Carroll Quigley - Tragedy and Hope - A History of the World in Our Time

In a farsighted message from London in August 1944, Ambassador John Winant warned that lack of an agreed reparations policy would inevitably lead to a breakdown of joint Allied control of Germany and to a struggle with Russia for control of Germany. These wise words were ignored, and President Roosevelt, to stop the bickering, postponed all decisions. Secretary of the Treasury Morgenthau took advantage of this lacuna and of his close personal friendship with Roosevelt to push forward his own pet scheme to reduce Germany to a purely agricultural state by almost total destruction of her industry, the millions of surplus population to be, if necessary, deported to Africa! The secretary, supported by his assistant secretary, Harry Dexter White, was deeply disturbed by Germany’s history of aggression and by her efforts to annihilate other “races,” and was fairly certain that an American relapse into isolationism would make it possible for Germany to try again. The only way to prevent such an attempt, he felt, was to reduce Germany’s industry, and thus her warmaking capacity, as close to nothing as possible. The resulting chaos, inflation, and misery would be but slight repayment for the horrors Germany had inflicted on others over many years.

By personal influence Morgenthau obtained acceptance of a somewhat modified version of this plan by both Roosevelt and Churchill at the Quebec Conference of September 1944. There is little doubt that Churchill’s approval had been won by his scientific adviser, Lord Cherwell, who had personal animosities against Germany and had been the chief civilian advocate of indiscriminate bombing of German cities.

The error at Quebec was quickly repudiated, but no real planning was done, and the Morgenthau Plan played a considerable role in JCS 1067, the directive set up to guide the American military occupation of Germany. In the same context the vague and unsettled reparations discussions at Yalta proposed that reparations of $20,000 million, of which half to go to Russia, be obtained by the dismantling of German industry. The JCS 1067 directive ordered that Germany be treated as a defeated enemy and not as a liberated country, with the chief objective that of preventing future German aggression; no steps were to be taken to secure its economic recovery. At the Potsdam Conference it was agreed that the German economy should not be permitted to recover higher than a level which would sustain the occupation forces and displaced refugee persons, with standards of living for the German people themselves no higher than the average standards of living of other European countries. This rather ambiguous level was subsequently defined as equal to the German standard of living of 1932, at the bottom of the depression, the level, in fact, which had brought Hitler to power in January 1933.

It took more than two years of misery for Germany and frustrating relations with the Soviet occupation forces to secure any change in these American objectives. During these two years, lack of equipment, of fertilizers, and of encouragement to enterprise made German economic and social conditions worsen until the end of 1947. Much of the country was still in ruins, housing was lacking, production of food and coal were in almost total collapse, unemployment was very high, inflation was rampant, crime (especially from bands of displaced persons, ex-Nazis, and juvenile delinquents) was widespread, and the black market, using cigarettes as a monetary standard, was flourishing. Hunger and cold in the winter took a considerable toll, and the Germans, for two years, experienced some of the misery they had inflicted on others in the preceding dozen or more years.

Without a revival of industry, which ‘was hampered by disarmament, reparations, and war damage, it was impossible to resume the two vital necessities of recovery, increased mining of coal and export of industrial products to pay for food imports. By the end of 1947, the Americans and British were thoroughly tired of paying astronomical sums each year to keep food flowing to western Germany. All efforts to make an economic reunion with eastern Germany failed because of Soviet insistence that such a reestablishment of interchange of food for industrial products between the two halves of Germany must be tied in with recognition of renewed Soviet claims for $10 billion in reparation payments to be taken from current production, two points which had been unsettled by the wartime agreements.

To revive German industry so that it could pay for imports of food, the Anglo-Americans devised a reform of the German currency. The Soviet government objected violently to this, because it might work but also because it would inevitably bind West Germany economically to the West: if the products of a revived West German industry could not be exchanged for eastern European food, they would have to be exchanged for food and raw materials from the West.

The German currency reform of 1948 is the fiscal miracle of the postwar world. From it came (1) an explosion of industrial expansion and economic prosperity for West Germany; (2) the tying of the West German economy to the West; (3) an example and model for other western European countries (and for Japan) in economic expansion; and (4) a wave of prosperity for western Europe as a whole which continued year after year and refuted completely the claims of Communists (or even Socialists) and, to a lesser extent, the claims of American businessmen that they held the sole key to prosperity. The reform, which went into effect on June 1, 1948, drastically reduced the volume of money in western Germany by exchanging new Deutschemarks for the current Reichsmarks on a one-to-one basis for the first 60 but on a 6.5-to-100 basis for all over 60. The new marks were blocked in banking accounts in complicated ways which encouraged their use for production.

The Soviet Union used the monetary reform in West Germany as an excuse for its blockade of Berlin which lasted in extreme form from June 24, 1948, to May 12, 1949 (although it had begun, on a partial basis, on March 31st). It began in an atmosphere of rapidly rising East-West tension. In December 1947, the King of Romania was forced into abdication and exile. Shortly after the new year, the SED in East Germany was purged of any leaders likely to show independence toward Stalin. The Czech takeover in February 1948 was preceded by Soviet invitations to Bulgaria, Romania, Hungary, and Finland to sign military alliances with Russia. All did so, but the Finnish delegates (in February) flatly refused Stalin’s demand that the Soviet have the right to move troops into Finland on its own decision. In Italy, on April 18, 1948, desperate Communist efforts to get a strong foothold in the Italian government were defeated in the first general elections under the new Republic an constitution. This election marks the turning point in postwar Italian history just as the simultaneous Berlin crisis and monetary reform mark the turning point in postwar German history. The Communists had participated in all three of Italy’s postwar governments, under the Christian Democrat Prime Minister Alcide De Gasperi, but went into opposition in his fourth government, set up on May 31, 1947 (as they did in all countries of western Europe about the same time). The new constitution of January 1, 1948, required a new election during which the fate of newly democratic Italy hung in the balance. The results were a great defeat for the Communists, who obtained only 182 seats in their Popular Front alliance with the Left-wing Socialists, compared to 307 Christian Democrat members in the Assembly of 570 seats.

The Soviet decision to push the Western Powers out of their occupation sectors in western Berlin was part of this general Soviet movement. It was accompanied by claims that the whole city was an integral part of the Soviet occupation zone of eastern Germany and that the Western Powers were present there only on sufferance. To this the Western Powers answered that their presence in Berlin was on exactly the same basis as that of the Russians—the right of conquest. The Kremlin at no time admitted that it was establishing a blockade or that its aim was to eject the Western Powers. Its aims, rather, were to close access to smugglers, criminals, and eventually to the new “illegal” marks introduced by the monetary reform.