Foreign Relations of the United States, Diplomatic Papers, 1944, General, Volume I

862.50/8–2444

The Secretary of State to the Secretary of War (Stimson)

Washington, August 24, 1944.

My Dear Mr. Secretary: There is enclosed a memorandum entitled “General Objectives of United States Economic Policy with Respect to Germany”. This document was presented by the Department to the Executive Committee on Economic Foreign Policy and on August 4 received the approval of that organization. As you know, the Executive Committee was established by the President and consists of representatives of the Department of State, the Department of the Treasury, the Department of Agriculture, the Department of Commerce, the Department of Labor, the United States Tariff Commission, and the Foreign Economic Administration. Assistant Secretary of State Acheson acts as Chairman. In the President’s letter to me it was stated, “The function of the Executive Committee on Economic Foreign Policy will be to examine problems and developments affecting the economic foreign policy of the United States and to formulate recommendations in regard thereto for the consideration of the Secretary of State, and, in appropriate cases, of the President”.²⁸

I am anxious to submit to the President as soon as possible a document on the long-range objectives of the United States with respect to the economic policy towards Germany for the reason that many subsidiary issues now require decision and studies can proceed only to a certain point without clear guidance as to our basic policy. For example, a report on Reparations, Restitution and Property Rights with Respect to Germany has also been approved by the Executive Committee on Economic Foreign Policy. It is naturally supplemental to the long-range objectives document and as such conforms with the latter. A copy of the summary of the Report on Reparations is also enclosed. Before submitting these documents to the President I would appreciate having the views of the War Department. A similar letter is being addressed to the Secretary of the Navy.²⁹

In view of the importance of this matter and of indications that differences of opinion within the military exist on this subject, I believe it would be desirable if Mr. Acheson could discuss this matter informally with the appropriate officer in your Department.

In conclusion, may I emphasize the urgency of the matter. With the war progressing so favorably it is necessary for this Government to formulate a policy with respect to the economic treatment of Germany. Moreover, it is hoped that informal technical discussions in respect to reparations with representatives of the United Kingdom and the Soviet Union will be undertaken within the next three or four weeks.

Very truly yours,

Cordell Hull

[Enclosure 1]³⁰

Memorandum by the Executive Committee on Foreign Economic Policy³¹

ECEFP D–36/44

[Washington,] August 14, 1944.

Germany: General Objectives of United States Economic Policy With Respect to Germany

United States economic policy with respect to Germany envisages the reservation of far-reaching rights of control over the German economy after surrender. It is to be anticipated that the declarations, ordinances and orders to be issued by the occupation authorities will have been agreed upon by the British, Soviet and American Governments and will deal with the control of every important field of German economic life. Irrespective of the final form which these documents will take, the three Governments will, therefore, have final responsibility for determining the basic economic policies that are to prevail in Germany during the occupation period.

Whether the control period proves to be long or short, and whether detailed administrative responsibility is assumed by officers of military government or by German administrators operating under directives of the occupation authorities, these policies should be consistent with and contribute to the achievement of explicitly stated over-all objectives directed toward the final goal of world peace and security. Some of these objectives will be of paramount importance immediately upon surrender. Some are of long-run character, affecting not only Germany’s future position in the world economy, but also the peace and security of all the United Nations.

It is, therefore, imperative to formulate promptly the broad objectives of American policy with respect to Germany. Such a formulation cannot prejudge decisions still to be taken with regard to the form, extent and duration of United Nations control of Germany. These decisions, however, should in so far as possible be made within a general frame of reference.

The following statement of the guiding lines of American economic policy with respect to Germany is intended to provide such a frame of reference. It is not intended to sketch in detail, or to take the place of, more specific directives which will be formulated later in each major field of action.

i. the relation between american economic policy with respect to germany and the maintenance of peace and security

The basic long-term interest of the United States is peace. Consequently, so far as Germany is concerned, the basic objective of the United States is to see that that country does not again disturb the peace.

Security against a renewal of German aggression must for the most part be achieved by means other than economic controls. Economic measures do not, and cannot by their nature, provide a substitute for the general international organization for the maintenance of international peace and security, and for other measures of security, to which the United States and its principal allies are pledged by the Moscow Declarations of October 1943.³² American economic policies with respect to Germany, as set forth below, are intended not to take the place of but to buttress the instrumentalities which will have primary responsibility for maintaining peace and security by helping to create conditions in the economic sphere which will remove the danger of future aggression on the part of Germany. On the one hand, they are intended to provide necessary safeguards against resumption by Germany of its pre-war policies of economic preparation for war. On the other hand, they are intended to create conditions under which Germany will contribute to the reconstruction of Europe and the development of a peaceful and expanding world economy in the benefits of which Germany can hope, in due course, to share.

A corollary of the foregoing is that to establish enduring controls over the German economy for punitive purposes or in the search for security would be contrary to the objectives of American policy. In the immediate future—not necessarily confined to the occupation period—there will be occasion for the imposition of special economic restrictions and controls on Germany (as well as on certain other ex-enemy states). An indefinitely continued coercion of more than sixty million technically advanced people, however, would at best be an expensive undertaking and would afford the world little sense of real security. More important still, there exists no convincing reason to anticipate that the victor powers would be willing and able indefinitely to apply coercion. For the longer run, therefore, only those economic measures should be envisaged which are a part of general arrangements for collective security and which could be applied to each and every major power whose actions were deemed to constitute a threat to the maintenance of peace and security.

ii. general objectives and methods

Within this framework, the over-all economic policy of the United States with respect to Germany is directed to the achievement of the following four major objectives:

1. The performance by Germany of acts of restitution and reparation required by the United Nations.

2. The control of Germany’s economic war potential, by the conversion of German economic capacity directed to war purposes, and by rendering vulnerable to outside control the reconversion of Germany into a war economy able to launch and sustain a war of aggression.

3. The elimination of German economic domination in Europe, which Germany achieved by the systematic exploitation of the so-called “New Order” in Europe and by a series of other practices.

4. The effectuation in due time of a fundamental change in the organization and conduct of German economic life which will integrate Germany into the type of world economy envisaged by the Atlantic Charter.³³

In seeking to attain these objectives, the directives of this Government dealing with the major aspects of economic policy with respect to Germany will be designed to provide the framework of a single self-consistent policy. Since, however, a major task confronting the United States and other United Nations at war with Japan after the surrender of Germany will be to achieve the defeat and unconditional surrender of Japan, the development and implementation of economic policy with respect to Germany will, whenever and to the extent that it proves inconsistent with the most effective prosecution of the war against Japan, be subordinated to the achievement of that primary objective.

It is not the policy of this Government that the controls over the German economy established by the occupation authorities should be used solely to force compliance with United Nations demands during the occupation period. The economic policy of this Government with respect to Germany as a whole looks to the future, and the work of the occupation authorities should be so directed as to open up new possibilities for an improvement of the organization of the European economy as a whole and the development of comprehensive international institutions in the economic field. This Government therefore includes among the general objectives of its economic policy with respect to Germany the desire to shape the interim control mechanisms so as to lay the technical groundwork for, or preserve the possibility of, improved international economic cooperation. It is anxious to facilitate the adaptation of these mechanisms to, and their utilization in, any general international functional organizations or controls that may be developed such, for example, as organizations designed to promote unification of European transport, power and communication facilities, to provide for the prohibition, regulation or control of enduring international agreements of a restrictive character between private firms, or to establish a general system of armaments regulation.

iii. reconstitution or maintenance of a minimum german economy

The objectives just stated cannot be achieved unless the German economy is maintained at, or, if necessary, restored to at least a predetermined minimum level of effectiveness. The state of the German economy at the time of surrender and the attitude of the German people thereafter will have a decisive bearing on the nature and extent of the economic controls and measures which the occupation authorities will be able initially to put in force. Under the most favorable circumstances, economic disruption will be great. It is even possible that a more or less complete economic collapse will occur either before or after surrender. Such a collapse would delay or impair the effective operation of the economic controls proposed below. At least a minimum degree of operating effectiveness in the German economy is especially important not only to facilitate the achievement of the major long-run objectives stated above, but also

1. to facilitate an orderly demobilization and absorption of the German armed forces into peace-time occupations;

2. to facilitate the orderly return of Allied prisoners of war, foreign workers and other displaced persons to their countries of origin or choice;

3. to ensure the maintenance and safeguarding of property in Germany and elsewhere under German control, in which the United Nations, for any reason, have an interest;

4. to make possible prompt German contributions to the relief and rehabilitation of other countries;

5. to enforce, as far as possible, the economic rehabilitation of minority groups within Germany which have been systematically despoiled;

6. to make possible the early beginning of a program of restitution and reparation by Germany to other countries;

7. to facilitate the administration of the entire German inland transport, communication and power systems in the interests of the European economy as a whole;

8. to guarantee the prompt reorientation of forces and resources, after the defeat of Germany, from Europe to the Pacific for the defeat of Japan.

It is therefore essential that the occupation authorities should formulate and be in a position to enforce a series of economic and financial policies in Germany adequate to maintain or reconstitute a minimum German economy promptly. For this purpose Germany should be required initially to retain and place at the orders of the occupation authorities the administrative machinery charged with economic responsibility which may be in existence at the time of surrender. It is, further, essential to orderly reconversion to post-war production that preliminary programs be developed in advance of the military collapse of Germany for reparation deliveries to meet the immediate needs of claimant countries.

A primary responsibility of the occupation authorities will be to carry out as soon as possible a reorganization of this machinery so as to eliminate Nazi Party influence and organization completely from the direction of German economic life. The formal dissolution of the Nazi Party and the elimination of active Nazis from policy-making positions will be only the beginning of this process. Purely party organizations exercising economic control functions should be destroyed, and the occupation authorities should, whenever possible, utilize the basic governmental administrative structure. When and if considerations of military necessity and the immediate requirements of maintaining a functioning economy permit, they should begin to eliminate from the German economic control system those features which are inconsistent with the fundamental aim of adjusting Germany’s international economic relations to the requirements of an integrated world economic system. It may be necessary at first, however, to utilize existing agencies of control, or those which can be restored to effective operation, having regard only to their capacity to hold the economy together.

iv. restitution and reparation

With regard to restitution, the major policy of this government is to require the return of identifiable stolen property to the governments of the former owners, and the relinquishment of German rights, claims, and controls over property in occupied countries obtained by duress or fraud.

The overriding principle with regard to reparation is that reparation policy should conform to the long-range objectives of this government respecting Germany and the world at large. Reparation cannot be regarded as a major means of accomplishing these objectives, but the effects of an unwise reparation settlement may go far toward defeating them. The reparation program must be designed so as to make the maximum contribution to the rehabilitation of the countries injured by German aggression, while at the same time avoiding or minimizing possible harm in other directions.

The main elements of a constructive reparation program are as follows:^*

1. The time period should be short (preferably five years but in no event more than ten) in order not to delay unduly a return to normal world trade and finance, and not to prejudice the establishment and maintenance of democratic government in Germany.

2. The reparation obligation should be heavy (though not crushing), for only in this way can Germany make a substantial contribution to the reconstruction of Europe in a short period of years.

3. Reparation should be predominantly, though not exclusively, payable in kind, i.e. in the form of scheduled deliveries of goods and services to the claimant countries. This will avoid the anomalous situation wherein countries are unwilling to accept the reparation which they demand, and the exchange disturbances which arise therefrom. Deliveries should not be restricted to a few categories of goods but should include any which Germany is fitted to produce and which may be needed for the reconstruction and rehabilitation of the claimant countries.

4. There should be no extensive rebuilding of German plant and equipment for the purpose of maximizing reparation deliveries. The potential loss involved in such a policy will be outweighed by the relative industrial strengthening of Germany’s neighbors vis-à-vis Germany.

Execution of this program will require the establishment of an interim operating machinery and organization, integrated to the Allied control authority, which will quickly initiate reparation and restitution transfers while the terms of a final reparation settlement are being developed.

v. control of german economic war potential

It is the intention of this Government to pursue a policy with regard to German economic war potential which will reinforce and supplement the measures of strictly military disarmament which will be taken by the Allies after the unconditional surrender of Germany and which at the same time will be consistent with the major long-run economic objectives of the United States.

It is to be recognized that the pattern of the post-war German economy, and the steps to be taken in shaping it during the control period, will be influenced not only by policies relating to the German economic war potential, but also by policies relating to the reestablishment or maintenance of at least a minimum German economy in the control period, by policies relating to reparation and restitution, and by policies relating to the ultimate integration of Germany into a world economy. This section, which deals with the control of the German economic war potential, must therefore be read in connection with the other related sections of this paper.

Since a multitude of industries contribute to a country’s economic war potential, the destruction, dismantling or conversion of plants producing arms, ammunition, or implements of war will eliminate only one aspect of this economic war potential. These military measures will be buttressed by strengthening the economies of Germany’s neighbors under the program for restitution and reparation, and to eliminate those high-cost industries and agricultural activities which had been established in Germany to make it self-sufficient in terms of the requirements of a war economy.

The leading principles of the policy of control of economic war potential, which are to be implemented during the control period, are:

1. The control of imports of materials useful in the manufacture of armaments and the regulation of German inventories of such materials.

2. The conversion rather than the dismantling of industrial plants now serving the war effort of Germany but capable of contributing to the revival of a peace economy in Germany and to the reconstruction of Europe, without prejudice, however, to such dismantling and destruction of plants and facilities used in the production of war materials as the three Governments may agree to be necessary for the effective disarmament of Germany.

One class which might be presumptively earmarked for destruction or dismantlement would be those facilities whose location reflected a military purpose—e.g., underground plants and storage facilities, or facilities uneconomically located with respect to raw materials, labor, markets, etc., for strategic reasons.

The general policy does not envisage indiscriminate demolition or dismantlement of German industrial capacity. The emphasis is upon conversion to peacetime usefulness, rather than upon destruction. It is to the long-range interest of the United States that Germany be prosperous, but that, at the same time, the German economy should not again be directed to war-like purposes. To this end Germany should be forbidden the manufacture of arms, ammunition and implements of war and of other materials directly and exclusively (or for the most part) useful for war purposes. The latter category is most difficult, if not impossible, of definition in general terms and will have to be decided case by case. Germany will, however, be faced with a vast problem of reconversion and in industries where there is excess capacity from the standpoint of sound development of the German economy, it would be desirable from the psychological as well as the economic point of view, to select for scrapping, other things being equal, those plants which have been most directly related to the production of war material.

The maintenance or development in Germany, by trade barriers, direct subsidy or otherwise, of economically unsound productive capacity convertible to war purposes would also be contrary to the long-range interest of the United States. Here again precision of definition of general categories is difficult. Much will depend on technological progress and on the commercial policies not only of Germany but also of the countries which constitute Germany’s sources of supply and markets. Given, however, progress toward a reasonably liberal commercial policy and international monetary arrangements, there would appear to be no justification, other than strategic, in the present state of technology, for the maintenance of synthetic petroleum industries in Germany and their dismantlement or conversion would presumably be indicated by the criteria set forth above. Decision in each instance, however, should be made upon the basis of investigation which proves that these synthetic processes are in fact high-cost ways of producing these commodities.

3. The removal of certain plants to other countries, consistently with the recommendations on reparations.

4. The elimination of those forms of industrial and commercial organization within Germany which have been and might again become a threat to peace and security.

It is to the interest of the United States that Germany should not be permitted to use foreign trade or commercial relations as an instrument of nationalistic policy as it did in the past, particularly in the thirties in southeastern Europe and in Latin America.

In the interest of eliminating the social and economic bases of recurrent militarism, it is recommended that this Government approve a program for destroying the privileged positions of the Junker estate owners and of the great financial and industrial monopolies. The problem of the Junkers can be solved in large part by breaking up the large landed estates; the problem of financial and industrial monopoly could be met in part through disestablishing the top financial structures of the great industrial combines and redistributing the ownership of constituent operating companies, and in part through some effective form of public control exercised through a democratic regime. Moreover, this Government should oppose the development of new forms of industrial combinations, whether on a German or international basis, which could contribute to renewed German economic and political aggression in Europe.

It is further the policy of this Government 1) to ensure the control of German inland transport, power and communication facilities during the period of military and civil administration by the occupying powers, and their administration in the interests of Europe as a whole and 2) to require the surrender of German shipping to be used as needed in the economic interests of Europe as a whole or to further the war effort against Japan. This position does not involve any commitment to maintain these controls as permanent measures for the economic disarmament of Germany and is taken without prejudice to the ultimate disposal of these facilities.

vi. integration of germany into the world economy and the elimination of german economic domination in europe

A major objective of this Government with regard to Germany is that the latter must in due course be given the opportunity of finding a permanent place in the world economy, and of making a peaceful and constructive contribution to the development of the community of free nations envisaged by the Atlantic Charter. On the other hand, it is vital to prevent Germany from again becoming a primary focus of restrictive trade and financial practices. German economic self-sufficiency for war must be replaced by an economy which can be integrated into an inter-dependent world economy.

The achievement of these objectives will require that as quickly as possible Nazi principles be eliminated from German trade, industry, and finance, and that independent trade unions, cooperatives and similar forms of free economic association be restored. The longer range elements in the program which this Government considers to be essential to achieve the integration of Germany into the world economy and which should be instituted as soon as this may be done consistently with the reparation and short-range objectives outlined above, include, but are not necessarily limited to, the following:

1. The exposure of high-cost industries artificially created for self-sufficiency reasons to the pressure of world competition;

2. the persistent but orderly reduction of agricultural protection in the shortest possible period;

3. the elimination of discriminatory trade practices, bilateralism, and multiple currency devices;

4. the organization and administration of German business and other economic institutions in consonance with such international policies and institutions as may be established for the world economy as a whole, with particular reference to international cartels and combines;

5. full employment of manpower and resources in the production of those commodities and services of a non-military character for which the German economy is well adapted.

This Government regards the carrying out of such a program as essential for the success of its general economic policies, and also attaches great importance to it as a contribution to international security, because it will tend to 1) prevent Germany from again carrying on trade as a branch of war, 2) increase the vulnerability of Germany to economic sanctions, 3) remove some of the most formidable obstacles to the relaxation of trade barriers and 4) eventually make possible the rising standard of living necessary to reconcile the German people, under new leadership, to the peace settlement.

It is recognized that the accomplishment of the foregoing long-range objectives will require that Germany be afforded opportunity for developing adequate export markets and will also require the maintenance of policies and institutions, by other countries as well as Germany, which will permit the proceeds of German exports to be realized in internationally convertible currencies. It follows therefore that the full realization of such a program is dependent not only on acts by Germany but also on progress toward the general achievement internationally of the objectives of the Atlantic Charter and of Article VII of the Mutual Aid Agreements. The long-range integration of Germany into a world economy of this type cannot be wholly achieved unless other major countries are also pursuing compatible economic policies for the maximum reduction of the economic significance of frontiers and the development of agencies of international collaboration. It is to the interest of the United States that Germany eventually should participate fully in such international economic organizations and agencies and that the German people be allowed to determine the nature of their economic system, subject to the requirements outlined in this and the foregoing sections, and to the development of democratic institutions in Germany.

It is further recognized that immediate post-hostilities problems may require the temporary pursuit of policies inconsistent with some of the long-range objectives. The immediate need for foodstuffs, for example, may require continuation of measures for the support of agricultural prices and the maintenance of production, even though this production may be of a character which in the long run should be discouraged by the reduction of agricultural protection. The need for the maintenance of industrial production for urgent civilian needs, for reparation, for reconstruction, and possibly even for the prosecution of the war against Japan may similarly condition the treatment of German industry. The need for assuring the minimum import requirements of Germany may, during the early occupation period, require ad hoc trade and payment arrangements not fully compatible with a multilateral system, freedom from quotas, etc. It is nevertheless of importance that the long-range objectives be clearly formulated and clearly kept in view, that transitional expedients of a different character be adopted only after a balancing of emergency need and of long-range policy, and that where such transitional arrangements are adopted they be kept under continuing scrutiny with a view to abolishing them or tapering them off at the earliest practicable moment.

[Enclosure 2]³⁴

Memorandum by the Executive Committee on Foreign Economic Policy³⁵

ECEFP D–37/44

[Washington,] August 12, 1944.

Summary: Report on Reparation, Restitution, and Property Rights—Germany

i. interest of the united states in german reparation

The problem of German reparation is immediately related to the broader question of a general peace settlement, through which the United Nations hope to attain certain political, economic, and security objectives. While not in itself a major means of achieving these objectives, a reparation program can, depending upon its nature, greatly help or hinder their attainment. This Government has approached the problem of German reparation with a view to reaching a solution which would facilitate the attainment of these objectives. The “direct” interest of the United States in German reparation, i.e. in the amount of reparation which this country may receive, is small. The claims of other nations which have suffered severely from German aggression are direct and substantial. The main concern of this Government with respect to German reparation is that the program aid in the attainment of (or interfere as little as possible with) its economic, political, and security objectives and policies.

Broadly stated, the general economic and political objectives of this Government are as follows:

1. The preservation of peace by a system of collective security and disarmament of the aggressors.

2. The early return to a multilateral system of international trade and finance through the removal of excessive barriers to the movement of goods and funds.

3. The rapid reconstruction and rehabilitation of war-torn areas.

4. The maintenance of high levels of employment and standards of living.

5. With respect to Germany:^*

a) The control of German economic war potential. This, however, is not assumed to imply a large-scale and permanent impairment of all German industry.

b) The elimination of German economic domination in Europe.

c) The eventual integration of Germany into the world economy.

d) The establishment of democratic institutions, including a free trade union movement.

ii. need for special arrangements for the immediate post-surrender period

It is unlikely that agreed decisions regarding all of the basic policy questions can be reached during the immediate post-surrender period. It is essential, however, that a program of restitution and reparation transfers be initiated promptly, both in order to hasten European reconstruction and to avert an undue imposition of European requirements upon the American economy while the war against Japan is still in progress.

In order to bridge this gap, immediate discussions looking toward agreement among the claimant states or, in any event, among the United States, United Kingdom, and Union of Soviet Socialist Republics should be inaugurated. Preliminary agreement must promptly be reached on

1. certain minimum basic principles;

2. an interim reparation organization and the relation of this organization to the machinery of Allied economic control of Germany;

3. the development in advance of the military collapse of Germany of an ad hoc program for reparation deliveries which will meet the immediate needs of claimant countries. Such an advance program is essential to the orderly reconversion of industry and labor to post-war production.

The purpose of such an interim arrangement would be to initiate and develop a large program of restitution and reparation transfers even before the terms of a final agreement had been settled.

A temporary arrangement of the kind contemplated would remain in effect until a more comprehensive program, based on a final agreement, could be inaugurated.

iii. résumé of recommendations on the final reparation agreement

The essential elements of the program recommended in the Reparation Report may be summarized as follows:

1. Time Period.

The reparation period should begin as soon as the United Nations have the power to impose economic controls on Germany. It should be limited to a minimum of about five years from its inception but perhaps may have to be extended to ten. Both political and economic considerations emphasize the need for a short reparation period.

The urgent needs of the devastated areas for relief and rehabilitation and the desirability of restoring normally functioning economies in these areas as rapidly as possible demand quick and decisive action. Moreover, unless the United Nations stand ready to exploit fully the opportunity for cooperative action during the early period after the surrender of Germany, it may prove difficult to accomplish the aims of the program.

The one-way movement of goods and services which takes place under reparation is artificial and necessarily different from normal trade. The longer it continues the longer is deferred the full resumption of regular multilateral trade and the desired integration of Germany into the world economy.

From the political point of view, it must be remembered that the humiliation and cost of reparation will almost inevitably be associated in the mind of the German public with the regime in power at the time. For this reason, long-continued reparation would prejudice the establishment of democratic government in Germany and, indirectly, the maintenance of peace.

The collection of substantial reparation from Germany will probably be impossible without fairly extensive controls over the German economy. Since this Government has taken the position that enduring controls of this nature are undesirable^† the length of the reparation period will need to be correspondingly limited.

It is realized, however, that the countries which have been devastated by Germany will probably demand a much longer reparation period. The long-range objectives of this Government make a five-year period preferable to a longer one. If it is found necessary to extend this period, however, reparation deliveries should in no event continue beyond ten years. In case a period in excess of five years is adopted, deliveries should taper off toward the end of the extended period.

2. Amount of Reparation.

In view of the numerous uncertainties surrounding the post-war situation of Germany, no useful purpose would be served in attempting to estimate at this time the amount of reparation Germany will be able to pay. These uncertainties relate especially to the amount of damage to physical plant in Germany, the degree of disorganization or disruption of the country’s working force, the nature and extent of economic disarmament, and territorial adjustment.

This much may be stated with confidence, however:

a) Barring dismemberment or extremes of devastation, Germany will be capable of paying, in absolute terms, a very substantial amount of reparation. This has been made manifest by the proportion of national income devoted by Germany (as well as by other countries) to war purposes.

b) Large as it may be in absolute terms the amount recoverable from Germany will, in all probability, be but a small fraction of the total admissible claims, and a much smaller fraction still of the total direct and indirect damage caused by Germany to the claimant countries. It would be highly misleading and dangerous to let the notion gain currency that Germany can be forced to make good all or even a large part of the damage she has wrought.

c) Reparation deliveries by Germany will be limited both in character and amount by the goods and services the claimant countries are willing and able to take.

Certain general principles regarding the amount of reparation are recommended as follows:

(1) As between the amount, on the one hand, and the time limit on the period of reparation on the other, the time limit should be the governing factor. This means that instead of beginning with the assessment of a definite amount of reparation and adjusting the time period accordingly, the maximum time limit should be defined from the outset and the greatest possible amount of reparation should be collected during that period.

Provision should be made for extending the time period in the event the Allied authorities believe the reparation program is being sabotaged. Conversely, in the event the reparation period is determined to be more than five years, it may be desirable to hold out to the Germans the possibility of reducing the duration of the period by fulfilling their obligations energetically. The decision as to the duration of reparation should not be made known to Germany until an appropriate time in the light of political developments.

(2) During the period of reparation the German people should be permitted to retain such part of their production as may be required to maintain a minimum prescribed standard of living. It is clear that the execution of such a program will require effective controls over the economic life of the country, perhaps similar to the wartime controls now in force.

During the control period Germany’s production will consist of that required:

a) to maintain the prescribed minimum standard of living.

b) to furnish such exports as may be necessary to pay for essential German imports.

c) to furnish reparation.

The composition of German output and the reparation schedule should be so fixed as to utilize all German production above that required for (a) and (b) above.

All foreign exchange proceeds of exports should be utilized by the Allied control authorities to pay for necessary German imports and, if there is any surplus, to provide cash reparation. Imports should be restricted to the amounts necessary to effectuate the above types of German production.

3. Form of Reparation Payments.

The bearing of form of payment on the long-range political and security objectives of this Government is regarded as an important consideration. The most important question that arises in this connection is whether payment should be made predominately in kind or in cash. It is agreed that a policy of requiring payments in kind with allowance for cash payments only in exceptional cases should be adopted.

A. Reparation in Kind.

Payments in kind can be made from the following sources:

a) Stocks of goods^‡;

b) Existing capital equipment^‡;

c) Current production of goods and services;

d) Direct labor services.

Stocks of raw materials and food above certain minima for German use will, no doubt, be taken immediately from Germany and transferred to the most needy surrounding countries. In regard to other classes of goods to be included in payments in kind, deliveries should consist of the widest possible range of goods needed by the claimant countries for rehabilitation and reconstruction purposes. Reparation in kind should include machinery, electrical equipment, and any other types of manufactured goods that Germany is fitted to produce and the claimant countries are willing to accept, as well as coal, fertilizers, chemicals, et cetera. Only in this way can Germany make its maximum contribution to the European recovery.

One major question, however, remains to be answered: To what extent should reparation come out of existing stocks of goods and capital equipment and to what extent out of current production?

This question involves consideration of the following factors:

(1) To what extent should deliveries be made out of existing stocks of goods and capital equipment for the purpose of satisfying immediate post-surrender needs in the claimant countries?

Deliveries of this nature should be confined to the early years of the reparation period, first, because they will make their maximum contribution to European reconstruction in these years, when the need will be most urgent, and secondly, because such transfers in the later years might impede the reintegration of Germany into the world economy. The transfer of equipment, particularly of equipment for capital goods industries, should be subject to the condition that the ability of such equipment to contribute the net reconstruction of Europe is not thereby seriously impaired.

This policy of taking reparation deliveries in the form of existing goods and equipment might be objected to on the ground that it will have the effect of reducing German productive capacity and will result in a reduction of reparation deliveries below the maximum obtainable over the total reparation period. It is believed that the long-range security objectives and the contribution to immediate reconstruction in the claimant countries outweigh this objection in many cases. It is recognized, however, that the great bulk of reparation deliveries over the entire period must come from current production since the reparation which could be derived from the transfer of capital equipment would, in any case, be relatively small compared to that available from current production.

(2) To what extent should German industry be rebuilt and operated for the purpose of maximizing current production for reparation deliveries?

It should be the policy of this Government to maximize reparation deliveries in so far as this is possible without extensive rebuilding of German plant and equipment. This kind of capital formation should be kept to a minimum in Germany and should be permitted to the maximum extent in the claimant countries. In general, Germany should be permitted only so much capital expenditure as may be necessary to maintain reparation schedules and the prescribed standard of living. It would be undesirable to leave Germany at the end of the reparation period with plant and equipment much newer and more modern than that of her European neighbors.

Qualifications to this principle would arise in instances such as the following:

a) In case of extreme devastation of German industry it would be necessary to allow some rebuilding before substantial reparation could be delivered.

b) A limited quantity of capital equipment of a “bottleneck” nature will have to be provided so as to permit German production to get under way.

It is clear that decisions in regard to capital formation in Germany will depend not only on the extent of destruction but also on the types of plant and equipment destroyed in both Germany and the surrounding countries.

B. Reparation in Cash.

Cash payments depend on the commercial policy and the readiness to import of Germany’s potential customers. A program of heavy reliance on cash payments is accordingly vulnerable to the same difficulties that plagued the reparation program of the twenties. It will be possible to make use of cash reparation to the extent that a commercial cash market exists for German exports and to the extent that the control authorities decide in exceptional cases to permit such exports to exceed those required to pay for necessary imports. The gold and net foreign exchange assets available to Germany after the restitution program has been completed will be limited.

In a five-year reparation period there will be relatively little need for cash payment. Cash payment, however, can serve a useful purpose in taking care of exceptional cases and in lending flexibility to the reparation program provided the total volume is kept down to a relatively small figure.

If the period is extended to ten years, it may be desirable to increase the proportion of cash payment in the latter half of the period. With reconstruction substantially complete, the claimant countries will be less needful of German goods. As German resources are released from satisfying the wants of surrounding countries, they can be turned increasingly to the production of export goods for other markets on a commercial basis, thus creating foreign exchange for reparation purposes and beginning the process of reintegrating Germany into the world economy.

Reparation whether paid in kind or in foreign exchange should be strictly related to the export surplus of goods and services actually obtained from Germany. Any significant accumulation of external indebtedness by Germany during the period of reparation transfers is contrary to the objectives of this Government. This precludes both commercialization of reparation through the floatation of new German securities abroad and any other substantial extensions of credit to Germany.

Commercialization or other borrowing would in effect mean the financing of German reparation payments primarily by the United States and Great Britain. The continuance over a long period of years of payments by Germany may well become an internal political issue and thus create repercussions which would interfere with the long-range political and security objectives of this Government. Moreover, at present Germany’s credit worthiness is virtually nil. An estimation of Germany’s future credit worthiness cannot well be made until such time as the essential changes in her political and economic structure have begun.

4. Apportionment of Reparation.

It is recommended that the principal basis for the apportionment of reparation among claimant states should be the amount of damage to and loss of non-military property caused by or incident to hostilities.

This basis of admissible claims does not necessarily favor property owners over other classes of claimants such, for example, as those suffering personal injury since reparation payments will be made to governments, not to individuals. Governments may dispose of the proceeds of reparation and make such compensation to their injured nationals as they see fit.

A precise audit of property loss will be impossible. The total of admissible claims will have to be reached on the basis of reasonable estimates as determined by the appropriate Allied authorities.

It is recognized that the relative impact of property losses on different countries may not be accurately reflected by even the most careful computations. The hardships imposed depend on the circumstances surrounding the loss and on the wealth of the country concerned.

As a supplementary basis for the apportionment of reparation it is recommended that occupation costs levied by Germany also be allowed as an admissible claim but at a lower weighting than property losses. Occupation costs for this purpose should include clearing balances built up in Germany during the period of occupation. Some occupied countries have suffered relatively little physical damage but have undergone many other types of injury at the hands of the Nazis. It is felt that it will be difficult to deny the claims of such countries for some compensation.

In recommending the foregoing two bases for reparation claims, it is intended that all other claims should be excluded.

5. Restitution and Replacement.

The principal recommendations with respect to this subject may be summarized briefly as follows:

a) In principle there should be an unlimited obligation on Germany to restore identifiable looted property, even though in practice official efforts to locate such property will have to be confined to a limited number of categories.

b) Restitution should be restricted to identifiable property in existence prior to German occupation. Looted property should be restored to the existing governments of the territories where the property had its situs and not to the former owners individually.

c) Looted property should be returned in the condition in which it is found. The return of such property should not count as a credit against Germany’s reparation obligation nor should it be deducted from the reparation claim of the recipient.

d) All property transferred to Germany during the period of German occupation (except for current output) should be presumed to have been transferred under duress and accordingly treated as looted property.

e) The right to restitution is not absolute. The Allied authorities should have the discretionary right to prevent or postpone restitution of vital equipment (such as, e.g., rolling stock) whenever such equipment is deemed essential to assist the revival of a seriously disorganized country.

f) It has been suggested that, in addition to restitution and reparation, countries having suffered property losses be entitled to “replacement”, meaning the receipt of an equivalent piece of property for property lost or destroyed. It is believed that the “replacement” category would be a source of confusion and that it would serve no purpose that could not be served equally well by reparation in kind. It is, therefore, recommended that no claims for replacement be allowed except in the cases of (1) gold and (2) works of art and other cultural treasures, these exceptions being justified by the peculiar importance attached to those categories of goods.

g) Replacement of gold means that stocks of monetary gold found by the Allied authorities in Germany should be prorated in proportion to gold losses among the Allied countries whose gold stocks were looted. In no case, however, should there be transferred to any country gold in excess of its losses.

6. Labor Services (Tentative).

No final conclusion has been reached on this subject and it is receiving further study. In principle it is agreed that under appropriate conditions and to a limited extent labor services can be a proper and useful form of reparation. The chief problems relate to the method of selection of the laborers, their treatment and length of service, and the valuation of their services.

One suggestion receiving consideration is that there be two classes of laborers, one to consist of extreme Nazis such as members of the Gestapo, S.S., etc., and the other to be recruited, on a voluntary basis if possible, from the general German public. It is contemplated that the former class, which would receive punitive or semi-punitive treatment, would be selected on the basis of previous political affiliation or activity and not, like the latter class, on the basis of the needs of claimant countries for labor services. The latter class should be protected by more or less normal labor standards.

7. Reparation Commission.

It is believed that questions of policy such as those discussed in this summary are outside the proper scope of a Reparation Commission. The Commission should be an administrative body whose function, broadly speaking, would be the supervision and management of the program of reparation and restitution. Within the broad limits of policy laid down by the Allied governments, it would be granted wide discretionary powers to determine the amounts of reparation to be paid periodically, to schedule deliveries in kind, to make adjustments in the schedules of payments, to determine whether Germany is complying with the provisions of the reparation settlement, etc.

The Reparation Commission should act in cooperation with the supreme Allied control authorities in Germany, which authorities should have the power to review and veto any of the Commission’s acts.

The Commission should consist of representatives of all claimant states, but equal plural votes should be provided for the United States, the United Kingdom and the Union of Soviet Socialist Republics.

iv. résumé of recommendations with respect to subjects closely related to reparation

1. Treatment of Property.

a) German Property Abroad.

Each member of the United Nations should reserve the right to retain and dispose of all German property and rights within its territories, and to use the proceeds to pay off reparation claims, and possibly pre-war debts owed by Germany or its nationals to the country in question or to its nationals. The value of property so retained or disposed of, regardless of the claims which it goes to satisfy, should be counted as payment against the reparation claim of the holding country. Germany can be left to compensate its nationals for property so retained.

The problem of obtaining control over German property in neutral countries is a much more difficult one, since from a strictly juridical point of view there is no way of compelling the neutrals to transfer ownership. The matter thus becomes one for treatment on the political level.

b) Allied Property in Germany.

The German Government should be required to return to the owners Allied property in Germany where such property was sequestered by German authorities or seized in any other manner. Such return shall not be deemed to prevent German authorities from subsequent exercise of the customary governmental rights over private property. In the event that industries in which foreign owners have an interest are required to be dismantled for security reasons or are subjected to other measures impairing the value of their assets, consideration shall be given to the question of appropriate compensation. Where the property consists of liquid funds, such return should not carry with it the right to transfer the funds out of the country except in accordance with the exchange regulations established by the Allied authorities.

Countries should have the right to present reparation claims for damage to or destruction of property in Germany belonging to them or their nationals.

2. Pre-War Debts and Claims.

American citizens have outstanding substantial amounts of pre-war claims against both the German Government, and German nationals. These claims consist of short-term, long-term, and commercial obligations. While the problem has not been thoroughly investigated, it is believed both politically impossible and economically undesirable to leave American creditors of Germany entirely to their own devices in protecting their interests. The matter should receive further study.

It is recommended, however, in view of the urgent need of reparation for reconstruction purposes, that pre-war debts and claims receive a priority below that of reparation.

3. Compensation for Injuries to Persecuted German Minority Groups.

It is considered appropriate for several reasons that the German Government be required in some way to compensate the minority groups persecuted by it. The moral basis for such compensation is self-evident. Moreover, it is now recognized that minority baiting and persecution is a potent weapon in the hands of totalitarian demagogues both for gaining political power at home and for spreading anti-democratic doctrines abroad. Finally, it is felt that since Germany was responsible for a situation in which many thousands of former German nationals needed to be rehabilitated or resettled, she should contribute to the solution of that problem and not be permitted to leave the entire burden to the outside world.

The restitution of property located in Germany is, on a number of grounds, regarded as an unsatisfactory answer to the problem:

a) Most of the individuals involved are either dead or outside the country and many would not find it worthwhile to return in order to regain their property;

b) Large-scale transfers of funds abroad in full satisfaction of these claims would be out of the question;

c) The full return of property to members of these groups at a time when the general German public was passing through a period of great difficulty would tend to create strong social tension in Germany.

d) Lack of proof by claimants, and the varying circumstances under which property was lost or sold, would make the administrative problem of restitution extremely difficult.

A two-fold contribution by Germany is, accordingly recommended:

(1) Resettlement Aid, i.e. payments in cash or in kind, to an international agency, to aid in the settlement of individuals belonging to persecuted minority groups. Such payments would be akin to reparation, but their amounts would be related to the needs of the resettlement schemes rather than to the property losses of the individuals concerned.

(2) Indemnity for Property Losses. In addition to the foregoing payments, Germany should also be obliged in lieu of restitution, to provide an indemnity, up to some moderate maximum per person, to individuals who have suffered property losses since the inception of the Nazi regime through discriminatory measures. Transfers of such indemnities abroad should be subject to the availability of foreign exchange but should receive a priority equal to that of other reparation payments.

The foregoing recommendations apply to German nationals, or former nationals, situated outside Germany^§ who have been subjected to discriminatory laws by reason of their racial, religious or political status.

While the racial and religious categories are susceptible of fairly precise definition and do not involve unmanageable numbers, a moment’s reflection will show that the political category offers formidable difficulties in both respects. In spite of this fact, it is considered both impolitic and unjustifiable to deny compensation to those Germans who have suffered loss because of their political opposition to Nazism while granting it to persons discriminated against on other grounds. The problem of defining the political category so as to keep within reasonable bounds the number included is now receiving further attention.

28. For text of the letter, see Department of State, Postwar Foreign Policy Preparation, 1939–1945 (Washington, Government Printing Office, 1949), p. 218.
29. James V. Forrestal.
30. Filed separately under Lot 122 (Rev.) S/S–S Files, Box 20.
31. Cover sheet to this paper bears the following notation: “As finally revised and approved by the Executive Committee on Economic Foreign Policy at its meeting on August 4, 1944.”
32. See Foreign Relations, 1943, vol. i, pp. 513 ff.
33. Joint statement by President Roosevelt and British Prime Minister Churchill, August 14, 1941, Foreign Relations, 1941, vol. i, p. 367.
34. See Summary: Report on Reparation, Restitution and Property Rights—Germany. (ECEFP D–31/44, July 31, 1944). [Footnote in the original. In its final revised form this document was numbered ECEFP D–37/44; for text, see p. 287.]
34. Filed separately under Lot 122 (Rev.) S/S–S Files, Box 20.
35. Cover sheet to this paper bears the notation: “As finally revised and approved by the Executive Committee on Economic Foreign Policy at its meeting on August 4, 1944.”
36. Based on General Objectives of United States Economic Policy with Respect to Germany. (ECEFP D–22/44) [Footnote in the original. In its final revised form this document was designated ECEFP D–36/44; for text see p. 278.]
37. See ECEFP D–22/44, cited, p. 2. [Footnote in the original.]
38. Other than those subject to restitution which would not be credited against reparation. [Footnote in the original.]
39. Other than those subject to restitution which would not be credited against reparation. [Footnote in the original.]
40. and to stateless persons resident in Germany on or before September 1, 1939. [Footnote in the original.]