Morgenthau believed in balanced budgets, stable currency, reduction of the national debt, and the need for more private investment. The Wagner Act regarding labor unions met Morgenthau’s requirement because it strengthened the party’s political base and involved no new spending. Morgenthau accepted Roosevelt’s double budget as legitimate–that is a balanced regular budget, and an “emergency” budget for agencies, like the Works Progress Administration (WPA), Public Works Administration (PWA) and Civilian Conservation Corps (CCC), that would be temporary until full recovery was at hand. He fought against the veterans’ bonus until Congress finally overrode Roosevelt’s veto and gave out $2.2 billion in 1936. His biggest success was the new Social Security program; he managed to reverse the proposals to fund it from general revenue and insisted it be funded by new taxes on employees. Morgenthau insisted on excluding farm workers and domestic servants from Social Security because workers outside industry would not be paying their way.
In the aftermath of World War Two, some have wondered what the main cause for the creation of the WRB was, and whether it was the actions of Treasury, or the resolution in Congress that led to its creation. Those who claim that the congressional resolution was the decisive factor assert that Roosevelt feared a confrontation with Congress over this issue. However, there is no evidence that such was Roosevelt's reasoning. In truth, there are many indications that Congress in those years was both anti-refugee and passive to the plight of European Jewry. Others suggest, thus, that Roosevelt's primary motivation must have come from the Treasury Department's prompting.
In 1944, Morgenthau proposed the Morgenthau Plan for postwar Germany, calling for Germany to be dismembered, partitioned into separate independent states, stripped of all heavy industry and forced to return to an agrarian economy. The Morgenthau plan is by some thought to have been devised by Morganthau's deputy, Harry Dexter White. At the Second Quebec Conference on September 16 1944 U.S. President Franklin D. Roosevelt and Morgenthau persuaded the initially very reluctant British Prime Minister Winston Churchill to agree to the plan, likely using a $6 billion Lend Lease agreement to do so. Churchill chose however to narrow the scope of Morgenthau's proposal by drafting a new version of the memorandum, which ended up being the version signed by the two statesmen. The gist of the signed memorandum was "This programme for eliminating the war-making industries in the Ruhr and in the Saar is looking forward to converting Germany into a country primarily agricultural and pastoral in its character."
The plan faced opposition in Roosevelt's cabinet, primarily from Henry L. Stimson (see also his memorandum), and the leakage of the plan to the press resulted in public criticism of Roosevelt. The President's response to press inquiries was to deny the press reports. As a consequence of the leak Morgenthau was in bad favor with the President for a time.
German Propaganda Minister Joseph Goebbels used the leaked plan, with some success, to encourage the German people to persevere in their war efforts so that their country would not be turned into a "potato field". (See also this OSS report) General George Marshall complained to Morgenthau that German resistance had strengthened. Hoping to get Morgenthau to relent on his plan for Germany, President Roosevelt's son-in-law, Lt. Colonel John Boettiger, who worked in the United States War Department, explained to Morgenthau how the American troops that had had to fight for five weeks against fierce German resistance to capture the city of Aachen and complained to him that the Morgenthau Plan was "worth thirty divisions to the Germans." Morgenthau refused to relent.
On May 10, 1945 Truman signed the U.S. occupation directive JCS 1067. Morgenthau told his staff that it was a big day for the Treasury, and that he hoped that "someone doesn't recognize it as the Morgenthau Plan. The directive, which was in effect for over two years directed the U.S. forces of occupation to "…take no steps looking toward the economic rehabilitation of Germany".
In occupied Germany Morgenthau left a direct legacy through what in OMGUS commonly were called "Morgenthau boys". These were US Treasury officials whom General Dwight D. Eisenhower had "loaned" in to the Army of occupation. These people ensured that JCS 1067 was interpreted as strictly as possible. They were most active in the first crucial months of the occupation, but continued their activities for almost two years following the resignation of Morgenthau in mid 1945 and some time later also of their leader Colonel Bernard Bernstein, who was "the repository of the Morgenthau spirit in the army of occupation". They resigned when in July 1947 JCS 1067 was replaced by JCS 1779 which instead stressed that "An orderly, prosperous Europe requires the economic contributions of a stable and productive Germany."
Morgenthau's legacy was also seen in the plans for preserving German disarmament by significantly reducing German economic might. (see also The industrial plans for Germany)
In October 1945 Morgenthau published a book in which he described and motivated the Morgenthau plan in great detail. FDR had granted permission for the book the evening before his death, when dining with Morgenthau at Warm Springs. Morgenthau had asked Churchill for permission to also include the text of the then still secret "pastoralization" memorandum signed by Churchill and FDR at Quebec but permission was denied. In November 1945 General Dwight D. Eisenhower, the Military Governor of the U.S. Occupation Zone, approved the distribution of 1000 free copies of the book to American military officials in occupied Germany. Historian Stephen Ambrose draws the conclusion that, despite Eisenhower's later claims that the act was not an endorsement of the Morgenthau plan, Eisenhower both approved of the plan and had previously given Morgenthau at least some of his ideas on how Germany should be treated.
Following his resignation, and in company of other prominent individuals such as the former first lady Eleanor Roosevelt, Morgenthau remained for several years an active member of the campaign group for a harsh peace for Germany.
Morgenthau died in Poughkeepsie, New York, in 1967.
The United States Coast Guard Cutter Morgenthau is named in his honor.