Atlas & His Burden

(See front cover) Some U. S. Presidents, whose hunger for land shocked their more economical contemporaries, made heavy demands upon their Secretaries of the Treasury. That able Swiss-born Secretary, Albert Gallatin, had to provide the $15,000,000 Jefferson needed to buy the 1,000,000 sq. mi. of wilderness known as the Louisiana Purchase. That staunch Georgian, William H. Crawford, had to dig up $5,000,000 to pay off Spanish obligations when Monroe bought Florida. Hugh McCulloch had to scrape up $7,200,000 in gold from a greenback Treasury to pay Russia when Andrew Johnson bought Alaska. William G. McAdoo had to provide $25,000,000 when Woodrow Wilson bought the Virgin Islands. For land and construction Leslie M. Shaw had to raise $525,000,000 when Roosevelt I decided to have a Panama Canal.

But Roosevelt II's demands on Henry Morgenthau far and away exceed those placed on any other peacetime Secretary. Last week Mr. Morgenthau prepared a refunding operation. The financing of three Panama Canals, 69 Virgin Islands, 115 Louisianas, 240 Alaskas, 345 Floridas or a donation of $13.80 to each & every U. S. inhabitant would have been no more than Mr. Morgenthau took on as a day's work.

He announced that holders of a billion and a quarter dollars worth of Fourth Liberty Loan bonds called for payment next Oct. 15, might exchange them a month ahead of time for: 1) 3 1/4% bonds maturing in twelve years or 2) 2 1/2% Treasury notes maturing in four years. To holders of another half billion dollars worth of Treasury certificates maturing Sept. 15, he offered in exchange 1 1/2% Treasury certificates maturing in two years.

Compared to last June when the Treasury sold for cash 14-year bonds bearing only 3% interest, the new offer was liberal. Since banks were known to feel they held enough long-term bonds, an offer of four-year notes was included. Private investors who care less about length of term were tempted with 1/4% more interest than was offered in June. As an extra swatch of butter to make the Treasury's offer more palatable, exchangers of Fourth Liberties were also offered a month's interest free--for the interest on the new issues begins Sept. 15 but the coupons of the exchanged Liberties will be paid in full to Oct. 15. Mr. Morgenthau wanted to take no chances on the success of his 17-hundred-odd-million-dollar refunding operation.

Relative Dollars. Dollars, like everything else, are relative. It was considerably more difficult for Gallatin to raise $15,000,000 (enough in 1803 to run the Government for a year and a half) than it was for McAdoo to raise $25,000,000 (enough in early 1917 to run the Government for twelve days). It does not follow, however, that it was harder for Shaw to raise $525,000,000 (enough in 1904 to run the Government for nearly a year) than for Morgenthau to raise $1,700,000,000 or $1,800,000,000 (enough in 1934 to run the Government for a little more than three months).

The criterion of difficulty in borrowing is Government credit. During July and August--first two months of the new fiscal year--the U. S. Government spent $980,000,000. During the same period receipts totaled $504,000,000. of which $43,000,000 was the more or less fictitious "profit" from seigniorage on silver pur- chases. So the Government's rate of spending was about $2 for every $1 of income.

The big item in the Government's expenses was not the purchase of new territories but relief and public works. Un- fortunately land is cheap compared to bread, and $13.80 per capita amounts to only about one week's CWA wages for everybody in the U. S. During July and August the cost of relief alone was $265,000,000; the cost of all emergency expenses, $546,000,000. Granted that emergencies do not last forever, two facts remained: 1) The Relief Administrator does not yet see the end of this costly emergency. 2) When the emergency does end the debt service on the Government's huge borrowings will have to go on.

But no one last week doubted Mr. Morgenthau's ability to refund $,700,000,000, provided he would pay an adequate rate of interest or promise repayment in a short enough time. The Government has pumped the financial world so full of credit that money is everywhere looking for investment opportunities. For months business sentiment was not good enough to attract capital to industry, and, by comparison. Government bonds looked so attractive that capital scrambled for them. They reached all-time highs in July (TIME, July 16). The difficulty of Mr. Morgenthau's refinancing job was that capital recently began to lose some of its taste for Gov- ernment bonds. The first sign was the public's failure last month to buy all of an offering of $149,000.000 of Government-guaranteed Home Owners' Loan Corp. Bonds. The prices of the Treasury's direct obligations soon began to sag and the Government went into the market as a buyer to keep up the price. Then the exchange value of the dollar slumped and gold was exported. Last week the Exchange Stabilization Fund rushed in, borrowed francs in Paris and hastily bought dollars to keep the dollar from sinking on the eve of the big refinancing operation.

These signs were discomforting to the Treasury but not dangerous. The disquieting factor was that Mr. Morgenthau, in order to pay the New Deal's bills, will have, for months at least, to go on borrowing. He is already managing the biggest public debt on record ($27,079,860,564), but he will have to manage a still bigger debt. For until real recovery comes, on his shoulders rests the huge job of keeping the New Deal provided with its most essential requirement: MONEY.

Gentleman Farmer. For his job of holding up the financial heavens Henry Morgenthau Jr. was never trained. Born the son of a wealthy lawyer, real estate operator and philanthropist, Henry Jr.'s first idea of a calling was to become an architect. Thus in 1909 he went to Cornell to study architecture. He did not like it and after a year got himself a job as timekeeper on a construction job in Manhattan. After six months he got a job as a machinist in the Underwood Typewriter factory at Hartford, Conn. Then he got typhoid and went to Texas to recuperate on a ranch. When he went back, he tried working in his father's real estate office, then in a banking house. But he was not happy. No wastrel idler was young Morgenthau but a serious-minded son of an able father, trying hard to find his place in life.

In 1912, when he was 21, he thought he knew. He decided on farming and went back to Cornell to study agriculture. A year later his father, who was just starting for Constantinople as Wilson's Ambassador to Turkey, got Secretary of Agriculture David Houston to appoint a department expert to help Henry Jr. buy a farm. After touring the country as far as the Pacific Coast he picked a 1,000-acre farm near Fishkill, on the east side of the Hudson River, about 60 miles from Manhattan. There Henry Jr. raised apples and Holstein cows--and still does. His first venture in politics was as a supporter of his Dutchess County neighbor who ran for Governor of New York in 1928. Franklin Roosevelt, when elected, promptly began to call on his neighbor and supporter for agricultural advice. In 1931 he made the younger Morgenthau State Conservation Commissioner, set him to work on plans for reforestation. When Franklin Roosevelt moved to Washington it was natural for him to take his farm adviser along, give him the job of liquidating the old Farm Board, make him Governor of the new Farm Credit Administration, provided with $2,000,000,000 for refinancing farm mortgages.

Last November when Henry Morgenthau was made Acting Secretary of the Treasury to succeed the ailing William Woodin--a job that six weeks later became his in his own right--he was selected for two reasons: 1) the dispatch with which he had got the farm mortgage financing going in spite of its being his first big administrative job, 2) his personal loyalty to the President. But when he took command of the Treasury he was under a severe handicap: everyone including himself knew that he was no financier.

Selfconscious, he was at pains to assert himself. He forbade any Treasury official except himself or his special assistant, Herbert E. Gaston, to give information to the Press. He issued stern orders to Treasury guards not to smoke on duty, to salute high ranking officials. He displayed a puritanical devotion to duty, arrived at his desk at 8:30 in the morning, left at 6 or 7 in the evening. In spite of his healthy appetite (President Roosevelt's standard jape on meeting him: "Well, Henry, how about a bite to eat?''), his lunch is invariably brought to his desk and he often munches while dictating and working with assistants.

Still as much devoted to duty as ever, still touchy on his prerogatives, he has relaxed a little in his bearing. After attending a few of the President's press conferences, where all correspondents are called by their first names, he now greets newshawks with "Hello, Bob" or "What's on your mind, Bill?" He even smiles and gives a friendly nod to the blue-coated guards whom he used to discipline.

"Purged" Treasury. Treasury underlings do not know quite what to make of the change. Many of them fear that, like Hitler, he may "purge"' them any day from the Treasury. The men closest to him are nearly all his own importations. His Publicity Assistant Gaston, his General Counsel Herman Oliphant. his Administrative Assistant William McReynolds, came with him from the Farm Credit Administration. Needing a financial Brain Trust of his own, he built it up around a few younger bankers and professors: Marriner S. Eccles of Utah and T. Jefferson Coolidge of Boston, Jacob Viner of the University of Chicago and Roswell Magill of Columbia.

At the same time, he "purged"' the Department of most of its heads who were there when he came. The reasons were seldom plain, but when Mr. Morgenthau decided one of them should go, he appointed a special assistant. Within a short time the "special" was handling the duties of the "regular" who generally took the hint and resigned. Thus last week departed Walter Ruskin Stark, chief of the section of Financial & Economic Research, who was one of the Treasury's few remaining conservative economists. Said he in his letter of resignation: "I believe that the prospect of coordinating service and advisory activities of a financial and economic character in a single unit in the Secretary's office would be improved by my withdrawal." It was. Mr. Morgenthau promptly created a new Division of Research & Statistics, put it in charge of a close friend, one of his bright young men from the Farm Credit Administration named George Caspar Haas. Lawrence Robert Jr., Assistant Secretary in charge of Public Health, Engraving & Printing and Mint Service, is one of the few pre-Morgenthau men who has refused to take the hint. Most of his duties have been taken away but he busies himself with what he can find to do, and smilingly stays on, not ignorant of the humor of the situation.

Thus Mr. Morgenthau has quietly surrounded himself with men of his own picking--at the same time acquiring advisers and consolidating power in his own hands. He is not only dictator within the Department, but seems to be extending his power without. Fortnight ago when Lewis Douglas retired as Director of the Budget, Daniel Bell, a career man in the Treasury, was given his job. Now Washington expects that the real Budget Director will be Henry Morgenthau Jr. Last week when the new Budget Director called at Hyde Park, Mr. Morgenthau was with him. Marriner Eccles or some other of Mr. Morgenthau's men is regarded as the most likely successor of Eugene Black as Governor of the Federal Reserve, and plans are being considered for supplanting the Federal Reserve System by a Central Bank in order to bring the whole banking system directly under Treasury control. If these things come to pass, Henry Morgenthau Jr., who has possibly less financial training than any of his predecessors, will have far more financial power than any of them. But those who assume that his motive is a desire for personal authority do him an injustice. His first allegiance is to President Roosevelt and the New Deal. He seeks power to carry out New Deal policies.

Policy. Though Mr. Morgenthau is no financial genius, he knows well enough that the best way of financing the New Deal is the old-fashioned policy of making both ends meet. One of his bright assistants, Roswell Magill, was abroad this summer studying the British tax system, and is now at work on a new tax program. The Ways & Means Committee of the House, which normally would be busy drafting such plans, has practically sur- rendered the job to the Treasury. Some $500,000,000 more taxes are urgently desired for next year, and where they are to come from is a problem over which the Treasury is scratching its head. A sales tax would yield the money most easily but would raise a political storm, and the Administration does not want any storms. And even a half a billion dollar increase in taxes would only pay the current relief bill for about two months, would only make a dent in the present deficit.

But Mr. Morgenthau does not believe that taxes are the only way to make ends meet. Fortnight ago, seeking to reassure the country before his refinancing was announced, he made a radio speech denying that the $6,000,000,000 increase in the public debt in 16 months represented the New Deal's cost. From the six billion he subtracted a $1,600,000,000 increase in the Government's cash on hand. He also subtracted $1,095,000,000 of assets acquired by RFC and other Government lending agencies. Then he also subtracted $2,800,000,000 of "profit" from devaluating the gold content of the dollar, a decidedly tricky item. The gold profit does provide a means which some day can be used to pay New Deal expenses, but it nonetheless represented a cost to the country. If the New Deal called in all silverware, and then handed back seven teaspoons for every twelve turned in, the Treasury would have another ''profit" and the expense of the New Deal might go down on paper, but the owners of the silverware would have footed the bill.

Another devaluation of the gold dollar or the issuance of $129 worth of silver certificates against $50 (market value) of silver are similar tricks which Mr. Morgenthau may be tempted to use to pay for the New Deal. No sign has he given yet of desiring to use them, for they would scare capital, upset the market for his bonds. But the temptation will be ever present. For the alternative, higher taxes, will stir up popular opposition and a good part of the Brain Trust fears that their effect would be deflationary.

Predecessor. When Mr. Morgenthau sits at his desk, he can raise his eyes to the right and look up into the florid features of Salmon P. Chase. He may take some com fort from doing so, for he and Abraham Lincoln's Secretary of the Treasury have much in common. Chase, too, was not a financier by training. His chief interest in life was abolition and he had the difficult job of financing the war to end slavery. The Dictionary of American Biography says of Mr. Chase :

". . . It was his task to borrow money from reluctant bankers ... to labor with Congressional committees in the formulation of financial legislation; to devise remedial measures for a deranged cu rency; to make forecasts and prepare estimates in days when financial responsibility was diffused ... to trim the sails of fiscal policy to political winds; to market the huge loans which constituted the chief reliance of an improvident Gov ernment." For all the years between them those words about Secretary Chase may well have a familiar ring to Secretary Morgenthau.

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