Purvis to channel arms to Britain, which received a substantial portion of American output. Then he pushed to improve the efficiency and maintain the funding of the lend-lease program. The British Empire is estimated to have received $30.1 billion in lend-lease deliveries between 1941 and 1945, or about 60 percent of the total lend-lease deliveries.5 To put that in perspective, $30 billion was about 15 percent of the American GDP in 1943. Converted to sterling, it averaged almost £1.9 billion per year over four years, or equivalent to almost 30 percent of the total expenditures by the British government in 1942 to 1945.6 Morgenthau was an essential cog in the machinery that kept Britain fighting, especially through its most critical phase in 1940 to 1942.

  He raised the money to fight the most mechanized war the world had ever seen. Estimates of the cost of the US war effort vary, but in 2010 the Congressional Research Service produced a paper showing the total military costs of the war between 1941 and 1945 were $296 billion at the time, or $4.1 trillion in 2010 US dollars. Obviously that figure understates the total because the war expenditures began before the United States officially entered the war in December 1941. Even at $4 trillion, the US war effort was very likely the largest economic program in the history of the world. The only US military event that could compare was the actions in Iraq, Afghanistan, and other countries following the terrorist actions of September 11, 2001, which totaled $1.15 trillion in 2010 dollars.7 The economic stimulus package of 2009 (including the Troubled Asset Relief Program, most of which was repaid) was about $1.5 trillion. The cost in 2010 dollars of putting a man on the moon was about $165 billion; of the Marshall Plan, $117 billion; the Interstate Highway System, about $460 billion over thirty-five years. Some believe the cost of converting the world’s energy complex from hydrocarbons to renewables may exceed the cost of World War II, but that will be carried out by governments and industry around the world. The United States’ Victory Program of 1939 to 1945 was undoubtedly the largest economic program ever, and the keystone in its structure was a dyslexic college dropout named Henry Morgenthau Jr.

  Conservative contemporaries frequently complained that Morgenthau was too unsophisticated a financier to carry out such a task, but the evidence destroys this a theory. The tools needed to raise such huge amounts of money were simply taxation and a variety of bonds. No other financial mechanism could raise such vast sums of money. Morgenthau could have done a better job negotiating with Congress, but the wartime boom still produced an increase of seventeenfold in income tax revenue. The two main worries about Morgenthau’s program were that it would be inflationary and would generate higher interest rates. Consumer-price inflation peaked at about 10.8 percent in 1942 then trended downward.8 Throughout the war-bond program, interest rates were consistently held comfortably below 3 percent—a staggering achievement, considering the amount of money the Treasury had to raise. When the New York Times summed up Morgenthau’s career in August 1945, it was muted in its praise, noting mainly that he conducted himself with consistent rectitude. But it also noted that his Treasury had to raise volumes of money that had previously been unimaginable: “The machinery set up to handle millions of dollars has to deal with billions.”9 Tax revenue rose from $7 billion in 1940 to $53.2 billion in 1945. During that time, individual income tax revenue rose from $2 billion to $34.4 billion, and tens of millions of citizens paid taxes for the first time, broadening the financing of government.10 The war-bond program, including the eighth bond drive that took place after Morgenthau resigned, raised more than $156 billion, about four times the total government debt in 1940. Simple logic dictates that an issuer could only raise such unprecedented amounts of money by offering higher interest rates. But the Treasury held interest rates down throughout the program. Had the buy-side of the bond markets been as worried about the Morgenthau Treasury’s stewardship as his public critics, they would have demanded higher rates to compensate for the risks of lending money to such incompetents. Morgenthau was able to raise so much money so cheaply because his Treasury was masterful in the debt market.

  That capitalized on the Allies’ industrial advantage over the Axis, which was a prime factor in winning the war. It was not a given that Morgenthau would raise so much money so smoothly. He had to battle enemies in cabinet, in the administration, in Congress, and on Wall Street. He had to overcome the legacy of the New Deal and start from a weak industrial base. He was constantly drawn to other important duties, from running the Secret Service to negotiating occupation currencies, to freezing or releasing foreign funds.

  Through it all, he was plagued by crippling migraine headaches and worries about his sons in combat zones and the failing health of his wife, parents, and best friend. And he was always beyond reproach in his ethics. His was a clarion voice for morality on such matters as the incarceration of Japanese Americans, the deal with Darlan, and aid to European refugees. Henry Morgenthau Jr. led a group that rescued 200,000 refugees, and he financed the destruction of the Third Reich. In the end, he was indeed the Jew who defeated Hitler.

  This book would not have been possible without countless acts of kindness by a range of people. I know I will be omitting people who should be thanked here, but there are several individuals and groups that need to be recognized. Above all, I'd like to thank Steven L. Mitchell and his staff at Prometheus Books for their faith in this project. In particular, Mariel Bard’s patience, knowledge, and insight greatly improved this book. And I wouldn't have connected with my publisher had it not been for the enduring support and patience of Roger Williams at New England Publishing Associates. I also had the honor of working with Roger’s predecessors at NEPA, the late Edward W. Knappman and Elizabeth Knappman-Frost. A consummate gentleman, Ed was taken from us too soon, and I wish he had lived to read this book.

  Robert Morgenthau was incredibly kind to take the time to grant an interview, and his insights and memories were invaluable. I would also like to thank Robert Morgenthau’s assistant, Ida Van Lindt, Henry Morgenthau III, and the staff at Fishkill Farms.

  Every modern study of Henry Morgenthau Jr. owes a huge debt of gratitude to the pioneering work of John Morton Blum, whose three-volume From the Morgenthau Diaries provides a magnificent roadmap to the labyrinthine Morgenthau archive. Blum spent a decade and a half going through these papers, and this book would not have been possible without his great organization and precision.

  Robert Clark, Matthew Hanson, and the staff at the archives at the Franklin D. Roosevelt Presidential Library and Museum in Hyde Park, New York, were a tremendous help. I'd also like to thank Richard Cote, curator of the US Treasury, and Registrar Merrill Lavine for their assistance. Other librarians and archivists that aided this project included: Karen Smith, Killam Memorial Li
brary, Dalhousie University; Barry Cahill, Public Archives of Nova Scotia; Clare Kavanagh, The Library, Nuffield College, Oxford; the staffs of the New York Public Library, Forty-Second Street; and the Toronto Reference Library.

  I'd also like to thank Craig Clemmer, the head of media relations at the Omni Mount Washington Resort, for an entertaining and fascinating tour of the site of the Bretton Woods Conference.

  Dozens of friends, family members, and acquaintances have offered support, encouragement, and advice, including: Catharine Axley; Paul Bennett; Chris Bucci; Stephen Patrick Clare; Stephen Harding, Max Lewkowicz, Melissa Ladenheim, Alison MacKeen, James Moreira, John Morris, Ed Paisley, Scott Shapiro, Robert Teitelman. Many thanks to them all.

  My family members have shown the patience of Job as their husband or father has used his vacation time to sit in libraries in New York State to feed his weird obsession. Many thanks to Cat, Scott, and above all my greatest friend, editor, and love, Carol.

  Henry Morgenthau Jr., Secretary of the Treasury, 1933–1945. During the second-longest tenure as treasury secretary in US history, he financed the Allied war effort, led the creation of the War Refugee Board, and organized the Bretton Woods Conference. Portrait by David Silvette, 1936. From the Treasury Collection, US Department of Treasury.

  The greatest source of Henry Morgenthau Jr.’s power was his friendship with his Dutchess County neighbor President Franklin Delano Roosevelt. Many in Washington underestimated Morgenthau’s abilities and thought the friendship was the only reason he was in cabinet. FDR inscribed this photo to Elinor Morgenthau, signing it, “from one of two of a kind.” Courtesy of the Franklin D. Roosevelt Presidential Library and Museum, Hyde Park, New York.