Krueger's Men Page 6
“Why, for the cost of one destroyer we could send Italy spinning. For the cost of a cruiser, we could have Hitler on a hot stove lid.”
What happened next is fully recorded in official archives. Roosevelt picked up the telephone and was put through to Henry Morgenthau Jr., his wealthy secretary of the treasury and Hudson River Valley neighbor. They were personally so close that when the Morgenthaus came to dinner, the Roosevelt grandchildren addressed them as Uncle Henry and Aunt Elinor. Like the president, Morgenthau was a landowner, but unlike him he was an honored member of New York City’s German-Jewish aristocracy, which guarded its reputation for probity and propriety against the inevitable slurs of the time. Roosevelt told Steinbeck and Knisely he was sending them right next door to the Treasury; Morgenthau was then to report back. It was not for nothing that Roosevelt was the most celebrated political animal in Washington, so it is hard to believe that FDR did not have a good idea of what would happen next. As the two visitors unveiled their secret weapon for the second time that afternoon, the atmosphere in Morgenthau’s imposing Victorian office, furnished in polished wood and leather, grew “cold and then freezing,” in Steinbeck’s words. Morgenthau, tall, bald, and obviously shocked, peered ominously through his pince-nez at his visitors.
Also at the meeting was Herbert G. Gaston, a former editor of the New York World who had come to Washington with Morgenthau in 1933 and been promoted the year before to assistant secretary in charge of the Treasury’s law enforcement agencies. That included the Secret Service, which defended the president against assassins and the dollar against counterfeiters. In a memo to Morgenthau that served as minutes of the meeting, Gaston noted that the secretary had summoned him right after receiving “the most extraordinary telephone call from the President [who]… said Steinbeck had proposed what seemed to him a grand idea — it was to counterfeit German currency in large quantities and arrange to have it introduced into Germany. You [Morgenthau] asked the President to have them come over and see you. You remarked to me that you didn’t think you ought to let these people leave with the idea that the Government would countenance such a scheme.”
It made no difference to Morgenthau that Knisely had studied in Germany and argued that he understood German psychology, that he was certain counterfeits on a large scale would sow great confusion and undermine German finance, or that Knisely went into detail about how best to analyze and manufacture replicas of German reichsmarks that would defy detection. When Morgenthau raised moral and legal objections, Steinbeck replied that they were trumped by the fact that the Nazi war effort was mass murder and must be stopped. The arguments and counterarguments lasted just under half an hour, although on a higher moral plane than the practical wartime discussions that had engaged the British at greater length the year before.
Steinbeck was told flat out by Morgenthau, “It’s against the law, and I will have nothing to do with it.” The secretary dismissed the plan as something he would have expected from the Germans, adding that the United States was not at war with Germany anyway. (Morgenthau would have been truly shocked to learn that a similar argument against counterfeiting American dollars had been attributed to Hitler.) Gaston chimed in that counterfeiting German currency would be just as much an act of war as sending a fleet across the English Channel, and he would prefer that to having British planes dump fake bills on the foe.
In any case, Morgenthau said, the British ambassador would be calling on him later in the afternoon. Steinbeck, obviously expecting support, said he would be pleased to have the plan put to Lord Lothian.
Unbeknownst to the plebeian native of the dusty California farming town of Salinas, Lothian was an even larger landowner than Roosevelt and Morgenthau together — 28,000 acres as he recorded in his Who’s Who entry. But he was also a cool and experienced public servant, could be blunt when the occasion called for it, and knew America well from his position as interwar secretary of the trusts administering the Rhodes scholarships. Morgenthau and Lothian went to see Roosevelt, and by late in the day the ambassador had forwarded to Morgenthau an unsigned memorandum prepared by Gerald Pinsent, the British Treasury’s man at the embassy. It was brief, and its salient arguments, totally new to Washington, were probably heightened by Pinsent as he realized that two Americans even as worldly and widely traveled as Steinbeck and Knisely seemed to have no conception of life under the totalitarian regimes of Europe.
MEMORANDUM
The suggestion that counterfeit Reichsmark notes should be dropped from aeroplanes over Germany was exhaustively considered by the British Government some time ago. At that time it was thought that this would be regarded by the world at large as a particularly odious and dishonest method of warfare, and if this argument has to any extent lost its force since then there are other arguments which seem decisive.
The fact that such notes were being dropped would certainly be known without delay to the German authorities. In a country ruled the way Germany is ruled, it would not be difficult for the authorities to organize collection by Party or official organisations of the notes dropped, and to frighten the population so that they would not dare to collect these notes and retain and use them themselves. Precautions have probably been taken already by the German Government.
Even insofar as the population were able to retain and use such notes the effect would probably be disproportionately small. In Germany nearly all goods are either rationed or are simply not obtainable; the holders of these counterfeit notes would not be able to spend them to more than a limited extent and it is probable that they would flow to a considerable extent into savings bank accounts, etc. The German government could increase their borrowing accordingly from these banks, and decrease their borrowing on the markets.
To overcome these objections in such a way as to cause a substantially increased demand for goods which would endanger the German price control, or as to create distrust among the population in the currency, would require a scattering of notes on such a large scale as might be beyond the capacity of the Royal Air Force if it is not to limit its attacks on military objectives to an undesirable degree.
Lastly, if Great Britain started this method of warfare and Germany retaliated in kind, it is not improbable that the effect on Great Britain, where we have not the same totalitarian methods of government, might be greater than the effect on Germany.
12th September, 1940
Morgenthau quickly wrote to thank Lothian: “Mr. John Steinbeck put the proposal up to me. I told him I was absolutely opposed to it as I thought it was crooked and I am delighted to learn that the British government agrees with me.” In a letter to Archibald MacLeish, Steinbeck was contemptuous: “A friend and I took a deadly little plan to Washington and the President liked it but the money men didn’t. That is, Lothian and Morgenthau. It would have worked, too, and would work most particularly in Italy.” This tribune of the oppressed had devised a way to use the capitalists’ own weapons against the fascists, and the capitalists had rebuffed him.
The rejection still rankled years later when Steinbeck’s memory dimmed in retelling the story: he mixed up Lord Lothian with his successor Lord Halifax and dismissed him as a “spluttering” moneybags. Steinbeck also wrote: “Much later, when I sat with the President, he said ruefully, ‘Killing is all right, and you could attack religion with some impunity, but you [Steinbeck] were threatening something dearer than life to many people.’” The author would later encounter the president when he helped draft the passages on minority rights in FDR’s 1944 re-election platform. It would have been characteristic of Roosevelt to utter some sort of emollient remark like this in lieu of thanks, although whether Steinbeck would have remembered it with precision is another matter. Roosevelt’s remark nevertheless passed into the record through a Collier’s magazine article Steinbeck wrote twelve years later, where he recycled the idea for use against the Soviet Union — whose leaders hardly believed in money at all! — and wondered why the United States would not dare try it out. (He wa
s wrong. In 1950, the newly organized Central Intelligence Agency had the idea on its secret list of things to think about for the next war.)
While all this was going on, public alarm was sounded about the threat of counterfeit American currency. The U.S. Secret Service, breaking with the tradition embedded in its name, intensified its nationwide “Know Your Money” campaign to inform the public how to recognize fake bills. Anticounterfeiting educational films were prepared in 1940, and when America entered the war the Treasury Department staged exhibits of counterfeit bills, starting in New York’s Rockefeller Center and moving across the country. These inspired an article in Life magazine giving the Treasury view that “sometime soon Germany and Japan may try to panic this country by passing out great quantities of counterfeit money.” A front-page article in the New York Times of January 25, 1940, reported the Secret Service’s suspicions that the Nazis were counterfeiting dollars and circulating them in Italy, Egypt, and the Balkans. This sent the German chargé d’affaires, Hans Thomsen, to the State Department the very next day to object that his government was doing no such thing. Because the United States and Germany were not yet at war, diplomats tried to mollify Thomsen.
Officials clipped the newspapers for stories on counterfeits and paid particular attention to a report by the Turkish ambassador that counterfeit dollars were being used by the Nazis to buy oil in Romania. This report, almost certainly false, was spread throughout the State Department. Although counterfeit dollars were reported in wide circulation throughout Europe, it was assumed by American officials that they probably did not originate as wartime weapons, but through an underground network of what a New York Times reporter called “black bourses.” These usually unscrupulous money changers had been feeding for some years on refugees, exiles, and others hunted by the totalitarian regimes of the era. The fleeing buyers had little recourse after they discovered they had been stung, and likewise every incentive to pass on what was in effect hot money.
At almost the same time, early in April 1940, Herschel Johnson’s London memorandum about a real plot to counterfeit British pounds was passed to the U.S. Treasury and virtually ignored. Johnson, a career diplomat from an old Southern political family, was so highly regarded by the British that he was remembered into the twenty-first century by the Churchill biographer and British statesman Roy Jenkins. Nevertheless, the American embassy was told curtly by State Department officials that they were “cognizant of such stories as have appeared in the press, but have been unable to substantiate them” — because no one had tried to pass counterfeit pounds in Washington! Among those initialing that inane memo was the State Department’s senior economic official, Adolf A. Berle, who had joined the New Deal in 1933 from Columbia University as one of the professors in what became known as Roosevelt’s idea-spinning brain trust.
Then, over New Year’s of 1941, came a sign that some sort of forgery operation really was happening in Germany. As many as two dozen members of a gang were arrested in neutral Turkey for passing counterfeits in denominations of one, five, and ten pounds. The gang included a Chilean diplomat and a number of attractive women with false passports, leading the Turkish police to order all foreign nannies — most of them German — to leave the country after questioning.
The police reported that as much as £150,000 worth of false notes originating in Germany and Italy had been circulated in Bulgaria, Romania, and Yugoslavia. Moreover, they remarked on the superior quality of the German notes, a sign that they may have been products of Operation Andreas. The Turks made it clear they believed this was part of a Nazi plot to undermine the pound. The Bank of England took note of the roundup and clipped the story from the London Evening Standard for its files. A week later another story in the same newspaper reported that counterfeits in denominations as high as £100 were circulating in Switzerland. The Bank of England clipped that story, too, assured the newspaper that none of the counterfeits had made their way to England, and then called Scotland Yard.
The American imagination was proceeding on similar lines, and the same arguments were rehashed. Early in 1941 the New York Times ran a typically tut-tutting editorial about the increase in the number of reichsmarks in circulation, with the consequent danger of inflation (as if that were the worst crime then being committed in Germany!). On January 25 a reader named Henry D. Steinmetz wrote that it might not be a bad idea for the British to throw a little fuel on the fire, print up “a few score billions of excellent counterfeit mark notes” and dump them on Germany to undermine its economic morale. He was put down five days later by another reader, Manfred A. Isserman, who pointed out that the RAF had already dropped forged ration cards on Germany, and the damage done by dropping counterfeit money would be minimal because rationing made money less important; moreover, the Germans might retaliate and harm Britain’s much freer economy.
Letters also arrived in Washington from personages high and humble as soon as war broke out. Two weeks after Pearl Harbor, Private N. E. Cortright of the Weather Squadron at Langley Field, Virginia, sent a handwritten plan to shower “exact duplicates of the enemies [sic] paper money,” enumerating nine potential benefits in economic disruption and weakened resistance. His superiors commended his “patriotism and sincerity” and saw to it that his letter was forwarded up the chain of command, where it eventually reached Lieutenant Colonel Robert A. Solborg in the infant office of the Coordinator of Information, predecessor of the Office of Strategic Services (OSS), America’s wartime espionage agency. (Like all spy shops in those days, it masqueraded behind an inoffensive name.) Solborg commented dryly in a handwritten note that “Mr. Morgenthau said we are not in the counterfeiting business.” He kept the letter on file anyway.
On January 6, 1942, Colonel (later General) William Donovan, who had been named chief of the espionage services, was forwarded a letter from a “very able Colorado publisher” by that state’s Senator Edwin C. Johnson, a member of the Military Affairs Committee. Once again, the letter writer thought he had a brilliantly original idea: flood Germany with fake marks. Donovan replied on the basis of advice from his economic section chief, Emile DesPres, deploying many of the familiar arguments against its effectiveness: tight German control, rationing rather than lack of money as the cause of scarcity, and finally the risks of retaliation. These were elaborated in a letter to the president from Donovan’s deputy, G. Edward Buxton, who warned: “Distribution is a major problem as dropping from planes is inefficient, and success seems to depend on a widespread underground penetration of the country by agents. The program seems promising if done on a large scale at a moment of crisis in Germany or Japan. In occupied countries it might produce more distress to the conquered than to the conquerors.”
In a slight twist only a month later, the irrepressible Donovan — he was not known as Wild Bill for nothing — asked Roosevelt for permission to drop fake lire over Italy to undermine Benito Mussolini’s tottering Fascist government. But unlike the Nazis, Donovan saw the plan more as propaganda than as outright economic warfare against a resolute enemy, proposing to deliver the counterfeits with great fanfare so the Italians would “look at their money and decide for themselves which is good and which is bad.” He appended a brief, staff-written history of counterfeit money as a weapon of war: the Reds and Whites in the Russian civil war, the Hungarian government’s counterfeiting of French francs during the 1920s, and of course the scheme used by Pitt against the French revolutionaries cited by Churchill. Unlike Churchill, however, Donovan’s researcher was careful to note in his opening summary that Pitt’s was the only authenticated scheme to inflate an enemy’s currency and disrupt his economy, but it was still “generally regarded as having failed.”
Donovan had already recruited a Boston industrialist, Stanley P. Lovell, as his director of research and development. Lovell’s first job was to manufacture false passports, ration books, and other documents essential to all secret agents operating behind enemy lines. The original proposal for a secret forgery factory se
ems to have come from a young New York lawyer actively prosecuting organized crime, whence the idea may well have sprung. America’s supreme commander in the Pacific, General Douglas MacArthur, requested 10 million counterfeit pesos in Japanese occupation currency. The assignment went to Lovell. His team was headed by a master printer named Willis Reddick, a reserve officer from Springfield, Illinois, to which he added a member of the Kimberly-Clark paper family and the president of the Papermakers’ Institute. Lovell prudently decided he needed Treasury approval, which, as he wrote in his memoirs, was “vital to us if we weren’t to be closed up and arrested as soon as we started work.” After all, the United States was a solemn signatory to anticounterfeiting treaties, and the Treasury held the dollar’s reputation in its hands as well.
Lovell quickly got through to Morgenthau, who agreed to ask Roosevelt. The Treasury secretary instructed Lovell: “You come over here tomorrow at eleven o’clock. If I say, ‘The President has a cold and I was unable to see him on your problem,’ that means he allows you to go ahead full speed. If I say, ‘I took that matter up with the President and he refuses authorization,’ that means exactly what I say.” The next day, Lovell presented himself at Morganthau’s huge office to discover him accompanied by some of his senior deputies among at least ten potential witnesses. As Lovell entered, Morgenthau swung around and introduced him clearly as “Dr. Lovell of the OSS.” In an exquisite minuet of bureaucratic deniability, Morgenthau continued: “Now, on that matter you asked me about, I was unable to see the President for approval because he has a cold. Do you understand that, Dr. Lovell?” The newly anointed chief forger replied: “Yes, I do, Mr. Secretary, and thank you.”
Lovell was hardly elated: “I suddenly realized how utterly exposed I was. If anything misfired, if our forgeries and duplicates were to be discovered by some newspaper columnist, and a wave of criticism be loosed against such ‘un-American’ activity, then Secretary Morgenthau had more than a dozen witnesses to say he had not taken up my problem with President Roosevelt. If anything went wrong there was but one sacrificial goat… me.” Lovell had no need to worry. With White House help, the nation was successfully scoured for currency paper made of kudsu and mitsumata, fibers then grown only in Japan. (Kudsu later infiltrated the American South, where its spelling morphed into kudzu and it became a botanical pest.) Bills were printed and circulated via the Philippine underground to undermine the occupation pesos. MacArthur’s request for counterfeit currency was the only one known to have been put in writing during World War II. Not even Morgenthau could persuade his own friend and boss, President Roosevelt, to protect him with a signed order. Later, the general’s compliments were passed to Donovan, and in turn to Lovell. But the counterfeit coup of 10 million pesos ultimately mattered little except to Morgenthau’s conscience and MacArthur’s ego, both as inflated as the currency of the Occupied Philippines. The Japanese themselves were already printing 1 million occupation pesos a month, drowning MacArthur’s forged American contribution to the occupation currency, which totaled about 100 million pesos — and was rising.