After the war ended, Morgenthau returned to his farm in Dutchess County, where he concentrated on dairy farming and growing apples. He frequently called on Cornell professors in upstate New York to help him improve production. Through local Democratic Party politics, he stayed in touch with Roosevelt, who was planning to run for statewide office. Morgenthau, Roosevelt, and their wives, Elinor and Eleanor, soon became friends. Roosevelt was on the political fast track and was the vice presidential candidate on the 1920 Democratic ticket; Morgenthau organized a rally in the county that attracted national figures and a large crowd. The Democratic ticket lost the election, and the following year Roosevelt came down with polio. Many thought his political career was over.
In addition to having a farm, Morgenthau wanted to establish himself as a farm expert. In a letter to his father he explained, “There is nothing I would rather do than own an agricultural paper.” In 1922 he bought the American Agriculturist, a New York State weekly.4 His goal was to educate farmers on new and better ways to work the land. Both Henry and his wife were activists in local Democratic politics and frequently saw Franklin and Eleanor Roosevelt both in Hyde Park and in the Florida Keys. The newspaper regularly lost money, and his father reprimanded him, once pointing out that he had revenues of $185,000 a year, but expenses of $200,000.
When Roosevelt ran for governor of New York in 1928, Morgenthau served as an advance man, preparing voter rallies and rustling up crowds at campaign stops. After winning in a squeaker, Roosevelt moved to Albany, with Morgenthau in tow. The new governor appointed him to head the Agricultural Advisory Commission. Morgenthau received neither a salary nor an office, and had to work from a desk located outside the governor’s office. Roosevelt liked to give people nicknames, and since Morgenthau was always so deadly serious he called him “Henry the Morgue.” He wrote studies for the governor, and reached out to professors at Cornell’s College of Agriculture. Roosevelt was reelected in 1930 with a huge majority and quickly set his sights on the White House. Morgenthau, who by then was his Conservation Commissioner, was soon traveling the country learning about the situation down on the farm, one of the nation’s most serious economic problems. He also wrote memos on the subject to increase Roosevelt’s knowledge of farm issues in anticipation of the expected campaign against incumbent Herbert Hoover.5
Roosevelt won a landslide victory in 1932, and the president-elect and his best friend both headed to Washington. Agriculture was one of the most pressing of the many challenges facing the new administration. Farm prices had collapsed. Wheat in 1932 sold for sixty-three percent below the 1929 level, and cotton was down sixty-seven percent. “The smell of revolution was in the air,” Morgenthau wrote. To the surprise of many, the new president did not name him to be Secretary of Agriculture. That job went instead to Henry Wallace, whose father had held the same position in the 1920s. The younger Wallace was an agriculture graduate from the University of Iowa and a farmer, and had switched from the Republican party to support FDR.
Some people, especially those in the Jewish community, saw this as a sign of America’s persistent anti-Semitism. Up to that point, there had been only one Jewish cabinet member in American history, Oscar Straus, who was Secretary of Commerce and Labor in the Theodore Roosevelt administration. Morgenthau’s father had expected to be named as a cabinet member in the second Wilson administration after being one of his biggest contributors during the campaign, but he had been shuttled off to be an ambassador.
The younger Morgenthau was disappointed when he lost the job he coveted, but he remained loyal to Roosevelt and would take whatever job was offered. FDR named him to head the Federal Farm Board. Herbert Hoover had started the agency in early 1929, and it was his main weapon against the farm depression. It tried to stabilize agriculture prices by buying up and storing surplus grain and cotton, but the new administration had other plans for farm relief. Roosevelt thought that the major problem farmers faced was the heavy debts they were carrying. Thousands of them were losing their property to foreclosure, and he wanted to consolidate a host of federal agriculture agencies into a new one that would concentrate on reducing farm debt. In its place, Roosevelt started by executive order the Farm Credit Administration. Morgenthau was its first governor. He had a war chest of $2 billion to slow down foreclosures, and was soon financing twenty percent of the country’s farm loans. Morgenthau worked closely with Jesse Jones, the new chairman of the Reconstruction Finance Corporation, another Hoover-era agency that made loans to banks, railroads, and other businesses.6
Although normally a staunch supporter of all Roosevelt programs, Morgenthau broke with the president for ethical reasons on one important aspect of farm policy. He opposed the section of the 1933 Agriculture Adjustment Act that paid farmers to plow crops into the ground in order to take fields out of production. The strategy was to decrease production in order to increase prices and the money that went to farmers. Morgenthau simply could not accept reducing food output at a time when people were starving. “Something within me revolted at the destruction of existing crops,” he wrote. He argued that instead of paying farmers $100 million to grow less wheat, the government should buy it and make flour that could be given to the needy. Eventually, and with the support of Eleanor Roosevelt herself, Morgenthau introduced a policy of giving surplus food at reduced prices to people on relief.
Whenever Henry Morgenthau, Jr. faced an important economic issue, he turned for help to George F. Warren, who had taught him agricultural economics twenty years earlier at Cornell. Morgenthau regularly consulted the professor while working in Albany, and appointed him to the State Agricultural Commission. Warren had grown up in Nebraska herding sheep on his family’s farm and had his own 500-acre spread near the Cornell campus. The professor joined Roosevelt and Morgenthau in Washington after the election and was soon writing them private memos about his new idea for solving the farm problem. Warren worked out of a bare office on the ground floor of the huge new Commerce Building. If anyone knocked on the door, he would shout back, “No one’s here.”7
The professor argued that low farm prices had seriously distorted the American economy’s general price structure. He and fellow professor Frank Pearson had just published a book entitled simply Prices, which maintained that an increase in the price of gold would lead to higher prices for cotton, wheat, and other agricultural goods. In a memo to Roosevelt, Warren said that “the simplest way to proceed” was to devalue the dollar “at once.” The professor argued that such a step would raise agricultural prices and farm incomes. In order to devalue its own currency, the U.S. government should buy gold at above world-market prices. It was a radical idea and diametrically opposed to conventional economic thinking. Warren believed the price should be increased to at least $35 an ounce. The official U.S. price since 1837 had been $20.67, and it had still been selling at about that before Roosevelt’s election.8
Roosevelt was no fan of the precious metal. Between his election victory in November 1932 and his inauguration the following March, outgoing president Herbert Hoover tried to solicit his support for a global economic conference to stabilize the international financial system. Hoover wrote Roosevelt, “Confidence cannot be reestablished by abandonment of gold as a standard for the world.”9 The appeal fell on deaf ears. Americans worried about the country’s economic future were sending their money abroad or buying gold, always the last refuge of the truly frightened. During the month of February 1933, $160 million left the country. In just the four days before Roosevelt took office on March 4, the public turned in $200 million in paper currency for gold coins. Soon after his inauguration, the new president had Congress pass the Emergency Banking Act, which prohibited the exporting or hoarding of bullion, and a month later issued an executive order that people had to turn in their gold for paper currency.10 At a White House meeting with his top economic staffers on April 18, the president jauntily told them, “Congratulate me. We are off the gold standard.”11
FDR’s disdain for g
old and international financial cooperation was blatantly on display two months later during the World Economic Conference outside London, which lasted from June 12 to July 27. The meeting had been called to save the world economy by stabilizing currency values, slowing the march toward trade restrictions, and reducing European war-debt payments to the U.S. All other countries sent their top economic and central bank officials to London, but the American delegation at the conference was stunningly second rate. None of the members knew much about international economics. World moneymen were outraged by the American blunt show of power and Washington’s unwillingness to join in the effort to prop up world currencies.12
While the meeting in London was in process, the White House effectively killed it before it even had a chance to really hit its stride. The president and Morgenthau were cruising off the Maine coast on the USS Indianapolis and decided to give Professor Warren’s ideas a chance from across the sea. They sent a presidential radio message from the ship saying that the U.S. would no longer stabilize the dollar at the existing official level of $20.67 an ounce (to the gold standard). Adding insult to injury, the Roosevelt and Morgenthau statement said that ideas about going back to old gold prices were “old fetishes of so-called international bankers.”13 That was heresy to the London crowd, and leading governments put out a statement affirming their commitment to gold. The meeting dragged on for another week, but it had been essentially torpedoed.
Although Roosevelt was falling under Warren’s spell, several other members of the president’s staff vehemently opposed the professor’s theories. Dean Acheson, who was running the Treasury Department for the ailing secretary William Woodin, thought such action was unconstitutional. Oliver Sprague, a Harvard economist who had taught FDR at Harvard and was now a Treasury Department consultant, also objected to his former student’s gold policy. Lewis W. Douglas, the budget director, lamented, “This is the end of western civilization.”14 They all warned that if the U.S. dropped the value of the dollar by raising the price of gold, the world would face competitive devaluations and uncontrollable inflation similar to that of 1920s Germany. FDR responded that arguing with his advisors was like “punching your fist into a pillow.”15
Despite Roosevelt’s hundred-day program of emergency measures to rescue the U.S. economy by moving off the gold standard, farm prices that summer and fall continued to drop. Never one to sit idly by, Roosevelt was anxious to take further action. The evening of October 16, he called Morgenthau at home to tell him that they had to stop the price of wheat from sinking further. The next morning Morgenthau began buying wheat on commodity markets in an attempt to push up the price. The initial purchase was one million bushels, but by the end of the day the price had increased only slightly. Clearly something more had to be done.
In his fourth radio fireside chat on Sunday night October 22, Roosevelt announced to the world a new American gold policy. He spoke in the plain-talk style that made his radio talks so successful. He began by painting a glum picture of the American economy, and he was near the end of the talk when he finally got around to gold. He blamed the country’s troubles on it by saying, “Our dollar is now altogether too greatly influenced by the accidents of international trade, by the internal policies of other nations, and by political disturbance in other continents. Therefore the United States must take firmly in its own hands the control of the gold value of our dollar.” He announced that he was authorizing the Reconstruction Finance Corporation to buy all the gold mined in the U.S. at prices to be determined by the president and the secretary of the treasury. He also said that the American government would buy and sell gold on the world market.16
Three days later, the president began meeting daily at 9:00 A.M. in his White House bedroom with top aides to fix the U.S. price for gold. Henry Morgenthau, Jr., Jesse Jones, and Professor Warren usually attended. During the sessions, Roosevelt wore pajamas and sat up in an antique mahogany bed. As they talked, the president ate soft-boiled eggs and sipped coffee. His wife Eleanor wasn’t there because she had refused to sleep in the same room with him after she learned, in 1918, about his affair with her social secretary, Lucy Mercer. On the left side of the presidential bed was a table with stacks of government papers, detective novels, and a telephone. On the right side on a matching table were his watch, pads and pencils, cigarettes, and a plate of fruit. The walls were covered with seascape prints from the president’s days as assistant secretary of the navy.17
During the first meeting and at Morgenthau’s suggestion, Roosevelt decided that the U.S. should buy gold at $31.36 an ounce, a sharp increase over the official U.S. price of $20.67 and even more than the daily London price of $31.02, which had been increasing in anticipation of U.S. action. The next day the bedroom group pushed it up another 18 cents, and then 6 cents more the third day. The price moved generally higher a few cents at a time. Sometimes the group dropped it slightly in hopes of burning speculators, but usually the next day it continued a relentlessly consistant climb. Over afternoon tea at the White House on October 28, Roosevelt and Morgenthau came up with a medium-range plan to raise the price to $33.02. On Friday, November 3, a dour-looking Morgenthau recommended increasing it between 19 cents and 22 cents. The jovial president looked at Henry the Morgue and suggested 21 cents, adding with a laugh, “It’s a lucky number because it’s three times seven.” That night Morgenthau noted in his diary, “If anybody ever knew how we really set the gold price through a combination of lucky numbers, etc., I think they would be really frightened.”
Originally, Roosevelt and Morgenthau bought only U.S. gold, but when the price went above the world market level they also began purchasing it in foreign markets. When George Harrison, the president of the New York Federal Reserve, told Montagu Norman, the head of the Bank of England, about the new policy, Norman replied in horror, “This is the most terrible thing that has happened. The whole world will be put into bankruptcy.”18 When Roosevelt and Morgenthau heard that reaction, they burst into wild laughter. Roosevelt, who had a nickname for everyone, called spade-bearded Norman “old pink whiskers.”19
Many politicians and statesmen around the world condemned the policy. Former Democrat presidential candidate Al Smith spoke for many Americans when he said, “I am for gold dollars as against baloney dollars.” John Maynard Keynes, the most famous economist in the world and no fan of gold, dismissed Roosevelt’s maneuvers as “the gold standard on the booze.”20
At the end of the breakfast meeting on November 13, Roosevelt asked Morgenthau to stay behind and told him he wanted him to take over as Secretary of the Treasury. The president explained that Secretary Wooden, Under Secretary Acheson, and Special Assistant Sprague were all being swept out of office largely because their opposition to the gold program had found its way into the press. Roosevelt said he wanted his best friend to have his hand on the tiller of the American economy, which remained the administration’s toughest challenge. The president complimented Morgenthau by saying he was “one of the two or three people who have made an outstanding success here in Washington.” With the jaunty optimism that the nation had witnessed often in those dark economic times, the president concluded by saying, “So let’s you and I go on to bigger things. We will have lots of fun doing it together.”21
As a gesture of conciliation toward Britain and France, the U.S. at the end of November agreed to let the international price of gold stabilize at between $32 and $35 an ounce. The White House, though, still wanted a little more time to maneuver before once again fixing the official U.S. dollar value.
Warren’s theory on farm goods seemed to be working, as prices were finally going up at an annual rate of about 10%. Farmers, consumers, and industrialists all began to feel more confident, and an economic recovery finally took hold. The Great Depression would not really conclude until after the U.S. entered World War II at the end of 1941, but both in corporate boardrooms and down on the farm the country’s economy appeared to be on the mend at last.
When Mo
rgenthau was sworn in at the White House, the president was naturally in attendance for the event as were Professor Warren and members of the extended Morgenthau family, who were particularly happy because they thought he was getting the job that President Wilson should have given his father. The appointment, though, was not universally praised. Gladys Straus, a major Republican donor and herself Jewish, quipped that Roosevelt had found the “only Jew in the world who doesn’t know anything about money.” The new secretary, though, had the president’s confidence, and that was what really mattered.
After settling into his new job, Morgenthau dealt with a couple of personal matters. He sold American Agriculturist to the Gannett newspaper chain to avoid charges that he was using it to push his agenda. It was still losing money, but had served its purpose of providing him with a national platform. He also installed in his office a voice recording system that he could activate at his desk. That may have been official Washington’s first taping device. Most people attending meetings did not know they were being taped. It later provided the raw material for the voluminous Morgenthau Diaries, a collection of typed notes of meetings or conversations that is now housed at the Franklin D. Roosevelt Presidential Library in Hyde Park, New York.
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