From Major Jordan's Diaries
CHAPTER TWELVE
How Russia Got U.S. Treasury Plates
I returned to Great Falls, for the first time as an Army Officer, on June 13th, since I had just been replaced by Lieutenant George Walewski Lashinski. I was due to speak in Omaha on the 16th, and this was my last chance to say good-by to my friends, including Colonel Kotikov.
On a personal level, I had always been very friendly with the Colonel; he was one of the most unusual people I had ever known, and he had many likable traits as a human being. It was only when politics intervened, or orders came to him from above, that his attitude and manners became difficult.
During our farewell talk, Colonel Kotikov mentioned the “money plane” which had crashed in Siberia and had been replaced. I asked what he meant by “money plane.” The U.S. Treasury, he explained, was shipping engraving plates and other materials to Russia, so that they could print the same occupation money for Germans as the United States was printing.
I was certain he was mistaken. I was quite sure that never in history had we let money plates go out of the country. How could there be any control over their use? “You must mean, Colonel,” I said, “that we have printed German occupation money for Russia and shipped the currency itself.”
“No, no,” he replied. He insisted that plates, colored inks, varnish, tint blocks, sample paper – these and similar materials had gone through Great Falls in May in two shipments of five C-47s each. The shipments had been arranged on the highest level in Washington, and the planes had been loaded at the National Airport.
I was still incredulous, but I was impressed enough to pass these remarks on to Colonel Bernard C. Hahn, the Air Force Inspector who had come on as a result of my trip to Washington.
Not until 1950 did I learn all the particulars about these money plates. The full story has never been released to the general public, and only a few people in Washington seem to know the details of this Lend-Lease scandal. I see no reason why every citizen should not know how his public servants handled such a grave matter in wartime.
The sum of money which we lost in redeeming the marks which the Russians rolled off their presses, with no accountability whatever, appears to have been $250,000,000! It was not until September, 1946, that we put a stop to the siphoning of our treasury by refusing to redeem further marks. By this time the plates had been in Russian hands over two years.
At the closed hearing in June 1947 Senator Styles Bridges, chairman of the Committee on Appropriations, inquired of Assistant Secretary of War Howard C. Petersen:
“Does Russia still have the plates, so far as you know?”Mr. Petersen: As far as I know, they still have the plates.
Chairman Bridges: And as far as you know, are they still printing the currency?
Mr. Petersen: As far as I know, they are still printing the currency.
Chairman Bridges: And has there been any protest from this Government endeavoring to stop them?
Mr. Petersen: There have been strenuous efforts from the Allied Control Council in Berlin to obtain an accounting from the Russians as to the amount of Allied military marks which they have issued. Those efforts have been unsuccessful. [1]
Senator Bridges and Mr. Petersen had previously had this exchange:
Chairman Bridges: Was there any action taken by the War Department to restrict the number of notes issued by the Russians?Mr. Petersen: The answer of the War Department is “No.”
Chairman Bridges: And as far as you know, was there any action taken by the State or the Treasury Department to restrict Russia in the number of notes she would issue?
Mr. Petersen: To my knowledge, none. [2]
Mr. Petersen later stated: “I know when we stopped the use of them (the Allied marks) in Germany. It was September 1946.”
Here is the exchange between Senator William F. Knowland of California and Assistant Secretary Petersen:
Senator Knowland: As I understand, there are $380,000,000 more currency redeemed than there were appropriations for?
Mr. Petersen: That is correct.
Senator Knowland: And you expect eventually that that amount will be cut down to $160,000,000; is that right?
Mr. Petersen: Yes…
Senator Knowland: Now what I would like to ask is, what is the amount outstanding as of, let us say, the end of last month (May, 1947)?
Mr. Petersen: That is $340,000,000. [3]
The hearing continued for two days. At its end there were 141 printed pages of oral testimony, and in addition 31 pages of State Department documents, 59 pages of Treasury Department documents, and 474 pages of War Department documents. From the mass of unreleased material it is possible to reconstruct the story chronologically, step by step.
It started in early 1944, when the need for uniform occupation currency in Germany was acknowledged by the Allies. On January 29th Ambassador Averell Harriman informed our State Department from Moscow:
“Great importance is attached by the British Government to the Russian Government’s participation in this arrangement. [4]
Cordell Hull informed Harriman on February 8th that the U.S. would be glad to print the money for Russia.
“The production of sufficient currency to take care of Soviet requirements, if desired, is being contemplated. [5]
On February 15th Moscow’s answer came from Harriman:
“The Commissariat for Finance considers that in preparing the currency it would be more correct to print a part of it in the Soviet Union in order that a constant supply of currency may be guaranteed to the Red Army…It will be necessary to furnish the Commissariat for Finance, in order that the M-marks may be of identical design, with plates of all denominations, a list of serial numbers, and models of paper and colors for printing.”
The Russian technique was clever: Don’t ask whether your demand will be met; ask when it will be met. Harriman’s cable ended as follows:
“Molotov asks in conclusion that he be informed when the Commissariat for Finance may receive the prints, models of paper and colors and list of serial numbers. Please instruct.” [6]
Secretary Hull took over a month before replying on March 23:
“It is not expected that the Combined Chiefs of Staff will favor the delivery of plates to the Russians.” [7]
However, other departments of the Government were also being consulted. Inside the Treasury Department great concern was expressed by two veteran civil servants, Mr. D.W. Bell, Under Secretary of Treasury, and Mr. A.W. Hall, Director of the Bureau of Engraving. In a memorandum to his immediate superior Bell stated:
“It would be very difficult to make the plates available to the Russians, The Treasury had never made currency plates available to anybody.” [8]
Mr. Hall reported to the same superior, pointing out the gravity of the problem of accountability. His memorandum said:
"To acquiesce to such an unprecedented request would create serious complications. To permit the Russian Government to print currency identical to that being printed in this country would make accountability impossible…he present contractor for the printing of invasion currency for Germany is under heavy bond to insure against the misappropriation, loss, or improper use of plates, paper, and printed currency.
I do not believe that under any circumstances would the contractor agree to the manufacture of duplicate plates by any agency outside of his plant. Furthermore, it is doubtful that the Treasury Department could force him to do so. Almost certainly his bond would become forfeit if such an arrangement were resorted to." [9]
The immediate superior of Mr. Bell and Mr. Hall was a relative newcomer to the Treasury Department named Harry Dexter White. Revealing testimony about Mr. White has been made by Whittaker Chambers in his recent book, Witness:
In the persons of Alger Hiss and Harry Dexter White, the Soviet military intelligence sat close to the heart of the United States Government. It was not yet in the cabinet room, but it was not far outside the door…Harry Dexter White had become Assistant Secretary of the Treasury. In a situation with few parallels in history, the agents of an enemy power were able to do much more than purloin documents.
They were in a position to influence the nation’s foreign policy in the interests of the nation’s chief enemy, and not only on exceptional occasions like Yalta (where Hiss’ role, while presumably important, is still ill-defined), or through the Morgenthau Plan for the destruction of Germany (which is generally credited to White), but in what must have been the staggering sum of day-to-day decisions. [10]
With this clue in hand, the day-to-day progress of the decision on the engraving plates makes fascinating reading. Mr. Bell again conferred with Harry Dexter White.
He pointed out that the plates which had been engraved for the Treasury Department were, in fact, the property of the Forbes Company in Boston and if we insisted that they should make duplicate sets available to the Russians, it is possible that the Forbes Company would simply refuse to print any further currency for us, on the grounds that security control had been removed and they could not be responsible for anything that might happen to the printing of the currency from that time on. [11]
He added that not only could the U.S. print all the currency the Russians could possibly desire, but
“we could have the first shipment ready for them before the Russians could start manufacturing currency from plates that we might make available to them.”What did Henry Dexter White think of all this?
White said that he
…had read with considerable interest the memorandum of March 3 from Mr. Hall to Mr. Bell on this subject, but he was somewhat troubled with the views expressed therein, which indicated that we could not make these plates available to the Russians…
Mr. White reiterated that he was loath to turn the Russian request down without further review of the matter. He called attention to the fact that in this instance we were not printing American currency, but Allied currency and that Russia was one of those allies who must be trusted to the same degree and to the same extent as the other allies. [12]
Never, of course, had any other ally asked for engraving plates nor had we supplied them. We had printed other occupation currency for use in Italy and Japan, and our other allies were perfectly satisfied with this arrangement, but Mr. White made no reference to this.
Mr. White then records his meeting with Ambassador Gromyko at the Soviet Embassy in Washington on the evening of March 22. He relates that Gromyko
“kept coming back with a question which he asked a number of times, namely, why the Forbes Company should object to giving a duplicate set of plates to his Government. He said that after all the Soviet Government was not a private corporation or an irresponsible government. I explained to him how both the Forbes Company and the American Banknote Company felt but I am afraid he remained unimpressed with the reasons I offered.” [13]
At no point did Mr. White say that our Government, for which he was in this instance the spokesman, objected to providing duplicate plates because this would make accountability impossible. There was only the integrity of two American business firms with which to meet Russian demands and protect the interests of the United States.
The State Department also heard from Mr. Harriman in Moscow that
“the Russians could not accept the explanation of a private printing company interfering with the program under consideration. The Russians asked that they be told whether the plates would or would not be made available to them. In the event the plates were not made available, they were prepared to proceed with the printing of their own variety of mark currency.” [14]
This threat had the desired effect.
When Senator Bridges asked Assistant Secretary Petersen at the closed hearing, “Who in the United States made the decision to turn over, to the Russians, United States engraved printing plates for producing currency?”, Petersen answered: “The record as I have seen it in the War Department indicates that the decision was made by the State and Treasury Departments…” [15]
The decision was made on April 14, 1944. It was recorded by James Clement Dunn of the State Department in the following memorandum of his conversation with Secretary Morgenthau. The paragraph next to last, referring to the difficulties raised by the Forbes Company, indicates that the Treasury Department was ready and willing to assume, under the President’s War Powers, the responsibility which the business firms would not undertake. Here is Mr. Dunn’s memo in full:
DEPARTMENT OF STATE
Memorandum of
TELEPHONE CONVERSATION
Date: April 14, 1944.
Subject: Duplicate plates to be furnished to the Soviet Government.Participants: Mr. Henry Morgenthau, Jr., Secretary of the treasury; Mr. Dunn,
Copies to: SEE – Mr. Bohlen.
Mr. Morgenthau telephoned me this morning to say that he was informing the Soviet Ambassador this afternoon that the duplicate plates for the printing of the Allied military mark to be used in the invasion of Germany would be furnished to the Soviet Government in response to that Government’s request. He asked whether the Department of State was in favor of this action.
I replied that it was the opinion of this Department from the political point of view, aside from any military considerations or any technical questions or difficulties, that if possible it was highly advisable to have the duplicate plates furnished to the Soviet Government in order that the three Governments and the three Armies entering Germany would be using the same identical currency.
The Soviet Government had informed us that if the plates were not furnished to it, that Government would proceed to produce a different currency for use in Germany. It was our opinion that it would be a pity to lose the great advantage of having one currency used by the three Armies, which itself would indicate a degree of solidarity which was much to be desired not only for the situation in Germany but for its effect on the relations in may other aspects between the Soviet, British, and United States Governments.
Mr. Morgenthau said he was very glad to have this expression of the Department’s views on this question as there might be some technical difficulties arise which would require the Treasury to take over, under the President’s War Powers, the plant which is now using the original plates for the production of these marks.
This question has been up between the United States and Soviet Governments since last November, and it has become perfectly clear to us as a result of the exchanges of correspondence on the subject that the Soviet Government is not ready to join in the common use of the same currency unless it receives the duplicate plates from us.
In order to convince the Soviet Government of our sincerity in the desire to have the closest collaboration in these military operations against Germany, it becomes essential that we make every effort within our possibility to furnish the plates to that Government.
JAMES CLEMENT DUNN. [16]
On the same day Secretary Morgenthau sent a memo to Soviet Ambassador Gromyko saying,
“There will be shipped from Washington on Tuesday, April 8, glass negatives and positives of all plates used for printing M-marks. The designs are in negative and positive forms since it is not known which is preferred by the Soviet Government.”
He ended by saying,
“The U.S. Treasury is desirous to cooperate with the Soviet Government in this matter in every possible way.” [17]
It was not until May 13 that the first shipment actually left the Washington airport. There was a comedy of errors on the second shipment, which was supposed to leave by plane at 6 A.M. on Tuesday, May 23. Mr. Hall reported to Mr. Bell as follows:
The material was loaded on the trucks yesterday, and a crew of men brought in to work at 5 A.M. today (May 23), and delivery was made to the Airport before 6 A.M…. I called Colonel Frank H. Collins (of the ATC) to ascertain whether the planes had left, and he informed me that the crews of the five planes were standing by waiting for the representatives of the (Soviet) Embassy. He further stated that the crews were becoming impatient as they wanted to land at Great Falls, Montana, before sundown. [18]
The trouble was that the Soviet Embassy had arranged for their couriers to board he planes on May 24! The five airplanes were therefore held overnight with “a guard in each plane, and a guard around the area where the planes were parked.”
They left early on Wednesday, May 24, after each courier arrived with an additional box weighing over 200 pounds. Colonel Collins said he “thought the extra boxes contained American canned goods and American liquor.” [19]
As for the third shipment, said Mr. Hall,
“it is now necessary to uncrate all of the material and rearrange the whole shipment. You will remember when we talked to the Ambassador (Gromyko), he insisted upon complying strictly with instructions he received from his government, and now that his government had reversed itself, we have to do the job all over again.This has been a pretty trying assignment for all associated with it.” [20]
Was there anything else that Russia could possibly ask from the Treasury? Yes, it could ask us to repeat one of the planeloads. That is exactly what Gromyko asked on June first, in a note to Morgenthau which stated briefly that “all the materials… perished in connection with a crash of the plane which carried them.” [21] Gromyko said absolutely nothing about when the crash occurred, or where.
Did we ask for proof of the crash, or direct any questions whatever to Gromyko about the alleged accident? On the contrary, Secretary Morgenthau promptly answered:
“I am pleased to inform you that the seven items representing replacement of the materials lost in the plane crash will be ready for shipment on Wednesday, June 7… I trust that this arrangement meets with your approval.” [22]
Why was Russia so insistent on printing German occupation currency without accountability? The answer is quite simple. They knew that the U.S. Army would convert such currency into dollars. (Russia, of course, refused to redeem the same currency with roubles.) As a result, every Russian-made mark that fell into the hands of an American soldier or accredited civilian became a potential charge against the Treasury of the United States.
Russia could pay its occupation army in marks, and in fact did so, adding a two-year bonus for good measure. If the Red Army could get anything out of the German economy with these marks, all well and good. If they could get anything out of America, even better.
In any event, these marks cost the Russian economy nothing whatever. With the materials provided from Washington, they took over a former Nazi printing plant in Leipzig, deep in the Russian zone, at a safe distance from American inspection, and started the presses rolling.
Any GI could buy a pack of cigarettes for 8 cents at a U.S. Army Post exchange. For this the Russian and German black-markets would offer him 100 marks from the Leipzig mint. To realize a profit of almost $10 on an 8-cent package of cigarettes, the American had only to take his 100 Leipzig marks to an Army Post Office, purchase a $10 money order and mail it to the United States.
It was revealed that the standard offer for a five-cent candy bar was 50 marks, or $5; $18 for one pound of Crisco; $20 for one K-ration; $25 for a pound of coffee, and $2,500 for a wrist watch costing $17.
By December 1946, the U.S. Military Government found itself $250,000,000 or more in the red. It had redeemed in dollars at least $2,500,000,000 marks in excess of the total marks issued b its Finance Office! The deficit could have had no other origin than the Russian plant in Leipzig.
Let us read once again the War Department’s testimony at the hearing in 1947:
Chairman Bridges: Was there any action taken by the War Department to restrict the number of notes issued by the Russians?Mr. Petersen: The answer of the War Department is “No.”
Chairman Bridges: And, as far as you know, was there any action taken by the State or the Treasury Department to restrict Russia in the number of notes she would issue?
Mr. Petersen: To my knowledge, none.
Chairman Bridges: My next question is, does Russia still have the plates, so far as you know?
Mr. Petersen: As far as I know, they still have the plates.
Chairman Bridges: And as far as you know, are they still printing the currency?
Mr. Petersen: As far as I know, they are still printing the currency.
Chairman Bridges: And has there been any protest from this Government endeavoring to stop them?
Mr. Petersen: There have been strenuous efforts from the Allied Control Council in Berlin to obtain an accounting from the Russians as to the amount of Allied military marks which they have issued. Those efforts have been unsuccessful. [23]
To everyone’s surprise, the Russians at one point agreed to submit quarterly statements of the volume of money they were putting into circulation. Their statements were so palpably rigged, however, that American officers called them “unbelievable.” In that case, smiled the Russians, it would be useless to make further reports.
It took 18 months before Russia’s siphon into the American Treasury was severed. The Army’s payroll in Germany was shifted from Allied marks to U.S. Military Certificates, which were non-convertible.
In addition to the $250,000,000, there was a further loss, which through small was mortifying. A charge of $18,102,84 was rendered to the Soviet Embassy, covering the expense of the engraving plates and the materials in the three 1944 deliveries. The bill was ignored and is still unpaid. The Russians, as Mr. Petersen indicated, still have the plates and undoubtedly a good deal of knowledge regarding U.S. currency manufacture techniques.
As for Harry Dexter White, his ascent was steady. Five months after the duplicate plates fiasco, there was a conference of the Secretaries of State, War and the Treasury at the Hopkins office in the White House. White read a prospectus for the doom of Germany: It’s people were to become a pastoral horde; their entire industrial plant would be removed or destroyed; all equipment was to be torn from the Ruhr mines, and it’s coal deposits would be “thoroughly wrecked.”
Secretary Stimson was struck with horror – an emotion which Secretary Hull shared. They learned with consternation two weeks afterward that the “Morgenthau Plan” had been initiated by President Roosevelt and Prime Minister Churchill at the Quebec Conference of Sept. 11, 1944. To Mr. Roosevelt’s face, Secretary Hull charged that Churchill’s signature was procured by Morgenthau with an offer of $6,500,000,000 of postwar Lend-Lease for Britain. [24]
From Assistant to the Secretary, Mr. White moved up to Assistant Secretary of the Treasury in 1945. During February 1946, he was appointed by President Truman, and confirmed by the Senate as U.S. Director of the International Monetary Fund, with a tax exemption salary of $17,500.
The name of Harry White became so important in the record of the Senate committee that finally Senator Bridges suggested calling him as a witness. But White was absent from the capital on vacation. It was announced that Morgenthau and White would be placed on the stand at a future section, but this was never called.
Mr. White submitted his resignation from the International Monetary Fund on June 19, 1947, the day after the committee recessed. When the economist was put on oath the following year, he denounced the Chambers accusations as “unqualifiedly false.” He was not and never had been a Communist, White affirmed, and had committed no disloyal act. But two weeks later his funeral was held at Temple Israel in Boston: he had died of a heart attack.
In November of that year Whittaker Chambers produced five rolls of microfilmed documents. Among them were eight pages of script divulging U.S. military secrets. Found in possession of an acknowledged Communist courier, the handwriting was identified as that of Harry Dexter White.
SOURCES
CHAPTER TWELVE
How Russia Got U.S. Money Plates
1. Occupation Currency Transactions Hearings before the Committee on Appropriations, Armed Services and Banking and Currency, U.S. Senate, (U.S. Government Printing Office, 1947), p. 27.
2. Ibid., p. 27.
3. Ibid., p. 8.
4. Ibid., p. 147.
5. Ibid., p. 147.
6. Ibid., p. 148.
7. Ibid., p. 150.
8. Ibid., p. 178.
9. Ibid., pp. 175-176.
10. Witness, Whittaker Chambers, (Random House, 1952), p. 427.
11. Occupation Currency Transactions Hearings, p. 178.
12. Ibid., pp. 178-179.
13. Ibid., p. 183.
14. Ibid., p. 151.
15. Ibid., p. 16-17.
16. Ibid., p. 152-53.
17. Ibid., p. 186.
18. Ibid., pp. 206-7.
19. Ibid., p. 208.
20. Ibid., p. 207.
21. Ibid., p. 208.
22. Ibid., p. 211.
23. Ibid., p. 27.
24. The Memoirs of Cordell Hull, (Macmillan, 1948), Vol. II, pp. 1613-18.