by Prins, Nomi
Aldrich praised the “notable success” of the Victory Fund Committees in placing 60 percent of the related securities sold with noncommercial buyers. He believed this would prevent the need for another such large offering until April, concluding “the wider the ownership distribution of the debt, the greater is the amount of debt that a nation can stand.”22
After the German Sixth Army admitted its first defeat at the Battle of Stalingrad, the Treasury Department announced plans for another $13 billion fund drive.
FDR summoned Aldrich to the White House in April 1943 to offer him the position of chairman of the National War Fund, which would coordinate local fund drives throughout the country. Aldrich was honored to accept the post. As he had written FDR beforehand, the National War Fund was “more important than the unification of the raising of money nationally [by] the private war relief agencies.”23 The fund centralized the bankers’ roles in the war effort and elevated their ability to control the flow of funds relative to the private relief agencies they would circumvent.
On May 21, FDR endorsed Aldrich and the fund publicly: “As Commander in Chief, I ask all our people to remember this—that a share in the National War Fund is a share in winning the war.” Two weeks later, Aldrich set the goal of the National War Fund drive at $250 million. He and Treasury Secretary Morgenthau planned to start their coordinated drive in late September to avoid interfering with the Red Cross drive the following spring.24
Aldrich’s compatriot National City Bank chairman Gordon Rentschler was selected to be treasurer of the National War Fund. As the next wave of the drive swung into high gear in the fall of 1943 all the individual checks started flowing to him—such as a $5 check from Mac Grossman, a member of the US Army who tried to send it to his field officer and was told there’d be no organized drive in the field. Over the next year, other personal gestures of financial support flowed through Rentschler, such as $724.68—one day’s salary for the employees of A. Steinam Company—and $1 from Mrs. Grace Fox of Philadelphia.25
Burgess and Inflation
In keeping with his ideas about placing more of the financing burden on the citizenry, W. Randolph Burgess campaigned for the second bond drive to reach more individuals. “Coverage must be broader if inflation price advances are to be checked,” he wrote Federal Reserve chairman Eccles.26
Burgess was motivated by more than a lifelong concern about inflation; the broader the national coverage of bond buyers, the more customers would be performing their financial activities through the banks selling those bonds. It was a customer drive as much as a war bond drive. Patriotism could be linked to opening an account at National City Bank. Amassing savings in that account was akin to providing the public service of frugality in the face of mounting international bloodshed and the military operations that would be needed to fight Hitler.
By extension, National City Bank was opening new branches around the world, in countries with governments sympathetic to America and its allies. The growth was spun as a patriotic deed. The bank’s ads depicted international locales where battles were being fought and new branches were opening. After victories, National City Bank would be on hand to facilitate funds for reconstructing those countries on behalf of America and itself. From that local vantage point, the bank’s power over future development would be acute.
In addition, with national income expected to reach new levels as the nation entered high-production and full-employment mode, Burgess believed people should save their money voluntarily or make bond purchases to contain inflation. The bankers were thus abetting the process to align the people with the government. “With the inspiring achievements of the Armed Forces, with miracles and production by American industry,” he wrote Eccles, “the bankers of the country can be counted on to do their share.”
On April 8, 1943, FDR had frozen prices, wages, and salaries in further efforts to stem inflation. The Current Tax Payment Act took effect on June 9. The act allowed the government to raise money in advance of the end of the tax year by collecting people’s income taxes the year the money was earned, not the following year. At the time, most bankers recognized the need to raise money through taxes. The Revenue Act of 1943 also provided for the distribution of the payment of taxes through the population. It carried a small concession to the wealthy, alleviating some of the elite’s negative feelings around the idea that prior incarnations were simply “class taxes.”27 It also increased excise taxes and raised the excess profits tax to 95 percent from 90 percent. Though FDR vetoed the act, claiming it was too business-friendly, the House overrode the veto to pass the Individual Income Tax Act of 1944.
With respect to the bond drives, everything went full steam ahead. On September 27, 1943, Burgess, who had been conferring regularly with Morgenthau on the matter, informed the Treasury secretary that “New York City went over the top today and I think the State will be tomorrow night. We are driving ahead on individual subscriptions.”28
While Aldrich and Rentschler focused on bond drives, which also fit into the framework of their banks’ strategies for opening accounts, Lamont concentrated on his area of political expertise: lobbying for passage of one of FDR’s major foreign policy initiatives, which dovetailed with his internationalist stance on trade matters. The Republicans had opposed the first incarnation of the measure, the Reciprocal Tariff Act of 1934, through which FDR extended the power of the presidency to establish foreign trade agreements with other countries (particularly with Latin America) and reduce tariffs (which the Republicans preferred to keep higher) to spur greater global trade liberalization. The bill had passed despite their opposition.
FDR expressed his gratitude to Lamont for his efforts in convincing the Republican opposition to pass the Reciprocal Trade Agreements Act of 1943, an expansion of the president’s tariff and trade negotiation powers. John Franklin Carter of the National Press Club informed FDR that “Lamont went to great personal trouble” to do so, fighting against a number of “recalcitrant Republican Senators and Congressmen.” It was a repeat of 1919, when Lamont wrestled the more isolationist components of his party on behalf of the president and a global banking and trade framework. Carter told FDR, off the record, that “word went out from the House of Morgan to support renewal of the Trade Agreements Act.”29 Both the Morgan Bank and FDR emerged victorious.
The Postwar Power Play During the War
There was more to the notion of war funding than ending the war; capital considerations became a battle for political and economic supremacy. Both America and the British wanted to control the postwar financial system. Britain had conceded ground to the United States and its bankers after World War I. This was a second chance, perhaps. But the United States didn’t want to forfeit the spot it had won as a new superpower.
The American and British Treasuries had published the White and Keynes plans for the creation of multinational finance entities in April 1943. Treasury Secretary Morgenthau presented the American plan to the relevant subcommittees of Congress. Both Congress and the British Parliament began debating both plans, but nothing was settled.30
White released an updated design in August 1943. That fall, Keynes visited Washington for the first time since the plans were announced to discuss the details. Neither plan was seen as sufficient by the American bankers or Congress. As John H. Williams wrote in Foreign Affairs, the flagship publication of the Council on Foreign Relations, “From the time of the publication of the revised White plan in August the American press and American banking and foreign trade opinion have been almost uniformly unsympathetic to both plans.”31
The reason had less to do with the optics of using economic equality as a means to alleviate wars or elevate the status of struggling national populations, and more with maintaining influence. US bankers wanted the dollar to be the world’s singular reserve currency. So did the Federal Reserve, the Treasury Department, and FDR. Gold could be involved from a pegging perspective, but no American banker wanted a global currency that could n
ot be controllable by the Federal Reserve. This war presented the opportunity to assert not just American domination from a foreign policy perspective but American banker domination over global economic and financing decisions.
White’s plans went through several drafts—though none turned out dramatically different from his initial proposal.32 In the end, they reflected the bankers’ requirements that the dollar and their private institutions would play a significant role in whatever multinational entity and doctrine arose from the ashes of the war. This suited the FDR administration perfectly well. The government had raised much debt to fund the war, as the bankers frequently pointed out, and that had the potential to weaken the dollar as a global currency. But if the multinational entities required use of the dollar, that would ensure a stronger dollar—something FDR was keen to preserve as an indicator of American hegemony.
Keynes, White, and Power Transfer to the United States
By early 1944, nearly two-thirds of the European GNP had been devoted to war; millions of people had been slaughtered. But six months after the complete liberation of Leningrad, it was the international financial aspects of the coming peace that exercised the imagination of the policy elites. In July 1944, 730 delegates representing the forty-four Allied nations convened at the Mount Washington Hotel in Bretton Woods, New Hampshire. Amid picturesque mountains, hiking trails, and oppressive heat, they sat to determine the postwar economic system.
For three weeks, they debated the charter for the International Monetary Fund and discussed how the International Bank for Reconstruction and Development, or the “World Bank,” would operate.
White and Keynes had competed for influence over this final result for the past two years. To a large extent, the personal vehemence of each man aside, they did so as an extension of the jockeying for position between the United States and Britain as the incoming and outgoing financial superpowers. At first, virtually every American banker and politician opposed the main aspects of Keynes’s plans, particularly his idea about creating a new global currency—the unitas—that would supersede gold and the dollar.
Many subsequent histories of the Bretton Woods Conference consider the final doctrines for the IMF and World Bank as representing a clear compromise between White and Keynes. But they leaned far more toward White’s model and vision.33
From the bankers’ standpoint, White’s model was more tolerable because it preserved the supremacy of the dollar. Former President James A. Garfield once said, “He who controls the money supply of a nation controls the nation.” But in the negotiations surrounding those Bretton Woods meetings, the mantra was more “Those who control the banks backed by the currency that dominates the world control world finance.”
While final drafts snaked through Congress after the July 1944 meetings, one key US banker maintained his public opposition to Bretton Woods. Even after it became clear that the multinational entities would be dollar-based, Chase chairman Winthrop Aldrich remained opposed to the idea. Mostly, he feared the slightest amount of competition from any uncontrollable source. Though Aldrich favored removing trade barriers, which would provide the US banks a wider field for cross-border financing, he didn’t want some supranational entity getting in the way of private lending to facilitate that trade.
In his “Proposed Currency Plan” of September 16, 1944, Aldrich slammed the accords, which he saw as a distinct challenge to the power of private banks. “The IMF,” he said, “would become a mechanism for instability rather than stability since it would encourage exchange-rate alterations.”
Like most bankers, Aldrich was fine with the World Bank taking responsibility for exchange-stabilization lending.34 That element would aid bankers; a supranational entity providing monies to struggling countries would bolster them sufficiently to be able to borrow more through private banks. But bankers didn’t want a fund constructed as a competing lending mechanism that could possibly take business away from them, operating in the guise of economic security.
Aldrich warned, “We shall have the shadow of stability without the substance. . . . Perhaps the most dangerous aspect of the Bretton Woods proposals is that they serve as an obstacle to the immediate consideration and solution of these basic problems.”35
Aldrich’s public outcry was unsettling to FDR and Morgenthau, who knew that it was politically important to get all the main bankers’ support. Not only did they hold a solid proportion of US Treasury debt; they had become the distribution mechanisms of that debt to more and more citizens and countries. There couldn’t be an IMF without the support of private lenders, and if the US was going to be in command of such an entity from a global perspective, US bankers had to be on board. Concession to the bankers wasn’t a matter of empty appeasement but of economic supremacy.
The American Bankers Association, on which Aldrich was a board member, also wanted to restrict the IMF’s powers. Burgess, who served as chairman of the American Bankers Association and National City Bank vice chairman, was unwilling to back the Bretton Woods proposals unless White made more concessions to reinforce the supremacy of the US banks and the dollar. He would play hardball and get Morgenthau involved if he had to.
Though White refused to bow to Burgess’s requests, Congress incorporated them into the final documents.36 To make the bankers happy, a compromise was fashioned that restricted the IMF funds to loans offsetting short-term exchange rate fluctuations, such as when one country has a sharp and sudden shift in the value of its currency relative to another.37 That loophole left plenty of room for banks to supply aggressive financing to developing nations over the loosely defined longer-term. It also meant that all nations receiving short-term assistance from the IMF would likely be on the hook for more expensive debt at the hands of the bankers in tandem, or later. But in the scheme of White’s plan, this alteration was more cosmetic than substantial.
Truman Takes Office
On January 20, 1945, FDR took his fourth and final oath of office. Two days later he traveled to Yalta, a Soviet Black Sea resort town. There, he met with Soviet Premier Joseph Stalin and British prime minister Winston Churchill for the last time, to discuss how to carve up the postwar world from a superpower perspective.
The three men agreed that the Soviets would obtain a sphere of influence in Manchuria after Japan surrendered in exchange for its participation in the Pacific region. They also agreed to include France in the postwar governing of Germany as the fifth permanent member of the UN National Security Council (alongside the United States, the Soviet Union, Britain, and China), and for Germany to pay reparations after the war. In general, the Yalta Conference was perceived as successful regarding the potential for collaboration between the United States and the Soviet Union, but that would soon change.
On April 12, 1945, at the “Little White House” in Warm Springs, Georgia, FDR signed some papers, ate his lunch, and slumped into unconsciousness. With his death came the death of agreements with the Soviets over their influence in Eastern Europe and the UN and the collaborations in which FDR had engaged.38
When Vice President Truman received the call that FDR had died, his first reaction was fear. Though the war was winding down, it was clear that navigating its ending would be critical in avoiding future combat. But Truman assumed FDR’s mantle without a battalion of his own to command and absent many close relationships to draw on in the White House. FDR hadn’t shared much with him.
Truman was the former captain of the “Boys from Battery D” during World War I. As a small-town farm boy he had a hankering for politics, which he had spun into a stint as a Missouri senator before rising to the position of VP. His humble roots offered him few opportunities, and even less inclination, to engage with the Eastern Establishment bankers. The elite circles hadn’t paid much attention to him, either.
Since his younger years, Truman had cultivated a midwestern “Jacksonian” suspicion of bankers, having altercated over a loan with one in Kansas City in the early 1920s during which his business partner
was forced into bankruptcy. Truman escaped the same fate only because of his position as a public servant.39 (The reason he believed he didn’t owe on the loan was simple: the loan had been made in boom times, when a dollar was worth more, and came due in the early 1920s bust times.40)
Truman tended to embrace people from his own class and background.41 He was more comfortable with bankers who hailed from his part of the country, such as Frank Houston, president of the Chemical Bank & Trust Company. But even though Houston shared words of support at the start of his presidency (“As a former Missourian, I am very proud,” he said42) and offered praise for Truman’s speeches, but he didn’t attempt to exert any political influence on the president.43 That would come from the usual New York bankers, who leveraged Truman to carve out their power in the postwar world.
Aldrich and Truman
Aldrich decided not to waste any time in acquiring the role of most influential banker to Truman. Two months before World War II ended, in late June 1945, Aldrich made his first major gambit to incorporate Truman into his plans. Their relationship had begun on a touchy note. The two had first met at the Chase offices four years earlier, when Truman was heading a Senate committee investigating potential waste in the National Defense Program in the run-up to World War II. As Truman later recalled of their encounter, “I had to go to New York to see this fella Aldrich. Even though I had an appointment, he had me cool my heels for an hour and a half.”44
Now Aldrich knew he had to bond with Truman on a foreign policy basis. He requested a meeting with Truman regarding his duties as president of the International Chamber of Commerce. He was planning to visit London in August for a meeting that would be attended by delegates from North America, Western Europe, and Asia. As he told Truman, “The International Chamber is desirous of throwing its entire influence in the direction of reducing trade barriers, so that international trade may again be resumed throughout the world and private enterprise be stimulated.”45
