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  Other suggestions carried aggressive titles like “Means of Overcoming the Hun.” That particular letter was sent in May 1941 by a Royal Air Force pilot on behalf of his wing commander, H. B. Maund, obviously flush with the aerial victory in the previous autumn’s Battle of Britain. Maund felt confident enough to suggest that Britain’s credit was good enough for the nation to borrow an astonishing $3.5 billion in gold from the United States and issue currency in shiny new coins instead of printing pound notes. Maund argued that this would prevent the Germans from dropping their own printed counterfeits. All these brainstorms received a polite brushoff, although one Treasury official privately gave the wing commander more credit than “the present prime minister” — Churchill — for his foresight in devising an ingenious if financially implausible scheme to forestall German retaliation.

  The barrage of suggestions not only tried official patience but created its own form of internecine warfare. With the German war machine unable to loot Russia as profitably as the richer and more pliable nations of occupied Europe, the propaganda people at the British Foreign Office sought permission to discredit German currency by dropping forged bills, some with lewd messages. Waley was still opposed because “we should look rather silly when we were found out.” He passed the suggestion to Keynes, with whom he worked closely as a specialist in international finance. Keynes had a greater understanding than any purely public servant of how the activities of the Treasury and the Bank interacted with the real world of finance, and of the importance of the fine balance between economic liberty and social justice. From his days as a young Treasury official, he also understood how government worked, and to him, counterfeiting must have seemed like a reversion to precisely the type of the moral barbarism against which Britain was fighting. He gave the idea the back of his hand: “Mr. Waley: I agree with your comments. The proposal to introduce forged currency has been made at least a hundred times before and always rejected for good and sufficient reasons. JMK 28.5.42.”

  Right through the war, the Treasury doubted the British could successfully pull such a trick on the Germans, while realizing that Britain’s less tightly controlled society remained vulnerable to enemy counterfeits. Some limited experimentation took place. From time to time, Britain’s secret “black propaganda” units dropped forged German ration books to disrupt the official food distribution system. In 1943 Radio Berlin reported one of these air-drops and warned that anyone caught using fake ration cards could be executed for sabotaging the war effort. Similar penalties could be imposed for holding foreign currency without official permission, so the British knew that the Nazis would retaliate mercilessly against their own people for passing counterfeit foreign bills. They were the defense mechanisms of the totalitarian state; no British government could countenance such draconian punishments against its own people, even in wartime.

  The Treasury’s David Waley had the wit to put himself in the Germans’ place as soon as he had seen the Athens memo outlining the German counterfeit plan. He thought the British might forestall the scheme by publicly announcing they knew all about the plot to undermine sterling and would simply refuse to honor any pound notes held abroad. “Perhaps it is a fairy story,” he wrote Basil Catterns, deputy governor of the Bank of England, “but it certainly seems a good idea from the German point of view.”

  Waley was gently tweaking Catterns, because the Treasury had warned him of such plots before the war and had been rebuffed. In May 1939, as war loomed, Sir Frederick Phillips had attempted to arouse the Bank of England from its torpid superiority. Phillips, a laconic, pipe-smoking Treasury mandarin who “could be silent in several languages,” was a brilliant mathematician who consulted with his economists and had long been at odds with the Bank’s hard-money policies. During World War I, the Bank had actually printed up excellent counterfeits of German money with the full knowledge of the British government. They were delivered regularly by taxi to the head of naval intelligence, probably for use by spies in Germany. But when it came to fakes, Catterns of the Bank had a short memory. Replying to Phillips, he insisted it would hardly be worth the expense and trouble of printing a special reserve of pounds to defend against “a danger which does not seem very likely to materialise,” and in any case, “[W]e do not believe that notes could be put out which would not be distinguishable from our own issue.”

  The Treasury took a while to digest this pompous claim before parrying with its own politely skeptical and canny analysis on June 5. Maybe the Bank could spot a fake, Phillips replied, but would an ordinary Englishman be able to tell the difference between a good counterfeit and a real pound note? And once the rumors started flying, “the average man… would begin to suspect all notes.” What would the Bank do then? Publicize the scheme or try to hush it up? What if the Germans dropped the bills in installments, printing up new versions to keep up with the Bank each time it issued a new design? And, finally, who would compensate the trusting but unfortunate souls who got stuck with the air-dropped fakes?

  The Bank retreated to ponder Phillips’s uncomfortable questions and came back on June 9 with its solution: It would print a small reserve stock embedded with a special metal thread in a cellulose strip. The Bank had been experimenting with this for several years but hesitated to stick the strip on a new issue of notes for fear of public embarrassment if the device failed. Phillips nevertheless told the Bank to print 300 million pounds’ worth of notes as a secret reserve to replace slightly more than half of all notes in circulation. New bills, fetchingly lithographed in mauve and rose, were finally issued in May 1940 in denominations of one pound as well as a half-pound, or 10 shillings. The only catch was that the Germans, already working on their counterfeits, had wisely decided to get more punch out of each pound by forging mainly black-and-white fivers, more or less the median weekly wage for an English workingman (and nowadays merely the price of a round of drinks at a pub). Thanks to a typical British muddle, Nazi plans for a financial blitzkrieg were pointing straight at the biggest gap in the enemy’s defense, the five-pound note.

  Five-pound notes were imposing certificates measuring eight by five inches, with flowing script. The intricate drawing of Britannia on a throne, the date which was also impressed in the watermark, a serial number for each bill, a system of letters and numbers denoting successive issues — all these, the Bank was certain, made its system virtually inscrutable because each note had to match the Bank’s own records or it would be rejected as a forgery. Further, each new issue was designed with security markings so subtle — a broken line, an off-center dot — that counterfeiters were meant to mistake them for misprints and correct them, thus falsifying the note. Out of tradition and prudence, shopkeepers insisted that their customers sign the notes on the back with name and address as if they were being endorsed like a check. The face of the notes bore the bold signature of the Bank’s chief cashier, Sir Kenneth Oswald Peppiatt — K. O. Peppiatt — who, like the Treasury’s Waley, was a World War I officer decorated with the Military Cross. A racing enthusiast and bridge player, he was a man of tall and imposing bearing, easily displaying his supreme self-confidence whenever cornered by extracting a cigarette from the gold case in his waistcoat pocket, tapping it on the metal, and posing even the most uncomfortable question without raising his voice. Peppiatt was certain no one could get the better of him or his banknotes.

  If Phillips, Waley, and Keynes represented the English social conscience of what the playwright George Bernard Shaw once called Heartbreak House, Peppiatt was a doyen of Shaw’s equally symbolic but opposing Horseback Hall. He reported to Sir Montagu (later Lord) Norman, governor of the Bank from 1920 to 1944, whose staff basked in his personal arrogance — a reflection of the institution’s independence of elected governments. Norman never doubted that he alone was the rightful guardian of the nation’s currency. Keynes, also later ennobled and long a denizen of Heartbreak House in his role of financial eminence to the writers and artists of that corner of upper Bohemia which gathered
in London’s Bloomsbury, was considered by his social equals, and probably by himself, as the cleverest man in England. Not surprisingly, he disdained Norman as “always absolutely charming, always absolutely wrong.” No wonder the Bank was the first institution to be nationalized when the Labor government came to power at the end of the war and placed it under the governorship of Thomas Catto, a Scottish self-made banker and Keynes’s close wartime associate.

  In marked contrast to the mindset of Germany, this dichotomy between brains and character marks all of English life and helps explain why the English would shy away from counterfeit currency as a weapon of war while Germany embraced it. Ideas flicker across the English horizon like summer lightning, from Shakespeare to Francis Crick, but they are generally distrusted even though they eventually turn out to be world-changing. Because of the emphasis on character, breeding plays perhaps an excessive role, but Britain is saved from stagnation by the openness of its aristocracy to new talent. Its great prime ministers come from all classes — Gladstone, Disraeli, Lloyd George, Churchill, Attlee, Thatcher. All had to think on their feet under fire in the House of Commons and dispose of their opponents with wit rather than Nietzschean will. For example, Disraeli’s classic put-down: “There sit the leaders of the opposition like the coast of Chile — a line of extinct volcanoes.”

  But the Germans are the great philosophical system-builders of Europe, along with the French, the latter tending to emphasize logic rather than heavy Teutonic ideas about duty, will, and power — Macht, as the Germans call it. There is little history of tolerant argument in Germany and a strong component of Martin Luther’s obedience to divine will. (Even that founder of Protestant individuality thought in lockstep terms of “the priesthood of all believers.”) The deep play of imagination does poke into German literature and philosophy during occasional romantic outbursts, but in general, the debasement of human standards, first money and later life itself, was within bounds permitted for the benefit of the Volk. Long before its rhetorical capture by Hitler and Goebbels, this word commingled ideas of race, nation, and state. There is no equivalent in English.

  Even when the Bank of England issued the low-denomination counterfeit-proof notes in 1940, the British government decided not to warn the public of the real reason, lest a counterfeiting scare cast doubt on Britain’s currency. In 1940 a reporter for the News of the World, the most widely circulated paper in the country, telephoned Sir John Simon for the exchequer’s comment on what he had been hearing from various sources, including an unimpeachable High Court judge: that the British government already knew Germany was going to dump huge amounts of counterfeit pounds on Britain. The chancellor recounted the conversation coolly in an internal memo: “I said I did not wish to make any request to the News of the World or any other paper, but that as I was asked whether it was in the best interests of the country to publish such a yarn, I should be disposed to say that it would be better not.” The article never appeared, and both the Treasury and the Bank did their best to kill any other newspaper stories.

  Ignorance of counterfeiting plots was cultivated externally and, unfortunately, internally. At the Bank, Peppiatt refused the offer of the French police to lead him to an informer who claimed to know about a “factory” producing five- and ten-pound counterfeits. The chief cashier told British authorities to divert the French to the Metropolitan Police at Scotland Yard and to keep the French treasury out of it entirely. He did not trust or even like foreigners and easily fell into patronizing them, one reason he could not imagine them clever enough to match any piece of paper with his signature on it.

  In fact, Peppiatt had already passed up what could have been his best source of intelligence about German counterfeits, even though it had been offered to him with the endorsement of Scotland Yard. In May 1938, Sir Norman Kendal, assistant commissioner of the Metropolitan Police and a lawyer who previously had helped command the Yard’s detective force, forwarded a plea from Vienna for help in finding refuge for Hans Adler, a special adviser to the International Criminal Police Commission. Adler, descended from Jews, edited a standard European numismatic handbook and an internationally recognized review, Counterfeits and Forgeries. He had rich knowledge and extensive files. Adler had already lost his job, and his life was threatened as the Nazis began integrating Austria into Germany and applying their notorious racial laws. Although Adler had been on first-name terms for years with the master craftsmen at the Bank’s printing plant, Peppiatt callously dismissed his plea in a brief note to Kendal: “I have made many enquiries, but fear I must report that we cannot be of help. I suppose there is no possibility of [Adler’s] carrying on his work in London?” Kendal tried again early in 1939, reporting to Peppiatt that “the wretched Hans Adler has been hounded out of Austria and later hounded out of Italy” and finally given shelter in Holland. Saved by the kindness of strangers, Adler survived the Nazi occupation and returned to work for the ICPC’s counterfeit division when it was reconstituted after the war under Dutch control. But his unique expertise was unavailable to the Bank and to Scotland Yard when they most needed it.

  The Bank’s strategy was the gradual withdrawal of all notes worth ten pounds or more, under the guise of restricting large bills to complicate life for black-marketers who dealt mainly in cash. The Bank’s own printing plant on Old Street, located since 1920 in what was once St. Luke’s mental hospital, was evacuated from the City of London in 1940 because of air raids and as part of this antiforgery plan stopped printing large bills altogether in 1943. The only other defense was mounted on August 20, 1940, when the Bank banned the repatriation of its own banknotes — between £10 million and £20 million held abroad. Such an import barrier was virtually unprecedented in modern war; nations generally try to hold their money close rather than allowing bills encashable in their own banks to float freely around the world. Like most unprecedented decisions, this one would have unforeseen consequences. The fake Nazi bills eventually went flying in all directions, surprising even those who had conceived the scheme.

  Chapter 4

  NOBEL PRIZE–WINNING IDEAS

  None of America’s important novelists of the Depression was more politically committed than John Steinbeck, the author of the saga of the great Dust Bowl migration, The Grapes of Wrath, and In Dubious Battle, a novel about courageous union workers that would be inconceivable among today’s navel-gazing fiction. Steinbeck was a devoted New Deal Democrat as early as June 1940 and had already been received in the Oval Office by Franklin D. Roosevelt with a proposal for a radio and motion picture propaganda office “to get this side of the world together.” Even though the idea had the backing of the Librarian of Congress, the poet Archibald MacLeish, it lay dormant. But the president was always looking for ways to stand alongside the embattled British in that dark year and simultaneously to prepare the ground for America’s inevitable entry into the war. So when Steinbeck wrote again on August 13 that he had a distinguished scientist in hand with an idea for a secret weapon, Roosevelt was all ears. After all, hadn’t some of the nation’s leading physicists brought him a letter just a year earlier from Albert Einstein proposing the ultimate secret weapon?

  Steinbeck, of course, knew nothing of plans for the Manhattan Project to develop an atomic bomb and therefore could not have known how open Roosevelt might be to the urging of the future Nobel Prize winner that “our weapons and tactics would have to come not only from military minds but from the laboratories.”* The letter continued:

  Perhaps you have heard of Dr. Melvin Knisely, who has the chair of Anatomy at the University of Chicago. Several weeks ago Life Magazine carried a series of pictures of his new light which permits microscopic study of capillary circulation of the blood for the first time. He is a remarkable scientist and an old friend of mine. Discussing with him the problem of the growing Nazi power and possibilities for defense against it, he put forth an analysis and a psychological weapon which seem to me so simple and so effective, that I think it should be considered an
d very soon. I would take it to someone less busy than you if I knew one with imagination and resiliency enough to see its possibilities.

  What I ask of you is this — Will you see Dr. Knisely and me within a week or ten days — see us privately and listen to this plan? Within half an hour you will know that we have an easily available weapon more devastating than many battleships or you will not like it at all. Afterwards — if you agree — we will discuss it with any one you may designate on the National Defense Council.

  Please forgive this informality, but frankly, I don’t know anyone else in authority whom I can address informally.

  That was certainly starting at the top, and next to the last sentence some anonymous aide scribbled in the margin, “Very nice!” James Rowe, a valued White House assistant, forwarded the letter to his boss, attaching a note saying the novelist had a “high reputation as an amateur scientist… certainly he is not a crackpot.” Rowe nevertheless reckoned that the president would send Steinbeck to some subordinate. But the combination of naked flattery and scientific intrigue proved irresistible. The novelist and the anatomy professor were invited to Washington at their own expense for a twenty-minute meeting with Roosevelt.

  Just before lunch on September 12, Knisely outlined with high seriousness his plan to scatter large numbers of high-quality counterfeit German marks across Hitler’s Reich. No official account of the White House meeting was kept, so only Steinbeck’s highly dramatized version survives. With his novelist’s eye for detail, he recalled that as they made their terse presentation, Roosevelt’s face was in shadow, with the sun glinting on his forehead “as far down as his closed eyes. His cigarette in the long holder stuck straight up in the air, with curls of blue drifting in the sunstreaks.” The tale continued:

  Suddenly the President opened his eyes and banged his chair forward. He was laughing. “This is strictly illegal,” he said, his eyes shining. Then he added in a low voice, “And we can do it.”