by Ron Chernow
Göring was put in charge of raw materials and foreign exchange. Although Schacht soon relinquished the economics ministry to Göring, he retained the Reichsbank presidency until January 1939.
Schacht will reappear in the Morgan saga at the time of the Austrian Anschluss. At this point, however, suffice it to say that the German debt quarrel left deep wounds on both sides of the Atlantic and dredged up the old issue of war debts. The British felt the United States should have canceled old war debts; Americans, even Morgan partners, believed Britain could have made a more determined effort to pay. Now that the Depression had finally retired lingering issues of debt and reparations, a new set of issues over the settlement of default debt would tear at Anglo-American financial harmony. The tension would last right up until the war.
THE mid-1930s resounded with charges that to protect Allied loans the House of Morgan had led America into the First World War. Isolationists exploited this canard to try to ensure American neutrality in any future European war. They rallied the country against Wall Street, propounding a simplistic view of history that equated big business with bloodlust for war profits. A Wisconsin congressman, Thomas O’Malley, introduced a bill requiring the richest Americans to be drafted first—a foolproof way, he thought, to end wars. “It will be Privates Ford, Rockefeller, and Morgan in the next war,” he said.17
Portents of war were visible everywhere—for those who cared to see them. In March 1935, Hitler tore up the Versailles treaty and reintroduced obligatory military service. He boasted to Sir John Simon, the British foreign secretary, that the Luftwaffe had attained parity with the Royal Air Force. A year later, the Fiihrer occupied the Rhineland without any military rebuke from the Allies. Yet Sir Anthony Eden, secretary of state for foreign affairs, thought the best way to keep Germany from war was to strengthen Hitler’s economy. In 1936, Charles Lindbergh, at the invitation of Hermann Göring, toured Germany and marveled at its aircraft factories and technology, later urging Britain and France to retreat in self-defense behind a string of British dreadnoughts and the Maginot Line.
Isolationists might portray the Morgan partners as warmongers, but they weren’t alarmed by developments in Germany. In fact, they were strangely sanguine. After the Rhineland occupation, Lamont told Dr. Schacht, “The American public has to a considerable extent gotten the idea that Europe is about to plunge into the midst of another general war. . . . I may be too much of an optimist, but I do not share this view.”18 Even while espousing cooperation with England, the bank steadfastly refused to interpret Axis rearmament as the prelude to a new European conflict. For all the rhetoric about mercenary bankers, the Morgan partners were more prone to appeasement than hawkishness.
In early 1936, the ghost of World War I was revived by a Senate munitions investigation chaired by Senator Gerald P. Nye, a North Dakota Republican and adherent of Father Coughlin. With his pugnacious face and thrusting chin, Nye, like Pecora, formed a picturesque contrast to the stately Morgan partners he subpoenaed. He set out to prove that J. P. Morgan and other banks had dragooned America into war to safeguard loans and perpetuate a booming munitions business. Once again, the timid Jack Morgan was transmogrified into a venal, snarling monster. As Time magazine said, “Before the Committee for settlement was a scandalous question: should J. P. Morgan be hated as a war-monger second only to Kaiser Wilhelm?”19 For Jack, who so earnestly hated the Germans, it was a mortifying comparison.
Once again, a Morgan retinue departed for Washington, occupying an entire eighth-floor wing of the Shoreham Hotel and remaining barricaded behind a phalanx of plainclothes guards. (That same year, Polaroid founder Edwin H. Land visited Jack at 23 Wall and found him guarded by men with machine guns.) As if to show their sublime contempt for the hearings and disdain for the follies of petty men, the partners dressed in dinner jackets for their nightly meal. Newspapers showed George Whitney, legs folded, elegantly reading a newspaper in a smoking jacket, bedroom slippers, and bow tie before retiring for the night. Once again, Morgan staffers were sidetracked by a government inquiry. From a Brooklyn warehouse, they disinterred the bank’s wartime documents—twelve million of them, enough to fill up forty trucks.
The Nye hearings were a flop. Unlike the Pecora hearings, where partners were defensive and stammered their way through sometimes incoherent answers, the Nye committee invited them to relive their proudest hour. “We were pro-ally by inheritance, by instinct, by opinion,” Lamont boasted, admitting that partners were glad to see America enter the war.20 At that dawn of the Diplomatic Age, he contended, the bank had scrupulously heeded Washington’s wishes, waiting until Robert Lansing had replaced William Jennings Bryan and approved Allied credits.
Far from seeming bellicose, Jack looked like a sleepy, avuncular old man. When Lamont said money was the root of all evil, Jack slyly interrupted: “The Bible doesn’t say ’money,’ ” he grinned. “It says, ’The love of money is the root of all evil.’ ”21 And while Lamont parried questions, Jack dozed or chatted with newsmen during breaks. Indeed, he had been appalled by the outbreak of war and had issued appeals to belligerents in 1914 to stop the combat. When it came to supporting the Allies, he was proudly secure in his position. “The fact that the Allies found us useful and valued our assistance in their task is the fact of which I am most proud in all my business life of more than 45 years.”22 His personal defense was bluntly effective: “Do you suppose that because business was good I wanted my son to go to war? He did, though.”23
The hearings had as much to do with the Depression as with the war, and there was an uproar over Jack’s classic blooper: “If you destroy the leisure class, you destroy civilization.” Asked by reporters to define this class, Jack stumbled: “By the leisure class I mean the families who employ one servant, 25 million or 30 million families.”24 Critics from the Housewives League of America gleefully pointed out to newspaper editors that there were fewer than thirty million families in the United States, and only two million of them had cooks or servants. As an amateur sociologist, Jack left something to be desired.
Although Morgan partners considered the controversy a sideshow, it had an enduring influence, helping to muzzle their pro-Allied views and making them gun-shy of political controversy as World War II approached. In 1934, California senator Hiram W. Johnson, an isolationist, had sponsored the Johnson Act, which forbade loans to foreign governments that were in default on their dollar obligations. Neutrality Acts were also passed that blocked warring countries from purchasing arms or raising loans in the United States. This was part of an attempt to forestall any repetition of the Morgan Export Department or the Anglo-French loan in the event of war and to induce a steady American disengagement from Europe’s affairs.
Even as America debated its position in a hypothetical European war, Mussolini launched a full-scale invasion of Ethiopia in October 1935. II Duce had a megalomaniac vision of merging this territory with the colonies of Eritrea, Italian Somaliland, and Libya to forge an East African empire. Some five hundred thousand Ethiopians were sacrificed in a campaign infamous for its savage use of mustard gas. Like the Japanese in Manchuria, Mussolini’s army pretended to act in self-defense and had the effrontery to denounce Ethiopian aggression. Fifty League of Nations states condemned the violation of Ethiopian sovereignty and voted economic sanctions. Relying on voluntary compliance by American business, Secretary of State Cordell Hull asked for a “moral” embargo on sales of war materiel to Italy—shipments of oil, metal, and machinery. These exhortations were often ignored by American industry. Although Britain went along with the League’s economic sanctions, it stopped short of more extreme measures, such as cutting off all supplies of oil. Prime Minister Stanley Baldwin instructed his foreign secretary, Sir Samuel Hoare, “Keep us out of the war, Sam. We are not ready for it.”25
By the mid-1980s, the House of Morgan’s enthusiasm for il Duce had cooled, as had Wall Street’s in general. One student of U.S. business support for Mussolini describes the post-1934 attitude
as one of “a clamorous repudiation of the whole Fascist experiment.”26 Not only did the Johnson Act block new Italian loans, but Mussolini’s behavior scared away American investors. There was apprehension about the dictator in high Anglo-American circles. Visiting Stanley Baldwin at 10 Downing Street in July 1935, Jack Morgan found him “terribly disturbed and apprehensive, as all are here, about Mussolini and Abyssinia.”27 Lamont warned the bank’s Roman agent, Giovanni Fummi, that the rumored African campaign would jeopardize any renewal of credits to the Banca d’Italia.
As before, the Morgan bank portrayed Giovanni Fummi as a non-Fascist who happened to have extraordinary access to Mussolini. They paid him handsomely for his services—some $50,000 a year, or the same salary Parker Gilbert received as agent general for Germany. But Fummi wasn’t upset by the Ethiopian bloodshed and praised the country’s economic potential. He relayed a message to 23 Wall saying that Mussolini hoped U.S. capital could be funneled into the area. To dim such expectations, Lamont replied that Ethiopia would hurt Italy’s financial prospects abroad for a long time. In 1936, Mussolini sent a new Italian ambassador, Fulvio Suvich, to New York to drum up support for an Italian loan. When Italy sent troops to fight alongside Franco’s insurgents in the Spanish Civil War that summer, the effort was doomed (though Lamont supported Franco—and had heated quarrels with his son Corliss about the war). That fall, Hitler and Mussolini joined together in a Rome-Berlin Axis.
After Ethiopia, relations between Mussolini and Lamont remained in abeyance for a time. In April 1937, Lamont visited Rome, ostensibly on a pleasure trip. There was a hidden agenda behind the holiday, however. Lamont had contacted British officials, who expressed hope that Mussolini could be weaned from Hitler. He also conferred with Cordell Hull about the latter’s program of lower global tariffs. In 1934, Congress had passed the Reciprocal Trade Agreements Act, an attempt to end the economic nationalism of the Depression by cutting tariffs to half their 1930 levels so long as other governments reciprocated with U.S. exports. Along with Germany, Italy was now on the road to autarky—that is, economic self-sufficiency—and Hull was alarmed by its retreat from the world economy. He thought that if the United States could conclude trade agreements with Axis powers, it might avert war. Lamont promised that in his talks with England, France, and Italy, he would promote Hull’s pet notion of lower tariffs. For Lamont, it was a momentary reversion to his heady Republican missions of the 1920s.
Operating behind veils of mystery, Tom Lamont often had several reasons for his actions. He undoubtedly wanted to prevent a war and destroy the beggar-thy-neighbor spirit symbolized by the Hawley-Smoot Tariff Act of 1930. But he was also ready to forgive Mussolini his violent excesses and return to the status quo ante. Recently he had begun to meditate on ways of rehabilitating Mussolini in Anglo-Saxon eyes, telling a correspondent two weeks before his April trip to Italy, “I must say I prefer, of two foul evils, the fascists who make war, to the communists who seek to overthrow our governments. . . . The Duce should be presented to the public not as a warrior or in warlike attitudes, but in pastoral, agricultural, friendly, domestic and peaceful attitudes.”28 This would have been news to the half a million Ethiopian dead.
Soon after Lamont arrived in Rome, Vincenzo Azzolini, governor of the Banca d’Italia, learned of his visit. II Duce—ever eager to flaunt his popularity with world business leaders—then invited Lamont and Fummi in for a private audience. It occurred amid press reports that Mussolini would visit Hitler in late summer or early fall. It was Lamont’s first chat with the Italian leader since 1930. A transcript of the April 16, 1937, meeting has survived in Lamont’s papers. Mussolini began by spouting hysterical pleas for sympathy:
Duce: We have made a great conquest in Africa—that is finished now—I am for Peace, I am for World Peace—I am very strong for Peace. I need Peace—I need Peace—I am very strong for Peace. We are satisfied.
Lamont: I believe you, Excellency, when you say that, I know it must be so, but the impression in America is very different. There you are pictured as a man who wants war rather than peace; that impression should be corrected. It is very important that in America your real attitude should be understood.29
As he had promised Hull, Lamont touted free-trade policies, and Mussolini hinted he would like a generous helping of American money in exchange: “America, Mr. Lamont, holds the key to economic cooperation. You see, Mr. Lamont, America has enormous quantities of gold, too much gold for the world’s good.”30 Mussolini also expressed a wish for better relations with Britain, toward whom his policy had been wildly contradictory. He would talk about new agreements one day, then broadcast anti-British radio propaganda the next. In fact, the month before, he had secretly informed his army officers that he planned to destroy Britain. (Later it turned out he kept posted on British diplomacy by having his aids sift through the wastebaskets at the British embassy in Rome.) Mussolini’s plea for improved Anglo-Italian relations was marred by a comic slip:
Duce: I am doing everything I can to increase the friendship with Great Britain, everything, but Great Britain is always suspicious of what we say or do, and attributes wrong reasons to our speech and actions.
Lamont: It pleases me immensely to have you say you are doing all you can to increase the friendship with England. In London last July I heard important expressions along the same line. It happened that when there I dined with the then King Edward VIII, and he said to me “now that sanctions are to be ended we must get back to the basis of our traditional friendship with Italy.” Mr. Neville Chamberlain, the Chancellor of the Exchequer, who is to succeed Mr. Stanley Baldwin as Prime Minister voiced to me the same sentiments. (For a moment the Duce seemed to think that I alluded to the late Sir Austen Chamberlain whose friendship for Italy was well-known, but he remembered, and corrected himself with “Oh yes, I know that Mr. Neville Chamberlain is well disposed toward us.)”31
The interview had started uneasily, as if Lamont wished to register his moral disapproval for the record. Then he warmed appreciably and resorted to the old courtier’s mode, saying that Italians and Americans shared traits of industry, thrift, and imagination. He extolled Rome’s tuberculosis sanatorium and regretted that Americans missed such wonders. “We spend too much time gazing at what the Romans were doing in 100 A.D., and not enough time in looking at what the Romans are doing in 1937 A.D.”32 In a vaguely surreal moment, he told Mussolini that tourism to post-Ethiopia Italy could be tremendously expanded. In a telling reminder of the old days, Lamont said he had jotted down fresh points on how Mussolini might handle public opinion. “Ah yes,” said Mussolini, “I am very grateful for your counsel . . . do not hesitate to advise me direct in regard to these matters. One of my mottoes is ’advice from everyone, collaboration by many, decision and responsibility by a few.’ ”33 Lamont and Fummi applauded this formulation.
Toward the close, perhaps afraid that things had gotten too friendly, Lamont returned to American fears of Italian aggression. He said—with perhaps an icy smile—“The American people, Excellency, have unbounded admiration for the marvellous achievements you have accomplished for Italy since 1922, unbounded admiration for these great material developments, but as regards yourself, Excellency . . . they are really afraid of you.”34 Smiling, Mussolini said the impression must be corrected. He urged Lamont to make a statement to the Italian press—which Lamont declined to do. Afterward, Lamont briefed William Phillips, the American ambassador in Rome, who seemed delighted by the talk.
Clearly, part of Lamont’s Italian agenda was to curb Mussolini’s warlike tendencies and nudge him closer to the United States and Britain. His visit enjoyed official encouragement. Yet soon afterward, Lamont reverted to propaganda work that could hardly have been sanctioned by Washington and was reminiscent of his relationship with il Duce in the twenties. True to his pledge, Lamont forwarded a memo designed to help Mussolini “enlighten American and British opinion” about his peaceful intentions. It paralleled the memo drafted for funnosuke
Inouye after Japan’s 1931 invasion of Manchuria, drawing specious analogies between Mussolini’s actions and American history, trying to convert the story of Ethiopian slaughter into a comforting tale of Italians conquering a wilderness. How should Mussolini quiet concern? By likening the Ethiopian campaign to America’s westward expansion: “In previous speeches in the last few months the Duce has spoken of the growth of new empire in Africa. His Government’s ends have been achieved. There now remains the task of agricultural and economic development in Ethiopia. There is a vast and fertile region as yet largely uninhabited and uncultivated. It would yield to the hard work and intelligent cultivation of Italian emigrants, just as a half century or more ago the vast resources of Western America were developed by American emigrants.”35
What exactly was Lamont’s purpose here? Was he trying to push Mussolini toward a new policy, or merely generating clever lines to hoodwink English and American opinion? Did he have any qualms about equating pioneers settling the American West with Italian troops hurling mustard gas? It is hard to imagine that the State Department or the British Foreign Office would have condoned this, notwithstanding pro forma lines about the need for world economic cooperation. After Libya, Corfu, Ethiopia, and Spain, these attempts at coaching Mussolini seem terribly misplaced. Lamont’s slick publicity lines were now as empty as the dictator’s own speeches:
