Pauley Files

No. 859
Draft of Report by the Economic Subcommittee1

Draft Report of the Economic Sub-Committee

We have considered the proposals in a memorandum by the United States Delegation on the Economic Principles to govern the treatment of Germany in the initial control period,2 together with the Annex dealing with reparations.3

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We have unanimously agreed to recommend the adoption of the Economic Principles set out in Appendix A, subject to the reservation in paragraphs A and B below.

We have also agreed on the contents of the Annex on reparations, subject to the points of disagreement recorded in paragraphs C to [blank] below. The text is given in Appendix B,4 points in dispute being sidelined.5

. . . . . . . . . . . . . .

B.6 There are three matters in addition to those mentioned in paragraph 127 on which a common policy is essential in the treatment of Germany as a single economic unit:

Uniform method of treatment of the German civilian population.
Movement of German population between the zones for the purpose of achieving the objectives laid down in paragraph 13.
Subject to normal regulations, free circulation of British, U. S., Soviet and French nationals in all zones by land and air.

The Sub-Committee considered that these points, while having economic significance, had a wide political application. They therefore recommend that the Foreign Secretaries should consider them for inclusion in the Political Principles.

C. Reparations

The U. K. and U. S. representatives consider that it is essential that such necessary imports into Germany as are approved by the Governments controlling Germany shall constitute a first charge against exports from Germany of current production and stocks of goods. The Russian representatives do not accept this principle and express the view that reparation deliveries should have priority and that imports into Germany should, if necessary, be confined to the amount that can be paid for by exports from Germany.

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[Appendix A (?)]8
top secret

Economic Principles

12. 9. In order to eliminate Germany’s war potential, the production of arms, ammunition and implements of war, including all types of aircraft and ocean sea-going ships, shall be prohibited and prevented. Production of metals, chemicals and machinery and other items that are directly necessary to a war economy shall be rigidly controlled and restricted to minimum, postwar peacetime needs. Production of selected key items within these industrial fields shall be wholly eliminated. Productive capacity not needed for permitted production shall be removed or destroyed.

9. 10. The German economy shall be decentralized for the purpose of eliminating the present, excessive concentration of economic power as exemplified by cartels, syndicates, trusts and other monopolistic arrangements. Notwithstanding this, however, and for the purpose of achieving the objectives set forth herein, central administration of certain forms of governmental machinery, including in particular Finance, Transportation and Communications, shall be maintained or restored.

13. 11. In organizing the economy of Germany primary emphasis shall be given to the development of agriculture and industries producing consumption goods and light products.

15. 12. During the period of occupation Germany shall be treated as a single economic unit. To this end common policies shall be established in regard to:

  • (a) coal production-and allocation inside Germany,
  • (b) (a) other industrial production and allocation, particularly coal;
  • (c) (b) agricultural production, collection and distribution;
  • (d) (c) wages, prices and rationing;
  • (e) (d) import and export programmes for Germany as a whole;
  • (f) (e) currency, central taxation and customs;
  • (g) (f) reparation and removal of industrial war potential.

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In applying these policies account shall be taken, where appropriate, of varying local conditions.

11. 13. Allied controls shall be imposed upon the German economy but only as may be necessary:

to carry out programs of industrial disarmament and demilitarization, of reparations, and of approved exports and imports.
to assure the production and maintenance of goods and services required to meet the needs of the occupying forces and displaced persons in Germany and essential to maintain in Germany average living standards not exceeding the average of the standards of living of European countries. (European countries means all European countries excluding U. K. and U. S. S. R.)
to ensure in the way determined by the C. C. the equitable distribution of essential commodities between the several zones so as to produce a balanced economy throughout Germany and reduce the need for imports.
to control German industry and all economic and financial international transactions, including exports and imports, with the aim of preventing Germany from developing a war potential and of achieving the other objectives named herein. For the same purpose no grant of credit to Germany of [or?] Germans by any foreign persons or Government shall be permitted except with the approval of the Control Council.
to control all remaining in Germany scientific bodies, research and experimental institutions, laboratories etc. connected with economic activities irrespective of their ownership (industrial firms, universities, municipal authorities etc.)

10. 14. In the imposition and maintenance of economic controls established by the Control Council, German administrative machinery shall be established created and the German authorities shall be required to the fullest extent practicable to proclaim and assume administration of such controls. Thus it should be brought home to the German people that the responsibility for the administration of such controls and any breakdown in these controls will rest with themselves. Any German controls which run counter to the objectives of occupation will be abolished.

13. 15. The principles and conditions governing the exaction of reparations from Germany are set forth in Annex 19 to this agreement.

14. 16. Measures shall be promptly taken:

to effect essential repair of transport;
to enlarge coal production;
to maximize agricultural output; and
to effect emergency repair of housing and essential utilities.

  1. The text here printed includes a number of minor manuscript revisions.
  2. document No. 852.
  3. document No. 894.
  4. No paper identifiable as appendix B has been found.
  5. For the paragraph omitted at this point, see document No. 1041.
  6. Immediately before paragraph B the following paragraph has been stricken on the source copy: “B. In submitting their report on the Economic Principles to govern the treatment of Germany in the initial control period, the Economic Sub-Committee wish to draw attention to the following point.”
  7. The numbering of the paragraphs in this draft report corresponds to the revised numbering in the paper tentatively identified as appendix A thereto, infra.
  8. On this document, which bears the manuscript notation “Sub-Committee”, manuscript changes (not printed) have been made to bring the text into conformity with the attachment to document No. 863, and it has been further marked, “As finally approved”, presumably by the Economic Subcommittee. It is obviously an intermediate draft of the Economic Principles, designed to show changes made in an earlier draft (cf. document No. 858). From the numbering of the paragraphs it would appear to be appendix A to the Draft Report printed above, but it is not attached to the Draft Report in the Pauley Files (although it is filed in the same folder) and it has not been possible to confirm this tentative identification.
  9. No annex was attached to the copy found. See document No. 894.