Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion (10 page)

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.
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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.”
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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.”
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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.”
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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.”
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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 Morgenthau 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.

The president on January 15, 1934, sent Congress a message stating that “the time has come for a more certain determination of the gold value of the American dollar.” This, he wrote, would “bring some greater degree of stability to foreign exchange rates.”
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That was a U-turn for the Roosevelt Administration, which less than year before had fought stabilized exchange rates at the London Economic Conference. Politicians, though, have never been known as paragons of consistency. An additional reason for the administration’s change in position was that it wanted to lock in the lower dollar value, which was helping American exports. Officials were also fearful that the country’s trading partners would start pushing the price of gold around to get their own competitive trade advantage. Morgenthau asked New York Fed Chairman George Harrison to check with Montagu Norman to see if he were interested in fixing the price of gold. The British were not interested in a long-term set price, but agreed to a temporary one.

Two weeks later, Congress passed, by a huge majority, the Gold Reserve Act, and the following day the president officially fixed the price from $20.67 to $35 an ounce, an increase of 69%. That became the standard world price. It also automatically increased the fixed value of U.S. gold reserves by $2 billion, as it did for other institutions holding bullion. With the U.S. once again on the gold standard, the Federal Reserve also bought and sold the metal at $35 an ounce to other central banks around the world. One result was a massive inflow of gold into the U.S., which was also stimulated by growing war threats in Europe. In the next four years, the value of the gold in the vaults of the New York Federal Reserve tripled, reaching $12 billion.
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As anyone could have predicted, the production of gold around the world also soared, especially in the Soviet Union, where output went up nearly tenfold between 1923 and 1934.
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Jacob Viner, a conservative economist from the University of Chicago and a strong believer in a balanced budget, was Morgenthau’s first economic advisor at the Treasury. The professor, though, didn’t enjoy working in Washington and suggested in June 1934 that Harry Dexter White, a Harvard graduate then teaching at Lawrence College in Wisconsin, join him in Washington to work on monetary and banking legislation. Morgenthau grew to depend greatly on White and trusted his judgments on economic questions, an area where Morgenthau was weak.

White was born in Boston of parents who had emigrated from Lithuania, which, at the time, was part of the Russian empire. After army service in World War I, he studied economics at Stanford before going to Harvard. He joined the Treasury Department staff in June 1934 and in November was named head of the department of research and statistics. The following year he went to Britain, where he met with John Maynard Keynes, who was impressed by him. The time in Europe expanded White’s expertise and established his credentials as Morgenthau’s closest advisor. White rose in rank to become director of monetary research and eventually assistant secretary. Morgenthau’s son, in a family biography, described him as “short-termed and arrogant” as well as “meticulously civil to anyone in a position to afford him access to the powerful.”
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The legality of raising the price of gold was challenged in court in a case that eventually reached the Supreme Court. The New Deal at the time had lost several cases in the court, so the decision was not a sure thing. Finally on February 18, 1935, the Supreme Court sided with the administration largely on legal, rather than economic, grounds, with a 5 to 4 ruling. Top government officials received the news in the White House cabinet room and celebrated for an hour. Morgenthau reported in his diary that Roosevelt was “very natural, laughing and smiling practically all the time.”
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Just as Professor Warren had predicted, the American economy was soon on the mend, although it was a slow recovery. The U.S. gross national product grew from $58.7 billion in 1932, Herbert Hoover’s last year in office, to $83.8 billion in 1936, the last year of Roosevelt’s first term. That’s better than 6% annual growth. During that same period unemployment fell from about 24% to 17%. It was a good start, but more still needed to be done.

Morgenthau bought gold on the international market to keep the price from falling below $35, picking up $385 million in 1933, $1.9 billion in 1935, and $1.1 billion in 1936. Professor Warren wanted him to push the price even higher, but the Treasury Secretary refused largely because it would be too costly to maintain a higher price in world markets. Warren returned to teaching at Cornell, but he had made his mark. As economic historian Liaquat Ahamed has written, “Breaking with the dead hand of the gold standard was the key to economic revival.”
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At the Nazi’s annual September rally in Nuremberg, Hitler liked to announce with great fanfare a big and bold new national goal to mobilize the country for the following year. He wanted to set out a new economic target at the 1936 meeting. In a break from what he had done since taking power three years earlier, Hitler did not look to Hjalmar Schacht to manage the new plan this time. The Führer had grown tired of his top economist’s haranguing lectures and reluctance to follow orders. Hitler instead turned to Hermann Göring, a trusted
Alter Kämpfer
(Old Fighter), who had been at his side since 1922. Hitler’s move marked the beginning of the end for Hjalmar Horace Greeley Schacht.
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The son of a military officer who also served as governor of Germany’s colony in Southwest Africa, Göring grew up in a small, rundown castle near Nuremberg before attending a military school at age twelve and going on to a military college. An ace pilot in World War I, he shot down twenty-two enemy planes and earned the German air force’s highest honor, the
Pour le Mérite
award, also known as the
Blauer Max
(Blue Max). He was the last commander of the Red Baron’s famous squadron. Following the war, Göring bounced around aimlessly in a variety of jobs that drew on his air force experience. He barnstormed as a stunt pilot, worked for the Dutch aircraft company Fokker, flew for a Swedish airline, and sold parachutes. Along the way, he married the Swedish baroness Carin von Kantzow.
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The flying ace eventually wandered into politics, joining the Nazi party only two years after it was founded. For a while he was Hitler’s bodyguard and also headed the
Sturmabteilung
or
SA
, the party’s private army. During the aborted Munich putsch in November 1923, Göring was shot in the groin. Two Jewish women gave him emergency first aid, and then his wife, doctor, and a Nazi Storm Trooper hustled him out of Germany before he could be arrested. He recuperated in Innsbruck, Austria, but his wound had become badly infected, and as part of the treatment he received daily morphine shots. That led to a drug addiction that plagued him on and off for the rest of his life. In Sweden in 1925, Göring was hospitalized in a drug withdrawal clinic and later in an asylum for the criminally insane, but he recovered, and two years later returned to Germany during a political amnesty. He went back to selling parachutes, and later spent more time in a Swedish drug clinic.
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Göring eventually returned to Munich, where he elbowed his way into a high position on the list of Nazi candidates for the Reichstag. That gave him one of only twelve Nazi seats. He then moved to Berlin and after years of living in poverty finally had some money in his pocket thanks to his legislative salary and sideline jobs for Lufthansa and Fritz Thyssen, the steel magnate. The smooth-talking and flamboyant Göring was more debonair than the normal Nazi goons and became known as the “salon Nazi.” His aristocratic wife, Carin, was a good hostess. Göring was a dynamic speaker, perhaps the second best in the party after Hitler. His obviously excessive hail-fellow-well-met style was very popular in the early years with the German public.

With Hitler and Göring working in tandem, the Nazi party grew quickly. Göring was leader of the party group in the legislature and was elected Reichstag President in 1932 after a Nazi surge in popularity. When Hitler came to power the following year, Göring received three top posts in the Führer’s first cabinet: Minister Without Portfolio, Prussian Minister of the Interior, and Reich’s Commissioner for Aviation. He remained a pilot at heart, and he spent lavishly to expand the German air force. During the Night of the Long Knives in June 1934 that purged the party of Ernst Röhm and his followers, Göring and Heinrich Himmler, the head of the
SS
, directed the operation with brutal efficiency.
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