The Jew Who Defeated Hitler Read online

  The State Department finally approved a $25 million loan in December, and Morgenthau was responsible for organizing it. Former secretary of state and Republican Henry Stimson wrote in a letter to Morgenthau: “At this time when you may be receiving criticism as to the action of the Export-Import Bank in making the loan of $25,000,000 to China, I think you are entitled to the strong support of those citizens who believe that that action was wise and necessary. I am one of those.”38

  To outline plans for the coming arms program, Roosevelt called senior Treasury, State, Justice, army, and navy representatives to a conference at the White House on November 14. He opened by saying the Western Hemisphere was vulnerable in both its northern and southern continents for the first time since the Holy Alliance of 1818 and that the supreme power of Germany had reoriented the United States’ international relations. If the United States had had five thousand planes and the ability to produce ten thousand more, he said, Hitler could not have taken the stand he did on Czechoslovakia. The United States needed enough planes to defend the Western Hemisphere and the political will to build up large armies. The group agreed that Roosevelt would ask Congress to approve the production of twelve thousand airplanes a year and the capacity to double that amount. He assumed the government would need to build seven factories at a cost of about $70 million.

  Morgenthau was assigned to a committee on procurement rules, and the all-purpose Oliphant was to work with the army and the navy on writing the most cost-efficient contracts with private suppliers. Morgenthau was removed somewhat from the rearmament process for the time being. His most crucial task was working with the French Mission on a deal to supply first-line planes.

  The French plane purchase was a task layered with complications, involving negotiations between the Treasury, the White House, the army, the State Department, private corporations, and a foreign country in unrelenting financial crisis. As well as the neutrality laws, Morgenthau had to adhere to the Johnson Act, which forbade credit to France because it had defaulted on World War I loans. And at the center was the mysterious Jean Monnet.

  Throughout November, the secretary had waited for France to declare that it would reverse the flow of capital, but no declaration came. Roosevelt and Morgenthau both agreed they were sick and tired of the French government, whose authorities suppressed striking workers in Marseilles with bayonets. Monnet had chosen as his legal counsel Sullivan and Cromwell, the firm that was suing the US Treasury on behalf of Spanish general Francisco Franco over purchases of silver from Republican Spain. Still the French did nothing to reverse the flow of capital. “If the French don't really do something to get control of their own situation, I think they're through, and I think it’s only a matter of months,” Morgenthau told his staff.39

  All that came was word that Monnet would return to the United States in mid-December, accompanied by three aviation technicians. They arrived bearing a letter from Prime Minister Daladier, saying the French government would like to buy one thousand planes from the United States and asking for delivery to begin in July 1939. FDR encouraged the discussions, and Sumner Welles gave his blessing to the talks, which the French demanded be kept secret. Monnet still wanted to make the purchases through a Canadian-based corporation and was hoping the United States would grant such a company credit of up to twelve months. Morgenthau told him to go to a commercial bank because the US Treasury could not lend him money without violating the Johnson Act.40

  The internal differences within the US government mushroomed when the army and navy were brought into the talks. The military did not want the French orders for planes interfering with their own requirements from private manufacturers. Nor did it want France or Britain—foreign countries—armed with the best of American technology. In fact, US law prohibited foreign representatives from even seeing secret military devices or weapons. FDR had some sympathy for the soldiers’ point of view. Morgenthau had none. “Think about it again,” Morgenthau said to the president. “If you want them to be our first line [of defense], let’s either give them good stuff or tell them to go home, but don't give them stuff that the minute it goes up in the air it will be shot down.”41

  He was also outraged that the army still had not placed orders with private factories, many of which were idle or producing under capacity. Morgenthau was even exasperated by the private manufacturers, such as Allison Motors, which was a subsidiary of General Motors but had the capacity to produce only three hundred airplane motors a year.42

  Morgenthau believed French orders would actually increase capacity in the system and drive manufacturers to develop the machine tools needed to ramp up production.43 But he didn't want to jeopardize the relationships he had developed with the generals. And maintaining good relations throughout the War Department was almost impossible because it was divided into two camps constantly battling one another. The first was led by Harry Woodring, the secretary of war and arch-isolationist. He publicly advocated strengthening the regular army, national guard, and reserves but fiercely opposed sending aid to Britain, France, or other allies. His nemesis was Assistant Secretary Louis Johnson, who was more amenable to arming the Allies, though he also drew the line at allowing France access to secret weapons.

  By December 21, Morgenthau had produced a list of three planes, comparable to the latest German models, that the French should be allowed to test—the P-40 pursuit plane manufactured by the Curtiss-Wright Corporation with Allison Motors; the Douglas attack bomber, still in the possession of the Douglas Aircraft Company at Santa Monica; and the Martin Bomber model 166, now in production for export only.44 The president okayed the request, and Morgenthau hoped to proceed with the inspections in the new year, not realizing the tragedy he would suffer before the next business day.

  Colleagues later noted that Herman Oliphant was feeling under the weather when he left the office on December 21. At six the next morning, Henry Morgenthau’s phone rang. It was Oliphant’s family. Herman had had a serious heart attack. Morgenthau had him admitted immediately to the naval hospital in Bethesda, Maryland, where they placed him under an oxygen tent. He was diagnosed as having a blood clot, and the doctors said it would be a few hours before they would know the outlook.

  Morgenthau was grave when he told the 9:30 Group about their colleague’s condition. In the middle of the meeting, Oliphant’s associate, Ed Foley, walked in. “Come in, Ed,” said Morgenthau. “Ed, I guess you'll have to carry on because it will be three months before Mr. Oliphant is with us—at least three months—and they said may—well, we don't know.”45 It was one of those instances when the staff knew what Morgenthau was trying to say but couldn't articulate. They also knew the Treasury was operating without one of its most able members.

  Later that day, Harry Woodring and George Marshall came to the corner office to explain why the French program would interfere with their own. Before they arrived, Louis Johnson called and started off with a chatty tone, twice wishing Morgenthau a Merry Christmas. Then he mentioned that Boeing had been preparing a four-engine bomber for the military at a cost of $400,000, but the army decided it didn't want the plane. So Boeing had signed an agreement to sell it to the Japanese government for $800,000. As he prepared for the meeting with Woodring and Marshall, Morgenthau had a flurry of calls with Christian Peoples, who was the head of the Procurement Division, and the president, trying to scuttle the Boeing sale to Japan. Eventually, they agreed to scrap the Japanese sale and let the French buy the Boeing bomber for $400,000.46

  Woodring showed up with a memo stating that once the army ordered a plane, the first unit was generally not delivered for nine months, and only about forty could be produced in the first year. “An order at this time for one thousand planes for a foreign government would prevent fulfillment of our ten-thousand plane program within the time limits now assigned,” said the memo. “The foreign orders could not be cleared through the American plants in under eighteen months.”47 They agreed the French Mission would be shown no planes with secret
weapons until all parties agreed they could be delivered without interfering with the American program. The meeting broke up amiably, if inconclusively.

  Morgenthau was uneasy battling the entire military establishment in partnership with Monnet, a man he knew so little about. At a December 28 meeting, Morgenthau lost patience with the shadowy Frenchman when he explained the Canadian companies buying the planes would be financed with $250,000 of capital put up by the directors. If the directors declined to do so, Monnet said he would put up the money himself. Morgenthau asked why, and Monnet responded: “Frankly, I do a lot of things in this affair that I should not be doing.”48 Morgenthau and other Treasury officers pressed him to name the directors, but he was unable to do so. What would the directors receive for their investment? Only interest and repayment of the principal, he answered.

  Morgenthau bluntly said he was worried about the arrangement violating US law, and he would prefer the French government establish a branch office in Canada to buy the planes. “I will do business with a certified, authentic agent of the French Government, but I am not going to do business with a dummy corporation,” the secretary said. He noted the British had openly bought two hundred Lockheed and two hundred North American Corporation planes recently with no problems.

  “Let’s be perfectly frank,” said Morgenthau. “There is so much secrecy over such a simple operation. Either the French have or have not the money. If they have I would like to see some of it on account of all this discussion. It seems to me you are making the thing as difficult for yourself as possible.”49

  After the meeting, he told his staff, “I don't want anything to do with any phony corporation.” Then he added: “I could not have been any blunter, could I?”50

  Rumors began to reach Morgenthau saying Monnet operated a company in the Far East that received highly preferential rates because of Monnet’s links with people close to Chinese finance minister H. H. Kung. He heard Monnet had influenced a manager at the Paris bank l'Union des Mines, and the result was that the bank lost 360 million francs. And a former J. P. Morgan partner said Monnet had talked Morgan and French investment bank Lazard into investing 20 million francs in a bank in Cognac, and it lost 10 million francs.51

  On December 30, Woodring demanded in writing that the Treasury guarantee that the French had the money to pay for the planes before any French officials were allowed to inspect them. Morgenthau immediately phoned Woodring to say he could not possibly issue such a guarantee and demanded the letter be withdrawn. As he frequently did when he fell out with other government officials, he told the president of the spat.52

  “Our mutually good friend, Ambassador Bullitt, has put me in an almost impossible position,” Morgenthau told Monnet in a meeting on New Year’s Eve. “I mean, I find myself now in the position that the whole United States Army is opposed to what I am doing and I am doing it secretly and I just can't continue, as Secretary of the Treasury, forcing the United States Army to show you planes which they want for themselves.”53 He showed the French emissary a newspaper photograph of Chinese official K. P. Chen being lauded by crowds in Detroit because the nationalist government had promised to buy one thousand American-made trucks. Morgenthau said he could do the same for Monnet, but the French would have to go public with their plans.

  As Morgenthau prepared for a Florida vacation in early January, he forcefully pressured Monnet to state publicly France’s intention of buying American planes. “The United States Treasury can offer no more cooperation until a public statement is made in regard to this mission,” he said in a January 2 phone call with Monnet, repeating the same message six times before the call ended.54 The secretary obviously assumed he would return to Washington two weeks later with the veil of secrecy drawn.

  In Boca Raton, Florida, Morgenthau was laid low with migraine headaches for the first few days, but he was soon fishing for tarpon in the South Atlantic. Every day or two, he checked in with the office by phone, where John Hanes took charge in his absence.55

  With the affable Hanes running the department, the 9:30 meetings were a bit more relaxed, and the Treasury men ribbed Budget Director Daniel Bell about his wife’s anger now that her husband was spending all hours preparing the president’s budget address. “Boy, she was sore last night,” William McReynolds told the group after running into Mrs. Bell, then mimicking her he said: “I'd be better off not to have a husband; he’s no use at all; I can't find him; he never comes home.” Bell laughed along, telling them he'd eaten only one meal at home in the previous week.

  His broad, flaccid face often breaking into an infectious grin, Bell was known to lighten the mood of the Treasury meetings, but behind the gentle wit was a dedicated career civil servant whose knowledge of fiscal matters was unsurpassed in Washington. Just as the Treasury’s role in conducting the war was all but forgotten, Daniel Bell’s key role at the Treasury has been buried beneath the notoriety of men like Harry Dexter White and Herman Oliphant. Bell was more a centrist and a pragmatist than his more famous colleagues. He had joined the Treasury in 1911 after scoring well in the civil-service exams at the age of twenty. He left to join the Tank Corps in the Great War then returned, working his way up the bureaucracy while completing degrees in law and commercial science.56 He had become the director of the budget in September 1934, after the conservative Lewis Douglas resigned in disgust over Roosevelt’s fiscal plans.

  The president revealed the fiscal 1940 budget at the White House on January 5, and the press immediately highlighted the drastic rise in defense spending, which would likely require moderate tax increases. Amounting to $1.32 billion, the New York Times called the defense allotment “the greatest peace time appropriation in the history of the nation.” It was $309 million, or about 30 percent larger, than the previous year’s defense budget. The message did not mention new airplanes but said $270 million would be used for two battleships, four cruisers, eight destroyers, eight submarines, one seaplane, and modern ship repair. There were already six battleships under construction. The navy total was $721 million, up $161.8 million from the previous year, whereas the army total rose only $5.1 million to $510.8 million. It was the type of spending announcement that reinforced the impression within the army that Roosevelt—who had been the assistant navy secretary in World War I—always favored the maritime service over the land forces.57 For the Treasury officials, the most important words uttered by the president when he delivered the budget to Congress were these: “Our full energies may now be released to invigorate the processes of recovery in order to preserve our reforms and to give every man and woman who wants to work a real job at a living wage.” Hanes believed the real message in those lines was that economic recovery now had precedence over the social reforms of the New Deal.58

  On January 7, acting general counsel Ed Foley reported to the others that he had visited Herman Oliphant, who had looked better than Foley had expected. His face had become fuller and he had some color. Foley said he believed Oliphant was under the impression he would soon be back at work. “He told me it was fortunate for him the secretary was away because it would give him a chance to get some rest,” said Foley. “I was afraid he was going to ask me.”59 Foley didn't have to state he was worried Oliphant would ask him about returning to work.

  Herman Oliphant died four days later. With Morgenthau away, Hanes arranged to have a Treasury delegation present at the old attorney’s funeral. Morgenthau wanted to attend, as long as it was held in Washington. Otherwise, he thought it would be an “overdue tax on his strength,” according to Foley. It turned out the family chose to have the service in Herman Oliphant’s hometown in Indiana, a trip from Washington that involved changing trains three times. Morgenthau missed the funeral but issued a statement commending Oliphant’s brilliance and loyalty. Gutzon Borglum, the sculptor famous for carving the presidential faces on Mount Rushmore, flew to Washington to take a death mask, which he would mold into a bust for Oliphant’s widow.60

  When Morgenthau returned to Wa
shington, the French government still had not publicly announced its intention to buy American planes, much less measures to tackle its economic problems. Though Woodring and Johnson showed rare unanimity in opposing the sale, the president saw the logic of the deal, so they were ordered to cooperate. The army successfully blocked the French purchase of Pratt and Whitney’s state-of-the-art P-40 pursuit plane, so they had ordered 150 P-36s and were pondering whether to raise the order to 250. They were also examining bombers produced by Douglas Aircraft Company and Glenn L. Martin Company, though the army did not want them to have access to the Douglas models.61

  Harry Collins, who was taking over the Treasury’s Procurement Division, told a meeting of Treasury officials on January 16 that the army just didn't understand how the French orders could boost production capacity. Their order could allow Martin to order tools for manufacturing and add one million feet of factory space. Another official added that Allison could increase its capacity from three hundred engines per year to five hundred with French and British orders. Morgenthau wondered aloud where Louis Johnson got the authority to buy planes for the military. Already the Treasury’s Procurement Division had some power to make purchases for the military, and now Morgenthau—rarely averse to taking on the duties of other departments—was wondering whether his department should oversee all procurement for the military. “If the President wants somebody to do the job, we could do it for him,” he said, and he prepared a memo saying so.62