FISCAL: Funny Money

The plan, as explained by Treasury Secretary Henry Morgenthau Jr. back in 1943, was childishly simple. The British and American armies needed currency when they invaded Europe. So the Treasury had agreed to print invasion lire for use in Italy, invasion marks for Germany. The real beauty of the plan, in Morgenthau’s view, was that the U.S. would have to redeem only the currency the Army used to pay soldiers. The Italians and Germans would be stuck with currency spent for food, supplies, etc.; redemption would be part of their reparations.

But last week, as three Senate committees began a combined probe into the fantastic finance of invasion currency, they were shocked to discover how the plans had miscarried. In the words of New Hampshire’s Senator Styles Bridges, Morgenthau and Army and Cabinet co-planners had been so “naive, gullible or stupid” that the U.S. had been stuck for the whopping sum of $250 million in invasion marks.

Bundles for G.l.s. Just how the blunder had occurred was explained chiefly by Assistant Secretary of War Howard C. Petersen. The marks for the U.S. and Britain were printed in Washington. The U.S. also offered to print marks for Russia.

Of course, the Russians refused; they wanted to print their own. They demanded the printers’ plates. Morgenthau, with the approval of the Department of State and apparently of President Roosevelt, turned the plates over just before V-E day. The Russians ran off an estimated ten billion marks ($1 billion) and paid off their troops, who had waited a long time for payday. The Russians were smarter than Mr. Morgenthau; they specified that printing-press marks were spendable only in Germany, could not be turned in for rubles.

Then the Russian soldiers began to spend. They bought everything G.I.s would sell—watches, pens, cigarets. Generals were not above stripping off their watches for a handful of invasion marks. The U.S. soldiers cashed in these marks at the nearest Army finance office, got dollars, and usually sent the cash home by money order.

Trouble for the Army. The Russian-printed marks were distinguishable by a dash in front of the serial number. The Army took no note of it. It cashed in unlimited quantities of invasion marks till November 1945 when it limited the amount convertible to dollars to the amount of the soldiers’ pay. In September 1946 it stopped converting marks entirely. By then the Army had on hand $250 million in invasion marks more than it had issued. What was worse, it had no appropriations to cover what it had put out. As far as the U.S. now knows, the Russians are still printing the marks.

Once the Army realized its fiscal blunder, it went to work to rectify it by fobbing off the marks on soldiers and occupation personnel in Germany. For all goods and services supplied by Germans, such as telephones, railroad tickets, furniture, etc., the Army paid them from its hoard of marks. But for the use of these services, the Army charged soldiers and occupation personnel in occupation script, a strictly controlled U.S. currency. In effect, the Army was getting dollars for the marks it was giving the Germans. Even charitable funds sent to Germany were converted into marks before being paid out. Soldiers and Army civilians griped that “German reparations payments were being paid out of our pockets.”

Loans from the U.S.? Nevertheless, the Army was able to get rid of some $150 million in marks. It still has $100 million which Petersen guessed would be liquidated in another 18 months. Then, he said, everything would be all right.

But no one thought that this would close the books. With one hand the U.S. has been spending millions for food and materials to keep Germany going. With the other, its monetary fumbling has resulted in debasing German currency at such a rate that the whole monetary system is ready to collapse. The U.S. had given the Italians $205 million to repay them for the invasion lire which it pumped into their economy and for lire purchased from them. In Germany, where the amount of invasion currency put out was upwards of six times greater, due mainly to the Russians, the U.S. may find it will have to pay out much more.